UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| | þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
or
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| | ¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-13461
Group 1 Automotive, Inc.Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | | 76-0506313 |
(State orof other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 800 Gessner, | Suite 500 | | 77024 |
800 Gessner, Suite 500
Houston, Texas 77024 | TX | | (Zip code) |
| (Address of principal executive offices, including zip code)
offices) | | (713) 647-5700
(Registrant’s telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:(713) 647-5700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | | Ticker symbol(s) | | Name of exchange on which registered |
| Common stock, par value $0.01 per share | | GPI | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨Noþ
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. Yesþ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yesþ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | þ | | ¨ | Accelerated filer |
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| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | ¨☐ | Smaller reporting company |
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☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if that 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 Act). Yes ¨☐ No þ
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $1.2$1.4 billion based on the reported last sale price of common stock on June 30, 2017,2019, which was the last business day of the registrant’s most recently completed second quarter.
As of February 12, 2018,10, 2020, there were 20,911,54318,374,353 shares of our common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 20182020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of December 31, 2017,2019, are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
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| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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| Item 15. | | |
| Item 16. | | |
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GLOSSARY OF DEFINITIONS
The following are abbreviations and definitions of terms used within this report: |
| | |
| Terms | | Definitions |
| ASC | | Accounting Standards Codification |
| ASU | | Accounting Standards Update |
| Brexit | | Withdrawal of the U.K. from the EU |
| BRL | | Brazilian Real (R$) |
| EPA | | Environmental Protection Agency |
| EPS | | Earnings per share |
| EU | | European Union |
| F&I | | Finance, insurance and other |
| FASB | | Financial Accounting Standards Board |
| GBP | | British Pound Sterling (£) |
| GHG | | Greenhouse gas |
| LIBOR | | London Interbank Offered Rate |
| NYSE | | New York Stock Exchange |
| OEM | | Original equipment manufacturer |
| PRU | | Per Retail Unit |
| ROU | | Right-of-use |
| RSA | | Restricted stock award |
| RSU | | Restricted stock unit |
| SEC | | Securities and Exchange Commission |
| SG&A | | Selling, general and administrative |
| Tax Act | | Tax Cuts and Jobs Act |
| USD | | United States Dollar |
| U.K. | | United Kingdom |
| U.S. | | United States of America |
| U.S. GAAP | | Accounting principles generally accepted in the U.S. |
| WACC | | Weighted average cost of capital |
| WLTP | | Worldwide Harmonised Light Vehicle Test Procedure |
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information includes statements regarding our strategy, plans, goals or current expectations with respect to, among other things:
our future operating performance;
our ability to maintain or improve our margins;
operating cash flows and availability of capital;
the completion of future acquisitions and divestitures;
the future revenues of acquired dealerships;
future stock repurchases, refinancing of debt, and dividends;
future capital expenditures;
changes in sales volumes and availability of credit for customer financing in new and used vehicles and sales volumes in the parts and service markets;
business trends in the retail automotive industry, including the level of manufacturer incentives, new and used vehicle retail sales volume, customer demand, interest rates and changes in industry-wide inventory levels;
manufacturer quality issues, including the recall of vehicles and any related negative impact on vehicle sales and brand reputation;
availability of financing for inventory, working capital, real estate and capital expenditures; and
implementation of international or domestic trade tariffs.changes in regulatory practices, tariffs and taxes, including Brexit.
Although we believe that the expectations reflected in these forward-looking statements are reasonable when and as made, we cannot assure you that these expectations will prove to be correct or that future developments affecting us will be those that we anticipate. When used in this Form 10-K, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may” and similar expressions, as they relate to our company and management, are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause our actual results to differ from those in the forward-looking statements are those described in Part I, “Item 1A. Risk Factors.”
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made, except as required by law.
PART I
Item 1. Business
General
Group 1 Automotive, Inc., a Delaware corporation organized in 1995, is a leading operator in the automotive retail industry. Unless the context requires otherwise, references to “we,” “us,” “our,” or “the Company” are intended to mean the business and operations of Group 1 Automotive, Inc. and its subsidiaries. As of December 31, 2017, we owned and operated 227 franchises, representing 32 brands2019, our retail network consisted of automobiles, at 173 dealership locations and 48 collision centers worldwide. We own 151 franchises at 115 dealership locations and 30 collision service centers119 dealerships in the United States of America (“U.S.”), 55 franchises at 42 dealership locations and 11 collision centers50 dealerships in the United Kingdom (“U.K.”) and 21 franchises at 16 dealership locations17 dealerships in Brazil. Our operations are primarily located in major metropolitan areas in 15 states in the U.S., 33 towns in the U.K., and seven collision centersthree states in Brazil. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our
The following charts present the total revenue and gross profit contribution from our U.S., U.K. and Brazil operations are primarily located in major metropolitan areas in Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina,by new vehicle, used vehicle, parts and Texas inservice, and F&I for the U.S., in 28 towns in the U.K., and in key metropolitan markets in the states of Sao Paulo, Parana, Mato Grosso do Sul and Santa Catarina in Brazil.year ended December 31, 2019:
As discussed in more detail in Note 2 of19 “Segment Information” within our Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policieswe have three regions, which comprise our reportable segments: (1) U.S., (2) U.K., and Estimates,” all of our operating subsidiaries are aligned into one of three operating segments (or regions): the U.S., the U.K. and(3) Brazil. The U.S. and Brazil segments are led by the President, of U.S. and Brazilian Operations, reportsand the U.K segment is led by a Managing Director, each reporting directly to the Company'sour Chief Executive Officer, who is the Chief Operating Decision Maker. The President, U.S. and isBrazilian Operations, and the U.K Managing Director are responsible for the overall performance of the U.S. region,their respective regions, as well as for overseeing field level management. The U.S. segment includes the market directors and dealership general managers. The operationsactivities of the Company's two international regions are structured similar to the U.S. region, each with a regional vice president reporting directly to the Company's Chief Executive Officer. Our financial information, including our revenues from external customers, a measure of profit or loss, and total assets, is segregated into our three operating segments and included in our Consolidated Financial Statements and related notes beginning on page F-1.corporate office.
Business Strategy
Our business strategy primarily focuses on the performance of our existing dealerships to achieve growth, capture market share, and maximize the investment return to our stockholders and also focuses on enhancing our dealership portfolio through strategic acquisitions and dispositions. We constantly evaluate opportunities to improve the overall profitability of our dealerships. For 2020, our priorities are:
Used Vehicle Retail Growth
Gross profit from the sale of used vehicles depends primarily on a dealership’s ability to obtain a high-quality supply of used vehicles at reasonable prices. Our new vehicle operations generally provide our used vehicle operations with a large supply of high-quality trade-ins and off-lease vehicles, which are our best source of used vehicle inventory. Our dealerships supplement their used vehicle inventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers.
Our data driven pricing strategies ensure that our used vehicles are priced at market to generate more traffic to our websites. We review our market pricing on a regular basis and work to limit discounting from our advertised prices.
In the first quarter of 2018 in the U.S., we launched a sales program called “Val-U-Line®,” a strategic used vehicle initiative that targets a growing customer niche and enables us to retail lower cost, higher mileage units that would otherwise have been sent to the auction. Leveraging our scale, internal on-line buying center, internal auction capability and transportation infrastructure, the Val-U-Line® initiative has provided incremental retail volume and represented approximately 10% of our U.S. retail used car business in 2019.
Parts and Service Growth
Sustained growth of our higher margin parts and service operations continues to hinge on the retention and hiring of service technicians and advisors. Our newly implemented four-day work week has been rolled out in 75 U.S. dealerships as of December 31, 2019, resulting in an increase to our same store service technician headcount of approximately 320 employees or approximately 13% since December 31, 2018. The four-day work week has allowed us to extend our hours of operations, thereby expanding our service capacity without investing additional capital in buildings. We seek to increase the retention of our customers through more convenient service hours, training of our service advisors, selling service contracts with vehicles sales and customer relationship software that allows us to provide target marketing to our customers. The increasing complexity of vehicles, especially in the area of electrics and technological advancements, is making it difficult for independent repairs shops to retain the expertise and technology to work on these vehicles and provides us the opportunity to increase our market share.
Digital Initiatives to Enhance the Customer Experience
Our digital initiatives focus on ensuring that we can do business with our customers where and when they want to do business. Our online new and used vehicle retail platform, “AcceleRide®”, was deployed to all of our U.S. dealerships in 2019. The platform allows a customer to complete a vehicle transaction entirely online or start the sales process online and complete the transaction at our dealerships. Parts and service digital efforts focus on our online customer scheduling appointment system. We have seen continued growth in the percentage of appointments scheduled online over the past few years as we have continued to enhance this tool, with approximately 26% of our U.S. service appointments scheduled online in 2019.
Cost Management as We Continue to Grow Gross Profit
We continue our efforts to fully leverage our scale and cost structure. As our business grows in 2020 and beyond, we intend to manage our costs carefully and to look for additional opportunities to improve our processes and disseminate best practices. We believe that we have developed a distinguishedour management team with substantial industry expertise. Ourstructure supports more rapid decision making and facilitates an efficient and effective roll-out of new processes.
A key to the execution of our business strategy is tothe leverage of what we believe to be one of our key strengths — the talent of our people. We are focused on the retention and training of our talented dealership employees. We believe that we have developed a distinguished management team with substantial industry expertise. With our management structure and level of executive talent, we plan to continue empowering the operators of our dealerships to make appropriate decisions to grow their respective dealership operations and to control fixed and variable costs. We believe this approach allows us to provide the best possible service to our customers, as well as attract and retain talented employees.
Our business strategy primarily focuses on the performance of our existing dealerships to achieve growth, capture market share, and maximize the investment return to our stockholders. We are constantly evaluating opportunities to improve the overall profitability of our dealerships. For 2018, our priorities will be on four key areas as we continue to become a best-in-class automotive retailer. These areas are:
sustained growth of our higher margin parts and service business. Our focus on growth in our parts and service operations continues to hinge on targeted marketing efforts, strategic selling and operational efficiencies, as well as capital investments designed to support our growth targets;
improvement of new and used vehicle retail margins, as well as total new and used vehicle retail profitability. Our efforts to improve are centered on the efficient and effective use of technology and advertising to enhance our sales efforts, as well as the more efficient management of inventory;4
promotion of the customer experience and customer satisfaction, in all areas of our business; and
improvement of operating efficiencies, through further development of our operating model that promotes commonality of processes, systems and training, to further leverage of our cost base. We made significant changes in our operating model during the last six years, which were designed to reduce variable and fixed expenses. And, we continue our efforts to fully leverage our scale, reduce costs, enhance internal controls, and enable further growth. As our business grows in 2018 and beyond, we intend to manage our costs carefully and to look for additional opportunities to improve our processes and disseminate best practices. We believe that our management structure supports more rapid decision making and facilitates an efficient and effective roll-out of new processes.
We will continue to focus on opportunities for enhancement ofto enhance our current dealership portfolio bythrough strategic acquisitions and improving or disposing of underperforming dealerships. We believe that substantial opportunities for growth through acquisitions remain in our industry in the U.S., the U.K. and Brazil. An absolute acquisition target has not been established for 2018,2020, but we expect to acquire dealerships that provide attractive returns on investment. We believe that as of December 31, 2017,2019, we have sufficient financial resources to support additional acquisitions. We plan to focus our growth in geographically diverse areas with positive economic outlooks over the longer-term. Further, we intend to continue to critically evaluate our return on
invested capital in our current dealership portfolio for disposition opportunities. In 2017, we completed the acquisition of 12 U.K. dealerships, inclusive of 14 franchises, and opened one additional dealership for one awarded franchise in the U.K., with expected aggregate annualized revenues of $360.0 million, as estimated at the time of the acquisitions. In addition, the Company acquired three dealerships in the U.S., inclusive of four franchises, opened one dealership for one awarded franchise in the U.S. and added motorcycles to an existing BMW dealership in Brazil, with expected aggregate annualized revenues of $130.0 million, estimated at the time of the acquisitions. For more information on our acquisitions and dispositions, including those occurring in 2017, see “Acquisition and Divestiture Program” for further details.
Dealership Operations
Our operations are located in geographically diverse markets that extend domestically across 15 states aggregated into one U.S. region, and internationally in the U.K. and Brazil, representing our three reportable segments;segments: U.S., U.K. and Brazil. See Note 2019 “Segment Information” within our Notes to our Consolidated Financial Statements “Segment Information”, for further financial information on our three operatingreportable segments. For a discussion of the risks associated with our operations in the U.S., U.K. and Brazil, please see Part I “Item 1A. Risk Factors.” The following table sets forth the regions
Through our dealerships, we sell new and geographic markets in which we operate, the percentage ofused cars and light trucks; arrange related vehicle financing; sell service and other insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our new vehicle retail units sold in each region in 2017 and the number of dealerships and franchises in each region:
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| Region | | Geographic Market | | Percentage of Our New Vehicle Retail Units Sold During the Year Ended December 31, 2017 | | As of December 31, 2017 |
Number of Dealerships | | Number of Franchises |
| United States | | Texas | | 37.0 | % | | 52 |
| | 70 |
|
| | | California | | 7.5 |
| | 7 |
| | 12 |
|
| | | Oklahoma | | 6.1 |
| | 13 |
| | 20 |
|
| | | Massachusetts | | 4.6 |
| | 5 |
| | 5 |
|
| | | Georgia | | 4.6 |
| | 7 |
| | 10 |
|
| | | Florida | | 2.6 |
| | 4 |
| | 4 |
|
| | | New Hampshire | | 2.0 |
| | 3 |
| | 3 |
|
| | | Louisiana | | 1.9 |
| | 4 |
| | 6 |
|
| | | New Jersey | | 1.7 |
| | 4 |
| | 4 |
|
| | | Kansas | | 1.6 |
| | 4 |
| | 4 |
|
| | | South Carolina | | 1.4 |
| | 3 |
| | 3 |
|
| | | Mississippi | | 1.3 |
| | 3 |
| | 3 |
|
| | | Alabama | | 1.0 |
| | 2 |
| | 2 |
|
| | | Maryland | | 0.4 |
| | 2 |
| | 2 |
|
| | | New Mexico | | 0.1 |
| | 2 |
| | 3 |
|
| | | | | 73.8 |
| | 115 |
| | 151 |
|
| International | | United Kingdom | | 21.3 |
| | 42 |
| | 55 |
|
| | | Brazil | | 4.9 |
| | 16 |
| | 21 |
|
| Total | | | | 100.0 | % | | 173 |
| | 227 |
|
Each of our local operations has a management structure designed to promote and reward entrepreneurial spirit and the achievement of team goals. The general manager of each dealership, with assistance from the managers ofrevenue includes new vehicle sales usedand new vehicle sales, parts, service, collision and finance and insurance departments, is ultimately responsible for the operation, personnel and financial performance of the dealership. Our dealerships are operated as distinct profit centers, and our general managers have a reasonable degree of empowerment within our organization.
New Vehicle Retail Sales
In 2017, welease transactions, sold 172,200 new vehicles in retail transactions at our dealerships representing 32 brands. Ouror via our internet sites. We sell retail sales of newused vehicles accounted for 19.6% ofdirectly to our gross profit in 2017. In addition to the profit related to the transactions, a typical new vehicle retail sale or lease may create the following additional profit opportunities for our dealerships:
manufacturer dealer incentives;
the resale of any used vehicle trade-in purchased by the dealership;
arrangement of third-party financing in connection with the retail sale;
the sale of vehicle service and insurance contracts;
the sale of vehicle parts, accessories or other after-market products; and
the service and repair of the vehicle both during and after the warranty period.
We consider brand diversity to be one of our strengths. The following table sets forth our consolidated new vehicle sales revenue by brand and the number of new vehicle retail units sold in the year ended, and the number of franchises we owned as of December 31, 2017:
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| | | New Vehicle Revenues | | New Vehicle Unit Sales | | % of Total Units Sold | | Franchises Owned |
| | | (In thousands) | | | | | | |
| Toyota | | $ | 1,088,652 |
| | 36,419 |
| | 21.1 | % | | 17 |
|
| BMW | | 767,231 |
| | 16,574 |
| | 9.7 |
| | 28 |
|
| Ford | | 707,123 |
| | 19,557 |
| | 11.4 |
| | 19 |
|
| Audi | | 656,506 |
| | 17,924 |
| | 10.4 |
| | 13 |
|
| Mercedes-Benz | | 389,194 |
| | 6,236 |
| | 3.6 |
| | 8 |
|
| Honda | | 371,458 |
| | 13,351 |
| | 7.8 |
| | 11 |
|
| Nissan | | 369,486 |
| | 12,729 |
| | 7.4 |
| | 9 |
|
| Lexus | | 348,392 |
| | 7,156 |
| | 4.2 |
| | 4 |
|
| Chevrolet | | 266,607 |
| | 6,690 |
| | 3.9 |
| | 6 |
|
| MINI | | 136,131 |
| | 5,329 |
| | 3.1 |
| | 18 |
|
| Volkswagen | | 110,793 |
| | 4,513 |
| | 2.6 |
| | 12 |
|
| GMC | | 109,387 |
| | 2,170 |
| | 1.3 |
| | 5 |
|
| Hyundai | | 105,040 |
| | 4,013 |
| | 2.3 |
| | 5 |
|
| Jeep | | 102,256 |
| | 2,859 |
| | 1.7 |
| | 6 |
|
| Acura | | 101,283 |
| | 2,531 |
| | 1.5 |
| | 4 |
|
| RAM | | 100,053 |
| | 2,190 |
| | 1.3 |
| | 6 |
|
| Land Rover | | 73,296 |
| | 1,100 |
| | 0.6 |
| | 7 |
|
| Kia | | 67,615 |
| | 2,786 |
| | 1.6 |
| | 5 |
|
| Cadillac | | 66,685 |
| | 1,213 |
| | 0.7 |
| | 2 |
|
| Dodge | | 45,670 |
| | 1,285 |
| | 0.7 |
| | 6 |
|
| Subaru | | 40,011 |
| | 1,443 |
| | 0.8 |
| | 2 |
|
| Jaguar | | 31,942 |
| | 592 |
| | 0.3 |
| | 7 |
|
| Buick | | 23,257 |
| | 640 |
| | 0.4 |
| | 5 |
|
| Sprinter | | 21,550 |
| | 487 |
| | 0.3 |
| | 6 |
|
| Chrysler | | 15,206 |
| | 358 |
| | 0.2 |
| | 6 |
|
| SEAT | | 15,166 |
| | 1,104 |
| | 0.6 |
| | 1 |
|
| Lincoln | | 8,758 |
| | 177 |
| | 0.1 |
| | 3 |
|
| Mazda | | 8,758 |
| | 325 |
| | 0.2 |
| | 1 |
|
| Skoda | | 3,435 |
| | 145 |
| | 0.1 |
| | 1 |
|
| Vauxhall | | 3,429 |
| | 186 |
| | 0.1 |
| | 1 |
|
| Volvo | | 1,691 |
| | 32 |
| | — |
| | 1 |
|
| Smart | | 1,470 |
| | 86 |
| | — |
| | 2 |
|
| Total | | $ | 6,157,531 |
| | 172,200 |
| | 100.0 | % | | 227 |
|
Our diversity by manufacturer, based on new vehicle unit sales for the years ended December 31, 2017, 2016, and 2015, is set forth below:
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| | | For the Year Ended December 31, |
| | | 2017 | | % of Total | | 2016 | | % of Total | | 2015 | | % of Total |
Toyota/Scion/Lexus (1) | | 43,575 |
| | 25.3 | % | | 42,922 |
| | 24.9 | % | | 46,157 |
| | 26.5 | % |
| Volkswagen/Audi/Porsche | | 22,437 |
| | 13.0 |
| | 18,935 |
| | 11.0 |
| | 12,106 |
| | 6.9 |
|
| BMW/MINI | | 21,903 |
| | 12.7 |
| | 23,305 |
| | 13.5 |
| | 20,283 |
| | 11.6 |
|
| Ford/Lincoln | | 19,733 |
| | 11.5 |
| | 18,925 |
| | 11.0 |
| | 19,882 |
| | 11.4 |
|
| Honda/Acura | | 15,882 |
| | 9.2 |
| | 17,031 |
| | 9.9 |
| | 19,019 |
| | 10.9 |
|
| Nissan | | 12,729 |
| | 7.4 |
| | 12,256 |
| | 7.1 |
| | 14,570 |
| | 8.4 |
|
| Chevrolet/GMC/Buick/Cadillac | | 10,713 |
| | 6.2 |
| | 12,811 |
| | 7.4 |
| | 13,307 |
| | 7.6 |
|
| Mercedes-Benz/smart/Sprinter | | 6,809 |
| | 4.0 |
| | 7,349 |
| | 4.3 |
| | 7,466 |
| | 4.3 |
|
| Hyundai/Kia | | 6,799 |
| | 3.9 |
| | 7,256 |
| | 4.2 |
| | 10,046 |
| | 5.6 |
|
| Chrysler/Dodge/Jeep/RAM | | 6,692 |
| | 3.9 |
| | 6,801 |
| | 4.0 |
| | 7,962 |
| | 4.6 |
|
| Other | | 4,928 |
| | 2.9 |
| | 4,462 |
| | 2.7 |
| | 3,816 |
| | 2.2 |
|
| Total | | 172,200 |
| | 100.0 | % | | 172,053 |
| | 100.0 | % | | 174,614 |
| | 100.0 | % |
(1) The Scion brand was discontinued by Toyota during the third quarter of 2016.
Our new vehicle unit sales mix was affected by our acquisitions and dispositions during 2017, 2016 and 2015.
Some new vehicles we sell are purchased by customers under lease or lease-type financing arrangements with third-party lenders. New vehicle leases generally have shorter terms, bringing the customer back to the vehicle market, andat our dealerships specifically, sooner than if the vehicle purchase was debt financed. In addition, lease or lease-type customer financing arrangements providevia our dealerships with a steady supply of late-model, off-lease vehicles to be sold as used vehicles. Generally, leased vehicles remain under factory warranty, allowing the opportunity for our dealerships to provide maintenanceinternet sites and repair services for the contract term. However, the penetration rate for other finance and insurance product sales on leases and lease-type customer financing arrangements tends to be less than in other financing arrangements (such as debt financed vehicles). We do not guarantee residual values on lease transactions. Lease vehicle unit sales represented 14.6%, 16.7% and 16.5% of our total new vehicle retail unit sales for the years ended December 31, 2017, 2016 and 2015, respectively.
Used Vehicle Sales, Retail and Wholesale
We sellwholesale used vehicles at each of our franchised dealerships. In 2017, we sold 129,933 used vehicles at our dealerships, and sold 57,144 used vehicles in wholesale markets. Our retail sales of used vehicles accounted for 10.8% of our gross profit in 2017. Used vehicles sold at retail typically generate higher gross margins on a percentage basis than new vehicles primarily because of their relatively limited comparability, which is dependent on a vehicle’s age, mileage and condition, among other things.
Valuations of used vehicles vary based on supply and demand factors, the level of new vehicle incentives, and the availability of retail financing and general economic conditions. Profit from the sale of used vehicles depends primarily on a dealership’s ability to obtain a high-quality supply of used vehicles at reasonable prices and to effectively manage that inventory. Our new vehicle operations generally provide our used vehicle operations with a large supply of high-quality trade-ins and off-lease vehicles, and are the best source of high-quality used vehicles. Our dealerships supplement their used vehicle inventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers. We continue to utilize used vehicle management software tools with the goal to enhance the management of used vehicle inventory, focusing on the more profitable retail used vehicle business and reducing our wholesale used vehicle business. This internet-based software tool is an integral part of our used vehicle process, enabling our managers to make used vehicle inventory decisions based on real time market valuation data. It also allows us to leverage our size and local market presence by expanding the pool from which used vehicles can be sold within a given market or region within the U.S., effectively broadening the demand for our used vehicle inventory. In addition, this software supports increased oversight of our assets in inventory, allowing us to better control our exposure to declines in used vehicles market valuations, the values of which typically decrease over time.
In addition to active management of the quality and age of our used vehicle inventory, we are focused on increasing the total lifecycle profitability of our used vehicle operations by participating in manufacturer certification programs where available. Manufacturer certified pre-owned (“CPO”) vehicles offer customers the opportunity to purchase a used vehicle that has passed a rigorous array of manufacturer-defined tests, and are eligible for manufacturer support, such as subsidized finance
rates, the extension of manufacturer’s service warranty and other benefits. With the extended service warranty, the sale of CPO vehicles tends to generate better ongoing customer loyalty for maintenance and repair services at the selling dealership. CPO vehicles typically cost more to recondition, but sell at a premium compared to other used vehicles and are available only from franchised new vehicle dealerships. Our CPO vehicle sales represented 39.7% of total used retail sales in 2017.
Parts and Service Sales
auctions. We sell replacement parts and provide both warranty and non-warranty (i.e., customer-pay) maintenance and repair services at each of our franchised dealerships, as well as provide collision repair services at the 4849 collision centers that we operate. We also sell parts to wholesale customers. Our parts and service business accounted for 43.7% of our gross profit in 2017. Customer-pay maintenance and repair services, warranty maintenance and repair services, wholesale parts sales and collision repair services accounted for 44.4%46.5%, 21.4%20.8%, 20.3%19.9% and 13.9%12.8%, respectively, of the revenues from our parts and service business in 2017. Our parts and service departments also perform used vehicle reconditioning and new vehicle enhancement services in support of our new and used retail vehicle operations for which they realize a profit. However, the revenue for that internal work is eliminated from our parts and service revenue in the consolidation of our financial statements.
The automotive maintenance and repair industry is highly fragmented, with a significant number of independent maintenance and repair facilities in addition to those of the franchised dealerships. We believe, however, that the increasing complexity of new vehicles, especially in the area of electronics and technological advancements, is making it difficult for many independent repair shops to retain the expertise necessary to perform major or technical repairs. We have made investments in recruiting, training, and retaining qualified technicians to work in our service and repair facilities. And, we have made investments in state of the art diagnostic and repair equipment to be utilized by these technicians.
Vehicle manufacturers only permit warranty and recall work to be performed at franchised dealerships. Currently, a trend exists in the automobile industry towards longer new vehicle warranty periods and more diligence with manufacturer recalls. As a result, we believe that over time an increasing percentage of all repair work will be performed at franchised dealerships that have the necessary sophisticated equipment and skilled personnel necessary to perform repairs and warranty work on today’s complex vehicles.
Our strategy to capture an increasing share of the available parts and service business and enhance profitability includes the following elements:
Focus on Customer Relationships; Emphasize Preventative Maintenance. Our dealerships seek to retain customers of our new and used vehicles as ongoing clients of our parts and service departments. To accomplish this goal, we use computer systems that track the vehicle owners’ maintenance records and provide advance notice to them when their vehicles are due for periodic service. Our use of computer-based customer relationship management tools increases the reach and effectiveness of our marketing efforts, allowing us to target our promotional offerings to areas in which service capacity is under-utilized or profit margins are greatest. We continue to train our service personnel to establish relationships with their service clients to promote a long-term business relationship. And, we are focused on enhancing access to our service facilities by providing patrons with readily-accessible means to schedule service appointments. We believe our parts and service activities are an integral part of the customer service experience, allowing us to maintain ongoing relationships with our dealerships’ clients thereby deepening customer loyalty to the dealership as a whole.
Sell Vehicle Service Contracts in Conjunction with Vehicle Sales. Our finance and insurance sales departments attempt to connect new and used vehicle customers with vehicle service contracts, and thereby enhance repeat customer business for our parts and service departments.
Efficient Management of Parts Inventory. Our dealerships’ parts departments support their vehicle sales and service departments, selling factory-approved parts for the respective vehicle makes and models. Parts are either used in repairs made in the service department, sold at retail to customers, or sold at wholesale to independent repair shops and other franchised dealerships. Our dealerships also frequently share parts with each other. Our dealerships employ parts managers who oversee parts inventories and sales. Software programs are used to monitor parts inventory, maximize sales, avoid obsolete and unused parts, and make the best use of manufacturer return procedures.
Expansion of Collision Center Operations. We plan to continue to grow our collision center operations. Expansion in this segment of the business is not restricted by franchise agreements or manufacturer relationships. We believe that our concentration of dealership operations in certain of the markets in which we currently operate significantly enhances the profit model opportunities for our collision center operations.
Finance and Insurance Sales
2019. Revenues from our finance and insuranceF&I operations consist primarily of fees for arranging financing and selling vehicle service and insurance contracts in connection with the retail purchase of a new or used vehicle. Our finance and insurance business accounted for 26.1% of our gross profit in 2017. We offer a wide variety of third-party finance, vehicle service and insurance products in a convenient manner and at competitive prices. To increase transparency to our customers, we offer all of our products on menus that display pricing and other information, allowing customers to choose the products that suit their needs.
Financing. We arrange third-party purchaseThe following chart sets forth the regions and lease financing for our customers. In return, we receive a fee from the third-party finance company upon completion of the financing. These third-party finance companies include manufacturers’ captive finance subsidiaries, selected commercial banks and a variety of other third-parties, including credit unions and regional auto finance companies. Generally, we do not retain substantial credit risk after a customer has received financing. The fees we receive from the third-party finance companies are subject to chargeback, or repayment, to the finance companygeographic markets in full or in part, if a customer defaults or prepays the financing contract, typically during some limited time period at the beginning of the contract term. We have negotiated incentive programs with some finance companies pursuant to which we receive additional fees upon reaching a certain volume of business.
Extended Warranty, Vehicle Serviceoperate and Insurance Products. We offer our customers a variety of vehicle warranty and extended protection products in connection with purchasesthe percentage of new vehicle retail units sold in each region for the year ended December 31, 2019:
(1) Other includes LA 3%, NH 2% NJ 2% SC 2%, MS 2%, KS 2%, AL 1%, MD 1% and used vehicles, including:NM 1%.
extended warranties;
maintenance, or vehicle service, products and programs;
guaranteed asset protection insurance, which covers the shortfall between a customer’s contract balance and insurance payoff in the event of a total vehicle loss; and
lease “wear and tear” insurance.
The products our dealerships offer are generally underwritten and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries. Under our arrangements with the providers of these products, we either sell these products on a straight commission basis, or we sell the product, recognize commission and participate in future underwriting profit, if any, pursuant to a retrospective commission arrangement. These commissions may be subject to chargeback, in full or in part, if the contract is terminated prior to its scheduled maturity.
Our strategy to improve the customer experience and enhance profitability of our finance and insurance operations includes the following elements:
Continue to enhance our product offerings. We are constantly evaluating the mix of insurance products that we offer our customers to ensure that their needs are met. In addition, we regularly work with our current and prospective insurance product providers to assess new product offerings and match them with changing markets and customer demand. Further, we routinely consider our relationships with finance company and insurance product providers, as well as our marketing and other strategies to expand the accessibility of our product offerings to more of our clients.
Improve our processes within the dealership. We routinely consider software and other technological improvements that can make the process by which a customer finances a vehicle purchase and/or purchases an insurance product more efficient. Further, we maintain a focus on compliance with our standard policies and procedures, as well as applicable laws and regulations, in order to optimize the customer experience and overall profitability of each transaction.
New and Used Vehicle Inventory Financing
See Note 11 to our Consolidated Financial Statements, “Credit Facilities,” for a detailed description of our new and used vehicle inventory financing arrangements.
The following chart presents our diversity of new vehicle unit sales by manufacturer for the year ended December 31, 2019:
The following table shows our franchises and new vehicle revenues by manufacturer as of December 31, 2019 (in millions):
|
| | | | | | |
| | New Vehicle Revenues | | Franchises |
| Toyota/Lexus | $ | 1,407.2 |
| | 25 |
|
| BMW/MINI | 916.3 |
| | 46 |
|
| Volkswagen/Audi/Porsche/SEAT/SKODA | 849.4 |
| | 33 |
|
| Ford/Lincoln | 691.8 |
| | 21 |
|
| Honda/Acura | 531.7 |
| | 18 |
|
| Chevrolet/GMC/Buick/Cadillac | 498.6 |
| | 18 |
|
| Mercedes-Benz/Smart/Sprinter | 459.4 |
| | 21 |
|
| Nissan | 287.4 |
| | 9 |
|
| Chrysler/Dodge/Jeep/RAM | 242.6 |
| | 20 |
|
| Jaguar/Land Rover | 196.6 |
| | 17 |
|
| Hyundai/Kia/Genesis | 170.5 |
| | 11 |
|
| Other | 62.7 |
| | 3 |
|
| | $ | 6,314.1 |
| | 242 |
|
Acquisition and Divestiture Program
We pursue an acquisition and divestiture program focused on delivering an attractive return on investment.
Acquisition Strategy.
We seek to acquire large, profitable, well-established dealerships and franchises that are leaders in their markets to:
enhance brand and geographic diversity with a primary focus on import and luxury brands;
expand into geographic areas we currently do not serve;
expand our brand, product, and service offerings in our existing markets;
expand into geographic areas we currently do not serve; and/or
capitalize on economies of scale and cost savings opportunities in our existing markets in areas such as used vehicle sourcing, advertising, purchasing, data processing, personnel utilization, and the cost of floorplan financing, thereby, increaseincreasing operating efficiency.
We typically pursue dealerships with superior operational management, whom we seek to retain. By retaining existing personnel who have experience and in-depth knowledge of their local market, we believe that we can mitigate the risks involved with employing and training new and untested personnel.Recent Acquisitions
In addition, our acquisition strategy targets the purchase of the related real estate to provide maximum operating flexibility.
We focus on the acquisition of dealerships or groups of dealerships that we believe offer opportunities for higher returns, and particularly on brands which provide growth opportunities for our parts and service operations and strengthen our operations in geographic regions in which we currently operate with attractive long-term economic prospects.
Recent Acquisitions. In 20172019, we acquired 12 U.K.four dealerships inclusive of 14representing six franchises and opened one additional dealership for one awarded franchise in our U.K. segment. We also acquired three dealerships in the U.S., and four dealerships representing fourfive franchises in the U.K. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $143.2 million. We also opened one dealership forrepresenting one awarded franchise in the U.S. and added motorcyclestwo dealerships representing three franchises in the U.K.
See Note 3 “Acquisitions and Dispositions” within our Notes to an existing BMW dealership in Brazil. The expected aggregate annualized revenues, estimated at the time of these acquisitions were $490.0 million.Consolidated Financial Statements for additional details.
Divestiture Strategy.Strategy
We continually review the investments in our dealership portfolio for disposition opportunities based upon a number of criteria including:
the rate of return on our capital investment over a period of time;
location of the dealership in relation to existing markets and our ability to leverage our cost structure;
potential future capital investment requirements;
the brand; and
existing real estate obligations, coupled with our ability to exit those obligations or identify an alternate use for real estate.
While it isRecent Dispositions
During 2019, our desire to only acquire profitable, well-establisheddispositions included four dealerships we have at times, acquired dealerships that do not fit our acquisition strategy in connection with the acquisition of a larger dealership group. We acquire such dealerships with the understanding that we may need to divest some or all of them at some future time. The costs associated with such potential divestitures are included in our analysis of whether we acquire all dealershipsrepresenting seven franchises and two terminated franchises in the same acquisition. Additionally, we may acquire a dealership whose profitability is marginal, but which we believe can be increased through various factors, such as: (a) changeU.S., three dealerships representing four terminated franchises in management, (b) expansion or improvement in facility operations, (c) relocation of facility based on demographic changes, (d) reduction in costs, and/or (e) sales training. If, after a period of time, a dealership’s profitability does not positively respond, we will seek to sell the dealership to a third party, or, in a rare case, surrender the franchise back to the manufacturer. In conjunction with the disposition of certain of our dealerships, we may also dispose of the associated real estate. Management constantly monitors the performance of all of our dealerships, and routinely assesses the need for divestiture. In connection with divestitures, we are sometimes required to incur additional charges associated with lease terminations or the impairment of long-lived and/or intangible, indefinite-lived assets. We continue to rationalize our dealership portfolio and focus on increasing the overall profitability of our operations.
Recent Dispositions. During 2017, we disposed of two dealerships in Brazil, representing two franchises,U.K. and one dealership in the U.K., representing one franchise with aggregate annualized revenues of approximately $35.0 million.in Brazil. We recorded a net pre-tax gain totaling $5.0 million related to these dispositions. See Note 3 “Acquisitions and Dispositions” within our Notes to Consolidated Financial Statements for additional details.
Competition
We operate in a highly competitive industry. In each of our markets, consumers have a number of choices when deciding where to purchase a new or used vehicle and how the purchase will be financed. Consumers also have options for the purchase
of related parts and accessories, as well as the maintenance service and repair of vehicles. In the U.S., according to Thethe National Automobile Dealers Association, there were approximately 16,70816,750 franchised automobile dealerships as of January 1, 20172019, which was updown from 16,545approximately 16,800 as of January 1, 20162018. In the U.K., according to the National Franchised Dealers Association, there were approximately 4,1844,190 franchised dealerships based on a survey conducted as of January 1, 2017,July 2019, which was updown from 4,065approximately 4,240 as of January 1, 2016.the survey conducted in 2018. In Brazil, according to The National Association of Automobile Manufacturers,the Brazilian Automotive Industry Yearbook, there were approximately 4,3934,020 franchised automobile dealerships as of January 1, 2017,2019, which was updown from 4,389approximately 4,290 as of January 1, 2016.2018.
Our competitive success depends, in part, on national and regional automobile-buying trends, local and regional economic factors, and other regional competitive pressures. Conditions and competitive pressures affecting the markets in which we operate, or in any new markets we enter, could adversely affect us, although the retail automobile industry as a whole might not be affected. Some of our competitors may have greater financial, marketing and personnel resources, and lower overhead and sales costs than we do. We cannot guarantee that our operating performance and our acquisition or disposition strategies will be more effective than the strategies of our competitors.
New and Used Vehicles.Vehicles
We believe the principal competitive factors in the automotive retailing business are location, suitability of the facility, on-site management, the acceptance of a franchise to the market in which it is located, concentration of same franchises in the surrounding markets, service, price, and selection. In the new vehicle market, our dealerships compete with other franchised dealerships in their market areas, as well as auto brokers, leasing companies, and internet companies that provide referrals to, or broker vehicle sales with, other dealerships or customers. We are subject to competition from dealers that sell the same brands of new vehicles that we sell and from dealers that sell other brands of new vehicles that we do not sell in a particular market. Our new vehicle dealer competitors also have franchise agreements with the various vehicle manufacturers and, as such, generally have access to new vehicles on the same terms as we do. We do not have any cost advantage in purchasing new vehicles from vehicle manufacturers, and our franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area.
In the used vehicle market, our dealerships compete both in their local market and nationally, including over the internet, with other franchised dealers, large multi-location used vehicle retailers, local independent used vehicle dealers, automobile rental agencies, and private parties for the supply and resale of used vehicles.
Parts Service and Collision Businesses.Service
We believe the principal competitive factors in the parts and service business are the quality of customer service, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, accessibility and convenience for potential customers, access to and use of technology required for certain repairs and services (e.g., software patches, diagnostic equipment, etc.), location, price, the availability and competence of technicians, and the availability of training programs to enhance such expertise. In the parts and service market, our dealerships compete with other franchised dealers to perform warranty maintenance and repairs, conduct manufacturer recall services and sell factory replacement parts. Our dealerships also compete with other automobile dealers, franchised and independent service center chains, and independent repair shops for non-warranty repair and maintenance business. In addition, our dealerships sell replacement and aftermarket parts both locally and nationally over the internet in competition with franchised and independent retail and wholesale parts outlets. A number of regional or national chains offer selected parts and services at prices that may be lower than ours. Our collision centers compete with other large, multi-location companies, as well as local, independent, collision service operations.
Finance and Insurance. F&I
We believe the principal competitive factors in the finance and insuranceF&I business are convenience, interest rates, product availability and affordability, product knowledge and flexibility in contract length. We face competition in arranging financing for our customers’ vehicle purchases from a broad range of financial institutions. Many financial institutions now offer finance and insuranceF&I products over the internet, which may reduce our profits from the sale of these products. We may be charged back for unearned financing, insurance contracts or vehicle service contract fees in the event of early termination of the contracts by customers.
Acquisitions. Acquisitions
We compete with other national dealer groups and individual investors for acquisitions. Increased competition, especially for certain luxury and import brands, may raise the cost of acquisitions. In the future, we cannot guarantee that there will be opportunities to complete acquisitions, nor are we able to guarantee that we will be able to complete acquisitions on terms acceptable to us.
