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Table of Contents
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, 2022
OR
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)
Delaware01-0609375
(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 classSymbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareABGNew 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 FilerSmaller 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 July 27, 2022 was 22,131,513.


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ASBURY AUTOMOTIVE GROUP, INC.

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  Page
PART I—Financial Information
PART II—Other Information








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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)
 June 30, 2022December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$100.1 $178.9 
Short-term investments10.8 11.0 
Contracts-in-transit212.7 212.5 
Accounts receivable, net176.6 229.8 
Inventories783.2 718.4 
Assets held for sale60.6 375.1 
Other current assets257.5 203.7 
Total current assets1,601.5 1,929.4 
INVESTMENTS105.3 123.5 
PROPERTY AND EQUIPMENT, net1,974.0 1,990.0 
OPERATING LEASE RIGHT-OF-USE ASSETS246.1 261.0 
GOODWILL2,230.8 2,271.7 
INTANGIBLE FRANCHISE RIGHTS1,327.3 1,335.7 
DEFERRED INCOME TAXES, net of current portion54.8 69.1 
OTHER LONG-TERM ASSETS99.0 22.2 
Total assets$7,638.8 $8,002.6 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable—trade, net$27.7 $37.3 
Floor plan notes payable—non-trade, net16.7 527.2 
Current maturities of long-term debt69.6 62.5 
Current maturities of operating leases24.4 25.8 
Accounts payable and accrued liabilities812.8 742.9 
Deferred revenue—current201.2 181.5 
Liabilities associated with assets held for sale4.5 20.8 
Total current liabilities1,156.9 1,598.0 
LONG-TERM DEBT3,315.5 3,520.1 
OPERATING LEASE LIABILITIES227.9 242.0 
DEFERRED REVENUE476.0 466.3 
OTHER LONG-TERM LIABILITIES52.1 60.7 
COMMITMENTS AND CONTINGENCIES (Note 13)
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; 44,100,010 and 45,052,293 shares issued, including shares held in treasury, respectively
0.4 0.4 
Additional paid-in capital1,278.8 1,278.6 
Retained earnings2,133.3 1,881.3 
Treasury stock, at cost; 21,968,497 and 21,914,251 shares, respectively
(1,053.1)(1,044.1)
Accumulated other comprehensive gain (loss)51.0 (0.7)
Total shareholders' equity2,410.4 2,115.5 
Total liabilities and shareholders' equity$7,638.8 $8,002.6 


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 June 30,For the Six Months Ended June 30,
 2022202120222021
REVENUE:
New vehicle$1,864.5 $1,368.4 $3,720.1 $2,520.1 
Used vehicle1,362.5 816.2 2,713.4 1,507.1 
Parts and service520.2 292.4 1,022.1 554.4 
Finance and insurance, net203.0 107.0 406.4 195.3 
TOTAL REVENUE3,950.2 2,584.0 7,862.0 4,776.9 
COST OF SALES:
New vehicle1,644.1 1,244.3 3,275.7 2,320.5 
Used vehicle1,258.3 732.7 2,509.9 1,367.8 
Parts and service229.8 109.8 455.2 208.7 
Finance and insurance15.3  26.5  
TOTAL COST OF SALES3,147.5 2,086.8 6,267.3 3,897.0 
GROSS PROFIT802.7 497.2 1,594.7 879.9 
OPERATING EXPENSES:
Selling, general, and administrative448.3 269.7 903.8 509.5 
Depreciation and amortization18.1 10.1 36.5 19.9 
Other operating expense (income), net0.8 (1.0)(1.9)(4.2)
INCOME FROM OPERATIONS335.5 218.4 656.3 354.7 
OTHER EXPENSES:
Floor plan interest expense1.5 2.1 4.1 5.0 
Other interest expense, net37.6 14.4 75.2 28.4 
(Gain) loss on dealership divestitures, net28.7  (4.4) 
Total other expenses, net67.8 16.5 74.9 33.4 
INCOME BEFORE INCOME TAXES267.7 201.9 581.4 321.3 
Income tax expense66.3 49.8 142.3 76.4 
NET INCOME$201.4 $152.1 $439.1 $244.9 
EARNINGS PER SHARE:
Basic—
Net income$9.11 $7.88 $19.60 $12.69 
Diluted—
Net income$9.07 $7.80 $19.52 $12.56 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic22.119.322.419.3
Restricted stock0.10.1
Performance share units0.10.10.10.1
Diluted22.219.522.519.5





