SEC Filing | Asbury Automotive Group, Inc.

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abg-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-31262

ASBURY AUTOMOTIVE GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware

01-0609375

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

2905 Premiere Parkway NW,

Suite 300

Duluth, Georgia

30097

(Address of principal executive offices)

(Zip Code)

(770) 418-8200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Trading

Title of each class

Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

ABG

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: The number of shares of common stock outstanding as of April 26, 2021 was 19,339,306.

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ASBURY AUTOMOTIVE GROUP, INC.

TABLE OF CONTENTS


		Page
PART I—Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of March 31 , 202 1 and December 31, 2 020	4
	Condensed Consolidated Statements of Income for the Three Months Ended March 3 1 , 202 1 and 2 0 20	5
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 3 1 , 202 1 and 2 0 20	6
	Condensed Consolidated Statements of Shareholders' Equity for the Three Months Ended Mar ch 3 1 , 202 1 and 20 20	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended Mar ch 3 1 , 202 1 and 20 20	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

	PART II—Other Information

Item 1.	Legal Proceedings	39
Item 1.A.	Risk factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	41
	Signatures	42

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value and share data)

(Unaudited)


	March 31, 2021		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27.8	$	1.4
Contracts-in-transit	169.8		161.5
Accounts receivable, net	136.8		155.5
Inventories	769.6		875.2

Assets held for sale	31.5		28.3
Other current assets	182.1		183.8
Total current assets	1,317.6		1,405.7
PROPERTY AND EQUIPMENT, net	950.8		956.2
OPERATING LEASE RIGHT-OF-USE ASSETS	310.5		317.4
GOODWILL	563.2		562.2
INTANGIBLE FRANCHISE RIGHTS	425.2		425.2

OTHER LONG-TERM ASSETS	15.0		9.6
Total assets	$	3,582.3	$	3,676.3
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable—trade, net	$	48.7	$	64.9
Floor plan notes payable—non-trade, net	478.1		637.3
Current maturities of long-term debt	36.4		36.6
Current maturities of operating leases	24.9		24.8
Accounts payable and accrued liabilities	454.6		450.9
Liabilities associated with assets held for sale	6.0		8.9
Total current liabilities	1,048.7		1,223.4
LONG-TERM DEBT	1,157.7		1,165.2
OPERATING LEASE LIABILITIES	290.8		296.7
DEFERRED INCOME TAXES	36.2		34.6
OTHER LONG-TERM LIABILITIES	50.9		50.9
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; 41,249,549 and 41,133,668 shares issued, including shares held in treasury, respectively	0.4		0.4
Additional paid-in capital	600.2		595.5
Retained earnings	1,441.7		1,348.9
Treasury stock, at cost; 21,910,207 and 21,848,314 shares, respectively	(1,043.3)		(1,033.7)
Accumulated other comprehensive loss	(1.0)		(5.6)
Total shareholders' equity	998.0		905.5
Total liabilities and shareholders' equity	$	3,582.3	$	3,676.3

See accompanying Notes to Condensed Consolidated Financial Statements

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ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)


	For the Three Months Ended March 31,
		2021		2020
REVENUE:
New vehicle		$	1,151.7	$	822.1
Used vehicle		690.9		493.2
Parts and service		262.0		221.6
Finance and insurance, net		88.3		70.4
TOTAL REVENUE		2,192.9		1,607.3
COST OF SALES:
New vehicle		1,076.2		785.7
Used vehicle		635.1		462.5
Parts and service		98.9		86.7
TOTAL COST OF SALES		1,810.2		1,334.9
GROSS PROFIT		382.7		272.4
OPERATING EXPENSES:
Selling, general, and administrative		239.8		194.7
Depreciation and amortization		9.8		9.5
Franchise rights impairment		—		23.0
Other operating (income) expense, net		(3.2)		10.2
INCOME FROM OPERATIONS		136.3		35.0
OTHER EXPENSES (INCOME):
Floor plan interest expense		2.9		7.0
Other interest expense, net		14.0		17.0