Financing Arrangements and Indebtedness
As of December 31, 2017, our outstanding indebtedness, coupled with lease and other obligations totaled $3,652.1 million, including the following:
$1,133.3 million under the Floorplan Line of our Revolving Credit Facility;
$542.1 million in carrying value of 5.00% senior notes due 2022 (“5.00% Notes”);
$350.0 million of mortgage term loans in the U.S., entered into independently with three of our manufacturer-affiliated finance partners, Toyota Motor Credit Corporation (“TMCC”), BMWFS, and FMCC, as well as several third-party financial institutions, primarily to finance the purchase of real estate;
$327.6 million of future commitments under various operating leases;
$300.2 million of estimated future interest payments on existing floorplan notes payable and other long-term debt obligations;
$296.2 million in carrying value of 5.25% senior notes due 2023 (“5.25% Notes”);
$265.1 million under floorplan notes payable to various manufacturer affiliates and third-party financial institutions for foreign and rental vehicles;
$130.5 million under our FMCC Facility;
$79.2 million of mortgage term loans in the U.K. (collectively, “U.K. Notes”);
$51.7 million of capital lease obligations related to real estate, as well as $31.4 million of estimated future interest associated with such obligations;
$32.7 million of other short and long-term purchase commitments;
$27.0 million under the Acquisition Line;
$25.0 million of letters of credit, to collateralize certain obligations, issued under the Acquisition Line;
$10.6 million of estimated future net obligations from interest rate risk management activities; and
$49.5 million of various other debt and other capital lease obligations.
As of December 31, 2017, we had the following amounts available for additional borrowings under our various U.S. credit facilities:
$308.2 million under the Acquisition Line of our Revolving Credit Facility, which is limited based upon a borrowing base calculation within certain debt covenants under the Revolving Credit Facility;
$306.7 million under the Floorplan Line of our Revolving Credit Facility, including $86.5 million of immediately available funds; and
$169.5 million under our FMCC Facility, including $22.5 million of immediately available funds.
In addition, the indentures relating to our other debt instruments allow us to incur additional indebtedness and enter into additional operating leases, subject to certain conditions.
For additional information regarding our financing arrangements and indebtedness, please read Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Stock Repurchase Program
From time to time, our Board of Directors gives authorization to repurchase shares of our common stock, subject to the restrictions of various debt agreements and our judgment. We are limited under the terms of the Revolving Credit Facility, certain mortgage term loans, the 5.00% Notes and the 5.25% Notes in our ability to make restricted payments, such as repurchase shares of our outstanding common stock and make payments of cash dividends to our stockholders, among other things. As of December 31, 2017, the restricted payment baskets limited us to $184.8 million in restricted payments. Generally, these restricted payment baskets will increase in the future periods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount of future payments for cash dividends and share repurchases.
In May 2017, the Board of Directors approved a new authorization of up to $75.0 million to repurchase shares of our common stock, replacing the prior $150.0 million authorization. In aggregate under both of these authorizations, we repurchased 649,298 shares during 2017 at an average price of $61.75 per share, for a total of $40.1 million. This activity left $49.6 million available for future repurchases as of December 31, 2017, under our current authorization. Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions and other factors.
Dividends
During 2017, our Board of Directors approved four quarterly cash dividends. The first, second, and third dividend was approved and paid at $0.24 per share and the fourth dividend was increased to $0.25 per share for a total of $0.97 per share, or $20.5 million, for the year ended December 31, 2017. The payment of dividends in the future is subject to the discretion of our Board of Directors, after considering our results of operations, financial condition, cash flows, capital requirements, outlook for our business, general business conditions, the political and legislative environments, and other factors. As noted above, we are also limited in our ability to make restricted payments, such as cash dividend payments to our stockholders, under the terms of several of our debt financing arrangements.
Relationships and Agreements with our Manufacturers
Each of our U.S. dealerships operates under one or more franchise agreements with vehicle manufacturers (or authorized distributors). The franchise agreements grant the franchised automobile dealership a non-exclusive right to sell the manufacturer’s or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements also grant franchised dealerships the right to use the manufacturer’s or distributor’s trademarks in connection with their operations, and impose numerous operational requirements and restrictions relating to, among other things:
inventory levels;
working capital levels;
the sales process;
minimum sales performance requirements;
customer satisfaction standards;
marketing and branding;
facility standards and signage;
personnel;
changes in management;
change in control; and
monthly financial reporting.
Our dealerships’ franchise agreements are for various terms, ranging from one year to indefinite. Each of our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including unapproved changes of ownership or management and performance deficiencies in such areas as sales volume, sales effectiveness, and customer satisfaction. In most cases, manufacturers have renewed the franchises upon expiration so long as the dealership is in compliance with the terms of the agreement. From time to time, certain manufacturers may assert sales and customer satisfaction performance deficienciesrequirements under the terms of our framework andor franchise agreements. We work with these manufacturers to address any performance issues. Failure to meet such requirements could limit our ability to acquire future dealerships of such manufacturers.
In general, the U.S. jurisdictions in which we operate have automotive dealership franchise laws, that provideproviding that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of dealer laws. If dealer laws are repealed in the states in which we operate in the U.S., manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or showing of good cause. Without the protection of dealer laws, it also may also be more difficult for our dealers to renew their franchise agreements upon expiration. Further, U.S. federal law, including any federal bankruptcy law, may preempt U.S. state law and allow manufacturers greater freedom to terminate or not renew franchises.
The U.K. generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections. However, similar protections may be available as a matter of general U.K. contractual law. In addition, our U.K. dealerships are subject to European Union (“EU”)EU and U.K. antitrust rules prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs and maintenance across the EU. For example, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the EU, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and ease restrictions on cross supplies (including on transfers of dealerships) between existing
authorized dealers within the EU. However, certain restrictions on dealerships may be permissible, provided the conditions set out in the relevant EU Block Exemption Regulations are met. On June 23, 2016, the British citizens voted on a referendum in favor of Brexit. The U.K. formally exited the EU on January 31, 2020, but the exact terms of resulting trade agreements are still being negotiated. The impact of these negotiations on the laws protecting dealership franchises is not yet known.
The sale of vehicles in Brazil is regulated by federal law, commonly referred to in Brazil as the Ferrari Law. Such law sets forth the terms and conditions of distribution agreements executed among manufacturers and dealerships, specifically with regard to the distribution of cars, trucks, buses, tractors, motorbikes and similar vehicles. In addition, the Ferrari Law establishes the geographical area of a dealership and termination of distribution agreements and their consequences, among other things. Any contractual provision that conflicts with the Ferrari Law is considered void in Brazil. The distribution agreements contemplate the commercialization of vehicles and components fabricated by the manufacturer, the rendering of technical assistance relating to such products and the usage by the dealerships of the manufacturers’ brand. According to the Ferrari Law, distribution agreements may be executed for either a determined or an undetermined term. In the case of a distribution agreement executed for a determined term, its initial term may not be less than 5 years. At the end of this initial 5 year term, such distribution agreement will be automatically converted into an undetermined term distribution agreement, unless any of the parties thereto expressly waives such right with a 180 days prior notice. In the case of an early termination of a distribution agreement other than as a result of a persistent breach or force majeure, the Ferrari law entitles the non-breaching party to, among other things, certain termination payments.
The U.S. economic recession, that began in 2008, caused domestic manufacturers to critically evaluate their respective dealer networks and terminate certain brands, and, as a result, the respective franchises. For example, General Motors chose to discontinue the Pontiac brand and, as a result, both of our Pontiac franchises were terminated. In addition, Ford chose to discontinue the Mercury brand and, as a result, all four of our Mercury franchises were terminated. In each of these cases, state law required the manufacturer to repurchase new car inventory, parts and accessories, and certain tools and signage, but the dealership would still incur costs associated with such termination. Subject to similar future economic factors and material changes to the regulations discussed above, we generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost or modification.
Our dealership service departments perform vehicle repairs and service for customers under manufacturer warranties. We are reimbursed for the repairs and service directly from the manufacturer. Some manufacturers offer rebates to new vehicle customers that we are required, under specific program rules, to adequately document, support, and typically collect. In addition, some manufacturers provide us with incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time. Under the terms of our dealership franchise agreements, the respective manufacturers are able to perform warranty, incentive, and rebate audits and charge us back for unsupported or non-qualifying warranty repairs, rebates or incentives.
In addition to the individual dealership franchise agreements discussed above, we have entered into framework agreements in the U.S. with most major vehicle manufacturers and distributors. These agreements impose a number of restrictions on our operations, including our ability to make acquisitions and obtain financing, and on our management. These agreements also impose change of control provisions related to the ownership of our common stock. For a discussion of these restrictions and the risks related to our relationships with vehicle manufacturers, please readrefer to “Item 1A. Risk Factors.”
The following table sets forth the percentage of our new vehicle retail unit sales attributable to our top five manufacturers in terms of percent of new vehicle retail units sold:
|
| |
Manufacturer | Percentage of New
Vehicle Retail
Units Sold during
the Year Ended
December 31, 2017
|
Toyota…………………………………………………………………. | 25.3% |
Volkswagen…...….………………………………………………………………………………… | 13.0% |
BMW…………………………………………………………………….. | 12.7% |
Ford………………………………………………………………… | 11.5% |
Honda…...….………………………………………………………………………………… | 9.2% |
Governmental Regulations
Automotive and Other Laws and Regulations
We operate in a highly regulated industry. A number of U.S. state and federal laws and regulations applicable to automotive companies affect our business and the business of our manufacturers. In every state in which we operate in the U.S., we must obtain various licenses in order to conduct, our businesses, including, dealer, sales and finance, and insurance licenses issued by state regulatory authorities. Numerous laws and regulations govern our conduct of business, including those relatingbut not limited to our sales, operations, financing, insurance, advertising, and employment practices. TheseOther laws and regulations include franchise laws and regulations, consumer protection laws and other extensive laws and regulations applicable to new and used motor vehicle dealers, as well as a variety of other lawsdealers. Additionally, in every jurisdiction in which we operate, we must obtain various permits and regulations. These laws also include U.S. federal and state wage-hour, anti-discrimination and other employment practices laws.
Our financing activities with customers are subject to U.S. federal truth-in-lending, consumer leasing, and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, installment finance laws, usury laws, and other installment sales laws and regulations. Some stateslicenses in the U.S. regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or alleged violations of law may be asserted against us, or our dealerships, by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation or suspension of our licensesorder to conduct dealership operations and fines.our businesses.
Our U.S. operations are subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety Standards promulgated by the United States Department of Transportation and the rules and regulations of various state motor vehicle regulatory agencies. The imported automobiles that we purchase in the U.S. are subject to U.S. customs duties, and in the ordinary course of our business, we may, from time to time, be subject to claims for duties, penalties, liquidated damages or other charges.
Our U.S. operations are subject to consumer protection laws known as Lemon Laws. These laws typically require a manufacturer or dealer to replace a new vehicle or accept it for a full refund within one year after initial purchase, if the vehicle does not conform to the manufacturer’s express warranties and the dealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. U.S. federal laws require various written disclosures to be provided on new vehicles, including mileage and pricing information. We are aware that several states in the U.S. are considering enacting consumer “bill-of-rights” statutes to provide further protection to the consumer which could affect our profitability in such states.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau (the “CFPB”) with broad regulatory powers. Although automotive dealers are generally excluded from the CFPB’s regulatory authority, we are required to comply with regulations applicable to privacy notices, and the CFPB acted to regulate automotive financing activities through its regulation of automotive finance companies and other financial institutions that service the automotive industry. Refer to “We are subject to substantial regulations, which may adversely affect our business and results of operations” of Item“Item 1A. Risk FactorsFactors” for further discussion of automotive and other laws and regulations affecting our business.
On January 29, 2020, President Trump signed into law the Dodd-Frank ActUnited States-Mexico-Canada Agreement (USMCA). The USMCA updates, modernizes and its potentialrebalances the prior existing North America Free Trade Agreement (NAFTA) to meet certain anticipated challenges of the 21st century economy for the region and is intended to ensure that American workers, farmers, ranchers and businesses share in the benefits of the agreement. It is intended to promote fairer and more balanced trade and keep North America one of the most competitive regions in the world. It is expected that the USMCA will have an impact on us.the U.S. auto industry by creating incentives for new U.S. investments in the automotive sector, promote additional purchases of U.S. produced auto parts, advance automotive research and development and support high-paying U.S. jobs in the automotive sector. Additionally, it is expected that the USMCA will encourage automakers and suppliers to locate future production of new energy and autonomous vehicles in the U.S.
Environmental and Occupational Health and Safety Laws and Regulations
Our operations in the United States as well as the United Kingdom and Brazil involve the use, handling and storage of materials such as motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. We contract for recycling and/or disposedisposal of used fluids, filters and other waste materials generated by our operations. In the United States, ourThese business isactivities are subject to numerousstringent federal, regional, state and local laws, regulations and regulationsother controls governing management and disposal of materials and wastes, protection of the environment and occupational health and safety. These laws and regulations affect many aspects of our operations, such as requiring the acquisition of permits or other governmental approvals to conduct regulated activities, restricting the manner in which we handle, recycle and dispose of our wastes, requiring capital and operating expenditures to construct, maintain and upgrade pollution control and containment equipment and facilities, imposing specific health and safety criteria addressingto address worker protection, and imposing substantial liabilities for pollution caused by our operationsthe release of materials into the environment or attributableotherwise relating to former operations. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties, imposition of investigatory, remedial and corrective action obligations or incurrence of capital expenditures, delays in permitting or in the performance of projects, and issuance of injunctions delaying, restricting or prohibiting some or all of our operations in affected areas. We may not be able to recover some or any of these costs from insurance.environmental protection.
Most of our dealerships utilize above-ground storage tanks, primarily for storing and dispensing petroleum-based products, and above-ground lifts used to raise vehicles. To a lesser extent, our dealerships use underground storage tanks and in-ground lifts. Storage tanksAdditionally, vehicle manufacturers in the U.S. are subject to testing, containment, upgrading and removal requirements under the Federal Resource Conservation and Recovery Act, or RCRA, and its state law counterparts. Similarly, below ground lifts may
contain fluid reservoirs that may leak. RCRA imposes requirements relating to the handling and disposal of hazardous and non-hazardous wastes and requires us to comply with stringent and costly requirements in connection with our storage and recycling or disposal of the various used fluids, paints, batteries, tires, and fuels generated by our operations. Clean-up or other remedial action may be necessary in the event of leaks or other unauthorized discharges from storage tanks or other equipment operated by us. In addition, water quality protection programs under the Federal Water Pollution Control Act (commonly known as the Clean Water Act) and comparable state and local programs in the U.S. govern certain wastewater and storm water discharges from our operations, which discharges may require permitting. Similarly, certain sources of air emissions from our operationsnumerous regulations including for example, paint booths, may be subject to permitting, monitoring and reporting requirements, pursuant to the federal Clean Air Act and related state and local laws. Certain health and safety standards imposed under the Federal Occupational Safety and Health Act or otherwise promulgated by the Occupational Safety and Health Administration of the U.S. Department of Labor and related state agencies are also applicable to protection of the health and safety of our employees.
We generally conduct environmental studies on dealerships to be acquired regardless of whether we are leasing or acquiring the underlying real property, and as necessary, implement environmental management practices or remedial or corrective actions to reduce the risk of noncompliance with environmental laws and regulations. We currently own or lease, and in connection with our acquisition program anticipate in the future owning or leasing, properties that in some instances have been used for auto retailing and servicing for many years. Laws regarding the prevention of pollution or remediation of environmental contamination generally apply regardless of whether we lease or purchase the land and facilities. Although we, or our predecessors, may have utilized operating and disposal practices that were standard in the industry at the time, a risk exists that petroleum products and wastes such as new and used motor oil, transmission fluids, antifreeze, lubricants, solvents and motor fuels could have been spilled or released on, under or from the properties owned or leased by us or on, or under or from other locations where such materials were taken for recycling or disposal. Further, we believe that structures found on some of these properties may contain asbestos-containing materials, although in an undisturbed condition that requires management in place but does not require removal or other corrective action under applicable regulations. In addition, many of these properties have been operated by third parties whose use, handling and disposal of such petroleum products or wastes were not under our control. In the United States, these properties and the materials transported and disposed from, or released on, them may be subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA,” also known as the Superfund law), RCRA and analogous state laws in the U.S., pursuant to which we could be required to remove or remediate previously disposed wastes or property contamination or to perform remedial activities to prevent future contamination.
Vehicle manufacturers in the United States are subject to regulationsthose adopted in 2012 by the U.S. Environmental Protection Agency (“EPA”)EPA and the National Highway Traffic Safety Administration (“NHTSA”) that establish greenhouse gas (“GHG”)GHG emissions and corporate average fuel economy (“CAFE”) standards applicable to light-duty vehicles for model years 2017 through 2021. The proposedstandards. Comparable laws and regulations for the period from 2022 to 2025 are under review, with clarification expected sometime in 2018.
Legal controls similar to those usedhave been enacted in the United StatesU.K. and relatingBrazil.
Refer to the management and disposal of materials and wastes as well as protection of the environment exist in the United Kingdom and Brazil, where we also conduct operations. These legal controls as implemented and enforced in the United Kingdom and Brazil also affect many aspects of our operations in those countries. For example, with regards to the Paris Agreement, the United Kingdom and Brazil each signed that agreement in April 2016. We may incur significant capital expenditures, operational costs and risks of liability and sanction as we seek to comply with those foreign-country environmental legal requirements.
For further discussion, please read “Item 1A. Risk Factors”.
Recently enacted changes to the U.S. Federal Tax Laws
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts for further discussion of environmental and Jobs Act (the “Tax Act”). The Tax Act made broadoccupational health and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries,safety laws and requiring companies to pay a one-time transition tax on unrepatriated earnings of their foreign subsidiaries. We have provisionally determined that we do not have a transition tax liability for previously untaxed accumulated and current earnings and profits (E&P) ofregulations affecting our foreign subsidiaries. We continue to examine the impact that the Tax Act may have on us.business.
Insurance and Bonding
Our operations expose us to the risk of various liabilities, including:
claims by employees, customers or other third parties for personal injury or property damage resulting from our operations;
weather events, such as hail, flood, tornadoes and hurricanes; and
potential fines and civil and criminal penalties resulting from alleged violations of federal and state laws or regulatory requirements.
The automotive retailing business is also subject to substantial risk of real and personal property loss as a result of the significant concentration of real and personal property values at dealership locations. Under self-insurance programs, we retain various levels of risk associated with aggregate loss limits and per claim deductibles and claims handling expenses, including property and casualty, automobile physical damage, and employee medical benefits.deductibles. In certain cases, we insure costs in excess of our retained risk under various contracts with third-party insurance carriers. Risk retention levels may change in the future as a result of changes in the insurance market or other factors affecting the economics of our insurance programs. Although we believe our insurance coverage is adequate, we cannot assure that we will not be exposed to uninsured losses that could have a material adverse effect on our business, results of operations and financial condition.
We make provisions for retained losses and deductibles by reflecting charges to expense based upon periodic evaluations of the estimated ultimate liabilities on reported and unreported claims. Actuarial estimates for the portion of claims not covered by insurance are based on historical claims experience, adjusted for current trends and changes in claims-handling procedures. The insurance companies that underwrite our insurance require that we secure certain of our obligations for self-insured exposures with collateral. Our collateral requirements are set by the insurance companies and, to date, have been satisfied by posting surety bonds, letters of credit and/or cash deposits. Our collateral requirements may change from time to time based on, among other things, our total insured exposure and the related self-insured retention assumed under the policies. We are also subject to potential premium cost fluctuations and change in loss retention limits with the annual renewal of these programs.
For further discussion, refer to “Item 1A. Risk Factors.”
Employees
We conduct employee surveys and believe our relationship with our employees is favorable. As of December 31, 2017,2019, we employed 14,108had 15,296 employees (full-time, part-time and temporary) people, of which 11,321 were employed in the U.S., 3,005 in the U.K. and Brazil, of whom:
1,785 were employed970 in managerial positions;
3,565 were employed in non-managerial vehicle sales department positions;
6,633 were employed in non-managerial parts and service department positions; and
2,125 were employed in administrative support positions.
Brazil. In Brazil, all employees are represented by a local union.
Because of our dependence on vehicle manufacturers, we may be affected by labor strikes, work slowdowns and walkouts at vehicle manufacturing facilities and/or their suppliers. Additionally, labor strikes, work slowdowns and walkouts at businesses participating in the distribution of manufacturers’ products may also affect us.
For further discussion, please readrefer to “Item 1A. Risk Factors.”
Seasonality
WeOur operating results are generally subject to seasonal variations, as well as changes in the economic environment. In the U.S., we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year in the U.S., in the first and third quarters in the U.K. and during the third and fourth quarters in Brazil. This seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions. The first quarter is generally the weakest in Brazil, driven by heavy consumer vacations and activities associated with Carnival.year. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. ForIn the U.K., the first and third calendar quarters tend to be stronger, driven by the vehicle license plate change months of March and September. As a result of all these factors, our consolidated revenuesIn Brazil, the first quarter is generally the weakest, driven by more consumer vacations and operating income are typically lower inactivities associated with Carnival, while the firstthird and fourth quarters and higher in the second and third quarters.tend to be stronger. Other factors unrelated to seasonality, such as changes in economic conditions, inventory availability, manufacturer incentive programs, severesupply issues, seasonal weather events and/or changes in currency exchange rates or shifts in governmental taxes or regulations may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income.
For further discussion, please readrefer to “Item 1A. Risk Factors.”
Internet Website and Availability of Public Filings
Our internet address is www.group1auto.com. We make the following information available free of charge on our internet website:
Annual Report on Form 10-K;
Quarterly Reports on Form 10-Q;
Current Reports on Form 8-K;
Amendments to the reports filed or furnished electronically with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act;
Our Corporate Governance Guidelines;
The charters for our Audit, Compensation, Finance/Risk Management and Nominating/Governance Committees;
Our Code of Conduct for Directors, Officers and Employees (“Code of Conduct”); and
Our Code of Ethics for our Chief Executive Officer, Chief Financial Officer and Controller (“Code of Ethics”).
Within the time period required by the SEC and the NYSE, as applicable, we will post on our website any modifications to the Code of Conduct and Code of Ethics and any waivers applicable to senior officers as defined in the Code of Conduct or Code of Ethics, as applicable, as required by the Sarbanes-Oxley Act of 2002. We make our filings with the Securities and Exchange Commission (“SEC”)SEC available on our website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. The SEC also maintains an internet website at http://sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file and furnish electronically with the SEC. The above information is available in print to anyone who requests it free of charge. In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, DC 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Item 1A. Risk Factors
The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K. revenue and results of operations.
On June 23, 2016, British citizens voted on a referendum in favor of Brexit. The U.K. formally exited the EU on January 31, 2020, but the future terms of the U.K.’s relationship with the EU remain uncertain. The effects of Brexit will depend on any agreements the U.K. makes to retain access to EU markets either during a transitional period or more permanently. Brexit could adversely affect U.K. and European market conditions, could contribute to instability in some global financial and foreign exchange markets, including continued volatility in the value of the GBP or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, legal, regulatory or otherwise) beyond the date of Brexit. More specifically, it could lead to:
a decrease in sales or revenues attributable to increased retail prices of new vehicles as the majority of vehicles sold in the U.K. are imported from other countries in Europe and could be subject to additional tariffs or the impact of a weaker pound exchange rate which could cause the price of imported vehicles and parts to increase;
an increase in supply chain risk for automotive retailers and manufacturers due to the impact of changes in the U.K.’s access to free trade agreements, resulting in custom checks and tariffs, which could delay delivery of vehicles or parts;
continued volatility in the currencies in which we transact our business. As exchange rates fluctuate, our revenue and results of operations as reported under U.S. GAAP fluctuates. A weakening GBP as compared to the USD negatively impacts our USD reported results of operations. Our U.K. business generated approximately 20% of our total revenue for the year ended December 31, 2019;
a decrease in the level of dealership franchise protections currently provided under EU Block Exemption and contract law;
economic risk: the U.K. economy may be negatively impacted, resulting in a decrease to our revenues;
labor risk: Brexit might impact the hiring and movement of employees and subject companies to local labor laws and efforts required to relocate U.K. operations or use EU subsidiaries; and
regulatory risk: exposure to different laws and regulations might impact businesses. For example, the loss of passporting arrangements that permit U.K. entities to serve EU businesses and customers.
Any of these effects of Brexit and others we cannot anticipate could materially adversely affect our business, consolidated financial position, results of operations and cash flows.
Demand for and pricing of our products and services is subject to economic conditions and other factors, which have had and, in the future, could have a material adverse effect on our business and results of operations.
The automotive retail industry, and especially new vehicle unit sales, is influenced by general economic conditions, particularly consumer confidence, the level of personal discretionary spending, interest rates, exchange rates, fuel prices, technology and business model changes, supply conditions, consumer transportation preferences, unemployment rates and credit availability. During economic downturns, such as the recession the U.S. experienced in 2008 and much of 2009, retail new vehicle sales typically experience periods of decline characterized by oversupply and weakweakened demand. In addition, periods of economic uncertainty, as well as volatility in consumer preference around fuel-efficient vehicles in response to volatile fuel prices, and concern about manufacturer viability, may adversely impact future consumer spending and result in a difficultchallenging business environment. Any tightening of the credit markets and credit conditions may decrease the availability of automotive loans and leases and adversely impact our new and used vehicle sales and margins. In particular, if sub-prime finance companies apply higher credit standards or if there is a decline in the overall availability of credit in the sub-prime lending market, the ability of consumers to purchase vehicles could be limited, which could have a material adverse effect on our business and results of operations.
Volatile fuel prices may also continue to affect consumer preferences in connection with the purchase of our vehicles. Rising fuel prices may make consumers less likely to purchase larger, more expensive vehicles, such as sports utility vehicles or luxury automobiles, and more likely to purchase smaller, less expensive and more fuel efficient vehicles. Conversely, lower fuel prices could have the opposite effect. Sudden changes in customer preferences make maintenance of an optimal mix of large and small vehicle inventory a challenge. Further increases or sharp declines in fuel prices could have a material adverse effect on our business and results of operations.
In addition, local economic, competitive and other conditions affect the performance of our dealerships. Our results of operations depend substantially on general economic conditions and spending habits in those regions of the U.S. where we maintain most of our operations. Since a large concentration of our new vehicle sales are in the statesstate of Texas and Oklahoma (43.1%) for the year ended December 31, 20172019, which areis dependent upon the oil and gas industry, declines in commodity prices have had and future declines could have an adverse effect on our business and results of operations in those regions.
We are subject to a concentration of risk in the event of financial distress, merger, sale or bankruptcy, including potential liquidation of, or other adverse economic impacts on, certain major vehicle manufacturers.
Toyota, Nissan, Honda, Ford, BMW, Volkswagen, Hyundai, Daimler, FCA US (formerly Chrysler) and General Motors dealerships represented approximately 97.1% of our total new vehicle retail units sold in 2017. In particular, sales of Toyota/Scion/Lexus new vehicles represented 25.3% of our new vehicle unit sales in 2017. The success of our dealerships is dependent on vehicle manufacturers in several key respects. First, wemanufacturers. We rely exclusively on the various vehicle manufacturers for our new vehicle inventory. Our ability to sell new vehicles is dependent on a vehicle manufacturer’s ability to produce and allocate to our dealerships an attractive, high quality, and desirable product mix at the right time in order to satisfy customer demand. Second, manufacturersManufacturers generally support their franchisees by providing direct financial assistance in various areas, including, among others, incentives, floorplan assistance and advertising assistance. A discontinuation or change in our manufacturers’ warranty and incentive programs could adversely affect our business. Third, manufacturersManufacturers also provide product warranties and, in some cases, service contracts to customers. Our dealerships perform warranty and service contract work for vehicles under manufacturer product warranties and service contracts and we bill the manufacturer directly as opposed to invoicing the customer. In addition, we rely on manufacturers to varying extents for original equipment manufacturedOEM replacement parts, training, product brochures and point of sale materials, and other items for our dealerships. Manufacturers generally offer various financing programs and incentives for our new and used vehicle customers.
Vehicle manufacturers may be adversely impacted by economic downturns or recessions, significant declines in the sales of their new vehicles, increases in interest rates, adverse fluctuations in currency exchange rates, declines in their credit ratings, reductions in access to capital or credit, labor strikes or similar disruptions (including within their major suppliers), supply shortages, rising raw material costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their products, (includingincluding due to bankruptcy),bankruptcy, product defects, litigation, ability to keep up with technology and business model changes, poor product mix or unappealing vehicle design, governmental laws and regulations, natural disasters, or other adverse events. These and other risks could materially adversely affect the financial condition of any manufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a material adverse effect on our business, results of operations and financial condition.
A decline of available financing in the lending market may have a material and adverse affect on our vehicle sales, financial condition and results of operations.
A significant portion of our vehicles purchased by our customers are financed. Sub-prime lenders have historically provided financing to those consumers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a vehicle. In the event lenders tighten their credit standards or there is a decline in the availability of credit in the lending market, the ability of these consumers to purchase vehicles could be limited, which could have a material adverse effect on our business, financial condition and results of operations.
We are dependent on our relationships with manufacturers and if we are unable to enter into new franchise agreements in connection with dealership acquisitions or maintain or renew our existing franchise agreements on favorable terms, our operations may be significantly impaired.
We are dependent on our relationships with manufacturers, which exercise a great degree of influence over our operations through the franchise agreements. For example, delays in obtaining, or failing to obtain, manufacturer approvals and franchise agreements for dealership acquisitions could adversely affect our acquisition program. In determining whether to approve an acquisition, manufacturers may consider many factors, including the moral character and business experience of the dealership principals, the financial condition, and ownership structure, as well as Customer Satisfaction Index scores, sales efficiency, and other performance measures of our other dealerships. Manufacturers may use these performance indicators, as well as sales performance numbers, as conditions for certain payments and as factors in evaluating applications for additional acquisitions. In unusual cases where performance indicators, such as the ones described above, are not met to the satisfaction of the manufacturer, certain manufacturers may either limit our ability to acquire additional dealerships or require the disposal of existing dealerships or both. From time to time, we have not met all of the manufacturers’ requirements to make acquisitions and have received requests to dispose of certain of our dealerships. In the event one or more of our manufacturers sought to prohibit future acquisitions, or imposed requirements to dispose of one or more of our dealerships, our acquisition and growth strategy could be adversely affected.
A manufacturer may also limit the number of its dealerships that we may own or the number that we may own in a particular geographic area. For example, in the U.S., we may acquire only six primary Lexus dealerships or six outlets nationally. As of December 31, 2017, we owned three primary Lexus dealerships.
In addition, each of our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including any unapproved changes of ownership or management, sales and customer satisfaction performance deficiencies and other material breaches of the franchise agreements. Manufacturers may also have a right of first refusal if we seek to sell dealerships. We cannot guarantee all of our franchise agreements will be renewed or that the terms of the renewals will be as favorable to us as our current agreements. In addition, we cannot guarantee that our manufacturers will not attempt to terminate our franchise agreements if they perceive that performance deficiencies exist. If such an instance occurs, although we are generally protected by automotive dealership franchise laws requiring “good cause” be shown for such termination, we cannot guarantee that the termination of the franchise will not be successful. Actions taken by manufacturers to exploit their bargaining position in negotiating the terms of renewals of franchise agreements could also have a material adverse effect on our results of operations. Further, the terms of certain of our real estate-related indebtedness require the repayment of all amounts outstanding in the event that the associated franchise is terminated. Our results of operations may be materially and adversely affected to the extent that our franchise rights become compromised or our operations restricted due to the terms of our franchise agreements or if we lose substantial franchises.
Finally, ourOur franchise agreements do not give us the exclusive right to sell a manufacturer’s product within a given geographic area. Subject to state laws in the U.S. that are generally designed to protect dealers, a manufacturer may grant another dealer a franchise to start a new dealership near one of our locations, or an existing dealership may move its dealership to a location that would more directly compete against us. The location of new dealerships near our existing dealerships could have a material and adverse effect on our operations and reduce the profitability of our existing dealerships. Furthermore, if current manufacturers or future manufacturers are not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network to sell directly to the customer, our results of operations may be materially and adversely affected.
Our inability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues and earnings.
Growth in our revenues and earnings partially depends on our ability to acquire new dealerships and successfully integrate those dealerships into our existing operations. We cannot guarantee that we will be able to identify and acquire dealerships in the future. In addition, we cannot guarantee that any acquisitions will be successful or on terms and conditions consistent with past acquisitions. Restrictions by our manufacturers, as well as covenants contained in our debt instruments, may directly or indirectly limit our ability to acquire additional dealerships. In addition, increased competition for acquisitions may develop, which could result in fewer acquisition opportunities available to us and/or higher acquisition prices. And, some of our competitors may have greater financial resources than us.
We will continue to needrequire substantial capital in order to acquire additional automobile dealerships. We currently intend to finance future acquisitions by using cash generated from operations, borrowings under our Acquisition Line, proceeds from debt and/or equity offerings and/or issuing shares of our common stock as partial consideration for acquired dealerships. Access to funding through the debt or equity capital markets could become challenging in the future. Also, inIn the future, the cost of obtaining money from the credit markets could increase if lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt at maturity on terms similar to current debt or at all, and reduce or, in some cases, cease to provide funding to borrowers. Accordingly, our ability to complete acquisitions could be adversely affected if the price of our common stock is depressed or if our access to capital is limited.
In addition, managing and integrating additional dealerships into our existing mix of dealerships may result in substantial costs, diversion of our management’s attention, delays, or other operational or financial problems. Acquisitions involve a number of special risks, including, among other things:
incurring significantly higher capital expenditures and operating expenses;
failing to integrate the operations and personnel of the acquired dealerships;
entering new markets with which we are not familiar;
incurring undiscovered liabilities at acquired dealerships, generally, in the case of stock acquisitions;
disrupting our ongoing business;
failing to retain key personnel of the acquired dealerships;
impairing relationships with employees, manufacturers and customers; and
incorrectly valuing acquired entities.
These risks could have a material adverse effect on our business, results of operations and financial condition. Although we conduct what we believe to be a prudent level of investigation regarding the operating condition of the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual operating condition of these acquired businesses.
We are subject to substantial governmental laws and regulations, which if we are found to be in violation of, or subject to liabilities under, may adversely affect our business and results of operations.
We operate in a highly regulated industry. A number of state and federal laws and regulations applicable to automotive companies affect our business. We are also subjectbusiness and conduct, including, but not limited to our sales, operations, financing, insurance, advertising, and employment practices. Other laws and regulations relatinginclude franchise laws and regulations, consumer protection laws and other extensive laws and regulations applicable to business corporations generally.new and used motor vehicle dealers. Additionally, in every jurisdiction in which we operate, we must obtain various permits and licenses in order to conduct our businesses.
Other laws and regulations include franchise laws and regulations, consumer protection laws and other extensive laws and regulations applicable to new and used motor vehicle dealers. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory remedial obligations or the issuance of injunctions limiting or prohibiting our operations. In every jurisdiction in which we operate, we must obtain various licenses in order to operate our businesses, including dealer, sales, finance and insurance-related licenses issued by government authorities. These laws also regulate our conduct of business, including our advertising, operating, financing, employment and sales practices. Other laws and regulations include state franchise laws and regulations in the U.S., anti-trust laws and other extensive laws and regulations applicable to new and used motor vehicle dealers, as well as U.S. federal and state wage-hour, anti-discrimination and other employment practices laws.
Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of U.S. franchise laws. If U.S. franchise laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or showing of good cause. Without the protection of U.S. franchise laws, it also may also be more difficult for us to renew our franchise agreements upon expiration. Further, U.S. federal law, including any federal bankruptcy law, may preempt state law in the U.S. and allow manufacturers greater freedom to terminate or not renew franchises. Furthermore, some states have initiated consumer “bill of rights” statutes which involve increases in our costs associated with the sale of vehicles, or decreases in some of our profit centers.
A substantial amount ofIn the U.S., our business is related to the real estate we own or lease to conduct our various automotive operations. Often times, the success of such automotive operations is dependent upon our ability to locate, and purchase or lease suitable real estate on favorable terms. We are highly dependent upon the availability of real estate in each of our automotive markets. Additionally, real estate we are interested in acquiring will be subject to local municipal laws of county, township, parish and other local municipalities that often times will govern what type of real estate we can purchase for our various automotive operations. Local ordinances, deed restrictions, zoning and other land use restrictions may prohibit the type of business permitted on a given leased or purchased property which can add to the challenge of locating appropriate real estate. The costs and length of time associated with changing the permitted use of a leased or purchased property may affect our ability to enter a market or expand our operations in an existing market. Our inability to locate, and lease or purchase additional suitable properties to meet the needs of our various automotive operations in multiple markets would adversely affect our business, results of operations and financial condition.
Our financing activities with customers are subject to U.S. federal truth-in-lending, consumer leasing and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations. Some states in the U.S. regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or alleged violations of law may be asserted against us or our dealerships by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct dealership operations and fines.
Our In the U.K., our finance operations are also subject to the National Traffic and Motor Vehicle Safety Act, the Magnusson-Moss Warranty Act, Federal Motor Vehicle Safety Standards promulgatedregulated by the United States Department of TransportationFinancial Conduct Authority (“FCA”), which is an independent watchdog that sets out a system for regulating financial services in order to protect and various state motor vehicle regulatory agencies. The imported automobiles we purchase are subject to U.S. customs dutiesimprove the U.K.’s economy, and in the ordinary courseregulates financial services of our business, we may, from time to time, be subject to claims for duties, penalties, liquidated damages, or other charges.
Our U.S. operations are subject to consumer protection laws known as Lemon Laws. These laws typically require a manufacturer or dealer to replace a new vehicle or accept it for a full refund within one year after initial purchase if the
vehicle does not conform to the manufacturer’s express warranties and the dealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. Federal laws require various written disclosures to be provided on new vehicles, including mileage and pricing information.dealerships.
In July 2010, the Dodd-Frank Act was signed into law and established the CFPB with broad regulatory powers in the U.S. Although automotive dealers are generally excluded from the CFPB’s regulatory authority, we are required to comply with regulations applicable to privacy notices, and the CFPB actedcontinues to regulate automotive financing activities through its regulation of automotive finance companies and other financial institutions that service the automotive industry. The CFPB has issued regulatory guidance instructing financial institutions to monitor dealer loans for potential discrimination resulting from the system used to compensate dealers for assisting in the customer financing transaction. The CFPB has instructed lenders that, if discrimination is found, the lender would be required to change dealer compensation practices. If this initiative substantially restricts our ability to generate revenue from arranging financing for our customers for the purchase of vehicles, the result could have an adverse effect on our business and results of operations.
In addition, the Dodd-Frank Act established federal oversight and regulation of derivative markets and entities, such as us, that participate in those markets. The Dodd-Frank Act requires the CFTCCommodity Futures Trading Commission (“CFTC”) and the SEC to promulgate rules and regulations implementing the Dodd-Frank Act. Although the CFTC has finalized certain regulations, others remain to be finalized or implemented and it is not possible at this time to predict when this will be accomplished.
Pursuant to the Dodd-Frank Act, the CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and exchange trading. To the extent we engage in such transactions that are or become subject to such rules in the future, we will be required to comply or to take steps to qualify for an exemption to such requirements. In addition, the Dodd-Frank Act, the CFTC and banking regulators established margin rules for uncleared swaps. Although we believe that we qualify for the end-user exceptions to the mandatory clearing and margin requirements with respect to our swaps entered to hedge our commercial risks, the application of such requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. If any of our swaps do not qualify for the commercial end-user exception, clearing our transactions or posting of initial or variation margin could impact our liquidity and reduce cash available for capital expenditures, therefore reducing our ability to execute hedges to reduce risk and protect cash flows. In addition, the European Union and other non-U.S. jurisdictions are implementing regulations with respect to the derivatives market. To the extent we transact with counterparties in foreign jurisdictions, we may become subject to such regulations. At this time, the impact of such regulations is not clear.
The full impact of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are implemented and the market for derivative contracts has adjusted. The Dodd-Frank Act and any new regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, or reduce our ability to monetize or restructure our existing derivative contracts. If we reduce our use of derivatives as a result of the Dodd-Frank Act and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Any of these consequences could have a material adverse effect on our financial condition, results of operations and cash available for distributions to our shareholders.
On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU (commonly referred to as “Brexit”).
The majority vote in favor of Brexit has created uncertainty in the regulatory environment in the U.K. To date, there has been no clear indication of how the Brexit vote will ultimately effect our U.K. sales, but if legislation related to Brexit results in a material reduction of sales in our U.K. dealerships, such events could have a material adverse effect on our revenues and business operations.
