LITHIA MOTORS INC - Quarter Report: 2021 June (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-14733
![lad-20210630_g1.jpg](https://www.sec.gov/Archives/edgar/data/0001023128/000102312821000097/lad-20210630_g1.jpg)
Lithia Motors, Inc.
(Exact name of registrant as specified in its charter)
Oregon | 93-0572810 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
150 N. Bartlett Street | Medford, | Oregon | 97501 | ||||||||
(Address of principal executive offices) | (Zip Code) |
(541) 776-6401
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common stock without par value | LAD | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Non-accelerated filer | Accelerated filer | Smaller reporting company | Emerging growth company | ||||||||||
☒ | ☐ | ☐ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2021, there were 30,250,672 shares of the registrant’s common stock outstanding.
LITHIA MOTORS, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Item Number | Item | Page | ||||||
PART I | FINANCIAL INFORMATION | |||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II | OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | |||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 6. | ||||||||
SIGNATURE |
![]() |
CONSOLIDATED BALANCE SHEETS | ||||||||||||||
(In millions; Unaudited) | June 30, 2021 | December 31, 2020 | ||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 780.9 | $ | 160.2 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $11.1 and $5.9 | 799.7 | 614.0 | ||||||||||||
Inventories, net | 2,238.8 | 2,492.9 | ||||||||||||
Other current assets | 51.4 | 70.5 | ||||||||||||
Total current assets | 3,870.8 | 3,337.6 | ||||||||||||
Property and equipment, net of accumulated depreciation of $375.7 and $338.0 | 2,299.3 | 2,197.5 | ||||||||||||
Operating lease right-of-use assets | 255.1 | 264.0 | ||||||||||||
Goodwill | 617.3 | 593.0 | ||||||||||||
Franchise value | 369.7 | 350.2 | ||||||||||||
Other non-current assets | 2,680.3 | 1,159.8 | ||||||||||||
Total assets | $ | 10,092.5 | $ | 7,902.1 | ||||||||||
Liabilities and stockholders’ equity | ||||||||||||||
Current liabilities: | ||||||||||||||
Floor plan notes payable | $ | 285.1 | $ | 234.2 | ||||||||||
Floor plan notes payable: non-trade | 966.9 | 1,563.0 | ||||||||||||
Current maturities of long-term debt | 486.1 | 66.0 | ||||||||||||
Trade payables | 256.0 | 158.2 | ||||||||||||
Accrued liabilities | 601.7 | 458.3 | ||||||||||||
Total current liabilities | 2,595.8 | 2,479.7 | ||||||||||||
Long-term debt, less current maturities | 2,521.9 | 2,064.7 | ||||||||||||
Deferred revenue | 172.1 | 155.7 | ||||||||||||
Deferred income taxes | 178.8 | 146.3 | ||||||||||||
Non-current operating lease liabilities | 237.2 | 246.7 | ||||||||||||
Other long-term liabilities | 158.3 | 147.5 | ||||||||||||
Total liabilities | 5,864.1 | 5,240.6 | ||||||||||||
Stockholders’ equity: | ||||||||||||||
Preferred stock - no par value; authorized 15.0 shares; none outstanding | — | — | ||||||||||||
Common stock1 - no par value; authorized 100.0 shares; issued and outstanding 30.2 and 26.3 | 1,906.9 | 788.2 | ||||||||||||
Class B common stock - no par value; authorized 25.0 shares; issued and outstanding none and 0.2 | — | — | ||||||||||||
Additional paid-in capital | 44.0 | 41.4 | ||||||||||||
Accumulated other comprehensive loss | (4.3) | (6.3) | ||||||||||||
Retained earnings | 2,281.8 | 1,838.2 | ||||||||||||
Total stockholders’ equity | 4,228.4 | 2,661.5 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 10,092.5 | $ | 7,902.1 |
1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of the Company’s classified common stock structure following the conversion of all Class B common stock to Class A common stock.
See accompanying condensed notes to consolidated financial statements.
![]() | FINANCIAL STATEMENTS | 1 |
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(In millions, except per share amounts; Unaudited) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
New vehicle retail | $ | 3,146.2 | $ | 1,367.8 | $ | 5,339.5 | $ | 2,741.3 | ||||||||||||||||||
Used vehicle retail | 1,804.9 | 922.2 | 3,157.0 | 1,796.5 | ||||||||||||||||||||||
Used vehicle wholesale | 217.4 | 51.3 | 352.6 | 118.0 | ||||||||||||||||||||||
Finance and insurance | 269.6 | 124.9 | 467.9 | 246.7 | ||||||||||||||||||||||
Service, body and parts | 521.0 | 275.5 | 925.0 | 605.4 | ||||||||||||||||||||||
Fleet and other | 50.3 | 16.9 | 110.4 | 54.4 | ||||||||||||||||||||||
Total revenues | 6,009.4 | 2,758.6 | 10,352.4 | 5,562.3 | ||||||||||||||||||||||
Cost of sales: | ||||||||||||||||||||||||||
New vehicle retail | 2,832.5 | 1,275.6 | 4,869.0 | 2,570.9 | ||||||||||||||||||||||
Used vehicle retail | 1,572.3 | 823.9 | 2,788.3 | 1,608.3 | ||||||||||||||||||||||
Used vehicle wholesale | 201.0 | 49.2 | 331.6 | 115.3 | ||||||||||||||||||||||
Service, body and parts | 242.9 | 131.1 | 428.6 | 292.8 | ||||||||||||||||||||||
Fleet and other | 50.1 | 14.4 | 108.8 | 49.7 | ||||||||||||||||||||||
Total cost of sales | 4,898.8 | 2,294.2 | 8,526.3 | 4,637.0 | ||||||||||||||||||||||
Gross profit | 1,110.6 | 464.4 | 1,826.1 | 925.3 | ||||||||||||||||||||||
Asset impairments | — | 7.9 | — | 7.9 | ||||||||||||||||||||||
Selling, general and administrative | 634.0 | 304.5 | 1,084.2 | 650.5 | ||||||||||||||||||||||
Depreciation and amortization | 30.3 | 22.3 | 57.2 | 44.3 | ||||||||||||||||||||||
Operating income | 446.3 | 129.7 | 684.7 | 222.6 | ||||||||||||||||||||||
Floor plan interest expense | (6.4) | (8.1) | (13.3) | (22.1) | ||||||||||||||||||||||
Other interest expense, net | (28.1) | (16.8) | (51.6) | (33.8) | ||||||||||||||||||||||
Other income, net | 7.6 | 3.5 | 11.1 | 5.8 | ||||||||||||||||||||||
Income before income taxes | 419.4 | 108.3 | 630.9 | 172.5 | ||||||||||||||||||||||
Income tax provision | (114.5) | (30.6) | (169.8) | (48.6) | ||||||||||||||||||||||
Net income | $ | 304.9 | $ | 77.7 | $ | 461.1 | $ | 123.9 | ||||||||||||||||||
Basic net income per share | $ | 10.83 | $ | 3.40 | $ | 16.83 | $ | 5.37 | ||||||||||||||||||
Shares used in basic per share calculations | 28.1 | 22.8 | 27.4 | 23.1 | ||||||||||||||||||||||
Diluted net income per share | $ | 10.75 | $ | 3.38 | $ | 16.69 | $ | 5.32 | ||||||||||||||||||
Shares used in diluted per share calculations | 28.4 | 23.0 | 27.6 | 23.3 | ||||||||||||||||||||||
Cash dividends paid per Class A and Class B share | $ | 0.35 | $ | 0.30 | $ | 0.66 | $ | 0.60 |
See accompanying condensed notes to consolidated financial statements.
![]() | FINANCIAL STATEMENTS | 2 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(In millions; Unaudited) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Net income | $ | 304.9 | $ | 77.7 | $ | 461.1 | $ | 123.9 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.1), $0.5, ($0.7), and $2.3, respectively | 0.2 | (1.4) | 2.0 | (6.5) | ||||||||||||||||||||||
Comprehensive income | $ | 305.1 | $ | 76.3 | $ | 463.1 | $ | 117.4 |
See accompanying condensed notes to consolidated financial statements.
![]() | FINANCIAL STATEMENTS | 3 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(In millions; Unaudited) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Total stockholders’ equity, beginning balances | $ | 2,807.6 | $ | 1,456.5 | $ | 2,661.5 | $ | 1,467.7 | |||||||||||||||
Common stock1: | |||||||||||||||||||||||
Beginning balances | 789.9 | — | 788.2 | 20.5 | |||||||||||||||||||
Compensation for stock and stock option issuances and excess tax benefits from option exercises | 1.2 | 0.9 | 14.6 | 9.8 | |||||||||||||||||||
Issuance of stock in connection with employee stock plans | 5.5 | 3.5 | 9.7 | 6.1 | |||||||||||||||||||
Class B common stock converted to class A common stock1 | — | — | — | — | |||||||||||||||||||
Repurchase of common stock | — | (2.3) | (15.9) | (34.3) | |||||||||||||||||||
Equity issuances, net of issuance costs | 1,110.3 | — | 1,110.3 | — | |||||||||||||||||||
Ending balances | 1,906.9 | 2.1 | 1,906.9 | 2.1 | |||||||||||||||||||
Class B common stock1: | |||||||||||||||||||||||
Beginning balances | — | 0.1 | — | 0.1 | |||||||||||||||||||
Class B common stock converted to class A common stock1 | — | — | — | — | |||||||||||||||||||
Ending balances | — | 0.1 | — | 0.1 | |||||||||||||||||||
Additional paid-in capital: | |||||||||||||||||||||||
Beginning balances | 36.0 | 26.0 | 41.4 | 46.0 | |||||||||||||||||||
Compensation for stock and stock option issuances and excess tax benefits from option exercises | 8.0 | 4.1 | 2.6 | 0.3 | |||||||||||||||||||
Repurchase of common stock | — | — | — | (16.2) | |||||||||||||||||||
Ending balances | 44.0 | 30.1 | 44.0 | 30.1 | |||||||||||||||||||
Accumulated other comprehensive loss: | |||||||||||||||||||||||
Beginning balances | (4.5) | (5.8) | (6.3) | (0.7) | |||||||||||||||||||
Gain (loss) on cash flow hedges, net of tax (expense) benefit of ($0.1), $0.5, ($0.7), and $2.3, respectively | 0.2 | (1.4) | 2.0 | (6.5) | |||||||||||||||||||
Ending balances | (4.3) | (7.2) | (4.3) | (7.2) | |||||||||||||||||||
Retained earnings: | |||||||||||||||||||||||
Beginning balances | 1,986.2 | 1,436.2 | 1,838.2 | 1,401.8 | |||||||||||||||||||
— | — | — | (4.8) | ||||||||||||||||||||
Net income | 304.9 | 77.7 | 461.1 | 123.9 | |||||||||||||||||||
Dividends paid | (9.3) | (6.8) | (17.5) | (13.8) | |||||||||||||||||||
Ending balances | 2,281.8 | 1,507.1 | 2,281.8 | 1,507.1 | |||||||||||||||||||
Total stockholders’ equity, ending balances | $ | 4,228.4 | $ | 1,532.2 | $ | 4,228.4 | $ | 1,532.2 |
1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of the Company’s classified common stock structure following the conversion of all Class B common stock to Class A common stock.
See accompanying condensed notes to consolidated financial statements.
![]() | FINANCIAL STATEMENTS | 4 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
Six Months Ended June 30, | ||||||||||||||
(In millions; Unaudited) | 2021 | 2020 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 461.1 | $ | 123.9 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Asset impairments | — | 7.9 | ||||||||||||
Depreciation and amortization | 57.1 | 44.3 | ||||||||||||
Stock-based compensation | 17.2 | 10.1 | ||||||||||||
Loss (gain) on disposal of other assets | 0.1 | (0.3) | ||||||||||||
Loss (gain) on disposal of franchise | 5.2 | (1.4) | ||||||||||||
Unrealized investment gain | (0.9) | — | ||||||||||||
Deferred income taxes | 31.8 | (4.9) | ||||||||||||
Amortization of operating lease right-of-use assets | 16.5 | 13.5 | ||||||||||||
(Increase) decrease (net of acquisitions and dispositions): | ||||||||||||||
Accounts receivable, net | (185.0) | 53.8 | ||||||||||||
Inventories | 663.1 | 624.7 | ||||||||||||
Other assets | (103.0) | (14.8) | ||||||||||||
Increase (decrease) (net of acquisitions and dispositions): | ||||||||||||||
Floor plan notes payable | 47.0 | (130.7) | ||||||||||||
Trade payables | 97.4 | 0.3 | ||||||||||||
Accrued liabilities | 144.3 | 55.4 | ||||||||||||
Other long-term liabilities and deferred revenue | 11.6 | 8.2 | ||||||||||||
Net cash provided by operating activities | 1,263.5 | 790.0 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (113.0) | (78.3) | ||||||||||||
Proceeds from sales of assets | — | 1.6 | ||||||||||||
Cash paid for other investments | (9.9) | (9.7) | ||||||||||||
Cash paid for acquisitions, net of cash acquired | (1,741.9) | (92.3) | ||||||||||||
Proceeds from sales of stores | 43.7 | 11.6 | ||||||||||||
Net cash used in investing activities | (1,821.1) | (167.1) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||
Repayments on floor plan notes payable, net: non-trade | (571.6) | (456.8) | ||||||||||||
Borrowings on lines of credit | 1,454.9 | 925.4 | ||||||||||||
Repayments on lines of credit | (1,519.5) | (1,034.4) | ||||||||||||
Principal payments on long-term debt and finance lease liabilities, scheduled | (12.6) | (13.3) | ||||||||||||
Principal payments on long-term debt and finance lease liabilities, other | (65.0) | (4.9) | ||||||||||||
Proceeds from issuance of long-term debt | 817.5 | 56.5 | ||||||||||||
Payment of debt issuance costs | (10.6) | (0.9) | ||||||||||||
Proceeds from issuance of common stock | 1,120.0 | 6.1 | ||||||||||||
Repurchase of common stock | (15.9) | (50.5) | ||||||||||||
Dividends paid | (17.5) | (13.8) | ||||||||||||
Payment of contingent consideration related to acquisitions | (1.4) | — | ||||||||||||
Net cash provided by (used in) financing activities | 1,178.3 | (586.6) | ||||||||||||
Increase in cash and cash equivalents | 620.7 | 36.3 | ||||||||||||
Cash and cash equivalents at beginning of period | 160.2 | 84.0 | ||||||||||||
Cash and cash equivalents at end of period | $ | 780.9 | $ | 120.3 | ||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||
Cash paid during the period for interest | $ | 57.2 | $ | 61.3 | ||||||||||
Cash paid during the period for income taxes, net | 129.3 | 4.4 | ||||||||||||
Floor plan debt paid in connection with store disposals | 8.7 | 22.0 | ||||||||||||
Supplemental schedule of non-cash activities: | ||||||||||||||
Debt issued in connection with acquisitions | $ | 225.6 | $ | — | ||||||||||
Debt assumed in connection with acquisitions | 4.0 | — | ||||||||||||
Acquisition of finance leases in connection with acquisitions | — | 15.4 | ||||||||||||
Right-of-use assets obtained in exchange for lease liabilities | 8.1 | 4.2 |
See accompanying condensed notes to consolidated financial statements.