Loss on extinguishment of long-term debt, net		—		20.6
Gain on dealership divestitures, net		—		(33.7)
Total other expense, net		16.9		10.9
INCOME BEFORE INCOME TAXES		119.4		24.1
Income tax expense		26.6		4.6


NET INCOME		$	92.8	$	19.5
EARNINGS PER SHARE:
Basic—


Net income		$	4.81	$	1.02
Diluted—


Net income		$	4.78	$	1.01
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		19.3		19.1

Restricted stock		0.1		0.1
Performance share units		—		0.1
Diluted		19.4		19.3

See accompanying Notes to Condensed Consolidated Financial Statements

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ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	For the Three Months Ended March 31,
		2021		2020
Net income		$	92.8	$	19.5
Other comprehensive (loss) income:
Change in fair value of cash flow swaps		6.2		(4.5)

Income tax (expense) benefit associated with cash flow swaps		(1.6)		1.1
Comprehensive income		$	97.4	$	16.1

See accompanying Notes to Condensed Consolidated Financial Statements

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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, 2020	41,133,668	$	0.4	$	595.5	$	1,348.9	21,848,314	$	(1,033.7)	$	(5.6)	$	905.5
Comprehensive Income:
Net income	—	—		—		92.8		—	—		—		92.8
Change in fair value of cash flow swaps, net of reclassification adjustment and $1.6 tax charge	—	—		—		—		—	—		4.6		4.6
Comprehensive income	—	—		—		92.8		—	—		4.6		97.4
Share-based compensation	—	—		4.7		—		—	—		—		4.7
Issuance of common stock, net of forfeitures, in connection with share-based payment arrangements	115,881	—		—		—		—	—		—		—
Repurchase of common stock associated with net share settlement of employee share-based awards	—	—		—		—		61,893	(9.6)		—		(9.6)

Balances, March 31, 2021	41,249,549	$	0.4	$	600.2	$	1,441.7	21,910,207	$	(1,043.3)	$	(1.0)	$	998.0


	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

See accompanying Notes to Condensed Consolidated Financial Statements

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ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	For the Three Months Ended March 31,
	2021		2020
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	92.8	$	19.5
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization	9.8		9.5
Share-based compensation	4.7		3.5
Deferred income taxes	—		0.1
Franchise rights impairment	—		23.0
Loss on extinguishment of long-term debt, net	—		20.6
Loaner vehicle amortization	6.7		5.8
Gain on divestitures, net	—		(33.7)
Change in right-of-use asset	6.8		5.2
Other adjustments, net	(0.2)		0.2
Changes in operating assets and liabilities, net of acquisitions and divestitures—
Contracts-in-transit	(8.3)		130.0
Accounts receivable	18.5		46.7

Inventories	156.5		7.9
Other current assets	(59.3)		(36.3)
Floor plan notes payable—trade, net	(16.2)		(16.2)
Accounts payable and other current liabilities	4.4		(52.6)
Operating lease liabilities	(6.2)		(5.3)
Other long-term assets and liabilities, net	0.8		(0.2)
Net cash provided by operating activities	210.8		127.7
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures—excluding real estate	(11.2)		(9.1)
Capital expenditures—real estate	(5.5)		(2.3)


Acquisitions	(1.0)		(63.1)
Divestitures	—		115.5
Proceeds from the sale of assets	14.0		4.2
Net cash provided by (used in) investing activities	(3.7)		45.2
CASH FLOW FROM FINANCING ACTIVITIES:
Floor plan borrowings—non-trade	1,219.5		1,124.1
Floor plan borrowings—acquisitions	—		27.1
Floor plan repayments—non-trade	(1,375.9)		(1,086.9)
Floor plan repayments—non-trade divestitures	—		(50.5)
Proceeds from borrowings	—		1,355.3
Repayments of borrowings	(14.7)		(1,156.1)
Proceeds from sale and leaseback transaction	—		7.3
Payment of debt issuance costs	—		(3.1)

