The next dialogue and evaluation of our monetary situation and outcomes of operations must be learn at the side of the accompanying consolidated monetary statements and associated notes thereto and "Merchandise 1A. Threat Elements" included on this Annual Report on Type 10-Ok. The monetary and statistical information contained within the following dialogue for all durations introduced displays ourDecember 31, 2021 classification of dealerships between persevering with and discontinued operations in accordance with "Presentation of Monetary Statements" within the Accounting Requirements Codification (the "ASC"). For comparability and dialogue of our outcomes of operations for the yr endedDecember 31, 2020 ("2020") in comparison with our outcomes of operations for the yr endedDecember 31, 2019 ("2019"), please check with "Merchandise 7. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of Operations" included in our Annual Report on Type 10-Ok for 2020. Until in any other case famous, we current the dialogue on this Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of Operations on a consolidated foundation. To the extent that we consider a dialogue of the variations amongst reportable segments will improve a reader's understanding of our monetary situation, money flows and different modifications in monetary situation and outcomes of operations, the variations are mentioned individually. Until in any other case famous, all dialogue of will increase or decreases are for the yr endedDecember 31, 2021 ("2021") in comparison with 2020. The next dialogue of Franchised Dealerships Section new autos, used autos, wholesale autos, components, service and collision restore, and finance, insurance coverage and different, internet, is on a similar retailer foundation, besides the place in any other case famous. All presently working franchised dealership shops are included throughout the similar retailer group as of the primary full month following the primary anniversary of the shop's opening or acquisition. All presently working EchoPark shops in an area geographic market are included throughout the similar market group as of the primary full month following the primary anniversary of the market's opening.
Overview
We're one of many largest automotive retailers within theU.S. (as measured by complete income). On account of the best way we handle our enterprise, we had two reportable segments as ofDecember 31, 2021 : (1) the Franchised Dealerships Section and (2) the EchoPark Section. For administration and operational reporting functions, we group sure companies collectively that share administration and stock (principally used autos) into "shops." As ofDecember 31, 2021 , we operated 110 shops within the Franchised Dealerships Section and 46 shops within the EchoPark Section. The Franchised Dealerships Section consists of 140 new car franchises (representing 28 totally different manufacturers of vehicles and lightweight vehicles) and 17 collision restore facilities in 17 states. The Franchised Dealerships Section gives complete providers, together with (1) gross sales of each new and used vehicles and lightweight vehicles; (2) gross sales of substitute components and efficiency of car upkeep, producer guarantee repairs, and paint and collision restore providers (collectively, "Fastened Operations"); and (3) association of prolonged warranties, service contracts, financing, insurance coverage and different aftermarket merchandise (collectively, "finance and insurance coverage" or "F&I") for our friends. The EchoPark Section sells used vehicles and lightweight vehicles and arranges F&I product gross sales for our friends in pre-owned car specialty retail places. Our EchoPark enterprise typically operates independently from our franchised dealerships enterprise (apart from sure shared back-office capabilities and company overhead prices). Gross sales operations for EchoPark started within the fourth quarter of 2014, and, as ofDecember 31, 2021 , we operated 46 EchoPark shops in 16 states, together with 11 Northwest Motorsport pre-owned car shops acquired within the RFJ Acquisition (as outlined beneath) inDecember 2021 . Beneath our present EchoPark progress plan, we plan to open 20 to 25 further EchoPark shops yearly by way of 2025 as we construct out a nationwide EchoPark distribution community anticipated to succeed in 90% of theU.S. inhabitants by 2025.
Government Abstract
Acquisition of RFJ Auto
OnDecember 6, 2021 (the "Closing Date"), Sonic accomplished the acquisition ofRFJ Auto Companions, Inc. and its subsidiaries (collectively, "RFJ Auto") pursuant to the beforehand disclosed Settlement and Plan of Merger (the "Merger Settlement") dated as ofSeptember 17, 2021 by and amongst Sonic, a subsidiary of Sonic ("Merger Sub"),RFJ Auto and The Resolute Fund III, L.P. , solely in its capability because the consultant of RFJ Auto's equityholders. On the Closing Date, pursuant to the Merger Settlement and upon the phrases and topic to the circumstances therein, RFJ Auto merged with and into Merger Sub, a completely owned subsidiary of Sonic, with RFJ Auto surviving the merger and turning into a direct, wholly owned subsidiary of Sonic. In reference to the acquisition of RFJ Auto (the "RFJ Acquisition"), Sonic acquired , 33 automotive retail places in seven states and a portfolio of 16 automotive manufacturers. Starting on the Closing Date, the outcomes of our Franchised 29 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS Dealerships Section embody 22 shops acquired within the RFJ Acquisition and our EchoPark Section embody 11 Northwest Motorsport pre-owned car shops acquired within the RFJ Acquisition. The combination consideration for the RFJ Acquisition was roughly$950.2 million , of which roughly$222.4 million was funded from borrowings underneath Sonic's syndicated new and used car ground plan credit score amenities. The consideration for the RFJ Acquisition is topic to customary post-close changes.
Retail Automotive Trade Efficiency
TheU.S. retail automotive business's complete new car (retail and fleet mixed) unit gross sales quantity was roughly 15.0 million autos in 2021, an enhance of three.4%, in comparison with roughly 14.5 million autos in 2020, in response to theEnergy Data Community ("PIN") fromJ.D. Energy . For 2022, analysts' business expectation for the brand new car seasonally adjusted annual price of gross sales ("SAAR") ranges from 14.5 million autos (a 3.3% lower in comparison with 2021) to 16.0 million autos (a rise of 6.7% in comparison with 2021). We estimate the 2022 new car SAAR shall be between 15.0 million autos (flat in comparison with 2021) and 15.5 million autos (a rise of three.3% in comparison with 2021). The continuing results of the COVID-19 pandemic, modifications in shopper confidence, availability of shopper financing, rates of interest, further federal reduction spending by theU.S. authorities, producer stock manufacturing ranges, incentive ranges from automotive producers, or shifts in degree or timing of shopper demand because of pure disasters or different unexpected circumstances may trigger the precise 2022 new car SAAR to differ from expectations. Many elements, together with model and geographic concentrations in addition to the business gross sales combine between retail and fleet new car unit gross sales quantity, have triggered our previous outcomes to vary from the business's general pattern. Our new car gross sales technique focuses on our retail new car gross sales (versus fleet new car gross sales) and, because of this, we consider it's acceptable to check our retail new car unit gross sales quantity to the retail new car SAAR (which excludes fleet new car gross sales). In accordance to PIN fromJ.D. Energy , business retail new car unit gross sales quantity elevated 5.6%, to 13.1 million autos, in 2021, from 12.4 million autos in 2020.
Affect of COVID-19
The continuing results of the COVID-19 pandemic proceed to evolve. Whereas we presently count on to see continued financial restoration in 2022, the continued pandemic could trigger modifications in shopper behaviors, together with a possible discount in shopper spending for autos and automotive repairs, particularly if the pandemic worsens or the regulatory setting modifications in response to the pandemic or because of rising rates of interest. This may increasingly result in elevated asset restoration and valuation dangers, resembling impairment of further indefinite lived intangible property. As well as, uncertainties within the world economic system have negatively impacted our suppliers and different enterprise companions, which can interrupt our car and components stock provide chain and require different modifications to our operations. We have now additionally seen a tightening within the provide of latest and used autos due, partially, to the COVID-19 pandemic, which is more likely to proceed in 2022. These and different COVID-related elements could adversely influence our revenues, working revenue and earnings per share monetary measures. As well as, the worldwide automotive provide chain has been considerably disrupted through the pandemic, primarily associated to the manufacturing of semiconductors that are utilized in many elements of contemporary vehicles, along with workforce-related manufacturing delays and stoppages. Consequently, car manufacturing is working at decrease than standard manufacturing ranges, decreasing the quantity of latest car and sure components stock obtainable to our dealerships. These stock constraints, coupled with robust shopper demand and file ranges of shopper financial savings, have led to a low new car stock and a excessive new and used car pricing setting, which drove decrease than anticipated retail new car unit gross sales quantity in 2021. Whereas we consider that new car and components manufacturing ranges ought to start to enhance within the first half of 2022, there is a threat that new car and sure components stock ranges stay at a low degree or worsen, which may trigger precise 2022 new car SAAR to differ from our expectations.
Franchised Dealerships Section
On account of the acquisition, disposition, termination or closure of a number of franchised dealership shops in 2020 and 2021, together with the RFJ Acquisition inDecember 2021 , the change in consolidated reported quantities from interval to interval might not be indicative of the present or future operational or monetary efficiency of our present group of working shops. Until in any other case famous, all dialogue of will increase or decreases are for 2021 in comparison with 2020. The following dialogue is on a similar retailer foundation (which excludes outcomes from disposed shops), besides the place in any other case famous. All presently working franchised dealership shops are included throughout the similar retailer group as of the first full month following the primary anniversary of the shop's opening or acquisition. New car income elevated 16.4% in 2021, primarily pushed by a 7.9% enhance in new car unit gross sales quantity and a 7.9% enhance in new car gross sales costs. New car gross revenue elevated 93.1% in 2021, because of greater common promoting costs. New car gross revenue per unit elevated$1,991 per unit, or 78.9%, to$4,513 per unit, due primarily to 30 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS typically elevated common promoting costs resulting from stock shortages in sure makes and fashions because of car producer provide chain disruptions and manufacturing delays because the onset of the COVID-19 pandemic. On account of the brand new car stock shortages, our new car inventories are close to historic lows. Lots of our new autos are being pre-ordered and delivered to clients shortly after the autos arrive at our shops. On a trailing quarter price of gross sales foundation, our Franchised Dealerships Section new car stock days' provide was roughly 16 days (11 days excluding the impact of the RFJ Acquisition inDecember 2021 , which contributed lower than one month of trailing price of gross sales to the times' provide calculation) as ofDecember 31, 2021 , in contrast to 40 days as ofDecember 31, 2020 . The extent of latest car stock available continues to be beneath our goal degree because of ongoing automotive provide chain disruptions and manufacturing delays described above, and whereas we anticipate that producer manufacturing and new car stock ranges will start to enhance within the first half of 2022, we count on that new car stock ranges will stay low all through 2022. Retail used car income elevated 22.6% in 2021, pushed by a 19.0% enhance in retail used car common gross sales value and a 3.0% enhance in retail used car unit gross sales quantity. Retail used car gross revenue elevated 42.8% in 2021, resulting from a rise in retail used car gross revenue per unit of$491 per unit, or 38.6%, to$1,763 per unit because of greater retail used car gross sales costs due primarily to the influence of low new car stock ranges on new and used car costs and availability. Wholesale car gross revenue (loss) improved by roughly$8.4 million , to gross revenue of$7.9 million throughout 2021, due partially to elevated demand within the wholesale public sale market as a results of new car stock shortages, which resulted in greater wholesale car costs for a lot of 2021. We typically concentrate on sustaining used car stock days' provide within the 30- to 35-day vary, which can fluctuate seasonally, with a purpose to restrict our publicity to market pricing volatility. On a trailing quarter price of gross sales foundation, our Franchised Dealerships Section used car stock days' provide was roughly 42 days (36 days excluding the impact of the RFJ Acquisition inDecember 2021 , which contributed lower than one month of trailing price of gross sales to the times' provide calculation) and 30 days as ofDecember 31, 2021 and 2020, respectively. Fastened Operations income elevated 12.2% and Fastened Operations gross revenue elevated 12.9% in 2021 as day by day car use and car miles pushed started to get better from pandemic-related declines in 2020. Fastened Operations gross margin elevated 40 foundation factors, to 50.2%, in 2021, pushed primarily by a rise in buyer pay income contribution and better buyer pay gross margin. F&I income elevated 22.4% in 2021, pushed by a rise in F&I gross revenue per retail unit. F&I gross revenue per retail unit elevated$285 per unit, or 16.3%, to$2,034 per unit, in 2021. We consider that our proprietary software program purposes, playbook processes and guest-centric promoting strategy allow us to optimize F&I gross revenue and penetration charges (the variety of F&I merchandise offered per car) throughout our F&I product strains. We consider that we are going to proceed to enhance income on this space as we refine our processes, practice our associates and proceed to promote a excessive quantity of retail new and used autos at our shops.
EchoPark Section
Until in any other case famous, all dialogue of will increase or decreases are for 2021 in comparison with 2020. Reported complete EchoPark Section revenues elevated 65.3% in 2021, pushed primarily by new retailer openings, and will increase in retail used car unit gross sales quantity and common promoting costs. Reported complete gross revenue elevated 30.3% in 2021, due primarily to greater retail used car unit gross sales quantity, offset partially by decrease retail used car gross revenue per unit because of important fluctuations in wholesale and retail used car costs through the COVID-19 pandemic. Reported retail used car income elevated 61.5% and F&I income elevated 46.6% in 2021, pushed primarily by a 36.2% enhance in retail used car unit gross sales quantity in 2021. Mixed retail used car and F&I gross revenue per unit decreased$217 per unit, or 10.9%, to$1,779 per unit in 2021. The lower in mixed retail used car and F&I gross revenue per unit was primarily resulting from greater price of stock acquisition because of elevated demand within the wholesale public sale marketplace for a lot of 2021, partially offset by a rise in F&I product penetration charges. Wholesale car gross revenue (loss) improved by roughly$9.3 million to$9.2 million in 2021, due partially to elevated demand within the wholesale public sale market because of new car stock shortages, which resulted in greater wholesale car costs for a lot of 2021. We typically concentrate on sustaining used car stock days' provide within the 30- to 35-day vary, which can fluctuate seasonally, with a purpose to restrict our publicity to market pricing volatility. On a trailing quarter price of gross sales foundation, our used car stock days' provide in our EchoPark Section was roughly 70 days (39 days excluding the acquisition of 11 Northwest Motorsport pre-owned car shops within the RFJ Acquisition inDecember 2021 , which contributed lower than one month of trailing price of gross sales to the times' provide calculation) as ofDecember 31, 2021 , as in comparison with 41 days as ofDecember 31, 2020 . The elevated degree of used car stock days' provide as ofDecember 31, 2021 was due primarily to the opening of a number of new EchoPark shops throughout 2021, which required further stock on 31 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS hand however weren't but producing retail used car gross sales on the price of a extra mature retailer, and the acquisition of 11 Northwest Motorsport pre-owned car shops within the RFJ Acquisition inDecember 2021 . EchoPark similar market complete revenues elevated 29.9% in 2021, pushed primarily by a 6.7% enhance in retail used car unit gross sales quantity and a rise in retail used car common promoting costs. Similar market complete gross revenue elevated 21.9% in 2021, due primarily to a rise in wholesale and retail used car unit gross sales quantity, greater common promoting costs and an 8.8% enhance in F&I per retail unit.
