SEC Filing | Asbury Automotive Group, Inc.

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abg-20210630

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 June 30, 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

☐

Table of Conte n t s

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 July 27, 2021 was 19,341,374.

Table of Conte n t s

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 June 30, 2021 and December 31, 2020	4
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020	6
	Condensed Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51

	PART II—Other Information

Item 1.	Legal Proceedings	52
Item 1.A.	Risk factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	53
	Signatures	54

Table of Conte n t s

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)


	June 30, 2021		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	102.3	$	1.4
Contracts-in-transit	145.8		161.5
Accounts receivable, net	112.9		155.5
Inventories	560.2		875.2

Assets held for sale	31.6		28.3
Other current assets	179.7		183.8
Total current assets	1,132.5		1,405.7
PROPERTY AND EQUIPMENT, net	1,177.6		956.2
OPERATING LEASE RIGHT-OF-USE ASSETS	213.0		317.4
GOODWILL	563.2		562.2
INTANGIBLE FRANCHISE RIGHTS	425.2		425.2

OTHER LONG-TERM ASSETS	13.4		9.6
Total assets	$	3,524.9	$	3,676.3
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable—trade, net	$	13.9	$	64.9
Floor plan notes payable—non-trade, net	227.6		637.3
Current maturities of long-term debt	43.2		36.6
Current maturities of operating leases	17.6		24.8
Accounts payable and accrued liabilities	451.9		450.9
Liabilities associated with assets held for sale	5.1		8.9
Total current liabilities	759.3		1,223.4
LONG-TERM DEBT	1,335.0		1,165.2
OPERATING LEASE LIABILITIES	199.8		296.7
DEFERRED INCOME TAXES	34.6		34.6
OTHER LONG-TERM LIABILITIES	47.9		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; 41,254,715 and 41,133,668 shares issued, including shares held in treasury, respectively	0.4		0.4
Additional paid-in capital	603.9		595.5
Retained earnings	1,593.8		1,348.9
Treasury stock, at cost; 21,913,341 and 21,848,314 shares, respectively	(1,043.9)		(1,033.7)
Accumulated other comprehensive loss	(5.9)		(5.6)
Total shareholders' equity	1,148.3		905.5
Total liabilities and shareholders' equity	$	3,524.9	$	3,676.3

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Conte n t s

ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
REVENUE:
New vehicle	$	1,368.4	$	761.8	$	2,520.1	$	1,583.9
Used vehicle	816.2		447.5		1,507.1		940.7
Parts and service	292.4		169.2		554.4		390.8
Finance and insurance, net	107.0		66.6		195.3		137.0
TOTAL REVENUE	2,584.0		1,445.1		4,776.9		3,052.4
COST OF SALES:
New vehicle	1,244.3		723.2		2,320.5		1,508.9
Used vehicle	732.7		410.4		1,367.8		872.9
Parts and service	109.8		68.7		208.7		155.4
TOTAL COST OF SALES	2,086.8		1,202.3		3,897.0		2,537.2
GROSS PROFIT	497.2		242.8		879.9		515.2
OPERATING EXPENSES:
Selling, general, and administrative	269.7		152.2		509.5		346.9
Depreciation and amortization	10.1		9.7		19.9		19.2
Franchise rights impairment	—		—		—		23.0
Other operating (income) expense, net	(1.0)		(1.3)		(4.2)		8.9
INCOME FROM OPERATIONS	218.4		82.2		354.7		117.2
OTHER EXPENSES (INCOME):
Floor plan interest expense	2.1		4.1		5.0		11.1
Other interest expense, net	14.4		11.8		28.4		28.8


Loss on extinguishment of long-term debt	—		—		—		20.6
Gain on dealership divestitures, net	—		—		—		(33.7)
Total other expense, net	16.5		15.9		33.4		26.8
INCOME BEFORE INCOME TAXES	201.9		66.3		321.3		90.4
Income tax expense	49.8		16.7		76.4		21.3


NET INCOME	$	152.1	$	49.6	$	244.9	$	69.1
EARNINGS PER SHARE:
Basic—


Net income	$	7.88	$	2.58	$	12.69	$	3.60
Diluted—


Net income	$	7.80	$	2.57	$	12.56	$	3.58
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	19.3		19.2		19.3		19.2

Restricted stock	0.1		—		0.1		—
Performance share units	0.1		0.1		0.1		0.1
Diluted	19.5		19.3		19.5		19.3

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Conte n t s

ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	152.1	$	49.6	$	244.9	$	69.1
Other comprehensive (loss) income:
Change in fair value of cash flow swaps	(6.5)		(0.6)		(0.3)		(5.1)

Income tax benefit associated with cash flow swaps	1.6		0.2		—		1.3
Comprehensive income	$	147.2	$	49.2	$	244.6	$	65.3