Repurchases of common stock, including shares associated with net share settlement of employee share-based awards	(9.6)		(5.0)

Net cash provided by (used in) financing activities	(180.7)		212.2
Net increase in cash and cash equivalents	26.4		385.1
CASH AND CASH EQUIVALENTS, beginning of period	1.4		3.5
CASH AND CASH EQUIVALENTS, end of period	$	27.8	$	388.6

See Note 11 "Supplemental Cash Flow Information" for further details

See accompanying Notes to Condensed Consolidated Financial Statements

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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 March 31, 2021, we owned and operated 112 new vehicle franchises (91 dealership locations) representing 31 automobile brands and 25 collision repair centers, and one auto auction 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 March 31, 2021, our new vehicle revenue brand mix consisted of 45% luxury, 38% imports, and 17% 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-Fort Worth, Texas;

•Nalley dealerships operating in metropolitan Atlanta, Georgia;

•Park Place dealerships operating in the Dallas-Fort Worth, Texas area;

•Plaza dealerships operating in metropolitan St. Louis, Missouri; and

•Mike Shaw dealerships in the Denver, Colorado area.

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 March 31, 2021, and for the three months ended March 31, 2021 and 2020, have been included, unless otherwise indicated. The results of operations for the three months ended March 31, 2021 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, 2020.

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.

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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 600 restricted and performance share units and no restricted or performance 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 months ended March 31, 2021 and 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

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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

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). In January 2021, the FASB issued Accounting Standards Update No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified the scope and application of the original guidance. The guidance in these standards apply to contract accounting, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, and provides optional expedients and exceptions for a limited time to ease the potential burden in accounting for reference rate reform. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. LIBOR benchmarking is utilized in our debt (including mortgages), revolving credit facilities, floorplan facilities, and interest rate swaps. We are in the process of completing our evaluation of the impact that the adoption of the provisions from this standard will have on our 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 months ended March 31, 2021 and 2020:


	For the Three Months Ended March 31,
	2021		2020
	(In millions)
Revenue:
New vehicle	$	1,151.7	$	822.1
Used vehicle retail	607.5		446.0
Used vehicle wholesale	83.4		47.2
New and used vehicle	1,842.6		1,315.3
Sale of vehicle parts and accessories	42.9		36.8
Vehicle repair and maintenance services	219.1		184.8
Parts and services	262.0		221.6
Finance and insurance, net	88.3		70.4
Total revenue	$	2,192.9	$	1,607.3

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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, 2021	$	7.1	$	13.3	$	20.4
Transferred to receivables from contract assets recognized at the beginning of the period	(7.1)		(3.3)		(10.4)
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period	8.2		3.0		11.2
Contract Assets (Current), March 31, 2021	$	8.2	$	13.0	$	21.2

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, as a result of the uncertainties related to the COVID-19 pandemic, 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.

On July 6, 2020, the Company, through two of its subsidiaries, entered into an 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 (collectively, the "Park Place acquisition"). The Park Place acquisition 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 with proceeds from the offering of 4.50% Notes due 2028 and 4.75% Notes due 2030.

The sources of the 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
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. During the three months ended March 31, 2021, we recorded a

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$1.5 million measurement period adjustment to Property and equipment and Goodwill, respectively. The following table summarizes the allocation of the purchase price:


Summary of Assets Acquired and Liabilities Assumed
	(In millions)
Inventories	$	120.8
Loaner vehicles	57.0
Property and equipment	36.5
Goodwill and intangible assets	360.4
Manufacturer franchise rights	324.0
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's Condensed Consolidated Statements of Income included revenue attributable to Park Place for the three months ended March 31, 2021 of $406.0 million.

Other Acquisitions and Divestitures

There were no business combinations or divestitures during the three months ended March 31, 2021; however, we did release $1.0 million of purchase price holdbacks related to a prior year acquisition during the three months ended March 31, 2021.

During the three months ended March 31, 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 $1.5 million of purchase price holdbacks related to a prior year acquisition during the three months ended March 31, 2020.

