SONIC AUTOMOTIVE INCSAH
SONIC AUTOMOTIVE INC Goodwill & Intangibles Disclosure
Goodwill and Intangible Assets
In accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” we test goodwill for impairment at least annually (as of April 30 of each year) or more frequently if indications of impairment exist. The ASC also states that if an entity determines, based on an assessment of certain qualitative factors, that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative goodwill impairment test is unnecessary. We evaluated our Franchised Dealership Segment reporting unit on a qualitative basis as substantial cushion existed between the calculated fair value and associated carrying values in the prior year evaluation and there were not any meaningful events or trends which would significantly erode this cushion. We evaluated our Powersports Segment reporting unit on a quantitative basis.
In performing the quantitative test in the Powersports Segment reporting unit for impairment of goodwill, we primarily used the income approach method of valuation that includes the discounted cash flow (“DCF”) method that utilizes inputs, including projected revenues, margin, terminal growth rates, discount rates and a market capitalization reconciliation.
We completed our annual impairment testing as of April 30, 2025 and determined there was no impairment of goodwill in either reporting unit evaluated.
In evaluating the recoverability of our indefinite lived franchise assets, we utilized a multi-period excess earnings method (“MPEEM”) model using unobservable inputs (Level 3) to estimate the fair value of the franchise assets for each of our franchises with recorded franchise assets. The significant assumptions in our MPEEM model include projected revenue, projected operating margins, a discount rate (and estimates in the discount rate inputs) and residual growth rates. We completed our annual impairment testing as of April 30, 2025 and determined that several of our franchise assets’ fair values did not exceed the carrying values, resulting in a non-cash pre-tax franchise asset impairment charge of $172.4 million to reduce the carrying value to fair value as of April 30, 2025. After the effect of impairment charges, the carrying value of our franchise assets totaled approximately $454.1 million at December 31, 2025, and is included in other intangible assets, net in the accompanying consolidated balance sheet as of such date.
The changes in the carrying amount of goodwill for the year ended 2025 and 2024 were as follows:
| Franchised Dealerships Segment | EchoPark Segment | Powersports Segment | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Balance at December 31, 2023 (1) | $ | 229.8 | $ | — | $ | 24.0 | $ | 253.8 | |||||||||||||||
| Additions through current year acquisitions | 8.1 | — | 3.3 | 11.4 | |||||||||||||||||||
| Reductions from dispositions | (0.2) | — | — | (0.2) | |||||||||||||||||||
| Prior year acquisition allocations | 93.5 | — | — | 93.5 | |||||||||||||||||||
| Balance at December 31, 2024 (1) | $ | 331.2 | $ | — | $ | 27.3 | $ | 358.5 | |||||||||||||||
| Additions through current year acquisitions | 64.2 | — | — | 64.2 | |||||||||||||||||||
| Reductions from dispositions | (0.7) | — | — | (0.7) | |||||||||||||||||||
| Prior year acquisition allocations | (0.2) | — | — | (0.2) | |||||||||||||||||||
| Balance at December 31, 2025 (1) | $ | 394.5 | $ | — | $ | 27.3 | $ | 421.8 | |||||||||||||||
(1) Net of accumulated impairment losses of $1.1 billion and $202.9 million related to the Franchised Dealerships Segment and the EchoPark Segment, respectively.
During the quarter ended September 30, 2024, we identified an error related to the goodwill associated with the purchase of certain franchise assets in a business combination in the year ended December 31, 2021. As a result, we recorded a $93.5 million adjustment to goodwill to provide for deferred income tax liabilities.
The changes in the carrying amount of franchise assets for 2025 and 2024 were as follows:
| Franchised Dealerships Segment | EchoPark Segment | Powersports Segment | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 371.7 | $ | — | $ | 45.7 | $ | 417.4 | |||||||||||||||
| Additions through current year acquisitions | 10.9 | — | 2.0 | 12.9 | |||||||||||||||||||
| Balance at December 31, 2024 | $ | 382.6 | $ | — | $ | 47.7 | $ | 430.3 | |||||||||||||||
| Additions through current year acquisitions | 202.0 | — | — | 202.0 | |||||||||||||||||||
| Reductions from dispositions | (5.1) | — | (0.7) | (5.8) | |||||||||||||||||||
| Reductions from impairment | (165.9) | — | (6.5) | (172.4) | |||||||||||||||||||
| Balance at December 31, 2025 | $ | 413.6 | $ | — | $ | 40.5 | $ | 454.1 | |||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 26, 2016 | |
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.