QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
, | ||||||
, | ||||||
(Address of principal executive offices) | (Zip Code) |
Trading | ||||
Title of each class | Symbol(s) | Name of each exchange on which registered | ||
☒ | Accelerated Filer | ☐ | ||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ||
Emerging Growth Company |
Page | ||
PART I—Financial Information | ||
PART II—Other Information | ||
September 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | $ | |||||
Contracts-in-transit | |||||||
Accounts receivable, net | |||||||
Inventories | |||||||
Assets held for sale | |||||||
Other current assets | |||||||
Total current assets | |||||||
PROPERTY AND EQUIPMENT, net | |||||||
OPERATING LEASE RIGHT-OF-USE ASSETS | |||||||
GOODWILL | |||||||
INTANGIBLE FRANCHISE RIGHTS | |||||||
OTHER LONG-TERM ASSETS | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Floor plan notes payable—trade, net | $ | $ | |||||
Floor plan notes payable—non-trade, net | |||||||
Current maturities of long-term debt | |||||||
Current maturities of operating leases | |||||||
Accounts payable and accrued liabilities | |||||||
Total current liabilities | |||||||
LONG-TERM DEBT | |||||||
OPERATING LEASE LIABILITIES | |||||||
DEFERRED INCOME TAXES | |||||||
OTHER LONG-TERM LIABILITIES | |||||||
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; 41,096,408 and 41,065,069 shares issued, including shares held in treasury, respectively | |||||||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Treasury stock, at cost; 21,791,707 and 21,719,339 shares, respectively | ( | ) | ( | ) | |||
Accumulated other comprehensive (loss) income | ( | ) | |||||
Total shareholders' equity | |||||||
Total liabilities and shareholders' equity | $ | $ |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
REVENUE: | |||||||||||||||
New vehicle | $ | $ | $ | $ | |||||||||||
Used vehicle | |||||||||||||||
Parts and service | |||||||||||||||
Finance and insurance, net | |||||||||||||||
TOTAL REVENUE | |||||||||||||||
COST OF SALES: | |||||||||||||||
New vehicle | |||||||||||||||
Used vehicle | |||||||||||||||
Parts and service | |||||||||||||||
TOTAL COST OF SALES | |||||||||||||||
GROSS PROFIT | |||||||||||||||
OPERATING EXPENSES: | |||||||||||||||
Selling, general, and administrative | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Other operating (income) expense, net | ( | ) | ( | ) | ( | ) | |||||||||
INCOME FROM OPERATIONS | |||||||||||||||
OTHER EXPENSES (INCOME): | |||||||||||||||
Floor plan interest expense | |||||||||||||||
Other interest expense, net | |||||||||||||||
Swap interest expense | |||||||||||||||
Gain on divestiture | ( | ) | |||||||||||||
Total other expenses, net | |||||||||||||||
INCOME BEFORE INCOME TAXES | |||||||||||||||
Income tax expense | |||||||||||||||
NET INCOME | $ | $ | $ | $ | |||||||||||
EARNINGS PER SHARE: | |||||||||||||||
Basic— | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Diluted— | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | |||||||||||||||
Basic | |||||||||||||||
Restricted stock | |||||||||||||||
Performance share units | |||||||||||||||
Diluted |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive (loss) income: | |||||||||||||||
Change in fair value of cash flow swaps | ( | ) | ( | ) | |||||||||||
Income tax expense (benefit) associated with cash flow swaps | ( | ) | ( | ) | |||||||||||
Comprehensive income | $ | $ | $ | $ |
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
Balances, December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
Cumulative effect of change in accounting principle - ASU 2018-02 | — | — | — | — | — | ( | ) | ||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | — | — | — | — | — | — | |||||||||||||||||||||||||||
Repurchase of common stock associated with net share settlement of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Retirement of previously repurchased common stock | ( | ) | — | ( | ) | ( | ) | ( | ) | — | |||||||||||||||||||||||
Balances, March 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | ( | ) | — | — | — | — | — | — | |||||||||||||||||||||||||
Repurchase of common stock associated with net share settlement of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Retirement of previously repurchased common stock | ( | ) | — | ( | ) | ( | ) | ( | ) | — | |||||||||||||||||||||||
Balances, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | ( | ) | — | — | — | — | |||||||||||||||||||||||||||
Repurchase of common stock associated with net share settlement of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Retirement of previously repurchased common stock | ( | ) | — | ( | ) | ( | ) | ( | ) | — | |||||||||||||||||||||||
Balances, September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
Balances, December 31, 2017 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Cumulative effect of change in accounting principle - ASU 2014-09 | — | — | — | — | — | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | — | — | — | — | — | — | |||||||||||||||||||||||
Repurchase of common stock associated with net share settlements of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Balances, March 31, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | — | — | — | — | — | — | |||||||||||||||||||||||
Repurchase of common stock associated with net share settlements of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Balances, June 30, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock, net of forfeitures in connection with share-based payment arrangements | ( | ) | — | — | — | — | — | — | |||||||||||||||||||||
Repurchase of common stock associated with net share settlements of employee share-based awards | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Share repurchases | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||
Balances, September 30, 2018 | $ | $ | $ | $ | ( | ) | $ | $ |
For the Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
CASH FLOW FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities— | |||||||
Depreciation and amortization | |||||||
Share-based compensation | |||||||
Deferred income taxes | |||||||
Loaner vehicle amortization | |||||||
Gain on divestiture | ( | ) | |||||
Change in right-of-use asset | |||||||
Other adjustments, net | |||||||
Changes in operating assets and liabilities, net of acquisitions and divestitures— | |||||||
Contracts-in-transit | |||||||
Accounts receivable | |||||||
Inventories | |||||||
Other current assets | ( | ) | ( | ) | |||
Floor plan notes payable—trade, net | ( | ) | |||||
Accounts payable and other current liabilities | ( | ) | |||||
Operating lease liabilities | ( | ) | |||||
Other long-term assets and liabilities, net | |||||||
Net cash provided by operating activities | |||||||
CASH FLOW FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures—excluding real estate | ( | ) | ( | ) | |||
Capital expenditures—real estate | ( | ) | ( | ) | |||
Purchases of previously leased real estate | ( | ) | ( | ) | |||
Acquisitions | ( | ) | ( | ) | |||
Divestiture | |||||||
Proceeds from the sale of assets | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
CASH FLOW FROM FINANCING ACTIVITIES: | |||||||
Floor plan borrowings—non-trade | |||||||
Floor plan borrowings—acquisitions | |||||||
Floor plan repayments—non-trade | ( | ) | ( | ) | |||
Floor plan repayments—divestiture | ( | ) | |||||
Repayments of borrowings | ( | ) | ( | ) | |||
Payment of debt issuance costs | ( | ) | |||||
Repurchases of common stock, including shares associated with net share settlement of employee share-based awards | ( | ) | ( | ) | |||
Net cash (used in) provided by financing activities | ( | ) | |||||
Net (decrease) increase in cash and cash equivalents | ( | ) | |||||
CASH AND CASH EQUIVALENTS, beginning of period | |||||||
CASH AND CASH EQUIVALENTS, end of period | $ | $ |
• | 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; |
• | Gray-Daniels dealerships operating in the Jackson, Mississippi area; |
• | Hare and Estes dealerships operating in the Indianapolis, Indiana area; |
• | McDavid dealerships operating in metropolitan Austin and Dallas, Texas; |
• | Nalley dealerships operating in metropolitan Atlanta, Georgia; |
• | Plaza dealerships operating in metropolitan St. Louis, Missouri; and |
• | Mike Shaw dealership in the Denver, Colorado area. |
For the Three Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In millions) | |||||||
Revenue: | |||||||
New vehicle | $ | $ | |||||
Used vehicle retail | |||||||
Used vehicle wholesale | |||||||
New and used vehicle | |||||||
Sale of vehicle parts and accessories | |||||||
Vehicle repair and maintenance services | |||||||
Parts and services | |||||||
Finance and insurance, net | |||||||
Total revenue | $ |
For the Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In millions) | |||||||
Revenue: | |||||||
New vehicle | $ | $ | |||||
Used vehicle retail | |||||||
Used vehicle wholesale | |||||||
New and used vehicle | |||||||
Sale of vehicle parts and accessories | |||||||
Vehicle repair and maintenance services | |||||||
Parts and services | |||||||
Finance and insurance, net | |||||||
Total revenue | $ | $ |
Vehicle Repair and Maintenance Services | Finance and Insurance, net | Total | |||||||||
(In millions) | |||||||||||
Contract Assets (Current), January 1, 2019 | $ | $ | $ | ||||||||
Transferred to receivables from contract assets recognized at the beginning of the period | ( | ) | ( | ) | ( | ) | |||||
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period | |||||||||||
Contract Assets (Current), March 31, 2019 | $ | $ | $ | ||||||||
Transferred to receivables from contract assets recognized at the beginning of the period | ( | ) | ( | ) | ( | ) | |||||
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period | |||||||||||
Contract Assets (Current), June 30, 2019 | |||||||||||
Transferred to receivables from contract assets recognized at the beginning of the period | ( | ) | ( | ) | ( | ) | |||||
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period | |||||||||||
Contract Assets (Current), September 30, 2019 | $ | $ | $ |
As of | |||
September 30, 2019 | |||
(In millions) | |||
Inventory | $ | ||
Real estate | |||
Property and equipment | |||
Goodwill and manufacturer franchise rights | |||
Loaner vehicles | |||
Liabilities assumed | ( | ) | |
Total purchase price | $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Vehicle receivables | $ | $ | |||||
Manufacturer receivables | |||||||
Other receivables | |||||||
Total accounts receivable | |||||||
Less—Allowance for doubtful accounts | ( | ) | ( | ) | |||
Accounts receivable, net | $ | $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
New vehicles | $ | $ | |||||
Used vehicles | |||||||
Parts and accessories | |||||||
Total inventories | $ | $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Floor plan notes payable—trade | $ | $ | |||||
Floor plan notes payable offset account | ( | ) | ( | ) | |||
Floor plan notes payable—trade, net | $ | $ | |||||
Floor plan notes payable—new non-trade | $ | $ | |||||
Floor plan notes payable—used non-trade | |||||||
Floor plan notes payable offset account | ( | ) | ( | ) | |||