On April 14, 2016, the EU Parliament approved theEU’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, applies to all organizations must start complying with by May 25, 2018. GDPR regulations will replacestoring or processing the UK Data Protection Actdata of 1998 for organizations doing business inEU citizens, regardless of the UK. The GDPR will apply in all EU member states from 25 May 2018. Because GDPR is a regulation, not a directive, the UK does not need to draw up new legislation - instead, it will apply automatically.organization’s location. The GDPR was designed to align data privacy laws across Europe, protect all EU citizens’ data by restricting third parties usesuse of such data without such individual’s permission, and change the way organizations approach the protection of data and preserving citizen’spreserve citizens’ privacy. Unlike previous EU data privacy regulations, the GDPR applies to all organizations storing or processing the data of EU citizens, regardless of the location of the company. It provides for strict rules and requirements for EU and non-EU organizations, including requiring organizationsrequirements to report data breaches within 72 hours and to conduct impact assessments to identify vulnerabilities. Moreover, the GDPR applies a tiered penalty approach, which provides for heavy fines. If an organization seriously infringes the GDPR, the organization can be fined up to 4% of annual global turnover or 20 million euros, whichever is greater.
Similar to the GDPR, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective January 1, 2020, grants California residents with several new rights relating to their personal information. The CCPA applies to businesses that conduct business in California and satisfies one of three financial conditions, including a business that has a gross revenue greater than $25 million. The CCPA sets forth several data protection obligations for applicable businesses, including, but not limited to the obligations to inform a consumer, at or before collection, of the purpose and intended use of the collection; and to delete a consumer’s personal information upon request. As for penalties and fines, the CCPA establishes a private right of action for serious data breaches, which allows consumers the right to seek damages. The CCPA also allows the California Attorney General to bring actions against non-compliant businesses with fines of $2,500 per violation or, if intentional, up to $7,500 per violation. Any future failure by us to comply with the GDPR and/or CCPA could have a material adverse effect on our business, results of operations or financial condition.
Our U.K. finance operations also arrange for the sale of various contracts for products and services in connection with the sale of new and used vehicles. Those activities in the U.K. are regulated by the Financial Conduct Authority (FCA). The FCA is an independent watchdog that regulates financial services of our dealerships. The FCA was created in the wake of the financial crisis as a result of passage of the Financial Services Act of 2012 (the “FSA Act”). The FSA Act sets out a system for regulating financial services in order to protect and improve the U.K.’s economy. Its purpose was to make sure markets work well by confirming that financial services maintain and ensure the integrity of the markets, regulate financial services firms so that they give consumers a fair deal and ensure the financial services market is competitive.
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, has and may continue to increase our annual employee health care costs that we fund. We cannot predict the extent of the effect that this statute, or any future state or federal healthcare legislation or regulation, will have on us. However, any additional expansion in government’s role in the U.S. healthcare industry could result in significant long-term costs to us, which could in turn adversely affect our business, results of operations and financial condition.
Possible penalties for violation of any of these laws or regulations include revocation or suspension of our licenses and/or civil or criminal fines and penalties. In addition, many laws may give customers a private cause of action. Violation of these laws, the cost of compliance with these laws, or changes in these laws could have a material adverse effect on our business and results of operations.
See further discussion of tariffs, import product restrictions, and foreign trade risks that may impair our ability to sell foreign vehicles profitably under the risk factor “We are subject to tariff and trade risks that may impair our ability to sell foreign vehicles profitably.”
See additional discussion of Brexit and its related regulatory risks under the risk factor “The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K. revenue and results of operations.”
Our operations are subject to environmental laws and regulations that may expose us to significant costs and liabilities.
InOur operations involve the courseuse, handling and storage of materials such as motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. We contract for recycling and/or disposal of used fluids, filters and other waste materials generated by our operations in the United States, United Kingdom and Brazil, we generate, handle, store and recycle or dispose of various used products and wastes. operations.
These business activities are subject to stringent federal, regional, state and local laws, regulations and other controls governing the release of materials into the environment or otherwise relating to environmental protection. These laws, regulations and controls may impose numerous obligations upon our operations including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to manage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent releases of such material, and the imposition of substantial liabilities for pollution resulting from our operations or attributable to former operations. For example, in the U.S., most of our dealerships utilize storage tanks that are subject to testing, containment, upgrading, and removal regulations under the federal Resource Conservation and Recovery Act. Comparable regulations have been or may be enacted in the U.K. and Brazil. Failure to comply with these laws, regulations, and permits may result in the assessment of sanctions, including administrative, civil, and criminal penalties, the imposition of investigatory remedial and corrective action obligations or increase of capital expenditures, restrictions, delays and cancellations in permitting or in the performance of projects and the issuance of injunctions limiting or preventing some or all of our operations in affected areas.
There is In some situations, we could be exposed to liability as a risk of incurring significant environmental costs and liabilities in the operationsresult of our automotive dealerships due to our handling of regulated used products and wastes, because of releases arising in the course of our operations, including from storage tanks and in-ground lifts, and due to contamination arising from historical operations and waste disposal practices, including by predecessor operators or owners over whom we had no control or supervision. We could be subject to joint and several, strict liability for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or contamination or if the operations were in compliance with all applicable lawsconduct that was lawful at the time those actions were taken.
The trend in environmental regulation is to place more restrictions and limitations on activities that may affectit occurred or the environment, and thus any changes in environmentalconduct of, or conditions caused by, prior operators or other third parties. Moreover, laws and regulations thatprotecting the environment generally become more stringent over time, which may result in more stringentincreased costs for future environmental compliance and costly requirements with respect to pollution control equipment, waste management and disposal activities, or increased fuel economy and reducedremediation.
Additionally, vehicle emmissions for light-duty vehicles could have a material adverse effect on our business, results of operation and financial condition. For instance,manufacturers in the United States, vehicle manufacturersU.S. are subject to federal regulations requiringadopted in 2012 by the U.S. EPA and the National Highway Traffic Safety Administration (“NHTSA”) that establish GHG reductionemissions and CAFEcorporate average fuel economy (“CAFE”) standards forapplicable to light-duty vehicles for model years 2017 through 2021. Under these regulations, most manufacturers are requiredVehicle GHG emission standards have previously also been promulgated by California, and followed by several other states, under a waiver, but in September 2019 EPA revoked this waiver in a rulemaking with NHTSA that found state regulation of vehicle GHG emissions to modify their vehicle platformsbe preempted and powertrainslitigation is ongoing. Furthermore, under the Obama Administration, CAFE standards were set to achieve a fleet-wide average fuel efficiency equivalent of 44.7reach 46 miles per gallon by model year 2021. The EPA and NHTSA commenced mid-term reviews in 2017 to determine2025. However, the technological progress and economic implications for extending these standards to model years 2022-2025. While the EPA had previously committed in 2012 to continuing to coordinate development of its GHG emission standards with NHTSA’s development of CAFE standards for light-duty vehicles, it did not do so in the development and publication of the EPA’s January 2017 Midterm Evaluation of standards, which resulted in the EPA signing a final determination to maintain the current GHG emissions standards for model year 2022-2025 vehicles. However, in March 2017, the EPA and NHTSA published a notice of intent in which the EPA announced its intention to reconsider its final determination with respect to GHG emissions standards and agreed to coordinate its reconsideration with the parallel process being undertaken by the NHTSA regarding CAFE standards. In August 2017, the EPA published a request for public comment on its proposed plans to reconsider whether the previously established GHG emissions standards for light-duty vehicles are appropriate under the Clean Air Act. In connection with its review of the CAFE standards, the NHTSA published a notice of intent in July 2017 to prepare an Environmental Impact Statement for the model year 2022-2025 light-duty vehicles CAFE standards to assess the potential environmental impact of those standards.
Whereas the CAFE standards are designed to improve vehicle fuel economy in the United States, the GHG standards are based on determinations made by the EPA that emissions of GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’s atmosphere and other climatic changes. Congress and numerous states have from time to time considered and — in the case of some states, adopted — legislation to restrict GHG. These laws generally take the form of cap and trade programs, requiring large sources of GHG emissions to purchase allowances or take stepsTrump Administration has sought to reduce emissions to comply with the cap. Climate-change legal requirementsthese standards. The final rules are also being considered on an international level. For example,expected sometime in December 2015, the United States joined other countries of the United Nations, at that time, in preparing an agreement requiring member countries to review and establish goals for limiting GHG emissions. This Paris Agreement was signed by the United States, the United Kingdom and Brazil in April 2016 and the agreement entered into force in November 2016. However, this agreement did not create any binding obligations for nations to limit their GHG emissions but, rather includes pledges to voluntarily limit or reduce future emissions. However, in August 2017, the U.S. State Department informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016, which would result in an effective exit date of Novemberearly 2020. The United States’ adherence to the exit process and/or the terms on which the United States may re-enter the Paris Agreement or a separately negotiated agreement are unclear at this time. As another example, the U.K. government announced in July 2017California had indicated that it would banretain more stringent levels under its clean air act (“CAA”) waiver authority should the sale of new petrol-Trump Administration finalize a rulemaking on reducing those standards and diesel-powered vehicles beginningthus, if California is successful in 2040. In addition, beginning 2020, new pollution taxes willits litigation over its CAA waiver status, there could be levieduncertainty amongst vehicle manufacturers if multiple standards were placed into effect, which could have an indirect adverse effect on diesel drivers who use certain congested highways.automotive retail dealers, such as ourselves. Comparable laws and regulations have been enacted in the U.K. and Brazil. The adoption of any laws or regulations requiring significant increases in fuel economy requirements or new federal or state restrictions on emissions of the GHGs on vehicles and automotive fuels in the U.S., the U.K. or Brazilvehicle GHG emissions could adversely affect prices of and demand for the vehicles we sell, which could adversely affect our revenuessell.
At the international level, there is an agreement, the United Nations-sponsored “Paris Agreement,” for nations to limit their GHG emissions through non-binding, individually-determined reduction goals every five years after 2020. Although the U.S. has announced its withdrawal from the agreement, effective November 4, 2020, the U.K. and earnings. The trend in environmental regulation is to often place more restrictions and limitations on activities thatBrazil remain parties. Future treaties or international standards may affect the environment, and thus any changes in environmental laws and regulations that result in more stringent requirements in party states, which could include the U.S., U.K. and costly requirements with respectBrazil, and may delay or otherwise adversely affect the ability of vehicle manufacturers to pollution control equipment, waste managementmanufacture and disposal activities, or increased fuel economy and reduced vehicle emissions for light-dutytimely deliver vehicles could have a material adverse effect on our business, results of operation and financial condition.
Please see “Item 1. Business — Governmental Regulations — Environmental and Occupational Health and Safety Laws and Regulations” for more information.to operators in the automotive retail industry.
If we lose key personnel or are unable to attract additional qualified personnel, our business could be adversely affected because we rely on the industry knowledge and relationships of our key personnel.
We believe our success depends to a significant extent upon the efforts and abilities of our executive officers and senior management and key employees, including our regional vice presidents.management. The unexpected or unanticipated loss of the services of one or more members of our senior management team could have an adverse effect on our business and impair the efficiency and productivity of our operations. We do not have key man insurance for any of our executive officers or key personnel. In addition, the market for qualified employees in the industry and in the regions in which we operate, particularly for general managers and sales and service personnel, is highly competitive and may subject us to increased labor costs during periods of low unemployment. We do not have employment agreements with our dealership general managers and other key dealership personnel. Accordingly, the inability to retain key employees or the failure to attract qualified personnel could have an adverse effect on our business and may impact the ability of our dealerships to conduct their operations in accordance with our standards.
Substantial competition in automotive sales and services may materially and adversely affect our results of operations due to our need to lower prices to sustain sales.
The automotive retail industry is highly competitive. Depending on the geographic market, we compete with:
franchised automotive dealerships in our markets that sell the same or similar makes of new and used vehicles that we offer, occasionally at lower prices than we do;
other national or regional affiliated groups of franchised dealerships and/or of used vehicle dealerships;
private market buyers and sellers of used vehicles;
internet-based vehicle brokers that sell vehicles obtained from franchised dealers directly to consumers;
auto parts retailers;
local, regional and national collision centers;
service center chain stores; and
independent service and repair shops.
We do not have anya cost advantage in purchasing new vehicles from vehicle manufacturers and typically rely on advertising, merchandising, sales expertise, service reputation, product demand and dealership location in order to sell new vehicles. Our franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area. If competing dealerships expand their market share or are awarded additional franchises by manufacturers it could have a material and adverse effect on our business and results of operations.
In addition to competition for vehicle sales, our dealerships compete with franchised dealerships to perform warranty maintenance and repair services and with other automotive dealers, franchised and independent service center chains and independent garages for non-warranty repair and routine maintenance business. Our parts operations compete with other automotive dealers, service stores and auto parts retailers. We believe the principal competitive factors in the parts and service business are the quality of customer service, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, convenience, access to and use of technology required for certain repairs and services, location, price, the competence of technicians and the availability of training programs to enhance such expertise. A number of regional or national chains offer selected parts and services at prices that may be lower than our dealerships’ prices. We also compete with a broad range of financial institutions in arranging financing for our customers’ vehicle purchases.
The internet has also become a significant part of the advertising and sales process in our industry. Customers are using the internet as part of the sales process to compare pricing for cars and related finance and insuranceF&I services, which may reduce gross profit margins for new and used cars and profits for related finance and insuranceF&I services. Some retailers offer vehicles for sale over internet websites without the benefit of having a dealership franchise, although they must currently source their vehicles from a franchised dealer. One or more companies are currently manufacturing electric vehicles for sale solely through the internet without using the traditional dealer-network, and circumventing the state franchise laws of several states in the United States.U.S. If more states where we do business eliminate or lessen their laws prohibiting retail sales by non-dealer companies, and if those companies are successful in selling their vehicles without the requirements of establishing a dealer-network, they may be able to have a competitive advantage over the traditional dealers, which could adversely affect our sales in those states. If internet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, or if dealerships are able to effectively use the internet to sell outside of their markets, our business could be materially adversely affected. Our business would also be materially adversely affected to the extent that internet companies acquire dealerships or align themselves with our competitors’ dealerships.
Please see “Item 1. Business — Competition” for morefurther discussion of competition in our industry.
A cybersecurity breach, including a breach of personally identifiable information (“PII”) about our customers or employees, could negatively affect operations and result in high costs.
There has been a substantial increase in attempts by third parties with bad intentions to steal data from numerous businesses world-wide, including our dealerships, by highly sophisticated means. If a third party is successful in obtaining such confidential information of our dealerships or our customers or disrupting our operations through high-tech security breaches and hacking methods, we could have substantial liability in connection with such security breaches. While we attempt to implement state of the art technological defenses to thwart such activities, there is no guarantyguarantee that we will be able to keep up with the ever evolving sophisticated methods of breaching security systems and continue to combat such attempts to breach our own data systems. Failure to do so could ultimately have a material adverse effect on our business operations.
The protection of customer, employee, and our data is critical to our business. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements across business units. In addition, customersCustomers have a high expectation that we will adequately protect their PII from cyber-attack or other security breaches. A significant breach of customer, employee, or our data could attract a substantial amount of media attention, damage our customer relationships and reputation, and result in lost sales, fines, or lawsuits.
In the ordinary course of business, we and our business affiliates receive significant PII about our customers in order to complete the sale or service of a vehicle and related products. We also receive PII from our employees. Numerous state and federal regulations in the U.S., as well as payment card industry and other vendor standards, govern the collection and maintenance of PII from consumers and other individuals. Although many companies across many industries are affected by malicious efforts to obtain access to PII, news reports suggest that the automotive dealership industry ishas been a particular target of identity thieves. Moreover, there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data, scams, or misappropriation of data by employees, vendors or unaffiliated third parties. We have spent to date, and will continue to spend, significant resources to combat and protect against cyber-attacks and other forms of security breaches. Despite the security measures we have in place and any additional measures we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, or other events. Alleged or actual data security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, result in individual claims or consumer class actions,
administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on our business, results of operations or financial condition.
Our business is sensitive to manufacturer recalls, and the effects such recalls have on the reputation of our manufacturers.
Our business is highly dependent on consumer demand and brand preferences of our manufacturer’s products. Manufacturer recall campaigns are a common occurrence that have accelerated in frequency and scope over the last several years. Manufacturer recall campaigns could adversely affect our new and used vehicle sales or customer residual trade-in valuations, could cause us to temporarily remove vehicles from our inventory available for sale, could force us to incur increased costs and could expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse effect on our business, sales and results of operations.
The impairment of our goodwill, our indefinite-lived intangibles and our other long-lived assets has had, and could in the future have a material adverse effect on our results of operations.
We assess goodwill and other indefinite-lived intangibles for impairment on an annual basis, or more frequently when events or circumstances indicate that an impairment may have occurred. We assess the carrying valueSee Note 1 “Business and Summary of Significant Accounting Policies” and Note 11 “Intangible Franchise Rights and Goodwill” within our Notes to Consolidated Financial Statements for further discussion of our long-lived assets when events or circumstances indicate that an impairment may have occurred.model and related assumptions.
Based on the organization and management of our business, we determined that each of our regions represents a reporting unit for the purpose of assessing goodwill for impairment. In evaluating goodwill, we compare the carrying value of our reporting units to their respective fair values. To determine the fair value of our reporting units we use a combination of the discounted cash flow and market approaches. In addition, we evaluate the carrying value of our indefinite-lived, intangible franchise rights at a dealership level using a discounted cash flow based approach. Both these analyses are based upon a series of assumptions. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Accounting Estimates — Goodwill” and “Intangible Franchise Rights” for additional information regarding the assumptions that underlie our analysis.
Performance issues at individual dealerships, as well as broader economic andadverse retail automotive industry and economic trends, can result in changes toincrease the assumptions in our fair value estimates. In addition, until the full effectrisk of our business practices, scale leverage and other cost savings initiatives can be realized, the carrying value of goodwill and other intangibles associated with an acquisition are generally more subject to impairment in the years immediately following the acquisition. For example, the decline in the Brazilian economy and retail auto industry since our acquisition of the Brazil dealerships in March 2013 adversely impacted the results of the impairment test performed in the fourth quarter of 2015. As a result, in our fourth quarter 2015 impairment analysis, we determined that there had been material changes to the previous assumptions underlying the amount of goodwill and/or intangible assets associated with our Brazilian dealerships, and we wrote down the value of those assets,charge, which resulted incould have a material non-cash impairment charge.
On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU. The majority vote in favor of Brexit has created uncertainty in the global markets and in the regulatory environment in the U.K., as well as the overall European Union. Theadverse impact on our financial results of operations and operations may not be known for some time, but could be adverse. In addition, automotive dealers instockholders' equity. During the U.K. rely on the legislative doctrineyears ended December 31, 2019, 2018 and 2017, we recorded $19.0 million, $38.7 million and $19.3 million, respectively, of "Block Exemption" to govern market representation activitiesimpairment of competing dealers and dealer groups. To date, there continues to be no clear indication of how such legislation may be effected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of these uncertainties, the estimates, assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights, change or failwhich is discussed further in Note 11 “Intangible Franchise Rights and Goodwill” within our Notes to materialize, the resulting decline in the estimated fair market value of such assets could result in a material non-cash impairment charge. While we are not aware of any changes in circumstances that have resulted in a decline in fair value of these assets at this time, we continue to closely monitor the situation.Consolidated Financial Statements.
We are required to evaluate the carrying value of our long-lived assets at the lowest level of identifiable cash flows. To test the carrying value of assets to be sold, we generally use independent, third-party appraisals or pending transactions as an estimate of fair value. In the event of an adverse change in the real estate market, the resulting decline in our estimated fair value could result in a material non-cash impairment charge to the associated long-lived assets.
ChangesMaterial increases in interest rates on our variable rate obligations or resulting from the phasing out of LIBOR could adversely impact our results of operations.
Borrowings under our credit facilities and various other notes payable bear interest based on a floating rate. Therefore, our interest expense would increase with any rise in interest rates. A rise in interest rates may also have the effect of depressing demand in the interest rate sensitive aspects of our business, particularly new and used vehicle sales, becauseas many of our customers finance their vehicle purchases. As a result, a rise in interest rates may have the effect of simultaneously increasing our costs and reducing our revenues. To mitigate
In addition, on July 27, 2017, the impact,Chief Executive of the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or requiring banks to submit rates for the calculation of LIBOR after 2021. This announcement, in conjunction with financial benchmark reforms more generally and changes in the interbank lending markets, have resulted in uncertainty about the future of LIBOR and certain other rates or indices which have historically been used as interest rate “benchmarks” in our borrowings, including the majority of our floorplan notes payable, mortgages and other debt. Accordingly, the use of an alternative rate on these borrowings could result in increased interest expense, in addition to costs to amend the loan agreements and other applicable arrangements to a new reference rate. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and we are unable to predict the effect of any such alternatives on our business, results of operations or financial condition.
Although we have entered into derivative transactions to convert a portion of our variable-rate debt to fixed rates, towhich may partially mitigate this risk. In addition, we receivethe impact of fluctuations in interest assistance from certain automobile manufacturers, which is reflected as a reduction in cost of salesrates, the interest rates on our statementsderivatives are also benchmarked on LIBOR and could be adversely impacted by the proposed elimination of LIBOR.
of operations. Please see Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a discussion regarding our interest rate sensitivity.
Natural disasters and adverse weather events can disrupt our business.
Some of our dealerships are concentrated in states and regions in the U.S., U.K. and Brazil in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, snow storms, flooding, and hail storms) have in the past, and may in the future, disrupt our dealership operations. A disruption in our operations may adversely impact our business, results of operations, financial condition and cash flows. In addition to business interruption, the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property value at dealership locations. Natural disasters and severe weather events have in the past and may in the future impair the value of our dealership property. Although we have, subject to certain limitations and exclusions, substantial insurance, including business interruption insurance, we may be exposed to uninsured losses that could have a material adverse effect on our business, results of operations and financial condition.
Our insurance does not fully cover all of our operational risks, and changes in the cost of insurance or the availability of insurance could materially increase our insurance costs or result in a decrease in our insurance coverage.
The operation of automobile dealerships is subject to compliance with a wide range of laws and regulations and is subject to a broad variety of risks. While we have insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, workers’ compensation insurance, employee dishonesty coverage, employment practices liability insurance, pollution coverage and errors and omissions insurance in connection with vehicle sales and financing activities, we are self-insured for a portion of our potential liabilities. We purchase insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefits and other risks consisting of large deductibles and/or self-insured retentions.
In certain instances, our insurance may not fully cover an insured loss depending on the magnitude and nature of the claim. Additionally, changes in the cost of insurance or the availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or could cause us to reduce our insurance coverage and increase the portion of our risks that we self-insure.
The insurance companies that underwrite our insurance require that we secure certain of our obligations for self-insured exposures with collateral. Our collateral requirements are set by the insurance companies and, to date, have been satisfied by posting surety bonds, letters of credit and/or cash deposits. Our collateral requirements may change from time to time based on, among other things, our total insured exposure and the related self-insured retention assumed under the policies. We are subject to potential premium cost fluctuations with the annual renewal of these programs.
Vehicle technology advancements and ownership model changes.changes could adversely affect our new and used vehicle sales volumes, parts and service revenue and our results of operations.
With the advancement in the technology of semi and fully autonomous electric-powered vehicles, several new business models are in early stage development to create high mileage, self-driving and/or co-ownership vehicle opportunities. These autonomous-electric vehicles may be manufactured by existing automotive manufacturers or other companies who do not presently manufacture hydrocarbon or alternative fuel source vehicles. Even with the current highway and road infrastructure challenges and the large number of existing internal combustion engines currently in service and to be in service for many years to come, which will create obstacles to the wide-spread implementation of such autonomous-electric vehicles in the immediate future, many in the automotive industry believe that it will only be a matter of time until such vehicles will be available to the automotive consumer at low usage costs. Such industry participants believe projected low usage costs of autonomous-electric vehicles may entice many vehicle owners, particularly in larger, highly populated areas, to abandon individual car ownership in favor of multiple co-ownership ride-sharing opportunities. If such autonomous-electric vehicles can be mass produced at a reasonable production and operating cost and sold by companies not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network, and/or if the ride-sharing subscription business model becomes widely popular, such events could adversely affect industry new and used vehicle sales volumes, parts and the growthservice revenue and our results of our earnings and revenues.operations.
Additionally, with the anticipateda potential increase in demand by consumers for electric-powered vehicles, our manufacturers mustwill need to adapt their physical plantsproduct plans and production capabilities accordingly to meet the demands of consumers forthese demands. As more electric vehicles for years to come. As more and more electric vehiclespotentially enter the market, and more and more combustible engines exit the market,engine vehicle production is reduced, our ability to adapt to such changes, particularly in regardsregard to our ability to manage our inventory,sell and service these units effectively, will be necessary to meet the current consumer demands and maintainsupport the current profitability atof our dealerships. Furthermore, while in the short term we do not believe there will be a significant difference in maintenance costs incurred by a vehicle owner of a combustible engine versus maintenance costs of a vehicle owner of a new electric-powered vehicle, that may not be the case as technology advancements are made in the development of electric-powered vehicles. If such maintenance costs by a consumer of an electric-powered vehicle were to substantially decrease, thatthis could have a material adverse effect on our parts and service revenues. If such electric vehicles can be mass produced at a reasonable production and operating cost and sold by companies not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network, such events could adversely affect industry new and used vehicle sales volumes, parts and service revenue and our results of operations.
Our indebtedness and the associated covenants could materially adversely affect our ability to obtain additional financing, including for acquisitions and capital expenditures, limit our flexibility to manage our business, prevent us from fulfilling our financial obligations and restrict our use of capital.
Our indebtedness could impact us in the following ways:
our ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes may be impaired in the future;
a portion of our current cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for our operations and other corporate purposes;
some of our borrowings are and will continue to be at variable rates of interest, which exposes us to the risk of increasing interest rates;
we may be more leveraged than some of our competitors, which may place us at a relative competitive disadvantage and make us more vulnerable to changing market conditions and regulations; and
during periods of economic downturn, we may be more susceptible to a breach of our debt covenants and default on our indebtedness.
Our debt instruments contain numerous covenants that limit our discretion with respect to business matters, including mergers or acquisitions, paying dividends, repurchasing our common stock, international investments, incurring additional debt or disposing of assets. A breach of any of these covenants could result in a default under the applicable agreement or indenture. In addition, a default under one agreement or indenture could result in a default and acceleration of our repayment obligations under the other agreements or indentures under the cross default provisions in those agreements or indentures. If a default or cross default were to occur, we may be required to renegotiate the terms of our indebtedness, which would likely be onunder less favorable terms than our current terms and cause us to incur additional fees to process. Alternatively, we may not be able to pay our debts or borrow sufficient funds to refinance them. As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with the covenants in these agreements and indentures.
We are subject to tariff and trade risks that may impair our ability to sell foreign vehicles profitably.
28Increased tariffs, import product restrictions, and foreign trade risks may impair our ability to sell foreign vehicles profitably. In an effort to increase the U.S.’s penetration of competitive markets throughout the world, the Trump Administration has, from-time-to-time, threatened and on occasion implemented tariffs on the import of foreign produced goods and raw materials. The Trump Administration has been critical of the unfair trade balance that existed between the U.S. and China and has implemented tariffs on Chinese goods and of raw materials, primarily steel. While China imports a limited number of vehicles into the U.S., many U.S. manufacturers of vehicles, parts and supplies are dependent on Chinese products and raw materials in their production of their products. Implementation of tariffs on such goods and raw materials could affect the price of vehicles we sell. On January 15, 2020, the Trump Administration entered into a trade agreement which preserved many of the tariffs that were placed on certain Chinese goods. This agreement is considered Phase I of the agreement, and there is no definitive time frame for when Phase II will occur, what the terms will be and the impact on our business. Regarding the EU, while the Trump Administration has indicated tariffs will be imposed on European automobiles, to date no tariffs have been imposed on vehicles and auto parts produced in the EU and imported to the U.S. Additionally, with the recent completion of Brexit, it is reasonable to expect the U.S. will seek to enter into a trade agreement with the U.K. which among other things will deal with reciprocal trade agreements. If the U.S. is unable to reach an agreement with the EU or the U.K. on reciprocal trade agreements it is possible that tariffs could be imposed on many of the vehicles we will import from the U.K. and the EU.
There continues to be substantial uncertainty regarding, among other factors: (i) the ultimate outcome of the implementation and effects of trade tariffs; (ii), definition of “foreign” vehicles - assembled outside the U.S. or U.S. assembled vehicles that contain non-U.S. parts; and (iii) the retaliatory response by foreign governments to such trade tariffs. Additionally, the recent passing of Brexit and its uncertain effects with the U.S. and Europe continues to create uncertainty in the U.K. There is no clear indication of how (i) the China Phase I (or the contemplated Phase II), (ii) the anticipated Trump Administration’s negotiations with the EU or (iii) the effects of the Brexit decision will ultimately affect tariffs, imports and foreign trade applicable to the U.S. and the U.K. economies and our business operations. See the risk factor “The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K. revenue and results of operations” for further discussion of Brexit. Should import tariffs be implemented or increased as described above, we expect the price of many new vehicles we sell to increase and foreign trade to be depressed, which may adversely affect our new vehicle retail sales revenues and related finance, insurance and other revenues.
We are subject to risks associated with our non-U.S. operations that could have a material adverse effect on our business, results of operations and financial condition.
Over the past several years, weWe have significantly increased our operations outside the U.S. market. Expanding our operations in, including the U.K.U.K and Brazil are important elements of our growth strategy. Operations outside of the U.S. are subject to various risks which may not be present or as significant for operations within U.S. markets, and our exposure to these risks increases asBrazil. As a result, we expand. Government actions, both in terms of policy-setting, as well as actions directly affecting our operations,face political and economic uncertainty in some geographic regions in which we operate, such as emerging markets, could result in the disruption of marketsrisks and negatively affect our results of operations and cash flows in those areas.
Risks inherent inuncertainties with respect to our international operationsoperations. These risks may include the following, but are not limited to:
exposure to local economic conditions;
wage inflation in emerging markets;
social plans that prohibit or increase the cost of certain restructuring actions;
increases in working capital requirements related to long supply chains or regional terms of business;
currency exchange controls;
exposure to currency exchange rate fluctuations;
variations in protection of legal rights;
uncertainties, timing delays and expenses associated with tariffs, import or export licensing requirements;licenses, and other trade barriers;
the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
restrictions on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, embargoes and other laws and regulations creating tax inefficiencies and prohibitions or restrictions on acquisitions or joint ventures;
increased risk of corruption;
changes in laws and regulations, including the laws and policies of the U.S. affecting trade and foreign investment;
more expansive legal rights of foreign labor unions;
the potential for nationalization of enterprises;
exposure to local public health concerns and the resultant impact on economic and political conditions;
transparency issues in general and, more specifically, the U.S. Foreign Corrupt Practices Act of 1974, as amended (the “FCPA”), the U.K. Bribery Act, and other anti-corruption compliance laws and issues;
unsettled social and political conditions, in general, and possible terrorist attacks, drug cartel related violence or acts of war, civil unrest, expansion of hostilities and other political risks;
increased risk of corruption;
inability to obtain or preserve franchise rights in the foreign countries in which we operate;
currency exchange restrictions; and
lack of franchise protection, which creates greater competition.exposure to currency exchange rate fluctuations.
The likelihood of these occurrences and their potential effect on us vary from country to country and are unpredictable. These and other factors may have a material adverse effect on our international operations and, therefore, on our business, results of operations and financial condition, which may become more pronounced as we expand our international presence.
Our Consolidated Financial Statements reflect thatAs exchange rates fluctuate, our results of operations and financial position areas reported in local currency and are converted into U.S. dollars at the applicable currency rate.USDs fluctuate. Fluctuations in such currency rates may have a material effect on our results of operations or financial position as reported in U.S. dollars. Management evaluates the Company’s results of operations on both an as reported and a constant currency basis. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on constant currency basis. See Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Exchange Rates” for additional information on foreign currency exchange rate sensitivity.position.
We may be exposed to liabilities under the FCPA and similar anti-corruption laws, and any determination that we violated such laws could have a material adverse effect on our business.
We are subject to the FCPA, Brazil’s clean company and anti-corruption act, the U.K. anti-bribery act and similar anti-bribery and anti-corruption laws that generally prohibit companies and their personnel and intermediaries from offering, authorizing, or making improper payments to government officials for the purpose of obtaining or retaining business, or securing some improper advantage in business or engaging in conduct
involving money-laundering. We do business and may do additional business in the future in countries and regions where strict compliance with anti-bribery laws may not be customary. Our personnel and intermediaries may face, directly or indirectly, corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries in which we operate or may operate in, in the future. As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of our employees or intermediaries, even if such parties are not always subject to our control or are not themselves subject to the FCPA or other anti-bribery laws to which we may be subject. Existing compliance safeguards and any future improvements may not prevent all such conduct, and it is possible that our employees and intermediaries may engage in conduct for which we might be investigated by U.S. and other authorities and held responsible. Violations of the FCPA and other anti-bribery and other anticorruptionanti-corruption laws (either due to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on our business and operations.
Our growth in emerging markets, such as Brazil, is subject to special risks that could have a material adverse effect on our operations.
In February 2013, we acquired UAB Motors Participações S.A. (“UAB Motors”), which allowed us to enter the Brazilian market. At the time we entered the Brazilian market, it was an emerging growth market. Since then, Brazil experienced a significant economic downturn and has been in the midst of a recession. Partially as a result, Brazil represented less than 5% of our total new vehicle retail units sold during the year ended December 31, 2017. Since February 2013, Brazil has also experienced significant currency fluctuations. And, while recent data is beginning to show signs of a recovery, there is no assurance that our future growth strategies in Brazil will be successful, or that Brazil’s economy will continue its recovery.recovery or that future volatility will not happen. If the Brazil financial recovery is longer than expected or if future volatility occurs, it could have a material adverse effect on our business, results of operations and financial condition. See also “We are subject to risks associated with our non-U.S. operations that could have a material adverse effect on our business, results of operations and financial condition.” Further, our growth in emerging markets by acquisition of existing dealerships, such as our acquisition of UAB Motors, is subject to additional risk as discussed underin the risk factor “Our ability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues and earnings” above.earnings.”
Certain restrictions relating to our management and ownership of our common stock could deter prospective acquirers from acquiring control of us and adversely affect our ability to engage in equity offerings.
As a condition to granting their consent to our previous acquisitions and our initial public offering, some of our manufacturers have imposed other restrictions on us. These restrictions prohibit, among other things:
the removal of a non-employee director from office, onlyexcept for cause;
any one person or entity, who in the opinion of the manufacturer is unqualified to own its franchised dealership or has interests incompatible with the manufacturer, from acquiring more than a specified percentage of our common stock (ranging from 20% to 50% depending on the particular manufacturer’s restrictions) and this trigger level can fall to as low as 5% if another vehicle manufacturer is the entity acquiring the ownership interest or voting rights;
certain material changes in our business or extraordinary corporate transactions, such as a merger or sale of a material amount of our assets;
the removal of a dealership general manager without the consent of the manufacturer; and
a change in control of our Board of Directors or a change in management.
Our manufacturers may also impose additional similar restrictions on us in the future. Actions by our stockholders or prospective stockholders, which would violate any of the above restrictions, are generally outside our control. If we are unable to comply with or renegotiate these restrictions, we may be forced to terminate or sell one or more franchises, which could have a material adverse effect on our business. These restrictions may prevent or deter prospective acquirers from acquiring control of us and, therefore, may adversely impact the value of our common stock. These restrictions also may impede our ability to acquire dealership groups, to raise required capital or to issue our stock as consideration for future acquisitions.
Our certificate of incorporation, bylaws and franchise agreements contain provisions that make a takeover of us difficult.
Our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if such change of control would be beneficial to our stockholders. These include provisions:
allowing only the Board of Directors to set the number of non-employee directors;
requiring super-majority or class voting to affect certain amendments to our certificate of incorporation and bylaws;
limiting the persons who may call special stockholders’ meetings;
limiting stockholder action by written consent; and
establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholders’ meetings.
In addition, our certificate of incorporation authorizes us to issue “blank check” preferred stock, the designation, number, voting powers, preferences, and rights of which may be fixed or altered from time to time by our Board of Directors. Accordingly, the Board of Directors has the authority, without stockholder approval, to issue preferred stock with rights that could materially adversely affect the voting power or other rights of the common stockholders or the market value of the common stock and prevent a change of our control.
Finally, certain of our franchise agreements prohibit the acquisition of more than a specified percentage of our common stock without the consent of the relevant manufacturer. These terms of our franchise agreements could also make it more difficult for a third party to acquire control of us.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We presently lease our corporate headquarters, which is located at 800 Gessner, Suite 500, Houston, Texas, as well as our regional headquarters in Brazil. In addition, asWe own our regional headquarters in the U.K. As of December 31, 2017,2019, we had 227 franchises situated in 173 dealership locations throughout186 dealerships as shown below by region and by whether the U.S., U.K. and Brazil. As of December 31, 2017, weassociated real estate is leased 81 of these dealership locations andor owned the remainder. We have one location in Massachusetts, one location in Alabama, one location in California, one location in Texas and two in Brazil where we lease the land, but own the building facilities. These locations are included in the leased column of the table below.
|
| | | | | | | | |
| | | | | Dealerships |
| Region | | Geographic Location | | Owned | | Leased |
| United States | | Texas | | 23 |
| | 29 |
|
| | | Oklahoma | | 8 |
| | 5 |
|
| | | Georgia | | 7 |
| | — |
|
| | | Massachusetts | | 4 |
| | 1 |
|
| | | New Jersey | | 4 |
| | — |
|
| | | Florida | | 4 |
| | — |
|
| | | Kansas | | 4 |
| | — |
|
| | | Mississippi | | 3 |
| | — |
|
| | | South Carolina | | 3 |
| | — |
|
| | | New Mexico | | 2 |
| | — |
|
| | | Maryland | | 2 |
| | — |
|
| | | New Hampshire | | 2 |
| | 1 |
|
| | | California | | 2 |
| | 5 |
|
| | | Louisiana | | 2 |
| | 2 |
|
| | | Alabama | | 1 |
| | 1 |
|
| | | | | 71 |
| | 44 |
|
| International | | United Kingdom | | 19 |
| | 23 |
|
| | | Brazil | | 2 |
| | 14 |
|
| Total | | | | 92 |
| | 81 |
|
We use a number of facilities to conduct our dealership operations. Each of our dealerships may include facilities for (1) new and used vehicle sales, (2) vehicle service operations, (3) retail and wholesale parts operations, (4) collision business operations, (5) storage and (6) general office use. Prior to 2005, we tried to structure our operations so as to avoid the ownership of real property. Since 2005, we have strategically increased the number of purchased properties particularly in relation to dealership acquisition activity to enhance our flexibility in managing performing and underperforming dealerships and control our costs. As a result, we own 53.2% of our dealership properties as of December 31, 2017, an increase from 45.9% as of December 31, 2016. See Note 18 to our Consolidated Financial Statements, “Operating Leases.”
Since 2005, Group 1 Realty, Inc., one of our wholly-owned subsidiaries, has typically acquired the property in connection with our U.S. dealership acquisitions and relocations and acts as the landlord for those dealership operations. On a consolidated basis for the year ended December 31, 2017, we acquired $137.1 million of real estate, of which $26.8 million was purchased in conjunction with our dealership acquisitions. With these acquisitions, the capitalized value of the real estate used in operations that we own was $1,105.4 million as of December 31, 2017. Of this capitalized value, $769.3 million was mortgaged through our real estate related borrowing arrangements. The related mortgage indebtedness outstanding as of December 31, 2017 was $433.4 million, excluding unamortized debt issuance costs of $0.9 million.
We do not believe that any single facility is material to our operations and, if necessary, we would obtain a replacement facility.
2019:
|
| | | | | | |
| | | Dealerships |
| Region | | Owned | | Leased |
| United States | | 84 |
| | 35 |
|
| United Kingdom | | 21 |
| | 29 |
|
| Brazil | | 5 |
| | 12 |
|
| Total | | 110 |
| | 76 |
|
Item 3. Legal Proceedings
From time to time, our dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, as well as claims involving the manufacturer of automobiles, contractual disputes and other matters arising in the ordinary course of business. Due to the nature of the automotive retailing business, we may be involved in legal proceedings or suffer losses that could have a material adverse effect on our business. In the normal course of business, we are required to respond to customer, employee and other third-party complaints. Amounts that have been accrued or paid related to the settlement of litigation are included in Selling, General and Administrative expenses (“SG&A”) in our Consolidated Statements of Operations. In addition, the manufacturers of the vehicles that we sell and service have audit rights allowing them to review the validity of amounts claimed for incentive, rebate or warranty-related items and charge us back for amounts determined to be invalid payments under the manufacturers’ programs, subject to our right to appeal any such decision. Amounts that have been accrued or paid related to the settlement of manufacturer chargebacks of recognized incentives and rebates are included in cost of sales in our Consolidated Statements of Operations, while such amounts for manufacturer chargebacks of recognized warranty-related items are included as a reduction of revenues in our Consolidated Statements of Operations.