Outcomes of Operations
The next desk summarizes the chances of complete revenues represented by
sure gadgets mirrored in our consolidated statements of operations:
Proportion of Complete Revenues
12 months Ended December 31,
2021 2020 2019
Revenues:
New autos 41.3 % 43.8 % 46.8 %
Used autos 39.3 % 36.5 % 33.4 %
Wholesale autos 3.0 % 2.0 % 1.9 %
Elements, service and collision restore 11.3 % 12.6 % 13.3 %
Finance, insurance coverage and different, internet 5.1 % 5.1 % 4.6 %
Complete revenues 100.0 % 100.0 % 100.0 %
Value of gross sales 84.6 % 85.4 % 85.5 %
Gross revenue 15.4 % 14.6 % 14.5 %
Promoting, basic and administrative bills 10.3 % 10.5 % 10.5 %
Impairment costs - % 2.8 % 0.2 %
Depreciation and amortization 0.8 % 0.9 % 0.9 %
Working revenue 4.3 % 0.3 % 2.9 %
Curiosity expense, ground plan 0.1 % 0.3 % 0.5 %
Curiosity expense, different, internet 0.4 % 0.4 % 0.5 %
Different revenue (expense), internet 0.1 % 0.0 % 0.1 %
Earnings (loss) from persevering with operations earlier than taxes 3.7 % (0.4) % 1.8 %
Provision for revenue taxes for persevering with operations –
profit (expense)
0.9 % 0.2 % 0.5 % Earnings (loss) from persevering with operations 2.8 % (0.6) % 1.3 %
Outcomes of Operations – Consolidated
On account of the acquisition, disposition, termination or closure of a number of
franchised dealership shops in 2020 and 2021, the change in consolidated
reported quantities from interval to interval might not be indicative of the present or
future operational or monetary efficiency of our present group of working
shops.
New Automobiles - Consolidated
New car revenues embody the sale of latest autos to retail clients, as
nicely because the sale of fleet autos. New car revenues and gross revenue could be
influenced by car producer incentives to customers (which differ from
cash-back incentives to low rate of interest financing, amongst different issues), the
availability of shopper credit score and the extent and sort of manufacturer-to-dealer
incentives, in addition to producers offering sufficient stock allocations to
our dealerships to satisfy shopper calls for. The auto manufacturing business
is cyclical and traditionally has skilled periodic downturns characterised by
oversupply and weak demand, each inside particular manufacturers and within the business as a
complete. As an automotive retailer, we search to mitigate the consequences of this gross sales
cycle by sustaining a various model mixture of dealerships. Our model variety
permits us to supply a broad vary of merchandise at a variety of costs from
lower-priced/economic system autos to luxurious autos.
32
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS TheU.S. retail automotive business's new car unit gross sales quantity beneath displays all manufacturers marketed or offered within theU.S. This business gross sales quantity contains manufacturers we don't promote and markets through which we don't function, subsequently our new car unit gross sales quantity could not pattern straight in keeping with the business new car unit gross sales quantity. We consider that the retail new car business gross sales quantity is a extra significant metric for evaluating our new car unit gross sales quantity to the business resulting from our minimal fleet car enterprise. Starting in the midst ofMarch 2020 , the COVID-19 pandemic started to adversely influence the retail automotive business and consequentially additionally our enterprise operations by severely impacting the demand portion of our enterprise. State and native governmental authorities in all the markets through which we presently function started to place in place varied ranges of shelter-in-place or stay-at-home orders in the midst ofMarch 2020 , which in lots of circumstances considerably restricted our enterprise operations and suppressed shopper exercise, particularly associated to our car gross sales actions. Whereas nearly all of these restrictions have been relaxed and shopper demand has rebounded considerably in our key geographic markets, the timing and price of enchancment in demand has not been uniform throughout the markets through which we function. Additional, disruptions within the automotive provide chain have triggered decrease than anticipated ranges of car manufacturing, which, mixed with shopper demand for brand spanking new autos, drove decrease than typical ranges of latest car stock throughout 2021. Low ranges of latest car stock have resulted in greater common promoting costs for brand spanking new autos and we consider had a adverse influence on retail new car SAAR for 2021. Retail new car SAAR, fleet new car SAAR and complete new car SAAR have been as follows: 12 months Ended December 31, Higher / (Worse) 2021 2020 % Change (In tens of millions of autos) Retail new car SAAR (1) 13.1 12.4 5.6 % Fleet new car SAAR 1.9 2.1 (9.5) % Complete new car SAAR (2) 15.0 14.5 3.4 % (1) Supply: PIN fromJ.D. Energy (2) Supply:Bloomberg Finance L.P. , offered byStephens Inc. For 2022, analysts' business expectation for the brand new car SAAR ranges from 14.5 million autos (a 3.3% lower in comparison with 2021) to 16.0 million autos (a rise of 6.7% in comparison with 2021). We estimate the 2022 new car SAAR shall be between 15.0 million autos (flat in comparison with 2021) and 15.5 million autos (a rise of three.3% in comparison with 2021). The continuing results of the COVID-19 pandemic, modifications in shopper confidence, availability of shopper financing, rates of interest, further federal reduction spending by theU.S. authorities, producer stock manufacturing ranges, incentive ranges from automotive producers or shifts in degree or timing of shopper demand as a results of pure disasters or different unexpected circumstances may trigger the precise 2022 new car SAAR to differ from expectations. Our consolidated reported new car outcomes (mixed retail and fleet information) have been as follows: 12 months Ended December 31, Higher / (Worse) 2021 2020 Change % Change (In tens of millions, besides unit and per unit information) Reported new car: Income$ 5,118.0 $ 4,281.2 $ 836.8 19.5 % Gross revenue$ 461.4 $ 234.1 $ 227.3 97.1 % Unit gross sales 103,486 93,281 10,205 10.9 % Income per unit$ 49,456 $ 45,896 $ 3,560 7.8 % Gross revenue per unit$ 4,459 $ 2,510 $ 1,949 77.6 % Gross revenue as a % of income 9.0 % 5.5 % 350 bps For additional evaluation of latest car outcomes, see the tables and dialogue underneath the heading "New Automobiles - Franchised Dealerships Section" within the Franchised Dealerships Section part beneath. 33 -------------------------------------------------------------------------------- SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Used Automobiles - Consolidated
Used car revenues are straight affected by plenty of elements, together with
the pricing and degree of producer incentives on new autos, the quantity and
high quality of trade-ins and lease turn-ins, the provision and pricing of used
autos acquired at wholesale public sale and the provision of shopper credit score.
As with new autos, the COVID-19 pandemic started to adversely influence the retail
automotive business and consequentially additionally our enterprise operations starting
in the midst of March 2020 , by severely impacting the demand portion of our
enterprise. State and native governmental authorities in all the markets in
which we presently function started to place in place varied ranges of
shelter-in-place or stay-at-home orders in the midst of March 2020 , which in
many circumstances considerably restricted our enterprise operations and suppressed
shopper exercise, particularly associated to our car gross sales actions. Whereas
nearly all of these restrictions have been relaxed and shopper demand has
rebounded considerably in our key geographic markets, the timing and price of
enchancment in demand has not been uniform throughout the markets through which we
function.
On account of low ranges of latest car stock and a restoration in demand for
used autos (each by retail customers and sellers at wholesale public sale), used
car costs reached an all-time excessive through the fourth quarter of 2021.
Relying on the combination of stock sourcing (trade-in versus wholesale public sale),
the times' provide of used car stock, and the pricing technique employed by
the dealership, retail used car gross revenue per unit and retail used
car gross revenue as a proportion of income could differ considerably from
historic ranges given the present used car setting.
Our consolidated reported retail used car outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported used car:
Income $ 4,877.2 $ 3,564.8 $ 1,312.4 36.8 %
Gross revenue $ 131.9 $ 106.0 $ 25.9 24.4 %
Unit gross sales 183,292 159,025 24,267 15.3 %
Income per unit $ 26,609 $ 22,417 $ 4,192 18.7 %
Gross revenue per unit $ 720 $ 667 $ 53 7.9 %
Gross revenue as a % of income 2.7 % 3.0 %
(30) bps
For additional evaluation of used car outcomes, see the tables and dialogue underneath the headings "Used Automobiles - Franchised Dealerships Section" and "Used Automobiles and F&I - EchoPark Section" within the Franchised Dealerships Section and EchoPark Section sections, respectively, beneath.
Wholesale Automobiles – Consolidated
Wholesale car revenues are affected by retail new and used car unit gross sales quantity and the related trade-in quantity, in addition to short-term, momentary and seasonal fluctuations in wholesale public sale pricing. Because the starting of the COVID-19 pandemic inMarch 2020 , wholesale car costs and provide at public sale have skilled durations of volatility, impacting our wholesale car revenues and associated gross revenue (loss), in addition to retail used car revenues and associated gross revenue. Throughout 2021, wholesale car gross revenue elevated considerably due partially to elevated demand within the wholesale public sale market because of new car stock shortages, which resulted in greater wholesale car costs for a lot of 2021. We consider that the present wholesale car value setting will not be sustainable within the long-term and count on that wholesale car pricing and associated gross revenue (loss) could start to return towards long-term normalized ranges in 2022. Wholesale car revenues are additionally considerably affected by our company stock administration technique and insurance policies, that are designed to optimize our complete used car stock and decrease stock carrying dangers. 34 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our consolidated reported wholesale car outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported wholesale car:
Income $ 367.2 $ 197.4 $ 169.8 86.0 %
Gross revenue (loss) $ 9.8 $ (0.9) $ 10.7 NM
Unit gross sales 36,795 32,057 4,738 14.8 %
Income per unit $ 9,980 $ 6,157 $ 3823 62.1 %
Gross revenue (loss) per unit $ 266 $ (27) $ 293 NM
Gross revenue (loss) as a % of income 2.7 % (0.4) % 310 bps
NM = Not Significant
For additional evaluation of wholesale car outcomes, see the tables and dialogue
underneath the headings "Wholesale Automobiles - Franchised Dealerships Section" and
"Wholesale Automobiles - EchoPark Section" within the Franchised Dealerships Section
and EchoPark Section sections, respectively, beneath.
Fastened Operations – Consolidated
Elements, service and collision restore revenues encompass buyer requested
restore orders ("buyer pay"), guarantee repairs (manufacturer-paid), wholesale
components and inside, sublet and different. Elements and repair income is pushed by the
mixture of guarantee repairs versus buyer pay repairs, obtainable service capability
(a mixture of service bay rely and technician availability), car
high quality, producer recollects, buyer loyalty, and pay as you go or
manufacturer-paid upkeep applications. Inner, sublet and different primarily
pertains to preparation and reconditioning work carried out on autos in
stock which can be later offered to a 3rd get together. When that work is carried out by
considered one of our dealerships or shops, the work is classed as inside. Within the
occasion the work is carried out by a 3rd get together on our behalf, it's labeled as
sublet.
We consider that, over time, car high quality will proceed to enhance, however
car complexity and the related demand for repairs by certified
technicians at manufacturer-affiliated dealerships could lead to market share
good points that might offset any income misplaced from enchancment in car high quality. We
additionally consider that, over the long run, we've got the flexibility to proceed to
optimize service capability at our dealerships and shops to additional enhance
Fastened Operations revenues. Producers proceed to increase new car guarantee
durations and have additionally begun to incorporate common upkeep gadgets within the guarantee
or complimentary upkeep program protection. These elements, over the lengthy
time period, mixed with the prolonged producer warranties on CPO autos, ought to
facilitate progress in our components and repair enterprise. Obstacles to long-term
progress could embody reductions within the price paid by producers to sellers for
guarantee work carried out, in addition to the improved high quality of autos which will
have an effect on the extent and frequency of future buyer pay or warranty-related restore
revenues.
The COVID-19 pandemic had a big impact on our consolidated Fastened
Operations revenues, as journey restrictions, government-imposed stay-at-home and
shelter-in-place orders and fewer staff endeavor a day by day commute mixed
to considerably lower the variety of miles pushed within the U.S. , which
decreased the demand for upkeep and guarantee and collision restore providers
starting in March 2020 . As authorities imposed restrictions have been relaxed in
our key geographic markets, we've got begun to see a restoration in Fastened Operations
revenues to various levels relying in the marketplace and sort of labor being
carried out; nonetheless, the timing and price of enchancment in demand has not been
uniform throughout markets.
35
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our consolidated reported Fastened Operations outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Reported Fastened Operations:
Income
Buyer pay $ 602.3 $ 505.4 $ 96.9 19.2 %
Guarantee 214.8 224.9 (10.1) (4.5) %
Wholesale components 158.8 130.1 28.7 22.1 %
Inner, sublet and different 420.9 373.3 47.6 12.8 %
Complete income $ 1,396.8 $ 1,233.7 $ 163.1 13.2 %
Gross revenue
Buyer pay $ 341.9 $ 284.1 $ 57.8 20.3 %
Guarantee 125.0 127.9 (2.9) (2.3) %
Wholesale components 28.0 22.6 5.4 23.9 %
Inner, sublet and different 179.1 159.9 19.2 12.0 %
Complete gross revenue $ 674.0 $ 594.5 $ 79.5 13.4 %
Gross revenue as a % of income
Buyer pay 56.8 % 56.2 % 60 bps
Guarantee 58.2 % 56.8 % 140 bps
Wholesale components 17.8 % 17.4 % 40 bps
Inner, sublet and different 42.6 % 42.9 % (30) bps
Complete gross revenue as a % of income 48.3 % 48.2 % 10 bps
For additional evaluation of Fastened Operations outcomes, see the tables and dialogue
underneath the headings "Fastened Operations - Franchised Dealerships Section" and
"Fastened Operations - EchoPark Section" within the Franchised Dealerships Section and
EchoPark Section sections, respectively, beneath.
