Item 1. Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value and share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
4.1
|
|
|
$
|
3.5
|
|
Contracts-in-transit
|
119.1
|
|
|
194.7
|
|
Accounts receivable, net
|
126.4
|
|
|
136.2
|
|
Inventories
|
828.7
|
|
|
985.0
|
|
|
|
|
|
Assets held for sale
|
49.6
|
|
|
154.2
|
|
Other current assets
|
170.1
|
|
|
129.0
|
|
Total current assets
|
1,298.0
|
|
|
1,602.6
|
|
PROPERTY AND EQUIPMENT, net
|
945.4
|
|
|
909.7
|
|
OPERATING LEASE RIGHT-OF-USE ASSETS
|
286.9
|
|
|
65.6
|
|
GOODWILL
|
888.6
|
|
|
201.7
|
|
INTANGIBLE FRANCHISE RIGHTS
|
101.9
|
|
|
121.7
|
|
|
|
|
|
OTHER LONG-TERM ASSETS
|
9.8
|
|
|
10.0
|
|
Total assets
|
$
|
3,530.6
|
|
|
$
|
2,911.3
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Floor plan notes payable—trade, net
|
$
|
60.4
|
|
|
$
|
130.3
|
|
Floor plan notes payable—non-trade, net
|
635.2
|
|
|
657.7
|
|
Current maturities of long-term debt
|
49.7
|
|
|
32.4
|
|
Current maturities of operating leases
|
26.9
|
|
|
17.0
|
|
Accounts payable and accrued liabilities
|
418.0
|
|
|
308.7
|
|
Liabilities associated with assets held for sale
|
22.5
|
|
|
100.9
|
|
Total current liabilities
|
1,212.7
|
|
|
1,247.0
|
|
LONG-TERM DEBT
|
1,174.1
|
|
|
907.0
|
|
OPERATING LEASE LIABILITIES
|
263.6
|
|
|
52.6
|
|
DEFERRED INCOME TAXES
|
24.7
|
|
|
26.0
|
|
OTHER LONG-TERM LIABILITIES
|
43.6
|
|
|
32.4
|
|
COMMITMENTS AND CONTINGENCIES (Note 12)
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
|
Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
Common stock, $.01 par value; 90,000,000 shares authorized; 41,133,862 and 41,072,080 shares issued, including shares held in treasury, respectively
|
0.4
|
|
|
0.4
|
|
Additional paid-in capital
|
592.1
|
|
|
582.9
|
|
Retained earnings
|
1,259.8
|
|
|
1,094.5
|
|
Treasury stock, at cost; 21,848,314 and 21,791,707 shares, respectively
|
(1,033.7)
|
|
|
(1,028.6)
|
|
Accumulated other comprehensive loss
|
(6.7)
|
|
|
(2.9)
|
|
Total shareholders' equity
|
811.9
|
|
|
646.3
|
|
Total liabilities and shareholders' equity
|
$
|
3,530.6
|
|
|
$
|
2,911.3
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
REVENUE:
|
|
|
|
|
|
|
|
New vehicle
|
$
|
957.9
|
|
|
$
|
986.9
|
|
|
$
|
2,541.8
|
|
|
$
|
2,823.9
|
|
Used vehicle
|
569.5
|
|
|
546.9
|
|
|
1,510.2
|
|
|
1,590.4
|
|
Parts and service
|
237.2
|
|
|
227.6
|
|
|
628.0
|
|
|
669.7
|
|
Finance and insurance, net
|
80.8
|
|
|
80.6
|
|
|
217.8
|
|
|
232.3
|
|
TOTAL REVENUE
|
1,845.4
|
|
|
1,842.0
|
|
|
4,897.8
|
|
|
5,316.3
|
|
COST OF SALES:
|
|
|
|
|
|
|
|
New vehicle
|
897.3
|
|
|
948.3
|
|
|
2,406.2
|
|
|
2,709.1
|
|
Used vehicle
|
520.3
|
|
|
514.5
|
|
|
1,393.2
|
|
|
1,487.6
|
|
Parts and service
|
91.9
|
|
|
86.1
|
|
|
247.3
|
|
|
252.3
|
|
TOTAL COST OF SALES
|
1,509.5
|
|
|
1,548.9
|
|
|
4,046.7
|
|
|
4,449.0
|
|
GROSS PROFIT
|
335.9
|
|
|
293.1
|
|
|
851.1
|
|
|
867.3
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
206.5
|
|
|
202.0
|
|
|
553.4
|
|
|
593.7
|
|
Depreciation and amortization
|
9.8
|
|
|
9.1
|
|
|
29.0
|
|
|
26.7
|
|
Franchise rights impairment
|
—
|
|
|
—
|
|
|
23.0
|
|
|
—
|
|
Other operating expense (income), net
|
0.5
|
|
|
(0.2)
|
|
|
9.4
|
|
|
1.0
|
|
INCOME FROM OPERATIONS
|
119.1
|
|
|
82.2
|
|
|
236.3
|
|
|
245.9
|
|
OTHER EXPENSES (INCOME):
|
|
|
|
|
|
|
|
Floor plan interest expense
|
3.0
|
|
|
9.0
|
|
|
14.1
|
|
|
29.7
|
|
Other interest expense, net
|
12.9
|
|
|
13.7
|
|
|
41.7
|
|
|
41.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of long-term debt, net
|
—
|
|
|
—
|
|
|
20.6
|
|
|
—
|
|
Gain on dealership divestitures, net
|
(24.7)
|
|
|
—
|
|
|
(58.4)
|
|
|
(11.7)
|
|
Total other (income) expense, net
|
(8.8)
|
|
|
22.7
|
|
|
18.0
|
|
|
59.2
|
|
INCOME BEFORE INCOME TAXES
|
127.9
|
|
|
59.5
|
|
|
218.3
|
|
|
186.7
|
|
Income tax expense
|
31.7
|
|
|
14.5
|
|
|
53.0
|
|
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
$
|
96.2
|
|
|
$
|
45.0
|
|
|
$
|
165.3
|
|
|
$
|
140.8
|
|
EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
Basic—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
5.01
|
|
|
$
|
2.36
|
|
|
$
|
8.61
|
|
|
$
|
7.37
|
|
Diluted—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
4.96
|
|
|
$
|
2.33
|
|
|
$
|
8.56
|
|
|
$
|
7.30
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
Basic
|
19.2
|
|
19.1
|
|
19.2
|
|
19.1
|
|
|
|
|
|
|
|
|
Restricted stock
|
0.1
|
|
0.1
|
|
—
|
|
0.1
|
Performance share units
|
0.1
|
|
0.1
|
|
0.1
|
|
0.1
|
Diluted
|
19.4
|
|
19.3
|
|
19.3
|
|
19.3
|
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
$
|
96.2
|
|
|
$
|
45.0
|
|
|
$
|
165.3
|
|
|
$
|
140.8
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
Change in fair value of cash flow swaps
|
—
|
|
|
(1.0)
|
|
|
(5.1)
|
|
|
(5.3)
|
|
|
|
|
|
|
|
|
|
Income tax benefit associated with cash flow swaps
|
—
|
|
|
0.3
|
|
|
1.3
|
|
|
1.4
|
|
Comprehensive income
|
$
|
96.2
|
|
|
$
|
44.3
|
|
|
$
|
161.5
|
|
|
$
|
136.9
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Treasury Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
Balances, December 31, 2019
|
41,072,080
|
|
|
$
|
0.4
|
|
|
$
|
582.9
|
|
|
$
|
1,094.5
|
|
|
21,791,707
|
|
|
$
|
(1,028.6)
|
|
|
$
|
(2.9)
|
|
|
$
|
646.3
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
19.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19.5
|
|
Change in fair value of cash flow swaps, net of reclassification adjustment and $1.1 tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.4)
|
|
|
(3.4)
|
|
Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
19.5
|
|
|
—
|
|
|
—
|
|
|
(3.4)
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements
|
68,577
|
|
|
—
|
|
|
(0.3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
Repurchase of common stock associated with net share settlements of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,915
|
|
|
(5.0)
|
|
|
—
|
|
|
(5.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2020
|
41,140,657
|
|
|
$
|
0.4
|
|
|
$
|
586.4
|
|
|
$
|
1,114.0
|
|
|
21,845,622
|
|
|
$
|
(1,033.6)
|
|
|
$
|
(6.3)
|
|
|
$
|
660.9
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
|
|
—
|
|
|
49.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49.6
|
|
Change in fair value of cash flow swaps, net of reclassification adjustment and $0.2 tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
|
(0.4)
|
|
Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
49.6
|
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
|
49.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
3.1
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
Forfeitures in connection with share-based payment arrangements
|
(2,916)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock associated with net share settlements of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,552
|
|
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2020
|
41,137,741
|
|
|
$
|
0.4
|
|
|
$
|
589.5
|
|
|
$
|
1,163.6
|
|
|
21,848,174
|
|
|
$
|
(1,033.7)
|
|
|
$
|
(6.7)
|
|
|
$
|
713.1
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
|
|
—
|
|
|
96.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
96.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
Forfeitures in connection with share-based payment arrangements
|
(3,879)
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
Repurchase of common stock associated with net share settlements of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2020
|
41,133,862
|
|
|
$
|
0.4
|
|
|
$
|
592.1
|
|
|
$
|
1,259.8
|
|
|
21,848,314
|
|
|
$
|
(1,033.7)
|
|
|
$
|
(6.7)
|
|
|
$
|
811.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Treasury Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
Balances, December 31, 2018
|
41,065,069
|
|
|
$
|
0.4
|
|
|
$
|
572.9
|
|
|
$
|
922.7
|
|
|
21,719,339
|
|
|
$
|
(1,023.4)
|
|
|
$
|
0.6
|
|
|
$
|
473.2
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
40.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40.9
|
|
Change in fair value of cash flow swaps, net of reclassification adjustment and $0.5 tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
(1.3)
|
|
Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
40.9
|
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
39.6
|
|
Cumulative effect adjustment of ASU 2018-02
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.9
|
|
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements
|
238,078
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock associated with net share settlement of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,912
|
|
|
(4.7)
|
|
|
—
|
|
|
(4.7)
|
|
Share repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
108,978
|
|
|
(7.4)
|
|
|
—
|
|
|
(7.4)
|
|
Retirement of previously repurchased common stock
|
(108,978)
|
|
|
—
|
|
|
(1.3)
|
|
|
(6.1)
|
|
|
(108,978)
|
|
|
7.4
|
|
|
—
|
|
|
—
|
|
Balances, March 31, 2019
|
41,194,169
|
|
|
$
|
0.4
|
|
|
$
|
575.5
|
|
|
$
|
957.7
|
|
|
21,786,251
|
|
|
$
|
(1,028.1)
|
|
|
$
|
(0.9)
|
|
|
$
|
504.6
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
54.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54.9
|
|
Change in fair value of cash flow swaps, net of reclassification adjustment and $0.6 tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9)
|
|
|
(1.9)
|
|
Comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
54.9
|
|
|
—
|
|
|
—
|
|
|
(1.9)
|
|
|
53.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.9
|
|
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements
|
(3,656)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock associated with net share settlement of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,328
|
|
|
(0.3)
|
|
|
—
|
|
|
(0.3)
|
|
Share repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,436
|
|
|
(3.9)
|
|
|
—
|
|
|
(3.9)
|
|
Retirement of previously repurchased common stock
|
(50,436)
|
|
|
—
|
|
|
(0.6)
|
|
|
(3.3)
|
|
|
(50,436)
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
Balances, June 30, 2019
|
41,140,077
|
|
|
$
|
0.4
|
|
|
$
|
577.8
|
|
|
$
|
1,009.3
|
|
|
21,789,579
|
|
|
$
|
(1,028.4)
|
|
|
$
|
(2.8)
|
|
|
$
|
556.3
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
45.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7)
|
|
|
(0.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements
|
(704)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock associated with net share settlement of employee share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,128
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
Share repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,965
|
|
|
(4.0)
|
|
|
—
|
|
|
(4.0)
|
|
Retirement of previously repurchased common stock
|
(42,965)
|
|
|
—
|
|
|
(0.6)
|
|
|
(3.4)
|
|
|
(42,965)
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
Balances, September 30, 2019
|
41,096,408
|
|
|
$
|
0.4
|
|
|
$
|
580.8
|
|
|
$
|
1,050.9
|
|
|
21,791,707
|
|
|
$
|
(1,028.6)
|
|
|
$
|
(3.5)
|
|
|
$
|
600.0
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
Net income
|
$
|
165.3
|
|
|
$
|
140.8
|
|
Adjustments to reconcile net income to net cash provided by operating activities—
|
|
|
|
Depreciation and amortization
|
29.0
|
|
|
26.7
|
|
Share-based compensation
|
9.2
|
|
|
10.4
|
|
|
|
|
|
Franchise rights impairment
|
23.0
|
|
|
—
|
|
Loss on extinguishment of long-term debt, net
|
20.6
|
|
|
—
|
|
Loaner vehicle amortization
|
15.5
|
|
|
17.6
|
|
Gain on divestitures, net
|
(58.4)
|
|
|
(11.7)
|
|
Change in right-of-use asset
|
13.0
|
|
|
14.3
|
|
Other adjustments, net
|
1.4
|
|
|
4.0
|
|
Changes in operating assets and liabilities, net of acquisitions and divestitures—
|
|
|
|
Contracts-in-transit
|
75.6
|
|
|
49.7
|
|
Accounts receivable
|
10.2
|
|
|
17.6
|
|
|
|
|
|
Inventories
|
420.5
|
|
|
201.0
|
|
Other current assets
|
(110.7)
|
|
|
(131.1)
|
|
Floor plan notes payable—trade, net
|
(68.3)
|
|
|
8.1
|
|
Accounts payable and other current liabilities
|
84.4
|
|
|
11.8
|
|
Operating lease liabilities
|
(13.0)
|
|
|
(14.5)
|
|
Other long-term assets and liabilities, net
|
7.9
|
|
|
3.0
|
|
Net cash provided by operating activities
|
625.2
|
|
|
347.7
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
Capital expenditures—excluding real estate
|
(27.5)
|
|
|
(28.7)
|
|
Capital expenditures—real estate
|
(2.3)
|
|
|
(9.2)
|
|
|
|
|
|
Purchases of previously leased real estate
|
—
|
|
|
(4.9)
|
|
Acquisitions
|
(954.1)
|
|
|
(210.0)
|
|
Divestitures
|
161.6
|
|
|
39.1
|
|
Proceeds from the sale of assets
|
4.2
|
|
|
7.5
|
|
Net cash used in investing activities
|
(818.1)
|
|
|
(206.2)
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
Floor plan borrowings—non-trade
|
2,838.3
|
|
|
3,118.7
|
|
Floor plan borrowings—acquisitions
|
131.6
|
|
|
55.3
|
|
Floor plan repayments—non-trade
|
(2,995.7)
|
|
|
(3,273.1)
|
|
Floor plan repayments—non-trade divestitures
|
(55.3)
|
|
|
(14.1)
|
|
Proceeds from borrowings
|
1,875.3
|
|
|
—
|
|
Repayments of borrowings
|
(1,599.7)
|
|
|
(12.0)
|
|
Proceeds from sale and leaseback transaction
|
7.3
|
|
|
—
|
|
Payment of debt issuance costs
|
(3.1)
|
|
|
(2.3)
|
|
|
|
|
|
Repurchases of common stock, including shares associated with net share settlement of
employee share-based awards
|
(5.2)
|
|
|
(20.5)
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
193.5
|
|
|
(148.0)
|
|
Net increase in cash and cash equivalents
|
0.6
|
|
|
(6.5)
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
3.5
|
|
|
8.3
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
4.1
|
|
|
$
|
1.8
|
|
See Note 11 "Supplemental Cash Flow Information" for further details
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are one of the largest automotive retailers in the United States. As of September 30, 2020, we owned and operated 113 new vehicle franchises (90 dealership locations) representing 31 automobile brands and 25 collision repair centers in 16 metropolitan markets within nine states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes repair and maintenance services, replacement parts and collision repair services; and finance and insurance products. As of September 30, 2020, our new vehicle revenue brand mix consisted of 44% imports, 34% luxury, and 22% domestic brands.
Our retail network is made up of dealerships operating primarily under the following locally-branded dealership groups:
•Coggin dealerships operating primarily in Jacksonville, Fort Pierce and Orlando, Florida;
•Courtesy dealerships operating in Tampa, Florida;
•Crown dealerships operating in North Carolina, South Carolina and Virginia;
•Greenville Automotive dealerships operating in Greenville, South Carolina;
•Hare and Estes dealerships operating in the Indianapolis, Indiana area;
•McDavid dealerships operating in metropolitan Austin and Dallas, Texas;
•Nalley dealerships operating in metropolitan Atlanta, Georgia;
•Park Place dealerships operating in the Dallas-Fort Worth area;
•Plaza dealerships operating in metropolitan St. Louis, Missouri; and
•Mike Shaw dealerships in the Denver, Colorado area.
On July 6, 2020, the Company, through two of its subsidiaries, entered into an Asset Purchase Agreement (the "Revised Asset Purchase Agreement") with certain members of the Park Place Dealership group, to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises, two collision centers and an auto auction comprising the Park Place Dealership group (collectively, the "Revised Transaction"). The Revised Transaction was completed on August 24, 2020 for a purchase price of $889.9 million. The purchase price was financed through a combination of cash, debt and seller financing. See Note 3 "Acquisitions and Divestitures" for details of the Revised Transaction.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and reflect the consolidated accounts of Asbury Automotive Group, Inc. (the "Company") and our wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. If necessary, reclassifications of amounts previously reported have been made to the accompanying Condensed Consolidated Financial Statements in order to conform to current presentation.
In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair statement of the Condensed Consolidated Financial Statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, have been included, unless otherwise indicated. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period, or any full year period. Our Condensed Consolidated Financial Statements should be read together with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed quarterly and the effects of any revisions are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. Significant estimates made in the accompanying Condensed Consolidated Financial Statements include, but are not limited to, those relating to inventory valuation reserves, variable consideration and constraint considerations related to retro-commission arrangements, reserves for
chargebacks against revenue recognized from the sale of finance and insurance products, reserves for insurance programs, certain assumptions related to intangible and long-lived assets, and reserves for certain legal or similar proceedings relating to our business operations.
Contracts-In-Transit
Contracts-in-transit represent receivables from third-party finance companies for the portion of new and used vehicle purchase price financed by customers through sources arranged by us.
Accounts Receivable
The allowance for credit losses is estimated using an annual loss rate approach, by type of receivable, utilizing historical loss rates which have been adjusted for expectations of future economic conditions.
Revenue Recognition
Please refer to Note 2 "Revenue Recognition".
Internal Profit
Revenues and expenses associated with internal work performed by our parts and service departments on new and used vehicle inventory are eliminated in consolidation. The gross profit earned by our parts and service departments for internal work performed is included as a reduction of Parts and Service Cost of Sales in the accompanying Condensed Consolidated Statements of Income upon the sale of the vehicle. The costs incurred by our new and used vehicle departments for work performed by our parts and service departments is included in either New Vehicle Cost of Sales or Used Vehicle Cost of Sales in the accompanying Condensed Consolidated Statements of Income, depending on the classification of the vehicle serviced. We eliminate the internal profit on vehicles that remain in inventory.
Income Taxes
We use the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using currently enacted tax rates.