In September 2015, Volkswagen admitted that certain of its diesel models were intentionally programmed to meet various regulatory emissions standards only during laboratory emissions testing. In late June 2016, Volkswagen agreed to pay up to an aggregate of $14.7 billion to settle claims stemming from the diesel emissions scandal. In October 2016, a U.S. Federal judge approved this settlement. In September 2016, Volkswagen agreed to allocate $1.2 billion among its 652 dealers for a class settlement in exchange for their agreement not to sue Volkswagen. In October 2016, we received notification from Volkswagen that we are entitled to receive, in the aggregate, approximately $13.2 million in connection with our current and prior ownership of seven Volkswagen dealerships in the U.S. As of February 12, 2018, we have received half of the compensation in a lump sum amount and half to be paid over 18 equal monthly installments, of which 11 payments have been received to date. The Volkswagen brand represented 2.6% of our total new vehicle retail unit sales during the year ended December 31, 2017. Also, in conjunction with the Volkswagen diesel emissions scandal, Volkswagen agreed in March 2017 to settle allegations of damages by the Company relative to our three Audi branded dealerships. We received the cash and recognized the settlement as an offset to SG&A in the accompanying Consolidated Statements of Operations for the twelve months ended December 31, 2017.
We are not party to any legal proceedings, including class action lawsuits that, individually or in the aggregate, are reasonably expected to have a material adverse effect on our results of operations, financial condition or cash flows. However, the resultsFor a discussion of these matters cannot be predicted with certaintyour legal proceedings, see Part IV “Item 15. Exhibits, Financial Statement Schedules” and an unfavorable resolution of one or more of these matters could have a material adverse effect onNote 16 “Commitments and Contingencies” within our results of operations or financial condition.Notes to Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock ExchangeNYSE under the symbol “GPI.” There were 4544 holders of record of our common stock as of February 12, 2018.10, 2020. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
The following table presents the quarterly high and low sales prices for our common stock, as reported on the New York Stock Exchange Composite Tape under the symbol “GPI” and dividends paid per common share for 2016 and 2017:
|
| | | | | | | | | | | | |
| | | High | | Low | | Dividends Declared |
| 2016: | | | | | | |
| First Quarter | | $ | 75.70 |
| | $ | 47.67 |
| | $ | 0.22 |
|
| Second Quarter | | 68.47 |
| | 48.40 |
| | 0.23 |
|
| Third Quarter | | 64.19 |
| | 47.31 |
| | 0.23 |
|
| Fourth Quarter | | 82.35 |
| | 55.06 |
| | 0.23 |
|
| 2017: | | | | | | |
| First Quarter | | $ | 83.18 |
| | $ | 70.85 |
| | $ | 0.24 |
|
| Second Quarter | | 75.66 |
| | 56.79 |
| | 0.24 |
|
| Third Quarter | | 72.78 |
| | 51.62 |
| | 0.24 |
|
| Fourth Quarter | | 84.47 |
| | 68.32 |
| | 0.25 |
|
We expect comparable cash dividends to be paid in the future. However, payment of dividends in the future is subject to the discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capital requirements, outlook for our business, general business conditions, the political and legislative environments and other factors.
Further, we are limited under the terms of the Revolving Credit Facility, certain mortgage term loans, the 5.00% Notes and the 5.25% Notes in our ability to make restricted payments, such as cash dividend payments to our stockholders and the repurchase of shares of our outstanding common stock. As of December 31, 2017, the restricted payment baskets totaled $184.8 million. Generally, these restricted payment baskets will increase in the future periods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount of future payments for cash dividends and share repurchases.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent that we specifically incorporate it by reference into such filing.
The graphtable compares the performance of our common stock to the S&P 500 Index and to an industry peer group for our last five fiscal years. The members of the peer group are Asbury Automotive Group, Inc., AutoNation, Inc., Lithia Motors, Inc., Penske Automotive Group, Inc. and Sonic Automotive, Inc. The source for the information contained in this table is Zack’s Investment Research, Inc.
The returns of each member of the peer group are weighted according to each member’s stock market capitalization as of the beginning of each period measured. The graph assumes that the value of the investment in our common stock, the S&P 500 Index and the peer group was $100 on the last trading day of December 2012,2014, and that all dividends were reinvested.
Performance data for Group 1 Automotive, Inc., the S&P 500 Index and for the peer group is provided as of the last trading day of each of our last five fiscal years.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNS
AMONG GROUP 1 AUTOMOTIVE, INC., S&P 500 INDEX AND A PEER GROUP
TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
| | | Measurement Date | | Group 1 Automotive, Inc. | | S&P 500 | | Peer Group | | Group 1 Automotive, Inc. | | S&P 500 | | Peer Group |
| December 2012 | | $100.00 | | $100.00 | | $100.00 | |
| December 2013 | | 115.70 | | 132.39 | | 142.58 | |
| December 2014 | | 147.31 | | 150.51 | | 169.48 | | $100.00 | | $100.00 | | $100.00 |
| December 2015 | | 125.66 | | 152.59 | | 164.16 | | 85.31 | | 101.38 | | 96.86 |
| December 2016 | | 131.31 | | 170.84 | | 158.03 | | 89.14 | | 113.51 | | 93.24 |
| December 2017 | | 121.28 | | 208.14 | | 162.02 | | 82.33 | | 138.29 | | 95.60 |
| December 2018 | | | 62.11 | | 132.23 | | 74.64 |
| December 2019 | | | 119.51 | | 173.86 | | 114.26 |
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer
The following table providessets forth information about purchaseswith respect to shares of equity securities that are registeredcommon stock repurchased by us pursuant to Section 12 of the Exchange Act during the three months ended December 31, 2017:
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| | | | | | | | | (In thousands, excluding commissions) |
| October 1 - October 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 49,641 |
|
| November 1 - November 30, 2017 | | — |
| | $ | — |
| | — |
| | $ | 49,641 |
|
| December 1 - December 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 49,641 |
|
| Total | | — |
| | $ | — |
| | — |
| | |
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1) |
| December 1 - December 31, 2019 | | 14,200 |
| | $ | 99.98 |
| | 14,200 |
| | $ | 73.6 |
|
| Total | | 14,200 |
| | | | 14,200 |
| |
|
(1) In May 2017, theOur Board of Directors approved a new authorization of upfrom time to $75.0 milliontime authorizes the repurchase of shares of our common stock replacingup to a certain monetary limit. During the prior $150.0 million authorization. Under both of the authorizations, weyear ended December 31, 2019, 14,200 shares were repurchased 649,298 shares during 2017 at an average price of $61.75$99.98 per share, for a total of $40.1$1.4 million, leaving $49.6$73.6 million available for future repurchases.under our stock repurchase limit of $75.0 million most recently authorized by our Board of Directors. Our stock repurchase program does not have an expiration date. Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions and other factors. As shown in
In December 2019, we entered into a Rule 10b5-1 repurchase plan that was effective from January 2, 2020 to February 3, 2020. Under the table above,plan, we did not purchase anyhave purchased 149,284 shares during the three months endedsubsequent to December 31, 2017.2019, at an average price of $98.12 per share for an aggregate cost of $14.7 million, leaving $58.9 million available under our stock repurchase program.
Item 6. Selected Financial Data
The following table sets forth the selected historical financial data as of December 31, 2017, 2016, 2015, 2014, and 2013, and for the five years in the period ended December 31, 2019, 2018, 2017,, 2016, and 2015. Certain reclassifications of amounts previously reported have been derived from our audited Consolidated Financial Statements. Thismade to the accompanying income statement data and balance sheet data in order to conform to current presentation. These reclassifications at times are due to the adoption of new or updated accounting standards, and therefore this selected financial data information should be read in conjunction with “Item 7. Management’sItem 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” and theour Consolidated Financial Statements and related notesthe Notes thereto, included elsewhere in this annual report on Form 10-K.
We account for all of our dealership acquisitions by applying the acquisition method. As a result, we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them, which may impact the comparability of the financial information presented. Also, as a result of the effects of our acquisitions, dispositions, and other potential factors in the future, the historical financial information described in the selected financial data is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented in the selected financial data. |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | (In thousands, except per share amounts) | | |
| Income Statement Data: | | | | | | | | | | |
| Revenues | | $ | 11,123,721 |
| | $ | 10,887,612 |
| | $ | 10,632,505 |
| | $ | 9,937,889 |
| | $ | 8,918,581 |
|
| Cost of sales | | 9,478,212 |
| | 9,292,543 |
| | 9,098,533 |
| | 8,489,951 |
| | 7,626,035 |
|
| Gross profit | | 1,645,509 |
| | 1,595,069 |
| | 1,533,972 |
| | 1,447,938 |
| | 1,292,546 |
|
| Selling, general and administrative expenses | | 1,226,195 |
| | 1,170,763 |
| | 1,120,833 |
| | 1,061,964 |
| | 976,856 |
|
| Depreciation and amortization expense | | 57,936 |
| | 51,234 |
| | 47,239 |
| | 42,344 |
| | 35,826 |
|
| Asset impairments | | 19,506 |
| | 32,838 |
| | 87,562 |
| | 41,520 |
| | 6,542 |
|
| Income from operations | | 341,872 |
| | 340,234 |
| | 278,338 |
| | 302,110 |
| | 273,322 |
|
| Other expense: | | | | | | | | | | |
| Floorplan interest expense | | (52,372 | ) | | (44,927 | ) | | (39,264 | ) | | (41,614 | ) | | (41,667 | ) |
| Other interest expense, net | | (70,497 | ) | | (67,936 | ) | | (56,903 | ) | | (49,693 | ) | | (38,971 | ) |
| Loss on extinguishment of long-term debt | | — |
| | — |
| | — |
| | (46,403 | ) | | — |
|
| Other expense, net | | — |
| | — |
| | — |
| | — |
| | (789 | ) |
| Income from continuing operations before income taxes | | 219,003 |
| | 227,371 |
| | 182,171 |
| | 164,400 |
| | 191,895 |
|
| Provision for income taxes | | (5,561 | ) | | (80,306 | ) | | (88,172 | ) | | (71,396 | ) | | (77,903 | ) |
| Net income | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
| | $ | 93,004 |
| | $ | 113,992 |
|
| | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | |
| Basic: | | | | | | | | | | |
| Net income | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.91 |
| | $ | 3.82 |
| | $ | 4.72 |
|
| Diluted: | | | | | | | | | | |
| Net income | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.90 |
| | $ | 3.60 |
| | $ | 4.32 |
|
| Dividends per share | | $ | 0.97 |
| | $ | 0.91 |
| | $ | 0.83 |
| | $ | 0.70 |
| | $ | 0.65 |
|
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 20,420 |
| | 21,161 |
| | 23,148 |
| | 23,380 |
| | 23,096 |
|
| Diluted | | 20,425 |
| | 21,170 |
| | 23,152 |
| | 24,885 |
| | 25,314 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | | | | (In millions, except per share amounts) | | |
| Income Statement Data: | | | | | | | | | | |
| Revenues | | $ | 12,043.8 |
| | $ | 11,601.4 |
| | $ | 11,123.7 |
| | $ | 10,887.6 |
| | $ | 10,632.5 |
|
| Cost of sales | | 10,227.8 |
| | 9,876.3 |
| | 9,478.2 |
| | 9,292.5 |
| | 9,098.5 |
|
| Gross profit | | 1,816.0 |
| | 1,725.1 |
| | 1,645.5 |
| | 1,595.1 |
| | 1,534.0 |
|
| Selling, general and administrative expenses | | 1,358.4 |
| | 1,273.1 |
| | 1,226.2 |
| | 1,170.8 |
| | 1,120.8 |
|
| Depreciation and amortization expense | | 71.6 |
| | 67.1 |
| | 57.9 |
| | 51.2 |
| | 47.2 |
|
| Asset impairments | | 22.2 |
| | 43.9 |
| | 19.5 |
| | 32.8 |
| | 87.6 |
|
| Income (loss) from operations | | 363.7 |
| | 341.1 |
| | 341.9 |
| | 340.2 |
| | 278.4 |
|
| Interest expense: | | | | | | | | | | |
| Floorplan interest expense | | 61.6 |
| | 59.9 |
| | 52.4 |
| | 44.9 |
| | 39.3 |
|
| Other interest expense, net | | 74.9 |
| | 75.8 |
| | 70.5 |
| | 67.9 |
| | 56.9 |
|
| Income (loss) before income taxes | | 227.3 |
| | 205.4 |
| | 219.0 |
| | 227.4 |
| | 182.2 |
|
| (Benefit) provision for income taxes | | 53.3 |
| | 47.6 |
| | 5.6 |
| | 80.3 |
| | 88.2 |
|
| Net income (loss) | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
| | $ | 147.1 |
| | $ | 94.0 |
|
| | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | |
| Basic | | $ | 9.35 |
| | $ | 7.83 |
| | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.91 |
|
| Diluted | | $ | 9.34 |
| | $ | 7.83 |
| | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.90 |
|
| Dividends per share | | $ | 1.09 |
| | $ | 1.04 |
| | $ | 0.97 |
| | $ | 0.91 |
| | $ | 0.83 |
|
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 17.9 |
| | 19.5 |
| | 20.4 |
| | 21.2 |
| | 23.1 |
|
| Diluted | | 17.9 |
| | 19.5 |
| | 20.4 |
| | 21.2 |
| | 23.2 |
|
| | | | | December 31, | | As of December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | | | | (Dollars in thousands) | | | | | | (In millions) | | |
| Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 130,699 |
| | $ | 97,470 |
| | $ | 149,102 |
| | $ | 101,958 |
| | $ | 81,613 |
| | $ | 94.0 |
| | $ | 15.8 |
| | $ | 130.7 |
| | $ | 97.5 |
| | $ | 149.1 |
|
| Inventories | | 1,763,293 |
| | 1,651,815 |
| | 1,737,751 |
| | 1,556,705 |
| | 1,542,318 |
| | $ | 1,901.7 |
| | $ | 1,844.1 |
| | $ | 1,763.3 |
| | $ | 1,651.8 |
| | $ | 1,737.8 |
|
| Total assets | | 4,871,065 |
| | 4,461,903 |
| | 4,396,716 |
| | 4,127,198 |
| | 3,796,762 |
| | $ | 5,570.2 |
| | $ | 5,001.1 |
| | $ | 4,871.1 |
| | $ | 4,461.9 |
| | $ | 4,396.7 |
|
Floorplan notes payable — credit facility and other (1) | | 1,154,148 |
| | 1,077,028 |
| | 1,154,960 |
| | 1,103,630 |
| | 1,086,906 |
| | $ | 1,144.4 |
| | $ | 1,258.8 |
| | $ | 1,154.1 |
| | $ | 1,077.0 |
| | $ | 1,155.0 |
|
Floorplan notes payable — manufacturer affiliates (2) | | 374,683 |
| | 367,161 |
| | 363,571 |
| | 285,156 |
| | 346,572 |
| | $ | 459.9 |
| | $ | 417.8 |
| | $ | 374.7 |
| | $ | 367.2 |
| | $ | 363.6 |
|
Long-term debt, including current portion (3) | | 1,357,712 |
| | 1,269,027 |
| | 1,251,555 |
| | 1,078,235 |
| | 697,511 |
| |
Temporary Equity (4) | | — |
| | — |
| | — |
| | — |
| | 29,094 |
| |
| Total Debt | | | $ | 1,491.2 |
| | $ | 1,374.5 |
| | $ | 1,395.8 |
| | $ | 1,285.2 |
| | $ | 1,254.5 |
|
| Stockholders’ equity | | $ | 1,124,282 |
| | $ | 930,200 |
| | $ | 918,252 |
| | $ | 978,010 |
| | $ | 1,035,175 |
| | $ | 1,255.7 |
| | $ | 1,095.7 |
| | $ | 1,124.3 |
| | $ | 930.2 |
| | $ | 918.3 |
|
Long-term debt to capitalization (5) | | 55 | % | | 58 | % | | 58 | % | | 52 | % | | 40 | % | |
| Total debt to capitalization | | | 54 | % | | 56 | % | | 55 | % | | 58 | % | | 58 | % |
(1)Includes immediately available funds of $106.8 million, $33.6 million, $86.5 million, $59.6 million, and $110.8 million $39.6 million,as of December 31, 2019, 2018, 2017, 2016, and $56.2 million,2015, respectively, that we temporarily invest as an offset to the gross outstanding borrowings, as well as $20.9 million, $4.9 million,borrowings.
(2)Includes immediately available funds of $4.1 million, $5.5$0.1 million, $22.5 million, $25.5 million, and $18.1$25.5 million as of December 31, 2019, 2018, 2017, 2016, and2015, 2014, and 2013, respectively, of floorplan borrowings under credit facilities with financial institutions in the U.K. and Brazil.
(2)Includes immediately available funds of $22.5 million, $25.5 million, $25.5 million, and $22.5 million as of December 31, 2017, 2016, 2015, and 2014, respectively, that we temporarily invest as an offset to the gross outstanding borrowings.
(3)Includes the 5.00% Notes, 5.25% Notes, 3.00% Notes, 2.25% Notes, Acquisition Line, real estate related and other long-term debt and excludes short-term financing.
(4)Redeemable equity portion of the 3.00% Notes reclassified from additional paid in capital.
(5)Includes temporary equity as a component of capitalization.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
YouThe following discussion should be read the following discussion in conjunction with Part I, including the matters set forth in “Item 1A. Risk Factors,” and our Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
In preparation of our financial statements and reporting of our operating results in accordance with United States generally accepted accounting principles ("U.S. GAAP"), certain non-core business items are required to be presented. Examples of items that we consider non-core include non-cash asset impairment charges, gains and losses on dealership, franchise or real estate transactions, and catastrophic events such as hail storms, hurricanes, and snow storms. In order to improve the transparency of our disclosures, provide a meaningful presentation of results from our core business operations and improve period-over-period comparability, we have included certain adjusted financial measures that exclude the impact of non-core business items. These adjusted measures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures.
Our results, which are reported in U.S. dollars, are impacted by fluctuations in exchange rates relating to our operations in the U.K. and Brazil. For example, if the British pound sterling were to weaken against the U.S. dollar, our U.K. results of operations would translate into less U.S. dollar reported results. During the twelve months ended December 31, 2017, the British pound sterling weakened against the U.S. dollar as the average exchange rate decreased 4.9% compared to the same period in 2016 from 0.74 to 0.78. The Brazilian real strengthened against the U.S. dollar as the average exchange rate increased 8.5% as compared to the same period in 2016 from 3.49 to 3.19. For the twelve months ended December 31, 2016, the British pound weakened against the U.S. dollar as the average rate decreased 13.2%, as compared to the same period in 2015. The Brazilian real also weakened against the U.S. dollar for the year ended December 31, 2016 as compared to the same period in 2015 as the average rate declined 4.9%. As such, management evaluates the Company's results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than U.S. dollars using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.
Our management uses these adjusted measures in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. Therefore, we believe these adjusted financial measures are relevant and useful to users of the following financial information. For further explanation and reconciliation to the most directly comparable U.S. GAAP measures, see "Non-GAAP Financial Measures" below.
Overview
We are a leading operator in the automotive retail industry. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and other insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our operations are aligned into three geographic regions:regions, which comprise our reportable segments: (1) U.S., (2) U.K., and (3) Brazil. The U.S. and Brazil segments are led by the President, U.S. Region, the U.K. Region,and Brazilian Operations, and the Brazil Region. Our President of U.S. Operations reportsU.K segment is led by a Managing Director, each reporting directly to our Chief Executive Officer, who is the Chief Operating Decision Maker. The President, U.S. and isBrazilian Operations, and the U.K Managing Director are responsible for the overall performance of the U.S. region,their respective regions, as well as for overseeing the market directors and dealership general managers.field level management. The operations of our two international regions are structured similar to the U.S. region, each with a regional vice president reporting directly to our Chief Executive Officer. As such, our three reportable segments are the U.S., whichsegment includes the activities of our corporate office, the U.K. and Brazil.office.
As of December 31, 2017, we owned and operated 227 franchises, representing 32 brands2019, our retail network consisted of automobiles, at 173 dealership locations and 48 collision centers worldwide. We own 151 franchises at 115119 dealerships and 30 collision centers in the U.S., 55 franchises at 4250 dealerships and 11 collision centers in the U.K., and 21 franchises at 1617 dealerships and seven collision centers in Brazil. Our operations are primarily located in major metropolitan areas in Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina and Texas15 states in the U.S., in 2833 towns ofin the U.K., and in key metropolitan markets in thethree states of Sao Paulo, Parana, Mato Grosso do Sul and Santa Catarina in Brazil.
Our typical acquisition strategy is to acquire large, profitable, well-established and well-managed dealerships that are leaders in their respective market areas. From January 1, 20132015 through December 31, 2017,2019, we have purchased 97acquired 53 dealerships representing 67 franchises with expected annual revenues estimated at the time of acquisition of $3.6$2.3 billion and been granted sixopened eight dealerships representing 11 new franchises by our manufacturer partners, with expected annual revenues estimated at the time of acquisition of $55.0$260.0 million. In 2017,
During the year ended December 31, 2019, we acquired 12 U.K.eight dealerships inclusive of 14representing 11 franchises and opened one additional dealership for one awarded franchise in our U.K. segment. In addition, we acquired three dealerships in the U.S., inclusive of four franchises, opened one dealership for one
awarded franchise in the U.S. and added motorcycles to an existing BMW dealership in Brazil. Thewith expected aggregate annualizedannual revenues estimated at the time of acquisition of $305.0 million. Aggregate consideration paid for these acquisitions,dealerships, which were $490.0accounted for as business combinations, totaled $143.2 million. We also opened three dealerships representing four new franchises with expected annual revenues estimated at the time of acquisition of $125.0 million. By segment, we acquired four dealerships representing six franchises in the U.S. and four dealerships representing five franchises in the U.K. We also opened one dealership representing one franchise in the U.S. and two dealerships representing three franchises in the U.K.
We make disposition decisions based principally on the rate of return on our capital investment, the location of the dealership, our ability to leverage our cost structure, the brand, future capital investments required and existing real estate obligations. From January 1, 20132015 through December 31, 2017,2019, we disposed of or terminated 3736 franchises with annual revenues of approximately $1.2 billion. Specifically, during 2017,$825.0 million.
During the year ended December 31, 2019, we disposed of eight dealerships representing 14 franchises, with aggregate annual revenues at the time of disposition of $240.0 million. We recorded a net pre-tax gain totaling $5.0 million related to these dispositions. By segment, our dispositions included four dealerships representing seven franchises and two terminated franchises in the U.S., three dealerships representing four terminated franchises in Brazilthe U.K. and one dealership representing one franchise in the U.K., with annual revenues of approximately $35.0 million.
We account for our dealership acquisitions by applying the acquisition method of accounting. As a result, we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them, which may impact the comparability of the financial information presented. Also, as a result of the effects of our acquisitions, dispositions, and other potential factors in the future, our historical financial information is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented. In the following discussion and analysis, we report certain performance measures of our newly acquired and disposed dealerships separately from those of our existing dealerships.Brazil.
Our operating results reflect the combined performance of each of our interrelated business activities, which include the sale of new vehicles, used vehicles, finance and insuranceF&I products, and parts, as well as maintenance and repair business. Historically, each of these activities has been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices, and interest rates. For example, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles. Some consumers may even delay their purchasing decisions altogether, electing instead to continue to maintain and repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services, such as used vehicles and parts, as well as maintenance, repair and collision business. In addition, our ability to expediently adjust our cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such sales volume changes.
In the U.S., we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year. This seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. As a result, our U.S. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters. For the U.K., the first and third calendar quarters tend to be stronger, driven by the vehicle license plate change months of March and September. For Brazil, we expect higher volumes in the third and fourth calendar quarters. The first quarter is generally the weakest, driven by heavy consumer vacations and activities associated with Carnival. Other factors unrelated to seasonality, such as changes in economic condition, manufacturer incentive programs, seasonal weather events, and changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in our consolidated reported revenues and operating income.
According to U.S. industry experts, the annual new light vehicle unit sales for 20172019 decreased 327 thousand units, or 1.9%1.4%, to 17.217.0 million units as compared to the same period a year ago. TheIn the U.K. economywhich represents the fifth largest economy in the world. Vehicleworld, vehicle registrations in the U.K. decreased 5.7%2.4% to 2.52.3 million during 20172019 as compared to the same period a year ago.in 2018. The U.K. industry's new vehicle sales have experienced more volatility than normal following the Brexit vote. In addition, thevote in 2016. The announcement of Brexit initially caused significant exchange rate fluctuations that resulted in the weakening of the British pound sterling,GBP, in which we conduct business in the U.K., against the U.S. dollarUSD and other global currencies. The weakening of the British pound sterlingGBP since the initial Brexit vote has and may continue to adversely affect our results of operations, as well as have a negative impact on the pricing and affordability of the vehicles in the U.K. Volatility in exchange rates is expected to continue in the short term, at least until there is a clear path forward in response to Brexit.
The In 2019, the Brazilian economy, which represents the ninth largest economy in the world. The Brazilian economy has been in an extended recession however is startingworld, continued to show some early signs of recovery. Newrecover from a recession. During 2019, new vehicle registrations in Brazil increased 9.4%7.6%, to 2.22.7 million units during 2017 as compared to the same period a year ago.in 2018. We expect macro-economic conditions to continue to improve in Brazil. Longer term, we expect sustained improvements in industry sales volumes and are utilizing a strategy of aligning with growing brands, in order to most effectively capitalize on that industry growth.
Key Performance Indicators
On a consolidated basis for the year ended December 31, 2017, our total revenues increased 2.2% from 2016 to $11.1 billion and gross profit improved 3.2% to $1.6 billion. For the years ended December 31, 2016 and 2015, total revenues were $10.9 billion and $10.6 billion, respectively. For the years ended December 31, 2016 and 2015, gross profits were $1.6 billion and $1.5 billion, respectively. We generated net income of $213.4 million, or $10.08 per diluted common share for the year ended December 31, 2017, compared to $147.1 million, or $6.67 per diluted share for the year ended December 31, 2016 and $94.0 million, or $3.90 per diluted share for the year ended December 31, 2015. In addition, the following table highlights additional key performance indicators we use to manage our business:
Consolidated Statistical Data |
| | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Unit Sales | | | | | | |
| Retail Sales | | | | | | |
| New Vehicle | | 172,200 |
| | 172,053 |
| | 174,614 |
|
| Used Vehicle | | 129,933 |
| | 129,131 |
| | 124,153 |
|
| Total Retail Sales | | 302,133 |
| | 301,184 |
| | 298,767 |
|
| Wholesale Sales | | 57,144 |
| | 57,339 |
| | 57,226 |
|
| Total Vehicle Sales | | 359,277 |
| | 358,523 |
| | 355,993 |
|
| Gross Margin | | | | | | |
| New Vehicle Retail Sales | | 5.2 | % | | 5.2 | % | | 5.1 | % |
| Total Used Vehicle Sales | | 5.5 | % | | 5.6 | % | | 5.8 | % |
| Parts and Service Sales | | 53.8 | % | | 53.9 | % | | 54.1 | % |
| Total Gross Margin | | 14.8 | % | | 14.7 | % | | 14.4 | % |
Adjusted Total Gross Margin (1) | | 14.8 | % | | 14.7 | % | | 14.4 | % |
| SG&A as a % of Gross Profit | | 74.5 | % | | 73.4 | % | | 73.1 | % |
Adjusted SG&A as a % of Gross Profit (1) | | 74.0 | % | | 73.7 | % | | 73.4 | % |
| Operating Margin | | 3.1 | % | | 3.1 | % | | 2.6 | % |
Adjusted Operating Margin (1) | | 3.4 | % | | 3.4 | % | | 3.4 | % |
| Pretax Margin | | 2.0 | % | | 2.1 | % | | 1.7 | % |
Adjusted Pretax Margin (1) | | 2.3 | % | | 2.3 | % | | 2.3 | % |
| Finance and Insurance Revenues per Retail Unit Sold | | $ | 1,420 |
| | $ | 1,397 |
| | $ | 1,368 |
|
Adjusted Finance and Insurance Revenues per Retail Unit Sold (1) | | $ | 1,442 |
| | $ | 1,397 |
| | $ | 1,368 |
|
(1) See “Non-GAAP Financial Measures” for more details. | | | | | | |
In addition to the matters described above, the following factors impacted our financial condition and results of operations in 2017, 2016, and 2015:
Year Ended December 31, 2017:
Non-cash Asset Impairments: Due to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value, we recorded a $19.3 million pretax non-cash impairment charge, of which $12.6 million related to intangible franchise rights in our U.S. reporting unit and $6.7 million related to intangible franchise rights in our Brazil reporting unit.
Catastrophic Events: Our results were negatively impacted by several catastrophic events. Most significantly, insurance deductibles and other related expenses totaling $8.8 million were recognized as SG&A expenses and $6.6 million of chargeback expense reserves associated with finance and insurance revenues were recognized, as a result of vehicle and property damage suffered from Hurricanes Harvey and Irma in the U.S.
OEM Settlement: We recognized a net pre-tax gain of $1.1 million associated with the Audi claims settlement, in connection with our ownership of Audi dealerships in the U.S.
Tax Rate Changes: We recognized a tax benefit of $73.0 million based upon the remeasurement of net deferred tax liabilities associated with the reduction in the corporate income tax rate enacted by the U.S. government, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).
Year Ended December 31, 2016:
Non-cash Asset Impairments: Due to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value, we recorded a $30.0 million pretax non-cash impairment charge, of which $19.9 million related to intangible franchise rights in our two U.S. reporting units and $10.1 million related to intangible franchise rights in our Brazil reporting unit. We also recognized a total of $2.8 million in pre-tax non-cash asset impairment charges related to impairment of various real estate holdings and other long-lived assets.
Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expenses totaling $5.9 million were recognized as SG&A expenses as a result of vehicle damage from hailstorms and flooding in the U.S., during the year.
Real Estate and Dealership Transactions: We disposed of ten franchises: five in the U.S. segment, four in the Brazil segment and one in the U.K. segment. Primarily as a result of these dispositions, a net pre-tax gain of $2.7 million and net pre-tax losses of $0.8 million and $0.3 million, respectively, were recognized for the year ended December 31, 2016.
OEM Settlement: We recognized a net pre-tax gain of $11.7 million associated with the Volkswagen diesel emissions scandal claims settlement, in connection with our ownership of Volkswagen dealerships in the U.S.
Severance Costs: Negatively impacting our results was $2.0 million of severance costs paid to employees.
Foreign deferred income tax benefit: We recognized a tax benefit of $1.7 million associated with a dealership disposition in Brazil.
Year Ended December 31, 2015:
Non-cash Asset Impairments: As a result of our determination that the fair value of goodwill in our Brazil reporting units did not exceed its carrying value, we recorded a $55.4 million pretax non-cash asset impairment charge. In addition, as a result of our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our dealership franchises did not exceed their carrying value, we recognized a $30.1 million pretax non-cash impairment charge, of which $18.1 million related to intangible franchise rights in our two U.S. reporting units and $12.0 million related to intangible franchise rights in our Brazil reporting unit. Also, we recognized $2.1 million in pre-tax non-cash asset impairment charges associated with non-operating real estate holdings and other long-lived assets of our existing dealership facilities. In total, we recognized $87.6 million in pretax non-cash impairment charges.
Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expenses totaling $1.6 million were recognized as SG&A expenses as a result of snow storms and flooding in the U.S., during the year.
Real Estate and Dealership Transactions: We disposed of two U.S. dealerships and terminated one U.S. dealership franchise. We also terminated two franchises in Brazil. As a result, we recognized a pre-tax net gain on sale of dealerships and real estate transactions of $8.2 million, as a reduction of SG&A expenses. In addition, we disposed of real estate during the year and received cash proceeds of $3.3 million, recognizing a net gain of $0.2 million.
In addition to the key performance indicators presented above, we also reference numerous Same Store metrics as key indicators of results and trends occurring within our business. Those Same Store metrics, results and trends are discussed in more detail in the “Results of Operations” section that follows.
Recent Accounting Pronouncements
Refer to Note 21 “Business and Summary of Significant Accounting Polices” within our Notes to Consolidated Financial Statements “Summary of Significant Accounting Polices and Estimates,” for a discussion of those most recent pronouncements that impact us.
Critical Accounting Policies and Accounting Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions.assumptions, including those associated with the difficult, subjective and complex areas described above. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. We analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable underBelow are the circumstances. However, actual results could differ from such estimates. The accounting policies and estimates that we believehave been determined to be critical to our business operations and the most difficult, subjectiveunderstanding of our results of operations.
Goodwill and complex include those related to: revenue recognition,Intangible Franchise Rights
Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. We are organized into three geographic regions, the U.S. region, the U.K. region and the Brazil region. We have determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment. Our only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which are recorded at an individual dealership level.
We evaluate goodwill and intangible franchise rights income taxes,for impairment annually in the fourth quarter, or more frequently if events or circumstances indicate possible impairment has occurred. In evaluating goodwill and intangibles for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that an impairment exists. If it is concluded that it is more likely than not that an impairment exists, a quantitative test is required to measure the amount of impairment which, for goodwill, consists of comparing the fair value of assets acquiredthe reporting unit to its carrying amount and, liabilities assumed, derivative financial instrumentsfor intangibles, consists of comparing the fair value of the intangible asset to its carrying amount.
When a quantitative impairment test is performed, we estimate fair value using a combination of the discounted cash flow, or income approach, and self-insured medical, propertythe market approach. Significant assumptions included in the model include changes in revenue growth rates, future gross margins, future SG&A expenses, and casualty reserves.the WACC and terminal growth rates. For the market approach, we utilize recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit. Each of these assumptions requires us to use its knowledge of (1) the industry, (2) recent transactions and (3) reasonable performance expectations for its operations.
Our qualitative test includes a review of changes, since the last quantitative test was performed, in those assumptions having the most significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above.
During the years ended December 31, 2019, 2018 and 2017, we recorded $19.0 million, $38.7 million and $19.3 million, respectively, of impairments of intangible franchise rights. See Note 211 “Intangible Franchise Rights and Goodwill” within our Notes to our Consolidated Financial Statements “Summaryfor details on our intangibles, including the results of our impairment testing.
Chargebacks
We may be charged back in the future for unearned financing, insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers. A reserve for future amounts estimated to be charged back, representing variable consideration, is recorded as a reduction of Finance, Insurance and Other Revenue, Net in the Consolidated Statement of Operations. The reserve is estimated based on our historical charge back results and the termination provisions of the applicable contracts, and was $49.7 million and $46.4 million at December 31, 2019 and 2018, respectively.
See Note 1 “Business and Summary of Significant Accounting PoliciesPolicies” and Estimates,”Note 2 “Revenues” within our Notes to Consolidated Financial Statements, for further discussion of these accounting policies and estimates that are of particular importance to the portrayal of our financial position, results of operations and cash flows.estimates.
Results of Operations
The “Same Store” amounts presented below include the results of dealerships for the identical months in each period presented in the comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. For example, for a dealership acquired in June 2016, the results from this dealership will appear in our Same Store comparison beginning in 2017 for the period July 2017 through December 2017, when comparing to July 2016 through December 2016 results. Depending on the periods being compared, the dealerships included in Same Store will vary. For this reason, the 2016 Same Store results that are compared to 2017 differ from those used in the comparison to 2015. Same Store results also include the activities of our corporate headquarters.
We evaluate our results of operations on both as reported and on a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures, and the related reconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess operating performance.
Certain disclosures are reported as zero balances, or may not compute, due to rounding.
The following table summarizestables summarize our combinedoperating results on a reported basis and on a Same Store resultsbasis for the year ended December 31, 20172019 as compared to 20162018 and for the year ended December 31, 20162018, as compared to 2015.2017.
Reported Operating Data - Consolidated
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 6,314.1 |
| | $ | 6,181.4 |
| | $ | 132.7 |
| | 2.1 | % | | | $ | (82.3 | ) | | 3.5 | % |
| Used vehicle retail sales | 3,366.6 |
| | 3,166.1 |
| | 200.6 |
| | 6.3 | % | | | (43.0 | ) | | 7.7 | % |
| Used vehicle wholesale sales | 355.2 |
| | 369.6 |
| | (14.4 | ) | | (3.9 | )% | | | (8.8 | ) | | (1.5 | )% |
| Total used | 3,721.8 |
| | 3,535.6 |
| | 186.1 |
| | 5.3 | % | | | (51.8 | ) | | 6.7 | % |
| Parts and service sales | 1,510.0 |
| | 1,416.9 |
| | 93.1 |
| | 6.6 | % | | | (14.3 | ) | | 7.6 | % |
| F&I, net | 497.9 |
| | 467.5 |
| | 30.4 |
| | 6.5 | % | | | (2.9 | ) | | 7.1 | % |
| Total revenues | $ | 12,043.8 |
| | $ | 11,601.4 |
| | $ | 442.4 |
| | 3.8 | % | | | $ | (151.4 | ) | | 5.1 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 300.8 |
| | $ | 310.9 |
| | $ | (10.1 | ) | | (3.2 | )% | | | $ | (3.5 | ) | | (2.1 | )% |
| Used vehicle retail sales | 201.3 |
| | 185.9 |
| | 15.4 |
| | 8.3 | % | | | (2.1 | ) | | 9.4 | % |
| Used vehicle wholesale sales | 1.0 |
| | 1.7 |
| | (0.7 | ) | | (40.6 | )% | | | — |
| | (39.2 | )% |
| Total used | 202.3 |
| | 187.6 |
| | 14.7 |
| | 7.8 | % | | | (2.1 | ) | | 9.0 | % |
| Parts and service sales | 815.0 |
| | 759.1 |
| | 55.8 |
| | 7.4 | % | | | (7.5 | ) | | 8.3 | % |
| F&I, net | 497.9 |
| | 467.5 |
| | 30.4 |
| | 6.5 | % | | | (2.9 | ) | | 7.1 | % |
| Total gross profit | $ | 1,816.0 |
| | $ | 1,725.1 |
| | $ | 90.9 |
| | 5.3 | % | | | $ | (16.1 | ) | | 6.2 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 4.8 | % | | 5.0 | % | | (0.3 | )% | | | | | | | |
| Used vehicle retail sales | 6.0 | % | | 5.9 | % | | 0.1 | % | | | | | | | |
| Used vehicle wholesale sales | 0.3 | % | | 0.5 | % | | (0.2 | )% | | | | | | | |
| Total used | 5.4 | % | | 5.3 | % | | 0.1 | % | | | | | | | |
| Parts and service sales | 54.0 | % | | 53.6 | % | | 0.4 | % | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 15.1 | % | | 14.9 | % | | 0.2 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 169,136 |
| | 170,517 |
| | (1,381 | ) | | (0.8 | )% | | | | | |
| Retail used vehicles sold | 158,549 |
| | 147,999 |
| | 10,550 |
| | 7.1 | % | | | | | |
| Wholesale used vehicles sold | 51,205 |
| | 53,887 |
| | (2,682 | ) | | (5.0 | )% | | | | | |
| Total used | 209,754 |
| | 201,886 |
| | 7,868 |
| | 3.9 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 37,332 |
| | $ | 36,251 |
| | $ | 1,081 |
| | 3.0 | % | | | $ | (486 | ) | | 4.3 | % |
| Used vehicle retail | $ | 21,234 |
| | $ | 21,393 |
| | $ | (158 | ) | | (0.7 | )% | | | $ | (271 | ) | | 0.5 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,778 |
| | $ | 1,823 |
| | $ | (45 | ) | | (2.4 | )% | | | $ | (21 | ) | | (1.3 | )% |
| Used vehicle retail sales | $ | 1,270 |
| | $ | 1,256 |
| | $ | 13 |
| | 1.1 | % | | | $ | (13 | ) | | 2.1 | % |
| Used vehicle wholesale sales | $ | 20 |
| | $ | 31 |
| | $ | (12 | ) | | (37.4 | )% | | | $ | — |
| | (36.0 | )% |
| Total used | $ | 965 |
| | $ | 929 |
| | $ | 35 |
| | 3.8 | % | | | $ | (10 | ) | | 4.9 | % |
| F&I PRU | $ | 1,519 |
| | $ | 1,468 |
| | $ | 52 |
| | 3.5 | % | | | $ | (9 | ) | | 4.1 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 1,358.4 |
| | $ | 1,273.1 |
| | $ | 85.3 |
| | 6.7 | % | | | $ | (13.9 | ) | | 7.8 | % |
| SG&A as % gross profit | 74.8 | % | | 73.8 | % | | 1.0 | % | | | | | | | |
| Floorplan expense: | | | | | | | | | | | | |
| Floorplan interest expense | $ | 61.6 |
| | $ | 59.9 |
| | $ | 1.7 |
| | 2.8 | % | | | $ | (0.4 | ) | | 3.5 | % |
Less: floorplan assistance (1) | 49.1 |
| | 47.3 |
| | 1.9 |
| | 4.0 | % | | | — |
| | 4.0 | % |
| Net floorplan expense | $ | 12.4 |
| | $ | 12.6 |
| | $ | (0.2 | ) | | (1.3 | )% | | | $ | (0.4 | ) | | 1.5 | % |
(1) Floorplan assistance is included within New vehicle retail Gross profit above and New vehicle retail Cost of sales in our Consolidated Statements of Operations.