F&I – Consolidated
Finance, insurance coverage and different, internet revenues embody commissions for arranging car financing and insurance coverage, gross sales of third-party prolonged warranties and service contracts for autos, and gross sales of different aftermarket merchandise. In reference to car financing, prolonged warranties and repair contracts, different aftermarket merchandise and insurance coverage contracts, we obtain commissions from the suppliers for originating contracts. F&I revenues are acknowledged internet of estimated chargebacks and different prices related to originating contracts (as a outcome, F&I revenues and F&I gross revenue are the identical quantity). F&I revenues are affected by the extent of latest and retail used car unit gross sales quantity, the age and common promoting value of autos offered, the extent of producer financing specials or leasing incentives, and our F&I penetration price. The F&I penetration price represents the variety of finance contracts, prolonged warranties and repair contracts, different aftermarket merchandise or insurance coverage contracts that we are in a position to originate per car offered, expressed as a proportion. Yield unfold premium is one other time period for the fee earned by our dealerships for arranging car financing for customers. The quantity of the fee could possibly be zero, a flat payment or an precise unfold between the curiosity price charged to the patron and the rate of interest offered by the direct financing supply (e.g., a business financial institution, credit score union or producer captive finance firm). We have now established caps on the potential yield unfold premium our dealerships can earn with all finance sources. We consider the yield unfold premium we earn for arranging car financing represents worth to the patron in quite a few methods, together with the next:
•decrease price, below-market financing is usually obtainable solely from the
producers’ captives and franchised sellers;
•ease of entry to a number of high-quality lending sources;
•lease-financing options are largely obtainable solely from producers’
captives or different oblique lenders;
•friends with substandard credit score often would not have direct entry to
potential sources of sub-prime financing; and
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS •friends with important "adverse fairness" of their present car (i.e., the visitor's present car is price lower than the steadiness of their car mortgage or lease obligation) often are unable to repay the mortgage on their present car and finance the acquisition or lease of a substitute new or used car with out the help of a franchised vendor's community of lending sources.
Our consolidated reported F&I outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported F&I:
Income $ 637.2 $ 489.9 $ 147.3 30.1 %
Unit gross sales 283,235 250,964 32,271 12.9 %
Gross revenue per retail unit (excludes
fleet) $ 2,250 $ 1,952 $ 298 15.3 %
For additional evaluation of F&I outcomes, see the tables and dialogue underneath the
headings "F&I - Franchised Dealerships Section" and "Used Automobiles and F&I -
EchoPark Section" within the Franchised Dealerships Section and EchoPark Section
sections, respectively, beneath.
Outcomes of Operations – Franchised Dealerships Section
On account of the acquisition, disposition, termination or closure of a number of
franchised dealership shops in 2021 and 2020, the change in consolidated
reported quantities from interval to interval might not be indicative of the present or
future operational or monetary efficiency of our present group of working
shops. The next dialogue of latest autos, used autos, wholesale
autos, components, service and collision restore, and finance, insurance coverage and different,
internet, is on a similar retailer foundation (which excludes outcomes from disposed shops),
besides the place in any other case famous.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
New Automobiles – Franchised Dealerships Section
The next desk gives a reconciliation of Franchised Dealerships Section
reported foundation and similar retailer foundation for complete new autos (mixed retail and
fleet information):
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit information)
Complete new car income:
Similar retailer $ 4,943.3 $ 4,246.1 $ 697.2 16.4 %
Acquisitions, open factors, inclinations
and holding firm 165.7 35.1 130.6 NM
Complete as reported $ 5,109.0 $ 4,281.2 $ 827.8 19.3 %
Complete new car gross revenue:
Similar retailer $ 448.6 $ 232.3 $ 216.3 93.1 %
Acquisitions, open factors, inclinations
and holding firm 11.7 1.8 9.9 NM
Complete as reported $ 460.3 $ 234.1 $ 226.2 96.6 %
Complete new car unit gross sales:
Similar retailer 99,396 92,124 7,272 7.9 %
Acquisitions, open factors, inclinations
and holding firm 3,962 1,157 2,805 NM
Complete as reported 103,358 93,281 10,077 10.8 %
NM = Not Significant
Our Franchised Dealerships Section reported new car outcomes (mixed retail
and fleet information) have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported new car:
Income $ 5,109.0 $ 4,281.2 $ 827.8 19.3 %
Gross revenue $ 460.3 $ 234.1 $ 226.2 96.6 %
Unit gross sales 103,358 93,281 10,077 10.8 %
Income per unit $ 49,430 $ 45,896 $ 3,534 7.7 %
Gross revenue per unit $ 4,453 $ 2,510 $ 1,943 77.4 %
Gross revenue as a % of income 9.0 % 5.5 % 350 bps
Our Franchised Dealerships Section similar retailer new car outcomes (mixed
retail and fleet information) have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar retailer new car:
Income $ 4,943.3 $ 4,246.1 $ 697.2 16.4 %
Gross revenue $ 448.6 $ 232.3 $ 216.3 93.1 %
Unit gross sales 99,396 92,124 7,272 7.9 %
Income per unit $ 49,733 $ 46,091 $ 3,642 7.9 %
Gross revenue per unit $ 4,513 $ 2,522 $ 1,991 78.9 %
Gross revenue as a % of income 9.1 % 5.5 % 360 bps
38
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS New car income elevated 16.4% due primarily to greater common promoting costs and a 7.9% enhance in new car unit gross sales quantity, which was pushed by a restoration in demand as a result of influence of the COVID-19 pandemic on the prior yr outcomes. New car gross revenue elevated roughly$216.3 million , or 93.1%, because of elevated new car unit gross sales quantity and better new car gross revenue per unit. New car gross revenue per unit elevated$1,991 per unit, or 78.9%, to$4,513 per unit, due primarily to stock shortages because of car producer provide chain and manufacturing delays because of the COVID-19 pandemic, which have typically elevated the common promoting costs of such autos. On a trailing quarter price of gross sales foundation, our reported Franchised Dealerships Section new car stock days' provide was roughly 16 days (11 days excluding the impact of the RFJ Acquisition inDecember 2021 , which contributed lower than one month of trailing price of gross sales to the times' provide calculation) and 40 days as ofDecember 31, 2021 and 2020, respectively. The extent of latest car stock available continues to be beneath our goal degree because of the continued automotive provide chain disruptions and manufacturing delays described above, and whereas we anticipate that producer manufacturing and new car stock ranges will start to enhance within the first half of 2022, we count on that new car stock ranges will stay low all through 2022.
Used Automobiles – Franchised Dealerships Section
The next desk gives a reconciliation of Franchised Dealerships Section
reported foundation and similar retailer foundation for retail used autos:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit information)
Complete used car income:
Similar retailer $ 2,846.8 $ 2,321.2 $ 525.6 22.6 %
Acquisitions, open factors, inclinations and
holding firm 54.2 24.7 29.5 119.4 %
Complete as reported $ 2,901.0 $ 2,345.9 $ 555.1 23.7 %
Complete used car gross revenue:
Similar retailer $ 182.5 $ 127.8 $ 54.7 42.8 %
Acquisitions, open factors, inclinations and
holding firm 5.6 (4.9) 10.5 214.3 %
Complete as reported $ 188.1 $ 122.9 $ 65.2 53.1 %
Complete used car unit gross sales:
Similar retailer 103,529 100,484 3,045 3.0 %
Acquisitions, open factors, inclinations and
holding firm 1,928 1,380 548 39.7 %
Complete as reported 105,457 101,864 3,593 3.5 %
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our Franchised Dealerships Section reported retail used car outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported used car:
Income $ 2,901.0 $ 2,345.9 $ 555.1 23.7 %
Gross revenue $ 188.1 $ 122.9 $ 65.2 53.1 %
Unit gross sales 105,457 101,864 3,593 3.5 %
Income per unit $ 27,509 $ 23,030 $ 4,479 19.4 %
Gross revenue per unit $ 1,784 $ 1,207 $ 577 47.8 %
Gross revenue as a % of income 6.5 % 5.2 % 130 bps
Our Franchised Dealerships Section similar retailer retail used car outcomes have been
as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar retailer used car:
Income $ 2,846.8 $ 2,321.2 $ 525.6 22.6 %
Gross revenue $ 182.5 $ 127.8 $ 54.7 42.8 %
Unit gross sales 103,529 100,484 3,045 3.0 %
Income per unit $ 27,498 $ 23,100 $ 4,398 19.0 %
Gross revenue per unit $ 1,763 $ 1,272 $ 491 38.6 %
Gross revenue as a % of income 6.4 % 5.5 % 90 bps
Retail used car income elevated roughly $525.6 million or 22.6% and
retail used car income per unit elevated roughly 19.0%, resulting from
greater business used car costs because of elevated shopper demand
from the influence of latest car stock shortages throughout 2021. Retail used
car gross revenue elevated roughly $54.7 million , or 42.8%, pushed
primarily by a 38.6% enhance in retail used car gross revenue per unit, as
nicely as a 3.0% enhance in retail used car unit gross sales quantity resulting from
elevated shopper demand for used autos throughout 2021.
On a trailing quarter price of gross sales foundation, our reported Franchised Dealerships
Section used car stock days' provide was roughly 42 days (36 days
excluding the impact of the RFJ Acquisition in December 2021 , which contributed
lower than one month of trailing price of gross sales to the times' provide calculation)
and 30 days as of December 31, 2021 and 2020, respectively.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Wholesale Automobiles – Franchised Dealerships Section
The next desk gives a reconciliation of Franchised Dealerships Section
reported foundation and similar retailer foundation for wholesale autos:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit information)
Complete wholesale car income:
Similar retailer $ 248.4 $ 167.2 $ 81.2 48.6 %
Acquisitions, open factors, inclinations and
holding firm 8.8 1.5 7.3 486.7 %
Complete as reported $ 257.2 $ 168.7 $ 88.5 52.5 %
Complete wholesale car gross revenue (loss):
Similar retailer $ 7.9 $ (0.5) $ 8.4 NM
Acquisitions, open factors, inclinations and
holding firm (7.3) (0.3) (7.0) NM
Complete as reported $ 0.6 $ (0.8) $ 1.4 175.0 %
Complete wholesale car unit gross sales:
Similar retailer 24,583 24,623 (40) (0.2) %
Acquisitions, open factors, inclinations and
holding firm 545 256 289 112.9 %
Complete as reported 25,128 24,879 249 1.0 %
NM = Not Significant
Our Franchised Dealerships Section reported wholesale car outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported wholesale car:
Income $ 257.2 $ 168.7 $ 88.5 52.5 %
Gross revenue (loss) $ 0.6 $ (0.8) $ 1.4 175.0 %
Unit gross sales 25,128 24,879 249 1.0 %
Income per unit $ 10,236 $ 6,779 $ 3,457 51.0 %
Gross revenue (loss) per unit $ 24 $ (32) $ 56 175.0 %
Gross revenue (loss) as a % of income 0.2 % (0.5) % 70 bps
Our Franchised Dealerships Section similar retailer wholesale car outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar retailer wholesale car:
Income $ 248.4 $ 167.2 $ 81.2 48.6 %
Gross revenue (loss) $ 7.9 $ (0.5) $ 8.4 NM
Unit gross sales 24,583 24,623 (40) (0.2) %
Income per unit $ 10,105 $ 6,790 $ 3,315 48.8 %
Gross revenue (loss) per unit $ 321 $ (20) $ 341 NM
Gross revenue (loss) as a % of income 3.2 % (0.3) % 350 bps
NM = Not Significant
Wholesale car income elevated 48.6%, pushed primarily by a 48.8% enhance
in wholesale car income per unit because of decreased wholesale car
provide within the wholesale public sale market as a result of influence of latest car
stock
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS shortages throughout 2021. Wholesale car gross revenue improved by roughly$8.4 million , pushed primarily by a$341 per unit enhance in wholesale car gross revenue per unit because of elevated demand within the wholesale public sale market as a result of influence of latest car stock shortages throughout 2021.
Fastened Operations – Franchised Dealerships Section
The next desk gives a reconciliation of Franchised Dealerships Section
reported foundation and similar retailer foundation for Fastened Operations:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Complete Fastened Operations income:
Similar retailer $ 1,322.0 $ 1,178.0 $ 144.0 12.2 %
Acquisitions, open factors, inclinations and
holding firm 18.4 16.4 2.0 12.2 %
Complete as reported $ 1,340.4 $ 1,194.4 $ 146.0 12.2 %
Complete Fastened Operations gross revenue:
Similar retailer $ 663.0 $ 587.0 $ 76.0 12.9 %
Acquisitions, open factors, inclinations and
holding firm 10.1 8.4 1.7 20.2 %
Complete as reported $ 673.1 $ 595.4 $ 77.7 13.1 %
Our Franchised Dealerships Section reported Fastened Operations outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Reported Fastened Operations:
Income
Buyer pay $ 600.3 $ 504.5 $ 95.8 19.0 %
Guarantee 213.8 224.9 (11.1) (4.9) %
Wholesale components 158.8 130.1 28.7 22.1 %
Inner, sublet and different 367.5 334.9 32.6 9.7 %
Complete income $ 1,340.4 $ 1,194.4 $ 146.0 12.2 %
Gross revenue
Buyer pay $ 341.0 $ 284.1 $ 56.9 20.0 %
Guarantee 125.0 127.9 (2.9) (2.3) %
Wholesale components 28.0 22.6 5.4 23.9 %
Inner, sublet and different 179.1 160.8 18.3 11.4 %
Complete gross revenue $ 673.1 $ 595.4 $ 77.7 13.1 %
Gross revenue as a % of income
Buyer pay 56.9 % 56.3 % 60 bps
Guarantee 58.3 % 56.8 % 150 bps
Wholesale components 17.8 % 17.4 % 40 bps
Inner, sublet and different 48.7 % 48.0 % 70 bps
Complete gross revenue as a % of income 50.2 % 49.8 % 40 bps
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our Franchised Dealerships Section similar retailer Fastened Operations outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Similar retailer Fastened Operations:
Income
Buyer pay $ 592.0 $ 495.5 $ 96.5 19.5 %
Guarantee 211.8 223.2 (11.4) (5.1) %
Wholesale components 157.2 129.0 28.2 21.9 %
Inner, sublet and different 361.0 330.3 30.7 9.3 %
Complete income $ 1,322.0 $ 1,178.0 $ 144.0 12.2 %
Gross revenue
Buyer pay $ 337.1 $ 279.5 $ 57.6 20.6 %
Guarantee 123.3 126.9 (3.6) (2.8) %
Wholesale components 28.0 22.4 5.6 25.0 %
Inner, sublet and different 174.6 158.2 16.4 10.4 %
Complete gross revenue $ 663.0 $ 587.0 $ 76.0 12.9 %
Gross revenue as a % of income
Buyer pay 56.9 % 56.4 % 50 bps
Guarantee 58.2 % 56.9 % 130 bps
Wholesale components 17.8 % 17.4 % 40 bps
Inner, sublet and different 48.4 % 47.9 % 50 bps
Complete gross revenue as a % of income 50.2 % 49.8 % 40 bps
Fastened Operations income elevated roughly $144.0 million , or 12.2%, and
Fastened Operations gross revenue elevated roughly $76.0 million , or 12.9%.