 See accompanying Notes to Condensed Consolidated Financial Statements
5

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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,
 202220212022 2021
Net income$201.4 $152.1 $439.1 $244.9 
Other comprehensive income:
Change in fair value of cash flow swaps28.6 (6.5)70.9 (0.3)
Income tax (charge) benefit associated with cash flow swaps(6.9)1.6 (17.4) 
Change in accumulated losses on available-for-sale debt securities  (2.1) 
Income tax benefit associated with available-for-sale debt securities0.2  0.4  
Comprehensive income$223.3  $147.2 $490.9  $244.6 






































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 StockAdditional
Paid-in
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
 SharesAmountSharesAmount
Balances, December 31, 202145,052,293 $0.4 $1,278.6 $1,881.3 21,914,251 $(1,044.1)$(0.7)$2,115.5 
Comprehensive Income:
Net income— — — 237.7 — — — 237.7 
Change in fair value of cash flow swaps, net of reclassification adjustment and $10.4 tax charge
— — — — — — 31.8 31.8 
Loss on changes in fair value of debt securities, net of $0.2 tax benefit
— — — — — — (2.0)(2.0)
Comprehensive income— — — 237.7 — — 29.8 267.5 
Share-based compensation— — 7.0 — — — — 7.0 
Issuance of common stock, net of forfeitures, in connection with share-based payment arrangements115,435 —  — — — —  
Repurchase of common stock associated with net share settlements of employee share-based awards— — — — 53,810 (8.9)— (8.9)
Share issues (repurchases)— — 1.4 — 1,069,203 (200.0)— (198.6)
Retirement of common stock(1,069,203)— (12.9)(187.1)(1,069,203)200.0 $— $ 
Balances, March 31, 202244,098,525 $0.4 $1,274.1 $1,931.9 21,968,061 $(1,053.0)$29.1 $2,182.5 
Comprehensive Income:
Net income— — 201.4 — — — 201.4 
Change in fair value of cash flow swaps, net of reclassification adjustment and $6.9 tax charge
— — — — — — 21.7 21.7 
Changes in fair value of debt securities, net of $0.2 tax benefit
0.2 0.2 
Comprehensive income— — — 201.4 — — 21.9 223.3 
Share-based compensation— — 4.7 — — — — 4.7 
Issuance of common stock, net of forfeitures, in connection with share-based payment arrangements1,485 — — — — — — — 
Repurchase of common stock associated with net share settlements of employee share-based awards— — — — 436 (0.1)— (0.1)
Balances, June 30, 202244,100,010 $0.4 $1,278.8 $2,133.3 21,968,497 $(1,053.1)$51.0 $2,410.4 


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 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
 SharesAmountSharesAmount
Balances, December 31, 202041,133,668 $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 arrangements115,881 — — — — — —  
Repurchase of common stock associated with net share settlement of employee share-based awards— — — — 61,893 (9.6)— (9.6)
Balances, March 31, 202141,249,549 $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 arrangements5,166 — — — — — —  
Repurchase of common stock associated with net share settlement of employee share-based awards— — — — 3,134 (0.6)— (0.6)
Balances, June 30, 202141,254,715 $0.4 $603.9 $1,593.8 21,913,341 $(1,043.9)$(5.9)$1,148.3 
