Share Repurchases
Share repurchases may be made from time-to-time in open market transactions or through privately negotiated transactions under the authorization approved by the Board of Directors. Periodically, the Company may retire repurchased shares of common stock previously held by the Company as treasury stock. In accordance with our accounting policy, we allocate any excess share repurchase price over par value between additional paid-in capital, which is limited to amounts initially recorded for the same issue, and retained earnings.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average common shares and common share equivalents outstanding during the period. The Company excluded 0 and 78,180 restricted share units issued under the Asbury Automotive Group, Inc. 2019 Equity and Incentive Compensation Plan, from its computation of diluted earnings per share for the three and nine months ended September 30, 2020, respectively, because they were anti-dilutive. For all periods presented, there were no adjustments to the numerator necessary to compute diluted earnings per share.
Assets Held for Sale and Liabilities Associated with Assets Held for Sale
Certain amounts have been classified as Assets Held for Sale in the accompanying Condensed Consolidated Balance Sheets. Assets and liabilities classified as held for sale may include assets and liabilities associated with pending dealership disposals, real estate we are actively marketing to sell, and any related mortgage notes payable or other liabilities, if applicable. Classification as held for sale begins on the date that we have met all of the criteria for classification as held for sale.
At the time of classifying assets as held for sale, we compare the carrying value of these assets to estimates of fair value to assess for impairment. We compare the carrying value to estimates of fair value utilizing the assistance of third-party broker opinions of value and third-party desktop appraisals to assist in our fair value estimates related to real estate properties.
Statements of Cash Flows
Borrowings and repayments of floor plan notes payable to a lender unaffiliated with the manufacturer from which we purchase a particular new vehicle ("Non-Trade") and all floor plan notes payable relating to pre-owned vehicles (together referred to as "Floor Plan Notes Payable—Non-Trade") are classified as financing activities in the accompanying Condensed Consolidated Statements of Cash Flows, with borrowings reflected separately from repayments. The net change in floor plan notes payable to a lender affiliated with the manufacturer from which we purchase a particular new vehicle (collectively referred to as "Floor Plan Notes Payable—Trade") is classified as an operating activity in the accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as financing activities in the accompanying Condensed Consolidated Statements of Cash Flows. Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to a lender not affiliated with the manufacturer from which we purchased the related inventory.
Loaner vehicles account for a significant portion of Other current assets. We acquire loaner vehicles either with available cash or through borrowing from either our manufacturer affiliated lenders or through our senior secured credit agreement with Bank of America, as administrative agent, and the other agents and lenders party thereto (as amended, the "2019 Senior Credit Facility"). Loaner vehicles are initially used by our service department for a short period of time (typically six to twelve months) before we seek to sell them. Therefore, we classify the acquisition of loaner vehicles in Other current assets and the borrowings and repayments of loaner vehicle notes payable in Accounts payable and accrued liabilities in the accompanying Condensed Consolidated Statements of Cash Flows. Loaner vehicles are depreciated over the service period to their estimated value. At the end of the loaner service period, loaner vehicles are transferred from Other current assets to used vehicle inventory. These transfers are reflected as non-cash transfers between Other current assets and Inventories in the accompanying Condensed Consolidated Statements of Cash Flows.
Recent Accounting Pronouncements
Effective January 1, 2020, the Company adopted Financial Accounting Standard Board Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, which changed the way entities assess the impairment of its financial instruments based on its estimate of expected credit losses versus the current incurred loss model. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
2. REVENUE RECOGNITION
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or performing a service to a customer. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
Revenue:
|
|
|
|
New vehicle
|
$
|
957.9
|
|
|
$
|
986.9
|
|
Used vehicle retail
|
507.4
|
|
|
505.0
|
|
Used vehicle wholesale
|
62.1
|
|
|
41.9
|
|
New and used vehicle
|
1,527.4
|
|
|
1,533.8
|
|
Sale of vehicle parts and accessories
|
36.8
|
|
|
36.7
|
|
Vehicle repair and maintenance services
|
200.4
|
|
|
190.9
|
|
Parts and services
|
237.2
|
|
|
227.6
|
|
Finance and insurance, net
|
80.8
|
|
|
80.6
|
|
Total revenue
|
$
|
1,845.4
|
|
|
$
|
1,842.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
Revenue:
|
|
|
|
New vehicle
|
$
|
2,541.8
|
|
|
$
|
2,823.9
|
|
Used vehicle retail
|
1,366.0
|
|
|
1,449.8
|
|
Used vehicle wholesale
|
144.2
|
|
|
140.6
|
|
New and used vehicle
|
4,052.0
|
|
|
4,414.3
|
|
Sale of vehicle parts and accessories
|
99.5
|
|
|
109.7
|
|
Vehicle repair and maintenance services
|
528.5
|
|
|
560.0
|
|
Parts and services
|
628.0
|
|
|
669.7
|
|
Finance and insurance, net
|
217.8
|
|
|
232.3
|
|
Total revenue
|
$
|
4,897.8
|
|
|
$
|
5,316.3
|
|
Contract Asset
Changes in contract assets during the period are reflected in the table below. Contract assets related to vehicle repair and maintenance services are transferred to receivables when a repair order is completed and invoiced to the customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Repair and Maintenance Services
|
|
Finance and Insurance, net
|
|
Total
|
|
(In millions)
|
Contract Assets (Current), January 1, 2020
|
$
|
4.8
|
|
|
$
|
12.3
|
|
|
$
|
17.1
|
|
|
|
|
|
|
|
Transferred to receivables from contract assets recognized at the beginning of the period
|
(4.8)
|
|
|
(4.1)
|
|
|
(8.9)
|
|
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period
|
3.7
|
|
|
4.6
|
|
|
8.3
|
|
Contract Assets (Current), March 31, 2020
|
$
|
3.7
|
|
|
$
|
12.8
|
|
|
$
|
16.5
|
|
Transferred to receivables from contract assets recognized at the beginning of the period
|
(3.7)
|
|
|
(4.0)
|
|
|
(7.7)
|
|
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period
|
3.3
|
|
|
4.0
|
|
|
7.3
|
|
Contract Assets (Current), June 30, 2020
|
3.3
|
|
|
12.8
|
|
|
16.1
|
|
Transferred to receivables from contract assets recognized at the beginning of the period
|
(3.3)
|
|
|
(3.2)
|
|
|
(6.5)
|
|
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period
|
6.8
|
|
|
3.9
|
|
|
10.7
|
|
Contract Assets (Current), September 30, 2020
|
$
|
6.8
|
|
|
$
|
13.5
|
|
|
$
|
20.3
|
|
3. ACQUISITIONS AND DIVESTITURES
Results of acquired dealerships are included in our accompanying Condensed Consolidated Statements of Income commencing on the date of acquisition. Our acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The fair value of our manufacturer franchise rights are determined as of the acquisition date, by discounting the projected cash flows specific to each franchise. Included in this analysis are market participant assumptions related to the cash flows directly attributable to the franchise rights, including year-over-year and terminal growth rates, working capital requirements, weighted average cost of capital, future gross margins, and future selling, general, and administrative expenses.
Park Place Acquisition
On December 11, 2019, we announced the proposed acquisition of substantially all of the assets of the businesses of the Park Place Dealership family of entities (collectively, "Park Place") pursuant to that certain Asset Purchase Agreement, dated as of December 11, 2019, among the Company, Park Place and the other parties thereto (the "2019 Asset Purchase Agreement"), and related agreements and transactions (collectively, the "2019 Acquisition"). On March 24, 2020, we delivered notice to the sellers terminating the 2019 Acquisition pursuant to the terms of the related agreements and transactions in exchange for the payment of $10.0 million of liquidated damages which is reflected in our accompanying Condensed Consolidated Statements of Income as Other operating expense (income), net. See Note 9 "Debt" for details related to the impact on certain financing arrangements as a result of terminating the 2019 Acquisition.
On July 6, 2020, the Company, through two of its subsidiaries, entered into a Revised Asset Purchase Agreement with certain members of the Park Place Dealership group, to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (8 dealership locations), two collision centers and an auto auction. The Revised Transaction was completed on August 24, 2020 and financed through a combination of cash, floor plan facilities and seller financing. The seller financing comprised $150.0 million in aggregate principal amount of a 4.00% promissory note due August 2021 and $50.0 million in aggregate principal amount of 4.00% promissory note due February 2022 (collectively, the "Seller Notes"). In September 2020, the Company redeemed the Seller Notes. See Note 9 "Debt" for further details.
The sources of the preliminary purchase consideration are as follows:
|
|
|
|
|
|
|
(In millions)
|
Cash
|
$
|
527.4
|
|
Seller Notes
|
200.0
|
|
New Vehicle Floor Plan Facility
|
127.5
|
|
Used Vehicle Floor Plan Facility
|
35.0
|
|
Preliminary purchase price
|
$
|
889.9
|
|
Under the acquisition method of accounting, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on information currently available. We have not finalized our valuation for manufacturer franchise rights which will be reclassified from goodwill once completed. Our valuation for property and equipment and our assessment with respect to certain assumed leases is preliminary as of September 30, 2020. Furthermore, the assignment of goodwill to reporting units has not been completed as of the date of issuance of these Condensed Consolidated Financial Statements. The following table summarizes the allocation of the estimated purchase price based on preliminary estimates of fair value:
|
|
|
|
|
|
|
(In millions)
|
Summary of Assets Acquired and Liabilities Assumed
|
|
Inventories
|
$
|
120.8
|
|
Loaner vehicles
|
57.0
|
|
Property and equipment
|
35.0
|
|
Goodwill and intangible assets
|
685.9
|
|
Operating lease right-of-use assets
|
202.7
|
|
Total assets acquired
|
1,101.4
|
|
Operating lease liabilities
|
(202.2)
|
|
Other liabilities
|
(9.3)
|
|
Total liabilities assumed
|
(211.5)
|
|
Net assets acquired
|
$
|
889.9
|
|
The Company recorded $1.3 million of acquisition related costs during the three months ended September 30, 2020. These costs are included in Selling, general, and administrative in the Condensed Consolidated Statements of Income.
The Company's Condensed Consolidated Statements of Income included revenue and net income attributable to Park Place from August 24, 2020 through September 30, 2020 of $148.4 million and $7.0 million, respectively.
The following represents the unaudited pro forma information as if Park Place had been included in the consolidated results of the Company since January 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
|
(Unaudited)
|
Pro Forma Revenue
|
$
|
2,045.7
|
|
|
$
|
2,261.4
|
|
Pro Forma Net Income
|
$
|
107.0
|
|
|
$
|
56.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
|
(Unaudited)
|
Pro Forma Revenue
|
$
|
5,755.6
|
|
|
$
|
6,517.5
|
|
Pro Forma Net Income
|
$
|
187.4
|
|
|
$
|
173.9
|
|
This pro forma information incorporates the Company's accounting policies and adjusts the results of Park Place for depreciation, rent expense, and interest expense assuming that the fair value adjustments and indebtedness incurred in connection with the Revised Transaction had occurred on January 1, 2019. They have also been adjusted to reflect the $1.3 million of acquisition related costs incurred during the three months ended September 30, 2020 as having occurred on January 1, 2019. The pro forma information also assumes that the September 2020 divestiture of the Lexus Greenville dealership, which was related to the Park Place acquisition, occurred on January 1, 2019.
Other Acquisitions and Divestitures
In addition to the Revised Transaction, during the nine months ended September 30, 2020, we acquired the assets of three franchises (one dealership location) in the Denver, Colorado market for a combined purchase price of $63.6 million. We funded this acquisition with an aggregate of $34.5 million of cash and $27.1 million of floor plan borrowings for the purchase of the related new vehicle inventory. In the aggregate, this acquisition included purchase price holdbacks of $2.0 million for potential indemnity claims made by us with respect to the acquired franchises. In addition to the acquisition amounts above, we released $2.5 million of purchase price holdbacks related to a prior year acquisition during the nine months ended September 30, 2020.
During the nine months ended September 30, 2019, we acquired the assets of nine franchises (five dealership locations) and one collision center in the Indianapolis, Indiana market and one franchise (one dealership location) in the Denver, Colorado market for a combined purchase price of $210.4 million. We funded these acquisitions with an aggregate of $153.9 million of cash, $55.3 million of floor plan borrowings for the purchase of the related new vehicle inventory. In the aggregate, these acquisitions included purchase price holdbacks of $1.2 million for potential indemnity claims made by us with respect to the acquired franchises. In addition to the acquisition amounts above, we released $0.8 million of purchase price holdbacks related to a prior year acquisition.
The goodwill and manufacturer franchise rights associated with our acquisitions will be deductible for federal and state income tax purposes ratably over a 15 year period.
Below is the allocation of purchase price for the other acquisitions completed during the nine months ended September 30, 2020 and 2019, respectively. Our 2020 valuation for manufacturer franchise rights, real estate, property and equipment, and our assessment with respect to certain assumed leases is preliminary as of September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
Inventory
|
$
|
29.8
|
|
|
$
|
70.9
|
|
Real estate
|
14.5
|
|
|
43.1
|
|
Property and equipment
|
0.4
|
|
|
4.7
|
|
Goodwill and manufacturer franchise rights
|
19.2
|
|
|
91.0
|
|
|
|
|
|
Loaner vehicles
|
—
|
|
|
1.5
|
|
Liabilities assumed
|
—
|
|
|
(0.8)
|
|
Other
|
(0.3)
|
|
|
—
|
|
Total purchase price
|
$
|
63.6
|
|
|
$
|
210.4
|
|
During the nine months ended September 30, 2020, we sold one franchise (one dealership location) in the Atlanta, Georgia market, we sold six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market, and we sold one franchise (one dealership location) in the Greenville, South Carolina market. The Company recorded a pre-tax gain totaling $58.4 million, which is presented in our accompanying Condensed Consolidated Statements of Income as Gain on dealership divestitures, net.
During the nine months ended September 30, 2019, we sold one franchise (one dealership location) and one collision center in the Houston, Texas market. The Company recorded a pre-tax gain totaling $11.7 million, which is presented in our accompanying Condensed Consolidated Statements of Income as Gain on dealership divestitures, net.
The divested businesses would not be considered significant subsidiaries as defined in Rule 1-02(w) of Regulation S-X.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Vehicle receivables
|
$
|
44.7
|
|
|
$
|
44.8
|
|
Manufacturer receivables
|
47.8
|
|
|
50.4
|
|
Other receivables
|
35.2
|
|
|
42.4
|
|
Total accounts receivable
|
127.7
|
|
|
137.6
|
|
Less—Allowance for credit losses
|
(1.3)
|
|
|
(1.4)
|
|
Accounts receivable, net
|
$
|
126.4
|
|
|
$
|
136.2
|
|
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
New vehicles
|
$
|
578.5
|
|
|
$
|
802.6
|
|
Used vehicles
|
203.9
|
|
|
140.1
|
|
Parts and accessories
|
46.3
|
|
|
42.3
|
|
Total inventories
|
$
|
828.7
|
|
|
$
|
985.0
|
|
The lower of cost and net realizable value reserves reduced total inventories by $5.1 million and $6.1 million as of September 30, 2020 and December 31, 2019, respectively. In addition to inventories shown above, we had $6.9 million and $67.7 million of inventories classified as Assets held for sale in the accompanying Condensed Consolidated Balance Sheets as
of September 30, 2020 and December 31, 2019, respectively, associated with pending dealership disposals. As of September 30, 2020 and December 31, 2019, certain automobile manufacturer incentives reduced new vehicle inventory cost by $7.4 million and $9.6 million, respectively, and reduced new vehicle cost of sales for the nine months ended September 30, 2020 and 2019 by $31.5 million and $33.3 million, respectively.
6. ASSETS AND LIABILITIES HELD FOR SALE
Assets and liabilities classified as held for sale include (i) assets and liabilities associated with pending dealership disposals, (ii) real estate not currently used in our operations that we are actively marketing to sell and (iii) the related mortgage notes payable, if applicable.
A summary of assets held for sale and liabilities associated with assets held for sale is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Assets:
|
|
|
|
Inventory
|
$
|
6.9
|
|
|
$
|
67.7
|
|
Loaners, net
|
—
|
|
|
3.0
|
|
Property and equipment, net
|
42.6
|
|
|
69.0
|
|
Operating lease right-of-use assets
|
0.1
|
|
|
6.9
|
|
Goodwill
|
—
|
|
|
5.3
|
|
Franchise rights
|
—
|
|
|
2.3
|
|
Total Assets held for sale
|
49.6
|
|
|
154.2
|
|
Liabilities:
|
|
|
|
Floor plan notes payable—trade
|
5.8
|
|
|
21.9
|
|
Floor plan notes payable—non-trade
|
—
|
|
|
40.9
|
|
Loaners/ Notes payable
|
—
|
|
|
3.1
|
|
Current maturities of long-term debt
|
1.1
|
|
|
0.3
|
|
Current maturities of operating leases
|
0.1
|
|
|
4.2
|
|
Long-term debt
|
15.5
|
|
|
27.8
|
|
Operating lease liabilities
|
—
|
|
|
2.7
|
|
Total Liabilities associated with assets held for sale
|
22.5
|
|
|
100.9
|
|
Net assets held for sale
|
$
|
27.1
|
|
|
$
|
53.3
|
|
As of September 30, 2020 assets held for sale consisted of one franchise (one dealership location) and three real estate properties that are not currently used in our operations. The assets and liabilities associated with these properties totaled $49.6 million and $22.5 million, respectively
As of December 31, 2019, assets held for sale consisted of seven franchises (six dealership locations) and one collision center, in addition to four real estate properties. Assets and liabilities totaled $154.2 million and $100.9 million, respectively.
During the nine months ended September 30, 2020, the Company recorded a net pre-tax gain totaling $33.7 million, on the sale of these dealerships. Additionally, during the nine months ended September 30, 2020, we sold one vacant property with a net book value of $3.7 million.
7. GOODWILL AND INTANGIBLE FRANCHISE RIGHTS
Our acquisitions have resulted in the recording of goodwill and intangible franchise rights. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Franchise rights are indefinite-lived intangible assets representing our rights under franchise agreements with vehicle manufacturers. Goodwill and intangible franchise rights are tested annually as of October 1st, or more frequently in the event that facts and circumstances indicate a triggering event has occurred.
As a result of the adverse impact on our dealership operations caused by the COVID-19 pandemic, the Company considered the extent to which the COVID-19 impacts combined with other relevant circumstances (e.g., the results of the Company’s most recent impairment test) could affect the significant inputs used to determine the fair value of the Company’s franchise rights and goodwill associated with the Company’s reporting units.
To the extent that we determined that the totality of events and circumstances, and their effect on the significant inputs into the fair value determination of our franchise rights and reporting units, would more likely than not lead to an impairment of the carrying value of the franchise rights or goodwill reporting units, we performed quantitative impairment tests as of March 31, 2020. We performed qualitative assessments on the remaining franchise rights and goodwill reporting units as of March 31, 2020.
The results of our quantitative and qualitative assessments indicated that the carrying value of goodwill related to all reporting units did not exceed their fair value.
The quantitative impairment tests for franchise rights included a comparison of the estimated fair value to the carrying value of each franchise right asset. The Company estimates fair value by using a discounted cash flow model (income approach) based on market participant assumptions related to the cash flows directly attributable to the franchise. These assumptions include year-over-year and terminal growth rates, working capital requirements, weighted average cost of capital, future gross margins, and future selling, general, and administrative expenses.