![]() | FINANCIAL STATEMENTS | 5 |
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
Basis of Presentation
These condensed Consolidated Financial Statements contain unaudited information as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2020 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2020, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain immaterial reclassifications of amounts previously reported have been made to the accompanying condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented.
Note 2. Contract Liabilities and Assets
Contract Liabilities
We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were $214.9 million and $194.1 million as of June 30, 2021, and December 31, 2020, respectively; and we recognized $9.0 million and $18.4 million of revenue in the three and six months ended June 30, 2021, respectively, related to our contract liability balance at December 31, 2020. Our contract liability balance is included in accrued liabilities and deferred revenue.
Contract Assets
Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider, and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract. Our contract asset balances associated with future estimated variable consideration were $8.2 million and $8.2 million as of June 30, 2021 and December 31, 2020, respectively; and are included in trade receivables and other non-current assets.
Note 3. Accounts Receivable and Contract Assets
Accounts receivable consisted of the following:
(in millions) | June 30, 2021 | December 31, 2020 | ||||||||||||
Contracts in transit | $ | 369.3 | $ | 286.8 | ||||||||||
Trade receivables | 87.3 | 67.0 | ||||||||||||
Vehicle receivables | 84.4 | 61.8 | ||||||||||||
Manufacturer receivables | 132.8 | 118.1 | ||||||||||||
Auto loan receivables | 370.9 | 175.6 | ||||||||||||
Other receivables | 16.6 | 11.6 | ||||||||||||
1,061.3 | 720.9 | |||||||||||||
Less: Allowance for doubtful accounts | (11.1) | (5.9) | ||||||||||||
Less: Long-term portion of accounts receivable, net | (250.5) | (101.0) | ||||||||||||
Total accounts receivable, net | $ | 799.7 | $ | 614.0 |
![]() | NOTES TO FINANCIAL STATEMENTS | 6 |
Accounts receivable classifications include the following:
•Contracts in transit are receivables from various lenders for the financing of vehicles that we have arranged on behalf of the customer and are typically received approximately ten days after selling a vehicle.
•Trade receivables are comprised of amounts due from customers for open charge accounts, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products.
•Vehicle receivables represent receivables for the portion of the vehicle sales price paid directly by the customer.
•Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives and warranty claims.
•Auto loan receivables include amounts due from customers related to retail sales of vehicles and certain finance and insurance products.
Interest income on auto loan receivables is recognized based on the contractual terms of each loan and is accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest income when recognized on the loans. All other receivables are recorded at invoice and do not bear interest until they are 60 days past due.
The balance of auto loan receivables is made up of loans secured by the related vehicle. More than 98% of the portfolio is aged less than 60 days past due with less than 2% on non-accrual status. As of June 30, 2021, the allowance for credit losses related to auto loan receivables was $13.3 million and included in allowance for doubtful accounts and other non-current assets. In accordance with Topic 326, the allowance for loan losses is estimated based on our historical write-off experience, current conditions and forecasts as well as the value of any underlying assets securing these loans and is reviewed monthly. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance upon reaching 120 days past due status. The annual activity for charges and subsequent recoveries is immaterial. The remainder of our receivables are due primarily from manufacturer partners and various third-party lenders. The historical losses related to these balances are immaterial.
The long-term portion of accounts receivable was included as a component of other non-current assets in the Consolidated Balance Sheets.
Note 4. Inventories
The components of inventories, net, consisted of the following:
(in millions) | June 30, 2021 | December 31, 2020 | ||||||||||||
New vehicles | $ | 872.5 | $ | 1,556.6 | ||||||||||
Used vehicles | 1,238.4 | 835.9 | ||||||||||||
Parts and accessories | 127.9 | 100.4 | ||||||||||||
Total inventories | $ | 2,238.8 | $ | 2,492.9 |
Note 5. Goodwill and Franchise Value
The changes in the carrying amounts of goodwill are as follows:
(in millions) | Domestic | Import | Luxury | Consolidated | ||||||||||||||||||||||
Balance as of December 31, 2019 ¹ | $ | 171.8 | $ | 197.3 | $ | 85.5 | $ | 454.6 | ||||||||||||||||||
Additions through acquisitions 2 | 33.3 | 94.3 | 17.3 | 144.9 | ||||||||||||||||||||||
Reductions through divestitures | (0.1) | (0.7) | (2.2) | (3.0) | ||||||||||||||||||||||
Reductions from impairments | (0.5) | (3.0) | — | (3.5) | ||||||||||||||||||||||
Balance as of December 31, 2020 ¹ | 204.5 | 287.9 | 100.6 | 593.0 | ||||||||||||||||||||||
Additions through acquisitions 3 | 7.4 | 11.9 | 8.2 | 27.5 | ||||||||||||||||||||||
Reductions through divestitures | — | (3.2) | — | (3.2) | ||||||||||||||||||||||
Balance as of June 30, 2021 | $ | 211.9 | $ | 296.6 | $ | 108.8 | $ | 617.3 |
1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.
![]() | NOTES TO FINANCIAL STATEMENTS | 7 |
2 Our purchase price allocation for the 2019 acquisitions were finalized in 2020. As a result, we added $144.9 million of goodwill.
3 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added $27.5 million of goodwill. Our purchase price allocation for the remaining 2020 and 2021 acquisitions are preliminary and goodwill is not yet allocated to our segments. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 12.
The changes in the carrying amounts of franchise value are as follows:
(in millions) | Franchise Value | ||||
Balance as of December 31, 2019 | $ | 306.7 | |||
Additions through acquisitions 1 | 51.9 | ||||
Reductions through divestitures | (4.0) | ||||
Reductions from impairments | (4.4) | ||||
Balance as of December 31, 2020 | 350.2 | ||||
Additions through acquisitions 2 | 21.6 | ||||
Reductions through divestitures | (2.1) | ||||
Balance as of June 30, 2021 | $ | 369.7 |
1 Our purchase price allocation for the 2019 acquisitions were finalized in 2020. As a result, we added $51.9 million of franchise value.
2 Our purchase price allocation for a portion of the 2020 acquisitions was finalized in 2021. As a result, we added $21.6 million of franchise value. Our purchase price allocation for the remaining 2020 and 2021 acquisitions are preliminary and franchise value is not yet allocated to our segments. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 12.
Note 6. Stockholders’ Equity
Repurchases of Class A Common Stock
Repurchases of our Class A Common Stock occurred under a repurchase authorization granted by our Board of Directors and related to shares withheld as part of the vesting of restricted stock units (RSUs). On October 22, 2018, our Board of Directors approved an additional $250 million repurchase authorization of our Class A common stock, increasing our total share repurchase authorization to $500 million. Share repurchases under this authorization were as follows:
Repurchases Occurring in 2021 | Cumulative Repurchases as of June 30, 2021 | |||||||||||||||||||||||||
Shares | Average Price | Shares | Average Price | |||||||||||||||||||||||
Share Repurchase Authorization | — | $ | — | 3,719,048 | $ | 84.02 |
As of June 30, 2021, we had $187.5 million available for repurchases pursuant to our share repurchase authorization.
In addition, during 2021, we repurchased 54,251 shares at an average price of $292.91 per share, for a total of $15.9 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to tax withholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.
Follow-on Public Offering
On May 24, 2021, we completed the public offering of 3,571,428 shares of our common stock, no par value per share, which included the exercise in full by the underwriters of their option to purchase up to 465,838 additional shares of our common stock, at the public offering price of $322.00 per share. We received $1.11 billion from the offering, net of the underwriting discount and before deducting the offering expenses of $0.6 million.
ATM Equity Offering
On July 24, 2020, we entered into an ATM Equity Offering Sales Agreement, which allows us to offer and sell, from time to time, shares of our Class A common stock, no par value, having an aggregate gross sales price of up to $400 million. The shares will be issued pursuant to a registration statement on Form S-3 (File No. 333-239969), which became effective upon its filing on July 21, 2020. Under this agreement, we may enter into forward share
![]() | NOTES TO FINANCIAL STATEMENTS | 8 |
purchase transactions. As of June 30, 2021, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.
Note 7. Fair Value Measurements
Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:
•Level 1 - quoted prices in active markets for identical securities;
•Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and
•Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.
We determined that the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities and short-term borrowings approximate their fair values because of the nature of their terms and current market rates of these instruments. We believe the carrying value of our variable rate debt approximates fair value.
We have investments primarily consisting of our investment in Shift Technologies, Inc. (Shift), a San Francisco-based digital retail company. Shift has a readily determinable fair value following Shift going public in a reverse-merger deal with Insurance Acquisition, a special purpose acquisition company, in the fourth quarter of 2020. We calculated the fair value of this investment using quoted prices for the identical asset (Level 1) and recorded the fair value as part of other non-current assets. An additional component of our investment in Shift consists of shares in escrow subject to release upon certain market conditions being met. The fair value of this component of our investment in Shift is measured using observable Level 2 market expectations at each measurement date and is recorded as part of other non-current assets. For the three and six months ended June 30, 2021, we recognized a $1.2 million and $0.9 million unrealized investment gain related to Shift, which was recorded as a component of Other income, net. No amounts were recognized for the three and six months ended June 30, 2020.
We have fixed rate debt primarily consisting of amounts outstanding under our senior notes and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices for the identical liability (Level 1) and calculated the estimated fair value of the fixed rate real estate mortgages using a discounted cash flow methodology with estimated current interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and summed to compute the fair value of the debt. As of June 30, 2021, our real estate mortgages and other debt, which includes capital leases, had maturity dates between October 1, 2021, and July 1, 2038.
We have derivative instruments consisting of interest rate collars. The fair value of derivative liabilities is measured using observable Level 2 market expectations at each measurement date and is recorded as current liabilities and other long-term liabilities in the Consolidated Balance Sheets. See Note 11 for more details regarding our derivative contracts.
We estimate the value of other long-lived assets that are recorded at fair value on a non-recurring basis on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically developed using one or more valuation techniques including market, income and replacement cost approaches. Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived assets as Level 3.
There were no changes to our valuation techniques during the six-month period ended June 30, 2021.
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Below are our investments that are measured at fair value (in millions):
Fair Value at June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
Investments | $ | 101.6 | $ | 6.7 | $ | — |
Fair Value at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
Investments | $ | 97.9 | $ | 9.4 | $ | — |
Below are our derivative assets and liabilities that are measured at fair value (in millions):
Fair Value at June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
Derivative asset | $ | — | $ | 4.1 | $ | — | ||||||||||||||
Derivative liability | — | 9.9 | — |
Fair Value at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
Derivative asset | $ | — | $ | 0.5 | $ | — | ||||||||||||||
Derivative liability | — | 9.0 | — |
A summary of the aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows:
(in millions) | June 30, 2021 | December 31, 2020 | ||||||||||||
Carrying value | ||||||||||||||
5.250% Senior notes due 2025 | $ | 300.0 | $ | 300.0 | ||||||||||
4.625% Senior notes due 2027 | 400.0 | 400.0 | ||||||||||||
4.375% Senior notes due 2031 | 550.0 | 550.0 | ||||||||||||
3.875% Senior notes due 2029 | 800.0 | — | ||||||||||||
Real estate mortgages and other debt | 603.2 | 714.8 | ||||||||||||
$ | 2,653.2 | $ | 1,964.8 | |||||||||||
Fair value | ||||||||||||||
5.250% Senior notes due 2025 | $ | 309.0 | $ | 311.6 | ||||||||||
4.625% Senior notes due 2027 | 422.0 | 425.0 | ||||||||||||
4.375% Senior notes due 2031 | 586.4 | 589.9 | ||||||||||||
3.875% Senior notes due 2029 | 828.0 | — | ||||||||||||
Real estate mortgages and other debt | 627.7 | 713.2 | ||||||||||||
$ | 2,773.1 | $ | 2,039.7 |
Note 8. Net Income Per Share
We compute net income per share using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding common shares underlying equity awards that are unvested or subject to forfeiture. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the common shares issuable upon the net exercise of stock options and unvested RSUs and is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.
Prior to June 7, 2021, our common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred pursuant to an amendment and restatement of our Articles of Incorporation in connection with the elimination of the Company’s classified common stock structure following the conversion of all Class B common stock to Class A common stock. Prior to the reclassification, except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock were identical.
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Under our Articles of Incorporation, the Class A and Class B common stock shared equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation that would adversely alter the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights were identical, the undistributed earnings are allocated on a proportionate basis.
The following is a reconciliation of net income and weighted average shares used for our basic earnings per share (EPS) and diluted EPS:
Three Months Ended June 30, | 2021 | 2020 | ||||||||||||||||||||||||
(in millions, except per share amounts) | Class A | Class B | Class A | Class B | ||||||||||||||||||||||
Net income applicable to common stockholders - basic | $ | 304.9 | $ | — | $ | 76.3 | $ | 1.4 | ||||||||||||||||||
Reallocation of net income due to conversion of Class B to Class A common shares outstanding | — | — | 0.1 | — | ||||||||||||||||||||||
Conversion of Class B common shares into Class A common shares | — | — | 1.3 | — | ||||||||||||||||||||||
Net income applicable to common stockholders - diluted | $ | 304.9 | $ | — | $ | 77.7 | $ | 1.4 | ||||||||||||||||||
Weighted average common shares outstanding – basic | 28.1 | — | 22.4 | 0.4 | ||||||||||||||||||||||
Conversion of Class B common shares into Class A common shares | — | — | 0.4 | — | ||||||||||||||||||||||
Effect of dilutive stock options on weighted average common shares | 0.3 | — | 0.2 | — | ||||||||||||||||||||||
Weighted average common shares outstanding – diluted | 28.4 | — | 23.0 | 0.4 | ||||||||||||||||||||||
Net income per common share - basic | $ | 10.83 | $ | — | $ | 3.40 | $ | 3.40 | ||||||||||||||||||
Net income per common share - diluted | $ | 10.75 | $ | — | $ | 3.38 | $ | 3.38 |
The effect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended June 30, 2021, and 2020 and was determined to be immaterial.