Floor plan notes payable—non-trade, net | $ | $ |
• | a $ |
• | a $ |
• | a $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
6.0% Senior Subordinated Notes due 2024 | $ | $ | |||||
Mortgage notes payable bearing interest at fixed rates | |||||||
2018 Bank of America Facility | |||||||
2018 Wells Fargo Master Loan Facility | |||||||
Prior real estate credit agreement | |||||||
Restated master loan agreement | |||||||
Finance lease liability | |||||||
Total debt outstanding | |||||||
Add—unamortized premium on 6.0% Senior Subordinated Notes due 2024 | |||||||
Less—debt issuance costs | ( | ) | ( | ) | |||
Long-term debt, including current portion | |||||||
Less—current portion, net of current portion of debt issuance costs | ( | ) | ( | ) | |||
Long-term debt | $ | $ |
As of | ||||||
Leases | Classification | September 30, 2019 | ||||
(In millions) | ||||||
Assets: | ||||||
Operating | Operating lease right-of-use assets | $ | ||||
Finance | Property and equipment, net | |||||
Total right-of-use assets | $ | |||||
Liabilities: | ||||||
Current | ||||||
Operating | Current maturities of operating leases | $ | ||||
Finance | Current maturities of long-term debt | |||||
Non-Current | ||||||
Operating | Operating lease liabilities | |||||
Finance | Long-term debt | |||||
Total lease liabilities | $ |
As of | ||
September 30, 2019 | ||
Weighted Average Lease Term - Operating Leases | ||
Weighted Average Lease Term - Finance Lease | ||
Weighted Average Discount Rate - Operating Leases | % | |
Weighted Average Discount Rate - Finance Lease | % |
For the Three Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2019 | ||||||
(In millions) | |||||||
Finance lease cost | |||||||
Interest | $ | $ | |||||
Operating lease cost | |||||||
Short-term lease cost | |||||||
Variable lease cost | |||||||
$ | $ |
For the Three Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2019 | ||||||
(In millions) | |||||||
Supplemental Cash Flow: | |||||||
Cash paid for amounts included in the measurements of lease liabilities | |||||||
Operating cash flows from finance lease | $ | $ | |||||
Operating cash flows from operating leases | |||||||
Financing cash flows from finance lease | |||||||
Right-of-use assets obtained in exchange for new finance lease liabilities | |||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||
Changes to finance lease right-of-use asset resulting from lease reassessment event | ( | ) |
Finance | Operating | ||||||
(In millions) | |||||||
2019 (remaining three months) | $ | $ | |||||
2020 | |||||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
Thereafter | |||||||
Total minimum lease payments | |||||||
Less: amount of lease payments representing interest | ( | ) | ( | ) | |||
Present value of future minimum lease payments | |||||||
Less: current obligations under leases | ( | ) | ( | ) | |||
Long-term lease obligation | $ | $ |
Capital | Operating | ||||||
(In millions) | |||||||
2019 | $ | $ | |||||
2020 | |||||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
Thereafter | |||||||
Total minimum lease payments | |||||||
Less: Amounts representing interest | ( | ) | N/A | ||||
Total minimum lease payments excluding interest | $ | $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Carrying Value: | |||||||
6.0% Senior Subordinated Notes due 2024 | $ | $ | |||||
Mortgage notes payable | |||||||
Total carrying value | $ | $ | |||||
Fair Value: | |||||||
6.0% Senior Subordinated Notes due 2024 | $ | $ | |||||
Mortgage notes payable | |||||||
Total fair value | $ | $ |
As of | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In millions) | |||||||
Other current liabilities/(assets) | $ | $ | ( | ) | |||
Other long-term liabilities/(assets) | ( | ) | |||||
Total fair value | $ | $ | ( | ) |
For the Three Months Ended September 30, | Results Recognized in Accumulated Other Comprehensive Income/(Loss) | Location of Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | |||||||
2019 | $ | ( | ) | Other interest expense, net | $ | ( | ) | |||
2018 | $ | Swap interest expense | $ | ( | ) |
For the Nine Months Ended September 30, | Results Recognized in Accumulated Other Comprehensive Income/(Loss) | Location of Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | |||||||
2019 | $ | ( | ) | Other interest expense, net | $ | |||||
2018 | $ | Swap interest expense | $ | ( | ) |
• | our ability to execute our business strategy; |
• | the seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S.; |
• | our ability to further improve our operating cash flows, and the availability of capital and liquidity; |
• | our estimated future capital expenditures; |
• | general economic conditions and its impact on our revenues and expenses; |
• | our parts and service revenue due to, among other things, improvements in vehicle technology; |
• | the variable nature of significant components of our cost structure; |
• | our ability to limit our exposure to regional economic downturns due to our geographic diversity and brand mix; |
• | manufacturers' willingness to continue to use incentive programs to drive demand for their product offerings; |
• | our ability to leverage our common systems, infrastructure and processes in a cost-efficient manner; |
• | our capital allocation strategy, including as it relates to acquisitions and divestitures, stock repurchases, dividends and capital expenditures; |
• | the continued availability of financing, including floor plan financing for inventory; |
• | the ability of consumers to secure vehicle financing at favorable rates; |
• | the growth of the brands that comprise our portfolio over the long-term; |
• | our ability to mitigate any future negative trends in new vehicle sales; and |
• | our ability to increase our cash flow and net income as a result of the foregoing and other factors. |
• | changes in general economic and business conditions, including changes in employment levels, consumer demand, preferences and confidence levels, the availability and cost of credit, fuel prices, levels of discretionary personal income and interest rates; |
• | our ability to execute our balanced automotive retailing and service business strategy; |
• | our ability to attract and retain skilled employees; |
• | adverse conditions affecting the vehicle manufacturers whose brands we sell, and their ability to design, manufacture, deliver, and market their vehicles successfully; |
• | changes in the mix, and total number, of vehicles we are able to sell; |
• | our outstanding indebtedness and our continued ability to comply with applicable covenants in our various financing and lease agreements, or to obtain waivers of these covenants as necessary; |
• | high levels of competition in our industry, which may create pricing and margin pressures on our products and services; |
• | our relationships with manufacturers of the vehicles we sell and our ability to renew, and enter into new framework and dealer agreements with vehicle manufacturers whose brands we sell, on terms acceptable to us; |
• | the availability of manufacturer incentive programs and our ability to earn these incentives; |
• | failure of our management information systems or any security breaches; |
• | changes in laws and regulations governing the operation of automobile franchises, including 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 generate sufficient cash flows, maintain our liquidity and obtain any necessary additional funds for working capital, capital expenditures, acquisitions, stock repurchases and/or dividends, debt maturity payments, and other corporate purposes; |
• | 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; |
• | significant disruptions in the production and delivery of vehicles and parts for any reason, including natural disasters, product recalls, work stoppages, significant property loss or other occurrences that are outside of our control; |
• | our ability to execute our initiatives and other strategies; and |
• | our ability to leverage gains from our dealership portfolio. |
• | 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; |
• | Gray-Daniels dealerships operating in the Jackson, Mississippi area; |
• | Hare and Estes dealerships operating in the Indianapolis, Indiana area; |
• | McDavid dealerships operating in metropolitan Austin and Dallas, Texas; |
• | Nalley dealerships operating in metropolitan Atlanta, Georgia; |
• | Plaza dealerships operating in metropolitan St. Louis, Missouri; and |
• | Mike Shaw dealership operating in the Denver, Colorado area. |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||
REVENUE: | ||||||||||||||
New vehicle | $ | 986.9 | $ | 980.5 | $ | 6.4 | 1 | % | ||||||
Used vehicle | 546.9 | 497.5 | 49.4 | 10 | % | |||||||||
Parts and service | 227.6 | 206.1 | 21.5 | 10 | % | |||||||||
Finance and insurance, net | 80.6 | 73.3 | 7.3 | 10 | % | |||||||||
TOTAL REVENUE | 1,842.0 | 1,757.4 | 84.6 | 5 | % | |||||||||
GROSS PROFIT: | ||||||||||||||
New vehicle | 38.6 | 42.1 | (3.5 | ) | (8 | )% | ||||||||
Used vehicle | 32.4 | 32.8 | (0.4 | ) | (1 | )% | ||||||||
Parts and service | 141.5 | 129.8 | 11.7 | 9 | % | |||||||||
Finance and insurance, net | 80.6 | 73.3 | 7.3 | 10 | % | |||||||||
TOTAL GROSS PROFIT | 293.1 | 278.0 | 15.1 | 5 | % | |||||||||
OPERATING EXPENSES: | ||||||||||||||
Selling, general, and administrative | 202.0 | 188.8 | 13.2 | 7 | % | |||||||||
Depreciation and amortization | 9.1 | 8.5 | 0.6 | 7 | % | |||||||||
Other operating (income) expenses, net | (0.2 | ) | (0.1 | ) | (0.1 | ) | (100 | )% | ||||||
INCOME FROM OPERATIONS | 82.2 | 80.8 | 1.4 | 2 | % | |||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||
Floor plan interest expense | 9.0 | 8.4 | 0.6 | 7 | % | |||||||||
Other interest expense, net | 13.7 | 13.2 | 0.5 | 4 | % | |||||||||
Swap interest expense | — | 0.1 | (0.1 | ) | — | % | ||||||||
Total other expenses, net | 22.7 | 21.7 | 1.0 | 5 | % | |||||||||
INCOME BEFORE INCOME TAXES | 59.5 | 59.1 | 0.4 | 1 | % | |||||||||
Income tax expense | 14.5 | 14.8 | (0.3 | ) | (2 | )% | ||||||||
NET INCOME | $ | 45.0 | $ | 44.3 | $ | 0.7 | 2 | % | ||||||
Net income per common share—Diluted | $ | 2.33 | $ | 2.18 | $ | 0.15 | 7 | % |
For the Three Months Ended September 30, | |||||
2019 | 2018 | ||||
REVENUE MIX PERCENTAGES: | |||||
New vehicle | 53.6 | % | 55.8 | % | |
Used vehicle retail | 27.3 | % | 25.5 | % | |
Used vehicle wholesale | 2.3 | % | 2.8 | % | |
Parts and service | 12.4 | % | 11.7 | % | |
Finance and insurance, net | 4.4 | % | 4.2 | % | |
Total revenue | 100.0 | % | 100.0 | % | |
GROSS PROFIT MIX PERCENTAGES: | |||||
New vehicle | 13.2 | % | 15.1 | % | |
Used vehicle retail | 11.5 | % | 11.8 | % | |
Used vehicle wholesale | (0.5 | )% | — | % | |
Parts and service | 48.3 | % | 46.7 | % | |
Finance and insurance, net | 27.5 | % | 26.4 | % | |
Total gross profit | 100.0 | % | 100.0 | % | |
GROSS PROFIT MARGIN | 15.9 | % | 15.8 | % | |
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT | 68.9 | % | 67.9 | % |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Revenue: | ||||||||||||||
Luxury | $ | 324.5 | $ | 297.8 | $ | 26.7 | 9 | % | ||||||
Import | 456.3 | 485.2 | (28.9 | ) | (6 | )% | ||||||||
Domestic | 206.1 | 197.5 | 8.6 | 4 | % | |||||||||