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 Six Months Ended June 30,
 20222021
CASH FLOW FROM OPERATING ACTIVITIES:
Net income$439.1 $244.9 
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization36.5 19.9 
Share-based compensation11.7 8.3 
Deferred income taxes(2.7) 
Unrealized losses on investments12.0  
Amortization of debt securities discount/premium0.6  
Loaner vehicle amortization5.8 12.5 
Gain on divestitures(4.4) 
Change in right-of-use assets13.8 11.1 
Other adjustments, net0.5 (0.5)
Changes in operating assets and liabilities, net of acquisitions and divestitures—
Contracts-in-transit(8.9)15.7 
Accounts receivable45.2 42.3 
Inventories54.2 424.6 
Other current assets(189.7)(121.7)
Floor plan notes payable—trade, net(9.6)(51.0)
Deferred revenue29.4  
Accounts payable and accrued liabilities82.5 (3.1)
Operating lease liabilities(14.5)(11.2)
Other long-term assets and liabilities, net(4.9)(4.5)
Net cash provided by operating activities496.6 587.3 
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures—excluding real estate(39.5)(26.7)
Capital expenditures—real estate (5.5)
Purchases of previously leased real estate (217.1)
Acquisitions (1.0)
Divestitures379.7  
Purchases of debt securities—available-for-sale(25.9) 
Purchases of equity securities(8.4) 
Proceeds from the sale of debt securities—available-for-sale29.4  
Proceeds from the sale of equity securities8.9  
Proceeds from the sale of assets 21.5 
Net cash provided by (used in) investing activities344.2 (228.8)
CASH FLOW FROM FINANCING ACTIVITIES:
Floor plan borrowings—non-trade3,618.4 2,401.0 
Floor plan repayments—non-trade(4,115.4)(2,808.9)
Floor plan repayments—divestitures(21.6) 
Proceeds from borrowings 184.4 
Repayments of borrowings(24.1)(23.9)
Proceeds from revolving credit facility330.0  
Repayments of revolving credit facility(499.0) 
Proceeds from issuance of common stock1.4  
Payment of debt issuance costs(0.4) 
Purchases of treasury stock(200.0) 
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 For the Six Months Ended June 30,
 20222021
Repurchases of common stock, including amounts associated with net share settlements of
employee share-based awards
(8.9)(10.2)
Net cash used in financing activities(919.6)(257.6)
Net (decrease) increase in cash and cash equivalents(78.8)100.9 
CASH AND CASH EQUIVALENTS, beginning of period178.9 1.4 
CASH AND CASH EQUIVALENTS, end of period$100.1 $102.3 








































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
Asbury Automotive Group, Inc., a Delaware corporation organized in 2002, is one of the largest automotive retailers in the United States. Our store operations are conducted by our subsidiaries.
As of June 30, 2022, we own and operated 198 new vehicle franchises, representing 31 brands of automobiles at 148 new vehicle dealership locations in 15 states. We also operated 34 collision centers, seven stand-alone used vehicle stores, one used vehicle wholesale business, one auto auction, and Total Care Auto, Powered by Landcar ("TCA"), a finance and insurance ("F&I") product provider. As of June 30, 2022, our new vehicle revenue brand mix consisted of 30% luxury, 40% imports and 30% domestic brands. 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 (collectively referred to as "parts and services" or "P&S"); and F&I, including arranging vehicle financing through third parties and aftermarket products, such as extended service contracts, guaranteed asset protection ("GAP") debt cancellation and prepaid maintenance. The finance and insurance products are provided by independent third parties and TCA. The F&I products offered by TCA are primarily sold through Larry H. Miller Dealerships ("LHM"). As a result of the LHM Acquisition, the Company now reflects its operations in two reportable segments: Dealerships and TCA.
On December 17, 2021, the Company completed the acquisition of LHM, which included 54 new vehicle dealerships, seven used vehicle stores, 11 collision centers, a used vehicle wholesale business, the real property related thereto, and the entities comprising the F&I product provider, TCA, for a total purchase price of $3.48 billion (the "LHM Acquisition"). The purchase price was financed through a combination of cash, debt, including senior notes, real estate facilities, new and used vehicle floor plan facilities and the proceeds from the issuance of common stock.
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, 2022, and for the three and six months ended June 30, 2022 and 2021, have been included, unless otherwise indicated. The results of operations for the three and six months ended June 30, 2022 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, 2021.
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, reserves for chargebacks against revenue recognized from the sale of finance and insurance products, reserves for self-insurance programs, certain assumptions related to intangible and long-lived assets, and reserves for certain legal or similar proceedings relating to our business operations.
Cash and Cash Equivalents
Cash and cash equivalents include investments in money market accounts and short-term certificates of deposit which have maturity dates of less than 90 days when purchased.