The results of the quantitative impairment testing for certain franchise rights as of March 31, 2020, identified that the carrying values of certain of our franchise rights assets exceeded their fair value. As a result, we recognized a $23.0 million pre-tax non-cash impairment charge during the three months ended March 31, 2020. We did not record an impairment charge related to goodwill and franchise rights for the three months ended June 30, 2020 or September 30, 2020.
8. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Floor plan notes payable—trade (a)
|
$
|
67.1
|
|
|
$
|
146.5
|
|
Floor plan notes payable offset account
|
(6.7)
|
|
|
(16.2)
|
|
Floor plan notes payable—trade, net
|
$
|
60.4
|
|
|
$
|
130.3
|
|
|
|
|
|
Floor plan notes payable—new non-trade (b)
|
$
|
618.3
|
|
|
$
|
773.6
|
|
Floor plan notes payable—used non-trade
|
50.0
|
|
|
—
|
|
Floor plan notes payable offset account
|
(33.1)
|
|
|
(115.9)
|
|
Floor plan notes payable—non-trade, net
|
$
|
635.2
|
|
|
$
|
657.7
|
|
____________________________
(a) Amounts reflected for floor plan notes payable—trade as of September 30, 2020 and December 31, 2019, excluded $5.8 million and $21.9 million classified as Liabilities associated with assets held for sale.
(b) Amounts reflected for floor plan notes payable—new non-trade as of December 31, 2019, excluded $40.9 million classified as Liabilities associated with assets held for sale.
We have a floor plan facility with Ford Motor Credit Company ("Ford Credit") to purchase new Ford and Lincoln vehicle inventory. Our floor plan facility with Ford Credit was amended in July 2020 to extend the maturity date to July 31, 2021. We have established a floor plan notes payable offset account with Ford Credit that allows us to transfer cash to the account as an offset to our outstanding Floor Plan Notes Payable—Trade. In addition, we have a similar floor plan offset account with Bank of America that allows us to offset our Floor Plan Notes Payable—Non-Trade. These accounts allow us to transfer cash to reduce the amount of outstanding floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the offset account into our operating cash accounts within one to two days. As of September 30, 2020 and December 31, 2019, we had $39.8 million and $132.1 million, respectively, in these floor plan offset accounts.
At our option, we have the ability to re-designate a portion of our availability under the Revolving Credit Facility to the New Vehicle Floor Plan Facility or the Used Vehicle Floor Plan Facility. The maximum amount we are allowed to re-designate is determined based on our aggregate revolving commitment under the Revolving Credit Facility, less $50.0 million. In addition,
we are able to re-designate any amounts moved to the New Vehicle Floor Plan Facility or Used Vehicle Floor Plan Facility back to the Revolving Credit Facility.
As of December 31, 2019, $190.0 million of availability under our Revolving Credit Facility was re-designated to the New Vehicle Floor Plan Facility to take advantage of the lower commitment fee rates on the New Vehicle Floor Plan Facility when compared to the Revolving Credit Facility. On March 17, 2020, the entire $190.0 million was re-designated from the New Vehicle Floor Plan Facility to the Revolving Credit Facility. As of September 30, 2020, there was $50.0 million outstanding under the Used Vehicle Floor Plan Facility.
9. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
September 30, 2020
|
|
December 31, 2019
|
(In millions)
|
6.00% Senior Subordinated Notes due 2024
|
$
|
—
|
|
|
$
|
600.0
|
|
4.50% Senior Notes due 2028
|
405.0
|
|
|
—
|
|
4.75% Senior Notes due 2030
|
445.0
|
|
|
—
|
|
Mortgage notes payable bearing interest at fixed rates
|
97.6
|
|
|
100.5
|
|
2018 Bank of America Facility (a)
|
85.4
|
|
|
88.3
|
|
2018 Wells Fargo Master Loan Facility (b)
|
88.4
|
|
|
25.0
|
|
2013 BofA Real Estate Facility
|
34.2
|
|
|
35.5
|
|
2015 Wells Fargo Master Loan Facility (c)
|
62.3
|
|
|
76.8
|
|
|
|
|
|
Finance lease liability
|
16.7
|
|
|
17.2
|
|
Total debt outstanding
|
1,234.6
|
|
|
943.3
|
|
Add—unamortized premium on 6.0% Senior Subordinated Notes due 2024
|
—
|
|
|
5.1
|
|
Add—unamortized premium on 4.50% Senior Notes due 2028
|
1.3
|
|
|
—
|
|
Add—unamortized premium on 4.75% Senior Notes due 2030
|
2.2
|
|
|
—
|
|
Less—debt issuance costs
|
(14.3)
|
|
|
(9.0)
|
|
Long-term debt, including current portion
|
1,223.8
|
|
|
939.4
|
|
Less—current portion, net of current portion of debt issuance costs
|
(49.7)
|
|
|
(32.4)
|
|
Long-term debt
|
$
|
1,174.1
|
|
|
$
|
907.0
|
|
____________________________
(a) Amounts reflected for the 2018 BofA Real Estate Facility (as defined herein) as of December 31, 2019, exclude $26.6 million classified as Liabilities associated with assets held for sale.
(b) Amounts reflected for the 2018 Wells Fargo Master Loan Facility (as defined herein) as of September 30, 2020, exclude $5.1 million classified as Liabilities associated with assets held for sale.
(c) Amounts reflected for the 2015 Wells Fargo Master Loan Facility (as defined herein) as of September 30, 2020 and December 31, 2019, exclude $11.5 million and $1.5 million classified as Liabilities associated with assets held for sale, respectively.
6.00% Senior Subordinated Notes due 2024
On February 3, 2020, we issued a conditional notice of redemption to the holders of our 6% Senior Subordinated Notes due 2024 (the "6% Notes"), notifying such holders that we intended to redeem all of the 6% Notes. On March 4, 2020, the 6% Notes were redeemed at 103% of par, plus accrued and unpaid interest to, but excluding, the date of redemption. We recorded a loss on extinguishment of the 6% Notes of $19.1 million which comprised a redemption premium of $18.0 million and the net write-off of the unamortized premium and debt issuance costs of $1.1 million related to the 6% Notes on the redemption date.
New Senior Notes
In contemplation of the 2019 Acquisition, on February 19, 2020, the Company completed its offering of senior unsecured notes (the "February 2020 Offering"), consisting of $525.0 million aggregate principal amount of 4.50% Senior Notes due 2028 (the "Existing 2028 Notes") and together with the Additional 2028 Notes (as defined below), the "2028 Notes") and $600.0 million aggregate principal amount of 4.75% Senior Notes due 2030 (the "Existing 2030 Notes" and, together with the Existing
2028 Notes, the "Existing Notes") and together with the Additional 2030 Notes (as defined below), the "2030 Notes"). The Company paid lender fees of $6.8 million in conjunction with the February Notes Offering and incurred additional debt issuance costs of $3.1 million.
As a result of the termination of the 2019 Acquisition, the Company delivered a notice of special mandatory redemption to holders of its Existing 2028 Notes and Existing 2030 Notes pursuant to which it would redeem on a pro rata basis (1) $245.0 million of the Existing 2028 Notes and (2) $280.0 million of the 2030 Existing Notes, in each case, at 100% of the respective principal amount plus accrued and unpaid interest to but excluding, the special mandatory redemption date. On March 30, 2020, the Company completed the redemption and recorded a write-off of unamortized debt issuance costs of $1.5 million.
In September 2020, the Company completed an issuance of $250.0 million aggregate principal amount of additional senior unsecured notes (the "September 2020 Offering") consisting of $125.0 million aggregate principal amount of additional 4.50% Senior Notes due 2028 (the "Additional 2028 Notes") at a price of 101.00% of par, plus accrued interest from September 1, 2020, and $125.0 million aggregate principal amount of additional 4.75% Senior Notes due 2030 (the "Additional 2030 Notes" and together with the Additional 2028 Notes, the "Additional Notes") at a price of 101.75% of par, plus accrued interest from September 1, 2020. After deducting the initial purchasers' discounts of $2.8 million, we received net proceeds of approximately $250.6 million from the September 2020 Offering. The $3.5 million premium paid by the initial purchasers of the Additional Notes was recorded as a component of long-term debt on our Condensed Consolidated Balance Sheet and is being amortized as a reduction of interest expense over the remaining term of the Notes. The proceeds of the September 2020 Offering were used to redeem the Seller Notes issued in connection with the Revised Transaction and repay approximately $50.0 million in aggregate principal amount outstanding under our Revolving Credit Facility.
The lender fees and other debt issuance costs incurred are being amortized over the terms of the Notes using the effective interest method.
The 2028 Notes and 2030 Notes mature on March 1, 2028 and March 1, 2030, respectively. Interest is payable semiannually, on March 1 and September 1 of each year. The February 2020 Offering, together with additional borrowings and cash on hand, was incurred to (i) fund, if consummated, the acquisition of substantially all of the assets of Park Place, (ii) redeem all of our outstanding $600.0 million aggregate principal amount of the 6.0% Notes and (iii) pay fees and expenses in connection with the foregoing.
The remaining outstanding 2028 Notes and 2030 Notes are subject to customary covenants, events of default and optional redemption provisions. In addition, the remaining outstanding 2028 Notes and 2030 Notes are required to be registered under the Securities Act of 1933 within 270 days of the closing date for the offering. The Company completed the registration of the 2028 Notes and 2030 Notes in October 2020.
We are a holding company with no independent assets or operations. For all relevant periods presented, our 6.0% Notes, 2028 Notes and 2030 Notes have been fully and unconditionally guaranteed, on a joint and several basis, by substantially all of our subsidiaries. Any subsidiaries that have not guaranteed such notes are "minor" (as defined in Rule 3-10(h) of Regulation S-X). As of September 30, 2020, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.
Seller Notes
The Seller Notes comprised $150.0 million in aggregate principal amount of 4.00% promissory note due August 2021 and $50.0 million in aggregate principal amount of a 4.00% promissory note due February 2022 and were issued on August 24, 2020 in conjunction with the Revised Transaction. In September 2020, the Company redeemed the Seller Notes with the proceeds of the September 2020 Offering.
Amendments to 2019 Senior Credit Facility
In connection with the 2019 Acquisition, we obtained amendments, among other things, to (1) increase the aggregate commitments under the Revolving Credit Facility to $350.0 million, (2) increase the aggregate commitments under the New Vehicle Floorplan Facility to $1.35 billion and (3) increase the aggregate commitments under the Used Vehicle Floorplan Facility to $200.0 million. These amendments to increase the aggregate commitments were to be effective concurrently with the consummation of the 2019 Acquisition. As a result of the termination of the 2019 Acquisition, the aforementioned amendments did not become effective.
New BofA Real Estate Facility
In connection with the 2019 Acquisition, on February 7, 2020 we entered into the New BofA Real Estate Facility, which provided for term loans in an aggregate amount not to exceed $280.6 million, upon the consummation of the 2019 Acquisition.
As a result of the termination of the 2019 Acquisition, the anticipated borrowings under the New BofA Real Estate Facility have not occurred and the agreement governing the New BofA Real Estate Facility has terminated.
2018 Wells Fargo Master Loan Facility
On June 26, 2020, the Company borrowed an additional $69.4 million under the 2018 Wells Fargo Master Loan Facility.
10. FINANCIAL INSTRUMENTS AND FAIR VALUE
In determining fair value, we use various valuation approaches, including market and income approaches. Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the presumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1-Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2-Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include interest rate swap instruments, exchange-traded debt securities that are not actively traded or do not have a high trading volume, mortgage notes payable, and certain real estate properties on a non-recurring basis.
Level 3-Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating the fair value of certain non-financial assets and non-financial liabilities in purchase acquisitions and those used in the assessment of impairment for goodwill and manufacturer franchise rights.
The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required to determine fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based exit price measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. We use inputs that are current as of the measurement date, including during periods of significant market fluctuations.
Financial instruments consist primarily of cash and cash equivalents, contracts-in-transit, accounts receivable, cash surrender value of corporate-owned life insurance policies, accounts payable, floor plan notes payable, subordinated long-term debt, mortgage notes payable, and interest rate swap instruments. The carrying values of our financial instruments, with the exception of subordinated long-term debt and mortgage notes payable, approximate fair value due to (i) their short-term nature, (ii) recently completed market transactions, or (iii) existence of variable interest rates, which approximate market rates. The fair value of our subordinated long-term debt is based on reported market prices in an inactive market that reflects Level 2 inputs. We estimate the fair value of our mortgage notes payable using a present value technique based on current market interest rates for similar types of financial instruments that reflect Level 2 inputs.
A summary of the carrying values and fair values of our Notes and our Mortgage notes payable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Carrying Value:
|
|
|
|
6.00% Senior Subordinated Notes due 2024
|
$
|
—
|
|
|
$
|
598.8
|
|
4.50% Senior Notes due 2028
|
400.8
|
|
|
—
|
|
4.75% Senior Notes due 2030
|
440.5
|
|
|
—
|
|
Mortgage notes payable (a)
|
365.8
|
|
|
323.4
|
|
Total carrying value
|
$
|
1,207.1
|
|
|
$
|
922.2
|
|
|
|
|
|
Fair Value:
|
|
|
|
6.00% Senior Subordinated Notes due 2024
|
$
|
—
|
|
|
$
|
619.5
|
|
4.50% Senior Notes due 2028
|
407.0
|
|
|
—
|
|
4.75% Senior Notes due 2030
|
447.2
|
|
|
—
|
|
Mortgage notes payable (a)
|
389.6
|
|
|
364.2
|
|
Total fair value
|
$
|
1,243.8
|
|
|
$
|
983.7
|
|
____________________________
(a) Excludes amounts classified as Liabilities associated with assets held for sale as of September 30, 2020 and December 31, 2019.
Interest Rate Swap Agreements
We currently have four interest rate swap agreements, two of which were entered into in July 2020. Each of these swaps were designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in the one month LIBOR. The following table provides information on the attributes of each swap as of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception Date
|
|
Notional Principal Amount
|
|
Notional Value as of September 30, 2020
|
|
Maturity Value
|
|
Maturity Date
|
|
|
(In millions)
|
|
|
July 2020
|
|
$
|
93.5
|
|
|
$
|
93.1
|
|
|
$
|
50.6
|
|
|
December 2028
|
July 2020
|
|
$
|
85.5
|
|
|
$
|
85.5
|
|
|
$
|
57.3
|
|
|
November 2025
|
June 2015
|
|
$
|
100.0
|
|
|
$
|
75.9
|
|
|
$
|
53.1
|
|
|
February 2025
|
November 2013
|
|
$
|
75.0
|
|
|
$
|
49.9
|
|
|
$
|
38.7
|
|
|
September 2023
|
The fair value of cash flow swaps is calculated as the present value of expected future cash flows, determined on the basis of forward interest rates and present value factors. Fair value estimates reflect a credit adjustment to the discount rate applied to all expected cash flows under the swaps. Other than this input, all other inputs used in the valuation of these swaps are designated to be Level 2 fair values. The fair value of our swaps was an $8.9 million and a $3.8 million liability as of September 30, 2020 and December 31, 2019, respectively.
The following table provides information regarding the fair value of our interest rate swap agreements and the impact on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In millions)
|
Other current liabilities
|
$
|
2.8
|
|
|
$
|
0.9
|
|
|
|
|
|
Other long-term liabilities
|
6.1
|
|
|
2.9
|
|
Total fair value
|
$
|
8.9
|
|
|
$
|
3.8
|
|
Our interest rate swaps qualify for cash flow hedge accounting treatment. These interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings. Information about the effect of our interest rate swap agreements in the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Results Recognized in Accumulated Other Comprehensive Income/(Loss)
|
|
Location of Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings
|
|
Amount Reclassified from Accumulated Other Comprehensive Income/(Loss)
to Earnings
|
2020
|
|
$
|
—
|
|
|
Other interest expense, net
|
|
$
|
0.7
|
|
2019
|
|
$
|
(1.0)
|
|
|
Other interest expense, net
|
|
$
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Results Recognized in Accumulated Other Comprehensive Income/(Loss)
|
|
Location of Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings
|
|
Amount Reclassified from Accumulated Other Comprehensive Income/(Loss)
to Earnings
|
2020
|
|
$
|
(5.1)
|
|
|
Other interest expense, net
|
|
$
|
1.6
|
|
2019
|
|
$
|
(5.3)
|
|
|
Other interest expense, net
|
|
$
|
—
|
|
On the basis of yield curve conditions as of September 30, 2020 and including assumptions about future changes in fair value, we expect the amount to be reclassified out of Accumulated Other Comprehensive Loss into earnings within the next 12 months will be losses of $2.8 million.
11. SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 30, 2020 and 2019, we made interest payments, including amounts capitalized, totaling $54.7 million and $61.0 million, respectively. Included in these interest payments are $16.1 million and $30.4 million, of floor plan interest payments during the nine months ended September 30, 2020 and 2019, respectively.
During the nine months ended September 30, 2020 and 2019, we made income tax payments, net of refunds received, totaling $34.7 million and $44.1 million, respectively.
During the nine months ended September 30, 2020 and 2019, we transferred $111.1 million and $107.5 million, respectively, of loaner vehicles from Other current assets to Inventories on our Condensed Consolidated Balance Sheets.
12. COMMITMENTS AND CONTINGENCIES
Our dealerships are party to dealer and framework agreements with applicable vehicle manufacturers. In accordance with these agreements, each dealership has certain rights and is subject to restrictions typical in the industry. The ability of these manufacturers to influence the operations of the dealerships or the loss of any of these agreements could have a materially negative impact on our operating results.
In some instances, manufacturers may have the right, and may direct us, to implement costly capital improvements to dealerships as a condition to entering into, renewing, or extending franchise agreements with them. Manufacturers also typically require that their franchises meet specific standards of appearance. These factors, either alone or in combination, could cause us to use our financial resources on capital projects that we might not have planned for or otherwise determined to undertake.
From time to time, we and our dealerships are or may become involved in various claims relating to, and arising out of, our business and our operations. These claims may involve, but not be limited to, financial and other audits by vehicle manufacturers or lenders and certain federal, state, and local government authorities, which have historically related primarily to (i) incentive and warranty payments received from vehicle manufacturers, or allegations of violations of manufacturer agreements or policies, (ii) compliance with lender rules and covenants, and (iii) payments made to government authorities relating to federal, state, and local taxes, as well as compliance with other government regulations. Claims may also arise through litigation, government proceedings, and other dispute resolution processes. Such claims, including class actions, could relate to, but may not be limited to, the practice of charging administrative fees and other fees and commissions, employment-related matters, truth-in-lending and other dealer assisted financing obligations, contractual disputes, actions brought by governmental authorities, and other matters. We evaluate pending and threatened claims and establish loss contingency reserves based upon outcomes we currently believe to be probable and reasonably estimable.
We believe we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. Based on our review of the various types of claims currently known to us, there is no indication of material reasonably possible losses in excess of amounts accrued in the aggregate. We currently do not anticipate that any known claim will materially adversely affect our financial condition, liquidity, or results of operations. However, the outcome of any matter cannot be predicted with certainty, and an unfavorable resolution of one or more matters presently known or arising in the future could have a material adverse effect on our financial condition, liquidity, or results of operations.