Total new vehicle revenue | $ | 986.9 | $ | 980.5 | $ | 6.4 | 1 | % | ||||||
Gross profit: | ||||||||||||||
Luxury | $ | 19.7 | $ | 18.6 | $ | 1.1 | 6 | % | ||||||
Import | 10.2 | 15.4 | (5.2 | ) | (34 | )% | ||||||||
Domestic | 8.7 | 8.1 | 0.6 | 7 | % | |||||||||
Total new vehicle gross profit | $ | 38.6 | $ | 42.1 | $ | (3.5 | ) | (8 | )% | |||||
New vehicle units: | ||||||||||||||
Luxury | 6,025 | 5,685 | 340 | 6 | % | |||||||||
Import | 15,998 | 17,046 | (1,048 | ) | (6 | )% | ||||||||
Domestic | 5,055 | 5,019 | 36 | 1 | % | |||||||||
Total new vehicle units | 27,078 | 27,750 | (672 | ) | (2 | )% | ||||||||
Same Store: | ||||||||||||||
Revenue: | ||||||||||||||
Luxury | $ | 323.1 | $ | 297.8 | $ | 25.3 | 8 | % | ||||||
Import | 450.8 | 474.0 | (23.2 | ) | (5 | )% | ||||||||
Domestic | 169.2 | 197.5 | (28.3 | ) | (14 | )% | ||||||||
Total new vehicle revenue | $ | 943.1 | $ | 969.3 | $ | (26.2 | ) | (3 | )% | |||||
Gross profit: | ||||||||||||||
Luxury | $ | 19.7 | $ | 18.7 | $ | 1.0 | 5 | % | ||||||
Import | 10.1 | 14.8 | (4.7 | ) | (32 | )% | ||||||||
Domestic | 6.9 | 8.1 | (1.2 | ) | (15 | )% | ||||||||
Total new vehicle gross profit | $ | 36.7 | $ | 41.6 | $ | (4.9 | ) | (12 | )% | |||||
New vehicle units | ||||||||||||||
Luxury | 5,993 | 5,685 | 308 | 5 | % | |||||||||
Import | 15,828 | 16,619 | (791 | ) | (5 | )% | ||||||||
Domestic | 4,165 | 5,019 | (854 | ) | (17 | )% | ||||||||
Total new vehicle units | 25,986 | 27,323 | (1,337 | ) | (5 | )% |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
As Reported: | ||||||||||||||
Revenue per new vehicle sold | $ | 36,447 | $ | 35,333 | $ | 1,114 | 3 | % | ||||||
Gross profit per new vehicle sold | $ | 1,426 | $ | 1,517 | $ | (91 | ) | (6 | )% | |||||
New vehicle gross margin | 3.9 | % | 4.3 | % | (0.4 | )% | ||||||||
Luxury: | ||||||||||||||
Gross profit per new vehicle sold | $ | 3,270 | $ | 3,272 | $ | (2 | ) | — | % | |||||
New vehicle gross margin | 6.1 | % | 6.2 | % | (0.1 | )% | ||||||||
Import: | ||||||||||||||
Gross profit per new vehicle sold | $ | 638 | $ | 903 | $ | (265 | ) | (29 | )% | |||||
New vehicle gross margin | 2.2 | % | 3.2 | % | (1.0 | )% | ||||||||
Domestic: | ||||||||||||||
Gross profit per new vehicle sold | $ | 1,721 | $ | 1,614 | $ | 107 | 7 | % | ||||||
New vehicle gross margin | 4.2 | % | 4.1 | % | 0.1 | % | ||||||||
Same Store: | ||||||||||||||
Revenue per new vehicle sold | $ | 36,293 | $ | 35,476 | $ | 817 | 2 | % | ||||||
Gross profit per new vehicle sold | $ | 1,412 | $ | 1,523 | $ | (111 | ) | (7 | )% | |||||
New vehicle gross margin | 3.9 | % | 4.3 | % | (0.4 | )% | ||||||||
Luxury: | ||||||||||||||
Gross profit per new vehicle sold | $ | 3,287 | $ | 3,289 | $ | (2 | ) | — | % | |||||
New vehicle gross margin | 6.1 | % | 6.3 | % | (0.2 | )% | ||||||||
Import: | ||||||||||||||
Gross profit per new vehicle sold | $ | 638 | $ | 891 | $ | (253 | ) | (28 | )% | |||||
New vehicle gross margin | 2.2 | % | 3.1 | % | (0.9 | )% | ||||||||
Domestic: | ||||||||||||||
Gross profit per new vehicle sold | $ | 1,657 | $ | 1,614 | $ | 43 | 3 | % | ||||||
New vehicle gross margin | 4.1 | % | 4.1 | % | — | % |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Revenue: | ||||||||||||||
Used vehicle retail revenue | $ | 505.0 | $ | 448.7 | $ | 56.3 | 13 | % | ||||||
Used vehicle wholesale revenue | 41.9 | 48.8 | (6.9 | ) | (14 | )% | ||||||||
Used vehicle revenue | $ | 546.9 | $ | 497.5 | $ | 49.4 | 10 | % | ||||||
Gross profit: | ||||||||||||||
Used vehicle retail gross profit | $ | 33.9 | $ | 32.7 | $ | 1.2 | 4 | % | ||||||
Used vehicle wholesale gross profit | (1.5 | ) | 0.1 | (1.6 | ) | NM | ||||||||
Used vehicle gross profit | $ | 32.4 | $ | 32.8 | $ | (0.4 | ) | (1 | )% | |||||
Used vehicle retail units: | ||||||||||||||
Used vehicle retail units | 22,988 | 20,824 | 2,164 | 10 | % | |||||||||
Same Store: | ||||||||||||||
Revenue: | ||||||||||||||
Used vehicle retail revenue | $ | 481.7 | $ | 442.4 | $ | 39.3 | 9 | % | ||||||
Used vehicle wholesale revenue | 40.5 | 47.5 | (7.0 | ) | (15 | )% | ||||||||
Used vehicle revenue | $ | 522.2 | $ | 489.9 | $ | 32.3 | 7 | % | ||||||
Gross profit: | ||||||||||||||
Used vehicle retail gross profit | $ | 32.0 | $ | 32.4 | $ | (0.4 | ) | (1 | )% | |||||
Used vehicle wholesale gross profit | (1.5 | ) | 0.2 | (1.7 | ) | NM | ||||||||
Used vehicle gross profit | $ | 30.5 | $ | 32.6 | $ | (2.1 | ) | (6 | )% | |||||
Used vehicle retail units: | ||||||||||||||
Used vehicle retail units | 21,810 | 20,511 | 1,299 | 6 | % |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
As Reported: | ||||||||||||||
Revenue per used vehicle retailed | $ | 21,968 | $ | 21,547 | $ | 421 | 2 | % | ||||||
Gross profit per used vehicle retailed | $ | 1,475 | $ | 1,570 | $ | (95 | ) | (6 | )% | |||||
Used vehicle retail gross margin | 6.7 | % | 7.3 | % | (0.6 | )% | ||||||||
Same Store: | ||||||||||||||
Revenue per used vehicle retailed | $ | 22,086 | $ | 21,569 | $ | 517 | 2 | % | ||||||
Gross profit per used vehicle retailed | $ | 1,467 | $ | 1,580 | $ | (113 | ) | (7 | )% | |||||
Used vehicle retail gross margin | 6.6 | % | 7.3 | % | (0.7 | )% |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions) | ||||||||||||||
As Reported: | ||||||||||||||
Parts and service revenue | $ | 227.6 | $ | 206.1 | $ | 21.5 | 10 | % | ||||||
Parts and service gross profit: | ||||||||||||||
Customer pay | 79.8 | 73.0 | 6.8 | 9 | % | |||||||||
Warranty | 22.1 | 19.2 | 2.9 | 15 | % | |||||||||
Wholesale parts | 5.8 | 5.6 | 0.2 | 4 | % | |||||||||
Parts and service gross profit, excluding reconditioning and preparation | $ | 107.7 | $ | 97.8 | $ | 9.9 | 10 | % | ||||||
Parts and service gross margin, excluding reconditioning and preparation | 47.3 | % | 47.5 | % | (0.2 | )% | ||||||||
Reconditioning and preparation * | $ | 33.8 | $ | 32.0 | $ | 1.8 | 6 | % | ||||||
Total parts and service gross profit | $ | 141.5 | $ | 129.8 | $ | 11.7 | 9 | % | ||||||
Same Store: | ||||||||||||||
Parts and service revenue | $ | 220.8 | $ | 203.8 | $ | 17.0 | 8 | % | ||||||
Parts and service gross profit: | ||||||||||||||
Customer pay | 77.0 | 72.2 | 4.8 | 7 | % | |||||||||
Warranty | 21.6 | 19.1 | 2.5 | 13 | % | |||||||||
Wholesale parts | 5.8 | 5.5 | 0.3 | 5 | % | |||||||||
Parts and service gross profit, excluding reconditioning and preparation | $ | 104.4 | $ | 96.8 | $ | 7.6 | 8 | % | ||||||
Parts and service gross margin, excluding reconditioning and preparation | 47.3 | % | 47.5 | % | (0.2 | )% | ||||||||
Reconditioning and preparation * | $ | 32.6 | $ | 31.5 | $ | 1.1 | 3 | % | ||||||
Total parts and service gross profit | $ | 137.0 | $ | 128.3 | $ | 8.7 | 7 | % |
For the Three Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Finance and insurance, net | $ | 80.6 | $ | 73.3 | $ | 7.3 | 10 | % | ||||||
Finance and insurance, net per vehicle sold | $ | 1,610 | $ | 1,509 | $ | 101 | 7 | % | ||||||
Same Store: | ||||||||||||||
Finance and insurance, net | $ | 77.8 | $ | 72.2 | $ | 5.6 | 8 | % | ||||||
Finance and insurance, net per vehicle sold | $ | 1,628 | $ | 1,509 | $ | 119 | 8 | % |
For the Three Months Ended September 30, | Increase (Decrease) | % of Gross Profit Increase (Decrease) | ||||||||||||||||||
2019 | % of Gross Profit | 2018 | % of Gross Profit | |||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
As Reported: | ||||||||||||||||||||
Personnel costs | $ | 95.1 | 32.4 | % | $ | 90.8 | 32.7 | % | $ | 4.3 | (0.3 | )% | ||||||||
Sales compensation | 31.5 | 10.7 | % | 29.4 | 10.6 | % | 2.1 | 0.1 | % | |||||||||||
Share-based compensation | 3.6 | 1.2 | % | 2.5 | 0.9 | % | 1.1 | 0.3 | % | |||||||||||
Outside services | 21.0 | 7.2 | % | 21.1 | 7.6 | % | (0.1 | ) | (0.4 | )% | ||||||||||
Advertising | 9.9 | 3.4 | % | 7.5 | 2.7 | % | 2.4 | 0.7 | % | |||||||||||
Rent | 6.7 | 2.3 | % | 6.4 | 2.3 | % | 0.3 | — | % | |||||||||||
Utilities | 4.5 | 1.5 | % | 4.4 | 1.6 | % | 0.1 | (0.1 | )% | |||||||||||
Insurance | 2.9 | 1.0 | % | 2.4 | 0.9 | % | 0.5 | 0.1 | % | |||||||||||
Other | 26.8 | 9.2 | % | 24.3 | 8.6 | % | 2.5 | 0.6 | % | |||||||||||
Selling, general, and administrative expense | $ | 202.0 | 68.9 | % | $ | 188.8 | 67.9 | % | $ | 13.2 | 1.0 | % | ||||||||
Gross profit | $ | 293.1 | $ | 278.0 | ||||||||||||||||
Same Store: | ||||||||||||||||||||
Personnel costs | $ | 91.6 | 32.5 | % | $ | 89.7 | 32.7 | % | $ | 1.9 | (0.2 | )% | ||||||||
Sales compensation | 30.1 | 10.7 | % | 28.9 | 10.5 | % | 1.2 | 0.2 | % | |||||||||||
Share-based compensation | 3.6 | 1.3 | % | 2.5 | 0.9 | % | 1.1 | 0.4 | % | |||||||||||
Outside services | 20.2 | 7.2 | % | 20.8 | 7.6 | % | (0.6 | ) | (0.4 | )% | ||||||||||
Advertising | 9.0 | 3.2 | % | 7.3 | 2.7 | % | 1.7 | 0.5 | % | |||||||||||
Rent | 6.7 | 2.4 | % | 6.4 | 2.3 | % | 0.3 | 0.1 | % | |||||||||||
Utilities | 4.3 | 1.5 | % | 4.3 | 1.6 | % | — | (0.1 | )% | |||||||||||
Insurance | 2.7 | 1.0 | % | 2.3 | 0.8 | % | 0.4 | 0.2 | % | |||||||||||
Other | 26.4 | 9.2 | % | 24.0 | 8.7 | % | 2.4 | 0.5 | % | |||||||||||
Selling, general, and administrative expense | $ | 194.6 | 69.0 | % | $ | 186.2 | 67.8 | % | $ | 8.4 | 1.2 | % | ||||||||
Gross profit | $ | 282.0 | $ | 274.7 |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||
REVENUE: | ||||||||||||||
New vehicle | $ | 2,823.9 | $ | 2,766.3 | $ | 57.6 | 2 | % | ||||||
Used vehicle | 1,590.4 | 1,499.0 | 91.4 | 6 | % | |||||||||
Parts and service | 669.7 | 609.9 | 59.8 | 10 | % | |||||||||
Finance and insurance, net | 232.3 | 215.0 | 17.3 | 8 | % | |||||||||
TOTAL REVENUE | 5,316.3 | 5,090.2 | 226.1 | 4 | % | |||||||||
GROSS PROFIT: | ||||||||||||||
New vehicle | 114.8 | 121.3 | (6.5 | ) | (5 | )% | ||||||||
Used vehicle | 102.8 | 100.4 | 2.4 | 2 | % | |||||||||
Parts and service | 417.4 | 384.5 | 32.9 | 9 | % | |||||||||
Finance and insurance, net | 232.3 | 215.0 | 17.3 | 8 | % | |||||||||
TOTAL GROSS PROFIT | 867.3 | 821.2 | 46.1 | 6 | % | |||||||||
OPERATING EXPENSES: | ||||||||||||||
Selling, general, and administrative | 593.7 | 563.6 | 30.1 | 5 | % | |||||||||
Depreciation and amortization | 26.7 | 25.2 | 1.5 | 6 | % | |||||||||
Other operating expense (income), net | 1.0 | (1.2 | ) | 2.2 | NM | |||||||||
INCOME FROM OPERATIONS | 245.9 | 233.6 | 12.3 | 5 | % | |||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||
Floor plan interest expense | 29.7 | 23.0 | 6.7 | 29 | % | |||||||||
Other interest expense, net | 41.2 | 39.4 | 1.8 | 5 | % | |||||||||
Swap interest expense | — | 0.5 | (0.5 | ) | (100 | )% | ||||||||
Gain on divestiture | (11.7 | ) | — | (11.7 | ) | — | % | |||||||
Total other expenses, net | 59.2 | 62.9 | (3.7 | ) | (6 | )% | ||||||||
INCOME BEFORE INCOME TAXES | 186.7 | 170.7 | 16.0 | 9 | % | |||||||||
Income tax expense | 45.9 | 43.1 | 2.8 | 6 | % | |||||||||
NET INCOME | $ | 140.8 | $ | 127.6 | $ | 13.2 | 10 | % | ||||||
Net income per share—Diluted | $ | 7.30 | $ | 6.22 | $ | 1.1 | 17 | % |
For the Nine Months Ended September 30, | |||||
2019 | 2018 | ||||
REVENUE MIX PERCENTAGES: | |||||
New vehicle | 53.1 | % | 54.3 | % | |
Used vehicle retail | 27.3 | % | 26.7 | % | |
Used vehicle wholesale | 2.6 | % | 2.8 | % | |
Parts and service | 12.6 | % | 12.0 | % | |
Finance and insurance, net | 4.4 | % | 4.2 | % | |
Total revenue | 100.0 | % | 100.0 | % | |