Buyer pay gross revenue elevated roughly $57.6 million , or 20.6%,
guarantee gross revenue decreased roughly $3.6 million , or 2.8%, wholesale
components gross revenue elevated roughly $5.6 million , or 25.0%, and inside,
sublet and different gross revenue elevated roughly $16.4 million , or 10.4%.
Whereas our Fastened Operations enterprise was not particularly restricted by state and
native shelter-in-place or stay-at-home orders, shopper habits was disrupted
by such orders starting in March 2020 and we skilled decrease ranges of Fastened
Operations exercise by way of most of 2020. Throughout 2021, day by day car use and
car miles pushed improved, driving greater ranges of Fastened Operations
exercise.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
F&I – Franchised Dealerships Section
The next desk gives a reconciliation of Franchised Dealerships Section
reported foundation and similar retailer foundation for F&I:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Complete F&I income:
Similar retailer $ 409.5 $ 334.5 $ 75.0 22.4 %
Acquisitions, open factors, inclinations
and holding firm 34.0 23.3 10.7 45.9 %
Complete as reported $ 443.5 $ 357.8 $ 85.7 24.0 %
Complete F&I gross revenue per retail unit
(excludes fleet):
Similar retailer $ 2,034 $ 1,749 $ 285 16.3 %
Reported $ 2,160 $ 1,846 $ 314 17.0 %
Complete mixed retail new and used car
unit gross sales:
Similar retailer 202,925 192,608 10,317 5.4 %
Acquisitions, open factors, inclinations
and holding firm 5,890 2,537 3,353 132.2 %
Complete as reported 208,815 195,145 13,670 7.0 %
Our Franchised Dealerships Section reported F&I outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported F&I:
Income $ 443.5 $ 357.8 $ 85.7 24.0 %
Unit gross sales 208,815 195,145 13,670 7.0 %
Gross revenue per retail unit (excludes
fleet) $ 2,160 $ 1,846 $ 314 17.0 %
Our Franchised Dealerships Section similar retailer F&I outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar retailer F&I:
Income $ 409.5 $ 334.5 $ 75.0 22.4 %
Unit gross sales 202,925 192,608 10,317 5.4 %
Gross revenue per retail unit (excludes
fleet) $ 2,034 $ 1,749 $ 285 16.3 %
F&I revenues elevated roughly $75.0 million , or 22.4%, resulting from a 16.3%
enhance in F&I gross revenue per retail unit, pushed by a 5.4% enhance in
retail new and used car unit gross sales quantity. F&I gross revenue per retail unit
elevated $285 per unit, or 16.3%, to $2,034 per unit, primarily resulting from an
enhance in gross revenue per finance contract and better penetration charges
throughout all F&I merchandise. Finance contract income elevated 26.9%, primarily due
to a 20.6% enhance in gross revenue per finance contract and a 5.2% enhance in
finance contract quantity, offset by a 10-basis level lower within the mixed new
and used car finance contract penetration price. Service contract income
elevated 19.1%, due primarily to a 310-basis level enhance within the service
contract penetration price, a 4.2% enhance in gross revenue per service contract,
and a 14.3% enhance in service contract quantity. Different aftermarket contract
income elevated 25.9%, pushed primarily by a 16.8% enhance in different
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
aftermarket contract quantity, a 7.8% enhance in gross revenue per different
aftermarket contract, and a 1,560-basis level enhance within the different aftermarket
contract penetration price.
Outcomes of Operations – EchoPark Section
All presently working EchoPark shops in an area geographic market are included throughout the similar market group as of the primary full month following the first anniversary of the market's opening. Because of the ongoing growth of our EchoPark Section, similar market outcomes could differ considerably from reported outcomes resulting from newly opened markets that started operations within the final 13 months.
Used Automobiles and F&I – EchoPark Section
Based mostly on the best way we handle the EchoPark Section, our working technique focuses on maximizing complete used vehicle-related gross revenue (based mostly on a mixture of retail used car unit gross sales quantity, front-end retail used car gross revenue (loss) per unit and F&I gross revenue per unit) slightly than realizing conventional ranges of front-end retail used car gross revenue (loss) per unit. As such, we consider the perfect per unit measure of gross revenue efficiency at our EchoPark shops is a mixed complete gross revenue per unit, which incorporates each front-end retail used car gross revenue (loss) and F&I gross revenue per unit offered. See the dialogue underneath the heading "Outcomes of Operations - Franchised Dealerships Section" for extra dialogue of the macro drivers of used car revenues and F&I revenues. As all Fastened Operations at our EchoPark shops assist our used car operations and EchoPark shops don't presently carry out buyer pay repairs or upkeep work and aren't permitted to carry out manufacturer-paid guarantee repairs, quantities beforehand labeled as Fastened Operations revenues and price of gross sales for the EchoPark Section have been reclassified to used car price of gross sales.
The next desk gives a reconciliation of EchoPark Section reported
foundation, similar market foundation and new market foundation for retail used autos:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit information)
Complete used car income:
Similar market $ 1,588.4 $ 1,253.9 $ 334.5 26.7 %
New markets 444.2 4.3 439.9 NM
Complete as reported $ 2,032.6 $ 1,258.2 $ 774.4 61.5 %
Complete used car gross revenue (loss):
Similar market $ (43.4) $ (34.6) $ (8.8) (25.4) %
New markets (11.8) 16.6 (28.4) (171.1) %
Complete as reported $ (55.2) $ (18.0) $ (37.2) (206.7) %
Complete used car unit gross sales:
Similar market 60,815 56,974 3,841 6.7 %
New markets 17,020 187 16,833 NM
Complete as reported 77,835 57,161 20,674 36.2 %
NM = Not Significant
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The next desk gives a reconciliation of EchoPark Section reported
foundation, similar market foundation and new market foundation for F&I:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Complete F&I income:
Similar market $ 152.6 $ 131.0 $ 21.6 16.5 %
New markets 41.1 1.1 40.0 NM
Complete as reported $ 193.7 $ 132.1 $ 61.6 46.6 %
NM = Not Significant
Our EchoPark Section reported retail used car and F&I outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported used car and F&I:
Used car income $ 2,032.6 $ 1,258.2 $ 774.4 61.5 %
Used car gross revenue (loss) $ (55.2) $ (18.0) $ (37.2) (206.7) %
Used car unit gross sales 77,835 57,161 20,674 36.2 %
Used car income per unit $ 26,114 $ 22,012 $ 4,102 18.6 %
F&I income $ 193.7 $ 132.1 $ 61.6 46.6 %
Mixed used car gross revenue and
F&I income $ 138.5 $ 114.1 $ 24.4 21.4 %
Complete used car and F&I gross revenue
per unit $ 1,779 $ 1,996 $ (217) (10.9) %
Our EchoPark Section similar market retail used car and F&I outcomes have been as
follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar market used car and F&I:
Used car income $ 1,588.4 $ 1,253.9 $ 334.5 26.7 %
Used car gross revenue (loss) $ (43.4) $ (34.6) $ (8.8) (25.4) %
Used car unit gross sales 60,815 56,974 3,841 6.7 %
Used car income per unit $ 26,119 $ 22,008 $ 4,111 18.7 %
F&I income $ 152.6 $ 131.0 $ 21.6 16.5 %
Mixed used car gross revenue and
F&I income $ 109.2 $ 96.4 $ 12.8 13.3 %
Complete used car and F&I gross revenue
per unit $ 1,796 $ 1,692 $ 104 6.1 %
Reported retail used car income elevated roughly $774.4 million , or
61.5%, resulting from a 36.2% enhance in retail used car unit gross sales quantity, as nicely
as an 18.6% enhance in retail used car income per unit. Reported mixed
retail used car gross revenue and F&I income elevated roughly $24.4
million , or 21.4%, resulting from a $61.6 million , or 46.6%, enhance in F&I income,
offset partially by an roughly $37.2 million enhance in retail used
car gross loss. The lower in complete retail used car and F&I gross
revenue per unit was due primarily to the upper price of stock acquisition as
a results of elevated demand within the wholesale public sale marketplace for a lot of 2021,
offset partially by a rise in F&I product penetration charges.
Inside F&I income, reported finance contract gross revenue elevated
roughly $18.4 million , or 49.2%, resulting from a 37.6% enhance in complete finance
contract quantity, in addition to an 8.5% enhance in gross revenue per finance
contract. Reported service contract gross revenue elevated roughly $31.2
million , or 43.3%, resulting from a 40.7% enhance in complete service contract quantity, as
nicely as a 1.9% enhance in gross revenue per service contract. Reported different
aftermarket product contract gross revenue elevated roughly $12.1 million ,
or 53.4%, resulting from a 44.3% enhance in complete different aftermarket product contract
quantity, in addition to a 6.5% enhance in gross revenue per different aftermarket product
contract.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS On a trailing quarter price of gross sales foundation, our reported used car stock days' provide in our EchoPark Section was roughly 70 days (39 days excluding the impact of the RFJ Acquisition inDecember 2021 , which contributed lower than one month of trailing price of gross sales to the times' provide calculation) and 41 days as ofDecember 31, 2021 and 2020, respectively. We typically focus on sustaining used car stock days' provide within the 30- to 35-day vary, which can fluctuate seasonally, with a purpose to restrict our publicity to market pricing volatility. The elevated degree of used car stock days' provide as ofDecember 31, 2021 was due primarily to the opening of a number of new EchoPark shops throughout 2021, which required further stock available however weren't but producing retail used car gross sales on the price of a extra mature retailer, and the acquisition of 11 Northwest Motorsport pre-owned car shops within the RFJ Acquisition inDecember 2021 . Similar market retail used car income elevated roughly$334.5 million , or 26.7%, pushed primarily by an 18.7% enhance in retail used car income per unit, in addition to a 6.7% enhance in retail used car unit gross sales quantity. Similar market mixed retail used car gross revenue and F&I income elevated roughly$12.8 million , or 13.3%, pushed primarily by a$21.6 million , or 16.5%, enhance in F&I income, offset partially by an roughly$8.8 million enhance in retail used car gross loss.
Wholesale Automobiles – EchoPark Section
See the dialogue underneath the heading “Outcomes of Operations – Franchised
Dealerships Section” for extra dialogue of the macro drivers of wholesale
car revenues.
The next desk gives a reconciliation of EchoPark Section reported
foundation, similar market foundation and new market foundation for wholesale autos:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit information)
Complete wholesale car income:
Similar market $ 85.8 $ 28.6 $ 57.2 200.0 %
New markets 24.2 0.1 24.1 NM
Complete as reported $ 110.0 $ 28.7 $ 81.3 283.3 %
Complete wholesale car gross revenue
(loss):
Similar market $ 7.4 $ (0.1) $ 7.5 NM
New markets 1.8 - 1.8 100.0 %
Complete as reported $ 9.2 $ (0.1) $ 9.3 NM
Complete wholesale car unit gross sales:
Similar market 8,664 7,154 1,510 21.1 %
New markets 3,003 24 2,979 NM
Complete as reported 11,667 7,178 4,489 62.5 %
NM = Not Significant
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our EchoPark Section reported wholesale car outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Reported wholesale car:
Income $ 110.0 $ 28.7 $ 81.3 283.3 %
Gross revenue (loss) $ 9.2 $ (0.1) $ 9.3 NM
Unit gross sales 11,667 7,178 4,489 62.5 %
Income per unit $ 9,428 $ 4,002 $ 5,426 135.6 %
Gross revenue (loss) per unit $ 789 $ (11) $ 800 NM
Gross revenue (loss) as a % of income 8.4 % (0.3) % 870 bps
NM = Not Significant
Our EchoPark Section similar market wholesale car outcomes have been as follows:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions, besides unit and per unit information)
Similar market wholesale car:
Income $ 85.8 $ 28.6 $ 57.2 200.0 %
Gross revenue (loss) $ 7.4 $ (0.1) $ 7.5 NM
Unit gross sales 8,664 7,154 1,510 21.1 %
Income per unit $ 9,903 $ 3,998 $ 5,905 147.7 %
Gross revenue (loss) per unit $ 854 $ (14) $ 868 NM
Gross revenue (loss) as a % of income 8.6 % (0.3) % 890 bps
NM = Not Significant
Similar market wholesale car income elevated 200.0% and similar market wholesale
car gross revenue improved by roughly $7.5 million , due primarily to
greater trade-in quantity, which drove a 21.1% enhance in similar market wholesale
car unit gross sales quantity and a rise in similar market wholesale car gross
revenue per unit of roughly $868 per unit, resulting from extra demand within the
wholesale public sale market driving greater wholesale pricing. Given EchoPark's
retail stock combine, nearly all of autos acquired from friends on trade-ins
can't be offered as retail at our EchoPark shops and are subsequently offered at
public sale or transferred to considered one of our franchised dealerships to be offered as a
retail used car. Nevertheless, a profitable acquisition of a visitor's trade-in
car typically facilitates a retail used car sale transaction that in any other case
could not have occurred, driving greater general gross revenue. Our general EchoPark
stock acquisition and pricing technique reduces the chance of aged stock
that have to be offered at public sale (which might sometimes have the next wholesale
car gross loss per unit) and will increase the amount of trade-ins that we
get hold of from friends.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Section Outcomes Abstract
Within the following desk of economic information, complete phase revenue of the reportable
segments is reconciled to consolidated revenue (loss) from persevering with operations
earlier than taxes and impairment costs. See above for tables and dialogue of
outcomes by reportable phase.