A significant portion of our business involves the sale of vehicles, parts, or vehicles composed of parts that are manufactured outside the United States. As a result, our operations are subject to customary risks of importing merchandise, including fluctuations in the relative values of currencies, import duties, exchange controls, trade restrictions, work stoppages, and general political and socio-economic conditions in foreign countries. The United States or the countries from which our products are imported may, from time to time, impose new quotas, duties, tariffs, or other restrictions, or adjust presently prevailing quotas, duties, or tariffs, which may affect our operations, and our ability to purchase imported vehicles and/or parts at reasonable prices.
Substantially all of our facilities are subject to federal, state and local provisions regarding the discharge of materials into the environment. Compliance with these provisions has not had, nor do we expect such compliance to have, any material effect upon our capital expenditures, net earnings, financial condition, liquidity or competitive position. We believe that our current practices and procedures for the control and disposition of such materials comply with applicable federal, state, and local requirements. No assurances can be provided, however, that future laws or regulations, or changes in existing laws or regulations, would not require us to expend significant resources in order to comply therewith.
As of September 30, 2020, we had $12.7 million of letters of credit outstanding and we maintained a $7.7 million surety bond line in the ordinary course of our business, both of which are also required by certain of our insurance providers. Our letters of credit and surety bond line are considered to be off balance sheet arrangements.
Our other material commitments include (i) floor plan notes payable, (ii) operating leases, (iii) long-term debt and (iv) interest on long-term debt, as described elsewhere herein.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
Certain of the discussions and information included or incorporated by reference in this report may constitute "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are statements that are not historical in nature and may include statements relating to our goals, plans and projections regarding industry and general economic trends, our expected financial position, results of operations or market position and our business strategy. Such statements can generally be identified by words such as "may," "target," "could," "would," "will," "should," "believe," "expect," "anticipate," "plan," "intend," "foresee," and other similar words or phrases. Forward-looking statements may also relate to our expectations and assumptions with respect to, among other things:
•The declines in sales and service revenue and ongoing disruptions in our operations, the operations of our vehicle and parts manufacturers and other suppliers, vendors and business partners, and the global economy in general due to the COVID-19 pandemic;
•the expected financial and operational performance of the Park Place Dealership group;
•our estimated future capital expenditures, including with respect to the operations of the Park Place Dealership group;
•the seasonally adjusted annual rate of new vehicle sales in the United States;
•general economic conditions and its expected impact on our revenue and expenses;
•our expected parts and service revenue due to, among other things, improvements in vehicle technology;
•our ability to limit our exposure to regional economic downturns due to our geographic diversity and brand mix;
•manufacturers' continued use of incentive programs to drive demand for their product offerings;
•our capital allocation strategy, including as it relates to acquisitions and divestitures, stock repurchases and capital expenditures; and
•the growth of the brands that comprise our portfolio over the long-term and other factors.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual future results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to:
•the degree to which declines in sales and service revenue and ongoing disruptions in our operations, the operations of our vehicle and parts manufacturers and other suppliers, vendors and business partners, and the global economy in general due to the COVID-19 pandemic may adversely impact our business, results of operations, financial condition and cash flows;
•the ability to successfully integrate the operations of the Park Place Dealership group into our existing operations and the diversion of management's attention from ongoing business and regular business responsibilities to effect such integration;
•the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to, the Revised Transaction;
•disruption from the Revised Transaction, making it more difficult to maintain relationships with customers or suppliers of the Park Place Dealership group;
•changes in general economic and business conditions, including changes in employment levels, consumer confidence levels, consumer demand and preferences, the availability and cost of credit, fuel prices, levels of discretionary personal income and interest rates;
•our ability to generate sufficient cash flows, maintain our liquidity and obtain any necessary additional funds for working capital, capital expenditures, acquisitions, stock repurchases, debt maturity payments and other corporate purposes, if necessary or desirable;
•significant disruptions in the production and delivery of vehicles and parts for any reason, including the COVID-19 pandemic, natural disasters, civil unrest, product recalls, work stoppages or other occurrences that are outside of our control;
•our ability to execute our automotive retailing and service business strategy while operating under restrictions and best practices imposed or encouraged by governmental and other regulatory authorities;
•our ability to attract and retain skilled employees;
•adverse conditions affecting the vehicle manufacturers whose brands we sell, and their ability to design, manufacture, deliver and market their vehicles successfully;
•changes in the mix and total number of vehicles we are able to sell;
•our outstanding indebtedness and our continued ability to comply with applicable covenants in our various financing and lease agreements, or to obtain waivers of these covenants as necessary;
•high levels of competition in our industry, which may create pricing and margin pressures on our products and services;
•our relationships with manufacturers of the vehicles we sell and our ability to renew, and enter into new framework and dealer agreements with vehicle manufacturers whose brands we sell, on terms acceptable to us;
•the availability of manufacturer incentive programs and our ability to earn these incentives;
•failure of our or those of our third-party service providers, management information systems
•any data security breaches with regard to personally identifiable information ("PII");
•changes in laws and regulations governing the operation of automobile franchises, including trade restrictions, consumer protections, accounting standards, taxation requirements and environmental laws;
•changes in, or the imposition of, new tariffs or trade restrictions on imported vehicles or parts;
•adverse results from litigation or other similar proceedings involving us;
•our ability to consummate planned mergers, acquisitions and dispositions;
•any disruptions in the financial markets, which may impact our ability to access capital;
•our relationships with, and the financial stability of, our lenders and lessors;
•our ability to execute our initiatives and other strategies;
•our ability to leverage gains from our dealership portfolio; and
•in addition to the Revised Transaction, our ability to successfully integrate businesses we may acquire, or that any business we acquire may not perform as we expected at the time we acquired it.
Many of these factors are beyond our ability to control or predict, and their ultimate impact could be material. Moreover, the factors set forth under "Item 1A. Risk Factors" and other cautionary statements made in this report should be read and considered as forward-looking statements subject to such uncertainties. Forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to update any forward-looking statement contained herein.
OVERVIEW
We are one of the largest automotive retailers in the United States. As of September 30, 2020, we owned and operated 113 new vehicle franchises (90 dealership locations), representing 31 automobile brands and 25 collision centers in 16 metropolitan markets within nine states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes repair and maintenance services, replacement parts, and collision repair services; and finance and insurance products. For the nine months ended September 30, 2020, our new vehicle revenue brand mix consisted of 44% imports, 34% luxury, and 22% domestic brands.
Our retail network is made up of dealerships operating primarily under the following locally-branded dealership groups:
•Coggin dealerships operating primarily in Jacksonville, Fort Pierce and Orlando, Florida;
•Courtesy dealerships operating in Tampa, Florida;
•Crown dealerships operating in North Carolina, South Carolina and Virginia;
•Greenville Automotive dealerships operating in Greenville, South Carolina;
•Hare and Estes dealerships operating in the Indianapolis, Indiana area;
•McDavid dealerships operating in metropolitan Austin and Dallas, Texas;
•Nalley dealerships operating in metropolitan Atlanta, Georgia;
•Park Place dealerships operating in the Dallas-Fort Worth area;
•Plaza dealerships operating in metropolitan St. Louis, Missouri; and
•Mike Shaw dealerships in the Denver, Colorado area.
Our revenues are derived primarily from: (i) the sale of new vehicles; (ii) the sale of used vehicles to individual retail customers ("used retail") and to other dealers at auction ("wholesale") (the terms "used retail" and "wholesale" collectively referred to as "used"); (iii) repair and maintenance services, including collision repair, the sale of automotive replacement parts, and the reconditioning of used vehicles (collectively referred to as "parts and service"); and (iv) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products (defined below and collectively referred to as "F&I"). We evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold, our parts and service operations based on aggregate gross profit, and our F&I business based on F&I gross profit per vehicle sold.
Our gross profit margin varies with our revenue mix. Sales of new vehicles generally result in a lower gross profit margin than used vehicle sales, sales of parts and service, and sales of F&I products. As a result, when used vehicle, parts and service, and F&I revenue increase as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, general, and administrative ("SG&A") expenses consist primarily of fixed and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A significant portion of our cost structure is variable (such as sales commissions) or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long-term. We evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit, advertising expense on a per vehicle retailed ("PVR") basis, and all other SG&A expenses in the aggregate as a percentage of total gross profit.
Our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy, the continued strength of our brand mix, and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell. Our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions, including consumer confidence, availability of consumer credit, fuel prices, and employment levels. Our vehicle sales may also be impacted by manufacturer imposed stop-sales or open safety recalls.
In addition, our ability to sell certain new and used vehicles can be negatively impacted by a number of factors, some of which are outside of our control. As a result of market conditions caused by COVID-19, certain vehicle manufacturers and other suppliers have ceased or slowed production of new vehicles, parts and other supplies. We cannot predict with any certainty how long the automotive retail industry will be subject to these production slowdowns implemented by the manufacturers and other suppliers and when normalized production will resume at these manufacturers. Further, governmental actions, such as travel restrictions imposed in response to national emergencies or the imposition of tariffs or trade restrictions on imported goods may adversely affect vehicle sales and depress demand. Although we cannot adequately predict the impact of COVID-19, we continue to believe that the impact on our business of any future negative trends in new vehicle sales would be partially mitigated by (i) the expected relative stability of our parts and service operations over the long-term, (ii) the variable nature of significant components of our cost structure, and (iii) our diversified brand and geographic mix.
Park Place Acquisition
As previously announced, on December 11, 2019, the Company entered into (1) an Asset Purchase Agreement (the "2019 Asset Purchase Agreement") with certain members of the Park Place Dealership family of entities, Park Place Mid-Cities, Ltd., a Texas limited partnership, and the identified principal (collectively, "Park Place") and (2) a Real Estate Purchase Agreement (the "Real Estate Purchase Agreement" and, together with the 2019 Asset Purchase Agreement, the "Transaction Agreements") with certain members of the Park Place Dealership family of entities to acquire substantially all of the assets of, and certain real property related to, the Park Place business. The 2019 Asset Purchase Agreement included the purchase of 19 franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 2 Jaguar, 2 Land Rover, 1 Porsche, and 1 Volvo and 5 ultra luxury brands including 1 Bentley, 1 Rolls Royce, 1 McLaren, 1 Maserati and 1 Karma), two collision centers and an auto auction. On March 24, 2020,
Asbury delivered notice to the sellers terminating the Transaction Agreements pursuant to the terms thereof in exchange for the payment of $10.0 million of liquidated damages. Please refer to Liquidity and Capital Resources for additional details regarding the impact on financing transactions.
As a result of the Company's efforts to attempt to mitigate the financial impact of COVID-19, along with a strong May and June performance, the Company reengaged on the Park Place Dealership group acquisition under more favorable pricing and more flexible financing terms, including limiting the purchase of luxury dealership franchises to those most aligned with the Company's core strategic business. On July 6, 2020, the Company entered into an Asset Purchase Agreement (the "Revised Asset Purchase Agreement") with Park Place to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 1 Jaguar, 1 Land Rover, 1 Porsche, and 1 Volvo), two collision centers and an auto auction comprising the Park Place Dealership group (collectively, the "Revised Transaction") for a purchase price of $889.9 million. The Revised Transaction was completed on August 24, 2020. The purchase price was financed through a combination of cash, floor plan facilities and seller financing.
Impact of COVID-19 on Our Business
In response to the economic downturn to our business experienced as a result of the COVID-19 pandemic, in early April management took various actions in an attempt to mitigate the financial impact. These actions included the furlough of employees, reduced store hours, and the suspension of the Company's 401(k) match. In addition, the Company implemented temporary reductions in pay for all employees and the Company’s directors also agreed to waive portions of their annual cash retainers. We continued to evaluate these actions throughout the second quarter and made the difficult decision to permanently reduce the workforce by approximately 1,300 employees to help align our expense structure with the current business environment. During the three months ended September 30, 2020, we reinstated full pay to employees impacted by the temporary reductions and the Company's 401(k) match for eligible employees. We continue to monitor and respond as necessary to the Company’s operational needs during the ongoing outbreak of the COVID-19 pandemic and the resulting economic uncertainty.
The gradual rebound to our business we began to experience in May and June, continued through the third quarter. The seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S. during the three months ended September 30, 2020 was 15.4 million compared to 17.0 million during the three months ended September 30, 2019. On a same-store basis, all of our revenue streams declined from the prior year quarter with the exception of used vehicle wholesale revenue. Despite this decline in revenue, we experienced a significant increase in our new and used gross profit margins for the quarter ended September 30, 2020 as new vehicle supply disruptions triggered by the COVID-19 pandemic reduced the availability of new vehicle inventory and eventually drove up demand for used vehicles. Our parts and service business also showed signs of a recovery and volume is now closely approaching pre-pandemic levels.
We continue to monitor and manage our cash flows and have enacted cost saving measures to respond to the uncertain environment. The Company has significantly reduced its marketing expenses, deferred most capital expenditures, and managed other controllable expenses. The flexibility of our cost structure has resulted in profitability throughout the COVID-19 pandemic, with third quarter profitability far exceeding that of the prior year period. Since the Company cannot predict the duration of and effects of the pandemic, we will continue to evaluate our options and manage the business as appropriate in order to preserve our financial flexibility during this challenging time.
We had total available liquidity of $384.9 million as of September 30, 2020, which consisted of cash and cash equivalents of $4.1 million, $39.8 million of funds in our floor plan offset accounts, $237.3 million of availability under our revolving credit facility, and $103.7 million of availability under our used vehicle revolving floor plan facility. For further discussion of our liquidity, please refer to "Liquidity and Capital Resources" below. We believe we will have sufficient liquidity to meet our debt service and working capital requirements; commitments and contingencies; debt repayment, maturity and repurchase obligations; acquisitions; capital expenditures; and any operating requirements for at least the next twelve months.
During the first quarter of 2020, we recorded a $23.0 million non-cash impairment charge related to our intangible manufacturer franchise rights. Future outbreaks in the markets in which we operate may cause changes in customer behaviors, including a potential reduction in traffic at our dealerships and could result in additional impairment charges if the COVID-19 global pandemic continues. The uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations. These and other factors may adversely impact our financial condition, liquidity and cash flow. We cannot accurately predict the amount and timing of any additional impairment charge at this time, however, any such impairment charge could have an adverse effect on our results of operations and stockholders’ equity.
Our top priority continues to be the safety and protection of our customers, team members and their families. We have modified certain business practices to conform to government restrictions and are taking precautionary measures as directed by
government and regulatory authorities. Following the CDC’s recommendation, we are providing face masks to employees and guests as required. We have also increased the frequency of dealership cleanings, implemented the use of plastic seat and steering wheel covers when performing service on guest vehicles, and the thorough cleaning and sanitizing of loaner vehicles after each use, and have secured extra supplies of hand sanitizer, alcohol wipes, gloves and disinfectants for both employee and guest use at our dealerships. Many of our stores are also offering complimentary pick-up and delivery services to our customers, and we continue to offer online purchasing of new and used vehicles with delivery to the customer.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except per share data)
|
REVENUE:
|
|
|
|
|
|
|
|
New vehicle
|
$
|
957.9
|
|
|
$
|
986.9
|
|
|
$
|
(29.0)
|
|
|
(3)
|
%
|
Used vehicle
|
569.5
|
|
|
546.9
|
|
|
22.6
|
|
|
4
|
%
|
Parts and service
|
237.2
|
|
|
227.6
|
|
|
9.6
|
|
|
4
|
%
|
Finance and insurance, net
|
80.8
|
|
|
80.6
|
|
|
0.2
|
|
|
—
|
%
|
TOTAL REVENUE
|
1,845.4
|
|
|
1,842.0
|
|
|
3.4
|
|
|
—
|
%
|
GROSS PROFIT:
|
|
|
|
|
|
|
|
New vehicle
|
60.6
|
|
|
38.6
|
|
|
22.0
|
|
|
57
|
%
|
Used vehicle
|
49.2
|
|
|
32.4
|
|
|
16.8
|
|
|
52
|
%
|
Parts and service
|
145.3
|
|
|
141.5
|
|
|
3.8
|
|
|
3
|
%
|
Finance and insurance, net
|
80.8
|
|
|
80.6
|
|
|
0.2
|
|
|
—
|
%
|
TOTAL GROSS PROFIT
|
335.9
|
|
|
293.1
|
|
|
42.8
|
|
|
15
|
%
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
206.5
|
|
|
202.0
|
|
|
4.5
|
|
|
2
|
%
|
Depreciation and amortization
|
9.8
|
|
|
9.1
|
|
|
0.7
|
|
|
8
|
%
|
Other operating expense (income), net
|
0.5
|
|
|
(0.2)
|
|
|
0.7
|
|
|
NM
|
INCOME FROM OPERATIONS
|
119.1
|
|
|
82.2
|
|
|
36.9
|
|
|
45
|
%
|
OTHER EXPENSES (INCOME):
|
|
|
|
|
|
|
|
Floor plan interest expense
|
3.0
|
|
|
9.0
|
|
|
(6.0)
|
|
|
(67)
|
%
|
Other interest expense, net
|
12.9
|
|
|
13.7
|
|
|
(0.8)
|
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
Gain on dealership divestitures, net
|
(24.7)
|
|
|
—
|
|
|
(24.7)
|
|
|
—
|
%
|
Total other (income) expenses, net
|
(8.8)
|
|
|
22.7
|
|
|
(31.5)
|
|
|
(139)
|
%
|
INCOME BEFORE INCOME TAXES
|
127.9
|
|
|
59.5
|
|
|
68.4
|
|
|
115
|
%
|
Income tax expense
|
31.7
|
|
|
14.5
|
|
|
17.2
|
|
|
119
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
$
|
96.2
|
|
|
$
|
45.0
|
|
|
$
|
51.2
|
|
|
114
|
%
|
|
|
|
|
|
|
|
|
Net income per common share—Diluted
|
$
|
4.96
|
|
|
$
|
2.33
|
|
|
$
|
2.63
|
|
|
113
|
%
|
______________________________
NM—Not Meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2020
|
|
2019
|
REVENUE MIX PERCENTAGES:
|
|
|
|
New vehicle
|
51.9
|
%
|
|
53.6
|
%
|
Used vehicle retail
|
27.4
|
%
|
|
27.3
|
%
|
Used vehicle wholesale
|
3.4
|
%
|
|
2.3
|
%
|
Parts and service
|
12.9
|
%
|
|
12.4
|
%
|
Finance and insurance, net
|
4.4
|
%
|
|
4.4
|
%
|
Total revenue
|
100.0
|
%
|
|
100.0
|
%
|
GROSS PROFIT MIX PERCENTAGES:
|
|
|
|
New vehicle
|
18.0
|
%
|
|
13.2
|
%
|
Used vehicle retail
|
12.8
|
%
|
|
11.5
|
%
|
Used vehicle wholesale
|
1.8
|
%
|
|
(0.5)
|
%
|
Parts and service
|
43.3
|
%
|
|
48.3
|
%
|
Finance and insurance, net
|
24.1
|
%
|
|
27.5
|
%
|
Total gross profit
|
100.0
|
%
|
|
100.0
|
%
|
GROSS PROFIT MARGIN
|
18.2
|
|
|
15.9
|
|
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT
|
61.5
|
%
|
|
68.9
|
%
|
Total revenue during the third quarter of 2020 increased by $3.4 million compared to the third quarter of 2019, due to a $22.6 million (4%) increase in used vehicle revenue, a $9.6 million (4%) increase in parts and service revenue and a $0.2 million increase in F&I, net revenue, partially offset by a $29.0 million (3%) decrease in new vehicle revenue. During the three months ended September 30, 2020, gross profit increased by $42.8 million (15%) driven by a $22.0 million (57%) increase in new vehicle gross profit, a $16.8 million (52%) increase in used vehicle gross profit, a $3.8 million (3%) increase in parts and service gross profit and a $0.2 million increase in F&I gross profit.