Six Months Ended June 30, | 2021 | 2020 | ||||||||||||||||||||||||
(in millions, except per share amounts) | Class A | Class B | Class A | Class B | ||||||||||||||||||||||
Net income applicable to common stockholders - basic | $ | 460.5 | $ | 0.6 | $ | 121.8 | $ | 2.1 | ||||||||||||||||||
Reallocation of net income due to conversion of class B to class A common shares outstanding | — | — | 0.2 | — | ||||||||||||||||||||||
Conversion of class B common shares into class A common shares | 0.6 | — | 1.9 | — | ||||||||||||||||||||||
Net income applicable to common stockholders - diluted | $ | 461.1 | $ | 0.6 | $ | 123.9 | $ | 2.1 | ||||||||||||||||||
Weighted average common shares outstanding – basic | 27.4 | — | 22.7 | 0.4 | ||||||||||||||||||||||
Conversion of class B common shares into class A common shares | — | — | 0.4 | — | ||||||||||||||||||||||
Effect of employee stock purchases and restricted stock units on weighted average common shares | 0.2 | — | 0.2 | — | ||||||||||||||||||||||
Weighted average common shares outstanding – diluted | 27.6 | — | 23.3 | 0.4 | ||||||||||||||||||||||
Net income per common share - basic | $ | 16.83 | $ | 16.83 | $ | 5.37 | $ | 5.37 | ||||||||||||||||||
Net income per common share - diluted | $ | 16.69 | $ | 16.69 | $ | 5.32 | $ | 5.32 |
The effect of antidilutive securities on Class A and Class B common stock was evaluated for the six-month periods ended June 30, 2021, and 2020 and was determined to be immaterial.
![]() | NOTES TO FINANCIAL STATEMENTS | 11 |
Note 9. Segments
While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into three reportable segments based on their economic similarities: Domestic, Import and Luxury.
Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Chrysler, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Honda, Toyota, Subaru, Nissan and Volkswagen. Our Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, as well as automotive finance and insurance products.
Corporate and other revenue and income includes the results of operations of our stand-alone body shops offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and elimination adjustments. Additionally, certain internal corporate expense allocations increase income for Corporate and other while decreasing segment income for the reportable segments. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions.
We define our chief operating decision maker (CODM) to be certain members of our executive management group. Historical and forecasted operational performance is evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results, excepted for the internal allocation within Corporate and other discussed above. Our CODM does not regularly review capital expenditures on a reporting unit level. Performance measurement of each reportable segment by the CODM are based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of and to allocate resources, mainly associated with expected inventory and working capital requirements, to each of the reportable segments.
![]() | NOTES TO FINANCIAL STATEMENTS | 12 |
Certain financial information on a segment basis is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||
New vehicle retail | $ | 924.6 | $ | 499.1 | $ | 1,539.2 | $ | 969.6 | ||||||||||||||||||
Used vehicle retail | 641.7 | 389.9 | 1,103.9 | 717.6 | ||||||||||||||||||||||
Used vehicle wholesale | 63.8 | 19.8 | 100.0 | 45.8 | ||||||||||||||||||||||
Finance and insurance | 78.6 | 50.9 | 137.2 | 96.1 | ||||||||||||||||||||||
Service, body and parts | 159.1 | 102.2 | 279.8 | 219.5 | ||||||||||||||||||||||
Fleet and other | 21.6 | 9.9 | 39.2 | 23.6 | ||||||||||||||||||||||
1,889.4 | 1,071.8 | 3,199.3 | 2,072.2 | |||||||||||||||||||||||
Import | ||||||||||||||||||||||||||
New vehicle retail | 1,385.7 | 572.7 | 2,353.8 | 1,173.0 | ||||||||||||||||||||||
Used vehicle retail | 717.8 | 345.9 | 1,280.0 | 700.6 | ||||||||||||||||||||||
Used vehicle wholesale | 90.0 | 20.3 | 148.3 | 46.5 | ||||||||||||||||||||||
Finance and insurance | 140.5 | 55.9 | 246.0 | 113.9 | ||||||||||||||||||||||
Service, body and parts | 204.8 | 105.3 | 361.5 | 230.1 | ||||||||||||||||||||||
Fleet and other | 18.6 | 5.9 | 32.6 | 17.8 | ||||||||||||||||||||||
2,557.4 | 1,106.0 | 4,422.2 | 2,281.9 | |||||||||||||||||||||||
Luxury | ||||||||||||||||||||||||||
New vehicle retail | 839.2 | 297.2 | 1,453.3 | 598.2 | ||||||||||||||||||||||
Used vehicle retail | 448.4 | 189.5 | 779.6 | 380.6 | ||||||||||||||||||||||
Used vehicle wholesale | 59.3 | 11.3 | 99.0 | 25.5 | ||||||||||||||||||||||
Finance and insurance | 52.6 | 17.7 | 89.5 | 34.6 | ||||||||||||||||||||||
Service, body and parts | 150.1 | 65.4 | 271.8 | 148.8 | ||||||||||||||||||||||
Fleet and other | 9.6 | 0.6 | 37.4 | 12.0 | ||||||||||||||||||||||
1,559.2 | 581.7 | 2,730.6 | 1,199.7 | |||||||||||||||||||||||
6,006.0 | 2,759.5 | 10,352.1 | 5,553.8 | |||||||||||||||||||||||
Corporate and other | 3.4 | (0.9) | 0.3 | 8.5 | ||||||||||||||||||||||
$ | 6,009.4 | $ | 2,758.6 | $ | 10,352.4 | $ | 5,562.3 | |||||||||||||||||||
Segment income1: | ||||||||||||||||||||||||||
Domestic | $ | 138.1 | $ | 59.4 | $ | 212.0 | $ | 87.2 | ||||||||||||||||||
Import | 216.3 | 48.8 | 317.8 | 73.6 | ||||||||||||||||||||||
Luxury | 97.2 | 12.3 | 141.3 | 13.9 | ||||||||||||||||||||||
Total segment income for reportable segments | $ | 451.6 | $ | 120.5 | $ | 671.1 | $ | 174.7 |
1Segment income for each of the segments is a Non-GAAP measure defined as Income from operations before income taxes, depreciation and amortization, other interest expense and other income, net.
![]() | NOTES TO FINANCIAL STATEMENTS | 13 |
Reconciliation of total segment income for reportable segments to our consolidated income before income taxes:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Total segment income for reportable segments | $ | 451.6 | $ | 120.5 | $ | 671.1 | $ | 174.7 | ||||||||||||||||||
Corporate and other | 18.6 | 23.4 | 57.4 | 70.1 | ||||||||||||||||||||||
Depreciation and amortization | (30.3) | (22.3) | (57.1) | (44.3) | ||||||||||||||||||||||
Other interest expense | (28.1) | (16.8) | (51.6) | (33.8) | ||||||||||||||||||||||
Other income, net | 7.6 | 3.5 | 11.1 | 5.8 | ||||||||||||||||||||||
Income before income taxes | $ | 419.4 | $ | 108.3 | $ | 630.9 | $ | 172.5 |
Total assets by reportable segments is as follows:
(in millions) | June 30, 2021 | December 31, 2020 | ||||||||||||
Total assets: | ||||||||||||||
Domestic | $ | 1,298.3 | $ | 1,262.4 | ||||||||||
Import | 1,579.1 | 1,654.7 | ||||||||||||
Luxury | 1,057.9 | 1,132.4 | ||||||||||||
Corporate and other | 6,157.2 | 3,852.6 | ||||||||||||
$ | 10,092.5 | $ | 7,902.1 |
Note 10. Leases
We lease certain dealerships, office space, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We have elected not to bifurcate lease and non-lease components related to leases of real property.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from to 24 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Our finance lease liabilities are included in long-term debt, with the current portion included in current maturities of long-term debt. The related assets are included in property, plant and equipment, net of accumulated amortization. The valuations related to leases entered into as part of certain 2020 acquisitions are still preliminary. These amounts are included in other non-current assets until we finalize our purchase accounting.
We rent or sublease certain real estate to third parties.
Note 11. Derivative Financial Instruments
We account for derivative financial instruments by recording the fair value as either an asset or liability in our Consolidated Balance Sheets and recognize the resulting gains or losses as adjustments to accumulated other comprehensive income (loss). We do not hold or issue derivative financial instruments for trading or speculative purposes. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss (AOCI) in stockholders’ equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.
In 2019, to hedge the business exposure to rising interest rates on a portion of our variable rate debt, we entered into a five-year, zero-cost interest rate collar, with an aggregate notional amount of $300 million, effective June 1,
![]() | NOTES TO FINANCIAL STATEMENTS | 14 |
2019. This instrument hedges interest rate risk related to a portion of our $1.0 billion of non-trade floor plan notes payable.
The table below presents the liabilities related to the zero-cost interest rate collar:
(Dollars in millions) | Accrued Liabilities | Other Long-Term Liabilities | Total | |||||||||||||||||
Balance as of December 31, 2019 | $ | (0.1) | $ | (0.9) | $ | (1.0) | ||||||||||||||
Loss recorded from interest rate collar | (1.8) | (5.1) | (6.9) | |||||||||||||||||
Balance as of March 31, 2020 | (1.9) | (6.0) | (7.9) | |||||||||||||||||
Amounts reclassified from AOCI to floorplan interest expense | 0.4 | — | 0.4 | |||||||||||||||||
Loss recorded from interest rate collar | (1.0) | (1.3) | (2.3) | |||||||||||||||||
Balance as of June 30, 2020 | (2.5) | (7.3) | (9.8) | |||||||||||||||||
Amounts reclassified from AOCI to floorplan interest expense | 0.7 | — | 0.7 | |||||||||||||||||
(Loss) gain recorded from interest rate collar | (0.7) | 0.6 | (0.1) | |||||||||||||||||
Balance as of September 30, 2020 | (2.5) | (6.7) | (9.2) | |||||||||||||||||
Amounts reclassified from AOCI to floorplan interest expense | 0.7 | — | 0.7 | |||||||||||||||||
(Loss) gain recorded from interest rate collar | (0.8) | 0.7 | (0.1) | |||||||||||||||||
Balance as of December 31, 2020 | (2.6) | (6.0) | (8.6) | |||||||||||||||||
Amounts reclassified from AOCI to floorplan interest expense | 0.7 | — | 0.7 | |||||||||||||||||
(Loss) gain recorded from interest rate collar | (0.6) | 2.5 | 1.9 | |||||||||||||||||
Balance as of March 31, 2021 | (2.5) | (3.5) | (6.0) | |||||||||||||||||
Amounts reclassified from AOCI to floorplan interest expense | 0.7 | — | 0.7 | |||||||||||||||||
(Loss) gain recorded from interest rate collar | (0.7) | 0.2 | (0.5) | |||||||||||||||||
Balance as of June 30, 2021 | $ | (2.5) | $ | (3.3) | $ | (5.8) |
As of June 30, 2021, the amount of net losses we expect to reclassify from AOCI into interest expense in earnings within the next twelve months is $2.7 million. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.
In 2020, we entered into two immaterial and offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective October 2, 2020. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.
In 2021, we entered into two additional immaterial and offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective June 15, 2021. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.
As of June 30, 2021, the balance on all four agreements was an offsetting $4.1 million and was located in other current assets and accrued liabilities, respectively.
See Note 7 for information on the fair value of the derivative contracts.
Note 12. Acquisitions
In the first six months of 2021, we completed the following acquisitions:
•In February 2021, Chrysler Jeep Dodge Ram of Sanford and Orlando Land Rover in Florida.
•In March 2021, Fink Auto Group in Florida.
•In March 2021, Avondale Nissan in Arizona.
•In April 2021, Suburban Collection Auto Group in Michigan.
•In April 2021, Planet Honda in New Jersey.
•In May 2021, Las Vegas Hyundai Superstore Auto Group in Nevada.
•In May 2021, BMW of Sherman Oaks and Acura of Sherman Oaks in California.
•In June 2021, Southwest Kia Group in Arizona.
•In June 2021, Herrin-Gear Toyota in Mississippi.
•In June 2021, Michael’s Subaru and Michael’s Toyota in Washington.
![]() | NOTES TO FINANCIAL STATEMENTS | 15 |
Revenue and operating income contributed by the 2021 acquisitions subsequent to the date of acquisition were as follows (in millions):
Six Months Ended June 30, | 2021 | |||||||
Revenue | $ | 976.3 | ||||||
Operating income | 45.9 |
In the first six months of 2020, we completed the following acquisitions:
•In February 2020, Sacramento Lexus and Roseville Lexus in California.
•In June 2020, Hank’s Body Shop in Billings, Montana.
•In June 2020, Chrysler Dodge Jeep Ram of Bend and Nissan of Bend in Oregon.
All acquisitions were accounted for as business combinations under the acquisition method of accounting. The results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of acquisition.
The following tables summarize the consideration paid for the 2021 acquisitions and the preliminary purchase price allocations for identified assets acquired and liabilities assumed as of the acquisition date:
(in millions) | Consideration | |||||||
Cash paid, net of cash acquired | $ | 1,741.9 | ||||||
(in millions) | Assets Acquired and Liabilities Assumed | |||||||
Accounts receivable | $ | 0.7 | ||||||
Inventories, net | 439.3 | |||||||
Property and equipment, net | 86.0 | |||||||
Other non-current assets | 1,443.9 | |||||||
Floor plan notes payable | (4.0) | |||||||
Borrowings on lines-of-credit | (225.6) | |||||||
Other long-term liabilities | (6.0) | |||||||
1,734.3 | ||||||||
Goodwill | 7.6 | |||||||
$ | 1,741.9 |
The purchase price allocations for the acquisitions from the third quarter of 2020 through the second quarter of 2021 are preliminary, and we have not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects. We recorded the purchase price allocations based upon information that is currently available. Unallocated items are recorded as a component of other non-current assets in the Consolidated Balance Sheets.
We expect substantially all of the goodwill related to acquisitions completed in 2021 to be deductible for federal income tax purposes.
In the three and six-month periods ended June 30, 2021, we recorded $10.4 million and $11.6 million, respectively, in acquisition-related expenses as a component of selling, general and administrative expense. Comparatively, we recorded $0.5 million and $1.0 million of acquisition-related expenses in the same periods of 2020.
The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and six-month periods ended June 30, 2021 and 2020, had occurred on January 1, 2020:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Revenue | $ | 6,246.2 | $ | 4,436.0 | $ | 11,443.6 | $ | 8,859.6 | ||||||||||||||||||
Net income | 310.8 | 104.3 | 485.5 | 170.3 | ||||||||||||||||||||||
Basic net income per share | 11.04 | 4.57 | 17.72 | 7.38 | ||||||||||||||||||||||
Diluted net income per share | 10.96 | 4.53 | 17.58 | 7.31 |
![]() | NOTES TO FINANCIAL STATEMENTS | 16 |
These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property and equipment, accounting for inventory on a specific identification method, and recognition of interest expense for real estate financing related to stores where we purchased the facility. No nonrecurring proforma adjustments directly attributable to the acquisitions are included in the reported proforma revenues and earnings.
Note 13. Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted the new guidance in the first quarter of 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We adopted the new guidance in the first quarter of 2021. The adoption of the guidance did not have a material impact on our consolidated financial statements.
Note 14. Subsequent Events
On July 1, 2021, in accordance with the indenture dated July 24, 2017, governing our 5.250% senior notes due 2025, we notified holders that we have elected to redeem in full the aggregate principal amount of notes outstanding on August 1, 2021 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.