Reported Operating Data - Consolidated
Total Same Store Data
(dollars in thousands,In millions, except unit and per unit amount) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/(Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | 2016 | | % Increase/(Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Revenues | | | | | | | | | | | | | | | | |
| New vehicle retail | | $ | 5,962,549 |
| | 0.2% | | 0.6% | | $ | 5,951,471 |
| | $ | 5,619,881 |
| | (4.1)% | | (2.5)% | | $ | 5,860,855 |
|
| Used vehicle retail | | 2,680,878 |
| | (1.1)% | | (0.5)% | | 2,709,721 |
| | 2,612,304 |
| | 1.2% | | 2.9% | | 2,582,437 |
|
| Used vehicle wholesale | | 374,148 |
| | (4.6)% | | (3.3)% | | 392,071 |
| | 364,271 |
| | (5.4)% | | (2.3)% | | 384,969 |
|
| Parts and service | | 1,302,836 |
| | 5.1% | | 5.3% | | 1,239,888 |
| | 1,197,195 |
| | 3.8% | | 5.1% | | 1,153,365 |
|
| Finance, insurance and other | | 417,905 |
| | 0.9% | | 1.2% | | 414,015 |
| | 403,685 |
| | 0.3% | | 1.2% | | 402,288 |
|
| Total revenues | | $ | 10,738,316 |
| | 0.3% | | 0.7% | | $ | 10,707,166 |
| | $ | 10,197,336 |
| | (1.8)% | | (0.1)% | | $ | 10,383,914 |
|
| Cost of Sales | | | | | | | | | | | | | | | | |
| New vehicle retail | | $ | 5,650,624 |
| | 0.2% | | 0.6% | | $ | 5,639,370 |
| | $ | 5,326,504 |
| | (4.2)% | | (2.6)% | | $ | 5,561,430 |
|
| Used vehicle retail | | 2,508,555 |
| | (0.8)% | | (0.2)% | | 2,529,927 |
| | 2,437,114 |
| | 1.3% | | 3.1% | | 2,406,135 |
|
| Used vehicle wholesale | | 376,593 |
| | (4.9)% | | (3.7)% | | 395,967 |
| | 367,299 |
| | (5.0)% | | (1.9)% | | 386,496 |
|
| Parts and service | | 602,720 |
| | 5.6% | | 5.8% | | 570,618 |
| | 552,559 |
| | 4.6% | | 5.9% | | 528,393 |
|
| Total cost of sales | | 9,138,492 |
| | —% | | 0.5% | | 9,135,882 |
| | 8,683,476 |
| | (2.2)% | | (0.5)% | | 8,882,454 |
|
| Gross profit | | $ | 1,599,824 |
| | 1.8% | | 2.2% | | $ | 1,571,284 |
| | $ | 1,513,860 |
| | 0.8% | | 2.1% | | $ | 1,501,460 |
|
| SG&A | | $ | 1,179,996 |
| | 3.0% | | 3.3% | | $ | 1,146,049 |
| | $ | 1,102,541 |
| | 0.9% | | 2.4% | | $ | 1,092,982 |
|
Adjusted SG&A(1) | | $ | 1,170,756 |
| | 2.1% | | 2.4% | | $ | 1,146,770 |
| | $ | 1,103,384 |
| | 1.3% | | 2.8% | | $ | 1,089,467 |
|
| Depreciation and amortization expenses | | $ | 55,399 |
| | 10.8% | | 11.2% | | $ | 50,010 |
| | $ | 48,259 |
| | 6.2% | | 7.7% | | $ | 45,441 |
|
| Floorplan interest expense | | $ | 51,342 |
| | 15.3% | | 15.7% | | $ | 44,517 |
| | $ | 42,208 |
| | 9.7% | | 10.5% | | $ | 38,481 |
|
| Gross margin | | | | | | | | | | | | | | | | |
| New vehicle retail | | 5.2 | % | | | | | | 5.2 | % | | 5.2 | % | | | | | | 5.1 | % |
| Used vehicle | | 5.6 | % | | | | | | 5.7 | % | | 5.8 | % | | | | | | 5.9 | % |
| Parts and service | | 53.7 | % | | | | | | 54.0 | % | | 53.8 | % | | | | | | 54.2 | % |
| Total gross margin | | 14.9 | % | | | | | | 14.7 | % | | 14.8 | % | | | | | | 14.5 | % |
Adjusted Total gross margin (1) | | 15.0 | % | | | | | | 14.7 | % | | 14.8 | % | | | | | | 14.5 | % |
Adjusted Finance, insurance, and other, net (1) | | $ | 424,455 |
| | 2.5% | | 2.8% | | $ | 414,015 |
| | 403,685 |
| | 0.3% | | 1.2% | | 402,288 |
|
Adjusted Total revenue (1) | | $ | 10,744,866 |
| | 0.4% | | 0.8% | | $ | 10,707,166 |
| | $ | 10,197,336 |
| | (1.8)% | | (0.1)% | | $ | 10,383,914 |
|
Adjusted Gross profit(1) | | $ | 1,606,374 |
| | 2.2% | | 2.6% | | $ | 1,571,284 |
| | $ | 1,513,860 |
| | 0.8% | | 2.1% | | $ | 1,501,460 |
|
| SG&A as a % of gross profit | | 73.8% | | | | | | 72.9% | | 72.8% | | | | | | 72.8% |
Adjusted SG&A as a % of gross profit (1) | | 72.9% | | | | | | 73.0% | | 72.9% | | | | | | 72.6% |
| | | | | | | | | | | | | | | | | |
amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating margin | | 3.2% | | | | | | 3.2% | | 3.2% | | | | | | 2.7% |
Adjusted operating margin (1) | | 3.5% | | | | | | 3.5% | | 3.6% | | | | | | 3.5% |
| Finance and insurance revenues per retail unit sold | | $ | 1,443 |
| | 2.6% | | 2.8% | | $ | 1,407 |
| | $ | 1,429 |
| | 3.4% | | 4.4% | | $ | 1,382 |
|
Adjusted Finance and insurance revenues per retail unit sold(1) | | $ | 1,465 |
| | 4.1% | | 4.4% | | $ | 1,407 |
| | $ | 1,429 |
| | 3.4% | | 4.4% | | $ | 1,382 |
|
(1) See “Non-GAAP Financial Measures” for more details. |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 6,181.4 |
| | $ | 6,157.5 |
| | $ | 23.8 |
| | 0.4 | % | | | $ | 4.8 |
| | 0.3 | % |
| Used vehicle retail sales | 3,166.1 |
| | 2,799.0 |
| | 367.1 |
| | 13.1 | % | | | 14.0 |
| | 12.6 | % |
| Used vehicle wholesale sales | 369.6 |
| | 400.2 |
| | (30.6 | ) | | (7.6 | )% | | | 3.5 |
| | (8.5 | )% |
| Total used | 3,535.6 |
| | 3,199.2 |
| | 336.5 |
| | 10.5 | % | | | 17.5 |
| | 10.0 | % |
| Parts and service sales | 1,416.9 |
| | 1,338.0 |
| | 78.9 |
| | 5.9 | % | | | 0.7 |
| | 5.8 | % |
| F&I, net | 467.5 |
| | 429.0 |
| | 38.5 |
| | 9.0 | % | | | 0.3 |
| | 8.9 | % |
| Total revenues | $ | 11,601.4 |
| | $ | 11,123.7 |
| | $ | 477.6 |
| | 4.3 | % | | | $ | 23.2 |
| | 4.1 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 310.9 |
| | $ | 322.0 |
| | $ | (11.1 | ) | | (3.5 | )% | | | $ | (0.7 | ) | | (3.2 | )% |
| Used vehicle retail sales | 185.9 |
| | 177.6 |
| | 8.4 |
| | 4.7 | % | | | 0.6 |
| | 4.4 | % |
| Used vehicle wholesale sales | 1.7 |
| | (2.7 | ) | | 4.4 |
| | 161.8 | % | | | (0.1 | ) | | 166.9 | % |
| Total used | 187.6 |
| | 174.8 |
| | 12.8 |
| | 7.3 | % | | | 0.5 |
| | 7.0 | % |
| Parts and service sales | 759.1 |
| | 719.7 |
| | 39.5 |
| | 5.5 | % | | | 1.2 |
| | 5.3 | % |
| F&I, net | 467.5 |
| | 429.0 |
| | 38.5 |
| | 9.0 | % | | | 0.3 |
| | 8.9 | % |
| Total gross profit | $ | 1,725.1 |
| | $ | 1,645.5 |
| | $ | 79.6 |
| | 4.8 | % | | | $ | 1.2 |
| | 4.8 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 5.0 | % | | 5.2 | % | | (0.2 | )% | | | | | | | |
| Used vehicle retail sales | 5.9 | % | | 6.3 | % | | (0.5 | )% | | | | | | | |
| Used vehicle wholesale sales | 0.5 | % | | (0.7 | )% | | 1.1 | % | | | | | | | |
| Total used | 5.3 | % | | 5.5 | % | | (0.2 | )% | | | | | | | |
| Parts and service sales | 53.6 | % | | 53.8 | % | | (0.2 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 14.9 | % | | 14.8 | % | | 0.1 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 170,517 |
| | 172,200 |
| | (1,683 | ) | | (1.0 | )% | | | | | |
| Retail used vehicles sold | 147,999 |
| | 129,933 |
| | 18,066 |
| | 13.9 | % | | | | | |
| Wholesale used vehicles sold | 53,887 |
| | 57,144 |
| | (3,257 | ) | | (5.7 | )% | | | | | |
| Total used | 201,886 |
| | 187,077 |
| | 14,809 |
| | 7.9 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 36,251 |
| | $ | 35,758 |
| | $ | 493 |
| | 1.4 | % | | | $ | 28 |
| | 1.3 | % |
| Used vehicle retail | $ | 21,393 |
| | $ | 21,542 |
| | $ | (149 | ) | | (0.7 | )% | | | $ | 95 |
| | (1.1 | )% |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,823 |
| | $ | 1,870 |
| | $ | (47 | ) | | (2.5 | )% | | | $ | (4 | ) | | (2.3 | )% |
| Used vehicle retail sales | $ | 1,256 |
| | $ | 1,367 |
| | $ | (110 | ) | | (8.1 | )% | | | $ | 4 |
| | (8.4 | )% |
| Used vehicle wholesale sales | $ | 31 |
| | $ | (48 | ) | | $ | 79 |
| | 164.6 | % | | | $ | (3 | ) | | 171.0 | % |
| Total used | $ | 929 |
| | $ | 934 |
| | $ | (5 | ) | | (0.5 | )% | | | $ | 2 |
| | (0.8 | )% |
| F&I PRU | $ | 1,468 |
| | $ | 1,420 |
| | $ | 48 |
| | 3.4 | % | | | $ | 1 |
| | 3.3 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 1,273.1 |
| | $ | 1,226.2 |
| | $ | 46.9 |
| | 3.8 | % | | | $ | 0.1 |
| | 3.8 | % |
| SG&A as % gross profit | 73.8 | % | | 74.5 | % | | (0.7 | )% | | | | | | | |
| Floorplan expense: | | | | | | | | | | | | |
| Floorplan interest expense | $ | 59.9 |
| | $ | 52.4 |
| | $ | 7.5 |
| | 14.3 | % | | | $ | 0.1 |
| | 14.2 | % |
Less: floorplan assistance (1) | 47.3 |
| | 48.9 |
| | (1.7 | ) | | (3.4 | )% | | | — |
| | (3.5 | )% |
| Net floorplan expense | $ | 12.6 |
| | $ | 3.4 |
| | $ | 9.2 |
| | 266.7 | % | | | $ | 0.1 |
| | 265.1 | % |
The discussion that follows provides explanations for the variances noted(1) Floorplan assistance is included within New vehicle retail Gross profit above by region (U.S., U.K. and Brazil). In addition, each table presents by primary income statement line item comparative financial and non-financial dataNew vehicle retail Cost of sales in our Same Store locations, those locations acquired or disposedConsolidated Statements of (“Transactions”) during the periods, and the consolidated company for the years ended December 31, 2017, 2016, and 2015.Operations.
New Vehicle RetailSame Store Operating Data - Consolidated
(dollars in thousands,In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Retail Unit Sales | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | 126,247 |
| | (1.7)% | | | | 128,441 |
| | | 128,928 |
| | (7.0)% | | | | 138,599 |
|
| U.K. | | 31,054 |
| | 1.1% | | | | 30,719 |
| | | 20,401 |
| | 9.1% | | | | 18,701 |
|
| Brazil | | 8,198 |
| | (6.8)% | | | | 8,798 |
| | | 9,518 |
| | (23.5)% | | | | 12,434 |
|
| Total Same Stores | | 165,499 |
| | (1.5)% | | | | 167,958 |
| | | 158,847 |
| | (6.4)% | | | | 169,734 |
|
| Transactions | | 6,701 |
| | | | | | 4,095 |
| | | 13,206 |
| |
| | | | 4,880 |
|
| Total | | 172,200 |
| | 0.1% | | | | 172,053 |
| | | 172,053 |
| | (1.5)% | | | | 174,614 |
|
| Retail Sales Revenues | | | | | | | | | | | | |
| | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | 4,732,177 |
| | 0.4% | | N/A | | $ | 4,713,124 |
| | | $ | 4,691,033 |
| | (3.7)% | | N/A | | $ | 4,869,109 |
|
| U.K. | | 943,182 |
| | (2.5)% | | 2.2% | | 967,424 |
| | | 652,057 |
| | 1.6% | | 14.5% | | 641,888 |
|
| Brazil | | 287,190 |
| | 6.0% | | (2.2)% | | 270,923 |
| | | 276,791 |
| | (20.9)% | | (16.9)% | | 349,858 |
|
| Total Same Stores | | 5,962,549 |
| | 0.2% | | 0.6% | | 5,951,471 |
| | | 5,619,881 |
| | (4.1)% | | (2.5)% | | 5,860,855 |
|
| Transactions | | 194,982 |
| | | | | | 94,604 |
| | | 426,194 |
| | | | | | 140,451 |
|
| Total | | $ | 6,157,531 |
| | 1.8% | | 2.3% | | $ | 6,046,075 |
| | | $ | 6,046,075 |
| | 0.7% | | 3.1% | | $ | 6,001,306 |
|
| Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | 242,301 |
| | 0.7% | | N/A | | $ | 240,528 |
| | | $ | 237,915 |
| | 0.9% | | N/A | | $ | 235,706 |
|
| U.K. | | 52,962 |
| | (5.3)% | | (0.8)% | | 55,921 |
| | | 39,241 |
| | (2.6)% | | 9.5% | | 40,300 |
|
| Brazil | | 16,662 |
| | 6.5% | | (1.7)% | | 15,652 |
| | | 16,221 |
| | (30.7)% | | (26.9)% | | 23,419 |
|
| Total Same Stores | | 311,925 |
| | (0.1)% | | 0.3% | | 312,101 |
| | | 293,377 |
| | (2.0)% | | (0.1)% | | 299,425 |
|
| Transactions | | 10,080 |
| | | | | | 4,277 |
| | | 23,001 |
| | | | | | 6,052 |
|
| Total | | $ | 322,005 |
| | 1.8% | | 2.2% | | $ | 316,378 |
| | | $ | 316,378 |
| | 3.6% | | 6.2% | | $ | 305,477 |
|
| Gross Profit per Retail Unit Sold | | | | | | | | | | | | |
| | | | |
| Same Stores | |
|
| |
| | | |
|
| | |
|
| |
| | | |
|
| U.S. | | $ | 1,919 |
| | 2.5% | | N/A | | $ | 1,873 |
| | | $ | 1,845 |
| | 8.5% | | N/A | | $ | 1,701 |
|
| U.K. | | $ | 1,705 |
| | (6.3)% | | (1.9)% | | $ | 1,820 |
| | | $ | 1,923 |
| | (10.8)% | | 0.4% | | $ | 2,155 |
|
| Brazil | | $ | 2,032 |
| | 14.2% | | 5.5% | | $ | 1,779 |
| | | $ | 1,704 |
| | (9.5)% | | (4.5)% | | $ | 1,883 |
|
| Total Same Stores | | $ | 1,885 |
| | 1.5% | | 1.8% | | $ | 1,858 |
| | | $ | 1,847 |
| | 4.7% | | 6.8% | | $ | 1,764 |
|
| Transactions | | $ | 1,504 |
| |
| | | | $ | 1,044 |
| | | $ | 1,742 |
| |
| | | | $ | 1,240 |
|
| Total | | $ | 1,870 |
| | 1.7% | | 2.2% | | $ | 1,839 |
| | | $ | 1,839 |
| | 5.1% | | 7.8% | | $ | 1,749 |
|
| Gross Margin | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| | | | | |
|
| | |
|
| | | | | |
|
| U.S. | | 5.1% | | | | | | 5.1% | | | 5.1% | | | | | | 4.8% |
| U.K. | | 5.6% | | | | | | 5.8% | | | 6.0% | | | | | | 6.3% |
| Brazil | | 5.8% | | | | | | 5.8% | | | 5.9% | | | | | | 6.7% |
| Total Same Stores | | 5.2% | | | | | | 5.2% | | | 5.2% | | | | | | 5.1% |
| Transactions | | 5.2% | | | | | | 4.5% | | | 5.4% | | | | | | 4.3% |
| Total | | 5.2% | | | | | | 5.2% | | | 5.2% | | | | | | 5.1% |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 6,109.7 |
| | $ | 6,016.7 |
| | $ | 93.0 |
| | 1.5 | % | | | $ | (77.3 | ) | | 2.8 | % |
| Used vehicle retail sales | 3,245.3 |
| | 3,080.7 |
| | 164.7 |
| | 5.3 | % | | | (40.7 | ) | | 6.7 | % |
| Used vehicle wholesale sales | 341.7 |
| | 355.9 |
| | (14.2 | ) | | (4.0 | )% | | | (8.5 | ) | | (1.6 | )% |
| Total used | 3,587.1 |
| | 3,436.5 |
| | 150.5 |
| | 4.4 | % | | | (49.3 | ) | | 5.8 | % |
| Parts and service sales | 1,466.8 |
| | 1,367.4 |
| | 99.5 |
| | 7.3 | % | | | (13.1 | ) | | 8.2 | % |
| F&I, net | 484.8 |
| | 457.6 |
| | 27.2 |
| | 5.9 | % | | | (2.7 | ) | | 6.5 | % |
| Total revenues | $ | 11,648.4 |
| | $ | 11,278.3 |
| | $ | 370.2 |
| | 3.3 | % | | | $ | (142.4 | ) | | 4.5 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 289.7 |
| | $ | 303.6 |
| | $ | (13.9 | ) | | (4.6 | )% | | | $ | (3.3 | ) | | (3.5 | )% |
| Used vehicle retail sales | 194.6 |
| | 181.4 |
| | 13.2 |
| | 7.3 | % | | | (2.0 | ) | | 8.3 | % |
| Used vehicle wholesale sales | 1.5 |
| | 2.3 |
| | (0.8 | ) | | (34.1 | )% | | | — |
| | (32.2 | )% |
| Total used | 196.1 |
| | 183.7 |
| | 12.4 |
| | 6.8 | % | | | (2.0 | ) | | 7.9 | % |
| Parts and service sales | 790.2 |
| | 735.8 |
| | 54.4 |
| | 7.4 | % | | | (6.9 | ) | | 8.3 | % |
| F&I, net | 484.8 |
| | 457.6 |
| | 27.2 |
| | 5.9 | % | | | (2.7 | ) | | 6.5 | % |
| Total gross profit | $ | 1,760.8 |
| | $ | 1,680.7 |
| | $ | 80.1 |
| | 4.8 | % | | | $ | (14.9 | ) | | 5.7 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 4.7 | % | | 5.0 | % | | (0.3 | )% | | | | | | | |
| Used vehicle retail sales | 6.0 | % | | 5.9 | % | | 0.1 | % | | | | | | | |
| Used vehicle wholesale sales | 0.4 | % | | 0.6 | % | | (0.2 | )% | | | | | | | |
| Total used | 5.5 | % | | 5.3 | % | | 0.1 | % | | | | | | | |
| Parts and service sales | 53.9 | % | | 53.8 | % | | 0.1 | % | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 15.1 | % | | 14.9 | % | | 0.2 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 162,740 |
| | 164,850 |
| | (2,110 | ) | | (1.3 | )% | | | | | |
| Retail used vehicles sold | 152,562 |
| | 143,669 |
| | 8,893 |
| | 6.2 | % | | | | | |
| Wholesale used vehicles sold | 48,932 |
| | 52,135 |
| | (3,203 | ) | | (6.1 | )% | | | | | |
| Total used | 201,494 |
| | 195,804 |
| | 5,690 |
| | 2.9 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 37,543 |
| | $ | 36,498 |
| | $ | 1,045 |
| | 2.9 | % | | | $ | (475 | ) | | 4.2 | % |
| Used vehicle retail | $ | 21,272 |
| | $ | 21,443 |
| | $ | (171 | ) | | (0.8 | )% | | | $ | (267 | ) | | 0.5 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,780 |
| | $ | 1,842 |
| | $ | (62 | ) | | (3.4 | )% | | | $ | (20 | ) | | (2.2 | )% |
| Used vehicle retail sales | $ | 1,276 |
| | $ | 1,263 |
| | $ | 13 |
| | 1.0 | % | | | $ | (13 | ) | | 2.0 | % |
| Used vehicle wholesale sales | $ | 30 |
| | $ | 43 |
| | $ | (13 | ) | | (29.8 | )% | | | $ | (1 | ) | | (27.8 | )% |
| Total used | $ | 973 |
| | $ | 938 |
| | $ | 35 |
| | 3.7 | % | | | $ | (10 | ) | | 4.8 | % |
| F&I PRU | $ | 1,538 |
| | $ | 1,483 |
| | $ | 54 |
| | 3.7 | % | | | $ | (9 | ) | | 4.2 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 1,312.7 |
| | $ | 1,249.0 |
| | $ | 63.7 |
| | 5.1 | % | | | $ | (12.8 | ) | | 6.1 | % |
| SG&A as % gross profit | 74.6 | % | | 74.3 | % | | 0.2 | % | | | | | | | |
The following table sets forth our Same Store retailOperating Data - Consolidated
(In millions, except unit sales volume and the percentage changes from year to year by manufacturer:
Same Store New Vehicle Unit Salesper unit amounts)
|
| | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | 2015 |
Toyota/Scion/Lexus (1) | | 42,949 |
| | 0.2% | | 42,869 |
| | | 42,670 |
| | (5.4)% | | 45,108 |
|
| BMW/MINI | | 21,520 |
| | (7.1) | | 23,160 |
| | | 20,109 |
| | (0.9) | | 20,283 |
|
| Volkswagen/Audi/Porsche | | 20,217 |
| | 8.4 | | 18,645 |
| | | 11,799 |
| | 3.8 | | 11,370 |
|
| Ford/Lincoln | | 18,710 |
| | (1.1) | | 18,925 |
| | | 18,880 |
| | (5.0) | | 19,882 |
|
| Honda/Acura | | 15,882 |
| | 2.0 | | 15,575 |
| | | 17,017 |
| | (8.3) | | 18,549 |
|
| Nissan | | 12,045 |
| | 6.6 | | 11,302 |
| | | 12,192 |
| | (11.8) | | 13,820 |
|
| Chevrolet/GMC/Buick/Cadillac | | 10,713 |
| | (16.4) | | 12,811 |
| | | 12,811 |
| | (3.7) | | 13,307 |
|
| Mercedes-Benz/smart/Sprinter | | 6,809 |
| | (7.3) | | 7,349 |
| | | 6,674 |
| | (1.3) | | 6,765 |
|
| Chrysler/Dodge/Jeep/RAM | | 6,692 |
| | (1.6) | | 6,801 |
| | | 6,801 |
| | (14.6) | | 7,962 |
|
| Hyundai/Kia | | 6,484 |
| | (4.8) | | 6,813 |
| | | 7,226 |
| | (23.0) | | 9,383 |
|
| Other | | 3,478 |
| | (6.2) | | 3,708 |
| | | 2,668 |
| | (19.3) | | 3,305 |
|
| Total | | 165,499 |
| | (1.5)% | | 167,958 |
| | | 158,847 |
| | (6.4)% | | 169,734 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 5,823.7 |
| | $ | 6,089.2 |
| | $ | (265.5 | ) | | (4.4 | )% | | | $ | (3.2 | ) | | (4.3 | )% |
| Used vehicle retail sales | 2,952.7 |
| | 2,764.0 |
| | 188.7 |
| | 6.8 | % | | | 7.8 |
| | 6.5 | % |
| Used vehicle wholesale sales | 334.7 |
| | 394.0 |
| | (59.3 | ) | | (15.0 | )% | | | 2.2 |
| | (15.6 | )% |
| Total used | 3,287.5 |
| | 3,158.0 |
| | 129.5 |
| | 4.1 | % | | | 10.0 |
| | 3.8 | % |
| Parts and service sales | 1,359.5 |
| | 1,322.6 |
| | 36.9 |
| | 2.8 | % | | | (0.7 | ) | | 2.8 | % |
| F&I, net | 446.1 |
| | 423.8 |
| | 22.3 |
| | 5.3 | % | | | (0.1 | ) | | 5.3 | % |
| Total revenues | $ | 10,916.8 |
| | $ | 10,993.5 |
| | $ | (76.7 | ) | | (0.7 | )% | | | $ | 6.0 |
| | (0.8 | )% |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 295.4 |
| | $ | 318.2 |
| | $ | (22.8 | ) | | (7.2 | )% | | | $ | (1.0 | ) | | (6.9 | )% |
| Used vehicle retail sales | 174.3 |
| | 176.1 |
| | (1.8 | ) | | (1.0 | )% | | | 0.3 |
| | (1.2 | )% |
| Used vehicle wholesale sales | 2.4 |
| | (2.6 | ) | | 5.1 |
| | 192.0 | % | | | (0.1 | ) | | 196.8 | % |
| Total used | 176.7 |
| | 173.4 |
| | 3.3 |
| | 1.9 | % | | | 0.2 |
| | 1.8 | % |
| Parts and service sales | 725.6 |
| | 711.6 |
| | 14.0 |
| | 2.0 | % | | | 0.4 |
| | 1.9 | % |
| F&I, net | 446.1 |
| | 423.8 |
| | 22.3 |
| | 5.3 | % | | | (0.1 | ) | | 5.3 | % |
| Total gross profit | $ | 1,643.9 |
| | $ | 1,627.0 |
| | $ | 16.8 |
| | 1.0 | % | | | $ | (0.5 | ) | | 1.1 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 5.1 | % | | 5.2 | % | | (0.2 | )% | | | | | | | |
| Used vehicle retail sales | 5.9 | % | | 6.4 | % | | (0.5 | )% | | | | | | | |
| Used vehicle wholesale sales | 0.7 | % | | (0.7 | )% | | 1.4 | % | | | | | | | |
| Total used | 5.4 | % | | 5.5 | % | | (0.1 | )% | | | | | | | |
| Parts and service sales | 53.4 | % | | 53.8 | % | | (0.4 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 15.1 | % | | 14.8 | % | | 0.3 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 160,236 |
| | 170,346 |
| | (10,110 | ) | | (5.9 | )% | | | | | |
| Retail used vehicles sold | 138,520 |
| | 128,509 |
| | 10,011 |
| | 7.8 | % | | | | | |
| Wholesale used vehicles sold | 49,285 |
| | 56,292 |
| | (7,007 | ) | | (12.4 | )% | | | | | |
| Total used | 187,805 |
| | 184,801 |
| | 3,004 |
| | 1.6 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 36,344 |
| | $ | 35,746 |
| | $ | 598 |
| | 1.7 | % | | | $ | (20 | ) | | 1.7 | % |
| Used vehicle retail | $ | 21,316 |
| | $ | 21,508 |
| | $ | (192 | ) | | (0.9 | )% | | | $ | 57 |
| | (1.2 | )% |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,844 |
| | $ | 1,868 |
| | $ | (24 | ) | | (1.3 | )% | | | $ | (6 | ) | | (1.0 | )% |
| Used vehicle retail sales | $ | 1,258 |
| | $ | 1,370 |
| | $ | (112 | ) | | (8.2 | )% | | | $ | 2 |
| | (8.3 | )% |
| Used vehicle wholesale sales | $ | 49 |
| | $ | (47 | ) | | $ | 96 |
| | 204.3 | % | | | $ | (3 | ) | | 210.5 | % |
| Total used | $ | 941 |
| | $ | 938 |
| | $ | 2 |
| | 0.3 | % | | | $ | 1 |
| | 0.2 | % |
| F&I PRU | $ | 1,493 |
| | $ | 1,418 |
| | $ | 75 |
| | 5.3 | % | | | $ | — |
| | 5.3 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 1,224.5 |
| | $ | 1,209.2 |
| | $ | 15.3 |
| | 1.3 | % | | | $ | (1.2 | ) | | 1.4 | % |
| SG&A as % gross profit | 74.5 | % | | 74.3 | % | | 0.2 | % | | | | | | | |
(1) The Scion brand was discontinued by Toyota during the third quarter of 2016.
Our new vehicle business is influenced by general economic conditions, consumer confidence, interest rates, fuel prices, supply conditions, relative attractiveness of our brand portfolio, consumer transportation preferences, unemployment rates
Reported Operating Data - U.S.
(In millions, except unit and credit availability, as well as the level of manufacturer incentives. The level of retail sales, as well as our own ability to retain or grow market share during any future period, is difficult to predict.per unit amounts)
|
| | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2019 | | 2018 | | Increase/(Decrease) | | % Change |
| Revenues: | | | | | | | | |
| New vehicle retail sales | | $ | 4,832.2 |
| | $ | 4,682.8 |
| | $ | 149.4 |
| | 3.2 | % |
| Used vehicle retail sales | | 2,509.9 |
| | 2,307.0 |
| | 202.9 |
| | 8.8 | % |
| Used vehicle wholesale sales | | 174.5 |
| | 178.9 |
| | (4.4 | ) | | (2.5 | )% |
| Total used | | 2,684.4 |
| | 2,485.9 |
| | 198.5 |
| | 8.0 | % |
| Parts and service sales | | 1,234.4 |
| | 1,153.3 |
| | 81.2 |
| | 7.0 | % |
| F&I, net | | 433.2 |
| | 401.3 |
| | 32.0 |
| | 8.0 | % |
| Total revenues | | $ | 9,184.2 |
| | $ | 8,723.3 |
| | $ | 461.0 |
| | 5.3 | % |
| Gross profit: | | | | | | | | |
| New vehicle retail sales | | $ | 228.8 |
| | $ | 229.1 |
| | $ | (0.2 | ) | | (0.1 | )% |
| Used vehicle retail sales | | 161.7 |
| | 141.7 |
| | 20.0 |
| | 14.1 | % |
| Used vehicle wholesale sales | | 2.5 |
| | 3.8 |
| | (1.2 | ) | | (33.1 | )% |
| Total used | | 164.2 |
| | 145.5 |
| | 18.8 |
| | 12.9 | % |
| Parts and service sales | | 668.5 |
| | 615.5 |
| | 53.0 |
| | 8.6 | % |
| F&I, net | | 433.2 |
| | 401.3 |
| | 32.0 |
| | 8.0 | % |
| Total gross profit | | $ | 1,494.8 |
| | $ | 1,391.3 |
| | $ | 103.5 |
| | 7.4 | % |
| Gross margin: | | | | | | | | |
| New vehicle retail sales | | 4.7 | % | | 4.9 | % | | (0.2 | )% | | |
| Used vehicle retail sales | | 6.4 | % | | 6.1 | % | | 0.3 | % | | |
| Used vehicle wholesale sales | | 1.4 | % | | 2.1 | % | | (0.7 | )% | | |
| Total used | | 6.1 | % | | 5.9 | % | | 0.3 | % | | |
| Parts and service sales | | 54.2 | % | | 53.4 | % | | 0.8 | % | | |
| F&I, net | | 100.0 | % | | 100.0 | % | | — | % | | |
| Total gross margin | | 16.3 | % | | 15.9 | % | | 0.3 | % | | |
| Units sold: | | | | | | | | |
| Retail new vehicles sold | | 122,096 |
| | 122,873 |
| | (777 | ) | | (0.6 | )% |
| Retail used vehicles sold | | 121,016 |
| | 111,806 |
| | 9,210 |
| | 8.2 | % |
| Wholesale used vehicles sold | | 28,577 |
| | 30,625 |
| | (2,048 | ) | | (6.7 | )% |
| Total used | | 149,593 |
| | 142,431 |
| | 7,162 |
| | 5.0 | % |
| Average sales price per unit sold: | | | | | | | | |
| New vehicle retail | | $ | 39,577 |
| | $ | 38,111 |
| | $ | 1,466 |
| | 3.8 | % |
| Used vehicle retail | | $ | 20,740 |
| | $ | 20,634 |
| | $ | 106 |
| | 0.5 | % |
| Gross profit per unit sold: | | | | | |
| | |
| New vehicle retail sales | | $ | 1,874 |
| | $ | 1,864 |
| | $ | 10 |
| | 0.5 | % |
| Used vehicle retail sales | | $ | 1,336 |
| | $ | 1,267 |
| | $ | 69 |
| | 5.4 | % |
| Used vehicle wholesale sales | | $ | 88 |
| | $ | 122 |
| | $ | (35 | ) | | (28.3 | )% |
| Total used | | $ | 1,098 |
| | $ | 1,021 |
| | $ | 76 |
| | 7.5 | % |
| F&I PRU | | $ | 1,782 |
| | $ | 1,710 |
| | $ | 72 |
| | 4.2 | % |
| Other: | | | | | | | | |
| SG&A expenses | | $ | 1,075.6 |
| | $ | 982.1 |
| | $ | 93.5 |
| | 9.5 | % |
| SG&A as % gross profit | | 72.0 | % | | 70.6 | % | | 1.4 | % | | |
Same Store Operating Data - U.S.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/(Decrease) | | % Change |
| Revenues: | | | | | | | |
| New vehicle retail sales | $ | 4,727.9 |
| | $ | 4,579.0 |
| | $ | 148.9 |
| | 3.3 | % |
| Used vehicle retail sales | 2,448.7 |
| | 2,254.4 |
| | 194.3 |
| | 8.6 | % |
| Used vehicle wholesale sales | 171.5 |
| | 173.7 |
| | (2.2 | ) | | (1.3 | )% |
| Total used | 2,620.2 |
| | 2,428.1 |
| | 192.0 |
| | 7.9 | % |
| Parts and service sales | 1,217.6 |
| | 1,120.5 |
| | 97.1 |
| | 8.7 | % |
| F&I, net | 424.8 |
| | 393.6 |
| | 31.1 |
| | 7.9 | % |
| Total revenues | $ | 8,990.4 |
| | $ | 8,521.3 |
| | $ | 469.1 |
| | 5.5 | % |
| Gross profit: | | | | | | | |
| New vehicle retail sales | $ | 221.8 |
| | $ | 223.9 |
| | $ | (2.2 | ) | | (1.0 | )% |
| Used vehicle retail sales | 158.3 |
| | 138.6 |
| | 19.8 |
| | 14.3 | % |
| Used vehicle wholesale sales | 2.6 |
| | 3.8 |
| | (1.2 | ) | | (31.3 | )% |
| Total used | 160.9 |
| | 142.4 |
| | 18.6 |
| | 13.0 | % |
| Parts and service sales | 657.6 |
| | 600.5 |
| | 57.1 |
| | 9.5 | % |
| F&I, net | 424.8 |
| | 393.6 |
| | 31.1 |
| | 7.9 | % |
| Total gross profit | $ | 1,465.1 |
| | $ | 1,360.5 |
| | $ | 104.6 |
| | 7.7 | % |
| Gross margin: | | | | | | | |
| New vehicle retail sales | 4.7 | % | | 4.9 | % | | (0.2 | )% | | |
| Used vehicle retail sales | 6.5 | % | | 6.1 | % | | 0.3 | % | | |
| Used vehicle wholesale sales | 1.5 | % | | 2.2 | % | | (0.7 | )% | | |
| Total used | 6.1 | % | | 5.9 | % | | 0.3 | % | | |
| Parts and service sales | 54.0 | % | | 53.6 | % | | 0.4 | % | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | |
| Total gross margin | 16.3 | % | | 16.0 | % | | 0.3 | % | | |
| Units sold: | | | | | | | |
| Retail new vehicles sold | 119,303 |
| | 120,081 |
| | (778 | ) | | (0.6 | )% |
| Retail used vehicles sold | 118,083 |
| | 108,954 |
| | 9,129 |
| | 8.4 | % |
| Wholesale used vehicles sold | 27,922 |
| | 29,750 |
| | (1,828 | ) | | (6.1 | )% |
| Total used | 146,005 |
| | 138,704 |
| | 7,301 |
| | 5.3 | % |
| Average sales price per unit sold: | | | | | | | |
| New vehicle retail | $ | 39,630 |
| | $ | 38,133 |
| | $ | 1,497 |
| | 3.9 | % |
| Used vehicle retail | $ | 20,737 |
| | $ | 20,692 |
| | $ | 46 |
| | 0.2 | % |
| Gross profit per unit sold: | | | | | | | |
| New vehicle retail sales | $ | 1,859 |
| | $ | 1,865 |
| | $ | (6 | ) | | (0.3 | )% |
| Used vehicle retail sales | $ | 1,341 |
| | $ | 1,272 |
| | $ | 69 |
| | 5.4 | % |
| Used vehicle wholesale sales | $ | 94 |
| | $ | 128 |
| | $ | (34 | ) | | (26.9 | )% |
| Total used | $ | 1,102 |
| | $ | 1,027 |
| | $ | 76 |
| | 7.4 | % |
| F&I PRU | $ | 1,789 |
| | $ | 1,719 |
| | $ | 71 |
| | 4.1 | % |
| Other: | | | | | | | |
| SG&A expenses | $ | 1,055.6 |
| | $ | 974.9 |
| | $ | 80.8 |
| | 8.3 | % |
| SG&A as % gross profit | 72.1 | % | | 71.7 | % | | 0.4 | % | | |
Year Ended December 31, 20172019 compared to 20162018
In total,The following discussion of our Same StoreU.S. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new vehicle retail unit sales decreased 1.5% foradd-point openings.
Revenue
Total revenue in the U.S. during the year ended December 31, 2017, as compared to the same period in 2016. The decrease was primarily driven by decreases of 1.7% and 6.8% in the U.S. and Brazil, respectively. The decline in our U.S. new vehicle retail sales was in line with the overall U.S. industry sales which decreased by 1.9% to 17.22019 increased $461.0 million, units for the year ended December 31, 2017 from 17.5 million units in 2016. Our new vehicle unit sales were depressed by softness in our energy-dependent markets, such as Oklahoma and Texas. This softness was partially offset by replacement demand in our Houston and Beaumont markets following flooding from Hurricane Harvey that damaged hundreds of thousands of vehicles in the region. In addition, our U.S. new vehicle sales volume lagged the prior year as our operating team placed a heightened focus on improving new vehicle margins, resulting in lower unit sales volume. We experienced a 6.8% decline in our Same Store new vehicle retail unit sales in Brazil, which was weaker than the overall industry. This decline reflected our intentional efforts to prioritize margins over volume. Partially offsetting the declines in the U.S. and Brazil was a 1.1% increase in our U.K. Same Store new vehicle retail unit sales for the year ended December 31, 2017 compared to a year ago. This increase was despite a decline in industry sales in the U.K. of 5.7% to 2.5 million units for the year ended December 31, 2017, down from 2.7 million units in 2016. The strong performance in the U.K. compared to 2017 industry results is primarily attributable to our brand portfolio and management team.