Income from operations during the third quarter of 2020 increased by $36.9 million (45%) compared to the third quarter of 2019, primarily due to the $42.8 million (15%) increase in gross profit, partially offset by a $4.5 million (2%) increase in SG&A expense, a $0.7 million (8%) increase in depreciation and amortization expenses and a $0.7 million decrease in other operating expense (income), net. Total other expenses, net decreased by $31.5 million (139%), primarily due to a $24.7 million gain on dealership divestiture, a $6.0 million (67%) decrease in floor plan interest expense and a $0.8 million (6%) decrease in other interest expense, net during the third quarter of 2020. As a result, income before income taxes increased $68.4 million (115%). Overall, net income increased by $51.2 million (114%) during the third quarter of 2020 as compared to the third quarter of 2019.
New Vehicle—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Luxury
|
$
|
345.9
|
|
|
$
|
324.5
|
|
|
$
|
21.4
|
|
|
7
|
%
|
Import
|
414.0
|
|
|
456.3
|
|
|
(42.3)
|
|
|
(9)
|
%
|
Domestic
|
198.0
|
|
|
206.1
|
|
|
(8.1)
|
|
|
(4)
|
%
|
Total new vehicle revenue
|
$
|
957.9
|
|
|
$
|
986.9
|
|
|
$
|
(29.0)
|
|
|
(3)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Luxury
|
$
|
28.4
|
|
|
$
|
19.7
|
|
|
$
|
8.7
|
|
|
44
|
%
|
Import
|
19.3
|
|
|
10.2
|
|
|
9.1
|
|
|
89
|
%
|
Domestic
|
12.9
|
|
|
8.7
|
|
|
4.2
|
|
|
48
|
%
|
Total new vehicle gross profit
|
$
|
60.6
|
|
|
$
|
38.6
|
|
|
$
|
22.0
|
|
|
57
|
%
|
New vehicle units:
|
|
|
|
|
|
|
|
Luxury
|
6,157
|
|
|
6,025
|
|
|
132
|
|
|
2
|
%
|
Import
|
13,818
|
|
|
15,998
|
|
|
(2,180)
|
|
|
(14)
|
%
|
Domestic
|
4,580
|
|
|
5,055
|
|
|
(475)
|
|
|
(9)
|
%
|
Total new vehicle units
|
24,555
|
|
|
27,078
|
|
|
(2,523)
|
|
|
(9)
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Luxury
|
$
|
267.0
|
|
|
$
|
312.2
|
|
|
$
|
(45.2)
|
|
|
(14)
|
%
|
Import
|
394.6
|
|
|
422.9
|
|
|
(28.3)
|
|
|
(7)
|
%
|
Domestic
|
179.2
|
|
|
187.0
|
|
|
(7.8)
|
|
|
(4)
|
%
|
Total new vehicle revenue
|
$
|
840.8
|
|
|
$
|
922.1
|
|
|
$
|
(81.3)
|
|
|
(9)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Luxury
|
$
|
20.6
|
|
|
$
|
18.9
|
|
|
$
|
1.7
|
|
|
9
|
%
|
Import
|
18.2
|
|
|
9.9
|
|
|
8.3
|
|
|
84
|
%
|
Domestic
|
11.6
|
|
|
7.6
|
|
|
4.0
|
|
|
53
|
%
|
Total new vehicle gross profit
|
$
|
50.4
|
|
|
$
|
36.4
|
|
|
$
|
14.0
|
|
|
38
|
%
|
New vehicle units
|
|
|
|
|
|
|
|
Luxury
|
4,834
|
|
|
5,790
|
|
|
(956)
|
|
|
(17)
|
%
|
Import
|
13,202
|
|
|
14,922
|
|
|
(1,720)
|
|
|
(12)
|
%
|
Domestic
|
4,181
|
|
|
4,592
|
|
|
(411)
|
|
|
(9)
|
%
|
Total new vehicle units
|
22,217
|
|
|
25,304
|
|
|
(3,087)
|
|
|
(12)
|
%
|
New Vehicle Metrics—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
As Reported:
|
|
|
|
|
|
|
|
Revenue per new vehicle sold
|
$
|
39,010
|
|
|
$
|
36,447
|
|
|
$
|
2,563
|
|
|
7
|
%
|
Gross profit per new vehicle sold
|
$
|
2,468
|
|
|
$
|
1,426
|
|
|
$
|
1,042
|
|
|
73
|
%
|
New vehicle gross margin
|
6.3
|
%
|
|
3.9
|
%
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Luxury:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
4,613
|
|
|
$
|
3,270
|
|
|
$
|
1,343
|
|
|
41
|
%
|
New vehicle gross margin
|
8.2
|
%
|
|
6.1
|
%
|
|
2.1
|
%
|
|
|
Import:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
1,397
|
|
|
$
|
638
|
|
|
$
|
759
|
|
|
119
|
%
|
New vehicle gross margin
|
4.7
|
%
|
|
2.2
|
%
|
|
2.5
|
%
|
|
|
Domestic:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
2,817
|
|
|
$
|
1,721
|
|
|
$
|
1,096
|
|
|
64
|
%
|
New vehicle gross margin
|
6.5
|
%
|
|
4.2
|
%
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue per new vehicle sold
|
$
|
37,845
|
|
|
$
|
36,441
|
|
|
$
|
1,404
|
|
|
4
|
%
|
Gross profit per new vehicle sold
|
$
|
2,269
|
|
|
$
|
1,439
|
|
|
$
|
830
|
|
|
58
|
%
|
New vehicle gross margin
|
6.0
|
%
|
|
3.9
|
%
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Luxury:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
4,261
|
|
|
$
|
3,264
|
|
|
$
|
997
|
|
|
31
|
%
|
New vehicle gross margin
|
7.7
|
%
|
|
6.1
|
%
|
|
1.6
|
%
|
|
|
Import:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
1,379
|
|
|
$
|
663
|
|
|
$
|
716
|
|
|
108
|
%
|
New vehicle gross margin
|
4.6
|
%
|
|
2.3
|
%
|
|
2.3
|
%
|
|
|
Domestic:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
2,774
|
|
|
$
|
1,655
|
|
|
$
|
1,119
|
|
|
68
|
%
|
New vehicle gross margin
|
6.5
|
%
|
|
4.1
|
%
|
|
2.4
|
%
|
|
|
New vehicle revenue decreased by $29.0 million (3%) due to a $42.3 million (9%) decrease in import brands revenue and a $8.1 million (4%) decrease in domestic brands revenue, partially offset by a $21.4 million (7%) increase in luxury brands revenue. Luxury brand revenue benefited from the acquisition of the Park Place Dealership group during the third quarter. The 3% decrease in new vehicle revenue is the result of a 9% decrease in new vehicle units sold, partially offset by an increase in revenue per new vehicle sold. Same store new vehicle revenue decreased by $81.3 million (9%) due to a $45.2 million (14%) decrease in luxury brands revenue, a $28.3 million (7%) decrease in import brands revenue, and a $7.8 million (4%) decrease in domestic brands revenue.
New vehicle gross profit increased by $22.0 million (57%) for the three months ended September 30, 2020 and same store new vehicle gross profit increased $14.0 million (38%) over the same period. Same store new vehicle gross profit margin for the three months ended September 30, 2020 increased 210 basis points to 6.0%. The increase in our same store gross profit margin was primarily attributable to our efforts to focus on optimizing margin as new inventory levels declined as a result of manufacturers reducing or temporarily halting production due to the COVID-19 pandemic.
We ended the quarter with approximately 47 days of supply of new vehicle inventory, below our target range of 70 - 75 days. Our new vehicle inventory levels have been negatively impacted by production disruptions at the manufacturers caused by the COVID-19 pandemic.
Used Vehicle—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Used vehicle retail revenue
|
$
|
507.4
|
|
|
$
|
505.0
|
|
|
$
|
2.4
|
|
|
—
|
%
|
Used vehicle wholesale revenue
|
62.1
|
|
|
41.9
|
|
|
20.2
|
|
|
48
|
%
|
Used vehicle revenue
|
$
|
569.5
|
|
|
$
|
546.9
|
|
|
$
|
22.6
|
|
|
4
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Used vehicle retail gross profit
|
$
|
43.3
|
|
|
$
|
33.9
|
|
|
$
|
9.4
|
|
|
28
|
%
|
Used vehicle wholesale gross profit
|
5.9
|
|
|
(1.5)
|
|
|
7.4
|
|
|
NM
|
Used vehicle gross profit
|
$
|
49.2
|
|
|
$
|
32.4
|
|
|
$
|
16.8
|
|
|
52
|
%
|
Used vehicle retail units:
|
|
|
|
|
|
|
|
Used vehicle retail units
|
20,464
|
|
|
22,988
|
|
|
(2,524)
|
|
|
(11)
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Used vehicle retail revenue
|
$
|
451.6
|
|
|
$
|
464.2
|
|
|
$
|
(12.6)
|
|
|
(3)
|
%
|
Used vehicle wholesale revenue
|
50.7
|
|
|
39.0
|
|
|
11.7
|
|
|
30
|
%
|
Used vehicle revenue
|
$
|
502.3
|
|
|
$
|
503.2
|
|
|
$
|
(0.9)
|
|
|
—
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Used vehicle retail gross profit
|
$
|
38.3
|
|
|
$
|
31.7
|
|
|
$
|
6.6
|
|
|
21
|
%
|
Used vehicle wholesale gross profit
|
4.9
|
|
|
(1.3)
|
|
|
6.2
|
|
|
NM
|
Used vehicle gross profit
|
$
|
43.2
|
|
|
$
|
30.4
|
|
|
$
|
12.8
|
|
|
42
|
%
|
Used vehicle retail units:
|
|
|
|
|
|
|
|
Used vehicle retail units
|
18,815
|
|
|
21,070
|
|
|
(2,255)
|
|
|
(11)
|
%
|
Used Vehicle Metrics—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
As Reported:
|
|
|
|
|
|
|
|
Revenue per used vehicle retailed
|
$
|
24,795
|
|
|
$
|
21,968
|
|
|
$
|
2,827
|
|
|
13
|
%
|
Gross profit per used vehicle retailed
|
$
|
2,116
|
|
|
$
|
1,475
|
|
|
$
|
641
|
|
|
43
|
%
|
Used vehicle retail gross margin
|
8.5
|
%
|
|
6.7
|
%
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue per used vehicle retailed
|
$
|
24,002
|
|
|
$
|
22,031
|
|
|
$
|
1,971
|
|
|
9
|
%
|
Gross profit per used vehicle retailed
|
$
|
2,036
|
|
|
$
|
1,505
|
|
|
$
|
531
|
|
|
35
|
%
|
Used vehicle retail gross margin
|
8.5
|
%
|
|
6.8
|
%
|
|
1.7
|
%
|
|
|
Used vehicle revenue increased by $22.6 million (4%) due to a $2.4 million increase in used vehicle retail revenue and a $20.2 million (48%) increase in used vehicle wholesale revenue. Same store used vehicle revenue decreased by $0.9 million due to a $12.6 million (3%) decrease in used vehicle retail revenue, partially offset by a $11.7 million (30%) increase in used vehicle wholesale revenue. Total company and same store unit sales both decreased (11%) during the three months ended September 30, 2020.
For the three months ended September 30, 2020, total Company and same store used vehicle retail gross profit margins increased 180 basis points and 170 basis points, respectively. During the third quarter of 2020, the used vehicle market
continued to recover from the downturn that occurred towards the end of March through April and benefited from declines in new vehicle inventory availability. The Company's wholesale gross profit and gross margin percentage also benefited from the recovery in the used vehicle market.
Our 35 days of supply of used vehicle inventory as of September 30, 2020, is within our targeted range of 30 to 35 days.
Parts and Service—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
As Reported:
|
|
|
|
|
|
|
|
Parts and service revenue
|
$
|
237.2
|
|
|
$
|
227.6
|
|
|
$
|
9.6
|
|
|
4
|
%
|
Parts and service gross profit:
|
|
|
|
|
|
|
|
Customer pay
|
84.0
|
|
|
79.8
|
|
|
4.2
|
|
|
5
|
%
|
Warranty
|
25.7
|
|
|
22.1
|
|
|
3.6
|
|
|
16
|
%
|
Wholesale parts
|
5.8
|
|
|
5.8
|
|
|
—
|
|
|
—
|
%
|
Parts and service gross profit, excluding reconditioning and preparation
|
$
|
115.5
|
|
|
$
|
107.7
|
|
|
$
|
7.8
|
|
|
7
|
%
|
Parts and service gross margin, excluding reconditioning and preparation
|
48.7
|
%
|
|
47.3
|
%
|
|
1.4
|
%
|
|
|
Reconditioning and preparation *
|
$
|
29.8
|
|
|
$
|
33.8
|
|
|
$
|
(4.0)
|
|
|
(12)
|
%
|
Total parts and service gross profit
|
$
|
145.3
|
|
|
$
|
141.5
|
|
|
$
|
3.8
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Parts and service revenue
|
$
|
209.0
|
|
|
$
|
214.8
|
|
|
$
|
(5.8)
|
|
|
(3)
|
%
|
Parts and service gross profit:
|
|
|
|
|
|
|
|
Customer pay
|
74.0
|
|
|
75.8
|
|
|
(1.8)
|
|
|
(2)
|
%
|
Warranty
|
21.1
|
|
|
21.1
|
|
|
—
|
|
|
—
|
%
|
Wholesale parts
|
5.2
|
|
|
5.4
|
|
|
(0.2)
|
|
|
(4)
|
%
|
Parts and service gross profit, excluding reconditioning and preparation
|
$
|
100.3
|
|
|
$
|
102.3
|
|
|
$
|
(2.0)
|
|
|
(2)
|
%
|
Parts and service gross margin, excluding reconditioning and preparation
|
48.0
|
%
|
|
47.6
|
%
|
|
0.4
|
%
|
|
|
Reconditioning and preparation *
|
$
|
26.8
|
|
|
$
|
31.1
|
|
|
$
|
(4.3)
|
|
|
(14)
|
%
|
Total parts and service gross profit
|
$
|
127.1
|
|
|
$
|
133.4
|
|
|
$
|
(6.3)
|
|
|
(5)
|
%
|
|
|
|
|
|
|
|
|
* Reconditioning and preparation represents the gross profit earned by our parts and service departments for internal work performed and is included as a reduction of Parts and Service Cost of Sales in the accompanying Condensed Consolidated Statements of Income upon the sale of the vehicle.
The $9.6 million (4%) increase in parts and service revenue was due to a $6.8 million (4%) increase in customer pay revenue and a $3.9 million (9%) increase in warranty revenue, partially offset by a $1.1 million (3%) decrease in wholesale parts revenue. Same store parts and service revenue decreased by $5.8 million (3%) to $209.0 million during the three months ended September 30, 2020 from $214.8 million during the three months ended September 30, 2019. The decrease in same store parts and service revenue was due to a $3.3 million (2%) decrease in customer pay revenue, a $1.2 million (3%) decrease in warranty revenue and a $1.3 million (4%) decrease in wholesale parts revenue.
Parts and service gross profit, excluding reconditioning and preparation, increased by $7.8 million (7%) to $115.5 million and same store parts and service gross profit, excluding reconditioning and preparation, decreased by $2.0 million (2%) to $100.3 million. Our parts and service business has been negatively impacted by a combination of people driving fewer miles and customer fears of being more susceptible to contracting COVID-19 in public locations. We continue to focus on increasing our customer pay parts and service revenue over the long-term by upgrading equipment, improving the customer experience, providing market leading benefits to our technicians and capitalizing on our dealership training programs.
Finance and Insurance, net—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Finance and insurance, net
|
$
|
80.8
|
|
|
$
|
80.6
|
|
|
$
|
0.2
|
|
|
—
|
%
|
Finance and insurance, net per vehicle sold
|
$
|
1,795
|
|
|
$
|
1,610
|
|
|
$
|
185
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Finance and insurance, net
|
$
|
75.1
|
|
|
$
|
75.2
|
|
|
$
|
(0.1)
|
|
|
—
|
%
|
Finance and insurance, net per vehicle sold
|
$
|
1,830
|
|
|
$
|
1,622
|
|
|
$
|
208
|
|
|
13
|
%
|
F&I, net revenue increased by $0.2 million during the third quarter of 2020 as compared to the third quarter of 2019 and same store F&I, net revenue decreased by $0.1 million over the same period. We attribute the increase in all stores F&I, net revenue to the 11% increase in F&I PVR, partially offset by a 10% decrease in total retail units.
Selling, General, and Administrative Expense—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
Increase
(Decrease)
|
|
% of Gross
Profit Increase (Decrease)
|
|
2020
|
|
% of Gross
Profit
|
|
2019
|
|
% of Gross
Profit
|
|
|
(Dollars in millions)
|
As Reported:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
$
|
106.5
|
|
|
31.7
|
%
|
|
$
|
95.1
|
|
|
32.4
|
%
|
|
$
|
11.4
|
|
|
(0.7)
|
%
|
Sales compensation
|
32.4
|
|
|
9.6
|
%
|
|
31.5
|
|
|
10.7
|
%
|
|
0.9
|
|
|
(1.1)
|
%
|
Share-based compensation
|
2.6
|
|
|
0.8
|
%
|
|
3.6
|
|
|
1.2
|
%
|
|
(1.0)
|
|
|
(0.4)
|
%
|
Outside services
|
21.9
|
|
|
6.5
|
%
|
|
21.0
|
|
|
7.2
|
%
|
|
0.9
|
|
|
(0.7)
|
%
|
Advertising
|
6.3
|
|
|
1.9
|
%
|
|
9.9
|
|
|
3.4
|
%
|
|
(3.6)
|
|
|
(1.5)
|
%
|
Rent
|
8.1
|
|
|
2.4
|
%
|
|
6.7
|
|
|
2.3
|
%
|
|
1.4
|
|
|
0.1
|
%
|
Utilities
|
4.2
|
|
|
1.3
|
%
|
|
4.5
|
|
|
1.5
|
%
|
|
(0.3)
|
|
|
(0.2)
|
%
|
Insurance
|
3.3
|
|
|
1.0
|
%
|
|
2.9
|
|
|
1.0
|
%
|
|
0.4
|
|
|
—
|
%
|
Other
|
21.2
|
|
|
6.3
|
%
|
|
26.8
|
|
|
9.2
|
%
|
|
(5.6)
|
|
|
(2.9)
|
%
|
Selling, general, and administrative expense
|
$
|
206.5
|
|
|
61.5
|
%
|
|
$
|
202.0
|
|
|
68.9
|
%
|
|
$
|
4.5
|
|
|
(7.4)
|
%
|
Gross profit
|
$
|
335.9
|
|
|
|
|
$
|
293.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
$
|
95.0
|
|
|
32.1
|
%
|
|
$
|
89.8
|
|
|
32.6
|
%
|
|
$
|
5.2
|
|
|
(0.5)
|
%
|
Sales compensation
|
29.1
|
|
|
9.8
|
%
|
|
29.2
|
|
|
10.6
|
%
|
|
(0.1)
|
|
|
(0.8)
|
%
|
Share-based compensation
|
2.6
|
|
|
0.9
|
%
|
|
3.6
|
|
|
1.3
|
%
|
|
(1.0)
|
|
|
(0.4)
|
%
|
Outside services
|
19.5
|
|
|
6.6
|
%
|
|
19.7
|
|
|
7.2
|
%
|
|
(0.2)
|
|
|
(0.6)
|
%
|
Advertising
|
5.2
|
|
|
1.8
|
%
|
|
9.1
|
|
|
3.3
|
%
|
|
(3.9)
|
|
|
(1.5)
|
%
|
Rent
|
8.0
|
|
|
2.7
|
%
|
|
6.7
|
|
|
2.4
|
%
|
|
1.3
|
|
|
0.3
|
%
|
Utilities
|
3.8
|
|
|
1.3
|
%
|
|
4.2
|
|
|
1.5
|
%
|
|
(0.4)
|
|
|
(0.2)
|
%
|
Insurance
|
2.7
|
|
|
0.9
|
%
|
|
2.5
|
|
|
0.9
|
%
|
|
0.2
|
|
|
—
|
%
|
Other
|
19.4
|
|
|
6.5
|
%
|
|
26.0
|
|
|
9.5
|
%
|
|
(6.6)
|
|
|
(3.0)
|
%
|
Selling, general, and administrative expense
|
$
|
185.3
|
|
|
62.6
|
%
|
|
$
|
190.8
|
|
|
69.3
|
%
|
|
$
|
(5.5)
|
|
|
(6.7)
|
%
|
Gross profit
|
$
|
295.8
|
|
|
|
|
$
|
275.4
|
|
|
|
|
|
|
|
SG&A expense as a percentage of gross profit decreased 740 basis points from 68.9% for the third quarter of 2019 to 61.5% for the third quarter of 2020. Same store SG&A expense as a percentage of gross profit decreased 670 basis points, from 69.3% for the third quarter of 2019 to 62.6% over the same period in 2020. The decrease in SG&A as a percentage of gross profit is the
result of broad cost cutting measures implemented as a result of the COVID-19 pandemic and higher gross profits on new and used vehicle sales triggered by new vehicle inventory shortages caused by COVID -19 pandemic related production disruptions. Our cost cutting measures significantly reduced controllable expenses, such as advertising and travel. We anticipate our SG&A expense as a percentage of gross profit returning to historic levels in the mid-to-upper 60% range in future quarters.