GROSS PROFIT MIX PERCENTAGES: | |||||
New vehicle | 13.2 | % | 14.8 | % | |
Used vehicle retail | 11.8 | % | 12.0 | % | |
Used vehicle wholesale | 0.1 | % | 0.2 | % | |
Parts and service | 48.1 | % | 46.8 | % | |
Finance and insurance, net | 26.8 | % | 26.2 | % | |
Total gross profit | 100.0 | % | 100.0 | % | |
GROSS PROFIT MARGIN | 16.3 | % | 16.1 | % | |
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT | 68.5 | % | 68.6 | % |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Revenue: | ||||||||||||||
Luxury | $ | 929.8 | $ | 883.8 | $ | 46.0 | 5 | % | ||||||
Import | 1,290.4 | 1,319.3 | (28.9 | ) | (2 | )% | ||||||||
Domestic | 603.7 | 563.2 | 40.5 | 7 | % | |||||||||
Total new vehicle revenue | $ | 2,823.9 | $ | 2,766.3 | $ | 57.6 | 2 | % | ||||||
Gross profit: | ||||||||||||||
Luxury | $ | 58.0 | $ | 57.5 | $ | 0.5 | 1 | % | ||||||
Import | 31.5 | 39.1 | (7.6 | ) | (19 | )% | ||||||||
Domestic | 25.3 | 24.7 | 0.6 | 2 | % | |||||||||
Total new vehicle gross profit | $ | 114.8 | $ | 121.3 | $ | (6.5 | ) | (5 | )% | |||||
New vehicle units: | ||||||||||||||
Luxury | 16,933 | 16,527 | 406 | 2 | % | |||||||||
Import | 45,697 | 46,545 | (848 | ) | (2 | )% | ||||||||
Domestic | 15,006 | 14,406 | 600 | 4 | % | |||||||||
Total new vehicle units | 77,636 | 77,478 | 158 | — | % | |||||||||
Same Store: | ||||||||||||||
Revenue: | ||||||||||||||
Luxury | $ | 926.7 | $ | 883.8 | $ | 42.9 | 5 | % | ||||||
Import | 1,260.1 | 1,284.0 | (23.9 | ) | (2 | )% | ||||||||
Domestic | 512.1 | 563.2 | (51.1 | ) | (9 | )% | ||||||||
Total new vehicle revenue | $ | 2,698.9 | $ | 2,731.0 | $ | (32.1 | ) | (1 | )% | |||||
Gross profit: | ||||||||||||||
Luxury | $ | 58.1 | $ | 57.5 | $ | 0.6 | 1 | % | ||||||
Import | 30.6 | 37.8 | (7.2 | ) | (19 | )% | ||||||||
Domestic | 20.6 | 24.7 | (4.1 | ) | (17 | )% | ||||||||
Total new vehicle gross profit | $ | 109.3 | $ | 120.0 | $ | (10.7 | ) | (9 | )% | |||||
New vehicle units: | ||||||||||||||
Luxury | 16,862 | 16,527 | 335 | 2 | % | |||||||||
Import | 44,617 | 45,258 | (641 | ) | (1 | )% | ||||||||
Domestic | 12,708 | 14,406 | (1,698 | ) | (12 | )% | ||||||||
Total new vehicle units | 74,187 | 76,191 | (2,004 | ) | (3 | )% |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
As Reported: | ||||||||||||||
Revenue per new vehicle sold | $ | 36,374 | $ | 35,704 | $ | 670 | 2 | % | ||||||
Gross profit per new vehicle sold | $ | 1,479 | $ | 1,566 | $ | (87 | ) | (6 | )% | |||||
New vehicle gross margin | 4.1 | % | 4.4 | % | (0.3 | )% | ||||||||
Luxury: | ||||||||||||||
Gross profit per new vehicle sold | $ | 3,425 | $ | 3,479 | $ | (54 | ) | (2 | )% | |||||
New vehicle gross margin | 6.2 | % | 6.5 | % | (0.3 | )% | ||||||||
Import: | ||||||||||||||
Gross profit per new vehicle sold | $ | 689 | $ | 840 | $ | (151 | ) | (18 | )% | |||||
New vehicle gross margin | 2.4 | % | 3.0 | % | (0.6 | )% | ||||||||
Domestic: | ||||||||||||||
Gross profit per new vehicle sold | $ | 1,686 | $ | 1,715 | $ | (29 | ) | (2 | )% | |||||
New vehicle gross margin | 4.2 | % | 4.4 | % | (0.2 | )% | ||||||||
Same Store: | ||||||||||||||
Revenue per new vehicle sold | $ | 36,380 | $ | 35,844 | $ | 536 | 1 | % | ||||||
Gross profit per new vehicle sold | $ | 1,473 | $ | 1,575 | $ | (102 | ) | (6 | )% | |||||
New vehicle gross margin | 4.0 | % | 4.4 | % | (0.4 | )% | ||||||||
Luxury: | ||||||||||||||
Gross profit per new vehicle sold | $ | 3,446 | $ | 3,479 | $ | (33 | ) | (1 | )% | |||||
New vehicle gross margin | 6.3 | % | 6.5 | % | (0.2 | )% | ||||||||
Import: | ||||||||||||||
Gross profit per new vehicle sold | $ | 686 | $ | 835 | $ | (149 | ) | (18 | )% | |||||
New vehicle gross margin | 2.4 | % | 2.9 | % | (0.5 | )% | ||||||||
Domestic: | ||||||||||||||
Gross profit per new vehicle sold | $ | 1,621 | $ | 1,715 | $ | (94 | ) | (5 | )% | |||||
New vehicle gross margin | 4.0 | % | 4.4 | % | (0.4 | )% |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Revenue: | ||||||||||||||
Used vehicle retail revenue | $ | 1,449.8 | $ | 1,355.4 | $ | 94.4 | 7 | % | ||||||
Used vehicle wholesale revenue | 140.6 | 143.6 | (3.0 | ) | (2 | )% | ||||||||
Used vehicle revenue | $ | 1,590.4 | $ | 1,499.0 | $ | 91.4 | 6 | % | ||||||
Gross profit: | ||||||||||||||
Used vehicle retail gross profit | $ | 102.2 | $ | 98.5 | $ | 3.7 | 4 | % | ||||||
Used vehicle wholesale gross profit | 0.6 | 1.9 | (1.3 | ) | (68 | )% | ||||||||
Used vehicle gross profit | $ | 102.8 | $ | 100.4 | $ | 2.4 | 2 | % | ||||||
Used vehicle retail units: | ||||||||||||||
Used vehicle retail units | 66,330 | 63,079 | 3,251 | 5 | % | |||||||||
Same Store: | ||||||||||||||
Revenue: | ||||||||||||||
Used vehicle retail revenue | $ | 1,383.4 | $ | 1,333.1 | $ | 50.3 | 4 | % | ||||||
Used vehicle wholesale revenue | 135.9 | 140.7 | (4.8 | ) | (3 | )% | ||||||||
Used vehicle revenue | $ | 1,519.3 | $ | 1,473.8 | $ | 45.5 | 3 | % | ||||||
Gross profit: | ||||||||||||||
Used vehicle retail gross profit | $ | 96.6 | $ | 97.2 | $ | (0.6 | ) | (1 | )% | |||||
Used vehicle wholesale gross profit | 0.6 | 2.0 | (1.4 | ) | (70 | )% | ||||||||
Used vehicle gross profit | $ | 97.2 | $ | 99.2 | $ | (2.0 | ) | (2 | )% | |||||
Used vehicle retail units: | ||||||||||||||
Used vehicle retail units | 62,917 | 61,913 | 1,004 | 2 | % |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
As Reported: | ||||||||||||||
Revenue per used vehicle retailed | $ | 21,857 | $ | 21,487 | $ | 370 | 2 | % | ||||||
Gross profit per used vehicle retailed | $ | 1,541 | $ | 1,562 | $ | (21 | ) | (1 | )% | |||||
Used vehicle retail gross margin | 7.0 | % | 7.3 | % | (0.3 | )% | ||||||||
Same Store: | ||||||||||||||
Revenue per used vehicle retailed | $ | 21,988 | $ | 21,532 | $ | 456 | 2 | % | ||||||
Gross profit per used vehicle retailed | $ | 1,535 | $ | 1,570 | $ | (35 | ) | (2 | )% | |||||
Used vehicle retail gross margin | 7.0 | % | 7.3 | % | (0.3 | )% |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions) | ||||||||||||||
As Reported: | ||||||||||||||
Parts and service revenue | $ | 669.7 | $ | 609.9 | $ | 59.8 | 10 | % | ||||||
Parts and service gross profit: | ||||||||||||||
Customer pay | 236.9 | 217.8 | 19.1 | 9 | % | |||||||||
Warranty | 66.1 | 56.5 | 9.6 | 17 | % | |||||||||
Wholesale parts | 17.6 | 16.8 | 0.8 | 5 | % | |||||||||
Parts and service gross profit, excluding reconditioning and preparation | $ | 320.6 | $ | 291.1 | $ | 29.5 | 10 | % | ||||||
Parts and service gross margin, excluding reconditioning and preparation | 47.9 | % | 47.7 | % | 0.2 | % | ||||||||
Reconditioning and preparation * | $ | 96.8 | $ | 93.4 | $ | 3.4 | 4 | % | ||||||
Total parts and service gross profit | $ | 417.4 | $ | 384.5 | $ | 32.9 | 9 | % | ||||||
Same Store: | ||||||||||||||
Parts and service revenue | $ | 648.6 | $ | 602.1 | $ | 46.5 | 8 | % | ||||||
Parts and service gross profit: | ||||||||||||||
Customer pay | 229.0 | 215.2 | 13.8 | 6 | % | |||||||||
Warranty | 64.2 | 56.0 | 8.2 | 15 | % | |||||||||
Wholesale parts | 17.3 | 16.6 | 0.7 | 4 | % | |||||||||
Parts and service gross profit, excluding reconditioning and preparation | $ | 310.5 | $ | 287.8 | $ | 22.7 | 8 | % | ||||||
Parts and service gross margin, excluding reconditioning and preparation | 47.9 | % | 47.8 | % | 0.1 | % | ||||||||
Reconditioning and preparation * | $ | 93.1 | $ | 91.6 | $ | 1.5 | 2 | % | ||||||
Total parts and service gross profit | $ | 403.6 | $ | 379.4 | $ | 24.2 | 6 | % |
For the Nine Months Ended September 30, | Increase (Decrease) | % Change | ||||||||||||
2019 | 2018 | |||||||||||||
(Dollars in millions, except for per vehicle data) | ||||||||||||||
As Reported: | ||||||||||||||
Finance and insurance, net | $ | 232.3 | $ | 215.0 | $ | 17.3 | 8 | % | ||||||
Finance and insurance, net per vehicle sold | $ | 1,614 | $ | 1,530 | $ | 84 | 5 | % | ||||||
Same Store: | ||||||||||||||
Finance and insurance, net | $ | 222.8 | $ | 210.7 | $ | 12.1 | 6 | % | ||||||
Finance and insurance, net per vehicle sold | $ | 1,625 | $ | 1,526 | $ | 99 | 6 | % |
For the Nine Months Ended September 30, | Increase (Decrease) | % of Gross Profit Increase (Decrease) | ||||||||||||||||||
2019 | % of Gross Profit | 2018 | % of Gross Profit | |||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
As Reported: | ||||||||||||||||||||
Personnel costs | $ | 282.2 | 32.5 | % | $ | 270.1 | 32.9 | % | $ | 12.1 | (0.4 | )% | ||||||||
Sales compensation | 90.7 | 10.5 | % | 86.3 | 10.5 | % | 4.4 | — | % | |||||||||||
Share-based compensation | 10.4 | 1.2 | % | 8.2 | 1.0 | % | 2.2 | 0.2 | % | |||||||||||
Outside services | 61.4 | 7.1 | % | 61.4 | 7.5 | % | — | (0.4 | )% | |||||||||||
Advertising | 27.7 | 3.2 | % | 23.5 | 2.9 | % | 4.2 | 0.3 | % | |||||||||||
Rent | 20.3 | 2.3 | % | 19.0 | 2.3 | % | 1.3 | — | % | |||||||||||
Utilities | 12.5 | 1.4 | % | 12.3 | 1.5 | % | 0.2 | (0.1 | )% | |||||||||||
Insurance | 10.5 | 1.2 | % | 10.6 | 1.3 | % | (0.1 | ) | (0.1 | )% | ||||||||||
Other | 78.0 | 9.1 | % | 72.2 | 8.7 | % | 5.8 | 0.4 | % | |||||||||||
Selling, general, and administrative expense | $ | 593.7 | 68.5 | % | $ | 563.6 | 68.6 | % | $ | 30.1 | (0.1 | )% | ||||||||
Gross profit | $ | 867.3 | $ | 821.2 | ||||||||||||||||
Same Store: | ||||||||||||||||||||
Personnel costs | $ | 271.3 | 32.6 | % | $ | 266.2 | 32.9 | % | $ | 5.1 | (0.3 | )% | ||||||||
Sales compensation | 86.6 | 10.4 | % | 84.5 | 10.4 | % | 2.1 | — | % | |||||||||||
Share-based compensation | 10.4 | 1.2 | % | 8.2 | 1.0 | % | 2.2 | 0.2 | % | |||||||||||
Outside services | 58.6 | 7.0 | % | 60.3 | 7.5 | % | (1.7 | ) | (0.5 | )% | ||||||||||
Advertising | 25.1 | 3.0 | % | 22.9 | 2.8 | % | 2.2 | 0.2 | % | |||||||||||
Rent | 20.1 | 2.4 | % | 19.0 | 2.3 | % | 1.1 | 0.1 | % | |||||||||||
Utilities | 12.0 | 1.4 | % | 12.2 | 1.5 | % | (0.2 | ) | (0.1 | )% | ||||||||||
Insurance | 9.6 | 1.2 | % | 10.3 | 1.3 | % | (0.7 | ) | (0.1 | )% | ||||||||||
Other | $ | 75.7 | 9.2 | % | $ | 70.8 | 8.8 | % | 4.9 | 0.4 | % | |||||||||
Selling, general, and administrative expense | $ | 569.4 | 68.4 | % | $ | 554.4 | 68.5 | % | $ | 15.0 | (0.1 | )% | ||||||||
Gross profit | $ | 832.9 | $ | 809.3 |
• | 2019 Senior Credit Facility — On September 25, 2019, the Company and certain of its subsidiaries entered into the 2019 Senior Credit Facility, which amended and restated the Company’s pre-existing second amended and restated credit agreement, dated as of July 25, 2016, among the Company and certain of its subsidiaries and Bank of America, as administrative agent, and the other lenders party thereto. The 2019 Senior Credit Agreement provides for the following: |
• | Manufacturer affiliated new vehicle floor plan and other financing facilities — we have a floor plan facility with the Ford Motor Credit Company ("Ford Credit") to purchase new Ford and Lincoln vehicle inventory, which matures on December 5, 2019. We also have established a floor plan offset account with Ford Credit, which operates in a similar manner to our floor plan offset account with Bank of America. As of September 30, 2019, we had $122.1 |
• | 6.0% Senior Subordinated Notes due 2024 — as of September 30, 2019 we had $600.0 million in aggregate principal amount outstanding related to our 6.0% Notes. We are required to pay interest on the 6.0% Notes on June 15 and December 15 of each year until maturity on December 15, 2024. |