Our total Same Store revenues from new vehicle retail sales increased 0.2% for the year ended December 31, 2017, as compared to the same period in 2016, driven by increases in the U.S. and Brazil that were partially offset by a decline in the U.K. The 0.4% increase in U.S. Same Store new vehicle revenue was primarily due to a 2.1% increase in average retail sales price to $37,483, which was partially offset by the decline in new vehicle retail units of 1.7% noted above. The increase in our U.S. Same Store average retail sales price for the year ended December 31, 2017 was primarily a result of our operating team’s focus on improving new vehicle margins noted above and a mix shift in sales from cars to trucks, which was driven by continued relatively low gas prices, as well as an increase in the demand for trucks in the hurricane impacted markets of the U.S. during the second half of 2017. U.S. new vehicle retail truck sales represented 61.0% of total Same Store new vehicle retail units sold for the year ended December 31, 2017, as compared to 56.9% for the same period last year. Our Brazil Same Store new vehicle revenues increased 6.0%, which was more than explained by the change in the exchange rate between periods. On a constant currency basis, our Brazil Same Store new vehicle revenues declined 2.2%, as a 5.0% increase in the average retail sales price was more than offset by the 6.8% decline in new vehicle retail units noted above. The increases in total Same Store new vehicle retail revenues in the U.S. and Brazil was partially offset by a 2.5% decline in our U.K. Same Store new vehicle revenues for the twelve months ended December 31, 2017 as compared to 2016. The increase of 1.1% in new
vehicle retail unit sales in the U.K. was more than offset by the deterioration in the average new vehicle sales price of 3.6%. This decline is more than explained by the change in exchange rates between periods as on a constant currency basis, new vehicle revenue per retail unit increased 1.1% when compared to the same period a year ago.
Our total Same Store new vehicle gross profit decreased 0.1% for the year ended December 31, 2017, as compared to the same period in 2016, reflecting declines in the U.K. that were almost fully offset by increases in the U.S. and Brazil. In the U.S., Same Store new vehicle gross profit increased 0.7%, as the decline in retail units discussed above was more than offset by a 2.5% increase in gross profit PRU to $1,919, which was driven by the operating team’s initiatives to improve new vehicle margin and the additional demand in our Houston and Beaumont markets as a result of the impact of Hurricane Harvey. As noted above, the U.S. gross profit PRU was further bolstered by increased demand for trucks across the U.S. In Brazil, Same Store new vehicle gross profit rose 6.5% for the year ended December 31, 2017. The increase in gross profit in Brazil is more than explained by a favorable change in exchange rates. On a constant currency basis, Same Store new vehicle gross profit decreased 1.7%or 5.3%, as compared to the same period in 2016, as a 6.8% decrease in Same Store new vehicle retail units outpaced a 5.5% increase in gross profit per retail unit on a constant currency basis. Same Store new vehicle gross profit2018. Total same store revenue in the U.K. decreased 5.3%, primarily explained by a decline in gross profit PRU of 6.3% to $1,705. The decline in gross profit PRU was partially explained by the change in exchange rates between periods and the mix in volume-based manufacturer incentives as compared to last year. Our total Same Store new vehicle gross margin remained unchanged at 5.2% forU.S. during the year ended December 31, 2017,2019 increased $469.1 million, or 5.5%, as compared to the same period in 2016.
Year Ended December 31, 2016 compared2018. The increase in U.S. same store revenue was driven by growth in all of our revenue streams with the exception of used vehicle wholesale sales. New vehicle retail same store revenue increased 3.3% as a 0.6% decrease in unit sales was more than offset by a 3.9% increase in average sales price per unit. The average sales price increase was driven by an increase in overall industry prices and the continued mix shift in sales from cars to 2015
Ourtrucks. Same store new vehicle truck sales represented 68.0% of total Same Store revenues fromsame store new vehicle retail unit sales, decreased 4.1% foras compared to 65.2% in the prior year. Used vehicle retail same store revenue increased 8.6% primarily due to an 8.4% increase in units as our Val-U-Line® initiative enabled us to move older , higher mileage units from wholesale to retail sales and a strong focus on pricing. Parts and service same store revenue increased 8.7% driven by a 10.3% increase in customer-pay revenue, a 10.5% increase in warranty, a 5.2% increase in wholesale parts and a 6.9% increase in collision revenue. The implementation of our four-day work week service schedule improved hiring and retention of our service technicians and advisors and increased capacity and efficiency in our service departments. Our four-day work week has been rolled out at 75 U.S. dealerships as of December 31, 2019 and has driven an increase in our technician count of approximately 320 professionals in the last twelve months, a 13% increase. F&I same store revenue increased 7.9% as a result of an increase in our retail unit sales, improvements in income per contract on vehicle service and finance contracts, as well as higher penetration rates on finance and other insurance product offerings.
Gross Profit
Total gross profit in the U.S. during the year ended December 31, 2016,2019 increased $103.5 million, or 7.4%, as compared to the same period in 2015. This decrease was primarily driven by a decrease of 3.7%2018. Total same store gross profit in U.S., coupled with a decrease of 20.9% in Brazil. The 3.7% decrease inthe U.S. Same Store new vehicle revenue was primarily due to the decline in new vehicle retail units of 7.0%, which was partially offset by a 3.6% increase in average retail sales price to $36,385. The increase in our U.S. Same Store average retail sales price forduring the year ended December 31, 2016 was primarily a result of a mix shift in sales from cars to trucks, generally driven by lower gas prices. U.S. new vehicle retail truck sales represented 56.6% of total Same Store new vehicle retail units sold for the year ended December 31, 2016, as compared to 51.8% for the same period in 2015. The 20.9% decrease in Brazil Same Store new vehicle revenues was primarily due to the decline in new vehicle retail units of 23.5%2019 increased $104.6 million, or 7.7%, partially offset by a 3.4% increase in the average new vehicle retail sales price as compared to 2015. The decrease in total Same Store new vehicle retail revenues in the U.S. and Brazil was partially offset by a 1.6% improvement in our U.K. Same Store new vehicle revenues for the twelve months ended December 31, 2016 as compared to 2015. This increase in the U.K. was the result of a 9.1% increase in new vehicle retail unit sales, partially offset by a 6.9% decline in the average new vehicle retail sales price. The decline in the average sales price was driven by the change in exchange rates between periods. On a constant currency basis, our U.K. Same Store average new vehicle retail sales price improved 4.9%.
Our total Same Store new vehicle gross profit decreased 2.0% for the year ended December 31, 2016, as compared to the same period in 2015, reflecting declines2018. The increase in the U.K. and Brazil. In the U.S., Same Store new vehicletotal same store gross profit increased 0.9%, as the declinewas driven by increases in parts and service, F&I and used vehicle retail units was more thangross profit, partially offset by an 8.5% increase in gross profit PRU to $1,845. The improvementa decrease in new vehicle gross profit. New vehicle retail same store gross profit PRU in the U.S. was primarily a result of our operating team’s disciplineddecreased 1.0% due to lower new vehicle pricing that focused on increasing gross profit per retail unit. Offsetting the increase in the U.S., Same Storeunit sales as industry new vehicle gross profit, the U.K. decreased 2.6%, explained by a decline in gross profit PRU of 10.8% to $1,923. The decrease in gross profit and gross profit PRU in U.K. can be explained by the change in the exchange rate between periods. On a constant currency basis, Same Store newsales have slowed. Used vehicle retail same store gross profit increased by 9.5% and gross profit PRU remained relatively flat, as compared to 2015. In Brazil, Same Store new vehicle gross profit declined 30.7% for the year ended December 31, 2016. The decrease in gross profit in Brazil is primarily explained by the 23.5% decrease in new units sold, coupled with a decrease in gross profit PRU of 9.5% to $1,704. The combination of a 4.1% decline in our total Same Store new vehicle revenues and a 2.0% decrease in total Same Store new vehicle gross profit resulted in a 10 basis point increase in our total Same Store new vehicle gross margin for the year ended December 31, 2016, as compared to the same period in 2015, from 5.1% to 5.2%.
Most manufacturers offer interest assistance to offset floorplan interest charges incurred in connection with inventory purchases. This assistance varies by manufacturer, but generally provides for a defined amount, adjusted periodically for changes in market interest rates, regardless of our actual floorplan interest rate or the length of time for which the inventory is financed. We record these incentives as a reduction of new vehicle cost of sales as the vehicles are sold, impacting the gross profit and gross margin detailed above. The total assistance recognized in cost of sales during the twelve-month periods ended December 31, 2017, 2016, and 2015 was $48.9 million, $49.2 million, and $50.5 million, respectively. The amount of interest assistance that we recognize in a given period is primarily a function of: (a) the mix of units being sold, as U.S. domestic brands tend to provide more assistance, (b) the specific terms of the respective manufacturers' interest assistance programs and market interest rates in effect at the time, (c) the average wholesale price of inventory sold, and (d) our rate of inventory turnover. Over the past three years, manufacturers' interest assistance as a percentage of our total consolidated floorplan interest expense has ranged from approximately 88.0% of our quarterly floorplan interest expense in the first quarter of 2017 to 139.9% for the third
quarter of 2015. In the U.S., manufacturer's interest assistance was 101.6% of floorplan interest expense for the year ended December 31, 2017.
We increased our new vehicle inventory levels by $38.2 million, or 3.3%, from $1,156.4 million as of December 31, 2016 to $1,194.6 million as of December 31, 2017, primarily14.3% as a result of dealership acquisition activity during the year. Our consolidated days' supply of new vehicle inventory was 61 days as of December 31, 2017, which is down from 62 days on December 31, 2016.
Used Vehicle Retail Data
(dollars in thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Retail Unit Sales | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | 100,542 |
| | (3.7)% | | | | 104,451 |
| | | 104,451 |
| | 1.3% | | | | 103,151 |
|
| U.K. | | 19,632 |
| | 8.7% | | | | 18,062 |
| | | 14,861 |
| | 5.6% | | | | 14,074 |
|
| Brazil | | 3,974 |
| | 3.0% | | | | 3,859 |
| | | 4,325 |
| | 2.5% | | | | 4,221 |
|
| Total Same Stores | | 124,148 |
| | (1.8)% | | | | 126,372 |
| | | 123,637 |
| | 1.8% | | | | 121,446 |
|
| Transactions | | 5,785 |
| | | | | | 2,759 |
| | | 5,494 |
| | | | | | 2,707 |
|
| Total | | 129,933 |
| | 0.6% | | | | 129,131 |
| | | 129,131 |
| | 4.0% | | | | 124,153 |
|
| Retail Sales Revenues | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 2,146,803 |
| | (3.2)% | | N/A | | $ | 2,217,717 |
| | | $ | 2,203,802 |
| | 2.2% | | N/A | | $ | 2,155,468 |
|
| U.K. | | 447,777 |
| | 6.8% | | 12.2% | | 419,455 |
| | | 332,439 |
| | (5.4)% | | 6.5% | | 351,311 |
|
| Brazil | | 86,298 |
| | 19.0% | | 9.6% | | 72,549 |
| | | 76,063 |
| | 0.5% | | 5.8% | | 75,658 |
|
| Total Same Stores | | 2,680,878 |
| | (1.1)% | | (0.5)% | | 2,709,721 |
| | | 2,612,304 |
| | 1.2% | | 2.9% | | 2,582,437 |
|
| Transactions | | 118,108 |
| | | | | | 47,992 |
| | | 145,409 |
| | | | | | 56,532 |
|
| Total | | $ | 2,798,986 |
| | 1.5% | | 2.2% | | $ | 2,757,713 |
| | | $ | 2,757,713 |
| | 4.5% | | 6.7% | | $ | 2,638,969 |
|
| Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 143,688 |
| | (6.6)% | | N/A | | $ | 153,911 |
| | | $ | 152,960 |
| | (1.3)% | | N/A | | $ | 154,958 |
|
| U.K. | | 22,147 |
| | 3.7% | | 9.6% | | 21,350 |
| | | 17,514 |
| | (4.5)% | | 7.4% | | 18,335 |
|
| Brazil | | 6,488 |
| | 43.1% | | 34.6% | | 4,533 |
| | | 4,716 |
| | 56.7% | | 63.5% | | 3,009 |
|
| Total Same Stores | | 172,323 |
| | (4.2)% | | (3.7)% | | 179,794 |
| | | 175,190 |
| | (0.6)% | | 0.7% | | 176,302 |
|
| Transactions | | 5,232 |
| | | | | | 2,685 |
| | | 7,289 |
| | | | | | 3,168 |
|
| Total | | $ | 177,555 |
| | (2.7)% | | (2.1)% | | $ | 182,479 |
| | | $ | 182,479 |
| | 1.7% | | 3.3% | | $ | 179,470 |
|
| Gross Profit per Retail | | | | | | | | | | | | | | | | | |
| Unit Sold | | | |
| | | | | | | | | | | | | |
| Same Stores | |
| |
| | | |
|
| | |
|
| |
| | | |
|
|
| U.S. | | $ | 1,429 |
| | (3.1)% | | N/A | | $ | 1,474 |
| | | $ | 1,464 |
| | (2.5)% | | N/A | | $ | 1,502 |
|
| U.K. | | $ | 1,128 |
| | (4.6)% | | 0.8% | | $ | 1,182 |
| | | $ | 1,179 |
| | (9.5)% | | 1.7% | | $ | 1,303 |
|
| Brazil | | $ | 1,633 |
| | 39.0% | | 30.7% | | $ | 1,175 |
| | | $ | 1,090 |
| | 52.9% | | 59.5% | | $ | 713 |
|
| Total Same Stores | | $ | 1,388 |
| | (2.5)% | | (1.9)% | | $ | 1,423 |
| | | $ | 1,417 |
| | (2.4)% | | (1.1)% | | $ | 1,452 |
|
| Transactions | | $ | 904 |
| | (7.1)% | | | | $ | 973 |
| | | $ | 1,327 |
| | 13.4% | | | | $ | 1,170 |
|
| Total | | $ | 1,367 |
| | (3.3)% | | (2.7)% | | $ | 1,413 |
| | | $ | 1,413 |
| | (2.3)% | | (0.7)% | | $ | 1,446 |
|
| Gross Margin | | | | | | | | | | | | | | | | | |
| Same Stores | |
| | | | | |
|
| | |
|
| | | | | |
|
|
| U.S. | | 6.7% | | | | | | 6.9% | | | 6.9% | | | | | | 7.2% |
| U.K. | | 4.9% | | | | | | 5.1% | | | 5.3% | | | | | | 5.2% |
| Brazil | | 7.5% | | | | | | 6.2% | | | 6.2% | | | | | | 4.0% |
| Total Same Stores | | 6.4% | | | | | | 6.6% | | | 6.7% | | | | | | 6.8% |
| Transactions | | 4.4% | | | | | | 5.6% | | | 5.0% | | | | | | 5.6% |
| Total | | 6.3% | | | | | | 6.6% | | | 6.6% | | | | | | 6.8% |
Used Vehicle Wholesale Data
(dollars in thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Wholesale Unit Sales | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | 37,415 |
| | (7.3)% | | | | 40,361 |
| | | 40,457 |
| | (5.8)% | | | | 42,928 |
|
| U.K. | | 14,861 |
| | 3.0% | | | | 14,428 |
| | | 11,645 |
| | 2.5% | | | | 11,360 |
|
| Brazil | | 997 |
| | 6.7% | | | | 934 |
| | | 1,086 |
| | (10.5)% | | | | 1,214 |
|
| Total Same Stores | | 53,273 |
| | (4.4)% | | | | 55,723 |
| | | 53,188 |
| | (4.2)% | | | | 55,502 |
|
| Transactions | | 3,871 |
| | | | | | 1,616 |
| | | 4,151 |
| | | | | | 1,724 |
|
| Total | | 57,144 |
| | (0.3)% | | | | 57,339 |
| | | 57,339 |
| | 0.2% | | | | 57,226 |
|
| Wholesale Sales Revenues | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | 248,922 |
| | (8.7)% | | N/A | | $ | 272,623 |
| | | $ | 270,687 |
| | (2.9)% | | N/A | | $ | 278,909 |
|
| U.K. | | 113,082 |
| | (2.9)% | | 1.9% | | 116,519 |
| | | 90,468 |
| | (10.2)% | | 1.1% | | 100,706 |
|
| Brazil | | 12,144 |
| | 314.6% | | 287.3% | | 2,929 |
| | | 3,116 |
| | (41.8)% | | (34.4)% | | 5,354 |
|
| Total Same Stores | | 374,148 |
| | (4.6)% | | (3.3)% | | 392,071 |
| | | 364,271 |
| | (5.4)% | | (2.3)% | | 384,969 |
|
| Transactions | | 26,022 |
| | | | | | 9,792 |
| | | 37,592 |
| | | | | | 12,282 |
|
| Total | | $ | 400,170 |
| | (0.4)% | | 1.1% | | $ | 401,863 |
| | | $ | 401,863 |
| | 1.2% | | 5.2% | | $ | 397,251 |
|
| Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | (2,452 | ) | | 17.3% | | N/A | | $ | (2,964 | ) | | | $ | (3,120 | ) | | (274.1)% | | N/A | | $ | (834 | ) |
| U.K. | | (831 | ) | | 25.9% | | 33.2% | | (1,122 | ) | | | (100 | ) | | 90.8% | | 83.2% | | (1,083 | ) |
| Brazil | | 838 |
| | 341.1% | | 311.2% | | 190 |
| | | 192 |
| | (50.8)% | | (44.5)% | | 390 |
|
| Total Same Stores | | (2,445 | ) | | 37.2% | | 37.8% | | (3,896 | ) | | | (3,028 | ) | | (98.3)% | | (102.1)% | | (1,527 | ) |
| Transactions | | (297 | ) | | | | | | (546 | ) | | | (1,414 | ) | | | | | | (393 | ) |
| Total | | $ | (2,742 | ) | | 38.3% | | 38.8% | | $ | (4,442 | ) | | | $ | (4,442 | ) | | (131.4)% | | (146.9)% | | $ | (1,920 | ) |
| Gross Profit per Wholesale Unit Sold | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| |
| | | |
|
| | |
|
| |
| | | |
|
|
| U.S. | | $ | (66 | ) | | 9.6% | | N/A | | $ | (73 | ) | | | $ | (77 | ) | | (305.3)% | | N/A | | $ | (19 | ) |
| U.K. | | $ | (56 | ) | | 28.2% | | 35.2% | | $ | (78 | ) | | | $ | (9 | ) | | 90.5% | | 83.6% | | $ | (95 | ) |
| Brazil | | $ | 841 |
| | 314.3% | | 285.3% | | $ | 203 |
| | | $ | 177 |
| | (44.9)% | | (37.9)% | | $ | 321 |
|
| Total Same Stores | | $ | (46 | ) | | 34.3% | | 34.9% | | $ | (70 | ) | | | $ | (57 | ) | | (103.6)% | | (110.9)% | | $ | (28 | ) |
| Transactions | | $ | (77 | ) | | 77.2% | | | | $ | (338 | ) | | | $ | (341 | ) | | (49.6)% | | | | $ | (228 | ) |
| Total | | $ | (48 | ) | | 37.7% | | 38.5% | | $ | (77 | ) | | | $ | (77 | ) | | (126.5)% | | (146.5)% | | $ | (34 | ) |
| Gross Margin | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| | | | | |
|
| | |
|
| | | | | |
|
|
| U.S. | | (1.0)% | | | | | | (1.1)% | | | (1.2)% | | | | | | (0.3)% |
| U.K. | | (0.7)% | | | | | | (1.0)% | | | (0.1)% | | | | | | (1.1)% |
| Brazil | | 6.9% | | | | | | 6.5% | | | 6.2% | | | | | | 7.3% |
| Total Same Stores | | (0.7)% | | | | | | (1.0)% | | | (0.8)% | | | | | | (0.4)% |
| Transactions | | (1.1)% | | | | | | (5.6)% | | | (3.8)% | | | | | | (3.2)% |
| Total | | (0.7)% | | | | | | (1.1)% | | | (1.1)% | | | | | | (0.5)% |
Total Used Vehicle Data
(dollars in thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Used Vehicle Unit Sales | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | 137,957 |
| | (4.7)% | | | | 144,812 |
| | | 144,908 |
| | (0.8)% | | | | 146,079 |
|
| U.K. | | 34,493 |
| | 6.2% | | | | 32,490 |
| | | 26,506 |
| | 4.2% | | | | 25,434 |
|
| Brazil | | 4,971 |
| | 3.7% | | | | 4,793 |
| | | 5,411 |
| | (0.4)% | | | | 5,435 |
|
| Total Same Stores | | 177,421 |
| | (2.6)% | | | | 182,095 |
| | | 176,825 |
| | (0.1)% | | | | 176,948 |
|
| Transactions | | 9,656 |
| | | | | | 4,375 |
| | | 9,645 |
| | | | | | 4,431 |
|
| Total | | 187,077 |
| | 0.3% | | | | 186,470 |
| | | 186,470 |
| | 2.8% | | | | 181,379 |
|
| Sales Revenues | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 2,395,725 |
| | (3.8)% | | N/A | | $ | 2,490,340 |
| | | $ | 2,474,489 |
| | 1.6% | | N/A | | $ | 2,434,377 |
|
| U.K. | | 560,859 |
| | 4.6% | | 10.0% | | 535,974 |
| | | 422,907 |
| | (6.4)% | | 5.3% | | 452,017 |
|
| Brazil | | 98,442 |
| | 30.4% | | 20.4% | | 75,478 |
| | | 79,179 |
| | (2.3)% | | 3.1% | | 81,012 |
|
| Total Same Stores | | 3,055,026 |
| | (1.5)% | | (0.8)% | | 3,101,792 |
| | | 2,976,575 |
| | 0.3% | | 2.2% | | 2,967,406 |
|
| Transactions | | 144,130 |
| | | | | | 57,784 |
| | | 183,001 |
| | | | | | 68,814 |
|
| Total | | $ | 3,199,156 |
| | 1.3% | | 2.1% | | $ | 3,159,576 |
| | | $ | 3,159,576 |
| | 4.1% | | 6.5% | | $ | 3,036,220 |
|
| Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 141,236 |
| | (6.4)% | | N/A | | $ | 150,947 |
| | | $ | 149,840 |
| | (2.8)% | | N/A | | $ | 154,124 |
|
| U.K. | | 21,316 |
| | 5.4% | | 12.0% | | 20,228 |
| | | 17,414 |
| | 0.9% | | 13.1% | | 17,252 |
|
| Brazil | | 7,326 |
| | 55.1% | | 45.7% | | 4,723 |
| | | 4,908 |
| | 44.4% | | 51.1% | | 3,399 |
|
| Total Same Stores | | 169,878 |
| | (3.4)% | | (2.9)% | | 175,898 |
| | | 172,162 |
| | (1.5)% | | (0.2)% | | 174,775 |
|
| Transactions | | 4,935 |
| | | | | | 2,139 |
| | | 5,875 |
| | | | | | 2,775 |
|
| Total | | $ | 174,813 |
| | (1.8)% | | (1.2)% | | $ | 178,037 |
| | | $ | 178,037 |
| | 0.3% | | 1.7% | | $ | 177,550 |
|
| Gross Profit per Used | | | | | | | | | | | | | | | | | |
| Vehicle Unit Sold | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| |
| | | |
|
| | |
|
| |
| | | |
|
|
| U.S. | | $ | 1,024 |
| | (1.7)% | | N/A | | $ | 1,042 |
| | | $ | 1,034 |
| | (2.0)% | | N/A | | $ | 1,055 |
|
| U.K. | | $ | 618 |
| | (0.8)% | | 5.5% | | $ | 623 |
| | | $ | 657 |
| | (3.1)% | | 8.5% | | $ | 678 |
|
| Brazil | | $ | 1,474 |
| | 49.6% | | 40.5% | | $ | 985 |
| | | $ | 907 |
| | 45.1% | | 51.7% | | $ | 625 |
|
| Total Same Stores | | $ | 957 |
| | (0.9)% | | (0.4)% | | $ | 966 |
| | | $ | 974 |
| | (1.4)% | | (0.1)% | | $ | 988 |
|
| Transactions | | $ | 511 |
| | 4.5% | | | | $ | 489 |
| | | $ | 609 |
| | (2.7)% | | | | $ | 626 |
|
| Total | | $ | 934 |
| | (2.2)% | | (1.5)% | | $ | 955 |
| | | $ | 955 |
| | (2.5)% | | (1.1)% | | $ | 979 |
|
| Gross Margin | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| | | | | |
|
| | |
|
| | | | | |
|
|
| U.S. | | 5.9% | | | | | | 6.1% | | | 6.1% | | | | | | 6.3% |
| U.K. | | 3.8% | | | | | | 3.8% | | | 4.1% | | | | | | 3.8% |
| Brazil | | 7.4% | | | | | | 6.3% | | | 6.2% | | | | | | 4.2% |
| Total Same Stores | | 5.6% | | | | | | 5.7% | | | 5.8% | | | | | | 5.9% |
| Transactions | | 3.4% | | | | | | 3.7% | | | 3.2% | | | | | | 4.0% |
| Total | | 5.5% | | | | | | 5.6% | | | 5.6% | | | | | | 5.8% |
In addition to factors such as general economic conditions and consumer confidence, our used vehicle business is affected by the level of manufacturer incentives on new vehicles and new vehicle financing, the number and quality of trade-ins and lease turn-ins, the availability of consumer credit, and our ability to effectively manage the level and quality of our overall used vehicle inventory.
Year Ended December 31, 2017 compared to 2016
Our total Same Store used vehicle retail revenues decreased $28.8 million, or 1.1%, for the twelve months ended December 31, 2017, as compared to 2016, reflecting a 1.8% decrease in total Same Store used vehicle retail unit sales partially offset by a 0.7% increase in average used vehicle retail selling price to $21,594. In the U.S., Same Store used vehicle retail revenues decreased $70.9 million, or 3.2%, reflecting a 3.7% decrease in Same Store used vehicle retail unit sales partially offset by a 0.6%, or $120, increase in Same Store average used vehicle retail sales price. The decline in Same Store used vehicle retail unit sales was driven by a 5.1% decline in sales in our energy dependent markets of Texas and Oklahoma. While Hurricane Harvey replacement demand lifted our used vehicle retail unit sales in certain U.S. markets for the fourth quarter of 2017, it was not enough to fully offset the impact of depressed oil prices in those markets for the full year. Our U.S. Same Store CPO volume decreased 1.6% to 27,345 units sold for the twelve months ended December 31, 2017, as compared to the same period in 2016. As a percentage of total U.S. Same Store used vehicle retail unit sales, CPO units increased 60 basis points to 27.2% for the year ended December 31, 2017 as compared to the same period in 2016. In the U.K., Same Store used vehicle retail revenues increased 6.8% for the year ended December 31, 2017 as compared to same period in the prior year. This increase in Same Store used vehicle retail revenue was driven by an 8.7% increase in Same Store used vehicle retail unit sales, partially offset by a 1.8% decrease in Same Store average used vehicle retail sales price to $22,809. The decline in the U.K. Same Store used vehicle average sales price was more than explained by the change in exchange rates between periods, as on a constant currency basis, Same Store average used vehicle retail sales price increased 3.3%. The8.4% increase in used vehicle retail unit sales and average used vehicle retail sales price in the U.K. was primarily driven by a strong performance from our operating team, as well as the road tariff that went into effect in April 2017 that lowered associated taxes on used vehicles relative to new vehicles, shifting consumer demand towards used vehicles. In Brazil, for the twelve months ended December 31, 2017, Same Store used vehicle retail revenues increased 19.0% as compared to 2016, reflecting a 15.5% increase in the average used vehicle retail selling price, coupled with 3.0% increase in Same Store used vehicle retail unit sales. This improvement reflects an increased focus by our operations team and enhanced processes that are being implemented.
In total, our Same Store used vehicle retail total gross profit for the year ended December 31, 2017, decreased 4.2%, compared to the same period in 2016, reflecting a decline in the U.S. that was partially offset by improvements in the U.K. and Brazil. In the U.S., Same Store used vehicle gross profit decreased by 6.6%, driven by the unit decline discussed previously, coupled with a decrease in Same Store used vehicle gross profit PRU of 3.1%, or $45. In the U.K., Same Store used vehicle retail gross profit increased 3.7%, reflecting an improvement of 8.7% in Same Store used vehicle retail unit sales partially offset by a 4.6%, decrease in Same Store used vehicle gross profit PRU. This decline in gross profit PRU is more than explained by the change in the exchange rate between periods as on a constant currency basis, Same Store used vehicle gross profit PRU in the U.K. increased 0.8% over the same comparable period. The increases in the U.K. were primarily a result of improving used vehicle demand and a strong performance by our operating team. In Brazil, the increase of 43.1% in Same Store used vehicle retail gross profit resulted from the increase of 39.0% and 3.0% in the Same Store used vehicle retail gross profit PRU and unit sales, respectively. The improvement in Brazil is primarily a result of increased focus on used vehicle operations and the implementation of new and improved sales processes by our local operating team.
During the twelve months ended December 31, 2017, total Same Store used vehicle wholesale revenue decreased 4.6%, as compared to the same period in 2016, driven by declines in the U.S. and U.K., which were partially offset by an increase in Brazil. In the U.S., the 8.7% decrease in Same Store used vehicle wholesale revenue for the year ended December 31, 2017, was the result of a 7.3% decrease in used wholesale vehicle unit sales coupled with 1.5% decrease in Same Store used vehicle wholesale average sales price. The decline in U.S. used vehicle wholesale unit sales volume was primarily driven by the execution of strategic initiatives designed to sell more vehicles through retail channels and reduce our reliance on the wholesale auction markets. In the U.K., Same Store used vehicle wholesale revenue declined 2.9%, more than explained by the change in exchange rates between periods. On a constant currency basis, Same Store used vehicle wholesale sales in the U.K. improved 1.9%, as the increase in unit sales outpaced a 1.0% decline in Same Store used vehicle wholesale average sales price. In Brazil, Same Store used vehicle wholesale revenue increased primarily as a result of an improvement in Same Store used vehicle wholesale average sales price, coupled with a 6.7% increase in Same Store wholesale used vehicle unit sales.
Our total Same Store used vehicle wholesale gross profit increased 37.2% from a loss of $3.9 million for the year ended December 31, 2016, to a loss of $2.4 million for the comparable period in 2017. This increase was driven by a $24 increase in our Same Store used vehicle wholesale gross profit per unit from a loss of $70 per unit for the twelve months ended December 31, 2016, to a loss of $46 per unit for the same period this year, coupled with a decrease in total Same Store used vehicle wholesale units of 4.4%. In the U.S., Same Store used vehicle wholesale gross profit increased 17.3% for the year ended
December 31, 2017, primarily as a result of a 9.6% increase in Same Store wholesale gross profit per unit from a loss of $73 for the year ended 2016 to a loss of $66 for the comparable period in 2017, coupled with a 7.3% decrease in used vehicle wholesale units from the same period. The5.4% increase in used vehicle wholesaleretail same store average gross profit for the year ended 2017, corresponds with a 3.6% increase in the Same StorePRU. The increased same store used vehicle average market prices during 2017, as reflected in the Manheim index. In the U.K., the 25.9% increase in profitability wasretail PRU reflects our recently implemented big-data driven by a 28.2% increase in Same Store used vehiclepricing strategies. Parts and service same store gross profit per unit, from a loss of $78 for the twelve months ended December 31, 2016 to a loss of $56 for theand F&I same period in 2017, which was partially offset by a 3.0% increase in Same Store used vehicle wholesale units as compared to the same period in 2016. In Brazil, the increase in Same Store used vehicle wholesalestore gross profit for the year ended 2017, wasincreased 9.5% and 7.9%, respectively, driven by the increase in Same Store used vehicle wholesale gross profit per unit coupled with a 6.7% increase in Same Store used vehicle wholesale units.
Year Ended December 31, 2016 compared to 2015
Our total Same Store used vehicle retail revenues increased 1.2% for the twelve months ended December 31, 2016, as compared to 2015, reflecting a 1.8% increase in total Same Store used vehicle retail unit sales partially offset by a 0.6% decrease in average used vehicle retail selling price to $21,129. In the U.S., Same Store used vehicle retail revenues increased $48.3 million, or 2.2%, reflecting a 1.3% increase in Same Store used vehicle retail unit sales coupled with a 1.0%, or $203, increase in the average used vehicle retail sales price. Our U.S. Same Store CPO volume decreased 2.2% to 27,607 units sold for the twelve months ended December 31, 2016, as compared to the same period in 2015. As a percentage of the U.S. Same Store used vehicle retail unit sales, CPO units decreased 100 basis points to 26.4% for the year ended December 31, 2016 as compared to the same period in 2015. In the U.K., Same Store used vehicle retail revenues decreased 5.4% for the year ended December 31, 2016 as compared to same period in the prior year and average used vehicle retail sales price decreased 10.4%. This decline can be more than explained by a change in exchange rates as on a constant currency basis, our U.K. Same Store used vehicle retail revenue increased 6.5%, driven by a 5.6% increase in Same Store used vehicle retail unit sales and a 0.8% increase in the average used vehicle retail sales price on a constant currency basis. In Brazil, for the twelve months ended December 31, 2016, as compared to 2015, Same Store used vehicle retail revenues were flat and Same Store average used vehicle sales price decreased 1.9% , while on a constant currency basis Same Store used vehicle retail revenues increased 5.8%, reflecting a 3.3% growth in Same Store average used vehicle sales price coupled with a 2.5% increase in Same Store used vehicle retail unit sales. This improvement reflects an increased focus by our operations team and enhanced processes that are being implemented.
In total, our Same Store used vehicle retail total gross profit for the year ended December 31, 2016, decreased 0.6%, compared to the same period in 2015, reflecting declines in the U.S. and U.K. segments that were partially offset by improvements in Brazil. In the U.S., Same Store used vehicle gross profit decreased by 1.3%, driven by a decline in Same Store used vehicle gross profit PRU of 2.5%, or $38, partially offset by an increase in Same Store used vehicle retail unit sales of 1.3%. The vehicle gross profit PRU decline in the U.S. was the result of an increased supply of used vehicle inventory, specifically car inventory, which occurred during the fourth quarter of 2016. In the U.K., Same Store used vehicle retail gross profit declined 4.5%, reflecting a 9.5% decrease in Same Store gross profit PRU that was partially offset by the 5.6% improvement in Same Store used vehicle retail unit sales described above. These declines in the U.K. can be explained by the change in exchange rates between periods as, on a constant currency basis, Same Store used vehicle retail gross profit and used vehicle gross profit PRU in the U.K. improved 7.4% and 1.7%, respectively. The increases in the U.K. were primarily a result of improving industry conditions and a strong performance by our operating teams. In Brazil, the increase of 56.7% in Same Store used vehicle retail gross profit resulted from a $377, or 52.9%, increase in Same Store used vehicle retail gross profit PRU coupled with a 2.5% increase in Same Store used vehicle retail unit sales. The improvement in Brazil is primarily a result of increased focus on used vehicle operations and the implementation of new and improved sales processes by our local operating team.
During the twelve months ended December 31, 2016, total Same Store wholesale used vehicle revenue decreased 5.4%, as compared to theTotal same period in 2015, driven by declines in all three reportable segments. In the U.S., the 2.9% decrease in Same Store wholesale used vehicle revenue for the year ended December 31, 2016, was the result of a 5.8% decrease in used wholesale vehicle unit sales that was partially offset by a 3.0% increase in Same Store used vehicle wholesale average sales price. The increase in our average used vehicle wholesale sales price reflects the improvement in used vehicle market prices. The Manheim Index average for 2016 improved 0.3% as compared to 2015. The decline in U.S. used vehicle wholesale unit sales volume was driven by lower used vehicle trade-in activity associated with lower new vehicle unit sales volume during 2016, particularly in our energy driven markets. In the U.K., Same Store used vehicle wholesale revenue declined 10.2%, which is more than explained by the change in exchange rates between periods. On a constant currency basis, Same Store used vehicle wholesale sales in the U.K. improved 1.1%, reflecting a 2.5% increase in Same Store used vehicle wholesale units that was partially offset by a 1.4% decrease in Same Store used vehicle wholesale average price on a constant currency basis. In Brazil, Same Store used vehicle wholesale revenue declined 41.8% as a result of a decrease in Same Store used vehicle wholesale average sales price of 34.9% coupled with a decrease of 10.5% in Same Store wholesale used vehicle unit sales. This decline in our wholesale business in Brazil reflects a strategic decision to retail more of our trade-in units.
Our total Same Store used vehicle wholesale gross profit decreased 98.3% from a loss of $1.5 million for the year ended December 31, 2015, to a loss of $3.0 million for the comparable period in 2016. This decrease was driven by a $29 decrease in our Same Store used vehicle wholesale gross profit per unit from a loss of $28 per unit for the twelve months ended December 31, 2015, to a loss of $57 per unit for the same period this year, partially offset by a decrease in total Same Store used vehicle wholesale units of 4.2%. In the U.S., used vehicle wholesale gross profit declined $2.3 million for the year ended December 31, 2016, primarily as a result of a $58 decrease in wholesale gross profit per unit from a loss of $19 for the year ended 2015 to a loss of $77 for the comparable period in 2016, which was partially offset by a 5.8% decline in used vehicle wholesale units from the same period. In the U.K., the $1.0 million increase in profitability was driven by an increase in used vehicle gross profit per unit, from a loss of $95 for the twelve months ended December 31, 2015 to a loss of $9 for the same period in 2016. In Brazil, the decline in Same Store used vehicle wholesale gross profit was driven by a decrease in Same Store used vehicle wholesale gross profit per unit of $144.
As of December 31, 2017, we increased our used vehicle inventory levels by $55.9 million, or 19.0%, from December 31, 2016 to $350.8 million, primarily in response to continued improvement in the used vehicle selling environment in the U.K and Brazil and the acquisition of additional dealerships. Our consolidated days' supply of used vehicle inventory increased to 39 days, as of December 31, 2017, as compared to 35 days as of December 31, 2016.
Parts and Service Data
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Parts and Service Revenues | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 1,118,749 |
| | 5.3% | | N/A | | $ | 1,062,465 |
| | | $ | 1,054,945 |
| | 4.8% | | N/A | | $ | 1,006,640 |
|
| U.K. | | 138,143 |
| | 0.2% | | 5.0% | | 137,800 |
| | | 98,273 |
| | (3.8)% | | 8.5% | | 102,183 |
|
| Brazil | | 45,944 |
| | 16.0% | | 7.2% | | 39,623 |
| | | 43,977 |
| | (1.3)% | | 4.8% | | 44,542 |
|
| Total Same Stores | | 1,302,836 |
| | 5.1% | | 5.3% | | 1,239,888 |
| | | 1,197,195 |
| | 3.8% | | 5.1% | | 1,153,365 |
|
| Transactions | | 35,196 |
| | | | | | 21,419 |
| | | 64,112 |
| | | | | | 32,828 |
|
| Total | | $ | 1,338,032 |
| | 6.1% | | 6.4% | | $ | 1,261,307 |
| | | $ | 1,261,307 |
| | 6.3% | | 8.1% | | $ | 1,186,193 |
|
| Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 599,933 |
| | 4.0% | | N/A | | $ | 576,925 |
| | | $ | 572,729 |
| | 4.1% | | N/A | | $ | 549,952 |
|
| U.K. | | 79,083 |
| | 3.7% | | 8.6% | | 76,235 |
| | | 54,509 |
| | (2.6)% | | 9.9% | | 55,970 |
|
| Brazil | | 21,100 |
| | 31.0% | | 21.1% | | 16,110 |
| | | 17,398 |
| | (8.7)% | | (2.7)% | | 19,050 |
|
| Total Same Stores | | 700,116 |
| | 4.6% | | 4.9% | | 669,270 |
| | | 644,636 |
| | 3.1% | | 4.4% | | 624,972 |
|
| Transactions | | 19,573 |
| | | | | | 10,730 |
| | | 35,364 |
| | | | | | 17,187 |
|
| Total | | $ | 719,689 |
| | 5.8% | | 6.3% | | $ | 680,000 |
| | | $ | 680,000 |
| | 5.9% | | 7.7% | | $ | 642,159 |
|
| Gross Margin | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| | | | | |
| | |
|
| | | | | |
|
|
| U.S. | | 53.6% | | | | | | 54.3% | | | 54.3% | | | | | | 54.6% |
| U.K. | | 57.2% | | | | | | 55.3% | | | 55.5% | | | | | | 54.8% |
| Brazil | | 45.9% | | | | | | 40.7% | | | 39.6% | | | | | | 42.8% |
| Total Same Stores | | 53.7% | | | | | | 54.0% | | | 53.8% | | | | | | 54.2% |
| Transactions | | 55.6% | | | | | | 50.1% | | | 55.2% | | | | | | 52.4% |
| Total | | 53.8% | | | | | | 53.9% | | | 53.9% | | | | | | 54.1% |
Year Ended December 31, 2017 compared to 2016
Our total Same Store parts and service revenues increased 5.1% to $1,302.8 million for the year ended December 31, 2017, as compared to the same period in 2016, more than explained by growth in all three regions, with currency changes a partial offset. For the twelve months ended December 31, 2017, our U.S. Same Store parts and service revenues increased 5.3%, or $56.3 million, reflecting a 9.8% increase in warranty parts and service revenues, a 4.9% increase in wholesale parts revenues, a 3.8% increase in collision parts and service revenues, and a 3.8% increase in customer-pay parts and service revenues, when compared to the same period in 2016. The growth in our warranty and customer-pay parts and service revenue in the U.S. was supported by the continued progress we are making in adding service technicians and advisors, expanding shop capacity where applicable, and improving accessibility via better customer contact handling and expanded hours. In addition, the increase in warranty parts and service revenue in the U.S. was driven by high volume recall campaigns within our Nissan, Ford, and Lexus brands. The increase in collision revenue was primarily attributable to the continued addition of technicians to increase operating capacity, as well as the expansion of our collision facilities and direct repair programs with insurance companies.