Other Operating Expense (Income), net —
Other operating expense (income), net includes gains and losses from the sale of property and equipment, and other operating items not considered core to our business. During the three months ended September 30, 2020, we recorded an impairment charge of $0.7 million related to property and equipment reflected in Assets held for sale included in the Condensed Consolidated Balance Sheet as of September 30, 2020.
Floor Plan Interest Expense —
Floor plan interest expense decreased by $6.0 million (67%) to $3.0 million during the three months ended September 30, 2020 compared to $9.0 million for the three months ended September 30, 2019, primarily due to lower average new vehicle inventory levels and a decrease in the 30 day LIBOR rate from which our floor plan interest rate is calculated.
Other Interest Expense, net —
The $0.8 million (6%) decrease in other interest expense, net is primarily the result of the interest savings from refinancing our $600.0 million 6% Notes during the first quarter of 2020 with our $280.0 million 4.5% Notes and our $320.0 million 4.75% Notes and a decrease in the 30 day LIBOR rate on unhedged mortgage debt. These decreases were partially offset by an increase in interest expense due to a higher average debt outstanding due to the issuance of the Sellers Notes in connection with the Revised Transaction and the $250.0 million September 2020 offering of the Senior Notes during the three months ended September 30, 2020 as compared to the same period in the prior year.
Income Tax Expense —
The $17.2 million (119%) increase in income tax expense was primarily the result of a $68.4 million (115%) increase in income before income taxes. Our effective tax rate for the three months ended September 30, 2020 was 24.8% compared to 24.4% in the prior comparative period. For 2020, we expect our effective tax rate to approximate 25%.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except per share data)
|
REVENUE:
|
|
|
|
|
|
|
|
New vehicle
|
$
|
2,541.8
|
|
|
$
|
2,823.9
|
|
|
$
|
(282.1)
|
|
|
(10)
|
%
|
Used vehicle
|
1,510.2
|
|
|
1,590.4
|
|
|
(80.2)
|
|
|
(5)
|
%
|
Parts and service
|
628.0
|
|
|
669.7
|
|
|
(41.7)
|
|
|
(6)
|
%
|
Finance and insurance, net
|
217.8
|
|
|
232.3
|
|
|
(14.5)
|
|
|
(6)
|
%
|
TOTAL REVENUE
|
4,897.8
|
|
|
5,316.3
|
|
|
(418.5)
|
|
|
(8)
|
%
|
GROSS PROFIT:
|
|
|
|
|
|
|
|
New vehicle
|
135.6
|
|
|
114.8
|
|
|
20.8
|
|
|
18
|
%
|
Used vehicle
|
117.0
|
|
|
102.8
|
|
|
14.2
|
|
|
14
|
%
|
Parts and service
|
380.7
|
|
|
417.4
|
|
|
(36.7)
|
|
|
(9)
|
%
|
Finance and insurance, net
|
217.8
|
|
|
232.3
|
|
|
(14.5)
|
|
|
(6)
|
%
|
TOTAL GROSS PROFIT
|
851.1
|
|
|
867.3
|
|
|
(16.2)
|
|
|
(2)
|
%
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
553.4
|
|
|
593.7
|
|
|
(40.3)
|
|
|
(7)
|
%
|
Depreciation and amortization
|
29.0
|
|
|
26.7
|
|
|
2.3
|
|
|
9
|
%
|
Franchise rights impairment
|
23.0
|
|
|
—
|
|
|
23.0
|
|
|
—
|
%
|
Other operating expense, net
|
9.4
|
|
|
1.0
|
|
|
8.4
|
|
|
NM
|
INCOME FROM OPERATIONS
|
236.3
|
|
|
245.9
|
|
|
(9.6)
|
|
|
(4)
|
%
|
OTHER EXPENSES (INCOME):
|
|
|
|
|
|
|
|
Floor plan interest expense
|
14.1
|
|
|
29.7
|
|
|
(15.6)
|
|
|
(53)
|
%
|
Other interest expense, net
|
41.7
|
|
|
41.2
|
|
|
0.5
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of long-term debt, net
|
20.6
|
|
|
—
|
|
|
20.6
|
|
|
—
|
%
|
Gain on dealership divestitures, net
|
(58.4)
|
|
|
(11.7)
|
|
|
(46.7)
|
|
|
NM
|
Total other expenses, net
|
18.0
|
|
|
59.2
|
|
|
(41.2)
|
|
|
(70)
|
%
|
INCOME BEFORE INCOME TAXES
|
218.3
|
|
|
186.7
|
|
|
31.6
|
|
|
17
|
%
|
Income tax expense
|
53.0
|
|
|
45.9
|
|
|
7.1
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
$
|
165.3
|
|
|
$
|
140.8
|
|
|
$
|
24.5
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
Net income per share—Diluted
|
$
|
8.56
|
|
|
$
|
7.30
|
|
|
$
|
1.26
|
|
|
17
|
%
|
______________________________
NM—Not Meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
REVENUE MIX PERCENTAGES:
|
|
|
|
New vehicle
|
51.9
|
%
|
|
53.1
|
%
|
Used vehicle retail
|
28.0
|
%
|
|
27.3
|
%
|
Used vehicle wholesale
|
2.9
|
%
|
|
2.6
|
%
|
Parts and service
|
12.8
|
%
|
|
12.6
|
%
|
Finance and insurance, net
|
4.4
|
%
|
|
4.4
|
%
|
Total revenue
|
100.0
|
%
|
|
100.0
|
%
|
GROSS PROFIT MIX PERCENTAGES:
|
|
|
|
New vehicle
|
15.9
|
%
|
|
13.2
|
%
|
Used vehicle retail
|
12.5
|
%
|
|
11.8
|
%
|
Used vehicle wholesale
|
1.3
|
%
|
|
0.1
|
%
|
Parts and service
|
44.7
|
%
|
|
48.1
|
%
|
Finance and insurance, net
|
25.6
|
%
|
|
26.8
|
%
|
Total gross profit
|
100.0
|
%
|
|
100.0
|
%
|
GROSS PROFIT MARGIN
|
17.4
|
%
|
|
16.3
|
%
|
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT
|
65.0
|
%
|
|
68.5
|
%
|
Total revenue for the nine months ended September 30, 2020 decreased by $418.5 million (8%) compared to the nine months ended September 30, 2019, due to a $282.1 million (10%) decrease in new vehicle revenue, a $80.2 million (5%) decrease in used vehicle revenue, a $41.7 million (6%) decrease in parts and service revenue and a $14.5 million (6%) decrease in F&I, net revenue. The $16.2 million (2%) decrease in gross profit during the nine months ended September 30, 2020 was driven by a $36.7 million (9%) decrease in parts and service gross profit and a $14.5 million (6%) decrease in F&I, net, partially offset by a $14.2 million (14%) increase in used vehicle gross profit and a $20.8 million (18%) increase in new vehicle gross profit.
Income from operations during the nine months ended September 30, 2020 decreased by $9.6 million (4%) compared to the nine months ended September 30, 2019, due to the $16.2 million (2%) decrease in gross profit, a $23.0 million franchise right impairment charge, a $8.4 million increase in other operating expense, net and a $2.3 million (9%) increase in depreciation and amortization expense, partially offset by a $40.3 million (7%) decrease in SG&A expenses.
Total other expenses, net decreased by $41.2 million (70%), primarily as a result of a $46.7 million increase in the gain on dealership divestitures, net during the first nine months of 2020 when compared to the first nine months of 2019, a $15.6 million (53%) decrease in floor plan interest expense, partially offset by a $20.6 million loss on extinguishment of debt and a $0.5 million (1%) increase in other interest expense, net. As a result, income before income taxes increased $31.6 million (17%) to $218.3 million for the nine months ended September 30, 2020. Overall, net income increased by $24.5 million (17%) during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
New Vehicle—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Luxury
|
$
|
865.9
|
|
|
$
|
929.8
|
|
|
$
|
(63.9)
|
|
|
(7)
|
%
|
Import
|
1,114.1
|
|
|
1,290.4
|
|
|
(176.3)
|
|
|
(14)
|
%
|
Domestic
|
561.8
|
|
|
603.7
|
|
|
(41.9)
|
|
|
(7)
|
%
|
Total new vehicle revenue
|
$
|
2,541.8
|
|
|
$
|
2,823.9
|
|
|
$
|
(282.1)
|
|
|
(10)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Luxury
|
$
|
62.1
|
|
|
$
|
58.0
|
|
|
$
|
4.1
|
|
|
7
|
%
|
Import
|
42.5
|
|
|
31.5
|
|
|
11.0
|
|
|
35
|
%
|
Domestic
|
31.0
|
|
|
25.3
|
|
|
5.7
|
|
|
23
|
%
|
Total new vehicle gross profit
|
$
|
135.6
|
|
|
$
|
114.8
|
|
|
$
|
20.8
|
|
|
18
|
%
|
New vehicle units:
|
|
|
|
|
|
|
|
Luxury
|
15,508
|
|
|
16,933
|
|
|
(1,425)
|
|
|
(8)
|
%
|
Import
|
37,886
|
|
|
45,697
|
|
|
(7,811)
|
|
|
(17)
|
%
|
Domestic
|
13,198
|
|
|
15,006
|
|
|
(1,808)
|
|
|
(12)
|
%
|
Total new vehicle units
|
66,592
|
|
|
77,636
|
|
|
(11,044)
|
|
|
(14)
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Luxury
|
$
|
770.0
|
|
|
$
|
896.1
|
|
|
$
|
(126.1)
|
|
|
(14)
|
%
|
Import
|
1,037.5
|
|
|
1,175.3
|
|
|
(137.8)
|
|
|
(12)
|
%
|
Domestic
|
484.0
|
|
|
543.4
|
|
|
(59.4)
|
|
|
(11)
|
%
|
Total new vehicle revenue
|
$
|
2,291.5
|
|
|
$
|
2,614.8
|
|
|
$
|
(323.3)
|
|
|
(12)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Luxury
|
$
|
53.2
|
|
|
$
|
55.6
|
|
|
$
|
(2.4)
|
|
|
(4)
|
%
|
Import
|
38.9
|
|
|
29.1
|
|
|
9.8
|
|
|
34
|
%
|
Domestic
|
26.6
|
|
|
22.5
|
|
|
4.1
|
|
|
18
|
%
|
Total new vehicle gross profit
|
$
|
118.7
|
|
|
$
|
107.2
|
|
|
$
|
11.5
|
|
|
11
|
%
|
New vehicle units:
|
|
|
|
|
|
|
|
Luxury
|
13,863
|
|
|
16,293
|
|
|
(2,430)
|
|
|
(15)
|
%
|
Import
|
35,457
|
|
|
41,775
|
|
|
(6,318)
|
|
|
(15)
|
%
|
Domestic
|
11,487
|
|
|
13,551
|
|
|
(2,064)
|
|
|
(15)
|
%
|
Total new vehicle units
|
60,807
|
|
|
71,619
|
|
|
(10,812)
|
|
|
(15)
|
%
|
New Vehicle Metrics—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
As Reported:
|
|
|
|
|
|
|
|
Revenue per new vehicle sold
|
$
|
38,170
|
|
|
$
|
36,374
|
|
|
$
|
1,796
|
|
|
5
|
%
|
Gross profit per new vehicle sold
|
$
|
2,036
|
|
|
$
|
1,479
|
|
|
$
|
557
|
|
|
38
|
%
|
New vehicle gross margin
|
5.3
|
%
|
|
4.1
|
%
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Luxury:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
4,004
|
|
|
$
|
3,425
|
|
|
$
|
579
|
|
|
17
|
%
|
New vehicle gross margin
|
7.2
|
%
|
|
6.2
|
%
|
|
1.0
|
%
|
|
|
Import:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
1,122
|
|
|
$
|
689
|
|
|
$
|
433
|
|
|
63
|
%
|
New vehicle gross margin
|
3.8
|
%
|
|
2.4
|
%
|
|
1.4
|
%
|
|
|
Domestic:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
2,349
|
|
|
$
|
1,686
|
|
|
$
|
663
|
|
|
39
|
%
|
New vehicle gross margin
|
5.5
|
%
|
|
4.2
|
%
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue per new vehicle sold
|
$
|
37,685
|
|
|
$
|
36,510
|
|
|
$
|
1,175
|
|
|
3
|
%
|
Gross profit per new vehicle sold
|
$
|
1,952
|
|
|
$
|
1,497
|
|
|
$
|
455
|
|
|
30
|
%
|
New vehicle gross margin
|
5.2
|
%
|
|
4.1
|
%
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Luxury:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
3,838
|
|
|
$
|
3,413
|
|
|
$
|
425
|
|
|
12
|
%
|
New vehicle gross margin
|
6.9
|
%
|
|
6.2
|
%
|
|
0.7
|
%
|
|
|
Import:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
1,097
|
|
|
$
|
697
|
|
|
$
|
400
|
|
|
57
|
%
|
New vehicle gross margin
|
3.7
|
%
|
|
2.5
|
%
|
|
1.2
|
%
|
|
|
Domestic:
|
|
|
|
|
|
|
|
Gross profit per new vehicle sold
|
$
|
2,316
|
|
|
$
|
1,660
|
|
|
$
|
656
|
|
|
40
|
%
|
New vehicle gross margin
|
5.5
|
%
|
|
4.1
|
%
|
|
1.4
|
%
|
|
|
For the nine months ended September 30, 2020, new vehicle revenue decreased by $282.1 million (10%) as a result of a 14% decrease in new vehicle units sold, partially offset by an increase in revenue per new vehicle sold. For the nine months ended September 30, 2020, same store new vehicle revenue decreased by $323.3 million (12%) as the result of a 15% decrease in new vehicle units sold, partially offset by a 3% increase in revenue per unit sold.
For the nine months ended September 30, 2020, new vehicle gross profit and same store new vehicle gross profit increased by $20.8 million (18%) and $11.5 million (11%), respectively. Same store new vehicle gross margin for the nine months ended September 30, 2020 improved 110 basis points to 5.2%.
The seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S. during the nine months ended September 30, 2020 was 14.0 million compared to 17.0 million during the nine months ended September 30, 2019, an 18% decrease. The Company experienced a significant decline in new vehicle sales during the latter half of March through April as a result of the "shelter in place" orders imposed by governmental and other regulatory authorities, in an attempt to curb the spread of COVID-19. New vehicle sales gradually began to rebound in the second quarter of 2020 and continued to strengthen into the third quarter of 2020. Despite the decrease in new vehicle revenue and units sold, we improved our new vehicle gross profit margins by $557 or 120 basis points on a PVR basis for all stores and $455 or 110 basis points on a same stores basis.
Used Vehicle—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Used vehicle retail revenue
|
$
|
1,366.0
|
|
|
$
|
1,449.8
|
|
|
$
|
(83.8)
|
|
|
(6)
|
%
|
Used vehicle wholesale revenue
|
144.2
|
|
|
140.6
|
|
|
3.6
|
|
|
3
|
%
|
Used vehicle revenue
|
$
|
1,510.2
|
|
|
$
|
1,590.4
|
|
|
$
|
(80.2)
|
|
|
(5)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Used vehicle retail gross profit
|
$
|
106.1
|
|
|
$
|
102.2
|
|
|
$
|
3.9
|
|
|
4
|
%
|
Used vehicle wholesale gross profit
|
10.9
|
|
|
0.6
|
|
|
10.3
|
|
|
NM
|
Used vehicle gross profit
|
$
|
117.0
|
|
|
$
|
102.8
|
|
|
$
|
14.2
|
|
|
14
|
%
|
Used vehicle retail units:
|
|
|
|
|
|
|
|
Used vehicle retail units
|
59,151
|
|
|
66,330
|
|
|
(7,179)
|
|
|
(11)
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Used vehicle retail revenue
|
$
|
1,241.9
|
|
|
$
|
1,332.5
|
|
|
$
|
(90.6)
|
|
|
(7)
|
%
|
Used vehicle wholesale revenue
|
127.5
|
|
|
130.2
|
|
|
(2.7)
|
|
|
(2)
|
%
|
Used vehicle revenue
|
$
|
1,369.4
|
|
|
$
|
1,462.7
|
|
|
$
|
(93.3)
|
|
|
(6)
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
Used vehicle retail gross profit
|
$
|
95.7
|
|
|
$
|
95.4
|
|
|
$
|
0.3
|
|
|
—
|
%
|
Used vehicle wholesale gross profit
|
9.9
|
|
|
0.8
|
|
|
9.1
|
|
|
NM
|
Used vehicle gross profit
|
$
|
105.6
|
|
|
$
|
96.2
|
|
|
$
|
9.4
|
|
|
10
|
%
|
Used vehicle retail units:
|
|
|
|
|
|
|
|
Used vehicle retail units
|
54,299
|
|
|
60,826
|
|
|
(6,527)
|
|
|
(11)
|
%
|
Used Vehicle Metrics—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase (Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
As Reported:
|
|
|
|
|
|
|
|
Revenue per used vehicle retailed
|
$
|
23,093
|
|
|
$
|
21,857
|
|
|
$
|
1,236
|
|
|
6
|
%
|
Gross profit per used vehicle retailed
|
$
|
1,794
|
|
|
$
|
1,541
|
|
|
$
|
253
|
|
|
16
|
%
|
Used vehicle retail gross margin
|
7.8
|
%
|
|
7.0
|
%
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Revenue per used vehicle retailed
|
$
|
22,872
|
|
|
$
|
21,907
|
|
|
$
|
965
|
|
|
4
|
%
|
Gross profit per used vehicle retailed
|
$
|
1,762
|
|
|
$
|
1,568
|
|
|
$
|
194
|
|
|
12
|
%
|
Used vehicle retail gross margin
|
7.7
|
%
|
|
7.2
|
%
|
|
0.5
|
%
|
|
|
Used vehicle revenue decreased by $80.2 million (5%) due to an $83.8 million (6%) decrease in used vehicle retail revenue, partially offset by a $3.6 million (3%) increase in used vehicle wholesale revenue. Same store used vehicle revenue decreased by $93.3 million (6%) due to a $90.6 million (7%) decrease in used vehicle retail revenue, and a $2.7 million (2%) decrease in used vehicle wholesale revenues.