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Restricted Cash and Securities
TCA places securities on statutory deposit with certain state agencies to retain the right to do business in those states. Securities held on deposit with various state regulatory authorities had a fair value of $2.7 million as of June 30, 2022.
Short-Term Investments
Short-term investments consist of debt securities that are callable or have a maturity date within the next 12 months and are classified as current assets. Debt securities classified as short-term investments are designated as available-for-sale as management intends to hold these securities for indefinite periods of time or may sell the securities in response to changes in interest rates, prepayments, or other similar factors. Available-for-sale debt securities are reported at fair market value with any unrealized gain or loss, net of applicable income tax, reported in other comprehensive income, as a separate component of shareholders’ equity. Premiums and discounts on debt securities classified as short-term investments are amortized or accreted using the effective interest method over the period from the purchase date to the expected maturity or call date of the related security and are reported in net income.
Investments
Investments consist of available-for-sale debt securities, equity securities, and other investments. These securities are classified as non-current investments as they are not intended to fund current operations or have stated call dates or maturity dates beyond the next 12 months. Equity securities may consist of both preferred stock and common stock. Other investments consist of hedge funds and partnerships.
Debt securities classified as non-current investments are designated as available-for-sale as management intends to hold these securities for indefinite periods of time or may sell the securities in response to changes in interest rates, prepayments, or other similar factors. Available-for-sale debt securities included in non-current investments are reported at fair market value with any unrealized gain or loss, net of applicable income tax, reported in other comprehensive income, as a separate component of shareholders’ equity. Premiums and discounts on debt securities included in non-current investments are amortized or accreted, as applicable, using the effective interest method over the period from the purchase date to the expected maturity or call date of the related security and are reported in net income.
Equity securities included in non-current investments are reported at fair market value with the change in value recognized in net income.
Other investments are measured at net asset value as a practical expedient with the net change in net asset value recognized in net income.
We review the debt securities portfolio at the security level on a quarterly basis for potential credit losses, which takes into consideration numerous factors. Some factors evaluated include changes in credit ratings, financial conditions of the issuer, recent payment activity, and other industry specific economic conditions. If a security is considered to have a potential credit loss, we compare the present value of expected cash flows to the amortized cost basis of the security to estimate the allowance for credit losses. The amount of the allowance is limited to the gross unrealized loss on an individual security. An unrealized loss on a debt security is generally considered to not be related to credit when the fair value of the security is below the carrying value of the security primarily due to changes in risk-free interest rates and when there has not been a significant deterioration in the financial condition of the issuer. If the Company no longer has the intent or ability to hold a security in an unrealized loss position until recovery of the security’s cost basis, a loss is realized immediately in net income.
Contracts-In-Transit
Contracts-in-transit represent receivables from third-party finance companies for the portion of new and used vehicle purchase price financed by customers through sources arranged by us.
Accounts Receivable
The allowance for credit losses is estimated using an annual loss rate approach, by type of receivable, utilizing historical loss rates which have been adjusted for expectations of future economic conditions.
Acquisitions
Acquisitions are accounted for under the acquisition method of accounting and the assets acquired and liabilities assumed are recorded at their fair value at the acquisition date. The results of operations of acquired dealerships and other businesses are included in the accompanying Consolidated Statements of Income, commencing on the date of acquisition.
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Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606). Under that guidance, the transaction price is attributed to the underlying performance obligations in the contract and revenue is deferred and recognized as income as the Company satisfies the performance obligations in the contract. Incremental costs of obtaining a contract are capitalized and amortized to the extent that the Company expects to recover those costs. The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. 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.
New vehicle and used vehicle retail
Revenue from the sale of new and used vehicles is recognized when the terms of the customer contract are satisfied which generally occurs with the signing of the sales contract and transfer of control of the vehicle to the customer. Payment is generally received at the time of sale or from a third-party financial institution within a short period of time following the sale of the vehicle. Amounts due from third-party financial institutions are reflected in Contracts-in-transit or vehicle receivables within Accounts receivable, net on our Condensed Consolidated Balance Sheets. Costs associated with incidental items that are immaterial in the context of the contract are accrued at the time of sale.
