Acquisitions

Sonic’s growth strategy is focused on metropolitan markets, predominantly in the Southeast, Southwest, Midwest and California. Under Sonic’s amended and restated syndicated revolving credit agreement and syndicated floor plan credit facility (the “2011 Credit Facilities”), Sonic is restricted from making dealership acquisitions in any fiscal year if the aggregate cost of all such acquisitions occurring in any fiscal year is in excess of specific amounts, or if the aggregate cost of such acquisitions is in excess of $175.0 million during the term of the agreement, without the written consent of the Required Lenders (as that term is defined in the 2011 Credit Facilities). With this restriction on Sonic’s ability to make dealership acquisitions, its acquisition growth strategy may be limited. See Note 6, “Long-Term Debt,” for further discussion of the 2011 Credit Facilities.

Sonic acquired two luxury franchises during the year ended December 31, 2013, for an aggregate purchase price of approximately $88.2 million in cash, net of cash acquired, including the underlying assets and real estate. These cash outflows were funded by cash from operations and borrowings under Sonic’s floor plan facilities. The balance sheet as of December 31, 2013 includes preliminary allocations of the purchase price of these acquisitions to the assets and liabilities acquired based on their estimated fair market values at the date of acquisition and are subject to final adjustment, principally related to the finalization of the dealership valuations. As a result of these allocations, Sonic has recorded the following related to 2013 acquisitions:

The following unaudited pro forma financial information presents a summary of consolidated results from continuing operations as if all of the 2013 acquisitions had occurred at the beginning of 2012, after giving effect to certain adjustments, including interest expense on acquisition debt and related income tax effects. The pro forma financial information does not give effect to adjustments relating to net changes in floor plan interest expense resulting from renegotiated floor plan financing agreements or to reductions in salaries and fringe benefits of former owners or officers of acquired dealerships who have not been retained by Sonic or whose salaries have been reduced pursuant to employment agreements with Sonic. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that would have occurred had the 2013 acquisitions actually been completed at the beginning of the periods presented. The following pro forma results from continuing operations are not necessarily indicative of the results of future operations:

Dispositions

Sonic did not dispose of any dealerships during the years ended December 31, 2013 and 2011, and disposed of ten dealerships during the year ended December 31, 2012. The dispositions during the year ended December 31, 2012 generated cash of approximately $72.2 million. The operating gains or losses associated with these disposed dealerships are included in the amounts shown in the table below for all applicable periods.

In conjunction with dealership dispositions, Sonic has 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 be 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.

Results associated with dealerships classified as discontinued operations were as follows:

Sonic allocates corporate-level interest to discontinued operations based on the net assets of the discontinued operations group. Interest allocated to discontinued operations for the years ended December 31, 2012 and 2011 was approximately $0.7 million and $1.2 million, respectively. No interest was allocated to the discontinued operations group for the year ended December 31, 2013.