Our U.K. Same Store parts and service revenues increased 0.2%, or $0.3 million. On a constant currency basis, U.K. Same Store parts and service revenues increased 5.0%, representing a 10.0% increase in warranty parts and service revenues, a 5.9% increase in collision revenues parts and service revenues, a 4.7% increase in wholesale parts and service revenues and a 2.9% increase in customer-pay parts and service revenues for the year ended December 31, 2017, as compared to the same period a year ago. Our increase in warranty parts and service revenues was primarily due to an increase in recalls from BMW
and Audi during 2017. Additionally, the growth in collision revenues in the U.K. was primarily a result of management initiatives to enhance processes and increase productivity.
Our Same Store parts and service revenues in Brazil increased 16.0%, or $6.3 million, primarily driven by an increase of 37.6% in warranty revenues, a 17.9% increase in collision revenue and a 12.2% increase in customer-pay parts and service revenues, partially offset by a strategic decision to exit the wholesale parts business in Brazil at the end of 2016.
Our total Same Store parts and service gross profit for the year ended December 31, 2017 increased 4.6%, as compared to the same period in 2016. The increase in gross profit was driven by a 4.0% increase the U.S., a 31.0% increase in Brazil and a 3.7% increase in the U.K. In Brazil, on a constant currency basis, Same Store parts and service gross profit increased 21.1%, primarily reflecting improvements in our warranty parts and service revenue due to an implementation of new and enhanced processes. The increase in the U.S. was driven by growth in each of our parts and service business sectors, primarily reflecting continued efforts to improve our processes. The increase in U.K. was driven by improvements in our warranty parts and service revenue, primarily due to an increase in high volume recalls within our BMW and Audi brands as noted above.
Our total Same Store parts and servicestore gross margin declinedincreased 30 basis points for the year ended December 31, 2017 as compared to the same period in 2016. The decrease inour higher margin businesses grew at a faster pace than our lower gross margin was driven by a 70 basis point decline in the U.S., partially offset by improvements in Brazil and the U.K. The decline in the U.S. primarily reflects a decrease in internal work between parts and service departments of our dealerships and the new and used vehicle departments, as a result of a decline in total retail vehicle sales volumes for the year ended December 31, 2017 as compared to the same period in 2016. The improvement in Same Store parts and service gross margin in Brazil was the result of improved profitability in our warranty parts and service, wholesale parts, and customer-pay parts and service businesses as a result of strategic initiatives implemented by our operating team. The improvement in the U.K. is a result of improved internal work and higher labor rates charged on customer-pay and warranty parts and service sales.business.
Year Ended December 31, 2016 compared to 2015
Our total Same Store parts and service revenues increased 3.8% to $1,197.2 million for the year ended December 31, 2016, as compared to the same period in 2015, more than explained by growth in all three regions, partially offset by unfavorable exchange movements in the U.K. and Brazil. For the twelve months ended December 31, 2016, our U.S. Same Store parts and service revenues increased 4.8%, or $48.3 million, reflecting a 4.9% increase in customer-pay parts and service revenues, a 5.9% increase in warranty parts and service revenues, a 5.2% increase in collision revenues, and a 3.3% increase in wholesale parts revenues, when compared to the same period in 2015. The growth in U.S. customer-pay parts and service revenues was supported by the continued progress we are making in adding service technicians, and expanding shop capacity where applicable. The increase in warranty parts and service revenues was primarily driven by high volume recall campaigns from Toyota, Ford, Nissan, Mercedes-Benz, Honda, General Motors, Hyundai, and FCA US (formerly Chrysler) that occurred in 2016 compared to 2015. The increase in collision revenues was primarily attributable to strategic initiatives that continue to enhance our operational processes, the addition of technicians to add operating capacity and the expansion of direct repair programs with insurance companies. The increase in wholesale parts revenues was primarily due to increased focus and better overall management of this portion of our business in a few key markets.
Our U.K. Same Store parts and service revenues decreased 3.8%, or $3.9 million, for the year ended December 31, 2016, as compared to the same period in 2015. This decline is more than explained by the exchange rate, as Same Store parts and service revenues increased 8.5% on a constant currency basis, representing a 7.3% increase in customer pay parts and service revenues, a 9.4% increase in warranty parts and service revenues, a 9.0% increase in wholesale parts revenues, and a 11.4% increase in collision revenues. These increases were primarily a result of management initiatives to enhance processes and increase productivity. Additionally, the growth in warranty parts and service revenues in the U.K. was primarily due to an increase in high volume recalls from BMW and Audi that occurred during 2016 relative to 2015.
Our Same Store parts and service revenues in Brazil decreased 1.3%, or $0.6 million, more than explained by the exchange rate. Brazil Same Store parts and service revenues increased 4.8% on a constant currency basis in 2016 compared to the same period last year. The increase in Brazil Same Store parts and service revenues on a constant currency basis was due to an increase of 15.1% in collision revenues, 10.7% increase in warranty revenues, and 1.9% increase in customer pay parts and service revenues in 2016 compared to 2015.
Our total Same Store parts and service gross profit for the year ended December 31, 2016 increased 3.1%, as compared to the same period in 2015. The increase in gross profit was driven by a 4.1% increase in the U.S., partially offset by declines of 2.6% and 8.7% in the U.K. and Brazil, respectively. The increase in the U.S. was driven by increases in our customer-pay, warranty, and collision businesses. The decrease in U.K. can be more than explained by the change in exchange rate between the periods, as on constant currency basis U.K. Same Store parts and service gross profit increased 9.9%. In Brazil, on a constant currency basis, Same Store parts and service gross profit declined 2.7%, reflecting a mix shift away from our
customer-pay parts and service business towards our collision and warranty parts and service businesses that generate lower margins on a relative basis.
Our total Same Store parts and service gross margin declined 40 basis points, for the year ended December 31, 2016 as compared to the same period in 2015. The decrease in gross margin was driven by a 30 basis point decline in the U.S. primarily driven by lower margin, parts-intensive warranty campaigns in 2016 as compared to higher margin, labor-intensive warranty campaigns in 2015. And, as a result of a decline in U.S. Same Store retail new and used units sales, our internal work contributed relatively less to the overall gross profit of our parts and service business in 2016.
Finance and Insurance Data
(dollars in thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Retail New and Used Unit Sales | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | 226,789 |
| | (2.6)% | | | | 232,892 |
| | | 233,379 |
| | (3.5)% | | | | 241,750 |
|
| U.K. | | 50,686 |
| | 3.9% | | | | 48,781 |
| | | 35,262 |
| | 7.6% | | | | 32,775 |
|
| Brazil | | 12,172 |
| | (3.8)% | | | | 12,657 |
| | | 13,843 |
| | (16.9)% | | | | 16,655 |
|
| Total Same Stores | | 289,647 |
| | (1.6)% | | | | 294,330 |
| | | 282,484 |
| | (3.0)% | | | | 291,180 |
|
| Transactions | | 12,486 |
| | | | | | 6,854 |
| | | 18,700 |
| | | | | | 7,587 |
|
| Total | | 302,133 |
| | 0.3% | | | | 301,184 |
| | | 301,184 |
| | 0.8% | | | | 298,767 |
|
| Retail Finance Fees | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 115,794 |
| | (4.5)% | | N/A | | $ | 121,267 |
| | | $ | 120,323 |
| | (1.3)% | | N/A | | $ | 121,868 |
|
| U.K. | | 23,233 |
| | 14.5% | | 18.9% | | 20,288 |
| | | 15,679 |
| | 4.8% | | 18.5% | | 14,955 |
|
| Brazil | | 2,331 |
| | 52.4% | | 42.4% | | 1,530 |
| | | 1,660 |
| | (0.5)% | | 4.7% | | 1,668 |
|
| Total Same Stores | | 141,358 |
| | (1.2)% | | (0.7)% | | 143,085 |
| | | 137,662 |
| | (0.6)% | | 0.9% | | 138,491 |
|
| Transactions | | 5,321 |
| | | | | | 1,713 |
| | | 7,136 |
| | | | | | 2,843 |
|
| Total | | $ | 146,679 |
| | 1.3% | | 1.9% | | $ | 144,798 |
| | | $ | 144,798 |
| | 2.5% | | 4.5% | | $ | 141,334 |
|
| Vehicle Service Contract Fees | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 144,109 |
| | 1.4% | | N/A | | $ | 142,105 |
| | | $ | 142,348 |
| | (0.3)% | | N/A | | $ | 142,706 |
|
| U.K. | | 639 |
| | 22.4% | | 26.9% | | 522 |
| | | 513 |
| | (26.9)% | | (16.4)% | | 702 |
|
| Brazil | | — |
| | —% | | —% | | — |
| | | — |
| | —% | | —% | | — |
|
| Total Same Stores | | 144,748 |
| | 1.5% | | 1.5% | | 142,627 |
| | | 142,861 |
| | (0.4)% | | (0.3)% | | 143,408 |
|
| Transactions | | 858 |
| | | | | | 1,253 |
| | | 1,019 |
| | | | | | 1,288 |
|
| Total | | $ | 145,606 |
| | 1.2% | | 1.2% | | $ | 143,880 |
| | | $ | 143,880 |
| | (0.6)% | | (0.5)% | | $ | 144,696 |
|
| Insurance and Other | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 112,098 |
| | 2.6% | | N/A | | $ | 109,209 |
| | | $ | 108,873 |
| | 1.7% | | N/A | | $ | 107,029 |
|
| U.K. | | 13,890 |
| | (6.0)% | | (1.3)% | | 14,772 |
| | | 9,502 |
| | 12.3% | | 26.4% | | 8,460 |
|
| Brazil | | 5,811 |
| | 34.5% | | 24.2% | | 4,322 |
| | | 4,787 |
| | (2.3)% | | 1.5% | | 4,900 |
|
| Total Same Stores | | 131,799 |
| | 2.7% | | 2.9% | | 128,303 |
| | | 123,162 |
| | 2.3% | | 3.4% | | 120,389 |
|
| Transactions | | 4,918 |
| | | | | | 3,673 |
| | | 8,814 |
| | | | | | 2,367 |
|
| Total | | $ | 136,717 |
| | 3.6% | | 3.8% | | $ | 131,976 |
| | | $ | 131,976 |
| | 7.5% | | 9.2% | | $ | 122,756 |
|
| Total Finance and Insurance Revenues | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 372,001 |
| | (0.2)% | | N/A | | $ | 372,581 |
| | | $ | 371,544 |
| | —% | | N/A | | $ | 371,603 |
|
| U.K. | | 37,762 |
| | 6.1% | | 10.7% | | 35,582 |
| | | 25,694 |
| | 6.5% | | 20.3% | | 24,117 |
|
| Brazil | | 8,142 |
| | 39.1% | | 28.9% | | 5,852 |
| | | 6,447 |
| | (1.8)% | | 2.3% | | 6,568 |
|
| Total Same Stores | | 417,905 |
| | 0.9% | | 1.2% | | 414,015 |
| | | 403,685 |
| | 0.3% | | 1.2% | | 402,288 |
|
| Transactions | | 11,097 |
| | | | | | 6,639 |
| | | 16,969 |
| | | | | | 6,498 |
|
| Total | | $ | 429,002 |
| | 2.0% | | 2.3% | | $ | 420,654 |
| | | $ | 420,654 |
| | 2.9% | | 4.1% | | $ | 408,786 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Finance and Insurance Revenues per Unit Sold | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | |
|
| | | | |
| U.S. | | $ | 1,640 |
| | 2.5% | | N/A | | $ | 1,600 |
| | | $ | 1,592 |
| | 3.6% | | N/A | | $ | 1,537 |
|
| U.K. | | $ | 745 |
| | 2.2% | | 6.5% | | $ | 729 |
| | | $ | 729 |
| | (1.0)% | | 11.8% | | $ | 736 |
|
| Brazil | | $ | 669 |
| | 44.8% | | 34.0% | | $ | 462 |
| | | $ | 466 |
| | 18.3% | | 23.1% | | $ | 394 |
|
| Total Same Stores | | $ | 1,443 |
| | 2.6% | | 2.8% | | $ | 1,407 |
| | | $ | 1,429 |
| | 3.4% | | 4.4% | | $ | 1,382 |
|
| Transactions | | $ | 889 |
| | | | | | $ | 969 |
| | | $ | 907 |
| | | | | | $ | 856 |
|
| Total | | $ | 1,420 |
| | 1.6% | | 2.0% | | $ | 1,397 |
| | | $ | 1,397 |
| | 2.1 | % | | 3.3% | | $ | 1,368 |
|
Adjusted Total Finance and Insurance Revenues(1) | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | 378,551 |
| | 1.6% | | N/A | | $ | 372,581 |
| | | $ | 371,544 |
| | —% | | N/A | | $ | 371,603 |
|
| U.K. | | 37,762 |
| | 6.1% | | 10.7% | | 35,582 |
| | | 25,694 |
| | 6.5% | | 20.3% | | 24,117 |
|
| Brazil | | 8,142 |
| | 39.1% | | 28.9% | | 5,852 |
| | | 6,447 |
| | (1.8)% | | 2.3% | | 6,568 |
|
| Total Same Stores | | 424,455 |
| | 2.5% | | 2.8% | | 414,015 |
| | | 403,685 |
| | 0.3% | | 1.2% | | 402,288 |
|
| Transactions | | 11,097 |
| | | | | | 6,639 |
| | | 16,969 |
| | | | | | 6,498 |
|
| Total | | $ | 435,552 |
| | 3.5% | | 3.8% | | $ | 420,654 |
| | | $ | 420,654 |
| | 2.9% | | 4.1% | | $ | 408,786 |
|
Adjusted Finance and Insurance Revenues per Unit Sold(1) | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| |
| | | |
|
| | | | | | | | | |
| U.S. | | $ | 1,669 |
| | 4.3% | | N/A | | $ | 1,600 |
| | | $ | 1,592 |
| | 3.6% | | N/A | | $ | 1,537 |
|
| U.K. | | $ | 745 |
| | 2.2% | | 6.5% | | $ | 729 |
| | | $ | 729 |
| | (1.0)% | | 11.8% | | $ | 736 |
|
| Brazil | | $ | 669 |
| | 44.8% | | 34.0% | | $ | 462 |
| | | $ | 466 |
| | 18.3% | | 23.1% | | $ | 394 |
|
| Total Same Stores | | $ | 1,465 |
| | 4.1% | | 4.4% | | $ | 1,407 |
| | | $ | 1,429 |
| | 3.4% | | 4.4% | | $ | 1,382 |
|
| Transactions | | $ | 889 |
| | | | | | $ | 969 |
| | | $ | 907 |
| | | | | | $ | 856 |
|
| Total | | $ | 1,442 |
| | 3.2% | | 3.5% | | $ | 1,397 |
| | | $ | 1,397 |
| | 2.1% | | 3.3% | | $ | 1,368 |
|
(1) See “Non-GAAP Financial Measures” for more details.
| | | | | | | | | |
Year Ended December 31, 2017 compared to 2016
Our efforts to improve our finance and insurance business processes have continued to generate growth. Our total Same Store finance and insurance revenue increased by $3.9 million, or 0.9%, to $417.9 million for the year ended December 31, 2017, as compared to the same period in 2016. After adjusting for $6.6 million in chargeback expense for reserves associated with expected finance and insurance product cancellations on vehicles sold by the Company and damaged by flooding from Hurricane Harvey, our adjusted total Same Store finance and insurance revenue increased $10.4 million, or 2.5%, to $424.5 million for the year ended December 31, 2017. All of our segments generated improvements compared to the same period in 2016. Our adjusted U.S. Same Store finance and insurance revenue grew $6.0 million, or 1.6%, as increases in income per contract and penetration rates for most of our major U.S. product offerings were partially offset by a 2.6% decline in our U.S. retail unit sales volume and an increase in our chargeback experience. In the U.K., our Same Store finance and insurance revenue increased $2.2 million, or 6.1%, for the year ended December 31, 2017, as compared to 2016, primarily related to improvements in income per contract for our retail finance and vehicle service contract fees coupled with a 3.9% growth in total retail sales volume. The increases in the U.K. finance and insurance revenue were partially offset by declines in finance fee penetration rates and an increase in chargeback expense. Our Brazil Same Store finance and insurance revenue increased 39.1%, or $2.3 million, for the year ended December 31, 2017, as compared to 2016. This improvement was related to increases in penetration rates and income per contract for our retail finance fees and also reflects an increase in vehicle insurance revenue. For the year ended December 31, 2017, our total Same Store finance and insurance revenue PRU increased 2.6% to $1,443, as compared to the same period in 2016. On an adjusted basis, our total Same Store finance and insurance revenue PRU improved 4.1% to $1,465, as compared to 2016. The improvement can be explained by increases in PRU for all of our segments as compared to last year.
Year Ended December 31, 2016 compared to 2015
Our total Same Store finance and insurance revenues improved $1.4 million to $403.7 million for the year ended December 31, 2016, as compared to 2015, primarily driven by an increase in the U.K. partially offset by a decline in Brazil. Our
U.K. Same Store finance and insurance revenue increased $1.6 million, or 6.5%, reflecting a 7.6% increase in new and used vehicle retail unit sales volume, coupled with an increase in our penetration rates and income per contract. These increases were partially offset by the change in exchange rates between periods. Our Brazil Same Store finance and insurance revenue declined 1.8% for the year ended December 31, 2016 when compared to 2015, primarily as a result of the change in exchange rates between periods. On a constant currency basis, Brazil Same Store finance and insurance revenues increased 2.3%, despite a 16.9% decrease in retail unit sales. Our U.S. Same Store finance and insurance revenues remained about flat for the year ended December 31, 2016, as compared to 2015, as increases in income per contract and penetration rates for most of our major U.S. product offerings were offset by a 3.5% decline in new and used vehicle retail unit sales volumes and an increase in our overall chargeback experience. On a PRU basis, our total Same Store finance and insurance revenues improved 3.4% to $1,429, as compared to the same period in 2015. This improvement can be explained by increases in the U.S. and Brazil of 3.6% and 18.3%, respectively, compared to the same period in 2015. These increases were partially offset by a 1.0% decline in the U.K. that can be explained by the change in exchange rates between periods. On a constant currency basis, our Same Store finance and insurance revenues PRU in the U.K. increased 11.8% for the twelve month ended December 31, 2016 as compared to last year.
Selling, General and Administrative Data
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Personnel | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 620,073 |
| | 0.7% | | N/A | | $ | 615,620 |
| | | $ | 613,894 |
| | 2.4% | | N/A | | $ | 599,609 |
|
| U.K. | | 92,226 |
| | 3.8% | | 8.6% | | 88,826 |
| | | 65,148 |
| | (0.6)% | | 12.2% | | 65,524 |
|
| Brazil | | 27,671 |
| | 24.8% | | 15.9% | | 22,166 |
| | | 23,912 |
| | 0.1% | | 5.1% | | 23,898 |
|
| Total Same Stores | | 739,970 |
| | 1.8% | | 2.1% | | 726,612 |
| | | 702,954 |
| | 2.0% | | 3.4% | | 689,031 |
|
| Transactions | | 24,561 |
| | | | | | 14,309 |
| | | 37,967 |
| | | | | | 19,573 |
|
| Total | | $ | 764,531 |
| | 3.2% | | 3.6% | | $ | 740,921 |
| | | $ | 740,921 |
| | 4.6% | | 6.4% | | $ | 708,604 |
|
| Advertising | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 65,104 |
| | (2.9)% | | N/A | | $ | 67,039 |
| | | $ | 67,334 |
| | 1.2% | | N/A | | $ | 66,560 |
|
| U.K. | | 5,375 |
| | (5.8)% | | (1.6)% | | 5,706 |
| | | 4,315 |
| | (5.7)% | | 6.8% | | 4,574 |
|
| Brazil | | 885 |
| | (24.3)% | | (29.4)% | | 1,169 |
| | | 1,286 |
| | (2.6)% | | 1.6% | | 1,320 |
|
| Total Same Stores | | 71,364 |
| | (3.4)% | | (3.2)% | | 73,914 |
| | | 72,935 |
| | 0.7% | | 1.5% | | 72,454 |
|
| Transactions | | 2,756 |
| | | | | | 1,418 |
| | | 2,397 |
| | | | | | 2,174 |
|
| Total | | $ | 74,120 |
| | (1.6)% | | (1.3)% | | $ | 75,332 |
| | | $ | 75,332 |
| | 0.9% | | 2.1% | | $ | 74,628 |
|
| Rent and Facility Costs | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 79,748 |
| | (1.6)% | | N/A | | $ | 81,059 |
| | | $ | 81,523 |
| | 0.8% | | N/A | | $ | 80,883 |
|
| U.K. | | 16,137 |
| | 2.1% | | 6.4% | | 15,799 |
| | | 9,023 |
| | (9.1)% | | 2.6% | | 9,922 |
|
| Brazil | | 8,625 |
| | 17.0% | | 7.9% | | 7,373 |
| | | 8,310 |
| | (4.4)% | | 2.0% | | 8,697 |
|
| Total Same Stores | | 104,510 |
| | 0.3% | | 0.3% | | 104,231 |
| | | 98,856 |
| | (0.6)% | | 1.1% | | 99,502 |
|
| Transactions | | 6,538 |
| | | | | | 5,689 |
| | | 11,064 |
| | | | | | 6,934 |
|
| Total | | $ | 111,048 |
| | 1.0% | | 1.1% | | $ | 109,920 |
| | | $ | 109,920 |
| | 3.3% | | 6.0% | | $ | 106,436 |
|
| Other SG&A | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 210,776 |
| | 10.1% | | N/A | | $ | 191,390 |
| | | $ | 189,846 |
| | (1.4)% | | N/A | | $ | 192,483 |
|
| U.K. | | 42,631 |
| | 5.8% | | 10.2% | | 40,295 |
| | | 28,065 |
| | (2.4)% | | 10.4% | | 28,750 |
|
| Brazil | | 10,745 |
| | 11.8% | | 3.5% | | 9,607 |
| | | 9,885 |
| | (8.1)% | | (1.8)% | | 10,762 |
|
| Total Same Stores | | 264,152 |
| | 9.5% | | 9.9% | | 241,292 |
| | | 227,796 |
| | (1.8)% | | 0.1% | | 231,995 |
|
| Transactions | | 12,344 |
| | | | | | 3,298 |
| | | 16,794 |
| | | | | | (830 | ) |
| Total | | $ | 276,496 |
| | 13.0% | | 13.6% | | $ | 244,590 |
| | | $ | 244,590 |
| | 5.8% | | 8.6% | | $ | 231,165 |
|
| Total SG&A | | | | | | | | | | | | | | | | | |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 975,701 |
| | 2.2% | | N/A | | $ | 955,108 |
| | | $ | 952,597 |
| | 1.4% | | N/A | | $ | 939,535 |
|
| U.K. | | 156,369 |
| | 3.8% | | 8.4% | | 150,626 |
| | | 106,551 |
| | (2.0)% | | 10.6% | | 108,770 |
|
| Brazil | | 47,926 |
| | 18.9% | | 10.1% | | 40,315 |
| | | 43,393 |
| | (2.9)% | | 2.7% | | 44,677 |
|
| Total Same Stores | | 1,179,996 |
| | 3.0% | | 3.3% | | 1,146,049 |
| | | 1,102,541 |
| | 0.9% | | 2.4% | | 1,092,982 |
|
| Transactions | | 46,199 |
| | | | | | 24,714 |
| | | 68,222 |
| | | | | | 27,851 |
|
| Total | | $ | 1,226,195 |
| | 4.7% | | 5.1% | | $ | 1,170,763 |
| | | $ | 1,170,763 |
| | 4.5% | | 6.5% | | $ | 1,120,833 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| |
| | | | | | | | | | | | | |
| U.S. | | $ | 1,355,471 |
| | 1.1% | | N/A | | $ | 1,340,981 |
| | | $ | 1,332,028 |
| | 1.6% | | N/A | | $ | 1,311,385 |
|
| U.K. | | 191,123 |
| | 1.7% | | 6.6% | | 187,966 |
| | | 136,858 |
| | (0.6)% | | 12.0% | | 137,639 |
|
| Brazil | | 53,230 |
| | 25.7% | | 16.4% | | 42,337 |
| | | 44,974 |
| | (14.2)% | | (9.4)% | | 52,436 |
|
| Total Same Stores | | 1,599,824 |
| | 1.8% | | 2.2% | | 1,571,284 |
| | | 1,513,860 |
| | 0.8% | | 2.1% | | 1,501,460 |
|
| Transactions | | 45,685 |
| | | | | | 23,785 |
| | | 81,209 |
| | | | | | 32,512 |
|
| Total | | $ | 1,645,509 |
| | 3.2% | | 3.6% | | $ | 1,595,069 |
| | | $ | 1,595,069 |
| | 4.0% | | 5.7% | | $ | 1,533,972 |
|
| SG&A as a % of Gross Profit | | | | | | | | | | | | | | | | | |
| Same Stores | |
|
| | | | | |
|
| | |
|
| | | | | |
|
|
| U.S. | | 72.0% | | | | | | 71.2% | | | 71.5% | | | | | | 71.6% |
| U.K. | | 81.8% | | | | | | 80.1% | | | 77.9% | | | | | | 79.0% |
| Brazil | | 90.0% | | | | | | 95.2% | | | 96.5% | | | | | | 85.2% |
| Total Same Stores | | 73.8% | | | | | | 72.9% | | | 72.8% | | | | | | 72.8% |
| Transactions | | 101.1% | | | | | | 103.9% | | | 84.0% | | | | | | 85.7% |
| Total | | 74.5% | | | | | | 73.4% | | | 73.4% | | | | | | 73.1% |
Adjusted Total SG&A (1) | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | $ | 967,224 |
| | 1.1% | | N/A | | $ | 956,848 |
| | | $ | 954,336 |
| | 1.9% | | N/A | | $ | 936,378 |
|
| U.K. | | 156,081 |
| | 4.1% | | 8.7% | | 149,882 |
| | | 105,929 |
| | (2.4)% | | 10.2% | | 108,562 |
|
| Brazil | | 47,451 |
| | 18.5% | | 9.7% | | 40,041 |
| | | 43,119 |
| | (3.2)% | | 2.5% | | 44,527 |
|
| Total Same Stores | | 1,170,756 |
| | 2.1% | | 2.4% | | 1,146,770 |
| | | 1,103,384 |
| | 1.3% | | 2.8% | | 1,089,467 |
|
| Transactions | | 29,209 |
| | | | | | 29,210 |
| | | 72,596 |
| | | | | | 36,715 |
|
| Total | | $ | 1,199,965 |
| | 2.0% | | 3.9% | | $ | 1,175,980 |
| | | $ | 1,175,980 |
| | 4.4% | | 6.5% | | $ | 1,126,182 |
|
Adjusted SG&A as a % of Gross Profit (1) | | | | | | | | | | | | | | | | | |
| Same Stores | | | | | | | | | | | | | | | | | |
| U.S. | | 71.0% | | | | | | 71.4% | | | 71.6% | | | | | | 71.4% |
| U.K. | | 81.7% | | | | | | 79.7% | | | 77.4% | | | | | | 78.9% |
| Brazil | | 89.1% | | | | | | 94.6% | | | 95.9% | | | | | | 84.9% |
| Total Same Stores | | 72.9% | | | | | | 73.0% | | | 72.9% | | | | | | 72.6% |
| Transactions | | 63.9% | | | | | | 122.8% | | | 89.4% | | | | | | 112.9% |
| Total | | 73.7% | | | | | | 73.7% | | | 73.7% | | | | | | 73.4% |
| Employees | | 14,100 |
| | | | | | 13,500 |
| | | 13,500 |
| | | | | | 12,900 |
|
(1) See “Non-GAAP Financial Measures” for more details. |
Our SG&A consistsexpenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising insurance, benefits, utilities and other fixedexpenses, which include legal, professional fees and general corporate expenses. We believe thatTotal SG&A expenses in the majority of our personnel, all of our advertising and a portion of certain other expenses are variable and can be adjusted in response to changing business conditions. We continue to aggressively pursue opportunities that take advantage of our size and negotiating leverage with our vendors and service providers in order to more effectively rationalize our cost structure.
Year Ended December 31, 2017 compared to 2016
Our total Same Store SG&A increased $33.9 million, or 3.0%, forU.S. during the year ended December 31, 2017,2019 increased $93.5 million, or 9.5%, as compared to the same period in 2016,2018. Total same store SG&A expenses in the U.S. during the year ended December 31, 2019, increased $80.8 million, or 8.3%, as compared to the same period in 2018. Same store SG&A expenses in 2019 includes $17.8 million of net costs associated with hail storms and flooding from Tropical Storm Imelda in Texas; $0.7 million in net gains on real estate and dealership transactions; and $1.1 million in non-core legal expenses. Same store SG&A expenses in 2018 includes $6.4 million for costs associated with catastrophic events; $4.7 million in net gains on real estate transactions; and $1.3 million in non-core legal expenses. Total same store SG&A expenses as a % of gross profit increased 40 basis points, primarily explained by increasesa $11.4 million increase in insurance costs driven by $11.9 million in deductible expenses associated with the building and vehicle deductibles related to the flooding from Tropical Storm Imelda in Texas and a $4.0 million decrease in net gains in real estate and dealership transactions.
Reported Operating Data - U.S.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2018 | | 2017 | | Increase/(Decrease) | | % Change |
| Revenues: | | | | | | | | |
| New vehicle retail sales | | $ | 4,682.8 |
| | $ | 4,768.9 |
| | $ | (86.0 | ) | | (1.8 | )% |
| Used vehicle retail sales | | 2,307.0 |
| | 2,160.7 |
| | 146.3 |
| | 6.8 | % |
| Used vehicle wholesale sales | | 178.9 |
| | 250.7 |
| | (71.8 | ) | | (28.6 | )% |
| Total used | | 2,485.9 |
| | 2,411.4 |
| | 74.5 |
| | 3.1 | % |
| Parts and service sales | | 1,153.3 |
| | 1,124.4 |
| | 28.9 |
| | 2.6 | % |
| F&I, net | | 401.3 |
| | 376.0 |
| | 25.3 |
| | 6.7 | % |
| Total revenues | | $ | 8,723.3 |
| | $ | 8,680.6 |
| | $ | 42.7 |
| | 0.5 | % |
| Gross profit: | | | | | | | | |
| New vehicle retail sales | | $ | 229.1 |
| | $ | 244.3 |
| | $ | (15.2 | ) | | (6.2 | )% |
| Used vehicle retail sales | | 141.7 |
| | 144.5 |
| | (2.8 | ) | | (2.0 | )% |
| Used vehicle wholesale sales | | 3.8 |
| | (2.4 | ) | | 6.2 |
| | 254.6 | % |
| Total used | | 145.5 |
| | 142.1 |
| | 3.4 |
| | 2.4 | % |
| Parts and service sales | | 615.5 |
| | 603.0 |
| | 12.5 |
| | 2.1 | % |
| F&I, net | | 401.3 |
| | 376.0 |
| | 25.3 |
| | 6.7 | % |
| Total gross profit | | $ | 1,391.3 |
| | $ | 1,365.3 |
| | $ | 26.0 |
| | 1.9 | % |
| Gross margin: | | | | | | | | |
| New vehicle retail sales | | 4.9 | % | | 5.1 | % | | (0.2 | )% | | |
| Used vehicle retail sales | | 6.1 | % | | 6.7 | % | | (0.5 | )% | | |
| Used vehicle wholesale sales | | 2.1 | % | | (1.0 | )% | | 3.1 | % | | |
| Total used | | 5.9 | % | | 5.9 | % | | — | % | | |
| Parts and service sales | | 53.4 | % | | 53.6 | % | | (0.3 | )% | | |
| F&I, net | | 100.0 | % | | 100.0 | % | | — | % | | |
| Total gross margin | | 15.9 | % | | 15.7 | % | | 0.2 | % | | |
| Units sold: | | | | | | | | |
| Retail new vehicles sold | | 122,873 |
| | 127,141 |
| | (4,268 | ) | | (3.4 | )% |
| Retail used vehicles sold | | 111,806 |
| | 101,170 |
| | 10,636 |
| | 10.5 | % |
| Wholesale used vehicles sold | | 30,625 |
| | 37,662 |
| | (7,037 | ) | | (18.7 | )% |
| Total used | | 142,431 |
| | 138,832 |
| | 3,599 |
| | 2.6 | % |
| Average sales price per unit sold: | | | | | | | | |
| New vehicle retail | | $ | 38,111 |
| | $ | 37,508 |
| | $ | 603 |
| | 1.6 | % |
| Used vehicle retail | | $ | 20,634 |
| | $ | 21,357 |
| | $ | (723 | ) | | (3.4 | )% |
| Gross profit per unit sold: | | | | | |
| | |
| New vehicle retail sales | | $ | 1,864 |
| | $ | 1,921 |
| | $ | (57 | ) | | (3.0 | )% |
| Used vehicle retail sales | | $ | 1,267 |
| | $ | 1,429 |
| | $ | (161 | ) | | (11.3 | )% |
| Used vehicle wholesale sales | | $ | 122 |
| | $ | (64 | ) | | $ | 187 |
| | 290.6 | % |
| Total used | | $ | 1,021 |
| | $ | 1,024 |
| | $ | (2 | ) | | (0.3 | )% |
| F&I PRU | | $ | 1,710 |
| | $ | 1,647 |
| | $ | 63 |
| | 3.8 | % |
| Other: | | | | | | | | |
| SG&A expenses | | $ | 982.1 |
| | $ | 984.0 |
| | $ | (1.9 | ) | | (0.2 | )% |
| SG&A as % gross profit | | 70.6 | % | | 72.1 | % | | (1.5 | )% | | |
Same Store Operating Data - U.S.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/(Decrease) | | % Change |
| Revenues: | | | | | | | |
| New vehicle retail sales | $ | 4,577.5 |
| | $ | 4,722.2 |
| | $ | (144.7 | ) | | (3.1 | )% |
| Used vehicle retail sales | 2,255.4 |
| | 2,141.3 |
| | 114.1 |
| | 5.3 | % |
| Used vehicle wholesale sales | 174.0 |
| | 247.9 |
| | (73.9 | ) | | (29.8 | )% |
| Total used | 2,429.4 |
| | 2,389.2 |
| | 40.2 |
| | 1.7 | % |
| Parts and service sales | 1,137.8 |
| | 1,113.6 |
| | 24.2 |
| | 2.2 | % |
| F&I, net | 391.7 |
| | 371.9 |
| | 19.8 |
| | 5.3 | % |
| Total revenues | $ | 8,536.5 |
| | $ | 8,596.9 |
| | $ | (60.4 | ) | | (0.7 | )% |
| Gross profit: | | | | | | | |
| New vehicle retail sales | $ | 223.3 |
| | $ | 241.3 |
| | $ | (18.0 | ) | | (7.5 | )% |
| Used vehicle retail sales | 138.6 |
| | 143.3 |
| | (4.7 | ) | | (3.3 | )% |
| Used vehicle wholesale sales | 3.7 |
| | (2.4 | ) | | 6.2 |
| | 255.4 | % |
| Total used | 142.4 |
| | 140.9 |
| | 1.5 |
| | 1.1 | % |
| Parts and service sales | 606.4 |
| | 597.2 |
| | 9.2 |
| | 1.5 | % |
| F&I, net | 391.7 |
| | 371.9 |
| | 19.8 |
| | 5.3 | % |
| Total gross profit | $ | 1,363.8 |
| | $ | 1,351.3 |
| | $ | 12.5 |
| | 0.9 | % |
| Gross margin: | | | | | | | |
| New vehicle retail sales | 4.9 | % | | 5.1 | % | | (0.2 | )% | | |
| Used vehicle retail sales | 6.1 | % | | 6.7 | % | | (0.5 | )% | | |
| Used vehicle wholesale sales | 2.2 | % | | (1.0 | )% | | 3.1 | % | | |
| Total used | 5.9 | % | | 5.9 | % | | — | % | | |
| Parts and service sales | 53.3 | % | | 53.6 | % | | (0.3 | )% | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | |
| Total gross margin | 16.0 | % | | 15.7 | % | | 0.3 | % | | |
| Units sold: | | | | | | | |
| Retail new vehicles sold | 120,090 |
| | 126,205 |
| | (6,115 | ) | | (4.8 | )% |
| Retail used vehicles sold | 109,332 |
| | 100,475 |
| | 8,857 |
| | 8.8 | % |
| Wholesale used vehicles sold | 29,915 |
| | 37,383 |
| | (7,468 | ) | | (20.0 | )% |
| Total used | 139,247 |
| | 137,858 |
| | 1,389 |
| | 1.0 | % |
| Average sales price per unit sold: | | | | | | | |
| New vehicle retail | $ | 38,118 |
| | $ | 37,417 |
| | $ | 701 |
| | 1.9 | % |
| Used vehicle retail | $ | 20,629 |
| | $ | 21,312 |
| | $ | (683 | ) | | (3.2 | )% |
| Gross profit per unit sold: | | | | | | | |
| New vehicle retail sales | $ | 1,859 |
| | $ | 1,912 |
| | $ | (53 | ) | | (2.8 | )% |
| Used vehicle retail sales | $ | 1,268 |
| | $ | 1,426 |
| | $ | (158 | ) | | (11.1 | )% |
| Used vehicle wholesale sales | $ | 125 |
| | $ | (64 | ) | | $ | 189 |
| | 295.3 | % |
| Total used | $ | 1,022 |
| | $ | 1,022 |
| | $ | — |
| | — | % |
| F&I PRU | $ | 1,707 |
| | $ | 1,641 |
| | $ | 67 |
| | 4.0 | % |
| Other: | | | | | | | |
| SG&A expenses | $ | 979.5 |
| | $ | 973.4 |
| | $ | 6.1 |
| | 0.6 | % |
| SG&A as % gross profit | 71.8 | % | | 72.0 | % | | (0.2 | )% | | |
Year Ended December 31, 2018 compared to 2017
The following discussion of 2.2%, 18.9%our U.S. operating results is on a same store basis. The difference between reported amounts and 3.8%same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenue
Total revenue in the U.S. during the year ended December 31, 2018 increased $42.7 million, or 0.5%, Brazilas compared to the same period in 2017. Total same store revenue in the U.S. during the year ended December 31, 2018 declined $60.4 million, or 0.7%, as compared to the same period in 2017. The decline in U.S. same store revenue was driven by declines in new vehicle retail and used vehicle wholesale revenues which were partially offset by increases in all other revenue streams. New vehicle retail same store revenue declined 3.1%, driven by a 4.8% decline in same store new vehicle retail unit sales. The decline in new vehicle unit sales was primarily driven by difficult prior year comparisons in our Houston and Beaumont markets, reflecting strong replacement demand during the U.K, respectively.tail end of 2017 following Hurricane Harvey. Further contributing to the decrease in same store U.S. new vehicle unit sales was an overall decline in new vehicle retail demand in the industry compared to 2017. Used vehicle retail same store revenue increased 5.3% driven by 8.8% increase in retail units, as a result of the launch of Val-U-Line® during the first quarter of 2018. The Val-U-Line® initiative enabled us to move older model, higher mileage units from wholesale to retail sales which resulted in a 29.8% decrease in same store used vehicle wholesale revenue. Our U.S. same store parts and service revenues increased 2.2% reflecting a 4.5% increase in customer-pay parts and service revenues and a 5.0% increase in wholesale parts revenues, partially offset by a 3.7% decline in warranty parts and service revenues, when compared to the same period in 2017. The growth in our customer-pay parts and service revenue in the U.S. was supported by continued implementation of numerous aftersales initiatives, including the roll out of a four-day work week service schedule that has increased capacity in a significant number of our service departments by allowing us to improve our recruiting and retention efforts with our service technicians and service advisor professionals. F&I same store revenue in the U.S. increased 5.3% as compared to the same period in 2017. In the fourth quarter of 2018, we reversed the remaining $1.1 million of the $6.6 million reserve that was estimated and recognized in the third quarter of 2017, in association with expected F&I product cancellations on vehicles sold by us and damaged by flooding from Hurricane Harvey. After adjusting for non-corethe impact of this reserve activity related to Hurricane Harvey in both periods, our U.S. total same store F&I revenue grew 3.2% primarily driven by an increase in same store retail unit sales and higher income per contract in our vehicle service contracts and retail finance fees.