Used vehicle wholesale
Proceeds from the sale of these vehicles are recognized in used vehicle revenue upon transfer of control to end-users at auction.
Sale of vehicle parts and accessories
The Company recognizes revenue upon transfer of control to the customer which occurs at a point in time. Payment is typically received when control of the parts and accessories transfers to the customer or within 30 days of such time. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized.
Vehicle repair and maintenance services
The Company provides vehicle repair and maintenance services to its customers pursuant to the terms and conditions included within the customer contract ("repair order"). Payment for services are typically received upon completion of the services or within 30 days following the completion of the services. Certain of these services are provided by the Dealerships segment to TCA customers in connection with claims related to TCA's vehicle protection products. Revenues recorded by the Dealerships segment and the associated claims expenses recorded by the TCA segment are eliminated upon consolidation. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. As such, the Company recognizes revenue over time as the Company satisfies its performance obligation. Additionally, the Company has determined that parts and labor are not individually distinct in the context of a repair order and therefore treated as a single performance obligation.
Finance and insurance, net
Within the Dealerships segment, we receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts, guaranteed asset protection debt cancellation, and other products, to end-users. In addition, we record commissions received from our TCA segment related to the sale of TCA's various vehicle protection F&I products. Finance and insurance commission revenue is recognized at the point of sale since our performance obligation is to arrange financing or facilitate the sale of a third-party's products or services to our customers.
The dealerships' commission arrangements with TCA, third-party lenders and insurance administrators consists of fixed ("upfront") and variable consideration. Variable consideration includes commission chargebacks ("chargebacks") in the event a contract is prepaid, defaulted upon, or terminated by the end-user. The Company reserves for future chargebacks based on historical chargeback experience and the termination provisions of the applicable contract, and these reserves are established in the same period that the related revenue is recognized. Commissions revenue and related reserves for future chargebacks in connection with the sale of TCA F&I products by our dealerships, are eliminated in consolidation.
We also participate in future profits pursuant to retrospective commission arrangements, which meet the definition of variable consideration, for certain insurance products associated with a third-party portfolio. The Company estimates the amount of variable consideration to be included in the transaction price based on historical payment trends and further
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constrains the variable consideration such that it is probable a significant reversal of previously recognized revenue will not occur. In making these assessments the Company considers the likelihood and magnitude of a potential reversal of revenue and updates its assessment when uncertainties associated with the constraint are removed.
Within our TCA segment, all revenue, other than investment and interest income, is the result of contracts with customers. Each contract is considered to have a single performance obligation which extends over the life of the contract. Revenue is recognized ratably over the contract term based on earnings factors that align with the performance obligation. Expenses are matched with earned premiums resulting in recognition of profits over the life of the contracts. These expenses include the incremental costs incurred, primarily in the form of commissions, to obtain the contracts with customers. These commissions are primarily paid to affiliated dealerships and are therefore eliminated upon consolidation. Unearned premium reserves are established to cover the unexpired portion of premiums written.
Deferred Revenue
We earn and recognize premium revenue related to the TCA segment over the period of the related service contract. Accordingly, we record deferred revenue as we ratably recognize revenue over the service contract period.
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.
Intersegment Elimination
TCA's vehicle protection products are sold primarily through affiliated dealerships and the revenue from the related commissions are included in F&I revenue in the Dealership segment before consolidation. The corresponding claims expense incurred and the amortization of deferred acquisition costs is recorded as a cost of sales in the TCA segment. The Dealership segment also provides vehicle repair and maintenance services to TCA customers in connection with claims related to TCA's vehicle protection products. Revenues recorded by the Dealership segment and the associated claims expenses recorded by the TCA segment are eliminated upon consolidation. Intersegment revenues and profits from contracts and services are eliminated in consolidation. See Note 12 "Segment Information" for further details.
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. There were no shares repurchased during the three months ended June 30, 2022. During the six months ended June 30, 2022, the Company repurchased and retired 1,069,203 shares of our common stock under our share repurchase program.