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 acquisition completed during the three months ended March 31, 2020.


	For the Three Months Ended March 31,
	2020
	(In millions)
Inventory	$	29.8
Real estate	14.5
Property and equipment	0.4
Goodwill and manufacturer franchise rights	19.2



Other	(0.3)
Total purchase price	$	63.6

During the three months ended March 31, 2020, we sold one franchise (one dealership location) in the Atlanta, Georgia market and we sold six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market. The Company recorded a pre-tax gain totaling $33.7 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.

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4. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:


	As of
	March 31, 2021		December 31, 2020
	(In millions)
Vehicle receivables	$	53.8	$	61.2
Manufacturer receivables	45.8		57.1
Other receivables	38.6		38.4
Total accounts receivable	138.2		156.7
Less—Allowance for credit losses	(1.4)		(1.2)
Accounts receivable, net	$	136.8	$	155.5

5. INVENTORIES

Inventories consisted of the following:


	As of
	March 31, 2021		December 31, 2020
	(In millions)
New vehicles	$	527.5	$	640.0
Used vehicles	193.5		188.5
Parts and accessories	48.6		46.7
Total inventories (a)	$	769.6	$	875.2

____________________________

(a) Amounts reflected for inventory as of March 31, 2021, excluded $2.9 million of inventories classified as Assets held for sale.

The lower of cost and net realizable value reserves reduced total inventories by $5.4 million and $6.7 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, certain automobile manufacturer incentives reduced new vehicle inventory cost by $6.8 million and $8.3 million, respectively, and reduced new vehicle cost of sales for the three months ended March 31, 2021 and 2020 by $14.6 million and $10.2 million, respectively.

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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
	March 31, 2021		December 31, 2020
	(In millions)
Assets:
Inventory	$	2.9	$	—
Loaner vehicles	0.5		—
Property and equipment, net	27.1		28.3
Operating lease right-of-use assets	0.5		—
Goodwill	0.5		—

Total Assets held for sale	31.5		28.3
Liabilities:

Floor plan notes payable—non-trade	2.8		—
Loaners vehicle payable	0.5		—
Current maturities of long-term debt	0.2		0.5
Current maturities of operating leases	0.2		—
Long-term debt	2.1		8.4
Operating lease liabilities	0.2		—
Total Liabilities associated with assets held for sale	6.0		8.9
Net assets held for sale	$	25.5	$	19.4

As of March 31, 2021 assets held for sale consisted of one franchise (one dealership location) and one real estate property not currently used in our operations. The assets and liabilities associated with these properties totaled $31.5 million and $6.0 million, respectively.

As of December 31, 2020, assets held for sale consisted of three real estate properties that were are not currently used in our operations. The assets and liabilities totaled $28.3 million and $8.9 million, respectively.

During the three months ended March 31, 2021, the Company sold two vacant properties with a net book value of $12.5 million.

During the three months ended March 31, 2020, the Company sold seven franchises (six dealership locations) and one collision center for a pre-tax gain totaling $33.7 million. Additionally, 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.

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 perform impairment testing related to goodwill and franchise rights for the three months ended March 31, 2021 as no triggering events had occurred.

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8. FLOOR PLAN NOTES PAYABLE

Floor plan notes payable consisted of the following:


	As of
	March 31, 2021		December 31, 2020
	(In millions)
Floor plan notes payable—trade	$	54.5	$	71.7
Floor plan notes payable offset account	(5.8)		(6.8)
Floor plan notes payable—trade, net	$	48.7	$	64.9

Floor plan notes payable—new non-trade (a)	$	617.7	$	715.9

Floor plan notes payable offset account	(139.6)		(78.6)
Floor plan notes payable—non-trade, net	$	478.1	$	637.3

____________________________

(a) Amounts reflected for floor plan notes payable—new non-trade as of March 31, 2021, excluded $2.8 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 March 31, 2021 and December 31, 2020, we had $145.4 million and $85.4 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.