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
Section Revenues: (In tens of millions, besides unit information)
Franchised Dealerships Section Revenues:
New autos $ 5,109.0 $ 4,281.2 $ 827.8 19.3 %
Used autos 2,901.0 2,345.9 555.1 23.7 %
Wholesale autos 257.2 168.7 88.5 52.5 %
Elements, service and collision restore 1,340.4 1,194.4 146.0 12.2 %
Finance, insurance coverage and different, internet 443.5 357.8 85.7 24.0 %
Franchised Dealerships Section revenues $ 10,051.1 $ 8,348.0 $ 1,703.1 20.4 %
EchoPark Section Revenues:
New autos $ 9.0 $ - $ 9.0 100.0 %
Used autos $ 2,032.6 $ 1,258.2 $ 774.4 61.5 %
Wholesale autos 110.0 28.7 81.3 283.3 %
Finance, insurance coverage and different, internet 193.7 132.1 61.6 46.6 %
EchoPark Section revenues $ 2,345.3 $ 1,419.0 $ 926.3 65.3 %
Complete consolidated revenues $ 12,396.4 $ 9,767.0 $ 2,629.4 26.9 %
Section Earnings (Loss) (1):
Franchised Dealerships Section (2) $ 530.3 $ 231.2 $ 299.1 129.4 %
EchoPark Section (3) (72.0) 4.0 (76.0) NM
Complete phase revenue (loss) $ 458.3 $ 235.2 $ 223.1 94.9 %
Impairment costs (4) (0.1) (270.0) 269.9 100.0 %
Earnings (loss) from persevering with operations
earlier than taxes $ 458.2 $ (34.8) $ 493.0 NM
Retail New and Used Automobile Unit Gross sales
Quantity:
Franchised Dealerships Section 208,815 195,145 13,670 7.0 %
EchoPark Section 77,963 57,161 20,802 36.4 %
Complete retail new and used car unit
gross sales quantity 286,778 252,306 34,472 13.7 %
NM = Not Significant
(1)Section revenue (loss) for every phase is outlined as revenue (loss) from
persevering with operations earlier than taxes and impairment costs.
(2)For 2021, the above quantity contains roughly $15.5 million of pre-tax
internet loss on the extinguishment of debt, roughly $3.0 million of pre-tax
internet loss on the acquisition of franchised dealerships, partially offset by
roughly $1.8 million of pre-tax internet achieve on the disposal of franchised
dealerships. For 2020, the above quantity contains roughly $4.0 million of
pre-tax internet achieve on the disposal of franchised dealerships.
(3)For 2021, the above quantity contains roughly $6.5 million of long-term
compensation-related bills. For 2020, the above quantity contains roughly
$5.2 million of pre-tax internet achieve on the disposal of land and buildings at former
EchoPark places.
(4)For 2021, the above quantity contains roughly $0.1 million of pre-tax
impairment costs for the EchoPark Section. For 2020, the above quantity contains
roughly $270.0 million of pre-tax impairment costs for the Franchised
Dealerships Section.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Promoting, Basic and Administrative (“SG&A”) Bills – Consolidated
Consolidated SG&A bills are comprised of 4 main teams: compensation
expense, promoting expense, lease expense and different expense. Compensation
expense primarily pertains to retailer personnel who're paid a fee or a
wage plus fee and assist personnel who're typically paid a hard and fast
wage. Commissions paid to retailer personnel sometimes differ relying on gross
income realized and gross sales quantity aims. Because of the wage part for
sure retailer and company personnel, gross income and compensation expense do
not change in direct proportion to 1 one other. Promoting expense and different
expense differ based mostly on the extent of precise or anticipated enterprise exercise and
the variety of dealerships in operation. Hire expense sometimes varies with the
variety of retailer places owned, investments made for facility enhancements and
rates of interest. Different expense contains varied fastened and variable bills,
together with achieve on disposal of franchises, sure customer-related prices resembling
gasoline and repair loaners, and insurance coverage, coaching, authorized and IT bills,
which can not change in proportion to gross revenue ranges.
The next desk units forth data associated to our consolidated reported
SG&A bills:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
SG&A bills:
Compensation $ 834.5 $ 659.8 $ (174.7) (26.5) %
Promoting 61.6 42.2 (19.4) (46.0) %
Hire 53.2 54.5 1.3 2.4 %
Different 325.4 272.2 (53.2) (19.5) %
Complete SG&A bills $ 1,274.7 $ 1,028.7 $ (246.0) (23.9) %
SG&A bills as a % of gross revenue:
Compensation 43.6 % 46.3 % 270 bps
Promoting 3.2 % 3.0 % (20) bps
Hire 2.8 % 3.8 % 100 bps
Different 17.0 % 19.2 % 220 bps
Complete SG&A bills as a % of gross revenue 66.6 % 72.3 % 570 bps
General SG&A bills elevated in greenback quantity primarily resulting from a rise in
compensation expense because of greater ranges of gross sales quantity, however decreased
as a proportion of gross revenue, primarily resulting from greater general gross revenue
ranges and the consequences of expense optimization efforts that started in mid-2020.
Compensation expense elevated in greenback quantity however decreased as a proportion of
gross revenue, primarily resulting from elevated gross sales affiliate productiveness throughout
2021, in addition to greater general gross revenue ranges. Promoting expense
elevated in each greenback quantity and as a proportion of gross revenue, due
primarily to greater ranges of promoting spend at EchoPark to assist our
progress technique. Hire expense decreased in greenback quantity and as a proportion of
gross revenue, primarily as a result of buy of a number of properties that have been
beforehand leased. Different SG&A bills elevated in greenback quantity however decreased
as a proportion of gross revenue, primarily due primarily to greater gross revenue
ranges and a continued concentrate on expense optimization.
SG&A bills for 2021 embody roughly $1.8 million of internet achieve on the
disposal of franchised dealerships and roughly $6.5 million of long-term
compensation bills. SG&A bills for 2020 embody roughly $4.0 million
of internet achieve on the disposal of franchised dealerships and roughly $5.2
million of internet achieve on disposal of actual property.
Impairment Expenses – Consolidated
Impairment costs have been roughly$0.1 million and$270.0 million in 2021 and 2020, respectively. Impairment costs for 2021 embody roughly$0.1 million of costs associated to working lease right-of-use ("ROU") asset impairment for a former EchoPark location. Impairment costs for 2020 embody roughly$268.0 million associated to goodwill, and roughly$2.0 million associated to the write-off of sure building challenge prices. 50 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Depreciation and Amortization – Consolidated
Depreciation expense elevated roughly$10.1 million , or 11.1%, in 2021, due primarily to the opening or acquisition of further EchoPark shops and the development initiatives accomplished and positioned into service in our Franchised Dealerships Section.
Curiosity Expense, Flooring Plan – Consolidated
Curiosity expense, ground plan for brand spanking new autos decreased roughly$13.4 million , or 63.0%. The typical new car ground plan rate of interest was 0.74% in 2021, down from 1.72% in 2020, the impact of which resulted in a lower in new car ground plan curiosity expense of roughly$10.5 million . The typical new car ground plan notes payable steadiness decreased roughly$172.3 million , the impact of which decreased new car ground plan curiosity expense by roughly$3.0 million . Curiosity expense, ground plan for used autos elevated roughly$3.0 million , or 50.1%. The typical used car ground plan rate of interest was 1.75% in 2021, down from 2.02% in 2020, the impact of which resulted in a lower in used car ground plan curiosity expense of roughly$1.4 million . The common used car ground plan notes payable steadiness elevated roughly$215.7 million , the impact of which elevated used car ground plan curiosity expense by roughly$4.4 million , partially offsetting the influence of decrease rates of interest.
Curiosity Expense, Different, Web – Consolidated
Curiosity expense, different, internet is summarized within the desk beneath:
12 months Ended December 31, Higher / (Worse)
2021 2020 Change % Change
(In tens of millions)
Acknowledged/coupon curiosity $ 37.0 $ 33.7 $ (3.3) (9.8) %
Deferred mortgage price amortization 3.3 2.9 (0.4) (13.8) %
Rate of interest hedge expense (profit) 1.5 (0.3) (1.8) (600.0) %
Capitalized curiosity (1.8) (0.7) 1.1 157.1 %
Curiosity on finance lease liabilities 7.4 5.4 (2.0) (37.0) %
Different curiosity 0.6 0.6 - - %
Complete curiosity expense, different, internet $ 48.0 $ 41.6 $ (6.4) (15.4) %
Curiosity expense, different, internet elevated roughly $6.4 million , or 15.4%,
primarily due a rise in principal borrowings associated to the issuance of the
4.625% Notes and the 4.875% Notes in October 2021 , a rise in rate of interest
hedge expense, and a rise in curiosity on finance lease liabilities, offset
partially by a rise in capitalized curiosity.
Provision for Earnings Taxes – Consolidated
The general efficient tax price from persevering with operations was 23.9% and (45.7)% for 2021 and 2020, respectively. Earnings tax expense for 2021 features a$5.3 million discrete profit associated to vested or exercised inventory compensation awards, a$0.1 million discrete profit associated to tax credit, a$1.0 million discrete profit associated to the discount of the valuation allowance for state internet working loss carryforwards, offset partially by a$2.9 million discrete cost associated to non-deductible government compensation and a$1.2 million discrete cost associated to modifications in unsure tax positions. Our efficient tax price varies from yr to yr based mostly on the extent of taxable revenue, the distribution of taxable revenue between states through which the Firm operates and different tax changes.
Use of Estimates and Essential Accounting Insurance policies
The preparation of economic statements in conformity with GAAP requires
administration to make estimates and assumptions that have an effect on the reported quantities of
property and liabilities and the disclosure of contingent property and liabilities
on the dates of the monetary statements and the reported quantities of revenues
and bills through the reporting durations. Precise outcomes may differ from
these estimates.
Essential accounting insurance policies are people who administration has decided are most
necessary to the portrayal of our monetary place and outcomes of operations
and require probably the most subjective judgments or estimates. See Word 1, "Description
of
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Enterprise and Abstract of Important Accounting Insurance policies,” to the accompanying
consolidated monetary statements for extra dialogue relating to our
important accounting insurance policies and estimates.
In accordance with ASC Subject 350, "Intangibles -Goodwill and Different," we check goodwill for impairment at the very least yearly (as ofOctober 1 of every yr) or extra often if indications of impairment exist. The ASC additionally states that if an entity determines, based mostly on an evaluation of sure qualitative elements, that it's extra doubtless than not that the truthful worth of a reporting unit is lower than its carrying quantity, then a quantitative goodwill impairment check is pointless. For functions of goodwill impairment testing, we've got two reporting items, which encompass (1) our conventional franchised dealerships and (2) our EchoPark shops (these reporting items additionally characterize our reportable segments). The carrying worth of our goodwill totaled roughly$416.4 million atDecember 31, 2021 ,$251.2 million of which was associated to our franchised dealership reporting unit and$165.2 million of which was associated to our EchoPark reporting unit. In evaluating goodwill for impairment, if the truthful worth of a reporting unit is lower than its carrying worth, the distinction would characterize the quantity of the required goodwill impairment. Along with ourOctober 1, 2021 annual check, we decided it was acceptable to guage goodwill for impairment qualitatively because it was decided that it was extra doubtless than not the truthful worth of the reporting items exceeded the carrying values for each reporting items. Based mostly on this qualitative evaluation, we decided no impairment existed for both reporting unit as ofOctober 1, 2021 . See Word 1, "Description of Enterprise and Abstract of Important Accounting Insurance policies," to the accompanying consolidated monetary statements for additional dialogue. Pursuant to the relevant accounting pronouncements, we have been required to consider the recoverability of our indefinite lived intangible property through the first quarter of 2020 because of the consequences of the COVID-19 pandemic on our operations and market worth. Based mostly on this analysis, we decided the carrying worth of the goodwill associated to our franchised dealership reporting unit was larger than the truthful worth of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment cost of$268.0 million and a corresponding revenue tax advantage of$51.3 million to scale back the carrying worth to truthful worth as ofMarch 31, 2020 . We utilized the discounted ("DCF") methodology, utilizing unobservable inputs (Stage 3) to estimate Sonic's enterprise worth as ofMarch 31, 2020 and reconciled the discounted money flows to Sonic's market capitalization, utilizing quoted market value inputs (Stage 1). The numerous assumptions in our DCF mannequin embody projected earnings, a reduction price (and estimates within the low cost price inputs), management premium elements and residual progress charges. Based mostly on the development in our enterprise operations and market worth through the second, third and fourth quarters of 2020, our future forecast expectations, and the outcomes of our qualitative check, it was decided to be extra doubtless than not that the truthful worth of our reporting items exceeded the carrying worth. In accordance with ASC Subject 350, "Intangibles -Goodwill and Different," we consider franchise property for impairment yearly (as ofOctober 1 of every yr) or extra often if indicators of impairment exist. We estimate the truthful worth of our franchise property utilizing a DCF mannequin. The DCF mannequin used incorporates inherent uncertainties, together with important estimates and assumptions associated to projected income, projected working margins, a reduction price (and estimates within the low cost price inputs) and residual progress charges. We're topic to monetary threat to the extent that our franchise property change into impaired resulting from deterioration of the underlying companies. The danger of a franchise asset impairment cost could enhance to the extent the underlying companies' precise earnings or projected earnings expertise a big decline. On account of our impairment testing as ofOctober 1, 2021 , every of our franchise property' truthful values exceeded its carrying worth and no franchise asset impairment costs have been recorded within the accompanying consolidated statements of operations. The carrying worth of our franchise property totaled roughly$480.2 million atDecember 31, 2021 , and is included in different intangible property, internet within the accompanying consolidated steadiness sheet as of such date.
Finance, Insurance coverage and Service Contracts
We prepare financing for our friends by way of varied monetary establishments and
obtain a fee from the monetary establishment both in a flat payment quantity
or in an quantity equal to the distinction between the rates of interest charged to
our friends and the predetermined rates of interest set by the monetary
establishment. We additionally obtain commissions from the sale of varied insurance coverage
contracts and non-recourse third-party prolonged service contracts. Beneath these
contracts, the relevant producer or third-party guarantee firm is
straight chargeable for all warranties offered throughout the contract. Retrospective
finance and insurance coverage revenues ("F&I retro revenues") are acknowledged when the
product contract has been executed with the tip buyer and the transaction is
estimated every reporting interval based mostly on the anticipated worth methodology utilizing
historic and projected information. F&I retro revenues can differ based mostly on quite a lot of
elements, together with numbers of contracts and historical past of cancellations and claims.