![]() | NOTES TO FINANCIAL STATEMENTS | 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Risk Factors
Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project”, “outlook”, “target”, “may”, “will”, “would”, “should”, “seek”, “expect”, “plan”, “intend”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “likely”, “goal”, “strategy”, “future”, “maintain”, and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:
•Future market conditions, including anticipated vehicle sales levels;
•Anticipated impacts of the continued COVID-19 pandemic on the U.S and local economies in which we operate, our business operations and consumer demand;
•Continuation of our sales and services, including in-store appointments and home deliveries;
•Expectations regarding our inventory levels and manufacturer and lender incentives;
•Expected growth from our e-commerce home solutions and digital strategies;
•Expected operating results, such as improved store performance; continued improvement of selling, general and administrative expenses (SG&A) as a percentage of gross profit and all projections;
•Anticipated integration, success and growth of acquired stores;
•Anticipated ability to capture additional market share;
•Anticipated ability to find accretive acquisitions;
•Expected revenues from acquired stores;
•Anticipated synergies, ability to monetize our investment in digital innovation;
•Anticipated additions of dealership locations to our portfolio in the future;
•Anticipated financial condition and liquidity, including from our cash, availability on our credit facility and unfinanced real estate;
•Anticipated use of proceeds from our financings;
•Anticipated allocations, uses and levels of capital expenditures in the future;
•Expectations regarding compliance with financial and restrictive covenants in our credit facility and other debt agreements;
•Statements regarding furloughed employees and cost reductions;
•Our strategies for customer retention, growth, market position, financial results and risk management; and
•Expectations regarding programs and initiatives for employee recruitment, training and retention.
The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in the Risk Factors section of our 2020 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission (SEC).
By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.
Overview
Lithia & Driveway (LAD) is a growth company powered by people and innovation with a 5-Year Plan to profitably consolidate the largest retail sector in our country. As a leading provider of personal transportation solutions in the United States, we are among the fastest growing companies in the Fortune 500 (#2 on 10-year EPS Growth, #3 on 10-Year TSR and #12 on 10-year Revenue growth in 2021). As of June 30, 2021, we operated 259 locations representing 38 brands in 26 states. We strive to achieve operational excellence by focusing the business on convenient and transparent consumer experiences supported by proprietary data science to increase market share and profitability.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 18 |
We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, finance and insurance products and automotive repair and maintenance. We strive for diversification in our products, services, brands and geographic locations to reduce dependence on any one manufacturer, reduce susceptibility to changing consumer preferences, manage market risk and maintain profitability. Our diversification, along with our operating structure, provides a resilient and nimble business model.
Our omni-channel strategy will continue to pragmatically disrupt the industry by leveraging our experienced teams, vast selection of owned inventories, technology and nationwide network. We seek to provide customers a seamless experience across online and physical offerings, broad selection and access to specialized expertise and knowledge. Our physical logistics network enables us to provide convenient touch points for customers and provide services throughout the entire ownership life cycle. This unique growth model generates significant cash flows, which fund innovation and the expansion of our nationwide network, creating personal transportation solutions wherever, whenever and however consumers desire.
In July 2020, we launched a 5-Year Plan to grow to $50 billion in revenues by designing our strategy to focus on the most expansive addressable market of any retailer in the United States. Our long-term strategy and value creation for our customers, employees and shareholders centers around the following elements:
Driving operational excellence, innovation and diversification
We create value and high performance by focusing on convenient and transparent consumer experiences, gaining market share and increasing profitability. By promoting an entrepreneurial model with our in-store experiences, we build strong businesses responsive to each of our local markets. Utilizing performance-based action plans, we develop high-performing teams and foster manufacturer relationships.
In response to evolving consumer preferences, we have reimagined the way consumers buy, sell and service their vehicles over the full ownership lifecycle. Driveway, our national brand launched in June 2020, empowers consumers to simply and transparently shop, sell and service their vehicles from the convenience of their home. The Driveway experience is designed to attract a different and incrementally new consumer compared to our in-store options. Driveway combines our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences with digital shopping experiences, contactless test drives and home delivery or curbside pickup for vehicle purchases.
Growth through network development
The foundation of our omni-channel plan is the growth and expansion of our physical network to provide consumers convenient access to all of our business lines in-store or through Driveway. Acquiring new vehicle franchises, which operate in markets ranging from mid-sized regional markets to metropolitan markets, provides us a cash generating and profitable model to expand our network of locations. In addition to being financially accretive, these businesses improve our ability to serve customers through wider selection, greater density and convenient access to vehicle repair services, our highest margin offerings. During the first full year of the 5-Year Plan, we have already reached approximately 40% of our targeted network development goal.
While we target an annual after tax return of more than 15% for our acquisitions, we have averaged over a 25% return by the third year of ownership due to a disciplined approach focusing on accretive, cash flow positive targets at reasonable valuations. Culturally, we have a greater than 95% acquisition employee retention rate, demonstrating the valuable career opportunities we provide to our employees. We regularly optimize and balance our network through strategic divestitures to ensure continued high performance. We believe our disciplined approach provides us with attractive acquisition opportunities and expanded coast-to-coast coverage.
Thoughtful capital allocation
Our capital deployment strategy of our free cash flows generated continues to target a 65% investment in acquisitions, 25% investment in capital expenditures, modernization and diversification and 10% in shareholder return in the form of dividends and share repurchases. As we identify acquisition opportunities that further enhance our business, we may consider other potential sources, including financing of real estate and proceeds from debt or equity offerings. This disciplined approach, combined with our ability to successfully integrate newly-acquired locations, drives growth and profitability.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 19 |
Key Revenue and Gross Profit Metrics
Key performance metrics for revenue and gross profit were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | $ | 3,146.2 | $ | 1,367.8 | 130.0 | % | $ | 5,339.5 | $ | 2,741.3 | 94.8 | % | ||||||||||||||||||||||||||
Used vehicle retail | 1,804.9 | 922.2 | 95.7 | 3,157.0 | 1,796.5 | 75.7 | ||||||||||||||||||||||||||||||||
Finance and insurance | 269.6 | 124.9 | 115.9 | 467.9 | 246.7 | 89.7 | ||||||||||||||||||||||||||||||||
Service, body and parts | 521.0 | 275.5 | 89.1 | 925.0 | 605.4 | 52.8 | ||||||||||||||||||||||||||||||||
Total Revenues | 6,009.4 | 2,758.6 | 117.8 | 10,352.4 | 5,562.3 | 86.1 | ||||||||||||||||||||||||||||||||
Gross profit | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | $ | 313.7 | $ | 92.2 | 240.2 | % | $ | 470.5 | $ | 170.4 | 176.1 | % | ||||||||||||||||||||||||||
Used vehicle retail | 232.6 | 98.3 | 136.6 | 368.7 | 188.2 | 95.9 | ||||||||||||||||||||||||||||||||
Finance and insurance | 269.6 | 124.9 | 115.9 | 467.9 | 246.7 | 89.7 | ||||||||||||||||||||||||||||||||
Service, body and parts | 278.2 | 144.4 | 92.7 | 496.5 | 312.5 | 58.9 | ||||||||||||||||||||||||||||||||
Total Gross Profit | 1,110.6 | 464.4 | 139.1 | 1,826.1 | 925.3 | 97.4 | ||||||||||||||||||||||||||||||||
Gross profit margins | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | 10.0 | % | 6.7 | % | 330 | bps | 8.8 | % | 6.2 | % | 260 | bps | ||||||||||||||||||||||||||
Used vehicle retail | 12.9 | 10.7 | 220 | 11.7 | 10.5 | 120 | ||||||||||||||||||||||||||||||||
Finance and insurance | 100.0 | 100.0 | — | 100.0 | 100.0 | — | ||||||||||||||||||||||||||||||||
Service, body and parts | 53.4 | 52.4 | 100 | 53.7 | 51.6 | 210 | ||||||||||||||||||||||||||||||||
Total Gross Profit Margin | 18.5 | 16.8 | 170 | 17.6 | 16.6 | 100 | ||||||||||||||||||||||||||||||||
Retail units sold | ||||||||||||||||||||||||||||||||||||||
New vehicles | 75,176 | 34,869 | 115.6 | % | 129,040 | 70,776 | 82.3 | % | ||||||||||||||||||||||||||||||
Used vehicles | 70,254 | 43,505 | 61.5 | 129,281 | 86,136 | 50.1 | ||||||||||||||||||||||||||||||||
Average selling price per retail unit | ||||||||||||||||||||||||||||||||||||||
New vehicles | $ | 41,852 | $ | 39,226 | 6.7 | % | $ | 41,379 | $ | 38,732 | 6.8 | % | ||||||||||||||||||||||||||
Used vehicles | 25,691 | 21,196 | 21.2 | 24,420 | 20,857 | 17.1 | ||||||||||||||||||||||||||||||||
Average gross profit per retail unit | ||||||||||||||||||||||||||||||||||||||
New vehicles | $ | 4,173 | $ | 2,643 | 57.9 | % | $ | 3,646 | $ | 2,407 | 51.5 | % | ||||||||||||||||||||||||||
Used vehicles | 3,311 | 2,259 | 46.6 | 2,852 | 2,185 | 30.5 | ||||||||||||||||||||||||||||||||
Finance and insurance | 1,854 | 1,593 | 16.4 | 1,811 | 1,572 | 15.2 | ||||||||||||||||||||||||||||||||
Total vehicle1 | 5,723 | 4,050 | 41.3 | 5,141 | 3,875 | 32.7 |
1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.
Same Store Operating Data
We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have been integrated into the discussion below.
Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in May 2020 would be included in same store operating data beginning in June 2021, after its first full complete comparable month of operation. The second quarter operating results for the same store comparisons would include results for that store in only the month of June for both comparable periods. Similar for comparisons of 2021 to 2019, metrics would only include results for the stores with full complete comparable months of operations in both years.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 20 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | $ | 2,078.1 | $ | 1,338.8 | 55.2 | % | $ | 3,801.6 | $ | 2,671.9 | 42.3 | % | ||||||||||||||||||||||||||
Used vehicle retail | 1,342.7 | 902.1 | 48.8 | 2,462.2 | 1,751.5 | 40.6 | ||||||||||||||||||||||||||||||||
Finance and insurance | 183.6 | 122.4 | 50.0 | 337.2 | 241.2 | 39.8 | ||||||||||||||||||||||||||||||||
Service, body and parts | 352.3 | 269.9 | 30.5 | 668.3 | 589.1 | 13.4 | ||||||||||||||||||||||||||||||||
Total Revenues | 4,128.1 | 2,700.2 | 52.9 | 7,596.7 | 5,421.9 | 40.1 | ||||||||||||||||||||||||||||||||
Gross profit | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | $ | 209.8 | $ | 90.2 | 132.6 | % | $ | 336.5 | $ | 166.4 | 102.2 | % | ||||||||||||||||||||||||||
Used vehicle retail | 180.4 | 97.1 | 85.8 | 300.2 | 185.5 | 61.8 | ||||||||||||||||||||||||||||||||
Finance and insurance | 183.6 | 122.4 | 50.0 | 337.2 | 241.2 | 39.8 | ||||||||||||||||||||||||||||||||
Service, body and parts | 193.3 | 141.5 | 36.6 | 362.2 | 304.3 | 19.0 | ||||||||||||||||||||||||||||||||
Total Gross Profit | 777.1 | 455.8 | 70.5 | 1,350.8 | 904.9 | 49.3 | ||||||||||||||||||||||||||||||||
Gross profit margins | ||||||||||||||||||||||||||||||||||||||
New vehicle retail | 10.1 | % | 6.7 | % | 340 | bps | 8.9 | % | 6.2 | % | 270 | bps | ||||||||||||||||||||||||||
Used vehicle retail | 13.4 | 10.8 | 260 | 12.2 | 10.6 | 160 | ||||||||||||||||||||||||||||||||
Finance and insurance | 100.0 | 100.0 | — | 100.0 | 100.0 | — | ||||||||||||||||||||||||||||||||
Service, body and parts | 54.9 | 52.4 | 250 | 54.2 | 51.7 | 250 | ||||||||||||||||||||||||||||||||
Total Gross Profit Margin | 18.8 | 16.9 | 190 | 17.8 | 16.7 | 110 | ||||||||||||||||||||||||||||||||
Retail units sold | ||||||||||||||||||||||||||||||||||||||
New vehicles | 49,181 | 34,069 | 44.4 | % | 91,592 | 68,870 | 33.0 | % | ||||||||||||||||||||||||||||||
Used vehicles | 51,806 | 42,495 | 21.9 | 101,075 | 83,823 | 20.6 | ||||||||||||||||||||||||||||||||
Average selling price per retail unit | ||||||||||||||||||||||||||||||||||||||
New vehicles | $ | 42,255 | $ | 39,296 | 7.5 | % | $ | 41,506 | $ | 38,797 | 7.0 | % | ||||||||||||||||||||||||||
Used vehicles | 25,918 | 21,228 | 22.1 | 24,360 | 20,895 | 16.6 | ||||||||||||||||||||||||||||||||
Average gross profit per retail unit | ||||||||||||||||||||||||||||||||||||||
New vehicles | $ | 4,266 | $ | 2,646 | 61.2 | % | $ | 3,674 | $ | 2,416 | 52.1 | % | ||||||||||||||||||||||||||
Used vehicles | 3,483 | 2,285 | 52.4 | 2,970 | 2,212 | 34.3 | ||||||||||||||||||||||||||||||||
Finance and insurance | 1,818 | 1,599 | 13.7 | 1,750 | 1,579 | 10.8 | ||||||||||||||||||||||||||||||||
Total vehicle1 | 5,778 | 4,072 | 41.9 | 5,121 | 3,903 | 31.2 |
1 Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.
During the three months ended June 30, 2021, we had net income of $304.9 million, or $10.75 per share on a diluted basis, compared to net income of $77.7 million, or $3.38 per share on a diluted basis, during the same period of 2020. During the six months ended June 30, 2021, we had net income of $461.1 million, or $16.69 per share on a diluted basis, compared to net income of $123.9 million, or $5.32 per share on a diluted basis, during the same period of 2020.
New Vehicles
We believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive programs, arranging of third-party financing, vehicle service and insurance contracts, future resale of used vehicles acquired through trade-in, and parts and service work. Same store new vehicle revenue increased 55.2% and 42.3% for the three and six-month periods ended June 30, 2021 compared to the same periods in 2020, respectively. This was due to an increase in unit volume of 44.4% and 33.0%, and an increase in average selling prices of 7.5% and 7.0%, in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020. Our leaders in each market continue to adapt to changing conditions, respond to customer needs and manage inventory availability and selection.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 21 |
In the second quarter of 2020, volumes were significantly impacted by shelter in place policies and restrictions enacted by various states, counties and local governments in response to the COVID-19 pandemic. We experienced initial declines on average of approximately 50% compared to the same period of 2019 and as restrictions eased during the quarter, new vehicle sales began to improve. In order to provide a more meaningful comparison of current year growth, same store new vehicle revenues increased 19.8% and 21.3% for the three and six month periods ended June 30, 2021, respectively compared to the same period of 2019.