• | Mortgage notes — as of September 30, 2019, we had $127.3 million of mortgage note obligations. These obligations are collateralized by the associated real estate at our dealership locations. |
• | Restated Master Loan Agreement — provides for term loans to certain of our subsidiaries (the "Restated Master Loan Agreement"). Borrowings under the Restated Master Loan Agreement are guaranteed by us and are collateralized by the real property financed under the Restated Master Loan Agreement. As of September 30, 2019, the outstanding balance under the Restated Master Loan Agreement was $79.5 million. There is no further borrowing availability under this agreement. |
• | Prior Real Estate Credit Agreement — a real estate term loan credit agreement with borrowings collateralized by first priority liens, subject to certain permitted exceptions, on all of the real property financed thereunder (the "Prior Real Estate Credit Agreement"). As of September 30, 2019, we had $36.1 million of mortgage note obligations outstanding under the Prior Real Estate Credit Agreement. There is no further borrowing availability under this agreement. |
• | 2018 Bank of America Facility —On November 13, 2018, the Company and certain of its subsidiaries entered into a real estate term loan credit agreement (the “Bank of America Credit Agreement") with Bank of America N.A., which provides for term loans in an aggregate amount not to exceed $128.1 million (the "Bank of America Facility"). On November 13, 2018, we borrowed an aggregate amount of $24.8 million under the Bank of America Credit Agreement, a portion of which was used to refinance certain of the Company’s other outstanding mortgage indebtedness. All of the real property financed by an operating dealership subsidiary of the Company under the Bank of America Facility is collateralized by first priority liens, subject to certain permitted exceptions. As of September 30, 2019, we had $24.8 million of outstanding borrowings under the 2018 Bank of America Facility. |
• | 2018 Wells Fargo Master Loan Facility—On November 16, 2018, certain subsidiaries of the Company entered into a master loan agreement (the “Wells Fargo Master Loan Agreement”) with Wells Fargo Bank, National Association, as lender which provides for term loans to certain of the Company’s subsidiaries that are borrowers under the Wells Fargo Master Loan Agreement in an aggregate amount not to exceed $100.0 million (the "Wells Fargo Master Loan Facility"). On November 16, 2018, we borrowed an aggregate amount of $25.0 million under the Wells Fargo Master Loan Facility, the proceeds of which were used for general corporate purposes. Borrowings under the Wells Fargo Master Loan Facility are guaranteed by the Company pursuant to an unconditional guaranty, and all of the real property financed by any operating dealership subsidiary of the Company under the Wells Fargo Master Loan Facility is collateralized by first priority liens, subject to certain permitted exceptions. As of September 30, 2019, we had $25.0 million outstanding borrowings under the Wells Fargo Master Loan Facility. |
For the Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In millions) | |||||||
Reconciliation of Cash provided by operating activities to Cash provided by operating activities, as adjusted | |||||||
Cash provided by operating activities, as reported | $ | 347.7 | $ | 106.4 | |||
New vehicle floor plan borrowings —non-trade, net | (179.4 | ) | 78.3 | ||||
Cash provided by operating activities, as adjusted | $ | 168.3 | $ | 184.7 |
• | $37.4 million increase related to the change in accounts payable and other current liabilities; |
• | $21.9 million increase related to non-cash adjustments to net income; and |
• | $0.1 million increase related to the change in other current assets and other long-term assets and liabilities, net. |
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program (in millions)(1) | ||||||||||
07/01/2019 - 07/31/2019 | 1,527 | $ | 84.31 | — | $ | 70.2 | ||||||||
08/01/2019 - 08/31/2019 | 43,149 | $ | 92.80 | 42,965 | $ | 66.3 | ||||||||
09/01/2019 - 09/30/2019 | 417 | $ | 101.63 | — | $ | 66.3 | ||||||||
Total | 45,093 | 42,965 |
Exhibit Number | Description of Documents | |
Eighth Supplemental Indenture, dated as of August 14, 2019, among Asbury IN TOY, LLC, Asbury Automotive Group, Inc., and U.S. Bank National Association, as Trustee | ||
Third Amended and Restated Credit Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., as a Borrower, certain of its subsidiaries, as Vehicle Borrowers, Bank of America, N.A., as Administrative Agent, Revolving Swing Line Lender, New Vehicle Floorplan Swing Line Lender, Used Vehicle Floorplan Swingline Lender and an L/C Issuer, and the other Lenders party thereto, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Co-Syndication Agents, Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation, as Co-Documentation Agents, and BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Third Amended and Restated Company Guaranty Agreement, dated as of September 25, 2019, between Asbury Automotive Group, Inc. and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Third Amended and Restated Subsidiary Guaranty Agreement, dated as of September 25, 2019, among certain subsidiaries of Asbury Automotive Group, Inc. and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Third Amended and Restated Security Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Third Amended and Restated Escrow and Security Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Third Amended and Restated Securities Pledge Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | ||
Form of Equity Award Agreement for awards made under the 2019 Equity and Incentive Compensation Plan | ||
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
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* | Incorporated by reference |
Asbury Automotive Group, Inc. | ||||
Date: | October 30, 2019 | By: | /s/ David W. Hult | |
Name: | David W. Hult | |||
Title: | Chief Executive Officer and President |
Asbury Automotive Group, Inc. | ||||
Date: | October 30, 2019 | By: | /s/ Sean D. Goodman | |
Name: | Sean D. Goodman | |||
Title: | Senior Vice President and Chief Financial Officer |
Exhibit Number | Description of Documents | |
4.1 | Eighth Supplemental Indenture, dated as of August 14, 2019, among Asbury IN TOY, LLC, Asbury Automotive Group, Inc., and U.S. Bank National Association, as Trustee | |
10.1 | Third Amended and Restated Credit Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., as a Borrower, certain of its subsidiaries, as Vehicle Borrowers, Bank of America, N.A., as Administrative Agent, Revolving Swing Line Lender, New Vehicle Floorplan Swing Line Lender, Used Vehicle Floorplan Swingline Lender and an L/C Issuer, and the other Lenders party thereto, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Co-Syndication Agents, Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation, as Co-Documentation Agents, and BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.2 | Third Amended and Restated Company Guaranty Agreement, dated as of September 25, 2019, between Asbury Automotive Group, Inc. and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.3 | Third Amended and Restated Subsidiary Guaranty Agreement, dated as of September 25, 2019, among certain subsidiaries of Asbury Automotive Group, Inc. and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.4 | Third Amended and Restated Security Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.5 | Third Amended and Restated Escrow and Security Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.6 | Third Amended and Restated Securities Pledge Agreement, dated as of September 25, 2019, among Asbury Automotive Group, Inc., certain of its subsidiaries and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2019)* | |
10.7 | Form of Equity Award Agreement for awards made under the 2019 Equity and Incentive Compensation Plan | |
31.1 | Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
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* | Incorporated by reference |
By: | /s/ George A. Villasana |
Title: | Senior Vice President, General Counsel & Secretary |
By: | /s/ Matthew Pettoni |
Title: | Treasurer |
By: | /s/ David Ferrell |
“Vesting Date” for RSUS | Percentage of RSUs Vested |
First anniversary of the Date of Grant | 33.33% |
Second anniversary of the Date of Grant | 33.33% |
Third anniversary of the Date of Grant | 33.34% |
If to the Company: | Asbury Automotive Group, Inc. 2905 Premiere Parkway NW, Suite 300 Duluth, GA 30097 Attention: General Counsel Fax : (678) 542-2680 |
If to the Grantee: | At the then-current address shown on the payroll of the Company. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Asbury Automotive Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ David W. Hult | |
David W. Hult Chief Executive Officer October 30, 2019 |
1. | I have reviewed this Quarterly Report on Form 10-Q of Asbury Automotive Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(a) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Sean D. Goodman | |
Sean D. Goodman Chief Financial Officer October 30, 2019 |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ David W. Hult | |
David W. Hult Chief Executive Officer October 30, 2019 |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Sean D. Goodman | |
Sean D. Goodman Chief Financial Officer October 30, 2019 |
FINANCIAL INSTRUMENTS AND FAIR VALUE FINANCIAL INSTRUMENTS AND FAIR VALUE (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Carrying Values and Fair Values of Liabilities | A summary of the carrying values and fair values of our 6.0% Notes and our mortgage notes payable is as follows:
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Schedule of Derivative Instruments Fair Value | The following table provides information regarding the fair value of our interest rate swap agreements and the impact on the Condensed Consolidated Balance Sheets:
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Schedule of Derivative Instruments Effect on Accumulated Other Comprehensive Income | Information about the effect of our interest rate swap agreements on the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, is as follows (in millions):
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INVENTORIES (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory | Inventories consisted of the following:
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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended |
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Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 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 its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the Condensed Consolidated Financial Statements as of September 30, 2019, and for the three and nine months ended September 30, 2019 and 2018, have been included, unless otherwise indicated. The results of operations for the three and nine months ended September 30, 2019 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, 2018.
