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, 2019

Acquisitions

We did not acquire any businesses during 2019 or 2018. We opened one new EchoPark store in California during 2019 and opened one manufacturer-awarded luxury franchised dealership and three new EchoPark stores in 2018. We acquired one pre-owned business (that was subsequently converted to an EchoPark store) for approximately $76.6 million during 2017. Acquisitions are included in the consolidated financial statements from the date of acquisition.

Dispositions

We disposed of one luxury franchised dealership and nine mid-line import franchised dealerships in 2019, which generated net cash from dispositions of approximately $250.7 million. We disposed of two luxury franchised dealerships and five mid-line import franchised dealerships in 2018, which generated net cash from dispositions of approximately $128.7 million. Additionally, we terminated one luxury franchised dealership and ceased operations at a previously acquired pre-owned store in Florida and four stores in our EchoPark Segment in 2018. We disposed of one domestic franchised dealership and two mid-line import franchised dealerships in 2017, which generated net cash from dispositions of approximately $38.2 million. 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 resulting 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 2014-08 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 on or prior to March 31, 2014 are reported as discontinued operations for all periods presented. Dealership franchises sold after March 31, 2014 have not been reclassified to discontinued operations since they did not meet the criteria in ASU 2014-08.

Income (loss) from operations and lease exit accrual adjustments and charges associated with disposed dealerships classified as discontinued operations were as follows:


	Year Ended December 31,
	2019		2018		2017
	(In thousands)
Income (loss) from operations before taxes	$	(554)	$	(610)	$	(735)

Lease exit accrual adjustments and charges	—		(407)		(1,207)
Income (loss) from discontinued operations before taxes	$	(554)	$	(1,017)	$	(1,942)

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


	Year Ended December 31,
	2019		2018		2017
	(In thousands)
Income (loss) from operations before taxes and items below	$	3,154	$	(4,313)	$	(736)
Gain (loss) on disposal of dealerships (1)	76,461		39,307		9,974
Lease exit accrual adjustments and charges	170		210		(1,207)
Impairment charges	—		(4,180)		(318)
Income (loss) before taxes	$	79,785	$	31,024	$	7,713
Total revenues	$	307,849	$	783,275	$	1,140,514

(1) Included in selling, general and administrative expenses in the accompanying consolidated statements of income.

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, 2019, 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.