New vehicle gross profit margins continued to grow in the second quarter of 2021 due to strong customer demand and lower inventory levels. Same store new vehicle gross profit per unit increased 61.2% and 52.1%, increasing new vehicle gross profit margins 340 bps and 270 bps in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020.
Total same store new vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of new vehicles, increased $1,770 to $6,150 and $1,388 to $5,521 for the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020.
Used Vehicles
Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned (CPO) vehicles; core vehicles, or late-model vehicles with lower mileage; and value autos, or vehicles with over 80,000 miles. We have established a company-wide target of achieving a per store average of 100 used retail units per month. Strategies to achieve this target include reducing wholesale sales and selling the full spectrum of used units, from late model CPO models to vehicles over ten years old. During the last twelve months ended June 30, 2021, our stores sold an average of 88 used vehicles per store per month, compared to 77 used vehicles per store per month for the same period ended June 30, 2020.
Used vehicle revenue for the three and six-month periods ended June 30, 2021 increased 95.7% and 75.7%, respectively, compared to the same periods of 2020. On a same store basis, used vehicle sales for the three and six-month periods ended June 30, 2021 increased 48.8% and 40.6%, respectively, as compared to the same periods of 2020, driven by increases in our core vehicle category of 53.3% and 45.6%, respectively. Our core vehicle category had growth in unit sales of 26.2% and 26.0%, with improvements in average selling price per vehicle of 21.4% and 15.6%, respectively, for the three and six-month periods ended June 30, 2021. Our CPO and value auto vehicle categories also had increases in unit sales of 10.3% and 12.1%, respectively, for the three and six-month periods ended June 30, 2021, as compared to the same periods of 2020. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wider selection, driving increased used vehicle unit volumes.
Similar to new vehicles, volumes were impacted during the second quarter of 2020 by the shelter in place policies and restrictions. Initial declines were similar to new vehicles; however, we experienced improvements during the second quarter of 2020, which accelerated in June when same store used vehicle unit sales grew over 19% compared to the same period in 2019.
Same store used vehicle revenues increased 49.4% and 46.5% for the three and six month periods ended June 30, 2021, respectively compared to the same period of 2019.
Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s) and increase sales from finance and insurance and parts and service.
Total same store used vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of retail used vehicles, increased 28.3% or $1,154 to $5,237 and 25.9% or $954 to $4,633 for the three and six-month periods ended June 30, 2021, respectively, as compared to the same periods of 2020.
Finance and Insurance
We believe that arranging timely vehicle financing is an important part of our ability to sell vehicles, and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts and vehicle and theft protection.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 22 |
The 115.9% and 89.7% increase in finance and insurance revenue in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020, overcame the 3.2% decrease and 0.1% increase experienced in the same periods of 2020 compared to 2019. Same store finance and insurance revenues increased 50.0% and 39.8%, respectively, for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020. On a same store basis, our finance and insurance revenue per retail unit increased $219 to $1,818 and $171 to $1,750 in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020, primarily due to an increase in service contract revenue per unit.
Service, body and parts
We provide service, body and parts for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models. Our parts and service operations are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from service, body and parts continue to prove to be more resilient during economic downturns, when owners tend to repair their existing vehicles rather than buy new vehicles.
Our service, body, and parts revenue increased 89.1% and 52.8% in the three and six-month periods ended June 30, 2021, compared to the same periods of 2020, driven by acquisitions, as well as increases in customer pay revenues. We believe the increased number of units in operation will continue to benefit our service, body and parts revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.
We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. In the three and six-month periods ended June 30, 2021, the largest contribution to our service, body and parts revenue was same store customer pay revenue of $205.9 million and $388.0 million, respectively.
Same store service, body and parts gross profit increased 36.6% and 19.0% in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020 and increased 11.0% in same periods compared to 2019. The increase was primarily due to increased volume of customer pay transactions and increased gross margin in all areas. Overall same store service, body, and parts gross margins increased 250 bps and 250 bps in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020, primarily as a result of our mix continuing to shift towards customer pay, which has higher margins than other service work. Same store customer pay gross margin increased 390 bps and 310 bps in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020.
Segments
Certain financial information by segment is as follows:
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Domestic | $ | 1,889.4 | $ | 1,071.8 | $ | 817.6 | 76.3 | % | ||||||||||||||||||
Import | 2,557.4 | 1,106.0 | 1,451.4 | 131.2 | ||||||||||||||||||||||
Luxury | 1,559.2 | 581.7 | 977.5 | 168.0 | ||||||||||||||||||||||
6,006.0 | 2,759.5 | 3,246.5 | 117.6 | |||||||||||||||||||||||
Corporate and other | 3.4 | (0.9) | 4.3 | NM | ||||||||||||||||||||||
$ | 6,009.4 | $ | 2,758.6 | $ | 3,250.8 | 117.8 | % |
NM - not meaningful
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 23 |
Six Months Ended June 30, | Increase (Decrease) | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Domestic | $ | 3,199.3 | $ | 2,072.2 | $ | 1,127.1 | 54.4 | % | ||||||||||||||||||
Import | 4,422.2 | 2,281.9 | 2,140.3 | 93.8 | ||||||||||||||||||||||
Luxury | 2,730.6 | 1,199.7 | 1,530.9 | 127.6 | ||||||||||||||||||||||
10,352.1 | 5,553.8 | 4,798.3 | 86.4 | |||||||||||||||||||||||
Corporate and other | 0.3 | 8.5 | (8.2) | NM | ||||||||||||||||||||||
$ | 10,352.4 | $ | 5,562.3 | $ | 4,790.1 | 86.1 | % |
NM - not meaningful
Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Segment income1: | ||||||||||||||||||||||||||
Domestic | $ | 138.1 | $ | 59.4 | $ | 78.7 | 132.5 | % | ||||||||||||||||||
Import | 216.3 | 48.8 | 167.5 | 343.2 | ||||||||||||||||||||||
Luxury | 97.2 | 12.3 | 84.9 | 690.2 | ||||||||||||||||||||||
451.6 | 120.5 | 331.1 | 274.8 | |||||||||||||||||||||||
Corporate and other | 18.6 | 23.4 | (4.8) | (20.5) | ||||||||||||||||||||||
$ | 470.2 | $ | 143.9 | $ | 326.3 | 226.8 | ||||||||||||||||||||
Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Segment income1: | ||||||||||||||||||||||||||
Domestic | $ | 212.0 | $ | 87.2 | $ | 124.8 | 143.1 | % | ||||||||||||||||||
Import | 317.8 | 73.6 | 244.2 | 331.8 | ||||||||||||||||||||||
Luxury | 141.3 | 13.9 | 127.4 | 916.5 | ||||||||||||||||||||||
671.1 | 174.7 | 496.4 | 284.1 | |||||||||||||||||||||||
Corporate and other | 57.4 | 70.1 | (12.7) | (18.1) | ||||||||||||||||||||||
$ | 728.5 | $ | 244.8 | $ | 483.7 | 197.6 | ||||||||||||||||||||
1Segment income for each of the segments is a Non-GAAP measure defined as Income from operations before income taxes, depreciation and amortization, other interest expense and other income, net. See Note 9 of the Condensed Notes to the Consolidated Financial Statements for additional information.
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||||
Retail new vehicle unit sales: | ||||||||||||||||||||||||||
Domestic | 18,991 | 10,889 | 8,102 | 74.4 | % | |||||||||||||||||||||
Import | 42,204 | 18,642 | 23,562 | 126.4 | ||||||||||||||||||||||
Luxury | 14,127 | 5,418 | 8,709 | 160.7 | ||||||||||||||||||||||
75,322 | 34,949 | 40,373 | 115.5 | |||||||||||||||||||||||
Allocated to management | (146) | (80) | 66 | NM | ||||||||||||||||||||||
75,176 | 34,869 | 40,307 | 115.6 | % |
NM – Not meaningful
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 24 |
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||||
Retail new vehicle unit sales: | ||||||||||||||||||||||||||
Domestic | 32,056 | 21,515 | 10,541 | 49.0 | % | |||||||||||||||||||||
Import | 72,658 | 38,484 | 34,174 | 88.8 | ||||||||||||||||||||||
Luxury | 24,622 | 10,909 | 13,713 | 125.7 | ||||||||||||||||||||||
129,336 | 70,908 | 58,428 | 82.4 | |||||||||||||||||||||||
Allocated to management | (296) | (132) | 164 | NM | ||||||||||||||||||||||
129,040 | 70,776 | 58,264 | 82.3 | % |
NM – Not meaningful
Domestic
A summary of financial information for our Domestic segment follows:
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 924.6 | $ | 499.1 | $ | 425.5 | 85.3 | % | ||||||||||||||||||
Used vehicle retail | 641.7 | 389.9 | 251.8 | 64.6 | ||||||||||||||||||||||
Used vehicle wholesale | 63.8 | 19.8 | 44.0 | 222.2 | ||||||||||||||||||||||
Finance and insurance | 78.6 | 50.9 | 27.7 | 54.4 | ||||||||||||||||||||||
Service, body and parts | 159.1 | 102.2 | 56.9 | 55.7 | ||||||||||||||||||||||
Fleet and other | 21.6 | 9.9 | 11.7 | NM | ||||||||||||||||||||||
$ | 1,889.4 | $ | 1,071.8 | $ | 817.6 | 76.3 | ||||||||||||||||||||
Segment income | $ | 138.1 | $ | 59.4 | $ | 78.7 | 132.5 | |||||||||||||||||||
Retail new vehicle unit sales | 18,991 | 10,889 | 8,102 | 74.4 |
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 1,539.2 | $ | 969.6 | $ | 569.6 | 58.7 | % | ||||||||||||||||||
Used vehicle retail | 1,103.9 | 717.6 | 386.3 | 53.8 | ||||||||||||||||||||||
Used vehicle wholesale | 100.0 | 45.8 | 54.2 | 118.3 | ||||||||||||||||||||||
Finance and insurance | 137.2 | 96.1 | 41.1 | 42.8 | ||||||||||||||||||||||
Service, body and parts | 279.8 | 219.5 | 60.3 | 27.5 | ||||||||||||||||||||||
Fleet and other | 39.2 | 23.6 | 15.6 | NM | ||||||||||||||||||||||
$ | 3,199.3 | $ | 2,072.2 | $ | 1,127.1 | 54.4 | % | |||||||||||||||||||
Segment income | $ | 212.0 | $ | 87.2 | $ | 124.8 | 143.1 | % | ||||||||||||||||||
Retail new vehicle unit sales | 32,056 | 21,515 | 10,541 | 49.0 | % |
NM - not meaningful
Our Domestic segment revenue increased 76.3% and 54.4% in the three and six-month periods ended June 30, 2021, compared to the same periods of 2020, driven by increases across all business lines. The acquisition of 13 stores in 2021 was the primary contributor to these increases.
Our Domestic segment income increased 132.5% and 143.1% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 88.6% and 63.2% and a decrease in floor plan interest expense of 5.9% and 31.9%, respectively. Total Domestic SG&A as a percentage of gross profit decreased from 63.3% to 57.5% and from 69.2% to 59.8% for the three and six-month periods ended June 30, 2021, compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Domestic stores decreased primarily due to lower inventory levels for the three and six-month periods ended June 30, 2021, compared to the same periods of 2020.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 25 |
Import
A summary of financial information for our Import segment follows:
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 1,385.7 | $ | 572.7 | $ | 813.0 | 142.0 | % | ||||||||||||||||||
Used vehicle retail | 717.8 | 345.9 | 371.9 | 107.5 | ||||||||||||||||||||||
Used vehicle wholesale | 90.0 | 20.3 | 69.7 | 343.3 | ||||||||||||||||||||||
Finance and insurance | 140.5 | 55.9 | 84.6 | 151.3 | ||||||||||||||||||||||
Service, body and parts | 204.8 | 105.3 | 99.5 | 94.5 | ||||||||||||||||||||||
Fleet and other | 18.6 | 5.9 | 12.7 | NM | ||||||||||||||||||||||
$ | 2,557.4 | $ | 1,106.0 | $ | 1,451.4 | 131.2 | ||||||||||||||||||||
Segment income | $ | 216.3 | $ | 48.8 | $ | 167.5 | 343.2 | |||||||||||||||||||
Retail new vehicle unit sales | 42,204 | 18,642 | 23,562 | 126.4 |
NM - not meaningful
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 2,353.8 | $ | 1,173.0 | $ | 1,180.8 | 100.7 | % | ||||||||||||||||||
Used vehicle retail | 1,280.0 | 700.6 | 579.4 | 82.7 | ||||||||||||||||||||||
Used vehicle wholesale | 148.3 | 46.5 | 101.8 | 218.9 | ||||||||||||||||||||||
Finance and insurance | 246.0 | 113.9 | 132.1 | 116.0 | ||||||||||||||||||||||
Service, body and parts | 361.5 | 230.1 | 131.4 | 57.1 | ||||||||||||||||||||||
Fleet and other | 32.6 | 17.8 | 14.8 | NM | ||||||||||||||||||||||
$ | 4,422.2 | $ | 2,281.9 | $ | 2,140.3 | 93.8 | % | |||||||||||||||||||
Segment income | $ | 317.8 | $ | 73.6 | $ | 244.2 | 331.8 | % | ||||||||||||||||||
Retail new vehicle unit sales | 72,658 | 38,484 | 34,174 | 88.8 | % |
NM - not meaningful
Our Import segment revenue increased 131.2% and 93.8%in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 26 stores in 2021 was the primary contributor to these increases.
Our Import segment income increased 343.2% and 331.8% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 159.9% and 110.5%, respectively. Total Import SG&A as a percentage of gross profit decreased from 72.0% to 56.4% and from 77.4% to 60.2% for the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Import stores increased due to higher interest rates in the three-month period ended June 30, 2021 compared to the same period of 2020, but decreased slightly in the six-month period ended June 30, 2021 compared to the same period of 2020 due to lower inventory levels, partially offset by higher interest rates.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 26 |
Luxury
A summary of financial information for our Luxury segment follows:
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 839.2 | $ | 297.2 | $ | 542.0 | 182.4 | % | ||||||||||||||||||
Used vehicle retail | 448.4 | 189.5 | 258.9 | 136.6 | ||||||||||||||||||||||
Used vehicle wholesale | 59.3 | 11.3 | 48.0 | 424.8 | ||||||||||||||||||||||
Finance and insurance | 52.6 | 17.7 | 34.9 | 197.2 | ||||||||||||||||||||||
Service, body and parts | 150.1 | 65.4 | 84.7 | 129.5 | ||||||||||||||||||||||
Fleet and other | 9.6 | 0.6 | 9.0 | NM | ||||||||||||||||||||||
$ | 1,559.2 | $ | 581.7 | $ | 977.5 | 168.0 | ||||||||||||||||||||
Segment income | $ | 97.2 | $ | 12.3 | $ | 84.9 | 690.2 | |||||||||||||||||||
Retail new vehicle unit sales | 14,127 | 5,418 | 8,709 | 160.7 |
NM - not meaningful
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
New vehicle retail | $ | 1,453.3 | $ | 598.2 | $ | 855.1 | 142.9 | % | ||||||||||||||||||
Used vehicle retail | 779.6 | 380.6 | 399.0 | 104.8 | ||||||||||||||||||||||
Used vehicle wholesale | 99.0 | 25.5 | 73.5 | 288.2 | ||||||||||||||||||||||
Finance and insurance | 89.5 | 34.6 | 54.9 | 158.7 | ||||||||||||||||||||||
Service, body and parts | 271.8 | 148.8 | 123.0 | 82.7 | ||||||||||||||||||||||
Fleet and other | 37.4 | 12.0 | 25.4 | NM | ||||||||||||||||||||||
$ | 2,730.6 | $ | 1,199.7 | $ | 1,530.9 | 127.6 | % | |||||||||||||||||||
Segment income | $ | 141.3 | $ | 13.9 | $ | 127.4 | 916.5 | % | ||||||||||||||||||
Retail new vehicle unit sales | 24,622 | 10,909 | 13,713 | 125.7 | % |
NM - not meaningful
Our Luxury segment revenue increased 168.0% and 127.6% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, driven by increases in all business lines. The acquisition of 16 stores in 2021 was the primary contributor to these increases.