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 473 and 113 restricted share units and 18,339 and 12 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 June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022 and 2021, the Company excluded 1,669 and 904 restricted share units and 89 and 324 performance share units issued under the Asbury Automotive Group, Inc. 2019 Equity and Incentive Compensation Plan from
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its computation of diluted earnings per share, 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 as of June 30, 2022 and December 31, 2021 in the accompanying Condensed Consolidated Balance Sheets. Assets and liabilities classified as held for sale 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 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") and all floor plan notes payable relating to used vehicles (together referred to as "Floor Plan Notes Payable—Non-Trade"), are classified as financing activities in the accompanying Condensed Consolidated Statements of Cash Flows, with borrowings reflected separately from repayments. The net change in floor plan notes payable to a lender affiliated with the manufacturer from which we purchase a particular new vehicle (collectively referred to as "Floor Plan Notes Payable—Trade") is classified as an operating activity in the accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as a financing activity in the accompanying Condensed Consolidated Statements of Cash Flows. Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to our 2019 Senior Credit Facility that includes lenders affiliated with the manufacturers and lenders not affiliated with the manufacturer from which we purchased the related inventory. The majority of our floor plan notes are payable to our 2019 Senior Credit Facility, with the exception of floor plan notes payable relating to the financing of new Ford and Lincoln vehicles.
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 2019 Senior Credit Facility. Loaner vehicles are initially used by our service department for a short period of time (typically 6 to 12 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 Inventory in the accompanying Condensed Consolidated Statements of Cash Flows.
Segment Reporting
As of June 30, 2022, the Company had two reportable segments: (1) Dealerships and (2) TCA. Prior to the acquisition of TCA as part of the LHM Acquisition, we had one reportable segment as the geographic dealership groups are aggregated into one reportable segment. See Note 12 "Segment Information" for further details.
Recent Accounting Pronouncements
Effective October 1, 2021, the Company adopted Financial Accounting Standard Board ("FASB") Accounting Standards Update 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquiring entity to apply ASC Topic 606 to recognize and measure contract assets acquired and contract liabilities assumed in a business combination. The Company applied ASC Topic 606 in recording contract assets acquired and contract liabilities assumed in business combinations that occurred in the quarter ended December 31, 2021. We assumed contract liabilities or deferred revenue of $644.3 million in connection with the LHM Acquisition which closed in December 2021.
In March 2020, the 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
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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 London Interbank Offered Rate ("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.
During the quarter ended June 30, 2022, we amended our LIBOR-based debt arrangements and related hedging financial instruments to revise their interest basis from LIBOR to a Secured Overnight Financing Rate ("SOFR"). See Note 9 "Debt" for further details. The impact of these proposed amendments to our debt arrangements and related interest rate swap derivative agreements, along with the adoption of the provisions from this standard, did not have a material impact on our Condensed Consolidated Financial Statements.
2. REVENUE RECOGNITION
Disaggregation of Revenue
Revenue from contracts with customers for the three and six months ended June 30, 2022 and 2021 consists of the following:
For the Three Months Ended June 30,
20222021
(In millions)
Revenue:
   New vehicle$1,864.5 $1,368.4 
   Used vehicle retail1,272.8 759.4 
   Used vehicle wholesale89.7 56.8 
New and used vehicle3,227.0 2,184.6 
  Sale of vehicle parts and accessories125.4 49.0 
  Vehicle repair and maintenance services394.8 243.4 
Parts and services520.2 292.4 
Finance and insurance, net203.0 107.0 
Total revenue$3,950.2 $2,584.0 
For the Six Months Ended June 30,
20222021
(In millions)
Revenue:
   New vehicle$3,720.1 $2,520.1 
   Used vehicle retail2,489.7 1,366.9 
   Used vehicle wholesale223.7 140.2 
New and used vehicle6,433.5 4,027.2 
  Sale of vehicle parts and accessories255.6 91.8 
  Vehicle repair and maintenance services766.5 462.6 
Parts and service1,022.1 554.4 
Finance and insurance, net406.4 195.3 
Total revenue$7,862.0 $4,776.9 
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. Certain
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incremental sales commissions payable to obtain an F&I revenue contract with a customer have been capitalized and are amortized using the same pattern of recognition applicable to the associated F&I revenue contract.
Vehicle Repair and Maintenance ServicesFinance and Insurance, netDeferred Sales CommissionsTotal
(In millions)
Balance as of January 1, 2022$12.3 $13.5 $1.4 $27.2 
Transferred to receivables from contract assets recognized at the beginning of the period(12.3)(5.4) (17.7)