For the nine months ended September 30, 2020, gross profit margins increased by 80 basis points to 7.8%. Similar to new vehicles, used vehicle retail sales experienced a significant decline during the second half of March and into April as a result of the COVID-19 pandemic, but steadily started to improve in May and June and continued to do so in the third quarter of 2020. While we saw a reduction in used vehicle revenue on an all and same store basis, an increased demand for used vehicles
resulted in an improvement in used vehicle gross profit margins. Used vehicle gross profit margins increased for the nine months ended September 30, 2020 by $14.2 million on an all store basis and $9.4 million on a same store basis as compared to the nine months ended September 30, 2019.
Parts and Service—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
As Reported:
|
|
|
|
|
|
|
|
Parts and service revenue
|
$
|
628.0
|
|
|
$
|
669.7
|
|
|
$
|
(41.7)
|
|
|
(6)
|
%
|
Parts and service gross profit:
|
|
|
|
|
|
|
|
Customer pay
|
216.1
|
|
|
236.9
|
|
|
(20.8)
|
|
|
(9)
|
%
|
Warranty
|
65.7
|
|
|
66.1
|
|
|
(0.4)
|
|
|
(1)
|
%
|
Wholesale parts
|
15.6
|
|
|
17.6
|
|
|
(2.0)
|
|
|
(11)
|
%
|
Parts and service gross profit, excluding reconditioning and preparation
|
$
|
297.4
|
|
|
$
|
320.6
|
|
|
$
|
(23.2)
|
|
|
(7)
|
%
|
Parts and service gross margin, excluding reconditioning and preparation
|
47.4
|
%
|
|
47.9
|
%
|
|
(0.5)
|
%
|
|
|
Reconditioning and preparation *
|
$
|
83.3
|
|
|
$
|
96.8
|
|
|
$
|
(13.5)
|
|
|
(14)
|
%
|
Total parts and service gross profit
|
$
|
380.7
|
|
|
$
|
417.4
|
|
|
$
|
(36.7)
|
|
|
(9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Parts and service revenue
|
$
|
571.0
|
|
|
$
|
628.8
|
|
|
$
|
(57.8)
|
|
|
(9)
|
%
|
Parts and service gross profit:
|
|
|
|
|
|
|
|
Customer pay
|
197.1
|
|
|
224.3
|
|
|
(27.2)
|
|
|
(12)
|
%
|
Warranty
|
56.8
|
|
|
62.7
|
|
|
(5.9)
|
|
|
(9)
|
%
|
Wholesale parts
|
14.4
|
|
|
16.1
|
|
|
(1.7)
|
|
|
(11)
|
%
|
Parts and service gross profit, excluding reconditioning and preparation
|
$
|
268.3
|
|
|
$
|
303.1
|
|
|
$
|
(34.8)
|
|
|
(11)
|
%
|
Parts and service gross margin, excluding reconditioning and preparation
|
47.0
|
%
|
|
48.2
|
%
|
|
(1.2)
|
%
|
|
|
Reconditioning and preparation *
|
$
|
76.9
|
|
|
$
|
88.9
|
|
|
$
|
(12.0)
|
|
|
(13)
|
%
|
Total parts and service gross profit
|
$
|
345.2
|
|
|
$
|
392.0
|
|
|
$
|
(46.8)
|
|
|
(12)
|
%
|
|
|
|
|
|
|
|
|
* Reconditioning and preparation represents the gross profit earned by our parts and service departments for internal work performed is included as a reduction of Parts and Service Cost of Sales in the accompanying Condensed Consolidated Statements of Income upon the sale of the vehicle.
The $41.7 million (6%) decrease in parts and service revenue was primarily due to a $26.5 million (6%) decrease in customer pay revenue, a $3.7 million (3%) decrease in warranty revenue and an $11.5 million (12%) decrease in wholesale parts revenue. Same store parts and service revenue decreased by $57.8 million (9%) from $628.8 million for the nine months ended September 30, 2019 to $571.0 million for the nine months ended September 30, 2020. The decrease in same store parts and service revenue was due to a $36.8 million (9%) decrease in customer pay revenue, an $11.1 million (9%) decrease in warranty revenue and a $9.9 million (11%) decrease in wholesale parts revenue.
Parts and service gross profit, excluding reconditioning and preparation, decreased by $23.2 million (7%) to $297.4 million, and same store gross profit, excluding reconditioning and preparation, decreased by $34.8 million (11%) to $268.3 million. The parts and service business was negatively impacted by "shelter in place" orders issued in response to the COVID-19 pandemic but has shown continual improvement as restrictions began to ease. In addition, for a portion of the nine months ended September 30, 2020, the Company provided wage guarantees to certain skilled technicians which has negatively impacted the parts and service gross margin.
Finance and Insurance, net—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase
(Decrease)
|
|
%
Change
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except for per vehicle data)
|
As Reported:
|
|
|
|
|
|
|
|
Finance and insurance, net
|
$
|
217.8
|
|
|
$
|
232.3
|
|
|
$
|
(14.5)
|
|
|
(6)
|
%
|
Finance and insurance, net per vehicle sold
|
$
|
1,732
|
|
|
$
|
1,614
|
|
|
$
|
118
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
Finance and insurance, net
|
$
|
202.2
|
|
|
$
|
215.6
|
|
|
$
|
(13.4)
|
|
|
(6)
|
%
|
Finance and insurance, net per vehicle sold
|
$
|
1,757
|
|
|
$
|
1,628
|
|
|
$
|
129
|
|
|
8
|
%
|
F&I revenue, net decreased $14.5 million (6%) during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019, and same store F&I revenue, net decreased by $13.4 million (6%) over the same period. F&I revenue, net was negatively impacted by the decrease in new and used retail unit sales as a result of the COVID-19 pandemic. For the nine months ended September 30, 2020, the Company was able to improve the F&I PVR by $118 per unit (7%) over the comparable prior year period.
Selling, General, and Administrative Expense—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
Increase
(Decrease)
|
|
% of Gross
Profit Increase (Decrease)
|
|
2020
|
|
% of Gross
Profit
|
|
2019
|
|
% of Gross
Profit
|
|
|
(Dollars in millions)
|
As Reported:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
$
|
273.3
|
|
|
32.1
|
%
|
|
$
|
282.2
|
|
|
32.5
|
%
|
|
$
|
(8.9)
|
|
|
(0.4)
|
%
|
Sales compensation
|
84.6
|
|
|
9.9
|
%
|
|
90.7
|
|
|
10.5
|
%
|
|
(6.1)
|
|
|
(0.6)
|
%
|
Share-based compensation
|
9.2
|
|
|
1.1
|
%
|
|
10.4
|
|
|
1.2
|
%
|
|
(1.2)
|
|
|
(0.1)
|
%
|
Outside services
|
60.3
|
|
|
7.1
|
%
|
|
61.4
|
|
|
7.1
|
%
|
|
(1.1)
|
|
|
—
|
%
|
Advertising
|
17.9
|
|
|
2.1
|
%
|
|
27.7
|
|
|
3.2
|
%
|
|
(9.8)
|
|
|
(1.1)
|
%
|
Rent
|
20.8
|
|
|
2.4
|
%
|
|
20.3
|
|
|
2.3
|
%
|
|
0.5
|
|
|
0.1
|
%
|
Utilities
|
11.6
|
|
|
1.4
|
%
|
|
12.5
|
|
|
1.4
|
%
|
|
(0.9)
|
|
|
—
|
%
|
Insurance
|
12.0
|
|
|
1.4
|
%
|
|
10.5
|
|
|
1.2
|
%
|
|
1.5
|
|
|
0.2
|
%
|
Other
|
63.7
|
|
|
7.5
|
%
|
|
78.0
|
|
|
9.1
|
%
|
|
(14.3)
|
|
|
(1.6)
|
%
|
Selling, general, and administrative expense
|
$
|
553.4
|
|
|
65.0
|
%
|
|
$
|
593.7
|
|
|
68.5
|
%
|
|
$
|
(40.3)
|
|
|
(3.5)
|
%
|
Gross profit
|
$
|
851.1
|
|
|
|
|
$
|
867.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
$
|
249.6
|
|
|
32.3
|
%
|
|
$
|
265.0
|
|
|
32.7
|
%
|
|
$
|
(15.4)
|
|
|
(0.4)
|
%
|
Sales compensation
|
77.0
|
|
|
10.0
|
%
|
|
83.7
|
|
|
10.3
|
%
|
|
(6.7)
|
|
|
(0.3)
|
%
|
Share-based compensation
|
9.2
|
|
|
1.2
|
%
|
|
10.4
|
|
|
1.3
|
%
|
|
(1.2)
|
|
|
(0.1)
|
%
|
Outside services
|
55.2
|
|
|
7.2
|
%
|
|
57.1
|
|
|
7.0
|
%
|
|
(1.9)
|
|
|
0.2
|
%
|
Advertising
|
14.8
|
|
|
1.9
|
%
|
|
25.3
|
|
|
3.1
|
%
|
|
(10.5)
|
|
|
(1.2)
|
%
|
Rent
|
20.5
|
|
|
2.7
|
%
|
|
20.1
|
|
|
2.5
|
%
|
|
0.4
|
|
|
0.2
|
%
|
Utilities
|
10.7
|
|
|
1.4
|
%
|
|
11.6
|
|
|
1.4
|
%
|
|
(0.9)
|
|
|
—
|
%
|
Insurance
|
10.5
|
|
|
1.4
|
%
|
|
9.1
|
|
|
1.1
|
%
|
|
1.4
|
|
|
0.3
|
%
|
Other
|
$
|
60.2
|
|
|
7.7
|
%
|
|
$
|
74.5
|
|
|
9.3
|
%
|
|
(14.3)
|
|
|
(1.6)
|
%
|
Selling, general, and administrative expense
|
$
|
507.7
|
|
|
65.8
|
%
|
|
$
|
556.8
|
|
|
68.7
|
%
|
|
$
|
(49.1)
|
|
|
(2.9)
|
%
|
Gross profit
|
$
|
771.7
|
|
|
|
|
$
|
811.0
|
|
|
|
|
|
|
|
SG&A expense as a percentage of gross profit decreased 350 basis points from 68.5% for the nine months ended September 30, 2019 to 65.0% for the nine months ended September 30, 2020 while same store SG&A expense as a percentage of gross profit decreased 290 basis points to 65.8% over that same period. The decrease in SG&A as a percentage of gross profit during the nine months ended September 30, 2020, is primarily the result of broad cost cutting measures implemented during the early stages of the pandemic that continued through the third quarter of 2020 in response to the downturns in the business caused by the COVID-19 pandemic. Our SG&A as a percentage of gross profit also benefited from higher gross profits on new and used vehicle sales triggered by new vehicle inventory shortages caused by COVID -19 pandemic related production disruptions.
Franchise Rights Impairment —
During the nine months ended September 30, 2020, we recorded a franchise rights impairment charge of $23.0 million. As a result of the COVID-19 pandemic, we performed a quantitative impairment analysis of certain franchise rights assets and determined that their carrying values exceeded their fair value by $23.0 million as of March 31, 2020. There was no impairment recorded during the three months ended June 30, 2020 or September 30, 2020.
Other Operating Expense, net —
Other operating expense, net includes gains and losses from the sale of property and equipment, and other operating items not considered core to our business. During the nine months ended September 30, 2020, the Company recorded other operating expense, net of $9.4 million, which included an $11.6 million charge related to the termination of the 2019 Acquisition, a $0.7 million impairment charge related to property and equipment reflected in Assets held for sale partially offset by a $2.1 million gain related to legal settlements and a $0.3 million gain related to the sale of vacant real estate. Included in the $1.0 million of
other operating expense, net for the nine months ended September 30, 2019, was a $2.4 million pre-tax loss related to the write-off of fixed assets, partially offset by $1.4 million, net of other non-core operating income.
Floor Plan Interest Expense —
Floor plan interest expense decreased by $15.6 million (53%) to $14.1 million during the nine months ended September 30, 2020 compared to $29.7 million during the nine months ended September 30, 2019 primarily as a result of a decrease in LIBOR from which our floor plan interest rate is calculated and lower new vehicle inventory levels.
Loss on Extinguishment of Debt, net —
On March 4, 2020, the Company redeemed its $600 million 6% Notes scheduled to mature in 2024 at 103% of par, plus accrued and unpaid interest. We recorded a loss on extinguishment of the 6% Notes of $19.1 million which comprised a redemption premium of $18.0 million and the write-off of the unamortized premium and debt issuance costs totaling $1.1 million.
As a result of the termination of the 2019 Acquisition, the Company delivered a notice of special mandatory redemption to holders of its Existing 2028 Notes and Existing 2030 Notes pursuant to which it would redeem on a pro rata basis (1) $245.0 million of the Existing 2028 Notes and (2) $280.0 million of the Existing 2030 Notes, in each case, at 100% of the respective principal amount plus accrued and unpaid interest to, but excluding the special mandatory redemption date. On March 30, 2020, the Company completed the redemption and recorded a write-off of unamortized debt issuance costs of $1.5 million.
Gain on Dealership Divestitures, net —
During the nine months ended September 30, 2020, we sold one franchise (one dealership location) in the Atlanta, Georgia market, we sold six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market. We also sold one franchise (one dealership location) in the Greenville, South Carolina market. The Company recorded a net pre-tax gain totaling $58.4 million. During the nine months ended September 30, 2019, we sold one franchise (one dealership location) and one collision center in the Houston, Texas market resulting in a pre-tax gain of $11.7 million.
Income Tax Expense —
The $7.1 million (15%) increase in income tax expense was primarily the result of a $31.6 million (17%) increase in income before income taxes and was further reduced by an excess tax benefit related to the vesting of share-based awards. Our effective tax rate for the nine months ended September 30, 2020 was 24.3% compared to 24.6% in the prior comparative period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had total available liquidity of $384.9 million, which consisted of $4.1 million of cash and cash equivalents, $39.8 million of available funds in our floor plan offset accounts, $237.3 million of availability under our revolving credit facility, and $103.7 million of availability under our used vehicle revolving floor plan facility. The borrowing capacities under our revolving credit facility and our used vehicle revolving floor plan facility are limited by borrowing base calculations and, from time to time, may be further limited by our required compliance with customary operating and other restrictive covenants. As of September 30, 2020, these covenants did not further limit our availability under our credit facilities. For more information on our covenants, see "Covenants" and "Share Repurchases and Dividend Restrictions" below.
We continually evaluate our liquidity and capital resources based upon (i) our cash and cash equivalents on hand, (ii) the funds that we expect to generate through future operations, (iii) current and expected borrowing availability under our 2019 Senior Credit Facility, our other floor plan facilities, our Real Estate Credit Agreement, our Restated Master Loan Agreement, and our mortgage financings (each, as defined below), (iv) amounts in our new vehicle floor plan notes payable offset accounts, and (v) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, financings, acquisitions, dispositions, equity and/or debt repurchases, dividends, or other capital expenditures. We believe we will have sufficient liquidity to meet our debt service and working capital requirements; commitments and contingencies; debt repayment, maturity and repurchase obligations; acquisitions; capital expenditures; and any operating requirements for at least the next twelve months.
On March 24, 2020, the Company delivered notice to the sellers terminating the 2019 Asset Purchase Agreement and the Real Estate Purchase Agreement in exchange for the payment of $10.0 million of liquidated damages.
In connection with the termination of the Transaction Agreements:
•The Company delivered a notice of special mandatory redemption to holders of its $525.0 million aggregate principal amount of Existing 2028 Notes and $600.0 million aggregate principal amount of Existing 2030 Notes pursuant to which it redeemed on a pro rata basis (1) $245.0 million of the Existing 2028 Notes and (2) $280.0 million of the Existing 2030 Notes, in each case, at 100% of the respective principal amount plus accrued and unpaid interest to, but excluding the special mandatory redemption date.
•The Company did not consummate the transactions contemplated by, or incur indebtedness in connection with, the new real estate term loan credit agreement, dated as of February 7, 2020, by and among various financial institutions party thereto, certain of the Company’s subsidiaries and Bank of America, N.A. ("Bank of America").
•The amendments to the Third Amended and Restated Credit Agreement, dated as of September 25, 2019, among the Company, certain of its subsidiaries, Bank of America and the other lenders thereto (the "2019 Senior Credit Agreement") to (1) increase the aggregate commitments under the revolving credit facility to $350.0 million, (2) increase the aggregate commitments under the new vehicle floorplan facility to $1.35 billion and (3) increase the aggregate commitments under the used vehicle floorplan facility to $200.0 million did not become effective.
•The amended and restated commitment letter, by and among the Company, Bank of America, BofA Securities, Inc., JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, Santander Bank, N.A., SunTrust Robinson Humphrey, Inc., Trust Bank and U.S. Bank National Association terminated in accordance with its terms on April 15, 2020.
We currently are party to the following material credit facilities and agreements, and have the following material indebtedness outstanding. For a more detailed description of the material terms of these agreements and facilities, and this indebtedness, please refer to Note 13 "Long-Term Debt" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
•2019 Senior Credit Facility — On September 25, 2019, the Company and certain of its subsidiaries entered into the third amended and restated credit agreement with Bank of America, as administrative agent, and the other lenders party thereto (the "2019 Senior Credit Facility"). The 2019 Senior Credit Agreement provides for the following:
Revolving Credit Facility —A $250.0 million Revolving Credit Facility for, among other things, acquisitions, working capital and capital expenditures, including a $50.0 million sub-limit for letters of credit. In addition, we had $12.7 million in outstanding letters of credit as of September 30, 2020, resulting in $237.3 million additional borrowing availability as of September 30, 2020.
New Vehicle Floor Plan Facility — A $1.04 billion New Vehicle Floor Plan Facility. In connection with the New Vehicle Floor Plan Facility, we established an account with Bank of America that allows us to transfer cash as an offset to floor plan notes payable. These transfers reduce the amount of outstanding new vehicle floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the offset account into our operating cash accounts within one to two days. As a result of the use of our floor plan offset account, we experienced a reduction in Floor Plan Interest Expense on our Condensed Consolidated Statements of Income. As of September 30, 2020, we had $585.2 million, which is net of $33.1 million in our floor plan offset account, outstanding under the New Vehicle Floor Plan Facility.