Our Luxury segment income increased 690.2% and 916.5% for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, due to gross profit growth of 192.7% and 137.1%, respectively. Total Luxury SG&A as a percentage of gross profit decreased from 80.6% to 60.4% and from 85.7% to 64.5% for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Luxury stores increased due to higher interest rates in the three-month period ended June 30, 2021 compared to the same period of 2020, but decreased in the six-month period ended June 30, 2021 compared to the same period of 2020 due to lower inventory levels, partially offset by higher interest rates.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 27 |
Corporate and Other
Revenues attributable to Corporate and other include the results of operations of our stand-alone body shops, offset by certain unallocated reserves and elimination adjustments related to vehicle sales.
Three Months Ended June 30, | Increase (Decrease) | % Decrease | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue, net | $ | 3.4 | $ | (0.9) | $ | 4.3 | NM | |||||||||||||||||||
Segment income | $ | 18.6 | $ | 23.4 | $ | (4.8) | (20.5) | % |
NM - not meaningful
Six Months Ended June 30, | Decrease | % Decrease | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Revenue, net | $ | 0.3 | $ | 8.5 | $ | (8.2) | NM | |||||||||||||||||||
Segment income | $ | 57.4 | $ | 70.1 | $ | (12.7) | (18.1) | % |
NM - not meaningful
The changes in Corporate and other revenue in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020 were primarily related to changes to certain reserves that were not specifically identified with our Domestic, Import or Luxury segment revenue, such as our reserve for revenue reversals associated with unwound vehicle sales.
Income attributable to Corporate and other includes amounts associated with the operating income from our stand-alone body shops and certain internal corporate expense allocations that reduce reportable segment income but increase Corporate and other income. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions. Income attributable to Corporate and other also includes gains on the divestiture of stores.
Corporate and other income decreased $4.8 million and $12.7 million for the three and six-month periods ended June 30, 2021 compared to the same periods of 2020, primarily due to decreases in internal floor plan financing charges received from dealerships and increases in internal finance reserve paid to dealerships.
Asset Impairments
Asset impairments consist of the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Franchise value | $ | — | $ | 4.4 | $ | — | $ | 4.4 | ||||||||||||||||||
Goodwill | — | 3.5 | — | 3.5 | ||||||||||||||||||||||
$ | — | $ | 7.9 | $ | — | $ | 7.9 |
No asset impairments have been recognized in 2021.
During the second quarter of 2020, we recorded asset impairments of $7.9 million related to the franchise value and goodwill associated with certain dealership locations. See Note 5 and Note 7 of the Condensed Notes to the Consolidated Financial Statements for additional information.
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 28 |
Selling, General and Administrative Expense (SG&A)
SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Personnel | $ | 452.6 | $ | 203.7 | $ | 248.9 | 122.2 | % | ||||||||||||||||||
Advertising | 38.4 | 17.6 | 20.8 | 118.2 | ||||||||||||||||||||||
Rent | 12.3 | 9.8 | 2.5 | 25.5 | ||||||||||||||||||||||
Facility costs1 | 27.4 | 17.8 | 9.6 | 53.9 | ||||||||||||||||||||||
Loss (gain) on sale of assets | 4.4 | (1.8) | 6.2 | NM | ||||||||||||||||||||||
Other | 98.9 | 57.4 | 41.5 | 72.3 | ||||||||||||||||||||||
Total SG&A | $ | 634.0 | $ | 304.5 | $ | 329.5 | 108.2 | % |
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
As a % of gross profit | 2021 | 2020 | ||||||||||||||||||
Personnel | 40.8 | % | 43.9 | % | (310) | bps | ||||||||||||||
Advertising | 3.5 | 3.8 | (30) | |||||||||||||||||
Rent | 1.1 | 2.1 | (100) | |||||||||||||||||
Facility costs | 2.5 | 3.8 | (130) | |||||||||||||||||
Loss (gain) on sale of assets | 0.4 | (0.4) | 80 | |||||||||||||||||
Other | 8.8 | 12.4 | (360) | |||||||||||||||||
Total SG&A | 57.1 | % | 65.6 | % | (850) | bps |
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Personnel | $ | 766.7 | $ | 432.2 | $ | 334.5 | 77.4 | % | ||||||||||||||||||
Advertising | 67.9 | 45.3 | 22.6 | 49.9 | ||||||||||||||||||||||
Rent | 23.6 | 19.9 | 3.7 | 18.6 | ||||||||||||||||||||||
Facility costs1 | 51.7 | 37.9 | 13.8 | 36.4 | ||||||||||||||||||||||
Loss (gain) on sale of assets | 5.4 | (1.7) | 7.1 | NM | ||||||||||||||||||||||
Other | 168.9 | 116.9 | 52.0 | 44.5 | ||||||||||||||||||||||
Total SG&A | $ | 1,084.2 | $ | 650.5 | $ | 433.7 | 66.7 | % |
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
As a % of gross profit | 2021 | 2020 | ||||||||||||||||||
Personnel | 42.0 | % | 46.7 | % | (470) | bps | ||||||||||||||
Advertising | 3.7 | 4.9 | (120) | |||||||||||||||||
Rent | 1.3 | 2.2 | (90) | |||||||||||||||||
Facility costs | 2.8 | 4.1 | (130) | |||||||||||||||||
Loss (gain) on sale of assets | 0.3 | (0.2) | 50 | |||||||||||||||||
Other | 9.3 | 12.6 | (330) | |||||||||||||||||
Total SG&A | 59.4 | % | 70.3 | % | (1,090) | bps |
SG&A as a percentage of gross profit was 57.1% and 59.4% for the three and six-month periods ended June 30, 2021 compared to 65.6% and 70.3% for the same periods of 2020. SG&A expense increased 108.2% and 66.7% in the three and six-month periods ended June 30, 2021 compared to the same periods of 2020. Overall, SG&A expense increased primarily due to increased personnel costs as a result of our network expansion in 2021 with the remainder of costs seeing minimal increases in the three and six-month periods ended June 30, 2021 compared to
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 29 |
the same periods of 2020. Our performance-based culture is geared towards an incentive-based compensation structure for the majority of personnel. This approach allows us to maintain a responsive cost structure in relation to fluctuations in vehicle sales and service volumes and general economic conditions.
On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 57.0% and 59.9% for the three and six-month periods ended June 30, 2021 compared to 64.2% and 69.0% for the same periods of 2020. The decreases for the three and six-month periods ended June 30, 2021 were primarily related to increased gross profit without proportionate increases in SG&A costs.
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Personnel | $ | 452.6 | $ | 203.7 | $ | 248.9 | 122.2 | % | ||||||||||||||||||
Advertising | 38.4 | 17.6 | 20.8 | 118.2 | ||||||||||||||||||||||
Rent | 12.3 | 9.8 | 2.5 | 25.5 | ||||||||||||||||||||||
Facility costs1 | 27.4 | 17.8 | 9.6 | 53.9 | ||||||||||||||||||||||
Adjusted gain on sale of assets | (0.1) | (0.4) | 0.3 | NM | ||||||||||||||||||||||
Adjusted other | 87.7 | 51.8 | 35.9 | 69.3 | ||||||||||||||||||||||
Adjusted total SG&A | $ | 618.3 | $ | 300.3 | $ | 318.0 | 105.9 | % |
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
As a % of gross profit | 2021 | 2020 | ||||||||||||||||||
Personnel | 40.8 | % | 43.9 | % | (310) | bps | ||||||||||||||
Advertising | 3.5 | 3.8 | (30) | |||||||||||||||||
Rent | 1.1 | 2.1 | (100) | |||||||||||||||||
Facility costs | 2.5 | 3.8 | (130) | |||||||||||||||||
Adjusted gain on sale of assets | — | (0.1) | 10 | |||||||||||||||||
Adjusted other | 7.8 | 11.2 | (340) | |||||||||||||||||
Adjusted total SG&A | 55.7 | % | 64.7 | % | (900) | bps |
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 30 |
SG&A expense adjusted for non-core charges was as follows:
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Personnel | $ | 766.7 | $ | 432.2 | $ | 334.5 | 77.4 | % | ||||||||||||||||||
Advertising | 67.9 | 45.3 | 22.6 | 49.9 | % | |||||||||||||||||||||
Rent | 23.6 | 19.9 | 3.7 | 18.6 | % | |||||||||||||||||||||
Facility costs1 | 51.7 | 37.9 | 13.8 | 36.4 | % | |||||||||||||||||||||
Adjusted loss (gain) on sale of assets | 0.2 | (0.2) | 0.4 | NM | ||||||||||||||||||||||
Adjusted other | 155.7 | 110.0 | 45.7 | 41.5 | % | |||||||||||||||||||||
Adjusted total SG&A | $ | 1,065.8 | $ | 645.1 | $ | 420.7 | 65.2 | % |
1 Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.
NM - not meaningful
Six Months Ended June 30, | Decrease | |||||||||||||||||||
As a % of gross profit | 2021 | 2020 | ||||||||||||||||||
Personnel | 42.0 | % | 46.7 | % | (470) | bps | ||||||||||||||
Advertising | 3.7 | 4.9 | (120) | |||||||||||||||||
Rent | 1.3 | 2.2 | (90) | |||||||||||||||||
Facility costs | 2.8 | 4.1 | (130) | |||||||||||||||||
Adjusted loss on sale of assets | — | — | — | |||||||||||||||||
Adjusted other | 8.6 | 11.8 | (320) | |||||||||||||||||
Adjusted total SG&A | 58.4 | % | 69.7 | % | (1,130) | bps |
Adjusted SG&A for the three-month period ended June 30, 2021 excludes $0.8 million in storm insurance reserve charges, $10.4 million in acquisition-related expenses, and a $4.5 million net loss on store disposals. For the six-months ended June 30, 2021, Adjusted SG&A excludes $1.6 million in storm insurance reserve charges, $11.6 million in acquisition-related expenses, and a $5.2 million net loss on store disposals.
Adjusted SG&A for the three-month period ended June 30, 2020 excludes $5.0 million in storm insurance reserve charges, $0.5 million in acquisition-related expenses, and a $1.3 million net gain on store disposals. For the six-months ended June 30, 2020, Adjusted SG&A excludes $5.8 million in storm insurance reserve charges, $1.0 million in acquisition-related expenses, and a $1.4 million net gain on store disposals.
See “Non-GAAP Reconciliations” for more details.
Depreciation and Amortization
Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment, signage, and amortization of certain intangible assets, including customer lists.
Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Depreciation and amortization | $ | 30.3 | $ | 22.3 | $ | 8.0 | 35.9 | % |
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Depreciation and amortization | $ | 57.2 | $ | 44.3 | $ | 12.9 | 29.1 | % |
Acquisition activity contributed to the increase in depreciation and amortization in 2021 compared to 2020. We acquired approximately $640 million of depreciable property as part of our acquisition activity over the last twelve months ending June 30, 2021. For the six-months ended June 30, 2021, we invested $113.0 million in capital expenditures. These investments increased the amount of depreciation expense in the three and six-month periods ended June 30, 2021. See the discussion under “Liquidity and Capital Resources” for additional information.
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Operating Margin
Operating income as a percentage of revenue, or operating margin, was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Operating margin | 7.4 | % | 4.7 | % | 6.6 | % | 4.0 | % | ||||||||||||||||||
Operating margin adjusted for non-core charges 1 | 7.7 | % | 5.1 | % | 6.8 | % | 4.2 | % |
1 See “Non-GAAP Reconciliations” for more details.
Operating margins increased 270 bps and 260 bps in the three and six-month periods ended June 30, 2021 compared to the same periods in 2020. The increases in operating margins for the three and six-month periods ended June 30, 2021 were primarily due to increased gross profit of 139.1% and 97.4%, respectively, with offsetting increases to SG&A of 108.2% and 66.7% compared to the same periods in 2020.
Floor Plan Interest Expense and Floor Plan Assistance
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||||||||||||||||
Floor plan interest expense (new vehicles) | $ | 6.4 | $ | 8.1 | (21.0) | % | $ | 13.3 | $ | 22.1 | (39.8) | % |
Floor plan interest expense decreased $1.7 million and $8.8 million in the three and six-month periods ended June 30, 2021, respectively, compared to the same periods of 2020. The 21.0% decrease in floor plan interest expense for the three-month period ended June 30, 2021, compared to the same period of 2020, includes a 41.6% decrease related to same store inventory levels, a 6.1% increase related to increased interest rates, and a 14.5% increase related to acquisition volume. The 39.8% decrease in floor plan interest expense for the six-month period ended June 30, 2021, compared to the same period in 2020, includes a 41.6% decrease related to same store inventory levels, a 6.5% decrease related to decreased interest rates, and an 8.3% increase related to acquisition volume.
Floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory and is recorded as a component of new vehicle gross profit when the specific vehicle is sold. However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels.
The following table details the carrying costs for new vehicles and includes new vehicle floor plan interest net of floor plan assistance earned.
Three Months Ended June 30, | % | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | Change | Change | ||||||||||||||||||||||
Floor plan interest expense (new vehicles) | $ | 6.4 | $ | 8.1 | $ | (1.7) | (21.0) | % | ||||||||||||||||||
Floor plan assistance (included as an offset to cost of sales) | (34.8) | (14.8) | (20.0) | 135.1 | ||||||||||||||||||||||
Net new vehicle carrying costs | $ | (28.4) | $ | (6.7) | $ | (21.7) | NM |
NM - not meaningful
Six Months Ended June 30, | % | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | Change | Change | ||||||||||||||||||||||
Floor plan interest expense (new vehicles) | $ | 13.3 | $ | 22.1 | $ | (8.8) | (39.8) | % | ||||||||||||||||||
Floor plan assistance (included as an offset to cost of sales) | (59.7) | (29.7) | (30.0) | 101.0 | ||||||||||||||||||||||
Net new vehicle carrying costs | $ | (46.4) | $ | (7.6) | $ | (38.8) | NM |
NM - Not meaningful
Other Interest Expense
Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages, our used and service loaner vehicle inventory financing commitments, and our revolving line of credit.
