Receivables and Contract Assets, Net

9 Months Ended

Sep. 30, 2020

RECEIVABLES AND CONTRACT ASSETS, NET

The Company’s financial assets measured at amortized cost and the associated allowance for doubtful accounts consisted of the following (in millions):



	September 30, 2020		December 31, 2019
Contracts-in-transit and vehicle receivables, net:
Contracts-in-transit	$	142.5	$	169.9
Vehicle receivables	76.7		84.3
Total contracts-in-transit and vehicle receivables	219.2		254.1
Less: allowance for doubtful accounts ⁽¹⁾	0.3		0.3
Total contracts-in-transit and vehicle receivables, net	$	218.9	$	253.8

Accounts and notes receivables, net:
Manufacturer receivables	$	108.5	$	123.9
Parts and service receivables	51.9		57.0
F&I receivables	24.9		28.3
Other	11.8		18.7
Total accounts and notes receivables	197.1		227.9
Less: allowance for doubtful accounts ⁽¹⁾	3.6		2.8
Total accounts and notes receivables, net	$	193.5	$	225.1

Within Other current assets and Other long-term assets:
Total contract assets, net ^{(1), (2)}	$	29.7	$	21.6

⁽¹⁾ The allowance for doubtful accounts as of September 30, 2020 is calculated under the current expected credit loss (“CECL”) model described below, which was introduced under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), that became effective for the Company on January 1, 2020. The adoption of ASC 326 did not materially change the calculation of the allowance for doubtful accounts.

⁽²⁾ No allowance for doubtful accounts was recorded for Contract assets, net as of September 30, 2020 or December 31, 2019. No past due balances existed as of either date, and there were no expected credit losses as of September 30, 2020.

The CECL model applies to financial assets measured at amortized cost, as shown in the table above, and requires the Company to reflect expected credit losses over the remaining contractual term of the asset. As the large majority of the Company’s receivables settle within 30 days, the forecast period under the CECL model is a relatively short horizon. The Company uses an aging method to estimate allowances for doubtful accounts under the CECL model as the Company has determined that the aging method adequately reflects expected credit losses, as corroborated by historical loss-rates. However, the Company will apply adjustments for asset-specific factors and current economic conditions as needed at each reporting date.

The Company recorded an adjustment of approximately $0.4 million for expected credit losses as of September 30, 2020 as a result of adverse economic conditions arising from the COVID-19 pandemic impacting certain customers in the U.S. and U.K. The adjustment primarily impacted receivables that were not past due and thus were not subject to estimated credit losses under the aging method.