Used Vehicle Floor Plan Facility —A $160.0 million Used Vehicle Floor Plan Facility to finance the acquisition of used vehicle inventory and for, among other things, working capital and capital expenditures, as well as to refinance used vehicles. We began the year with nothing drawn on our used vehicle floor plan facility. During the nine months ended September 30, 2020, we had borrowings of $220.0 million and a $170.0 million repayment resulting in outstanding borrowings of $50.0 million on our Used Vehicle Floor Plan Facility as of September 30, 2020. Our borrowing capacity under the Used Vehicle Floor Plan Facility was limited to $103.7 million based on our borrowing base calculation as of September 30, 2020.
Subject to compliance with certain conditions, the 2019 Senior Credit Agreement provides that we have the ability, at our option and subject to the receipt of additional commitments from existing or new lenders, to increase the size of the facilities by up to $350.0 million in the aggregate without lender consent.
At our option, we have the ability to re-designate a portion of our availability under the Revolving Credit Facility to the New Vehicle Floor Plan Facility or the Used Vehicle Floor Plan Facility. The maximum amount we are allowed to re-designate is determined based on aggregate commitments under the Revolving Credit Facility, less $50.0 million. In addition, we are able to re-designate any amounts moved to the New Vehicle Floor Plan Facility or the Used Vehicle
Floor Plan Facility back to the Revolving Credit Facility. As of December 31, 2019, $190.0 million of availability under the Revolving Credit Facility was re-designated to the New Vehicle Floor Plan Facility to take advantage of the lower commitment fee rates on the New Vehicle Floor Plan Facility when compared to the Revolving Credit Facility. On March 17, 2020, we re-allocated the entire $190 million from the New Vehicle Floor Plan Facility to the Revolving Credit Facility.
Borrowings under the 2019 Senior Credit Facility bear interest, at our option, based on LIBOR or the Base Rate, in each case plus an Applicable Rate. The Base Rate is the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate, and (iii) one month LIBOR plus 1.00%. Applicable Rate means with respect to the Revolving Credit Facility, a range from 1.00% to 2.00% for LIBOR loans and 0.15% to 1.00% for Base Rate loans, in each case based on the Company's consolidated total lease adjusted leverage ratio. Borrowings under the New Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.10% or the Base Rate plus 0.10%. Borrowings under the Used Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.40% or the Base Rate plus 0.40%.
In addition to the payment of interest on borrowings outstanding under the 2019 Senior Credit Facility, we are required to pay a quarterly commitment fee on total unused commitments thereunder. The fee for unused commitments under the Revolving Credit Facility is between 0.15% and 0.40% per year, based on the Company's total lease adjusted leverage ratio, and the fee for unused commitments under the New Vehicle Facility Floor Plan and the Used Vehicle Facility Floor Plan Facility is 0.15% per year.
•Manufacturer affiliated new vehicle floor plan and other financing facilities —We have a floor plan facility with the Ford Motor Credit Company ("Ford Credit") to purchase new Ford and Lincoln vehicle inventory. Our floor plan facility with Ford Credit was amended in July 2020 to extend the maturity date to July 31, 2021. We have also established a floor plan offset account with Ford Credit, which operates in a similar manner to our floor plan offset account with Bank of America. As of September 30, 2020, we had $66.2 million, which included $5.8 million classified as Liabilities associated with assets held for sale and is net of $6.7 million in our floor plan offset account, outstanding under our floor plan facility. Additionally, we had $129.4 million outstanding under facilities with certain manufacturers for the financing of loaner vehicles, which are presented within Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. Neither our floor plan facility with Ford Credit nor our facilities for loaner vehicles have stated borrowing limitations.
•The New Senior Notes—On February 19, 2020, the Company completed its offering of senior unsecured notes, consisting of $525.0 million aggregate principal amount of the Existing 2028 Notes and $600.0 million aggregate principal amount of the Existing 2030 Notes. The 2028 Notes and 2030 Notes mature on March 1, 2028 and March 1, 2030, respectively. Interest is payable semiannually, on March 1 and September 1 of each year. The New Senior Notes were offered, together with additional borrowings and cash on hand, to (i) fund, if consummated, the acquisition of substantially all of the assets of Park Place, (ii) redeem all of our outstanding $600.0 million aggregate principal amount of 6.0% Senior Subordinated Notes due 2024 (the "6.0% Notes") and (iii) pay fees and expenses in connection with the foregoing.
On March 24, 2020, the Company delivered notice to the sellers terminating the 2019 Asset Purchase Agreement and the Real Estate Purchase Agreement. As a result, the Company redeemed $245.0 million aggregate principal million of the Existing 2028 Notes and $280.0 million aggregate principal amount of the Existing 2030 Notes (the "Mandatory Redemption Amount") on a pro rata basis in proportion to the aggregate principal amount of each series of Notes at a redemption price equal to 100% of the Mandatory Redemption Amount, plus accrued and unpaid interest on March 30, 2020.
In September 2020, the Company completed an add-on issuance of $250.0 million aggregate principal amount of Notes consisting of $125.0 million aggregate principal amount of Additional 2028 Notes at a price of 101.00% of par, plus accrued interest from September 1, 2020, and $125.0 million aggregate principal amount of Additional 2030 Notes at a price of 101.75% of par, plus accrued interest from September 1, 2020 (the "September 2020 Offering"). After deducting the initial purchasers' discounts of $2.8 million, we received net proceeds of approximately $250.6 million from this offering. The $3.5 million premium paid by the initial purchasers of the Notes was recorded as a component of long-term debt on our Condensed Consolidated Balance Sheet and is being amortized as a reduction of interest expense over the remaining term of the Notes. The proceeds of the September 2020 offering were used to redeem the Seller Notes issued in connection with the Revised Transaction.
The Notes of each series are guaranteed, jointly and severally, on a senior unsecured basis, by each of our existing and future restricted subsidiaries, with certain exceptions. In addition, the Notes are subject to customary covenants, events of default and optional redemption revisions. The Notes are required to be registered under the Securities Act of
1933 within 270 days of the closing date for the offering of the Notes. The Company completed the registration of the 2028 Notes and 2030 Notes in October 2020.
•Seller Notes — The Seller Notes comprised $150.0 million in aggregate principal amount of 4.00% promissory note due August 2021 and $50.0 million in aggregate principal amount of 4.00% promissory note due February 2022 and were issued on August 24, 2020 in conjunction with the Revised Transaction. In September 2020, the Company redeemed the Seller Notes with the proceeds of the September 2020 Offering of Senior Notes.
•6.0% Senior Subordinated Notes due 2024 — In connection with the issuance of the Existing 2028 Notes and Existing 2030 Notes, on March 4, 2020, we redeemed all of our 6.0% Notes at 103% of par, plus accrued and unpaid interest up to, but excluding, the date of redemption.
•Mortgage notes — As of September 30, 2020, we had $97.6 million of mortgage note obligations. These obligations are collateralized by the associated real estate at our dealership locations.
•2013 BofA Real Estate Facility— On September 26, 2013, we entered into a real estate term loan credit agreement (the "2013 BofA Real Estate Credit Agreement") with Bank of America, N.A. ("Bank of America"), as lender, providing for term loans in an aggregate amount not to exceed $75.0 million, subject to customary terms and conditions (the "2013 BofA Real Estate Facility"). As of September 30, 2020, we had $34.2 million of outstanding borrowings under the 2013 BofA Real Estate Facility. There is no further borrowing availability under this agreement.
•2015 Wells Fargo Master Loan Facility—On February 3, 2015, certain of our subsidiaries entered into an amended and restated master loan agreement (as amended, restated or supplemented from time to time, the "2015 Wells Fargo Master Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as lender, which provides for term loans to certain of our subsidiaries that are borrowers under the 2015 Wells Fargo Master Loan Agreement in an aggregate amount not to exceed $100.0 million (the "2015 Wells Fargo Master Loan Facility"). Borrowings under the 2015 Wells Fargo Master Loan Facility are guaranteed by us and are collateralized by the real property financed under the 2015 Wells Fargo Master Loan Facility. As of September 30, 2020, the outstanding balance under this agreement was $67.4 million, which includes $5.1 million classified as Liabilities associated with assets held for sale. There is no further borrowing availability under this agreement.
•2018 Bank of America Facility —On November 13, 2018, we entered into a real estate term loan credit agreement (as amended, restated or supplemented from time to time, the "2018 BofA Real Estate Credit Agreement") with Bank of America, as lender, providing for term loans in an aggregate amount not to exceed $128.1 million, subject to customary terms and conditions (the "2018 BofA Real Estate Facility"). Our right to make draws under the 2018 BofA Real Estate Facility terminated on November 13, 2019. All of the real property financed by an operating dealership subsidiary of the Company under the 2018 BofA Real Estate Facility is collateralized by first priority liens, subject to certain permitted exceptions. As of September 30, 2020, we had $85.4 million of outstanding borrowings under the 2018 Bank of America Facility.
•2018 Wells Fargo Master Loan Facility—On November 16, 2018, certain of our subsidiaries entered into a master loan agreement (the "2018 Wells Fargo Master Loan Agreement") with Wells Fargo as lender, which provides for term loans to certain of our subsidiaries that are borrowers under the 2018 Wells Fargo Master Loan Agreement in an aggregate amount not to exceed $100.0 million (the "2018 Wells Fargo Master Loan Facility"). Our right to make draws under the 2018 Wells Fargo Master Loan Facility terminated on June 30, 2020. On November 16, 2018 and June 26, 2020, we borrowed an aggregate amount of $25.0 million and $69.4 million, respectively, under the 2018 Wells Fargo Master Loan Facility, the proceeds of which were used for general corporate purposes. As of September 30, 2020, we had $99.9 million, which includes $11.5 million classified as Liabilities associated with assets held for sale, outstanding borrowings under the 2018 Wells Fargo Master Loan Facility. There is no further borrowing availability under this agreement.
Covenants
We are subject to a number of customary operating and other restrictive covenants in our various debt and lease agreements. We were in compliance with all of our covenants as of September 30, 2020.
Share Repurchases and Dividend Restrictions
Our ability to repurchase shares or pay dividends on our common stock is subject to our compliance with the covenants and restrictions in our various debt and lease agreements. Our 2019 Senior Credit Facility and our indenture governing our 4.5% and 4.75% Notes permit us to make an unlimited amount of restricted payments, such as share repurchases or dividends, so long as our Consolidated Total Leverage Ratio, as defined in those agreements, does not exceed 3.0 to 1.0 on a pro forma basis
after giving effect to any proposed payments. As of September 30, 2020, our Consolidated Total Leverage Ratio did not exceed 3.0 to 1.0.
On January 30, 2014, our Board of Directors authorized our current share repurchase program (the "Repurchase Program"). On October 19, 2018, our Board of Directors reset the authorization under our Repurchase Program to $100.0 million in the aggregate, for the repurchase of our common stock in open market transactions or privately negotiated transactions from time to time.
During the nine months ended September 30, 2020, we did not repurchase any shares, of our common stock under the Repurchase Program. As of September 30, 2020, we had remaining authorization to repurchase $66.3 million in shares of our common stock under the Repurchase Program.
During the three and nine months ended September 30, 2020, we repurchased 140 and 56,607 shares, of our common stock for $14.6 thousand and $5.2 million, respectively, from employees in connection with a net share settlement feature of employee equity-based awards.
Cash Flows
Classification of Cash Flows Associated with Floor Plan Notes Payable
Borrowings and repayments of floor plan notes payable to a lender unaffiliated with the manufacturer from which we purchase a particular new vehicle ("Non-Trade"), and all floor plan notes payable relating to used vehicles (together referred to as "Floor Plan Notes Payable—Non-Trade"), are classified as financing activities in the accompanying Condensed Consolidated Statements of Cash Flows, with borrowings reflected separately from repayments. The net change in floor plan notes payable to a lender affiliated with the manufacturer from which we purchase a particular new vehicle (collectively referred to as "Floor Plan Notes Payable—Trade") is classified as an operating activity in the accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as a financing activity in the accompanying Condensed Consolidated Statements of Cash Flows. Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to a lender not affiliated with the manufacturer from which we purchased the related inventory. The majority of our floor plan notes are payable to parties unaffiliated with the entities from which we purchase our new vehicle inventory, with the exception of floor plan notes payable relating to the financing of new Ford and Lincoln vehicles.
Floor plan borrowings are required by all vehicle manufacturers for the purchase of new vehicles, and all floor plan lenders require amounts borrowed for the purchase of a vehicle to be repaid within a short time period after the related vehicle is sold. As a result, we believe that it is important to understand the relationship between the cash flows of all of our floor plan notes payable and new vehicle inventory in order to understand our working capital and operating cash flow and to be able to compare our operating cash flow to that of our competitors (i.e., if our competitors have a different mix of trade and non-trade floor plan financing as compared to us). In addition, we include all floor plan borrowings and repayments in our internal operating cash flow forecasts. As a result, we use the non-GAAP measure "cash provided by operating activities, as adjusted" (defined below) to compare our results to forecasts. We believe that splitting the cash flows of floor plan notes payable between operating activities and financing activities, while all new vehicle inventory activity is included in operating activities, results in significantly different operating cash flow than if all the cash flows of floor plan notes payable were classified together in operating activities.
Cash provided by operating activities, as adjusted, includes borrowings and repayments of floor plan notes payable to lenders not affiliated with the manufacturer from which we purchase the related new vehicles. Cash provided by operating activities, as adjusted, has material limitations, and therefore, may not be comparable to similarly titled measures of other companies and should not be considered in isolation, or as a substitute for analysis of our operating results in accordance with GAAP. In order to compensate for these potential limitations we also review the related GAAP measures.
We have provided below a reconciliation of cash flow from operating activities, as if all changes in floor plan notes payable, except for (i) borrowings associated with acquisitions and repayments associated with divestitures and (ii) borrowings and repayments associated with the purchase of used vehicle inventory, were classified as an operating activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
(In millions)
|
Reconciliation of Cash provided by operating activities to Cash provided by operating activities, as adjusted
|
|
|
|
Cash provided by operating activities, as reported
|
$
|
625.2
|
|
|
$
|
347.7
|
|
New vehicle floor plan borrowings —non-trade, net
|
(207.4)
|
|
|
(179.4)
|
|
|
|
|
|
Cash provided by operating activities, as adjusted
|
$
|
417.8
|
|
|
$
|
168.3
|
|
|
|
|
|
Operating Activities—
Net cash provided by operating activities totaled $625.2 million and $347.7 million, for the nine months ended September 30, 2020 and 2019, respectively. Net cash provided by operating activities, as adjusted, totaled $417.8 million and $168.3 million for the nine months ended September 30, 2020 and 2019, respectively.
The $249.5 million increase in our net cash provided by operating activities, as adjusted, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily the result of an increase in accounts payable and other current liabilities of $72.6 million, a $20.4 million increase in other current assets, a $90.1 million increase related to the change in inventory, net of floor plan borrowings, an $18.5 million increase related to the lower balances of accounts receivable and contracts-in-transit around the period end and an increase in non-cash adjustments to net income of $16.5 million.
Investing Activities—
Net cash used in investing activities totaled $818.1 million for the nine months ended September 30, 2020 compared to cash used of $206.2 million, for the nine months ended September 30, 2019. Capital expenditures, excluding the purchase of real estate, were $27.5 million and $28.7 million for the nine months ended September 30, 2020 and 2019, respectively. We expect that capital expenditures for 2020 will total approximately $27.6 million to upgrade or replace our existing facilities, construct new facilities, expand our service capacity, and invest in technology and equipment.
During the nine months ended September 30, 2020, we acquired substantially all of the assets of, and leased the real property related to 12 new vehicle dealership franchises (8 dealership locations), two collision centers and an auto auction comprising the Park Place Dealership group for a purchase price of $889.9 million. We funded this acquisition with $527.4 million of cash, $200.0 million of Seller Notes, $127.5 million of floor plan borrowings for the purchase of the related new vehicle inventory and $35.0 million of floor plan borrowings for the purchase of the related used vehicle inventory. We also acquired the assets of three franchises (one dealership location) in the Denver, Colorado market for a purchase price of $63.6 million. We funded these acquisitions with an aggregate of $34.5 million of cash and $27.1 million of floor plan borrowings for the purchase of the related new vehicle inventory. In the aggregate, these acquisitions included purchase price holdbacks of $2.0 million for potential indemnity claims made by us with respect to the acquired franchises. In addition to the acquisition amounts above, we released $2.5 million of purchase price holdbacks related to a prior year acquisition.
During the nine months ended September 30, 2019, we acquired the assets of nine franchises (five dealership locations) and one collision center in the Indianapolis, Indiana market and one franchise (one dealership location) in the Denver, Colorado market for a purchase price of $210.4 million. We funded these acquisitions with an aggregate $153.9 million of cash, $55.3 million of floor plan borrowings for the purchase of the related new vehicle inventory. In the aggregate, these acquisitions included purchase price holdbacks of $1.2 million for potential indemnity claims made by us with respect to the acquired franchises. In addition to the acquisition amounts above, we released $0.8 million of purchase price holdbacks related to a prior year acquisition
During the nine months ended September 30, 2020, we sold one franchise (one dealership location) in the Atlanta, Georgia market, six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market, and one franchise (one dealership location) in the Greenville, South Carolina market for an aggregate purchase price of $161.6 million. In addition, during the nine months ended September 30, 2020, we received cash proceeds of $4.2 million, from the sale of vacant properties. The assets and liabilities related to the aforementioned divestitures, excluding the Lexus Greenville divestiture, were included in Assets held for sale and Liabilities associated with assets held for sale as of December 31, 2019.
During the nine months ended September 30, 2020 and 2019, purchases of real estate, including previously leased real estate, totaled $2.3 million and $14.1 million, respectively.
As part of our capital allocation strategy, we continually evaluate opportunities to purchase properties currently under lease and acquire properties in connection with future dealership relocations. No assurances can be provided that we will have or be able to access capital at times or on terms in amounts deemed necessary to execute this strategy.
Financing Activities—
Net cash provided by financing activities totaled $193.5 million for the nine months ended September 30, 2020. Net cash used in financing activities totaled $148.0 million for the nine months ended September 30, 2019.
During the nine months ended September 30, 2020 and 2019, we had non-trade floor plan borrowings, excluding floor plan borrowings associated with acquisitions, of $2.84 billion and $3.12 billion, respectively, and non-trade floor plan repayments, excluding floor plan repayments associated with a divestiture, of $3.00 billion and $3.27 billion, respectively.
During the nine months ended September 30, 2020 and 2019, we had floor plan borrowings of $131.6 million and $55.3 million, respectively, related to acquisitions.
During the nine months ended September 30, 2020 and 2019, we had non-trade floor plan repayments associated with divestitures of $55.3 million and $14.1 million, respectively.
Repayments of borrowings totaled $1.60 billion and $12.0 million, for the nine months ended September 30, 2020 and 2019, respectively. In addition, payments of debt issuance costs totaled $3.1 million and $2.3 million for the nine months ended September 30, 2020 and 2019, respectively.
During the nine months ended September 30, 2020, we had proceeds of $7.3 million related to a sale and leaseback of real estate in Plano, Texas.
During the nine months ended September 30, 2020, we did not repurchase any shares of our common stock under our Repurchase Program but repurchased 56,607 shares of our common stock for $5.2 million from employees in connection with a net share settlement feature of employee equity-based awards.
Off Balance Sheet Arrangements
We had no off balance sheet arrangements during any of the periods presented other than those disclosed in Note 12 "Commitments and Contingencies" within the accompanying Condensed Consolidated Financial Statements.