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Use of Estimates | 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.
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Contracts-In-Transit | 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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Share Repurchases | 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.
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Internal Profit | 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 on the accompanying 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 on the accompanying Consolidated Statements of Income, depending on the classification of the vehicle serviced. We eliminate the internal profit on vehicles that remain in inventory.
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Income Taxes | 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.
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Earnings per Share | 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. For all periods presented, there were no adjustments to the numerator necessary to compute diluted earnings per share.
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Assets Held for Sale and Liabilities Associated with Assets Held for Sale | 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 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.
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Statements of Cash Flows | 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 on 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 on the accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as financing activities in the accompanying Condensed Consolidated Statement 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.
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Recent Accounting Pronouncements | Recent Accounting Pronouncements Effective January 1, 2019, the Company adopted the new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“ASC 842”). For additional information, please refer to Note 9 "Leases" within the accompanying Condensed Consolidated Financial Statements for additional information. On January 1, 2019, the Company adopted ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")." ASU 2018-02 allows entities to elect to reclassify the income tax effects resulting from the Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. During the first quarter of 2019, the Company elected to reclassify $0.2 million related to the change in deferred taxes associated with our cash flow hedges from accumulated other comprehensive income to retained earnings. This reclassification was recognized as a cumulative effect adjustment in the Condensed Consolidated Statements of Shareholders' Equity during the first quarter of 2019. On January 1, 2019, the Company adopted ASU No. 2017-12, "Derivatives and Hedging" (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). This update is intended to simplify hedge accounting by better aligning how an entity’s risk management activities and hedging relationships are presented in its financial statements and simplifies the application of hedge accounting guidance in certain situations. This update expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For cash flow hedges existing at the adoption date, this update requires adoption on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the effective date and the amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The adoption of this update did not have a material impact on our Condensed Consolidated Financial Statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses versus the current incurred loss model. The provisions of ASU 2016-13 are effective for fiscal years beginning after December 15, 2019. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact that the adoption of the provisions of the ASU will have on our Condensed Consolidated Financial Statements, but do not expect the impact of the adoption of this ASU to be material.
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Revenue Recognition | New vehicle and used vehicle retail Revenue from the sale of new and used vehicles (which excludes sales and other taxes) 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. 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. 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 for 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"). 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 are treated as a single performance obligation. Finance and Insurance, net We receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts, guaranteed auto protection (known as "GAP") insurance, and other insurance, to end-users. Finance and insurance commission revenue is recognized at the point of sale since our performance obligation is to arrange financing or facilitating the sale of a third party’s products or services to our customers. The Company’s commission arrangements with third-party lenders and insurance administrators consists of fixed ("upfront") and variable consideration. Variable consideration includes commission charge backs ("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. 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 constrains the variable consideration such that it is probable that 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. 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.
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LEASES (Narrative) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
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New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Operating lease, right-of-use asset | $ 77.1 | $ 0.0 |
Operating lease, liability | 81.3 | |
Accounting Standards Update 2018-11 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Operating lease, right-of-use asset | 86.9 | |
Lease liability reduced for deferent rent | 4.4 | |
Operating lease, liability | $ 91.3 |
LEASES (Other Information) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
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Sep. 30, 2019 |
Sep. 30, 2019 |
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Leases [Abstract] | ||
Operating cash flows from finance lease | $ 0.2 | $ 0.5 |
Operating cash flows from operating leases | 6.0 | 17.6 |
Financing cash flows from finance lease | 0.1 | 0.3 |
Right-of-use assets obtained in exchange for new finance lease liabilities | 0.0 | 17.7 |
Right-of-use assets obtained in exchange for new operating lease liabilities | 3.2 | 13.9 |
Changes to finance lease right-of-use asset resulting from lease reassessment event | $ 0.0 | $ (3.1) |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 90,000,000 | 90,000,000 |
Common stock, shares issued (in shares) | 41,096,408 | 41,065,069 |
Treasury stock, shares (in shares) | 21,791,707 | 21,719,339 |
FINANCIAL INSTRUMENTS AND FAIR VALUE (Schedule of Fair value of Interest Rate Swaps) (Details) - Interest Rate Swap - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Derivative Instruments, Gain (Loss) [Line Items] | ||
Fair value of interest rate swaps | $ 4.7 | $ (0.6) |
Other current liabilities/(assets) | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Fair value of interest rate swaps | 0.8 | (0.2) |
Other long-term liabilities/(assets) | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Fair value of interest rate swaps | $ 3.9 | $ (0.4) |
ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Total accounts receivable | $ 114.0 | $ 131.6 |
Less—Allowance for doubtful accounts | (1.5) | (1.3) |
Accounts receivable, net | 112.5 | 130.3 |
Vehicle receivables | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Total accounts receivable | 35.1 | 45.7 |
Manufacturer receivables | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Total accounts receivable | 45.0 | 51.2 |
Other receivables | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Total accounts receivable | $ 33.9 | $ 34.7 |
LEASES |
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LEASES | LEASES Effective January 1, 2019, the Company adopted the new lease accounting guidance in ASC 842. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms in excess of 12 months. Leases are classified as either finance or operating, with classification impacting the pattern of expense recognition in the income statement. The Company elected the package of practical expedients permitted in ASC 842. Accordingly, the Company accounted for its existing operating leases as an operating lease under the new guidance, without reassessing (a) whether the contract contains a lease under ASC 842, (b) whether classification of the operating lease would be different in accordance with ASC 842, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2018) would have met the definition of initial direct costs in ASC 842 at lease commencement. In addition, the Company opted for the transition relief method specified in Accounting Standards Update No. 2018-11, which allowed for the effective date of the new leases standard as the date of initial application on transition. As a result of this election the Company (a) did not adjust comparative period financial information for the effects of ASC 842; (b) made the new required lease disclosures for periods after the effective date; and (c) carried forward our ASC 840 disclosures for comparative periods. As a result of the adoption of ASC 842, the Company recorded a right-of-use asset of $86.9 million, which represents the lease liability reduced for deferred rent amounts of $4.4 million and a lease liability of $91.3 million, which represents the present value of remaining lease payments, discounted using the Company’s incremental borrowing rates based on the remaining lease terms. We lease real estate and equipment primarily under operating lease agreements. For leases with terms in excess of 12 months, we record an ROU asset and lease liability based on the present value of lease payments over the lease term. Escalation clauses, lease payments dependent on existing rates/indexes, renewal options, and purchase options are included within the determination of lease payments when appropriate. We have elected the practical expedient not to separate lease and non-lease components for all leases that qualify, except for information technology assets that are embedded within service agreements (such as software license arrangements). When available, the implicit rate is utilized to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. Therefore, we estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Balance Sheet Presentation
Lease Term and Discount Rate
Lease Costs The following table provides certain information related to the lease costs for finance and operating leases during the three and nine months ended September 30, 2019.
Supplemental Cash Flow Information The following table presents supplemental cash flow information for leases during the three and nine months ended September 30, 2019.
During the three months ended March 31, 2019, we reassessed and remeasured an existing real estate lease, which was previously accounted for as an operating lease and finance lease for the land and building elements, respectively, due to the presence of a purchase price option which we concluded we are now reasonably certain to exercise. As reflected within the table above, we reduced a portion of the new finance lease right-of-use asset based on the existing finance lease liability at the time of remeasurement. Undiscounted Cash Flow The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities as of September 30, 2019.
Future minimum payments under non-cancelable leases with initial terms in excess of one year at December 31, 2018, are as follows:
Certain of our lease agreements include financial covenants and incorporate by reference the financial covenants set forth in the 2019 Senior Credit Facility. A breach of any of these covenants could immediately give rise to certain landlord remedies under our various lease agreements, the most severe of which include the following: (i) termination of the applicable lease and/or other leases with the same or an affiliated landlord under a cross-default provision, (ii) eviction from the premises; and (iii) the landlord having a claim for various damages.
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LEASES | LEASES Effective January 1, 2019, the Company adopted the new lease accounting guidance in ASC 842. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms in excess of 12 months. Leases are classified as either finance or operating, with classification impacting the pattern of expense recognition in the income statement. The Company elected the package of practical expedients permitted in ASC 842. Accordingly, the Company accounted for its existing operating leases as an operating lease under the new guidance, without reassessing (a) whether the contract contains a lease under ASC 842, (b) whether classification of the operating lease would be different in accordance with ASC 842, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2018) would have met the definition of initial direct costs in ASC 842 at lease commencement. In addition, the Company opted for the transition relief method specified in Accounting Standards Update No. 2018-11, which allowed for the effective date of the new leases standard as the date of initial application on transition. As a result of this election the Company (a) did not adjust comparative period financial information for the effects of ASC 842; (b) made the new required lease disclosures for periods after the effective date; and (c) carried forward our ASC 840 disclosures for comparative periods. As a result of the adoption of ASC 842, the Company recorded a right-of-use asset of $86.9 million, which represents the lease liability reduced for deferred rent amounts of $4.4 million and a lease liability of $91.3 million, which represents the present value of remaining lease payments, discounted using the Company’s incremental borrowing rates based on the remaining lease terms. We lease real estate and equipment primarily under operating lease agreements. For leases with terms in excess of 12 months, we record an ROU asset and lease liability based on the present value of lease payments over the lease term. Escalation clauses, lease payments dependent on existing rates/indexes, renewal options, and purchase options are included within the determination of lease payments when appropriate. We have elected the practical expedient not to separate lease and non-lease components for all leases that qualify, except for information technology assets that are embedded within service agreements (such as software license arrangements). When available, the implicit rate is utilized to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. Therefore, we estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. Balance Sheet Presentation
Lease Term and Discount Rate
Lease Costs The following table provides certain information related to the lease costs for finance and operating leases during the three and nine months ended September 30, 2019.
Supplemental Cash Flow Information The following table presents supplemental cash flow information for leases during the three and nine months ended September 30, 2019.
During the three months ended March 31, 2019, we reassessed and remeasured an existing real estate lease, which was previously accounted for as an operating lease and finance lease for the land and building elements, respectively, due to the presence of a purchase price option which we concluded we are now reasonably certain to exercise. As reflected within the table above, we reduced a portion of the new finance lease right-of-use asset based on the existing finance lease liability at the time of remeasurement. Undiscounted Cash Flow The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities as of September 30, 2019.
Future minimum payments under non-cancelable leases with initial terms in excess of one year at December 31, 2018, are as follows:
Certain of our lease agreements include financial covenants and incorporate by reference the financial covenants set forth in the 2019 Senior Credit Facility. A breach of any of these covenants could immediately give rise to certain landlord remedies under our various lease agreements, the most severe of which include the following: (i) termination of the applicable lease and/or other leases with the same or an affiliated landlord under a cross-default provision, (ii) eviction from the premises; and (iii) the landlord having a claim for various damages.
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INVENTORIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES Inventories consisted of the following:
The lower of cost and net realizable value reserves reduced total inventories by $6.8 million and $6.1 million as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019 and December 31, 2018, certain automobile manufacturer incentives reduced new vehicle inventory cost by $9.9 million and $10.1 million, respectively, and reduced new vehicle cost of sales for the nine months ended September 30, 2019 and 2018 by $33.3 million and $30.6 million, respectively.