Accordingly, we make the most of this historic and projected information to constrain the
consideration to the extent that it's possible {that a} important reversal in
the quantity of cumulative income won't happen when the uncertainty related
with the variable
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS consideration is subsequently resolved. Receivables, internet within the accompanying consolidated steadiness sheets as ofDecember 31, 2021 and 2020 embody roughly$34.9 million and$21.7 million , respectively, associated to contract property from F&I retro income recognition. Modifications in contract property fromDecember 31, 2020 toDecember 31, 2021 have been primarily resulting from odd enterprise exercise, together with the receipt of money for quantities earned and acknowledged in prior durations. Traditionally, our precise F&I retro income quantities earned have not been materially totally different from our recorded estimates. Within the occasion a buyer terminates a financing, insurance coverage or prolonged service contract previous to the scheduled maturity date, we could also be required to return a portion of the fee income initially recorded as revenue by Sonic to the third-party supplier (referred to as a "chargeback"). The fee income for the sale of those services and products is recorded internet of estimated chargebacks at the time of sale. Our estimate of future chargebacks is established based mostly on our historic chargeback charges, termination provisions of the relevant contracts and information offered by the third-party underwriter of the contracts. Whereas anticipated chargeback charges differ relying on the kind of contract offered, a 100-basis level change within the estimated chargeback charges utilized in figuring out our estimates of future chargebacks would have modified our estimated reserve for chargebacks atDecember 31, 2021 by roughly$3.5 million . Our estimate of chargebacks was roughly$60.5 million as ofDecember 31, 2021 , in comparison with roughly$34.2 million as ofDecember 31, 2020 , primarily pushed by greater F&I revenues and the RFJ Acquisition included starting inDecember 2021 . Our chargeback reserve estimate is influenced by the extent of F&I revenues and the timing and variety of early contract termination occasions, resembling car repossessions, mortgage refinancing, and early pay-offs. If these occasions change into extra or much less widespread, or if there's a shift within the timing of those cancellations, the ensuing influence may have an effect on our estimated reserve for chargebacks and will have a fabric antagonistic influence on our working outcomes, monetary place and money flows. Traditionally, our precise chargeback expertise has not been materially totally different from our recorded estimates.
Earnings Taxes
As a matter after all, we're repeatedly audited by varied taxing authorities
and, on occasion, these audits lead to proposed assessments the place the
final decision could lead to us owing further taxes. We consider that our
tax positions comply, in all materials respects, with relevant tax regulation and that
we've got adequately offered for any moderately foreseeable end result associated to
these issues. Every so often, we have interaction in transactions through which the tax
penalties could also be topic to uncertainty. Examples of such transactions
embody enterprise acquisitions and disposals, together with consideration paid or
obtained in reference to such transactions. Important judgment is required
in assessing and estimating the tax penalties of those transactions. We
decide whether or not it's extra doubtless than not {that a} tax place shall be
sustained upon examination, together with decision of any associated appeals or
litigation processes, based mostly on the technical deserves of the place. In
evaluating whether or not a tax place has met the more-likely-than-not recognition
threshold, we presume that the place shall be examined by the suitable
taxing authority that has full information of all related data. A tax
place that doesn't meet the more-likely-than-not recognition threshold is
measured to find out the quantity of profit to be acknowledged within the consolidated
monetary statements. The tax place is measured on the largest quantity of
profit that's more likely to be realized upon final settlement. We modify our
estimates periodically due to ongoing examinations by and settlements with
the assorted taxing authorities, in addition to modifications in tax legal guidelines, laws and
precedent.
At December 31, 2021 , there have been roughly $5.8 million in reserves that we
had offered for these issues (together with estimates associated to attainable curiosity
and penalties) with roughly $0.5 million included in different accrued
liabilities and roughly $5.3 million recorded in different long-term
liabilities within the accompanying consolidated steadiness sheet as of such date. The
results on our consolidated monetary statements of revenue tax uncertainties are
mentioned in Word 7, "Earnings Taxes," to the accompanying consolidated monetary
statements.
We periodically evaluate all deferred tax asset positions (together with state internet
working loss carryforwards) to find out whether or not it's extra doubtless than not
that the deferred tax property shall be realized. Sure elements thought-about in
evaluating the potential for realization of deferred tax property embody the time
remaining till expiration (associated to state internet working loss carryforwards)
and varied sources of taxable revenue which may be obtainable underneath the tax regulation to
understand a tax profit associated to a deferred tax asset. This analysis requires
administration to make sure assumptions about future profitability, the execution
of tax methods which may be obtainable to us and the chance that these
assumptions or execution of tax methods would happen. This analysis is
extremely judgmental. The outcomes of future operations, regulatory framework of
these taxing authorities and different associated issues can't be predicted with
certainty. Subsequently, precise realization of those deferred tax property could also be
materially totally different from administration's estimate.
As of December 31, 2021 and 2020, we had recorded a valuation allowance quantity
of roughly $4.1 million and $5.2 million , respectively, associated to sure
state internet working loss carryforward deferred tax property as we decided that
we
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
wouldn’t be capable of generate ample state taxable revenue within the associated
entities to comprehend the gathered internet working loss carryforward balances.
We make sure estimates, judgments and assumptions within the calculation of our provision for revenue taxes, within the ensuing tax liabilities and within the recoverability of deferred tax property. These estimates, judgments and assumptions are up to date quarterly by our administration based mostly on obtainable data and think about estimated revenue taxes based mostly on prior yr revenue tax returns, modifications in revenue tax regulation, our revenue tax methods and different elements. If our administration receives data which causes us to change our estimate of the year-end legal responsibility, the quantity of expense or expense discount required to be recorded in any specific quarter could possibly be materials to our working outcomes, monetary place and money flows.
Latest Accounting Pronouncements
InMarch 2020 , theMonetary Accounting Requirements Board (the "FASB") issued Accounting Requirements Replace ("ASU") 2020-04, "Reference Fee Reform (ASC Subject 848): Facilitation of the Results of Reference Fee Reform on Monetary Reporting." ASU 2020-04 gives non-obligatory steerage for a restricted time frame to ease potential accounting influence related to transitioning away from reference charges which can be anticipated to be discontinued, resembling LIBOR. The amendments on this ASU apply solely to contracts, hedging relationships and different transactions that reference LIBOR or one other reference price anticipated to be discontinued. The amendments in ASU 2020-04 could possibly be adopted startingJanuary 1, 2020 and are efficient by way ofDecember 31, 2022 . InJanuary 2021 , the FASB issued ASU 2021-01 which clarifies that sure non-obligatory expedients and exceptions in ASC Subject 848 for contract modifications and hedge accounting apply to derivatives which can be affected by the discounting transition. We don't presently have any contracts which have been modified, amended or renegotiated to accommodate a transition to a brand new reference price, however we'll proceed to consider any such modifications or amendments to our contracts to find out the applicability of this normal on our consolidated monetary statements and associated monetary assertion disclosures.
Liquidity and Capital Sources
We require money to fund debt service, lease obligations, working capital necessities, facility enhancements and different capital enhancements, and dividends on our widespread inventory and to finance acquisitions and in any other case make investments in our enterprise. We depend on money flows from operations, borrowings underneath our revolving credit score and ground plan borrowing preparations, actual property mortgage financing, asset gross sales and choices of debt and fairness securities to satisfy these necessities. We have been in compliance with all restrictive covenants underneath our debt agreements as ofDecember 31, 2021 and count on to be in compliance for at least the following 12 months. We intently monitor our obtainable liquidity and projected future working outcomes with a purpose to stay in compliance with the restrictive covenants underneath the 2021 Credit score Amenities, the 2019 Mortgage Facility, the indentures governing the 4.625% Notes and the 4.875% Notes, and our different debt obligations and lease preparations. Nevertheless, our liquidity may be negatively affected if we fail to adjust to the monetary covenants in our present debt or lease preparations. After giving impact to the relevant restrictions on the cost of dividends underneath our debt agreements, as ofDecember 31, 2021 , we had roughly$399.8 million of internet revenue and retained earnings freed from such restrictions. Money flows offered by our dealerships are derived from varied sources. The first sources embody particular person customers, car producers, car producers' captive finance subsidiaries and different monetary establishments. Disruptions in these money flows may have a fabric antagonistic influence on our operations and general liquidity. As a result of nearly all of our consolidated property are held by our dealership subsidiaries, nearly all of our money flows from operations are generated by these subsidiaries. Consequently, our money flows and talent to service our obligations rely to a considerable diploma on the outcomes of operations of those subsidiaries and their skill to offer us with money. 54 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS We had the next liquidity assets obtainable as ofDecember 31, 2021 and 2020: December 31, 2021 December 31, 2020 (In tens of millions) Money and money equivalents $ 299.4 $ 170.3 Availability underneath the 2021 Revolving Credit score Facility (1) 281.4 214.7 Availability underneath the 2019 Mortgage Facility 22.2 11.2 Availability underneath the 2020 Line of Credit score Facility (2) - 57.0 Flooring plan deposit steadiness 99.8 73.2 Complete obtainable liquidity assets $ 702.8 $ 526.4 (1)The steadiness as ofDecember 31, 2020 was underneath the Firm's prior revolving credit score facility, which was changed by the 2021 Revolving Credit score Facility onApril 14, 2021 . (2)The 2020 Line of Credit score Facility was terminated onOctober 1, 2021 . We take part in a program with two of our lender companions whereby we preserve a ground plan deposit steadiness (as proven within the desk above) with the lender that earns curiosity based mostly on the agreed upon price, successfully decreasing the web ground plan curiosity expense with the lender. This accretion steadiness will not be designated as a prepayment of notes payable - ground plan, neither is it our intent to make use of this quantity to offset principal quantities owed underneath notes payable - ground plan within the future, though we've got the best and talent to take action. The deposit balances of roughly$99.8 million as ofDecember 31, 2021 and roughly$73.2 million as ofDecember 31, 2020 are labeled as different present property within the accompanying consolidated steadiness sheets as ofDecember 31, 2021 and 2020.
Lengthy-Time period Debt and Credit score Amenities
2021 Credit score Amenities
OnApril 14, 2021 , we entered into an amended and restated syndicated revolving credit score facility (the "2021 Revolving Credit score Facility") and amended and restated syndicated new and used car ground plan credit score amenities (the "2021 Flooring Plan Amenities" and, along with the 2021 Revolving Credit score Facility, the "2021 Credit score Amenities"). The modification and restatement of the 2021 Credit score Amenities prolonged the scheduled maturity dates toApril 14, 2025 . OnOctober 8, 2021 , we entered into an modification to the 2021 Credit score Amenities (the "Credit score Facility Modification") to, amongst different issues: (1) enhance the combination commitments underneath the 2021 Revolving Credit score Facility to the lesser of$350.0 million (which can be elevated on the Firm's possibility as much as$400.0 million upon satisfaction of sure circumstances) and the relevant revolving borrowing base, and the 2021 Flooring Plan Amenities to$2.6 billion (which, underneath sure circumstances, could also be elevated on the Firm's possibility as much as$2.85 billion that could also be allotted between the 2021 New Automobile Flooring Plan Facility (as outlined beneath) and the 2021 Used Automobile Flooring Plan Facility (as outlined beneath) because the Firm requests); and (2) allow the issuance of the 4.625% Notes and the 4.875% Notes. As amended, availability underneath the 2021 Revolving Credit score Facility is calculated because the lesser of$350.0 million or a borrowing base calculated based mostly on sure eligible property, much less the combination face quantity of any excellent letters of credit score underneath the 2021 Revolving Credit score Facility (the "2021 Revolving Borrowing Base"). The 2021 Revolving Credit score Facility could also be elevated at our possibility as much as$400.0 million upon satisfaction of sure circumstances. As ofDecember 31, 2021 , the 2021 Revolving Borrowing Base was roughly$293.7 million based mostly on balances as of such date. As ofDecember 31, 2021 , we had no excellent borrowings and roughly$12.3 million in excellent letters of credit score underneath the 2021 Revolving Credit score Facility, leading to$281.4 million remaining borrowing availability underneath the 2021 Revolving Credit score Facility. The 2021 Flooring Plan Amenities are composed of a brand new car revolving ground plan facility (as amended, the "2021 New Automobile Flooring Plan Facility") and a used car revolving ground plan facility (as amended, the "2021 Used Automobile Flooring Plan Facility"), in a mixed quantity of as much as$2.6 billion . We could, underneath sure circumstances, request a rise within the 2021 Flooring Plan Amenities to a most borrowing restrict of as much as$2.85 billion , which shall be allotted between the 2021 New Automobile Flooring Plan Facility and the 2021 Used Automobile Flooring Plan Facility as we request, with not more than 40% of the combination commitments allotted to the commitments underneath the 2021 Used Automobile Flooring Plan Facility. Our obligations underneath the 2021 Credit score Amenities are assured by us and sure of our subsidiaries and are secured by a pledge of considerably all of our and our subsidiaries' property. As of the dates introduced within the accompanying consolidated monetary statements, the quantities excellent underneath the 2021 Credit score Amenities bear curiosity at variable charges based mostly on specified 55 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS percentages above LIBOR. We have now agreed underneath the 2021 Credit score Amenities to not pledge any property to any third events (apart from these explicitly allowed to be pledged by the amended phrases of the 2021 Credit score Amenities), together with different lenders, topic to sure acknowledged exceptions, together with ground plan financing preparations. As well as, the 2021 Credit score Amenities include sure adverse covenants, together with covenants which may prohibit or prohibit indebtedness, liens, the cost of dividends, capital expenditures and materials inclinations and acquisitions of property, in addition to different customary covenants and default provisions. Particularly, the 2021 Credit score Amenities allow quarterly money dividends on our Class A and Class B Widespread Inventory as much as$0.25 per share so lengthy as no Occasion of Default (as outlined within the 2021 Credit score Amenities) has occurred and is constant and offered that we stay in compliance with all monetary covenants underneath the 2021 Credit score Amenities.