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Conte n t s

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
Comprehensive Income:
Net income	—	—		—		152.1		—	—		—		152.1
Change in fair value of cash flow swaps, net of reclassification adjustment and $1.6 tax benefit	—	—		—		—		—	—		(4.9)		(4.9)
Comprehensive income	—	—		—		152.1		—	—		(4.9)		147.2

Share-based compensation	—	—		3.7		—		—	—		—		3.7
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements	5,166	—		—		—		—	—		—		—
Repurchase of common stock associated with net share settlement of employee share-based awards	—	—		—		—		3,134	(0.6)		—		(0.6)


Balances, June 30, 2021	41,254,715	$	0.4	$	603.9	$	1,593.8	21,913,341	$	(1,043.9)	$	(5.9)	$	1,148.3

Table of Conte n t s


	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

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Conte n t s

ASBURY AUTOMOTIVE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	For the Six Months Ended June 30,
	2021		2020
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	244.9	$	69.1
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization	19.9		19.2
Share-based compensation	8.3		6.6

Franchise rights impairment	—		23.0
Loss on extinguishment of long-term debt	—		20.6
Loaner vehicle amortization	12.5		10.8
Gain on divestitures, net	—		(33.7)
Change in right-of-use assets	11.1		9.3
Other adjustments, net	(0.5)		0.5
Changes in operating assets and liabilities, net of acquisitions and divestitures—
Contracts-in-transit	15.7		79.6
Accounts receivable	42.3		48.6

Inventories	424.6		463.5
Other current assets	(121.7)		(61.9)
Floor plan notes payable—trade, net	(51.0)		(77.0)
Accounts payable and other current liabilities	(3.1)		(21.7)
Operating lease liabilities	(11.2)		(9.5)
Other long-term assets and liabilities, net	(4.5)		7.6
Net cash provided by operating activities	587.3		554.6
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures—excluding real estate	(26.7)		(18.2)
Capital expenditures—real estate	(5.5)		(2.3)


Purchase of previously leased real estate	(217.1)		—
Acquisitions	(1.0)		(63.1)
Divestitures	—		115.5
Proceeds from the sale of assets	21.5		4.2
Net cash provided by (used in) investing activities	(228.8)		36.1
CASH FLOW FROM FINANCING ACTIVITIES:
Floor plan borrowings—non-trade	2,401.0		1,633.8
Floor plan borrowings—acquisitions	—		27.1
Floor plan repayments—non-trade	(2,808.9)		(1,858.0)
Floor plan repayments—non-trade divestitures	—		(50.5)
Proceeds from borrowings	184.4		1,424.7
Repayments of borrowings	(23.9)		(1,157.2)
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	(10.2)		(5.1)

Net cash provided by (used in) financing activities	(257.6)		19.0
Net increase in cash and cash equivalents	100.9		609.7
CASH AND CASH EQUIVALENTS, beginning of period	1.4		3.5
CASH AND CASH EQUIVALENTS, end of period	$	102.3	$	613.2

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

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Conte n t s

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 June 30, 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 June 30, 2021, our new vehicle revenue brand mix consisted of 45% luxury, 39% imports, and 16% 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 June 30, 2021, and for the three and six months ended June 30, 2021 and 2020, have been included, unless otherwise indicated. The results of operations for the three and six months ended June 30, 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.

Table of Conte n t s

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 113 restricted share units and 12 performance share units and 904 restricted share units and 324 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 and six months ended June 30, 2021, respectively, because they were anti-dilutive. There were no anti-dilutive share increments for the three and six months ended June 30, 2020. 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

Table of Conte n t s

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

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.

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Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020:


	For the Three Months Ended June 30,
	2021		2020
	(In millions)
Revenue:
New vehicle	$	1,368.4	$	761.8
Used vehicle retail	759.4		412.6
Used vehicle wholesale	56.8		34.9
New and used vehicle	2,184.6		1,209.3
Sale of vehicle parts and accessories	49.0		25.9
Vehicle repair and maintenance services	243.4		143.3
Parts and services	292.4		169.2
Finance and insurance, net	107.0		66.6
Total revenue	$	2,584.0	$	1,445.1



	For the Six Months Ended June 30,
	2021		2020
	(In millions)
Revenue:
New vehicle	$	2,520.1	$	1,583.9
Used vehicle retail	1,366.9		858.6
Used vehicle wholesale	140.2		82.1
New and used vehicle	4,027.2		2,524.6
Sale of vehicle parts and accessories	91.8		62.7
Vehicle repair and maintenance services	462.6		328.1
Parts and services	554.4		390.8
Finance and insurance, net	195.3		137.0
Total revenue	$	4,776.9	$	3,052.4

Table of Conte n t s

Contract Assets

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
Transferred to receivables from contract assets recognized at the beginning of the period	(8.2)		(3.5)		(11.7)
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period	10.0		3.3		13.3
Contract Assets (Current), June 30, 2021	10.0		12.8		22.8

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.

