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

Annual report pursuant to Section 13 and 15(d)

Business Acquisitions and Dispositions

Business Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2018

Acquisitions

We did not acquire any businesses during 2018. We opened one manufacturer-awarded luxury franchised dealership and three new EchoPark stores during the year ended December 31, 2018. We acquired one pre-owned business (that was subsequently converted to an EchoPark store) for approximately $76.6 million during 2017. We acquired one pre-owned business with three operating locations and related real estate for approximately $15.9 million during 2016, all of which were subsequently closed. These cash outflows were funded by cash from operations and borrowings under our revolving credit and floor plan facilities. Acquisitions are included in the consolidated financial statements from the date of acquisition.

Dispositions

We disposed of seven dealership franchises during 2018 and three dealership franchises during 2017. We did not dispose of any dealership franchises during 2016. The dispositions during 2018 and 2017 generated cash of approximately $128.7 million and $38.2 million, respectively. In addition to these dispositions, we terminated one luxury franchised dealership and ceased operation at four stores in our EchoPark Segment. In conjunction with dealership dispositions, we have agreed to indemnify the buyers from certain liabilities and costs arising from operations or events that occurred prior to sale but which may or may not have been known at the time of sale, including environmental liabilities and liabilities associated from the breach of representations or warranties made under the agreements. See Note 12, “Commitments and Contingencies,” for further discussion.

Prior to our adoption of ASU 2014-8 beginning with our Quarterly Report on Form 10-Q for the period ended June 30, 2014, individual dealership franchises sold, terminated or classified as held for sale were reported as discontinued operations. The results of operations of these dealership franchises sold or terminated prior to March 31, 2014 are reported as discontinued operations for all periods presented. Dealership franchises sold on or after March 31, 2014 have not been reclassified to discontinued operations since they did not meet the criteria in ASU 2014-8.

Revenues and other activities associated with disposed dealerships classified as discontinued operations were as follows:


	Year Ended December 31,
	2018		2017		2016
	(In thousands)
Income (loss) from operations	$	(610)	$	(735)	$	(1,101)

Lease exit accrual adjustments and charges	(407)		(1,207)		(1,020)
Pre-tax income (loss)	$	(1,017)	$	(1,942)	$	(2,121)

Revenues and other activities associated with disposed dealerships that remain in continuing operations were as follows:


	Year Ended December 31,
	2018		2017		2016
	(In thousands)
Income (loss) from operations	$	(8,033)	$	(6,109)	$	(2,244)
Gain (loss) on disposal	39,307		9,974		(47)
Lease exit accrual adjustments and charges	959		—		(1,020)
Property impairment charges	(694)		(169)		(119)
Pre-tax income (loss)	$	31,539	$	3,696	$	(3,430)
Total revenues	$	127,213	$	530,294	$	579,938

In the ordinary course of business, we evaluate our dealership franchises for possible disposition based on various strategic and performance criteria. As of December 31, 2018, we did not have any franchises classified as held for sale; however, in the future, we may sell franchises that are not currently held for sale.