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Three Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Mortgage interest | $ | 6.5 | $ | 6.1 | $ | 0.4 | 6.6 | |||||||||||||||||||
Other interest | 22.1 | 11.1 | 11.0 | 99.1 | ||||||||||||||||||||||
Capitalized interest | (0.5) | (0.4) | 0.1 | NM | ||||||||||||||||||||||
Total other interest expense | $ | 28.1 | $ | 16.8 | $ | 11.3 | 67.3 | % |
NM - not meaningful
Six Months Ended June 30, | Increase | % Increase | ||||||||||||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||||||||||||
Mortgage interest | $ | 13.3 | $ | 12.7 | $ | 0.6 | 4.7 | % | ||||||||||||||||||
Other interest | 39.2 | 21.9 | 17.3 | 79.0 | ||||||||||||||||||||||
Capitalized interest | (0.9) | (0.8) | 0.1 | NM | ||||||||||||||||||||||
Total other interest expense | $ | 51.6 | $ | 33.8 | $ | 17.8 | 52.7 | % |
NM - not meaningful
Other interest expense for the three and six-month periods ended June 30, 2021 increased $11.3 million and $17.8 million, primarily related to the additional interest expense associated with the senior notes issued in 2020.
Income Tax Provision
Our effective income tax rate was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Effective income tax rate | 27.3 | % | 28.3 | % | 26.9 | % | 28.2 | % | ||||||||||||||||||
Effective income tax rate excluding other non-core items | 27.3 | % | 29.0 | % | 26.9 | % | 28.6 | % |
Our effective income tax rate for the six-month period ended June 30, 2021 was positively affected by excess tax benefits on stock awards vesting in the current period and a reduction in our current state effective tax rate due to changing state mix. Additionally, our effective income tax rate was favorably affected by an increase in forecasted pre-tax income. We estimate our annual effective income tax rate, excluding non-core charges, to be 27.5%.
Non-GAAP Reconciliations
Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We believe each of the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful presentation of our results from the core business operations because they exclude items not related to our ongoing core business operations and other non-cash items, and improves the period-to-period comparability of our results from the core business operations. We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facility and in communications with our Board of Directors concerning financial performance. These measures should not be considered an alternative to GAAP measures.
The following tables reconcile certain reported non-GAAP measures, which we refer to as “adjusted,” to the most comparable GAAP measure from our Consolidated Statements of Operations.
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Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | As reported | Net disposal loss on sale of stores | Investment gain | Insurance reserves | Acquisition expenses | Adjusted | ||||||||||||||||||||||||||||||||
Selling, general and administrative | $ | 634.0 | $ | (4.5) | $ | — | $ | (0.8) | $ | (10.4) | $ | 618.3 | ||||||||||||||||||||||||||
Operating income | 446.3 | 4.5 | — | 0.8 | 10.4 | 462.0 | ||||||||||||||||||||||||||||||||
Other income (expense) | 7.6 | — | (1.2) | — | — | 6.4 | ||||||||||||||||||||||||||||||||
Income before income taxes | $ | 419.4 | $ | 4.5 | $ | (1.2) | $ | 0.8 | 10.4 | $ | 433.9 | |||||||||||||||||||||||||||
Income tax (provision) benefit | (114.5) | (1.2) | 0.3 | (0.2) | (2.8) | (118.4) | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 304.9 | $ | 3.3 | $ | (0.9) | $ | 0.6 | $ | 7.6 | $ | 315.5 | ||||||||||||||||||||||||||
Diluted net income (loss) per share | $ | 10.75 | $ | 0.12 | $ | (0.03) | $ | 0.02 | $ | 0.26 | $ | 11.12 | ||||||||||||||||||||||||||
Diluted share count | 28.4 |
Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | As reported | Net disposal gain on sale of stores | Asset impairment | Insurance reserves | Acquisition expenses | Tax attribute | Adjusted | |||||||||||||||||||||||||||||||||||||
Asset impairment | $ | 7.9 | $ | — | $ | (7.9) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||
Selling, general and administrative | 304.5 | 1.3 | — | (5.0) | (0.5) | — | 300.3 | |||||||||||||||||||||||||||||||||||||
Operating income (loss) | 129.7 | (1.3) | 7.9 | 5.0 | 0.5 | — | 141.8 | |||||||||||||||||||||||||||||||||||||
Other income, net | 3.5 | — | — | — | — | — | 3.5 | |||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 108.3 | $ | (1.3) | $ | 7.9 | $ | 5.0 | $ | 0.5 | $ | — | $ | 120.4 | ||||||||||||||||||||||||||||||
Income tax (provision) benefit | (30.6) | 0.4 | (2.3) | (1.4) | (0.2) | (0.8) | (34.9) | |||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 77.7 | $ | (0.9) | $ | 5.6 | $ | 3.6 | $ | 0.3 | $ | (0.8) | $ | 85.5 | ||||||||||||||||||||||||||||||
Diluted net income (loss) per share | $ | 3.38 | $ | (0.04) | $ | 0.24 | $ | 0.16 | $ | 0.01 | $ | (0.03) | $ | 3.72 | ||||||||||||||||||||||||||||||
Diluted share count | 23.0 |
Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | As reported | Net disposal loss on sale of stores | Investment gain | Insurance reserves | Acquisition expenses | Adjusted | ||||||||||||||||||||||||||||||||
Selling, general and administrative | $ | 1,084.2 | $ | (5.2) | $ | — | $ | (1.6) | $ | (11.6) | $ | 1,065.8 | ||||||||||||||||||||||||||
Operating income | 684.7 | 5.2 | — | 1.6 | 11.6 | 703.1 | ||||||||||||||||||||||||||||||||
Other income (expense), net | 11.1 | — | (1.0) | — | — | 10.1 | ||||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 630.9 | $ | 5.2 | $ | (1.0) | $ | 1.6 | $ | 11.6 | $ | 648.3 | ||||||||||||||||||||||||||
Income tax (provision) benefit | (169.8) | (1.4) | 0.3 | (0.4) | (3.1) | (174.4) | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 461.1 | $ | 3.8 | $ | (0.7) | $ | 1.2 | $ | 8.5 | $ | 473.9 | ||||||||||||||||||||||||||
Diluted net income (loss) per share | $ | 16.69 | $ | 0.14 | $ | (0.03) | $ | 0.04 | $ | 0.31 | $ | 17.15 | ||||||||||||||||||||||||||
Diluted share count | 27.6 |
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Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | As reported | Net disposal gain on sale of stores | Asset impairment | Insurance reserves | Acquisition expenses | Tax attribute | Adjusted | |||||||||||||||||||||||||||||||||||||
Asset impairment | $ | 7.9 | $ | — | $ | (7.9) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||
Selling, general and administrative | 650.5 | 1.4 | — | (5.8) | (1.0) | — | 645.1 | |||||||||||||||||||||||||||||||||||||
Operating income (loss) | 222.6 | (1.4) | 7.9 | 5.8 | 1.0 | — | 235.9 | |||||||||||||||||||||||||||||||||||||
Other income, net | 5.8 | — | — | — | — | — | 5.8 | |||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 172.5 | $ | (1.4) | $ | 7.9 | $ | 5.8 | $ | 1.0 | $ | — | $ | 185.8 | ||||||||||||||||||||||||||||||
Income tax (provision) benefit | (48.6) | 0.4 | (2.3) | (1.6) | (0.3) | (0.8) | (53.2) | |||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 123.9 | $ | (1.0) | $ | 5.6 | $ | 4.2 | $ | 0.7 | $ | (0.8) | $ | 132.6 | ||||||||||||||||||||||||||||||
Diluted net income (loss) per share | $ | 5.32 | $ | (0.04) | $ | 0.24 | $ | 0.18 | $ | 0.03 | $ | (0.03) | $ | 5.70 | ||||||||||||||||||||||||||||||
Diluted share count | 23.3 |
Liquidity and Capital Resources
We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances and capital structure in a way that we believe will meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility. Our capital deployment strategy for our free cash flows targets an allocation of 65% investment in acquisitions, 25% investment in capital expenditures and 10% in shareholder return in the form of dividends and share repurchases.
Cash flows from operations and borrowings under our credit facilities are our main sources for liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include issuing equity through our $400 million ATM Equity Offering Agreement, financing of real estate and proceeds from debt or equity offerings. We evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.
Available Sources
Below is a summary of our immediately available funds:
(in millions) | June 30, 2021 | December 31, 2020 | Change | % | ||||||||||||||||||||||
Cash and cash equivalents | $ | 780.9 | $ | 160.2 | $ | 620.7 | 387.5 | % | ||||||||||||||||||
Available credit on credit facilities | 1,853.0 | 1,237.1 | 615.9 | 49.8 | ||||||||||||||||||||||
Total current available funds | $ | 2,633.9 | $ | 1,397.3 | $ | 1,236.6 | 88.5 | % |
Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The following table summarizes our cash flows:
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
(in millions) | 2021 | 2020 | in Cash Flow | |||||||||||||||||
Net cash provided by operating activities | $ | 1,263.5 | $ | 790.0 | $ | 473.5 | ||||||||||||||
Net cash used in investing activities | (1,821.1) | (167.1) | (1,654.0) | |||||||||||||||||
Net cash provided by (used in) financing activities | 1,178.3 | (586.6) | 1,764.9 |
Operating Activities
Cash provided by operating activities for the six-month period ended June 30, 2021 increased $473.5 million compared to the same period of 2020, primarily related to increased net income, a decrease in inventories and an increase in borrowings on our floor plan notes payable, partially offset by an increase in accounts receivable compared to the same period of 2020.
Borrowings from and repayments to our syndicated credit facility related to our new vehicle inventory floor plan financing are presented as financing activities. To better understand the impact of changes in inventory and the
![]() | MANAGEMENT’S DISCUSSION AND ANALYSIS | 35 |
associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment.
Adjusted net cash provided by operating activities is presented below:
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
(in millions) | 2021 | 2020 | in Cash Flow | |||||||||||||||||
Net cash provided by operating activities – as reported | $ | 1,263.5 | $ | 790.0 | $ | 473.5 | ||||||||||||||
Less: Net repayments on floor plan notes payable, non-trade | (571.6) | (456.8) | (114.8) | |||||||||||||||||
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory | (271.5) | (22.3) | (249.2) | |||||||||||||||||
Net cash provided by operating activities – adjusted | $ | 420.4 | $ | 310.9 | $ | 109.5 |
Investing Activities
Net cash used in investing activities totaled $1,821.1 million and $167.1 million, respectively, for the six-month periods ended June 30, 2021 and 2020.
Below are highlights of significant activity related to our cash flows from investing activities:
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
(in millions) | 2021 | 2020 | in Cash Flow | |||||||||||||||||
Capital expenditures | $ | (113.0) | $ | (78.3) | $ | (34.7) | ||||||||||||||
Cash paid for acquisitions, net of cash acquired | (1,741.9) | (92.3) | (1,649.6) | |||||||||||||||||
Cash paid for other investments | (9.9) | (9.7) | (0.2) | |||||||||||||||||
Proceeds from sales of stores | 43.7 | 11.6 | 32.1 |
Capital Expenditures
Below is a summary of our capital expenditure activities:
Six Months Ended June 30, | ||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||
Post-acquisition capital improvements | $ | 5.6 | $ | 22.7 | ||||||||||
Facilities for open points | 12.3 | 0.5 | ||||||||||||
Purchase of facilities for existing operations | 22.2 | 11.5 | ||||||||||||
Existing facility improvements | 37.9 | 19.2 | ||||||||||||
Maintenance | 35.0 | 24.4 | ||||||||||||
Total capital expenditures | $ | 113.0 | $ | 78.3 |
Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet specified standards and requirements. We expect that certain facility upgrades and remodels will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timeliness.
We expect to use a portion of our future capital expenditures to upgrade facilities that we recently acquired. This additional capital investment is contemplated in our initial evaluation of the investment return metrics applied to each acquisition and is usually associated with manufacturer standards and requirements.
The increase in capital expenditures for the six-month period ended June 30, 2021, compared to the same period of 2020 related primarily to higher existing facility capital improvements.
If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facility. Upon completion of the projects, we believe we would have the ability to secure long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.
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Acquisitions
We focus on acquiring stores at attractive purchase prices that meet our return thresholds and strategic objectives. We look for acquisitions that diversify our brand and geographic mix as we continue to evaluate our portfolio to minimize exposure to any one manufacturer and achieve financial returns.
We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash generated by this transaction is recorded as borrowings on floor plan notes payable, non-trade.
Adjusted net cash paid for acquisitions, as well as certain other acquisition-related information is presented below:
Six Months Ended June 30, | ||||||||||||||
2021 | 2020 | |||||||||||||
Number of locations acquired | 55 | 4 | ||||||||||||
(in millions) | ||||||||||||||
Cash paid for acquisitions, net of cash acquired | $ | (1,741.9) | $ | (92.3) | ||||||||||
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory | 271.5 | 22.3 | ||||||||||||
Cash paid for acquisitions, net of cash acquired – adjusted | $ | (1,470.4) | $ | (70.0) |
We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.
Financing Activities
Net cash provided by (used in) financing activities, adjusted for borrowing on floor plan facilities: non-trade was as follows:
Six Months Ended June 30, | Increase | |||||||||||||||||||
(in millions) | 2021 | 2020 | in Cash Flow | |||||||||||||||||
Cash provided by (used in) financing activities, as reported | $ | 1,178.3 | $ | (586.6) | $ | 1,764.9 | ||||||||||||||
Adjust: Repayments on floor plan notes payable: non-trade | 571.6 | 456.8 | 114.8 | |||||||||||||||||
Cash provided by (used in) financing activities – adjusted | $ | 1,749.9 | $ | (129.8) | $ | 1,879.7 |
Below are highlights of significant activity related to our cash flows from financing activities, excluding net repayments on floor plan notes payable: non-trade, which are discussed above:
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||
(in millions) | 2021 | 2020 | in Cash Flow | |||||||||||||||||
Net borrowings on lines of credit | $ | (64.6) | $ | (109.0) | $ | 44.4 | ||||||||||||||
Principal payments on long-term debt and capital leases, unscheduled | (65.0) | (4.9) | (60.1) | |||||||||||||||||
Proceeds from issuance of long-term debt | 817.5 | 56.5 | 761.0 | |||||||||||||||||
Repurchases of common stock | (15.9) | (50.5) | 34.6 | |||||||||||||||||
Dividends paid | (17.5) | (13.8) | (3.7) | |||||||||||||||||
Proceeds from issuance of common stock | 1,120.0 | 6.1 | 1,113.9 | |||||||||||||||||
Equity Transactions
On October 22, 2018, our Board of Directors authorized the repurchase of up to $250 million of our Class A common stock, increasing our total share repurchase authorization to $500 million. We repurchased a total of 54,251 shares of our Class A common stock at an average price of $292.91 per share in the first six months of 2021, none of which were purchased as part of our repurchase authorization; all shares purchased were related to tax withholding on vesting RSUs. As of June 30, 2021, we had $187.5 million remaining available for repurchases and the authorization does not have an expiration date.