6.125% Notes
OnMarch 10, 2017 , we issued$250.0 million in combination principal quantity of unsecured 6.125% Senior Subordinated Notes, which have been scheduled to mature onMarch 15, 2027 (the "6.125% Notes"). OnOctober 28, 2021 , Sonic redeemed all of the excellent 6.125% Notes utilizing a portion of the web proceeds from the issuance and sale of the 4.625% Notes and the 4.875% Notes (as described beneath). Sonic paid roughly$263.2 million in money, together with an early redemption premium and accrued and unpaid curiosity, to extinguish the 6.125% Notes and acknowledged a lack of roughly$15.6 million on the repurchase of the 6.125% Notes, recorded in different revenue (expense), internet within the accompanying consolidated statements of operations. 4.625% Notes OnOctober 28, 2021 , we issued$650.0 million in combination principal quantity of 4.625% Notes, which is able to mature onNovember 15, 2029 . The 4.625% Notes have been issued at a value of 100% of the principal quantity thereof. Sonic used the web proceeds from the issuance of the 4.625% Notes, together with the web proceeds of the 4.875% Notes, to fund the RFJ Acquisition and repay present debt. The 4.625% Notes have been issued underneath an Indenture, dated as ofOctober 28, 2021 (the "2029 Indenture"), by and among the many Firm, sure subsidiary guarantors named therein (collectively, the "Guarantors") andU.S. Financial institution Nationwide Affiliation , as trustee (the "trustee"). The 4.625% Notes are unconditionally assured, collectively and severally, on a senior unsecured foundation initially by all of the Firm's working home subsidiaries. The 2029 Indenture gives that curiosity on the 4.625% Notes shall be payable semi-annually in arrears onMight 15 andNovember 15 of every yr startingMight 15, 2022 . The 2029 Indenture additionally incorporates different restrictive covenants and default provisions widespread for an concern of senior notes of this nature. The 4.625% Notes shall be redeemable on the Firm's possibility, in complete or in half, at any time on or afterNovember 15, 2024 on the redemption costs (expressed as percentages of the principal quantity thereof) set forth beneath, plus accrued and unpaid curiosity, if any, to, however excluding, the relevant redemption date, if redeemed through the 12-month interval starting onNovember 15 of the years set forth beneath: Redemption Worth 2024 102.313 % 2025 101.156 % 2026 100.000 % Earlier thanNovember 15, 2024 , the Firm could redeem all or part of the 4.625% Notes, topic to cost of a make-whole premium. As well as, the Firm could redeem on or earlier thanNovember 15, 2024 as much as an combination of 35% of the combination principal of the 4.625% Notes at a value equal to 104.625% of the combination principal quantity thereof, plus accrued and unpaid curiosity, if any, to, however excluding, the date of redemption, with the web money proceeds from sure fairness choices.
4.875% Notes
OnOctober 28, 2021 , we issued$500.0 million in combination principal quantity of 4.875% Notes, which is able to mature onNovember 15, 2031 . The 4.875% Notes have been issued at a value of 100% of the principal quantity thereof. Sonic used the web proceeds from the issuance of the 4.875% Notes, together with the web proceeds of the 4.625% Notes to fund the RFJ Acquisition and repay present debt. The 4.875% Notes have been issued underneath an Indenture, dated as ofOctober 28, 2021 (the "2031 Indenture"), by and among the many Firm, the Guarantors and the trustee. The 4.875% Notes are unconditionally assured, collectively and severally, on a senior unsecured foundation initially by all the Firm's working home subsidiaries. The 2031 Indenture gives that 56 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS curiosity on the 4.875% Notes shall be payable semi-annually in arrears onMight 15 andNovember 15 of every yr startingMight 15, 2022 . The 2031 Indenture additionally incorporates different restrictive covenants and default provisions widespread for a problem of senior notes of this nature. The 4.875% Notes shall be redeemable on the Firm's possibility, in complete or in half, at any time on or afterNovember 15, 2026 on the redemption costs (expressed as percentages of the principal quantity thereof) set forth beneath, plus accrued and unpaid curiosity, if any, to, however excluding, the relevant redemption date, if redeemed through the 12-month interval starting onNovember 15 of the years set forth beneath: 12 months Redemption Worth 2026 102.438 % 2027 101.625 % 2028 100.813 % 2029 100.000 % Earlier thanNovember 15, 2026 , the Firm could redeem all or part of the 4.875% Notes, topic to cost of a make-whole premium. As well as, the Firm could redeem on or earlier thanNovember 15, 2024 as much as an combination of 35% of the combination principal of the 4.875% Notes at a value equal to 104.875% of the combination principal quantity thereof, plus accrued and unpaid curiosity, if any, to, however excluding, the date of redemption, with the web money proceeds from sure fairness choices.
2019 Mortgage Facility
On
which is scheduled to mature on
Facility”). On
Mortgage Facility to allow the consummation of the RFJ Acquisition and the
issuance of the 4.625% Notes and the 4.875% Notes.
Beneath the 2019 Mortgage Facility, Sonic has a most borrowing restrict of$112.2 million , which varies based mostly on the appraised worth of the collateral underlying the 2019 Mortgage Facility. The quantity obtainable for borrowing underneath the 2019 Mortgage Facility is topic to compliance with a borrowing base. The borrowing base is calculated based mostly on 75% of the appraised worth of sure eligible actual property designated by Sonic and owned by sure of our subsidiaries. Based mostly on balances as ofDecember 31, 2021 , we had roughly$90.0 million of excellent borrowings underneath the 2019 Mortgage Facility, leading to complete remaining borrowing availability of roughly$22.2 million underneath the 2019 Mortgage Facility. Quantities excellent underneath the 2019 Mortgage Facility bear curiosity at (1) a specified price above LIBOR (as outlined within the 2019 Mortgage Facility), ranging from 1.50% to 2.75% every year in response to a performance-based pricing grid decided by the Firm's Consolidated Complete Lease Adjusted Leverage Ratio (as outlined within the 2019 Mortgage Facility) as of the final day of the instantly previous fiscal quarter (the "Efficiency Grid"); or (2) a specified price above the Base Fee (as outlined within the 2019 Mortgage Facility), starting from 0.50% to 1.75% every year in response to the Efficiency Grid. Curiosity on the 2019 Mortgage Facility is paid month-to-month in arrears calculated utilizing the Base Fee plus the Relevant Fee (as outlined within the 2019 Mortgage Facility) in response to the Efficiency Grid. Compensation of principal is paid quarterly commencing onMarch 31, 2020 by way ofSeptember 30, 2024 at a price of two.50% of the combination preliminary principal quantity. A balloon cost of the remaining steadiness shall be due on theNovember 22, 2024 maturity date. Previous to theNovember 22, 2024 maturity date, the Firm reserves the best to prepay the principal quantity excellent at any time with out premium or penalty offered the prepayment quantity exceeds$0.5 million . The 2019 Mortgage Facility incorporates standard and customary representations and warranties, and standard and customary affirmative and adverse covenants, together with covenants which may prohibit or prohibit indebtedness, liens, the cost of dividends and different restricted funds, capital expenditures and materials inclinations and acquisitions of property, in addition to different customary covenants and default provisions. Particularly, the 2019 Mortgage Facility permits quarterly money dividends on our Class A and Class B Widespread Inventory as much as$0.25 per share as long as no Occasion of Default (as outlined within the 2019 Mortgage Facility) has occurred and is constant and offered that we stay in compliance with all monetary covenants underneath the 2019 Mortgage Facility. 57 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mortgage Notes to Finance Firms
As ofDecember 31, 2021 , the weighted-average rate of interest of different excellent mortgage notes (excluding the 2019 Mortgage Facility) was 3.50% and the whole excellent mortgage principal steadiness of those notes (excluding the 2019 Mortgage Facility) was roughly$346.2 million . These mortgage notes require month-to-month funds of principal and curiosity by way of their respective maturities, are secured by the underlying properties and include sure cross-default provisions. Maturity dates for these mortgage notes vary from 2022 to 2033. 2020 Line of Credit score Facility OnJune 23, 2020 , we entered right into a line of credit score settlement withAlly Financial institution (the "2020 Line of Credit score Facility"), which was scheduled to mature onJune 19, 2022 . OnOctober 1, 2021 , Sonic terminated the 2020 Line of Credit score Facility.
Flooring Plan Amenities
We finance all of our new and sure of our used car stock by way of standardized ground plan amenities with producer captive finance firms and a syndicate of manufacturer-affiliated finance firms and business banks. These ground plan amenities are due on demand and bear curiosity at variable charges based mostly on LIBOR or prime plus an extra unfold, as relevant. The weighted-average rate of interest for our new and used car ground plan amenities was 1.06% and 1.78% for 2021 and 2020, respectively. We obtain ground plan help within the type of direct funds or credit from sure producers. Flooring plan help obtained is capitalized in stock and recorded as a discount of price of gross sales when the related stock is offered. We obtained roughly$43.5 million and$40.0 million in producer help in 2021 and 2020, respectively, and acknowledged in price of gross sales roughly$46.5 million and$40.6 million in producer help in 2021 and 2020, respectively. Curiosity funds underneath every of our ground plan amenities are due month-to-month and we're typically not required to make principal repayments previous to the sale of the autos. The whole notes payable - ground plan steadiness of roughly$1.3 billion as ofDecember 31, 2021 is classed as present liabilities within the accompanying consolidated steadiness sheet as of such date.
Covenants and Default Provisions
Non-compliance with covenants, together with a failure to make any cost when due, underneath the 2021 Credit score Amenities, the 2019 Mortgage Facility, our ground plan agreements with varied manufacturer-affiliated finance firms, working lease agreements, mortgage notes to finance firms and the 2029 Indenture and the 2031 Indenture (collectively, the "Important Debt Agreements") may lead to a default and an acceleration of our reimbursement obligation underneath the 2021 Credit score Amenities. A default underneath the 2021 Credit score Amenities or the 2019 Mortgage Facility would represent a default underneath the ground plan amenities we have in place with associates of Ford Motor Firm (collectively, the "Ford Flooring Plan Amenities") and will entitle these lenders to speed up our reimbursement obligations underneath a number of of the ground plan amenities. Sure defaults underneath the 2021 Credit score Amenities, the 2019 Mortgage Facility and one or extra of the Ford Flooring Plan Amenities or sure different debt obligations would not lead to a default underneath the 2029 Indenture or the 2031 Indenture, until our reimbursement obligations underneath the 2021 Credit score Amenities, the 2019 Mortgage Facility, and/or a number of of the Ford Flooring Plan Amenities or such different debt obligations have been accelerated. An acceleration of our reimbursement obligation underneath any of the Important Debt Agreements may lead to an acceleration of our reimbursement obligations underneath our different Important Debt Agreements. The failure to repay principal quantities of the Important Debt Agreements when due would create cross-default conditions associated to different indebtedness. The 2021 Credit score Amenities and the 2019 Mortgage Facility embody the next monetary covenants: Covenant Minimal Most Minimal Consolidated Consolidated Consolidated Fastened Cost Complete Lease Liquidity Protection Adjusted Leverage Ratio Ratio Ratio Required ratio 1.05 1.20 5.75 December 31, 2021 precise 1.26 2.69 2.46 As well as, lots of our facility leases are ruled by a assure settlement between the owner and us that incorporates monetary and working covenants. The monetary covenants underneath the assure settlement are similar to these underneath the 2021 Credit score Amenities and the 2019 Mortgage Facility apart from one further monetary covenant associated to the ratio of EBITDAR to lease (as outlined within the assure settlement) with a required ratio of at least 1.50 to 1.00. As ofDecember 31, 2021 , the ratio was 12.05 to 1.00. 58 -------------------------------------------------------------------------------- SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS We have been in compliance with all the restrictive and monetary covenants in all of our ground plan agreements, long-term debt amenities and lease agreements as ofDecember 31, 2021 . After giving impact to the relevant restrictions on the cost of dividends and sure different transactions underneath our debt agreements, as ofDecember 31, 2021 , we had at the very least$399.8 million of internet revenue and retained earnings freed from such restrictions. See Word 6, "Lengthy-Time period Debt," to the accompanying consolidated monetary statements for additional dialogue of the 2021 Credit score Amenities.
Acquisitions and Inclinations
Throughout 2021, we acquired 27 franchised dealership companies and 14 pre-owned companies, together with the RFJ Acquisition, for roughly$1,018.9 million , internet of ground plan borrowings. We disposed of 1 luxurious franchised dealership and terminated two luxurious franchises in 2021, which generated internet money from inclinations of roughly$6.6 million . See Word 2, "Enterprise Acquisitions and Inclinations," to the accompanying consolidated monetary statements for additional dialogue. Capital Expenditures Our capital expenditures embody the acquisition of land and buildings, the building of latest franchised dealerships, EchoPark shops and collision restore facilities, constructing enhancements and tools bought to be used in our franchised dealerships and EchoPark shops. We selectively assemble or enhance new franchised dealership amenities to keep up compliance with producers' picture necessities. We sometimes finance these initiatives by way of money flows from operations, new mortgages or our credit score amenities. Capital expenditures for 2021 have been roughly$298.2 million , together with roughly$204.6 million associated to our Franchised Dealerships Section and roughly$93.6 million associated to our EchoPark Section. Of the whole capital expenditures, roughly$112.5 million was associated to facility building initiatives, roughly$103.1 million was associated to acquisitions of actual property (land and buildings), and roughly$82.6 million was for different fastened property utilized in our operations. Of the$298.2 million in gross capital expenditures in 2021, roughly$16.5 million was funded by way of mortgage financing and roughly$281.7 million was funded by way of money from operations. As ofDecember 31, 2021 , commitments for facility building initiatives totaled roughly$19.0 million .
Share Repurchase Program
Our Board of Administrators has approved us to repurchase shares of our Class A Widespread Inventory. Traditionally, we've got used our share repurchase authorization to offset dilution attributable to the train of inventory choices or the vesting of fairness compensation awards and to keep up our desired capital construction. Throughout 2021, we repurchased roughly 2.0 million shares of our Class A Widespread Inventory for roughly$93.3 million in open-market transactions at prevailing market costs and in reference to tax withholdings on the vesting of fairness compensation awards. Throughout 2021, our Board of Administrators permitted an extra$250.0 million of share repurchase authorization. As ofDecember 31, 2021 , our complete remaining repurchase authorization was roughly$226.2 million . Subsequent toDecember 31, 2021 , we repurchased an extra 500,000 shares of Class A Widespread Inventory for roughly$24.1 million , leading to present remaining availability of roughly$202.0 million . Beneath the 2021 Credit score Amenities, share repurchases are permitted to the extent that no occasion of default exists and we don't exceed the restrictions set forth in our debt agreements. After giving impact to the relevant restrictions on share repurchases and sure different transactions underneath our debt agreements, as ofDecember 31, 2021 , we had at the very least$399.8 million of internet revenue and retained earnings freed from such restrictions. Our share repurchase exercise is topic to the enterprise judgment of our Board of Administrators and administration, bearing in mind our historic and projected outcomes of operations, monetary situation, money flows, capital necessities, covenant compliance, the present financial setting and different elements thought-about related. These elements are thought-about every quarter and can be scrutinized as our Board of Administrators and administration decide our share repurchase coverage sooner or later.