On April 6, 2021, $190.0 million of availability under the Revolving Credit Facility was re-designated to the New Vehicle Floor Plan Facility to take advantage of lower commitment fee rates.

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9. DEBT

Long-term debt consisted of the following:


	As of
	March 31, 2021		December 31, 2020
	(In millions)
4.50% Senior Notes due 2028	$	405.0	$	405.0
4.75% Senior Notes due 2030	445.0		445.0
Mortgage notes payable bearing interest at fixed rates (a)	75.7		79.2
2018 Bank of America Facility	82.8		84.2
2018 Wells Fargo Master Loan Facility (b)	85.6		86.9
2013 BofA Real Estate Facility	32.9		33.6
2015 Wells Fargo Master Loan Facility (c)	60.5		61.7

Finance lease liability	16.5		16.6
Total debt outstanding	1,204.0		1,212.2
Add—unamortized premium on 4.50% Senior Notes due 2028	1.2		1.2
Add—unamortized premium on 4.75% Senior Notes due 2030	2.0		2.1
Less—debt issuance costs	(13.1)		(13.7)
Long-term debt, including current portion	1,194.1		1,201.8
Less—current portion, net of current portion of debt issuance costs	(36.4)		(36.6)
Long-term debt	$	1,157.7	$	1,165.2

____________________________

(a) Amounts reflected for the Mortgage notes payable as of March 31, 2021, exclude $2.3 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 December 31, 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 December 31, 2020, exclude $3.8 million classified as Liabilities associated with assets held for sale, respectively.

We are a holding company with no independent assets or operations. For all relevant periods presented, our 4.50% Senior Notes due 2028 and 4.75% Senior Notes due 2030 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 March 31, 2021, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.

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

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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
	March 31, 2021		December 31, 2020
	(In millions)
Carrying Value:
4.50% Senior Notes due 2028	401.1		400.9
4.75% Senior Notes due 2030	440.7		440.6
Mortgage notes payable (a)	335.8		343.7
Total carrying value	$	1,177.6	$	1,185.2

Fair Value:
4.50% Senior Notes due 2028	411.1		423.2
4.75% Senior Notes due 2030	457.2		476.2
Mortgage notes payable (a)	347.2		354.5
Total fair value	$	1,215.5	$	1,253.9

____________________________

(a) Excludes amounts classified as Liabilities associated with assets held for sale.

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Interest Rate Swap Agreements

We currently have four interest rate swap agreements. 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 March 31, 2021:


Inception Date	Notional Principal at Inception		Notional Value as of March 31, 2021		Notional Principal at Maturity		Maturity Date
	(In millions)
July 2020	$	93.5	$	90.5	$	50.6	December 2028
July 2020	$	85.5	$	82.8	$	57.3	November 2025
June 2015	$	100.0	$	73.7	$	53.1	February 2025
November 2013	$	75.0	$	48.0	$	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 $1.0 million and a $7.2 million liability as of March 31, 2021 and December 31, 2020, 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
	March 31, 2021		December 31, 2020
	(In millions)
Other current liabilities	$	(2.8)	$	(2.8)
Other long-term assets	5.7		—
Other long-term liabilities	(3.9)		(4.4)
Total fair value	$	(1.0)	$	(7.2)

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 March 31,	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
2021	$	7.0	Other interest expense, net	$	(0.8)
2020	$	(4.5)	Other interest expense, net	$	(0.3)

On the basis of yield curve conditions as of March 31, 2021 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 three months ended March 31, 2021 and 2020, we made interest payments, including amounts capitalized, totaling $26.5 million and $22.3 million, respectively. Included in these interest payments are $3.1 million and $7.4 million, of floor plan interest payments during the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021 and 2020, no material income tax payments were made and no refunds were received.

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During the three months ended March 31, 2021 and 2020, we transferred $53.7 million and $39.4 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 March 31, 2021, we had $10.8 million of letters of credit outstanding and we maintained a $9.7 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.