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FINANCIAL INSTRUMENTS AND FAIR VALUE (Schedule of Derivative Instruments Effect on the Consolidated Income Statement, Including Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Derivative Instruments, Gain (Loss) [Line Items] | ||||
Change in fair value of cash flow swaps | $ (1.0) | $ 0.9 | $ (5.3) | $ 4.9 |
Interest Rate Swap | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Change in fair value of cash flow swaps | (1.0) | 0.8 | (5.3) | 4.4 |
Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | $ (0.1) | $ (0.5) | ||
Interest Rate Swap | Other interest expense, net | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Amount Reclassified from Accumulated Other Comprehensive Income/(Loss) to Earnings | $ (0.1) | $ 0.0 |
FLOOR PLAN NOTES PAYABLE (Schedule) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Debt Disclosure [Abstract] | ||
Floor plan notes payable—trade | $ 135.3 | $ 125.3 |
Floor plan notes payable offset account | (13.2) | (11.3) |
Floor plan notes payable—trade, net | 122.1 | 114.0 |
Floor plan notes payable—non-trade | 765.6 | 843.0 |
Floor plan notes payable—used non-trade | 25.0 | 30.0 |
Floor plan notes payable offset account | (51.7) | (20.9) |
Floor plan notes payable—non-trade, net | 738.9 | 852.1 |
Floor plan notes payable, offsets | $ (64.9) | $ (32.2) |
ACQUISITIONS AND DIVESTITURES (Divestitures - Narrative) (Details) $ in Millions |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2019
USD ($)
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Sep. 30, 2019
USD ($)
franchise
dealership_location
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Sep. 30, 2018
USD ($)
collision_center
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Divestiture | $ 39.1 | $ 0.0 | |
TEXAS | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Number of franchises, sold (in franchises) | franchise | 1 | ||
Number of dealership locations, sold (in dealership locations) | dealership_location | 1 | ||
Number of collision centers, sold (in collision centers) | collision_center | 1 | ||
Gain on disposition of business, gross | $ 11.7 | ||
TEXAS | Disposed of by sale | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Divestiture | $ 30.1 |
FINANCIAL INSTRUMENTS AND FAIR VALUE |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL INSTRUMENTS AND FAIR VALUE | 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 assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1-Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Level 2-Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include interest rate swap instruments, exchange-traded debt securities that are not actively traded or do not have a high trading volume, mortgage notes payable, and certain real estate properties on a non-recurring basis. Level 3-Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating the fair value of certain non-financial assets and non-financial liabilities in purchase acquisitions and those used in the assessment of impairment for goodwill and manufacturer franchise rights. The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required to determine fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. Fair value is a market-based exit price measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. We use inputs that are current as of the measurement date, including during periods of significant market fluctuations. Financial instruments consist primarily of cash and cash equivalents, contracts-in-transit, accounts receivable, cash surrender value of corporate-owned life insurance policies, accounts payable, floor plan notes payable, subordinated long-term debt, mortgage notes payable, and interest rate swap instruments. The carrying values of our financial instruments, with the exception of subordinated long-term debt and mortgage notes payable, approximate fair value due to (i) their short-term nature, (ii) recently completed market transactions, or (iii) existence of variable interest rates, which approximate market rates. The fair value of our subordinated long-term debt is based on reported market prices in an inactive market that reflects Level 2 inputs. We estimate the fair value of our mortgage notes payable using a present value technique based on current market interest rates for similar types of financial instruments that reflect Level 2 inputs. A summary of the carrying values and fair values of our 6.0% Notes and our mortgage notes payable is as follows:
Interest Rate Swap Agreements In June 2015, we entered into an interest rate swap agreement with a notional principal amount of $100.0 million. This swap was designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in the one month LIBOR, through maturity in February 2025. The notional value of this swap was $81.1 million as of September 30, 2019 and is reducing over its remaining term to $53.1 million at maturity. In November 2013, we entered into an interest rate swap agreement with a notional principal amount of $75.0 million. This swap was designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in the one month LIBOR, through maturity in September 2023. The notional value of this swap was $53.7 million as of September 30, 2019 and is reducing over its remaining term to $38.7 million at maturity. 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 a $4.7 million liability as of September 30, 2019 and a $0.6 million asset as of December 31, 2018. The following table provides information regarding the fair value of our interest rate swap agreements and the impact on the Condensed Consolidated Balance Sheets:
Both of 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 on the accompanying Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income, is as follows (in millions):
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ASSETS AND LIABILITIES HELD FOR SALE |
9 Months Ended |
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Sep. 30, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
ASSETS HELD FOR SALE | ASSETS AND LIABILITIES HELD FOR SALE Assets classified as held for sale consists of real estate not currently used in our operations that we are actively marketing to sell totaling $19.5 million and $26.3 million as of September 30, 2019 and December 31, 2018, respectively. There were no liabilities associated with these properties as of September 30, 2019 or December 31, 2018. As of September 30, 2019, there was one dealership location currently in use with a net book value of $6.6 million that we are under contract to sell and leaseback until a replacement facility is constructed. During the nine months ended September 30, 2019, we sold one vacant property with a net book value of $6.8 million.
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FLOOR PLAN NOTES PAYABLE (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Floor Plan Notes Payable | Floor plan notes payable consisted of the following:
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Label | Element | Value |
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Payments of Debt Issuance Costs | us-gaap_PaymentsOfDebtIssuanceCosts | $ 0 |
REVENUE RECOGNITION (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disaggregation of Revenue | The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2019 and 2018:
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Schedule of Contract with Customer, Assets | The Company records a contract asset related to its right to payment for vehicle repair and maintenance services and variable F&I, net for goods and services already transferred to the customer. Contract assets related to vehicle repair and maintenance services are transferred to receivables when a repair order is completed and invoiced to the customer. Changes in contract assets during the period are reflected in the table below:
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FINANCIAL INSTRUMENTS AND FAIR VALUE (Summary of Carrying Values and Fair Values of Debt) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Total carrying value | $ 898.1 | $ 913.0 |
Total fair value | 922.1 | 876.7 |
Mortgage notes payable | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Total carrying value | 292.7 | 307.0 |
Total fair value | 302.6 | 306.7 |
6.0% Senior Subordinated Notes due 2024 | Senior Subordinated Notes | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Total carrying value | 605.4 | 606.0 |
Total fair value | $ 619.5 | $ 570.0 |
Stated interest rate of debt instrument | 6.00% |
LEASES (Cost) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
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Sep. 30, 2019 |
Sep. 30, 2019 |
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Finance lease cost | ||
Interest | $ 0.2 | $ 0.5 |
Operating lease cost | 5.9 | 17.3 |
Short-term lease cost | 0.5 | 2.2 |
Variable lease cost | 0.3 | 0.7 |
Total lease cost | $ 6.9 | $ 20.7 |
COMMITMENTS AND CONTINGENCIES (Details) - Guarantee Obligations $ in Millions |
Sep. 30, 2019
USD ($)
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Loss Contingencies [Line Items] | |
Amount of surety bond line maintained | $ 5.1 |
Reastated Credit Agreement | Bank of America, N.A. | |
Loss Contingencies [Line Items] | |
Amount of letters of credit outstanding | $ 12.7 |
COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
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Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 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. We had $12.7 million of letters of credit outstanding as of September 30, 2019, which are required by certain of our insurance providers. In addition, as of September 30, 2019, we maintained a $5.1 million surety bond line in the ordinary course of our business. 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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LONG-TERM DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT | FLOOR PLAN NOTES PAYABLE Floor plan notes payable consisted of the following:
On September 25, 2019, the Company and certain of its subsidiaries entered into a third amended and restated credit agreement with Bank of America, N.A. ("Bank of America"), as administrative agent, and the other lenders party thereto (the "2019 Senior Credit Facility"). The 2019 Senior Credit Facility amended and restated the Company’s pre-existing second amended and restated credit agreement, dated as of July 25, 2016. The 2019 Senior Credit Facility provides for the following, in each case subject to limitations on availability as set forth therein:
Proceeds from borrowings under the 2019 Senior Credit Facility will be used, among other things, (i) to finance the purchase of new and used vehicles by the Company and certain of its subsidiaries, (ii) for working capital needs of the Company and certain of its subsidiaries, and (iii) for other general corporate purposes of the Company and certain of its subsidiaries. Subject to compliance with certain conditions, the 2019 Senior Credit Agreement provides that we have the ability, at our option and subject to the receipt of additional commitments from existing or new lenders, to increase the size of the facilities by up to $350.0 million in the aggregate without lender consent. In addition, 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 the Used Vehicle Floor Plan Facility back to the Revolving Credit Facility. In connection with the New Vehicle Floor Plan Facility, we continue to maintain an offset account with Bank of America that allows us to transfer cash as an offset to floor plan notes payable. These transfers reduce the amount of outstanding new vehicle floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the offset account into our operating cash accounts within one to two days. As a result of the use of our floor plan offset account, we experience a reduction in Floor Plan Interest Expense on our Consolidated Statements of Income. Borrowings under the 2019 Senior Credit Facility bear interest, at our option, based on the London Interbank Offered Rate ("LIBOR") or the Base Rate, in each case plus an Applicable Rate. The Base Rate is the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate, and (iii) one month LIBOR plus 1.00%. Applicable Rate means with respect to the Revolving Credit Facility, (i) until the Company delivers a certificate with respect to its consolidated total lease adjusted leverage ratio as of September 30, 2019 to Bank of America, as administrative agent, 1.25% for LIBOR loans and 0.25% for Base Rate loans and (ii) thereafter a range from 1.00% to 2.00% for LIBOR loans and 0.15% to 1.00% for Base Rate loans, in each case based on the Company's consolidated total lease adjusted leverage ratio. Borrowings under the New Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.10% or the Base Rate plus 0.10%. Borrowings under the Used Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.40% or the Base Rate plus 0.40%. In addition to the payment of interest on borrowings outstanding under the 2019 Senior Credit Facility, we are required to pay a quarterly commitment fee on total unused commitments thereunder. The fee for unused commitments under the Revolving Credit Facility is between 0.15% and 0.40% per year, based on the Company's total lease adjusted leverage ratio, and the fee for unused commitments under the New Vehicle Facility Floor Plan and the Used Vehicle Facility Floor Plan Facility is 0.15% per year. The 2019 Senior Credit Facility matures, and all amounts outstanding thereunder will be due and payable, on September 25, 2024. The representations and covenants contained in the 2019 Senior Credit Agreement are customary for financing transactions of this nature, including, among others, a requirement to comply with a minimum consolidated current ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated total lease adjusted leverage ratio, in each case as set out in the 2019 Senior Credit Agreement. In addition, certain other covenants could restrict the Company's ability to incur additional debt, pay dividends or acquire or dispose of assets. The 2019 Senior Credit Agreement also provides for events of default that are customary for financing transactions of this nature, including cross-defaults to other material indebtedness. In certain instances, an event of default under either the Revolving Credit Facility or the Used Vehicle Floorplan Facility could be, or result in, an event of default under the New Vehicle Floorplan Facility, and vice versa. Upon the occurrence of an event of default, the Company could be required to immediately repay all amounts outstanding under the applicable facility. We have established a floor plan notes payable offset account with Ford Motor Credit Company that allows us to transfer cash to the account as an offset of our outstanding Floor Plan Notes Payable—Trade. Additionally, we have a similar floor plan offset account with Bank of America that allows us to offset our outstanding 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 floor plan offset accounts into our operating cash accounts within one to two days. As of September 30, 2019 and December 31, 2018, we had $64.9 million and $32.2 million, respectively, in these floor plan offset accounts. LONG-TERM DEBTLong-term debt consisted of the following:
Effective May 1, 2019, the Company and certain of its subsidiaries entered into amendments (the "2019 Amendments"), which reduced the applicable interest rates for the 2018 Bank of America Facility and the Prior Real Estate Credit Agreement. The 2019 Amendments did not have a material impact on our Condensed Consolidated Financial Statements. Please refer to footnote 7, "Floor Plan Notes Payable" for information related to our 2019 Senior Credit Facility, including the $250.0 million Revolving Credit Facility. We are a holding company with no independent assets or operations. For all relevant periods presented, our 6.0% Senior Subordinated Notes due 2024 (our "6.0% Notes") have been fully and unconditionally guaranteed, on a joint and several basis, by substantially all of our subsidiaries. Any subsidiaries that have not guaranteed such notes are "minor" (as defined in Rule 3-10(h) of Regulation S-X). As of September 30, 2019, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.
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ACCOUNTS RECEIVABLE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE | ACCOUNTS RECEIVABLE Accounts receivable consisted of the following:
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INVENTORIES (Details) - USD ($) $ in Millions |
9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Dec. 31, 2018 |
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Components of Inventory [Line Items] | |||
Total inventories | $ 1,030.1 | $ 1,067.6 | |
Lower of cost or market inventory reserves | 6.8 | 6.1 | |
New vehicles | |||
Components of Inventory [Line Items] | |||
Total inventories | 810.3 | 867.2 | |
Reduction of new vehicle inventory cost by automobile manufacturer incentives | (9.9) | (10.1) | |
Reduction to cost of sales | 33.3 | $ 30.6 | |
Used vehicles | |||
Components of Inventory [Line Items] | |||
Total inventories | 176.3 | 158.9 | |
Parts and accessories | |||
Components of Inventory [Line Items] | |||
Total inventories | $ 43.5 | $ 41.5 |
LEASES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets And Liabilities, Lessee | Balance Sheet Presentation
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Lease Term and Discount Rate, Lessee | Lease Term and Discount Rate
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Lease, Cost | The following table provides certain information related to the lease costs for finance and operating leases during the three and nine months ended September 30, 2019.