Dividends
Our Board of Administrators permitted 4 quarterly money dividends on all excellent shares of Class A and Class B Widespread Inventory totaling$0.46 per share throughout 2021. Subsequent toDecember 31, 2021 , our Board of Administrators permitted a money dividend on all excellent shares of Class A and Class B Widespread Inventory of$0.25 per share for stockholders of file onMarch 15, 2022 to be paid onApril 15, 2022 . Beneath the 2021 Credit score Amenities, dividends are permitted to the extent that no occasion of default exists and we're in compliance with the monetary covenants contained therein. The 2029 Indenture and the 2031 Indenture additionally include restrictions on our skill to pay dividends. After giving impact to the relevant restrictions on 59 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS share repurchases and sure different transactions underneath our debt agreements, as ofDecember 31, 2021 , we had at the very least$399.8 million of internet revenue and retained earnings freed from such restrictions. The declaration and cost of any future dividend is topic to the enterprise judgment of our Board of Administrators, taking into consideration our historic and projected outcomes of operations, monetary situation, money flows, capital necessities, covenant compliance, share repurchases, the present financial setting and different elements thought-about by our Board of Administrators to be related. These elements are thought-about every quarter and shall be scrutinized as our Board of Administrators determines our future dividend coverage. There isn't any assure that further dividends shall be declared and paid at any time sooner or later. See Word 6, "Lengthy-Time period Debt," to the accompanying consolidated monetary statements for an outline of restrictions on the cost of dividends. Money Flows Money Flows from Working Actions - Web money offered by working actions was roughly$306.3 million , and$281.1 million for 2021 and 2020, respectively. The money offered by operations for 2021, as in comparison with 2020, consisted primarily of internet revenue (much less non-cash gadgets), a lower in inventories and a rise in commerce accounts payable and different liabilities, offset partially by a rise in receivables and a lower in notes payable - ground plan - commerce. The money offered by operations for 2020 consisted primarily of internet revenue (much less non-cash gadgets), a lower in receivables and a lower in inventories, offset partially by a lower in notes payable - ground plan - commerce and a lower in commerce accounts payable and different liabilities. We prepare our stock ground plan financing by way of each producer captive finance firms and a syndicate of manufacturer-affiliated finance firms and business banks. Our ground plan financed with producer captives is recorded as commerce ground plan liabilities (with the ensuing change being mirrored as working money flows). Our dealerships that get hold of ground plan financing from a syndicate of manufacturer-affiliated finance firms and business banks file their obligation as non-trade ground plan liabilities (with the ensuing change being mirrored as financing money flows). Because of the presentation variations for modifications in commerce ground plan financing and non-trade ground plan financing within the consolidated statements of money flows, choices made by us to maneuver dealership ground plan financing preparations from one finance supply to a different could trigger important variations in working and financing money flows with out affecting our general liquidity, working capital or money flows. Upon coming into into the 2021 Flooring Plan Amenities inApril 2021 , the majority of our excellent ground plan liabilities have been reclassified from commerce ground plan liabilities to non-trade ground plan liabilities, leading to a important reclassification of associated ground plan legal responsibility money flows from working actions to financing actions. Web money utilized in mixed commerce and non-trade ground plan financing was roughly$55.8 million and$214.8 million for 2021 and 2020, respectively. Accordingly, if all modifications in ground plan notes payable have been labeled as an working exercise, the outcome would have been internet money offered by working actions of roughly$745.9 million and$341.9 million for 2021 and 2020, respectively. Money Flows from Investing Actions - Web money utilized in investing actions throughout 2021 was roughly$1.3 billion . Web money utilized in investing actions throughout 2020 was roughly$100.2 million . Using money throughout 2021, as in comparison with 2020, was comprised primarily of purchases of companies, internet of money acquired, and purchases of land, property and tools, offset partially by proceeds from the sale of property and tools and proceeds from the sale franchised dealerships. Using money throughout 2020 was comprised primarily of proceeds from the sale of franchised dealerships and proceeds from the sale of property and tools, offset by purchases of land, property and tools. See Word 2, "Enterprise Acquisitions and Inclinations," to the accompanying consolidated monetary statements for extra dialogue. The numerous elements of capital expenditures relate primarily to dealership renovations, the acquisition of sure present dealership amenities which had beforehand been financed underneath long-term working leases, and the buy and growth of latest actual property parcels for the relocation of present dealerships and the development of EchoPark shops. Throughout 2021 and 2020, we generated internet proceeds from mortgage financing (excluding the consequences of any refinancing with zero internet proceeds) within the quantity of roughly$16.5 million and$53.1 million , respectively, to buy sure present dealership amenities and to fund sure capital expenditures. Money Flows from Financing Actions - Web money offered by financing actions was roughly$1.1 billion for 2021. Web money utilized in financing actions was roughly$39.7 million for 2020. For 2021, money offered by financing actions was comprised primarily of proceeds from the issuance of the 4.625% Notes and the 4.875% Notes, internet borrowings on notes payable - ground plan - non-trade and proceeds from mortgage notes, offset partially by the extinguishment of the 6.125% Notes, repurchases of treasury inventory and scheduled principal funds of long-term debt. For 2020, money utilized in financing actions was comprised primarily of the repurchases of treasury inventory, scheduled principal funds and repayments of long- 60 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
time period debt and the discount of finance lease liabilities, offset partially by
internet borrowings on notes payable - ground plan - non-trade and proceeds from the
issuance of long-term debt.
Money Flows from Discontinued Operations - The accompanying consolidated
statements of money flows embody each persevering with and discontinued operations.
Web money flows from working actions related to discontinued operations
for 2021 and 2020 weren't materials to complete money flows.
One metric that administration makes use of to measure working efficiency is Adjusted
EBITDA (a non-GAAP monetary measure) for every of our reportable segments and on
a consolidated foundation. This non-GAAP monetary measure is reconciled to internet
revenue (loss) (the closest comparable GAAP monetary measure) within the desk
beneath:
12 months Ended December 31, 2021 12 months Ended December 31, 2020
Franchised
Dealerships EchoPark Discontinued Franchised EchoPark Discontinued
Section Section Operations Complete Dealerships Section Section Operations Complete
(In tens of millions)
Web revenue (loss) $ 348.9 $ (51.4)
Provision for revenue taxes 109.3 15.6
Earnings (loss) earlier than taxes $ 530.3
$ -$ 458.2 $ (39.4)$ 4.1 $ (0.5)$ (35.8) Non-floor plan curiosity (1) 43.0 1.7 - 44.7 37.8 0.9 - 38.7 Depreciation & amortization (2) 87.9 16.4 - 104.3 82.7 11.2 - 93.9 Inventory-based compensation expense 15.0 - - 15.0 11.7 - - 11.7 Asset impairment costs - 0.1 - 0.1 270.0 - - 270.0 Loss (achieve) on debt extinguishment 15.6 - - 15.6 - - - - Lengthy-term compensation-related bills - 8.0 - 8.0 - - - - Acquisition and Disposition-Associated (Achieve) Loss - (0.4) - (0.4) (3.0) (5.2) - (8.2) Adjusted EBITDA (3) $ 691.8$ (46.3) $ -$ 645.5 $ 359.8$ 11.0 $ (0.5)$ 370.3 (1)Consists of curiosity expense, different, internet within the accompanying consolidated statements of operations, internet of any amortization of debt issuance prices or internet debt low cost/premium included in (2) beneath. (2)Consists of the next line gadgets from the accompanying consolidated statements of money flows: depreciation and amortization of property and tools; debt issuance price amortization; and debt low cost amortization, internet of premium amortization. (3)Adjusted EBITDA is a non-GAAP monetary measure. 61 -------------------------------------------------------------------------------- SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Future Liquidity Outlook
Our future contractual obligations are as follows, based mostly on the sooner of
acknowledged contractual obligation or attainable anticipated cost date:
2022 Thereafter
(In tens of millions)
Notes payable - ground plan $ 1,268.4 $ -
Lengthy-term debt (1) 50.6 1,535.5
Letters of credit score 12.3 -
Estimated curiosity funds on ground plan amenities (2) 2.1 -
Estimated curiosity funds on long-term debt 12.9 30.0
Working leases (internet of sublease proceeds) 49.0 341.0
Development contracts 19.0 -
Different buy obligations (3) 4.2 0.7
Legal responsibility for unsure tax positions (4) 0.5 5.3
Complete $ 1,419.0 $ 1,912.5
(1)Lengthy-term debt quantities consist solely of principal obligations, excluding debt
issuance prices.
(2)Flooring plan facility balances are correlated with the quantity of car
stock and are typically due on the time {that a} car is offered. Estimated
curiosity funds have been calculated utilizing the December 31, 2021 ground plan
facility steadiness, the weighted-average rate of interest for the three months ended
December 31, 2021 of 0.74% and the idea that ground plan balances at
December 31, 2021 can be relieved inside 60 days in reference to the sale
of the related car stock.
(3)Different buy obligations embody contracts for actual property purchases,
workplace provides, utilities, acquisition-related obligations and varied different
gadgets or different providers.
(4)Quantity represents recorded legal responsibility, together with curiosity and penalties,
associated to "Accounting for Unsure Earnings Tax Positions" within the ASC. See Word
1, "Description of Enterprise and Abstract of Important Accounting Insurance policies," and
Word 7, "Earnings Taxes," to the accompanying consolidated monetary statements.
We consider our greatest sources of liquidity for operations and debt service stay
money flows generated from operations mixed with the provision of
borrowings underneath our ground plan amenities, the 2021 Credit score Amenities, the 2019
Mortgage Facility and actual property mortgage financing (or any replacements
thereof), chosen dealership and different asset gross sales and our skill to boost
funds within the capital markets by way of choices of debt or fairness securities.
As a result of nearly all of our consolidated property are held by our dealership
subsidiaries, nearly all of our money flows from operations are generated by
these subsidiaries. Consequently, our money flows and talent to service our
obligations rely to a considerable diploma on the outcomes of operations of those
subsidiaries and their skill to offer us with money.
Seasonality
Our operations are topic to seasonal differences. The primary quarter traditionally has contributed much less working revenue than the second and third quarters, whereas the fourth quarter traditionally has contributed the best working revenue of any quarter. Because of the irregular results of the COVID-19 pandemic on the automotive provide chain and stock ranges, this historic seasonality didn't play out in 2021 and will not maintain true in 2022. Climate circumstances and the timing of producer incentive applications and mannequin changeovers trigger seasonality and will adversely have an effect on car demand and, consequently, our profitability. Comparatively, components and repair demand stays secure all year long.
Ensures and Indemnification Obligations
In reference to the operation and disposition of our dealerships, we've got entered into varied ensures and indemnification obligations. After we promote dealerships, we try to assign any associated lease to the customer of the dealership to get rid of any future legal responsibility. Nevertheless, if we're unable to assign the associated leases to the customer, we'll try to sublease the leased properties to the customer at a price equal to the phrases of the unique leases. In the occasion we're unable to sublease the properties to the customer with phrases at least equal to our leases, we could also be required to file lease exit accruals. As ofDecember 31, 2021 , our future gross minimal lease funds associated to properties subleased to consumers of offered dealerships totaled 62 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS roughly$15.5 million . Future sublease funds anticipated to be obtained associated to those lease funds have been roughly$15.4 million atDecember 31, 2021 . In accordance with the phrases of agreements entered into for the sale of our dealerships, we typically comply with indemnify the customer from sure liabilities and prices arising subsequent to the date of sale, together with environmental publicity and publicity ensuing from the breach of representations or warranties made in accordance with the agreements. Whereas our publicity with respect to environmental remediation and repairs is troublesome to quantify, our most publicity related to these basic indemnifications was roughly$4.0 million atDecember 31, 2021 . These indemnifications sometimes expire inside a interval of 1 to a few years following the date of sale. The estimated truthful worth of those indemnifications was not materials and the quantity recorded for this contingency was not important atDecember 31, 2021 . We additionally assure the ground plan commitments of our 50%-owned three way partnership, and the quantity of such assure was roughly$4.3 million atDecember 31, 2021 . We count on the combination quantity of the obligations we assure to fluctuate based mostly on dealership disposition exercise. Though we search to mitigate our publicity in reference to these issues, these ensures and indemnification obligations, together with environmental exposures and the monetary efficiency of lease assignees and sublessees, can't be predicted with certainty. An unfavorable decision of a number of of those issues may have a fabric antagonistic impact on our liquidity and capital assets. See Word 12, "Commitments and Contingencies," to the accompanying consolidated monetary statements for additional dialogue relating to these ensures and indemnification obligations. Authorized Proceedings We're concerned, and count on to proceed to be concerned, in varied authorized and administrative proceedings arising out of the conduct of our enterprise, together with regulatory investigations and personal civil actions introduced by plaintiffs purporting to characterize a possible class or for which a category has been licensed. Though we vigorously defend ourselves in all authorized and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of our enterprise, together with litigation with clients, employment-related lawsuits, contractual disputes, class actions, purported class actions and actions introduced by governmental authorities, can't be predicted with certainty. An unfavorable decision of a number of of those issues may have a fabric antagonistic impact on our enterprise, monetary situation, outcomes of operations, money flows or prospects. Included in different accrued liabilities and different long-term liabilities within the accompanying consolidated steadiness sheet as ofDecember 31, 2021 have been roughly$1.5 million and$0.3 million , respectively, in reserves that we have been holding for pending proceedings. Included in different accrued liabilities and different long-term liabilities within the accompanying consolidated steadiness sheet as ofDecember 31, 2020 have been roughly$0.3 million and$0.2 million , respectively, for such reserves. Besides as mirrored in such reserves, we're presently unable to estimate a variety of moderately attainable loss, or a variety of moderately attainable loss in extra of the quantity accrued, for pending proceedings. See Word 12, "Commitments and Contingencies," to the accompanying consolidated monetary statements for additional dialogue relating to these authorized issues. 63 --------------------------------------------------------------------------------SONIC AUTOMOTIVE, INC.
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