On May 24, 2021, we completed the public offering of 3,571,428 shares of our common stock, no par value per share, which included the exercise in full by the underwriters of their option to purchase up to 465,838 additional shares of our common stock, at the public offering price of $322.00 per share. We received $1.11 billion from the offering, net of the underwriting discount and before deducting the offering expenses of $0.6 million.
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In the first six months of 2021, we declared and paid dividends on our Class A and Class B common stock as follows:
Dividend paid: | Dividend amount per share | Total amount of dividend (in millions) | ||||||||||||
March 2021 | $ | 0.31 | $ | 8.2 | ||||||||||
May 2021 | $ | 0.35 | $ | 9.3 | ||||||||||
We evaluate performance and make a recommendation to the Board of Directors on dividend payments on a quarterly basis.
Summary of Outstanding Balances on Credit Facilities and Long-Term Debt
Below is a summary of our outstanding balances on credit facilities and long-term debt:
As of June 30, 2021 | ||||||||||||||||||||
(in millions) | Outstanding | Remaining Available | ||||||||||||||||||
Floor plan note payable: non-trade | $ | 966.9 | $ | — | 1 | |||||||||||||||
Floor plan notes payable | 285.1 | — | ||||||||||||||||||
Used and service loaner vehicle inventory financing commitments | — | 653.4 | 2 | |||||||||||||||||
Revolving lines of credit | 200.0 | 1,199.6 | 2, 3 | |||||||||||||||||
Real estate mortgages | 612.8 | — | ||||||||||||||||||
Finance lease obligations | 170.2 | — | ||||||||||||||||||
5.250% Senior notes due 2025 | 300.0 | — | ||||||||||||||||||
4.625% Senior notes due 2027 | 400.0 | — | ||||||||||||||||||
4.375% Senior notes due 2031 | 550.0 | — | ||||||||||||||||||
3.875% Senior notes due 2029 | 800.0 | — | ||||||||||||||||||
Other debt | 2.2 | — | ||||||||||||||||||
Unamortized debt issuance costs | (27.2) | — | 4 | |||||||||||||||||
Total debt | $ | 4,260.0 | $ | 1,853.0 |
1 As of June 30, 2021, we had a $2.9 billion new vehicle floor plan commitment as part of our credit facility.
2 The amount available on the credit facility is limited based on a borrowing base calculation and fluctuates monthly.
3 Available credit is based on the borrowing base amount effective as of May 31, 2021. This amount is reduced by $20.4 million for outstanding letters of credit.
4 Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability.
Credit Facility
On April 29, 2021, we amended our existing syndicated credit facility (credit facility), comprised of 20 financial institutions, including eight manufacturer-affiliated finance companies, extending the maturity date to April 2026.
This credit facility provides for a total financing commitment of $3.75 billion, which may be further expanded, subject to lender approval and the satisfaction of other conditions, up to a total of $4.25 billion. The initial allocation of the financing commitment is for up to $336 million in used vehicle inventory floorplan financing, up to $434 million in revolving financing for general corporate purposes, including acquisitions and working capital, up to $2.88 billion in new vehicle inventory floorplan financing, and up to $100 million in service loaner vehicle floorplan financing. We have the option to reallocate the commitments under this credit facility, provided that each of the used vehicle floor plan commitment and the aggregate revolving loan commitment may not be more than the 20% of the amount of the aggregate commitment, and the aggregate service loaner vehicle floorplan commitment may not be more than the 3% of the amount of the aggregate commitment. All borrowings from, and repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as financing activities.
Our obligations under our credit facility are secured by a substantial amount of our assets, including our inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other rights to payment) and our equity interests in certain of our subsidiaries. Under our credit facility, our obligations relating to new vehicle floor plan loans are secured only by collateral owned by borrowers of new vehicle floor plan loans under the credit facility.
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The interest rate on the credit facility varies based on the type of debt, with the rate of one-month LIBOR plus 1.10% for new vehicle floor plan financing, one-month LIBOR plus 1.40% for used vehicle floor plan financing, 1.20% for service loaner floor plan financing and a variable interest rate on the revolving financing ranging from the one-month LIBOR plus 1.00% to 2.00% depending on our leverage ratio. The annual interest rates associated with our floor plan commitments are as follows:
Commitment | Annual Interest Rate at June 30, 2021 | ||||
New vehicle floor plan | 1.20% | ||||
Used vehicle floor plan | 1.50% | ||||
Service loaner floor plan | 1.30% | ||||
Revolving line of credit | 1.10% |
Under the terms of our credit facility we are subject to financial covenants and restrictive covenants that limit or restrict our incurring additional indebtedness, making investments, selling or acquiring assets and granting security interests in our assets.
Under our credit facility, we are required to maintain the ratios detailed in the following table:
Debt Covenant Ratio | Requirement | As of June 30, 2021 | ||||||||||||
Current ratio | Not less than 1.10 to 1 | 1.68 to 1 | ||||||||||||
Fixed charge coverage ratio | Not less than 1.20 to 1 | 6.82 to 1 | ||||||||||||
Leverage ratio | Not more than 5.75 to 1 | 1.95 to 1 |
As of June 30, 2021, we were in compliance with all covenants. We expect to remain in compliance with the financial and restrictive covenants in our credit facility and other debt agreements. However, no assurances can be provided that we will continue to remain in compliance with the financial and restrictive covenants.
If we do not meet the financial and restrictive covenants and are unable to remediate or cure the condition or obtain a waiver from our lenders, a breach would give rise to remedies under the agreement, the most severe of which are the termination of the agreement, acceleration of the amounts owed and the seizure and sale of our assets comprising the collateral for the loans. A breach would also trigger cross-defaults under other debt agreements.
Although we refer to the lenders’ obligations to make loans as “commitments,” each lender’s obligations to make any loan or other credit accommodations under the credit facility is subject to the satisfaction of the conditions precedent specified in the credit agreement including, for example, that our representations and warranties in the agreement are true and correct in all material respects as of the date of each credit extension. If we are unable to satisfy the applicable conditions precedent, we may not be able to request new loans or other credit accommodations under our credit facility.
Floor Plan Notes Payable
We have floor plan agreements with manufacturer-affiliated finance companies for certain new vehicles and vehicles that are designated for use as service loaners. The interest rates on these floor plan notes payable commitments vary by manufacturer and are variable rates. As of June 30, 2021, $285.1 million was outstanding on these agreements. Borrowings from, and repayments to, manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.
Other Lines of Credit
Our other lines of credit include a commitment of up to $20.0 million, secured by certain assets from select Chrysler locations and a commitment of $60.0 million with Ford Motor Credit Company, secured by certain assets from all Ford locations. These other lines of credit mature in 2021 and have interest rates up to 5.65%. As of June 30, 2021, no amounts were outstanding on these other lines of credit.
On July 14, 2020, we entered into a five-year real-estate backed facility with eight financial institutions, including two manufacturer affiliated finance companies, maturing in July 2025. The real-estate backed credit facility provides a total financing commitment of up to $245.1 million in working capital financing for general corporate purposes, including acquisitions and working capital, collateralized by real estate and certain other assets owned by us. The interest rate on this credit facility uses one-month LIBOR plus a margin ranging from 2.00% to 2.50% based on our leverage ratio, or a base rate of 0.75% plus a margin. The facility includes financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties by us. Financial covenants include
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requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, consistent with those under existing syndicated credit facility with U.S. Bank National Association as administrative agent. As of June 30, 2021, no amounts were outstanding on the real-estate backed facility.
On July 31, 2020, we entered into a securitization facility which provides initial commitments for borrowings of up to $300 million and matures in July 2022. As of June 30, 2021, we had $200.0 million drawn on the securitization facility, which is included as part of “Revolving lines of credit” in the “Summary of Outstanding Balances on Credit Facilities and Long-Term Debt” table above.
On April 12, 2021, we entered into a credit agreement with Ally Bank (Ally Capital in Hawaii, Mississippi, Montana and New Jersey), as lender. The credit agreement matures in April 2023 and provides for a revolving line of credit facility (Ally credit facility) of up to $300.0 million and is secured by real estate owned by us. The Ally credit facility will bear interest at a rate per annum equal to the greater of 3.00% or the prime rate designated by Ally Bank, minus 25 basis points. The Ally credit facility includes financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties. Financial covenants, including the requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, are the same as the requirements under our existing syndicated credit facility with U.S. Bank National Association. The covenants restrict us from disposing of assets and granting additional security interests. As of June 30, 2021, no amounts were outstanding on the Ally credit facility.
Senior Notes
We have issued senior notes to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the notes and is payable semiannually. We may redeem the notes in whole or in part, on or after the redemption dates, at the redemption prices set forth in the Indentures. Prior to the redemption dates set forth in the Indentures, we may redeem the notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus make-whole premiums set forth in the Indentures. Upon certain change of control events (as set forth in the Indentures), the holders of the notes may require us to repurchase all or a portion of the notes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase.
3.875% Senior Notes due 2029
On May 27, 2021, we issued $800 million in aggregate principal amount of 3.875% notes due 2029 to eligible purchases in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the notes from May 27, 2021 and is payable semiannually on June 1 and December 1. We may redeem the notes in whole or in part, on or after June 1, 2024, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but, excluding, the redemption date. Prior to June 1, 2024, we may redeem up to 40% of the aggregate principal amount of the Senior Notes with funds in an aggregate amount up to the net cash proceeds of certain equity offerings at a redemption price equal to 103.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to June 1, 2024, the Company may redeem some or all of the notes at a price equal to 100% of the principal amount, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Below is a summary of issued senior notes:
Description | Maturity Date | Interest Payment Dates | Principal Amount | ||||||||
5.250% Senior notes due 20251 | August 1, 2025 | February 1, August 1 | $300 million | ||||||||
4.625% Senior notes due 2027 | December 15, 2027 | June 15, December 15 | $400 million | ||||||||
4.375% Senior notes due 2031 | January 15, 2031 | January 15, July 15 | $550 million | ||||||||
3.875% Senior notes due 2029 | June 1, 2029 | June 1, December 1 | $800 million |
1On July 1, 2021, we notified holders that we have elected to redeem in full the aggregate principal amount of notes outstanding on August 1, 2021 at a redemption price equal to 102.625% of the principal amount of the notes plus accrued and unpaid interest thereon.
Real Estate Mortgages, Finance Lease Obligations, and Other Debt
We have mortgages associated with our owned real estate. Interest rates related to this debt ranged from 1.8% to 5.3% at June 30, 2021. The mortgages are payable in various installments through July 1, 2038. As of June 30, 2021, we had fixed interest rates on 70.4% of our outstanding mortgage debt.
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We have finance lease obligations with some of our leased real estate. Interest rates related to this debt ranged from 1.9% to 8.5% at June 30, 2021. The leases have terms extending through August 2037.
Our other debt includes sellers’ notes. The interest rates associated with our other debt ranged from 3.9% to 5.3% at June 30, 2021. This debt is due in various installments through January 2031.
Recent Accounting Pronouncements
See Note 13 of the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Use of Estimates
There have been no material changes in the critical accounting policies and use of estimates described in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2021.
Seasonality and Quarterly Fluctuations
Historically, our sales have been lower in the first quarter of each year due to consumer purchasing patterns and inclement weather in certain of our markets. As a result, financial performance is expected to be lower during the first quarter than during the second, third and fourth quarters of each fiscal year. We believe that interest rates, levels of consumer debt, consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to fluctuations in sales and operating results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our reported market risks or risk management policies since the filing of our 2020 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February 19, 2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our 2020 Annual Report on Form 10-K. The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our 2020 Annual Report on Form 10-K, which was filed with the SEC on February 19, 2021. We have described in our 2020 Annual Report on Form 10-K, under “Risk Factors” in Item 1A, the primary risks related to our business and securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We repurchased the following shares of our common stock during the second quarter of 2021:
Total number of shares purchased2 | Average price paid per share | Total number of shares purchased as part of publicly announced plans1 | Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands)1 | |||||||||||||||||||||||
April | — | $ | — | — | $ | 187,522 | ||||||||||||||||||||
May | 33 | 384.38 | — | 187,522 | ||||||||||||||||||||||
June | — | — | — | 187,522 | ||||||||||||||||||||||
33 | $ | 384.38 | — | $ | 187,522 |
1 On October 22, 2018, our Board of Directors approved a $250 million repurchase authorization, increasing our total share repurchase authorization to $500 million. This authorization does not have an expiration date.
2 Of the shares repurchased in the second quarter of 2021, all were related to tax withholding upon the vesting of RSUs.
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Item 6. Exhibits
The following exhibits are filed herewith and this list is intended to constitute the exhibit index.
Restated Articles of Incorporation of Lithia Motors, Inc. | |||||
Second Amended and Restated Bylaws of Lithia Motors, Inc. (incorporated by reference to exhibit 3.2 to the Company’s Form 8-K filed April 25, 2019). | |||||
Indenture, dated as of May 27, 2021, among Lithia Motors, Inc., the Guarantors and the Trustee (incorporated by reference to exhibit 4.1 to the Company’s Form 8-K filed May 27, 2021). | |||||
Form of 3.875% senior notes due 2029 (included as part of exhibit 4.1 to the Company’s Form 8-K filed May 27, 2021). | |||||
Credit Agreement dated April 12, 2021, among Lithia Motors, Inc., Lithia Real Estate, Inc., and Ally Bank (Ally Capital in Hawaii, Mississippi, Montana and New Jersey) (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed April 15, 2021). | |||||
Fourth Amended and Restated Loan Agreement, dated April 29, 2021, among Lithia Motors, Inc., the subsidiaries of Lithia Motors, Inc. listed on the signature pages of the agreement or that thereafter become borrowers thereunder, the lenders party thereto from time to time, and U.S. Bank National Association (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed May 4, 2021). | |||||
Amended and Restated Loan Agreement, dated December 31, 2020, among SCFC Business Services LLC, Driveway Finance Corporation, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A. (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K filed June 9, 2021). | |||||
Amendment No. 1 to Amended and Restated Loan Agreement, dated June 4, 2021, among SCFC Business Services LLC, Chariot Funding LLC and JPMorgan Chase Bank, N.A. (incorporated by reference to exhibit 10.2 to the Company’s Form 8-K filed June 9, 2021). | |||||
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | |||||
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | |||||
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. | |||||
Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. | |||||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
104 | Cover page formatted as Inline XBRL and contained in Exhibit 101. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 28, 2021 | LITHIA MOTORS, INC. | |||||||
Registrant | ||||||||
By: | /s/ Tina Miller | |||||||
Tina Miller | ||||||||
Chief Financial Officer, Senior Vice President, and Principal Accounting Officer |
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