Table of Conte n t s

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 six months ended June 30, 2021, we recorded a $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

On May 20, 2021, we exercised the purchase option for certain Park Place real estate leases whose original operating lease right-of-use assets and liabilities totaled $99.5 million. The purchase option price for these properties was $216.9 million which was partly financed through the 2021 BofA Real Estate Facility. See Note 9 "Debt" for further details.

The Company's Condensed Consolidated Statements of Income included revenue attributable to Park Place for the six months ended June 30, 2021 of $887.6 million.

Other Acquisitions and Divestitures

There were no business combinations or divestitures during the six months ended June 30, 2021; however, we did release $1.0 million of purchase price holdback related to a prior year acquisition during the six months ended June 30, 2021.

During the six months ended June 30, 2020, we acquired the assets of three franchises (one dealership location) in the Denver, Colorado market for a 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. 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 amount above, we released $1.5 million of purchase price holdbacks related to a prior year acquisition during the six months ended June 30, 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.

Table of Conte n t s

Below is the allocation of purchase price for the acquisition completed during the six months ended June 30, 2020.


	For the Six Months Ended June 30,
	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 six months ended June 30, 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.

4. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:


	As of
	June 30, 2021		December 31, 2020
	(In millions)
Vehicle receivables	$	35.5	$	61.2
Manufacturer receivables	36.3		57.1
Other receivables	42.6		38.4
Total accounts receivable	114.4		156.7
Less—Allowance for credit losses	(1.5)		(1.2)
Accounts receivable, net	$	112.9	$	155.5

5. INVENTORIES

Inventories consisted of the following:


	As of
	June 30, 2021		December 31, 2020
	(In millions)
New vehicles	$	224.2	$	640.0
Used vehicles	284.4		188.5
Parts and accessories	51.6		46.7
Total inventories (a)	$	560.2	$	875.2

____________________________

(a) Amounts reflected for inventory as of June 30, 2021, excluded $3.0 million of inventories classified as Assets held for sale.

The lower of cost and net realizable value reserves reduced total inventories by $4.9 million and $6.7 million as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, certain automobile manufacturer incentives reduced new vehicle inventory cost by $2.9 million and $8.3 million, respectively, and reduced new vehicle cost of sales for the six months ended June 30, 2021 and 2020 by $31.3 million and $19.8 million, respectively. New vehicle inventories as of June 30, 2021 have decreased from December 31, 2020 as a result of manufacturer production challenges caused by the semiconductor chip shortage.

Table of Conte n t s

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
	June 30, 2021		December 31, 2020
	(In millions)
Assets:
Inventory	$	3.0	$	—
Loaner vehicles	0.6		—
Property and equipment, net	27.1		28.3
Operating lease right-of-use assets	0.4		—
Goodwill	0.5		—

Total Assets held for sale	31.6		28.3
Liabilities:

Floor plan notes payable—non-trade	1.8		—
Loaners vehicle payable	0.6		—
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	5.1		8.9
Net assets held for sale	$	26.5	$	19.4

As of June 30, 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 $31.6 million and $5.1 million, respectively.

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

During the six months ended June 30, 2021, the Company sold two vacant properties with a net book value of $12.5 million.

During the six months ended June 30, 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 six months ended June 30, 2021 as no triggering events had occurred.

Table of Conte n t s

8. FLOOR PLAN NOTES PAYABLE

Floor plan notes payable consisted of the following:


	As of
	June 30, 2021		December 31, 2020
	(In millions)
Floor plan notes payable—trade	$	13.9	$	71.7
Floor plan notes payable offset account	—		(6.8)
Floor plan notes payable—trade, net	$	13.9	$	64.9

Floor plan notes payable—new non-trade (a)	$	302.6	$	715.9

Floor plan notes payable offset account	(75.0)		(78.6)
Floor plan notes payable—non-trade, net	$	227.6	$	637.3

____________________________

(a) Amounts reflected for floor plan notes payable—new non-trade as of June 30, 2021, excluded $1.8 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 and can be terminated by either the Company or Ford Credit with a 30-day notice period. 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 June 30, 2021 and December 31, 2020, we had $75.0 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.

Table of Conte n t s

9. DEBT

Long-term debt consisted of the following:


	As of
	June 30, 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)	74.3		79.2
2021 BofA Real Estate Facility	184.4		—
2018 Bank of America Facility	81.5		84.2
2018 Wells Fargo Master Loan Facility (b)