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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 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;

•our revenue growth strategy;

•the growth of the brands that comprise our portfolio over the long-term and other factors;

•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; and

•our estimated future capital expenditures.

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 effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to our acquisitions or divestitures;

•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, supply shortages (including semi-conductor chips and rubber-based products), natural disasters, severe weather, 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;

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•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

•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 March 31, 2021, we owned and operated 112 new vehicle franchises (91 dealership locations), representing 31 brands of automobile, 25 collision centers, and one auto auction 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 three months ended March 31, 2021, our new vehicle revenue brand mix consisted of 45% luxury, 38% imports, and 17% 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-Fort Worth, Texas;

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•Nalley dealerships operating in metropolitan Atlanta, Georgia;

•Park Place dealerships operating in the Dallas-Fort Worth, Texas 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 have historically resulted 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.

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 the COVID-19 global pandemic, certain vehicle manufacturers slowed or temporarily halted assembly lines for the safety of their workers. For more information on the impact of COVID-19, see “Impact of COVID-19 on our Business” below. Furthermore, due to a variety of factors, including the impacts of the COVID-19 pandemic and significant shortages of semi-conductor chips and other component parts and supplies (including natural rubber-based products and petroleum-based plastics and foam), certain automotive manufacturers and other suppliers have suspended or slowed production of new vehicles, parts and other supplies. These delays have negatively impacted our new vehicle and parts inventory levels, with parts shortages in turn adversely impacting our service and collision repair business. We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at these manufacturers. We continue to believe that any future negative trends in new vehicle sales caused by lack of inventory availability would be partially mitigated by (i) increased demand for pre-owned vehicles, (ii) the expected relative stability of our parts and service operations over the long-term, (iii) the variable nature of significant components of our cost structure, and (iv) our diversified brand and geographic mix.

The seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S. during the three months ended March 31, 2021 was 16.9 million compared to 15.2 million during the three months ended March 31, 2020. On a same-store basis, all of our revenue streams increased from the prior year quarter and we experienced a significant increase in both new and used vehicle gross profit and margins during the three months ended March 31, 2021 when compared to the prior year period. New vehicle supply disruptions as a result of the COVID-19 global pandemic and the semi-conductor chip shortage have reduced the availability of new vehicle inventory, which has driven up demand for used vehicles. Our parts and service business continued to show signs of a recovery and is approaching pre-pandemic levels of activity and profitability.

We had total available liquidity of $551.3 million as of March 31, 2021, which consisted of cash and cash equivalents of $27.8 million, $145.4 million of funds in our floor plan offset accounts, $239.2 million of availability under our revolving credit facility, and $138.9 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.

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Impact of COVID-19 on our Business

At this time, we cannot predict the duration or scope, and future effects, of the impacts from the COVID-19 pandemic. Vaccines are currently being administered with the objective of having the country return to some sense of normalcy by the second half of 2021. However, vaccine availability, distribution, efficacy to new strains of the virus, side effects and the public's willingness to get vaccinated all remain challenges, which could lengthen the duration of the impacts of the pandemic. We continue to monitor and respond as necessary to the Company’s operational needs and financial flexibility during the ongoing outbreak of the COVID-19 global pandemic and the resulting economic uncertainty. For example, we have enacted cost saving measures to respond to the uncertain environment. The Company has deferred certain capital expenditures and managed other controllable expenses.

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.

If the COVID-19 pandemic continues, 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 certain impairment charges. 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 impairment charge at this time, however, any such impairment charge could have an adverse effect on our results of operations and stockholders’ equity.

Park Place Acquisition

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020


	For the Three Months Ended March 31,				Increase (Decrease)		% Change
	2021		2020
	(Dollars in millions, except per share data)
REVENUE:
New vehicle	$	1,151.7	$	822.1	$	329.6	40	%
Used vehicle	690.9		493.2		197.7		40	%
Parts and service	262.0		221.6		40.4		18	%
Finance and insurance, net	88.3		70.4		17.9		25	%
TOTAL REVENUE	2,192.9		1,607.3		585.6