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Schedule of Cash Flow, Supplemental Disclosures | The following table presents supplemental cash flow information for leases during the three and nine months ended September 30, 2019.
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Lessee, Operating Lease, Liability, Maturity | The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities as of September 30, 2019.
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Finance Lease, Liability, Maturity | The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities as of September 30, 2019.
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Schedule of Future Minimum Payments for Operating Leases | Future minimum payments under non-cancelable leases with initial terms in excess of one year at December 31, 2018, are as follows:
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Schedule of Future Minimum Lease Payments for Capital Leases | Future minimum payments under non-cancelable leases with initial terms in excess of one year at December 31, 2018, are as follows:
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ACCOUNTS RECEIVABLE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Receivable | Accounts receivable consisted of the following:
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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REVENUE: | ||||
New vehicle | $ 986.9 | $ 980.5 | $ 2,823.9 | $ 2,766.3 |
Used vehicle | 546.9 | 497.5 | 1,590.4 | 1,499.0 |
Parts and service | 227.6 | 206.1 | 669.7 | 609.9 |
Finance and insurance, net | 80.6 | 73.3 | 232.3 | 215.0 |
TOTAL REVENUE | 1,842.0 | 1,757.4 | 5,316.3 | 5,090.2 |
COST OF SALES: | ||||
New vehicle | 948.3 | 938.4 | 2,709.1 | 2,645.0 |
Used vehicle | 514.5 | 464.7 | 1,487.6 | 1,398.6 |
Parts and service | 86.1 | 76.3 | 252.3 | 225.4 |
TOTAL COST OF SALES | 1,548.9 | 1,479.4 | 4,449.0 | 4,269.0 |
GROSS PROFIT | 293.1 | 278.0 | 867.3 | 821.2 |
OPERATING EXPENSES: | ||||
Selling, general, and administrative | 202.0 | 188.8 | 593.7 | 563.6 |
Depreciation and amortization | 9.1 | 8.5 | 26.7 | 25.2 |
Other operating (income) expense, net | (0.2) | (0.1) | 1.0 | (1.2) |
INCOME FROM OPERATIONS | 82.2 | 80.8 | 245.9 | 233.6 |
OTHER EXPENSES (INCOME): | ||||
Floor plan interest expense | 9.0 | 8.4 | 29.7 | 23.0 |
Other interest expense, net | 13.7 | 13.2 | 41.2 | 39.4 |
Swap interest expense | 0.0 | 0.1 | 0.0 | 0.5 |
Gain on divestiture | 0.0 | 0.0 | (11.7) | 0.0 |
Total other expenses, net | 22.7 | 21.7 | 59.2 | 62.9 |
INCOME BEFORE INCOME TAXES | 59.5 | 59.1 | 186.7 | 170.7 |
Income tax expense | 14.5 | 14.8 | 45.9 | 43.1 |
NET INCOME | $ 45.0 | $ 44.3 | $ 140.8 | $ 127.6 |
Basic— | ||||
Net income (in dollars per share) | $ 2.36 | $ 2.22 | $ 7.37 | $ 6.29 |
Diluted— | ||||
Net income (in dollars per share) | $ 2.33 | $ 2.18 | $ 7.30 | $ 6.22 |
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||
Basic (in shares) | 19.1 | 20.0 | 19.1 | 20.3 |
Restricted stock (in shares) | 0.1 | 0.1 | 0.1 | 0.1 |
Performance share units (in shares) | 0.1 | 0.2 | 0.1 | 0.1 |
Diluted (in shares) | 19.3 | 20.3 | 19.3 | 20.5 |
LEASES (Balance Sheets) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Leases [Abstract] | ||
Assets, Operating | $ 77.1 | $ 0.0 |
Assets, Finance | 14.6 | |
Total right-of-use assets | 91.7 | |
Liabilities, Current, Operating | 21.0 | 0.0 |
Liabilities, Current, Finance | 0.6 | |
Liabilities, Non-Current, Operating | 60.3 | $ 0.0 |
Liabilities, Non-Current, Finance | 16.7 | |
Total lease liabilities | $ 98.6 |
LEASES (Liabilities) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Finance Lease, Liability, Payment, Due [Abstract] | ||
2019 (remaining three months) | $ 0.3 | |
2020 | 1.3 | |
2021 | 16.7 | |
2022 | 0.0 | |
2023 | 0.0 | |
Thereafter | 0.0 | |
Total minimum lease payments | 18.3 | |
Less: amount of lease payments representing interest | (1.0) | |
Present value of future minimum lease payments | 17.3 | $ 3.1 |
Less: current obligations under leases | (0.6) | |
Long-term lease obligation | 16.7 | |
Lessee, Operating Lease, Liability, Payment, Due [Abstract] | ||
2019 (remaining three months) | 6.1 | |
2020 | 24.0 | |
2021 | 20.9 | |
2022 | 15.5 | |
2023 | 7.5 | |
Thereafter | 21.2 | |
Total minimum lease payments | 95.2 | |
Less: amount of lease payments representing interest | (13.9) | |
Present value of future minimum lease payments | 81.3 | |
Less: current obligations under leases | (21.0) | 0.0 |
Long-term lease obligation | $ 60.3 | $ 0.0 |
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES We are one of the largest automotive retailers in the United States. As of September 30, 2019, we owned and operated 107 new vehicle franchises (88 dealership locations) representing 31 brands of automobiles and 25 collision repair centers in 18 metropolitan markets within ten states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes repair and maintenance services, replacement parts and collision repair services; and finance and insurance products. For the nine months ended September 30, 2019, our new vehicle revenue brand mix consisted of 46% imports, 33% luxury, and 21% domestic brands. Our retail network is made up of dealerships operating primarily under the following locally-branded dealership groups:
Our operating results are generally subject to changes in the economic environment as well as seasonal variations. Historically, we have generated more revenue and operating income in the second, third, and fourth quarters than in the first quarter of the calendar year. Generally, the seasonal variations in our operations are caused by factors related to weather conditions, changes in manufacturer incentive programs, model changeovers, and consumer buying patterns, among other things. 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 its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the Condensed Consolidated Financial Statements as of September 30, 2019, and for the three and nine months ended September 30, 2019 and 2018, have been included, unless otherwise indicated. The results of operations for the three and nine months ended September 30, 2019 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, 2018. 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. Revenue Recognition Please refer to Note 2 "Revenue Recognition" within the accompanying Condensed Consolidated Financial Statements. 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 on the accompanying 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 on the accompanying 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. 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 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 on 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 on the accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as financing activities in the accompanying Condensed Consolidated Statement of Cash Flows. Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to a lender not affiliated with the manufacturer from which we purchased the related inventory. Loaner vehicles account for a significant portion of Other Current Assets. We acquire loaner vehicles either with available cash or through borrowing from either our manufacturer affiliated lenders or through our senior secured credit agreement with Bank of America, as administrative agent, and the other agents and lenders party thereto (as amended, the "2019 Senior Credit Facility"). Loaner vehicles are initially used by our service department for a short period of time (typically six to twelve months) before we seek to sell them. Therefore, we classify the acquisition of loaner vehicles in Other Current Assets and the borrowings and repayments of loaner vehicle notes payable in Accounts Payable and Accrued Liabilities in the accompanying Condensed Consolidated Statements of Cash Flows. Loaner vehicles are depreciated over the service period to their estimated value. At the end of the loaner service period, loaner vehicles are transferred from Other Current Assets to used vehicle inventory. These transfers are reflected as non-cash transfers between Other Current Assets and Inventories in the accompanying Condensed Consolidated Statements of Cash Flows. Recent Accounting Pronouncements Effective January 1, 2019, the Company adopted the new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“ASC 842”). For additional information, please refer to Note 9 "Leases" within the accompanying Condensed Consolidated Financial Statements for additional information. On January 1, 2019, the Company adopted ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02")." ASU 2018-02 allows entities to elect to reclassify the income tax effects resulting from the Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. During the first quarter of 2019, the Company elected to reclassify $0.2 million related to the change in deferred taxes associated with our cash flow hedges from accumulated other comprehensive income to retained earnings. This reclassification was recognized as a cumulative effect adjustment in the Condensed Consolidated Statements of Shareholders' Equity during the first quarter of 2019. On January 1, 2019, the Company adopted ASU No. 2017-12, "Derivatives and Hedging" (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). This update is intended to simplify hedge accounting by better aligning how an entity’s risk management activities and hedging relationships are presented in its financial statements and simplifies the application of hedge accounting guidance in certain situations. This update expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For cash flow hedges existing at the adoption date, this update requires adoption on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the effective date and the amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The adoption of this update did not have a material impact on our Condensed Consolidated Financial Statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses versus the current incurred loss model. The provisions of ASU 2016-13 are effective for fiscal years beginning after December 15, 2019. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact that the adoption of the provisions of the ASU will have on our Condensed Consolidated Financial Statements, but do not expect the impact of the adoption of this ASU to be material.
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LONG-TERM DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Long-term debt consisted of the following:
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ACQUISITIONS AND DIVESTITURES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations and Divestitures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Business Acquisitions | Below is the preliminary allocation of purchase price for the acquisitions completed during the nine months ended September 30, 2019. We have not finalized our valuation for manufacturer franchise rights, real estate, property and equipment, or our assessment with respect to certain assumed leases. 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.
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LEASES (Lease Term and Discount Rate) (Details) |
Sep. 30, 2019 |
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Leases [Abstract] | |
Weighted Average Lease Term - Operating Leases | 5 years 9 months 18 days |
Weighted Average Lease Term - Finance Lease | 1 year 4 months 24 days |
Weighted Average Discount Rate - Operating Leases | 4.70% |
Weighted Average Discount Rate - Finance Leases | 4.10% |
LEASES LEASES (Minimum Payments) (Details) $ in Millions |
Dec. 31, 2018
USD ($)
|
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Capital | |
2019 | $ 0.4 |
2020 | 0.4 |
2021 | 0.4 |
2022 | 0.4 |
2023 | 0.4 |
Thereafter | 2.8 |
Total minimum lease payments | 4.8 |
Less: Amounts representing interest | 1.7 |
Total minimum lease payments excluding interest | 3.1 |
Operating | |
2019 | 22.5 |
2020 | 22.2 |
2021 | 19.2 |
2022 | 14.0 |
2023 | 6.0 |
Thereafter | 25.5 |
Total minimum lease payments | $ 109.4 |
REVENUE RECOGNITION |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE RECOGNITION | REVENUE RECOGNITION 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. Disaggregation of Revenue The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2019 and 2018:
New vehicle and used vehicle retail Revenue from the sale of new and used vehicles (which excludes sales and other taxes) 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. 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. 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 for 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"). 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 are treated as a single performance obligation. Finance and Insurance, net We receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts, guaranteed auto protection (known as "GAP") insurance, and other insurance, to end-users. Finance and insurance commission revenue is recognized at the point of sale since our performance obligation is to arrange financing or facilitating the sale of a third party’s products or services to our customers. The Company’s commission arrangements with third-party lenders and insurance administrators consists of fixed ("upfront") and variable consideration. Variable consideration includes commission charge backs ("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. 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 constrains the variable consideration such that it is probable that 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. Contract Asset The Company records a contract asset related to its right to payment for vehicle repair and maintenance services and variable F&I, net for goods and services already transferred to the customer. Contract assets related to vehicle repair and maintenance services are transferred to receivables when a repair order is completed and invoiced to the customer. Changes in contract assets during the period are reflected in the table below:
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 45.0 | $ 44.3 | $ 140.8 | $ 127.6 |
Other comprehensive (loss) income: | ||||
Change in fair value of cash flow swaps | (1.0) | 0.9 | (5.3) | 4.9 |
Income tax expense (benefit) associated with cash flow swaps | 0.3 | (0.2) | 1.4 | (1.3) |
Comprehensive income | $ 44.3 | $ 45.0 | $ 136.9 | $ 131.2 |