Gross Profit
Total gross profit in the U.S. during the year ended December 31, 2018 increased $26.0 million, or 1.9%, as compared to the same period in 2017. Total same store gross profit in the U.S. during the year ended December 31, 2018 increased $12.5 million, or 0.9%, as compared to the same period in 2017. The increase in U.S. same store total gross profit was primarily driven by increases in F&I, parts and service and used vehicle wholesale gross profit, partially offset by decreases in new vehicle and used vehicle retail gross profit. New vehicle retail same store gross profit decreased 7.5%, as the 4.8% decline in unit sales was compounded by a 2.8% decrease in gross profit PRU. The decrease in gross profit PRU was primarily driven by the impact on 2017 of temporarily inflated new vehicle gross profit PRU due to replacement demand in the aftermath of Hurricane Harvey at the end of that year. In the U.S., same store used vehicle retail gross profit decreased by 3.3%, driven by a decline in same store used vehicle gross profit PRU of 11.1% partially offset by an increase in same store used vehicle retail unit sales of 8.8%. The decline in our U.S same store used vehicle gross profit PRU was primarily the result of the growth in our Val-U-Line® brand that focuses on moving more of our lower valued used vehicles to retail customers versus selling at auction. The improved wholesale profitability more than offset the deterioration in used vehicle retail gross profit. Parts and service and F&I same store gross profit increased 1.5% and 5.3%, respectively, driven by the increase in revenue described above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in the U.S. during the year ended December 31, 2018 decreased $1.9 million, or 0.2%, as compared to the same period in 2017. Total same store SG&A expenses in the U.S. during the year ended December 31, 2018, increased $6.1 million, or 0.6%, as compared to the same period in 2017. Same Storestore SG&A expenses in 2018 includes charges of $8.8$6.4 million for deductible charges related to catastrophic events, $0.8primarily associated with hail storms and $1.3 million in losseslegal costs that were partially offset by gains of $2.4 million related to real estate and dealership dispositiontransactions. Items included in U.S. Same Store SG&A expenses for the comparable period of 2017 included $8.8 million in costs associated primarily with damages resulting from Hurricane Harvey and $0.8 million in losses on real estate and dealership transactions $0.5 million associated with severance costs and $0.3 million of costs related to dealership acquisition activities,that was partially offset by a $1.1 million gain associated withrelated to legal settlements, our adjusted total Same Storesettlements. Our U.S. same store SG&A increased 2.1%expenses as a percentage of gross profit for the year ended December 31, 2018, as compared to 2017, improved 20 basis points as a result of increases in F&I, parts and service and used vehicle wholesale gross profit as mentioned above.
Reported Operating Data - U.K.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,195.1 |
| | $ | 1,217.1 |
| | $ | (22.1 | ) | | (1.8 | )% | | | $ | (58.3 | ) | | 3.0 | % |
| Used vehicle retail sales | 771.3 |
| | 771.7 |
| | (0.4 | ) | | (0.1 | )% | | | (35.6 | ) | | 4.6 | % |
| Used vehicle wholesale sales | 162.3 |
| | 173.8 |
| | (11.4 | ) | | (6.6 | )% | | | (7.4 | ) | | (2.3 | )% |
| Total used | 933.7 |
| | 945.5 |
| | (11.8 | ) | | (1.3 | )% | | | (43.1 | ) | | 3.3 | % |
| Parts and service sales | 227.9 |
| | 217.6 |
| | 10.3 |
| | 4.8 | % | | | (10.4 | ) | | 9.6 | % |
| F&I, net | 57.0 |
| | 57.2 |
| | (0.2 | ) | | (0.3 | )% | | | (2.4 | ) | | 3.9 | % |
| Total revenues | $ | 2,413.7 |
| | $ | 2,437.4 |
| | $ | (23.7 | ) | | (1.0 | )% | | | $ | (114.2 | ) | | 3.7 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 54.2 |
| | $ | 63.6 |
| | $ | (9.4 | ) | | (14.7 | )% | | | $ | (2.2 | ) | | (11.3 | )% |
| Used vehicle retail sales | 33.7 |
| | 38.9 |
| | (5.2 | ) | | (13.3 | )% | | | (1.6 | ) | | (9.1 | )% |
| Used vehicle wholesale sales | (2.7 | ) | | (2.7 | ) | | — |
| | (0.3 | )% | | | 0.1 |
| | (2.8 | )% |
| Total used | 31.0 |
| | 36.2 |
| | (5.2 | ) | | (14.3 | )% | | | (1.6 | ) | | (10.0 | )% |
| Parts and service sales | 125.4 |
| | 123.0 |
| | 2.5 |
| | 2.0 | % | | | (5.7 | ) | | 6.7 | % |
| F&I, net | 57.0 |
| | 57.2 |
| | (0.2 | ) | | (0.3 | )% | | | (2.4 | ) | | 3.9 | % |
| Total gross profit | $ | 267.7 |
| | $ | 279.9 |
| | $ | (12.2 | ) | | (4.4 | )% | | | $ | (11.9 | ) | | (0.1 | )% |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 4.5 | % | | 5.2 | % | | (0.7 | )% | | | | | | | |
| Used vehicle retail sales | 4.4 | % | | 5.0 | % | | (0.7 | )% | | | | | | | |
| Used vehicle wholesale sales | (1.7 | )% | | (1.6 | )% | | (0.1 | )% | | | | | | | |
| Total used | 3.3 | % | | 3.8 | % | | (0.5 | )% | | | | | | | |
| Parts and service sales | 55.0 | % | | 56.5 | % | | (1.5 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 11.1 | % | | 11.5 | % | | (0.4 | )% | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 37,565 |
| | 38,716 |
| | (1,151 | ) | | (3.0 | )% | | | | | |
| Retail used vehicles sold | 33,121 |
| | 31,966 |
| | 1,155 |
| | 3.6 | % | | | | | |
| Wholesale used vehicles sold | 20,694 |
| | 21,666 |
| | (972 | ) | | (4.5 | )% | | | | | |
| Total used | 53,815 |
| | 53,632 |
| | 183 |
| | 0.3 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 31,814 |
| | $ | 31,438 |
| | $ | 376 |
| | 1.2 | % | | | $ | (1,551 | ) | | 6.1 | % |
| Used vehicle retail | $ | 23,288 |
| | $ | 24,142 |
| | $ | (854 | ) | | (3.5 | )% | | | $ | (1,075 | ) | | 0.9 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,443 |
| | $ | 1,642 |
| | $ | (199 | ) | | (12.1 | )% | | | $ | (57 | ) | | (8.6 | )% |
| Used vehicle retail sales | $ | 1,018 |
| | $ | 1,217 |
| | $ | (199 | ) | | (16.3 | )% | | | $ | (49 | ) | | (12.3 | )% |
| Used vehicle wholesale sales | $ | (131 | ) | | $ | (125 | ) | | $ | (6 | ) | | (5.0 | )% | | | $ | 3 |
| | (7.7 | )% |
| Total used | $ | 576 |
| | $ | 675 |
| | $ | (99 | ) | | (14.6 | )% | | | $ | (29 | ) | | (10.3 | )% |
| F&I PRU | $ | 806 |
| | $ | 809 |
| | $ | (2 | ) | | (0.3 | )% | | | $ | (34 | ) | | 3.9 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 236.9 |
| | $ | 240.4 |
| | $ | (3.6 | ) | | (1.5 | )% | | | $ | (10.7 | ) | | 3.0 | % |
| SG&A as % gross profit | 88.5 | % | | 85.9 | % | | 2.6 | % | | | | | | | |
Same Store Operating Data - U.K.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,111.2 |
| | $ | 1,160.3 |
| | $ | (49.1 | ) | | (4.2 | )% | | | $ | (54.1 | ) | | 0.4 | % |
| Used vehicle retail sales | 714.9 |
| | 745.0 |
| | (30.1 | ) | | (4.0 | )% | | | (33.1 | ) | | 0.4 | % |
| Used vehicle wholesale sales | 152.5 |
| | 168.0 |
| | (15.5 | ) | | (9.2 | )% | | | (7.1 | ) | | (5.0 | )% |
| Total used | 867.4 |
| | 913.0 |
| | (45.6 | ) | | (5.0 | )% | | | (40.2 | ) | | (0.6 | )% |
| Parts and service sales | 203.2 |
| | 201.3 |
| | 1.9 |
| | 1.0 | % | | | (9.3 | ) | | 5.6 | % |
| F&I, net | 53.0 |
| | 55.0 |
| | (2.0 | ) | | (3.7 | )% | | | (2.2 | ) | | 0.4 | % |
| Total revenues | $ | 2,234.8 |
| | $ | 2,329.6 |
| | $ | (94.8 | ) | | (4.1 | )% | | | $ | (105.8 | ) | | 0.5 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 51.0 |
| | $ | 61.6 |
| | $ | (10.6 | ) | | (17.2 | )% | | | $ | (2.0 | ) | | (13.9 | )% |
| Used vehicle retail sales | 30.8 |
| | 37.7 |
| | (7.0 | ) | | (18.4 | )% | | | (1.5 | ) | | (14.5 | )% |
| Used vehicle wholesale sales | (2.3 | ) | | (2.1 | ) | | (0.2 | ) | | (10.8 | )% | | | 0.1 |
| | (13.8 | )% |
| Total used | 28.4 |
| | 35.6 |
| | (7.2 | ) | | (20.2 | )% | | | (1.4 | ) | | (16.2 | )% |
| Parts and service sales | 112.2 |
| | 114.8 |
| | (2.6 | ) | | (2.3 | )% | | | (5.2 | ) | | 2.2 | % |
| F&I, net | 53.0 |
| | 55.0 |
| | (2.0 | ) | | (3.7 | )% | | | (2.2 | ) | | 0.4 | % |
| Total gross profit | $ | 244.6 |
| | $ | 267.0 |
| | $ | (22.4 | ) | | (8.4 | )% | | | $ | (10.8 | ) | | (4.3 | )% |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 4.6 | % | | 5.3 | % | | (0.7 | )% | | | | | | | |
| Used vehicle retail sales | 4.3 | % | | 5.1 | % | | (0.8 | )% | | | | | | | |
| Used vehicle wholesale sales | (1.5 | )% | | (1.3 | )% | | (0.3 | )% | | | | | | | |
| Total used | 3.3 | % | | 3.9 | % | | (0.6 | )% | | | | | | | |
| Parts and service sales | 55.2 | % | | 57.0 | % | | (1.8 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 10.9 | % | | 11.5 | % | | (0.5 | )% | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 34,645 |
| | 35,951 |
| | (1,306 | ) | | (3.6 | )% | | | | | |
| Retail used vehicles sold | 30,320 |
| | 30,620 |
| | (300 | ) | | (1.0 | )% | | | | | |
| Wholesale used vehicles sold | 19,209 |
| | 20,887 |
| | (1,678 | ) | | (8.0 | )% | | | | | |
| Total used | 49,529 |
| | 51,507 |
| | (1,978 | ) | | (3.8 | )% | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 32,075 |
| | $ | 32,275 |
| | $ | (201 | ) | | (0.6 | )% | | | $ | (1,561 | ) | | 4.2 | % |
| Used vehicle retail | $ | 23,579 |
| | $ | 24,331 |
| | $ | (752 | ) | | (3.1 | )% | | | $ | (1,093 | ) | | 1.4 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,471 |
| | $ | 1,712 |
| | $ | (241 | ) | | (14.1 | )% | | | $ | (58 | ) | | (10.7 | )% |
| Used vehicle retail sales | $ | 1,015 |
| | $ | 1,232 |
| | $ | (217 | ) | | (17.6 | )% | | | $ | (49 | ) | | (13.7 | )% |
| Used vehicle wholesale sales | $ | (122 | ) | | $ | (101 | ) | | $ | (21 | ) | | (20.5 | )% | | | $ | 3 |
| | (23.7 | )% |
| Total used | $ | 574 |
| | $ | 692 |
| | $ | (118 | ) | | (17.0 | )% | | | $ | (29 | ) | | (12.8 | )% |
| F&I PRU | $ | 816 |
| | $ | 827 |
| | $ | (11 | ) | | (1.3 | )% | | | $ | (34 | ) | | 2.8 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 213.0 |
| | $ | 225.7 |
| | $ | (12.7 | ) | | (5.6 | )% | | | $ | (9.6 | ) | | (1.4 | )% |
| SG&A as % gross profit | 87.1 | % | | 84.5 | % | | 2.6 | % | | | | | | | |
Year Ended December 31, 2019 compared to 2018
The following discussion of our U.K. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenue
Total revenue in the U.K. during the year ended December 31, 2019 decreased $23.7 million, or 1.0%, as compared to the same period in 2016.
Our total Same Store personnel costs increased $13.4 million, or 1.8%, for2018. Total same store revenue in the U.K. during the year ended December 31, 2017,2019 decreased $94.8 million, or 4.1%, as compared to the same period in 2016, explained2018. On a constant currency basis, total same store revenue increased 0.5% driven by a 5.6% increase in parts and service revenues. The market conditions in the U.K. remain challenging due to continued uncertainty related to Brexit and supply constraints surrounding the real-driving emissions (“RDE”) legislation enacted across the EU in September 2019. New vehicle retail same store revenue on a constant currency basis increased 0.4%, as a 3.6% decrease in new vehicle retail same store unit sales was fully offset by a 4.2% increase in new vehicle retail same store average sales price per unit sold. Used vehicle retail same store revenue on a constant currency basis remained relatively flat, as a 1.4% increase in used vehicle retail same store average sales price per unit sold was mostly offset by a 1.0% decrease in used vehicle retail same store unit sales. Parts and service same store revenue increased 5.6% on a constant currency basis driven by increases of 24.8%, 0.7%9.3% in customer-pay, 5.0% in warranty and 3.8%4.9% in Brazil, the U.S. and the U.K, respectively.wholesale parts, partially offset by a decrease of 16.3% in collision revenue. The increase in Brazil was primarily explained by increases in variable commission paymentscustomer-pay and warranty revenue are a result of our efforts to increase our technician headcount through improved hiring methods and improved pay plans. F&I same store revenue on a constant currency basis increased 0.4% driven by increased penetration rates on finance fees and other insurance product offerings, as well as increased income per contract on vehicle service contracts.
Gross Profit
Total gross profit in the U.K. during the year ended December 31, 2019 decreased $12.2 million, or 4.4%, as compared to the same period in 2018. Total same store gross profit in the U.K. during the year ended December 31, 2019 decreased $22.4 million, or 8.4%, as compared to the same period in 2018. On a constant currency basis, total same store gross profit decreased 4.3% as a result of a 12.2%decline in new and used gross profit, partially offset by an increase in revenuesparts and profitability across our business sectors.service and F&I gross profit. New vehicle retail same store gross profit on a constant currency basis decreased 13.9% driven by a 10.7% decrease in new vehicle retail same store average gross profit per unit sold, coupled with the decline in retail units discussed above. Used vehicle retail same store gross profit on a constant currency basis decreased 14.5% on a 1.0% decrease in used vehicle retail same store unit sales and a 13.7% decrease in used vehicle retail same store average gross profit per unit sold. The gross profit pressures on new and used vehicles are a result of continued economic pressure due to uncertainty around Brexit. In addition, used vehicle retail gross profit in 2018 was impacted by above average used vehicle values caused by the WLTP related new vehicle shortages. Parts and service same store gross profit on a constant currency basis increased 2.2% as a result of a 5.6% increase in revenue discussed above, partially offset by an increase in technician costs as a result of hiring initiatives discussed above. F&I same store gross profit on a constant currency basis increased 0.4% as discussed above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in the U.K. during the year ended December 31, 2019 decreased $3.6 million, or 1.5%, as compared to the same period in 2018. Total same store SG&A expenses in the U.K. during the year ended December 31, 2019, decreased $12.7 million, or 5.6%, as compared to the same period in 2018. On a constant currency basis, total same store SG&A expenses decreased 1.4% driven by reductions in personnel and advertising costs resulting from the implementation and execution of cost reduction plans which enabled us to partially offset the decline in gross profit. The decline in personnel and advertising costs were partially offset by increased rent and facility costs.
Reported Operating Data - U.K.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,217.1 |
| | $ | 1,092.6 |
| | $ | 124.5 |
| | 11.4 | % | | | $ | 44.7 |
| | 7.3 | % |
| Used vehicle retail sales | 771.7 |
| | 546.3 |
| | 225.5 |
| | 41.3 | % | | | 25.9 |
| | 36.5 | % |
| Used vehicle wholesale sales | 173.8 |
| | 136.8 |
| | 36.9 |
| | 27.0 | % | | | 6.1 |
| | 22.6 | % |
| Total used | 945.5 |
| | 683.1 |
| | 262.4 |
| | 38.4 | % | | | 31.9 |
| | 33.7 | % |
| Parts and service sales | 217.6 |
| | 165.8 |
| | 51.8 |
| | 31.3 | % | | | 7.2 |
| | 26.9 | % |
| F&I, net | 57.2 |
| | 44.5 |
| | 12.6 |
| | 28.4 | % | | | 1.6 |
| | 24.7 | % |
| Total revenues | $ | 2,437.4 |
| | $ | 1,986.0 |
| | $ | 451.4 |
| | 22.7 | % | | | $ | 85.4 |
| | 18.4 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 63.6 |
| | $ | 60.6 |
| | $ | 3.0 |
| | 4.9 | % | | | $ | 2.0 |
| | 1.6 | % |
| Used vehicle retail sales | 38.9 |
| | 26.3 |
| | 12.6 |
| | 48.0 | % | | | 1.4 |
| | 42.9 | % |
| Used vehicle wholesale sales | (2.7 | ) | | (1.2 | ) | | (1.5 | ) | | (130.5 | )% | | | — |
| | (127.1 | )% |
| Total used | 36.2 |
| | 25.1 |
| | 11.1 |
| | 44.2 | % | | | 1.3 |
| | 38.9 | % |
| Parts and service sales | 123.0 |
| | 95.0 |
| | 27.9 |
| | 29.4 | % | | | 4.1 |
| | 25.1 | % |
| F&I, net | 57.2 |
| | 44.5 |
| | 12.6 |
| | 28.4 | % | | | 1.6 |
| | 24.7 | % |
| Total gross profit | $ | 279.9 |
| | $ | 225.3 |
| | $ | 54.6 |
| | 24.3 | % | | | $ | 9.0 |
| | 20.3 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 5.2 | % | | 5.5 | % | | (0.3 | )% | | | | | | | |
| Used vehicle retail sales | 5.0 | % | | 4.8 | % | | 0.2 | % | | | | | | | |
| Used vehicle wholesale sales | (1.6 | )% | | (0.9 | )% | | (0.7 | )% | | | | | | | |
| Total used | 3.8 | % | | 3.7 | % | | 0.2 | % | | | | | | | |
| Parts and service sales | 56.5 | % | | 57.3 | % | | (0.8 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 11.5 | % | | 11.3 | % | | 0.1 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 38,716 |
| | 36,571 |
| | 2,145 |
| | 5.9 | % | | | | | |
| Retail used vehicles sold | 31,966 |
| | 24,623 |
| | 7,343 |
| | 29.8 | % | | | | | |
| Wholesale used vehicles sold | 21,666 |
| | 18,334 |
| | 3,332 |
| | 18.2 | % | | | | | |
| Total used | 53,632 |
| | 42,957 |
| | 10,675 |
| | 24.9 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 31,438 |
| | $ | 29,876 |
| | $ | 1,561 |
| | 5.2 | % | | | $ | 1,154 |
| | 1.4 | % |
| Used vehicle retail | $ | 24,142 |
| | $ | 22,185 |
| | $ | 1,957 |
| | 8.8 | % | | | $ | 810 |
| | 5.2 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,642 |
| | $ | 1,657 |
| | $ | (14 | ) | | (0.9 | )% | | | $ | 52 |
| | (4.0 | )% |
| Used vehicle retail sales | $ | 1,217 |
| | $ | 1,067 |
| | $ | 150 |
| | 14.1 | % | | | $ | 43 |
| | 10.0 | % |
| Used vehicle wholesale sales | $ | (125 | ) | | $ | (64 | ) | | $ | (61 | ) | | (95.3 | )% | | | $ | (2 | ) | | (92.2 | )% |
| Total used | $ | 675 |
| | $ | 584 |
| | $ | 90 |
| | 15.6 | % | | | $ | 25 |
| | 11.3 | % |
| F&I PRU | $ | 809 |
| | $ | 728 |
| | $ | 81 |
| | 11.1 | % | | | $ | 23 |
| | 8.0 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 240.4 |
| | $ | 191.6 |
| | $ | 48.8 |
| | 25.5 | % | | | $ | 7.8 |
| | 21.4 | % |
| SG&A as % gross profit | 85.9 | % | | 85.0 | % | | 0.9 | % | | | | | | | |
Same Store personnel costsOperating Data - U.K.
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 978.9 |
| | $ | 1,073.1 |
| | $ | (94.3 | ) | | (8.8 | )% | | | $ | 33.8 |
| | (11.9 | )% |
| Used vehicle retail sales | 612.3 |
| | 532.5 |
| | 79.8 |
| | 15.0 | % | | | 19.3 |
| | 11.4 | % |
| Used vehicle wholesale sales | 144.3 |
| | 133.5 |
| | 10.8 |
| | 8.1 | % | | | 4.7 |
| | 4.6 | % |
| Total used | 756.6 |
| | 666.0 |
| | 90.7 |
| | 13.6 | % | | | 24.0 |
| | 10.0 | % |
| Parts and service sales | 177.1 |
| | 161.7 |
| | 15.4 |
| | 9.5 | % | | | 5.5 |
| | 6.1 | % |
| F&I, net | 45.8 |
| | 43.6 |
| | 2.2 |
| | 5.1 | % | | | 1.2 |
| | 2.2 | % |
| Total revenues | $ | 1,958.4 |
| | $ | 1,944.4 |
| | $ | 14.0 |
| | 0.7 | % | | | $ | 64.5 |
| | (2.6 | )% |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 54.6 |
| | $ | 59.8 |
| | $ | (5.2 | ) | | (8.7 | )% | | | $ | 1.6 |
| | (11.4 | )% |
| Used vehicle retail sales | 30.4 |
| | 26.1 |
| | 4.3 |
| | 16.6 | % | | | 1.0 |
| | 12.6 | % |
| Used vehicle wholesale sales | (1.9 | ) | | (1.1 | ) | | (0.9 | ) | | (78.8 | )% | | | — |
| | (75.7 | )% |
| Total used | 28.4 |
| | 25.0 |
| | 3.5 |
| | 13.8 | % | | | 1.0 |
| | 9.9 | % |
| Parts and service sales | 99.4 |
| | 92.8 |
| | 6.5 |
| | 7.0 | % | | | 3.1 |
| | 3.7 | % |
| F&I, net | 45.8 |
| | 43.6 |
| | 2.2 |
| | 5.1 | % | | | 1.2 |
| | 2.2 | % |
| Total gross profit | $ | 228.2 |
| | $ | 221.2 |
| | $ | 7.0 |
| | 3.2 | % | | | $ | 6.9 |
| | — | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 5.6 | % | | 5.6 | % | | — | % | | | | | | | |
| Used vehicle retail sales | 5.0 | % | | 4.9 | % | | 0.1 | % | | | | | | | |
| Used vehicle wholesale sales | (1.3 | )% | | (0.8 | )% | | (0.5 | )% | | | | | | | |
| Total used | 3.8 | % | | 3.8 | % | | — | % | | | | | | | |
| Parts and service sales | 56.1 | % | | 57.4 | % | | (1.3 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 11.7 | % | | 11.4 | % | | 0.3 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 31,777 |
| | 35,751 |
| | (3,974 | ) | | (11.1 | )% | | | | | |
| Retail used vehicles sold | 25,090 |
| | 23,940 |
| | 1,150 |
| | 4.8 | % | | | | | |
| Wholesale used vehicles sold | 17,883 |
| | 17,871 |
| | 12 |
| | 0.1 | % | | | | | |
| Total used | 42,973 |
| | 41,811 |
| | 1,162 |
| | 2.8 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 30,804 |
| | $ | 30,017 |
| | $ | 787 |
| | 2.6 | % | | | $ | 1,065 |
| | (0.9 | )% |
| Used vehicle retail | $ | 24,404 |
| | $ | 22,242 |
| | $ | 2,163 |
| | 9.7 | % | | | $ | 768 |
| | 6.3 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,718 |
| | $ | 1,673 |
| | $ | 45 |
| | 2.7 | % | | | $ | 51 |
| | (0.3 | )% |
| Used vehicle retail sales | $ | 1,211 |
| | $ | 1,089 |
| | $ | 122 |
| | 11.2 | % | | | $ | 41 |
| | 7.5 | % |
| Used vehicle wholesale sales | $ | (109 | ) | | $ | (61 | ) | | $ | (48 | ) | | (78.7 | )% | | | $ | (2 | ) | | (75.6 | )% |
| Total used | $ | 662 |
| | $ | 598 |
| | $ | 64 |
| | 10.7 | % | | | $ | 23 |
| | 6.9 | % |
| F&I PRU | $ | 805 |
| | $ | 730 |
| | $ | 75 |
| | 10.3 | % | | | $ | 22 |
| | 7.3 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 196.9 |
| | $ | 186.2 |
| | $ | 10.7 |
| | 5.8 | % | | | $ | 5.9 |
| | 2.6 | % |
| SG&A as % gross profit | 86.3 | % | | 84.1 | % | | 2.1 | % | | | | | | | |
Year Ended December 31, 2018 compared to 2017
The following discussion of our U.K. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenue
Total revenue in the U.S. wasU.K. for the year ended December 31, 2018 increased $451.4 million, or 22.7%, as compared to the same period in 2017. Total same store revenue in the U.K. for the year ended December 31, 2018 increased $13.9 million, or 0.7%, as compared to the same period in 2017. On a constant currency basis, total same store revenue decreased 2.6% as a result of a decline in new vehicle revenue, partially offset by increases in used vehicle, parts and service and F&I revenues. The market conditions in the U.K. were challenging, primarily due to supply constraints and lingering uncertainties surrounding Brexit. New vehicle retail same store revenue on a constant currency basis decreased 11.9%, primarily explained by an 11.1% decline in new vehicle retail same store unit sales coupled with a 0.9% decrease in new vehicle retail same store average sales price per unit sold. The decline in units was driven by uncertainty around Brexit and supply constraints stemming from delays by various OEM partners in passing the new WLTP emissions standards that became effective on September 1, 2018. Used vehicle retail same store revenue on a constant currency basis increased 11.4%, driven by a 6.3% increase in variable commission payments relativeused vehicle retail same store average sales price per unit sold coupled with a 4.8% increase in used vehicle retail same store unit sales, reflecting strong performance by our operating team that focused on growing the used vehicle portion of our business as an offset to the growthdecline in new vehicle unit sales. Parts and service same store revenue increased 6.1% on a constant currency basis driven by increases of 6.0% in customer-pay, 10.0% in warranty and 10.5% in wholesale parts, partially offset by a decrease of 7.0% in collision revenue. The increases in customer-pay and warranty revenue are a result of our efforts to expand capacity in several of our service departments. The improvement in warranty was also driven by an increase in several recall campaigns. The increase in wholesale parts revenue was primarily the result of initiatives executed to enhance our sales processes and increase productivity. F&I same store revenue on a constant currency basis increased 2.2%, reflecting improvements in our income per contract and penetration rates for most of our U.K. product offerings.
Gross Profit
Total gross profit in the U.K. for the year ended December 31, 2018 increased $54.6 million, or 24.3%, as compared to the same period in 2017. Total same store gross profit in the U.K. for the year ended December 31, 2018 increased $7.0 million, or 3.2%, as compared to the same period in 2017. On a constant currency basis, total same store gross profit was flat as increases in used vehicle, parts and service business and improved retailF&I gross profit were offset by a decline in new vehicle gross profit. New vehicle retail same store gross profit largelyon a constant currency basis decreased 11.4% driven by the highdecline in retail units discussed above, coupled with a 0.3% decrease in new vehicle retail same store average gross profit per unit sold. Used vehicle retail same store gross profit on a constant currency basis increased 12.6% on a 7.5% increase in used vehicle retail same store average gross profit per unit sold and a 4.8% increase in used vehicle retail same store unit sales. The increase in used vehicle retail same store unit sales was the result of heightened used vehicle demand in our Houston and Beaumont markets,reflecting supply constraints on many new vehicle models as a result of the impact of Hurricane Harvey,WLTP legislation, as well as a strong performance by our operating team. Parts and service same store gross profit on a constant currency basis increased 3.7% as a result of a 6.1% increase in revenue discussed above. F&I same store gross profit on a constant currency basis increased 2.2% as discussed above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in the impactU.K. for the year ended December 31, 2018 increased $48.8 million, or 25.5%, as compared to the same period in 2017. Total same store SG&A expenses in the U.K. for the year ended December 31, 2018, increased $10.7 million, or 5.8%, as compared to the same period in 2017. On a constant currency basis, total same store SG&A expenses increased 2.6%. This increase was driven by higher rent and facility costs primarily related to septennial property rate adjustments that occurred in 2017, as well as additional rental costs associated with new and/or improved dealership facilities.
Reported Operating Data - Brazil
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 286.8 |
| | $ | 281.4 |
| | $ | 5.4 |
| | 1.9 | % | | | $ | (24.0 | ) | | 10.5 | % |
| Used vehicle retail sales | 85.4 |
| | 87.4 |
| | (2.0 | ) | | (2.2 | )% | | | (7.4 | ) | | 6.3 | % |
| Used vehicle wholesale sales | 18.3 |
| | 16.9 |
| | 1.5 |
| | 8.7 | % | | | (1.3 | ) | | 16.4 | % |
| Total used | 103.7 |
| | 104.2 |
| | (0.5 | ) | | (0.5 | )% | | | (8.7 | ) | | 7.9 | % |
| Parts and service sales | 47.6 |
| | 46.0 |
| | 1.6 |
| | 3.5 | % | | | (3.9 | ) | | 11.9 | % |
| F&I, net | 7.6 |
| | 9.0 |
| | (1.4 | ) | | (15.3 | )% | | | (0.5 | ) | | (9.2 | )% |
| Total revenues | $ | 445.9 |
| | $ | 440.7 |
| | $ | 5.2 |
| | 1.2 | % | | | $ | (37.2 | ) | | 9.6 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 17.8 |
| | $ | 18.2 |
| | $ | (0.5 | ) | | (2.6 | )% | | | $ | (1.4 | ) | | 4.8 | % |
| Used vehicle retail sales | 5.9 |
| | 5.3 |
| | 0.6 |
| | 10.8 | % | | | (0.5 | ) | | 20.2 | % |
| Used vehicle wholesale sales | 1.2 |
| | 0.6 |
| | 0.6 |
| | 86.5 | % | | | (0.1 | ) | | 100.7 | % |
| Total used | 7.1 |
| | 6.0 |
| | 1.1 |
| | 19.0 | % | | | (0.6 | ) | | 28.9 | % |
| Parts and service sales | 21.0 |
| | 20.7 |
| | 0.4 |
| | 1.9 | % | | | (1.7 | ) | | 10.2 | % |
| F&I, net | 7.6 |
| | 9.0 |
| | (1.4 | ) | | (15.3 | )% | | | (0.5 | ) | | (9.2 | )% |
| Total gross profit | $ | 53.5 |
| | $ | 53.9 |
| | $ | (0.3 | ) | | (0.6 | )% | | | $ | (4.2 | ) | | 7.2 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 6.2 | % | | 6.5 | % | | (0.3 | )% | | | | | | | |
| Used vehicle retail sales | 6.9 | % | | 6.1 | % | | 0.8 | % | | | | | | | |
| Used vehicle wholesale sales | 6.6 | % | | 3.8 | % | | 2.8 | % | | | | | | | |
| Total used | 6.8 | % | | 5.7 | % | | 1.1 | % | | | | | | | |
| Parts and service sales | 44.2 | % | | 44.9 | % | | (0.7 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 12.0 | % | | 12.2 | % | | (0.2 | )% | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 9,475 |
| | 8,928 |
| | 547 |
| | 6.1 | % | | | | | |
| Retail used vehicles sold | 4,412 |
| | 4,227 |
| | 185 |
| | 4.4 | % | | | | | |
| Wholesale used vehicles sold | 1,934 |
| | 1,596 |
| | 338 |
| | 21.2 | % | | | | | |
| Total used | 6,346 |
| | 5,823 |
| | 523 |
| | 9.0 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 30,274 |
| | $ | 31,521 |
| | $ | (1,246 | ) | | (4.0 | )% | | | $ | (2,536 | ) | | 4.1 | % |
| Used vehicle retail | $ | 19,356 |
| | $ | 20,665 |
| | $ | (1,309 | ) | | (6.3 | )% | | | $ | (1,684 | ) | | 1.8 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,874 |
| | $ | 2,042 |
| | $ | (168 | ) | | (8.2 | )% | | | $ | (143 | ) | | (1.3 | )% |
| Used vehicle retail sales | $ | 1,336 |
| | $ | 1,259 |
| | $ | 77 |
| | 6.1 | % | | | $ | (113 | ) | | 15.1 | % |
| Used vehicle wholesale sales | $ | 625 |
| | $ | 406 |
| | $ | 219 |
| | 53.9 | % | | | $ | (48 | ) | | 65.6 | % |
| Total used | $ | 1,120 |
| | $ | 1,025 |
| | $ | 94 |
| | 9.2 | % | | | $ | (93 | ) | | 18.3 | % |
| F&I PRU | $ | 551 |
| | $ | 686 |
| | $ | (136 | ) | | (19.7 | )% | | | $ | (40 | ) | | (14.0 | )% |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 46.0 |
| | $ | 50.6 |
| | $ | (4.6 | ) | | (9.1 | )% | | | $ | (3.2 | ) | | (2.8 | )% |
| SG&A as % gross profit | 85.8 | % | | 93.9 | % | | (8.1 | )% | | | | | | | |
Same Store Operating Data - Brazil
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 270.6 |
| | $ | 277.4 |
| | $ | (6.8 | ) | | (2.5 | )% | | | $ | (23.2 | ) | | 5.9 | % |
| Used vehicle retail sales | 81.7 |
| | 81.2 |
| | 0.5 |
| | 0.6 | % | | | (7.6 | ) | | 10.0 | % |
| Used vehicle wholesale sales | 17.8 |
| | 14.2 |
| | 3.6 |
| | 25.4 | % | | | (1.4 | ) | | 35.7 | % |
| Total used | 99.5 |
| | 95.4 |
| | 4.1 |
| | 4.3 | % | | | (9.1 | ) | | 13.8 | % |
| Parts and service sales | 46.1 |
| | 45.6 |
| | 0.5 |
| | 1.1 | % | | | (3.8 | ) | | 9.4 | % |
| F&I, net | 7.0 |
| | 8.9 |
| | (1.9 | ) | | (21.3 | )% | | | (0.5 | ) | | (15.5 | )% |
| Total revenues | $ | 423.2 |
| | $ | 427.3 |
| | $ | (4.1 | ) | | (1.0 | )% | | | $ | (36.6 | ) | | 7.6 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 16.9 |
| | $ | 18.1 |
| | $ | (1.2 | ) | | (6.6 | )% | | | $ | (1.3 | ) | | 0.6 | % |
| Used vehicle retail sales | 5.5 |
| | 5.1 |
| | 0.4 |
| | 7.5 | % | | | (0.5 | ) | | 17.0 | % |
| Used vehicle wholesale sales | 1.2 |
| | 0.6 |
| | 0.7 |
| | 117.2 | % | | | (0.1 | ) | | 135.8 | % |
| Total used | 6.7 |
| | 5.7 |
| | 1.0 |
| | 18.3 | % | | | (0.6 | ) | | 28.7 | % |
| Parts and service sales | 20.4 |
| | 20.4 |
| | — |
| | (0.2 | )% | | | (1.7 | ) | | 8.2 | % |
| F&I, net | 7.0 |
| | 8.9 |
| | (1.9 | ) | | (21.3 | )% | | | (0.5 | ) | | (15.5 | )% |
| Total gross profit | $ | 51.1 |
| | $ | 53.2 |
| | $ | (2.1 | ) | | (3.9 | )% | | | $ | (4.1 | ) | | 3.8 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 6.3 | % | | 6.5 | % | | (0.3 | )% | | | | | | | |
| Used vehicle retail sales | 6.7 | % | | 6.3 | % | | 0.4 | % | | | | | | | |
| Used vehicle wholesale sales | 6.8 | % | | 3.9 | % | | 2.9 | % | | | | | | | |
| Total used | 6.7 | % | | 5.9 | % | | 0.8 | % | | | | | | | |
| Parts and service sales | 44.3 | % | | 44.9 | % | | (0.6 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 12.1 | % | | 12.4 | % | | (0.4 | )% | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 8,792 |
| | 8,818 |
| | (26 | ) | | (0.3 | )% | | | | | |
| Retail used vehicles sold | 4,159 |
| | 4,095 |
| | 64 |
| | 1.6 | % | | | | | |
| Wholesale used vehicles sold | 1,801 |
| | 1,498 |
| | 303 |
| | 20.2 | % | | | | | |
| Total used | 5,960 |
| | 5,593 |
| | 367 |
| | 6.6 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 30,775 |
| | $ | 31,460 |
| | $ | (685 | ) | | (2.2 | )% | | | $ | (2,640 | ) | | 6.2 | % |
| Used vehicle retail | $ | 19,653 |
| | $ | 19,836 |
| | $ | (183 | ) | | (0.9 | )% | | | $ | (1,830 | ) | | 8.3 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 1,925 |
| | $ | 2,055 |
| | $ | (130 | ) | | (6.3 | )% | | | $ | (149 | ) | | 0.9 | % |
| Used vehicle retail sales | $ | 1,321 |
| | $ | 1,249 |
| | $ | 73 |
| | 5.8 | % | | | $ | (117 | ) | | 15.2 | % |
| Used vehicle wholesale sales | $ | 673 |
| | $ | 373 |
| | $ | 301 |
| | 80.7 | % | | | $ | (58 | ) | | 96.1 | % |
| Total used | $ | 1,126 |
| | $ | 1,014 |
| | $ | 112 |
| | 11.0 | % | | | $ | (99 | ) | | 20.8 | % |
| F&I PRU | $ | 544 |
| | $ | 693 |
| | $ | (149 | ) | | (21.5 | )% | | | $ | (40 | ) | | (15.7 | )% |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 44.1 |
| | $ | 48.5 |
| | $ | (4.4 | ) | | (9.0 | )% | | | $ | (3.2 | ) | | (2.4 | )% |
| SG&A as % gross profit | 86.3 | % | | 91.1 | % | | (4.8 | )% | | | | | | | |
Year Ended December 31, 2019 compared to 2018
The following discussion of non-core charges for disaster pay for our employees who were impacted by Hurricanes HarveyBrazil operating results is on a same store basis. The difference between reported amounts and Irma.same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenue
Total revenue in Brazil during the year ended December 31, 2019 increased $5.2 million, or 1.2%, as compared to the same period in 2018. Total same store revenue in Brazil during the year ended December 31, 2019 decreased $4.1 million, or 1.0%, as compared to the same period in 2018. On a constant currency basis, total same store revenue increased 7.6% with increases in all but F&I revenue lines. New vehicle retail same store revenue on a constant currency basis increased 5.9%, as a 6.2% increase in new vehicle retail same store average sales price per unit sold more than offset a 0.3% decrease in new vehicle retail same store unit sales. The increase in average sales price was driven by a change in brand mix as our higher priced luxury brands outpaced the growth in our lower priced import brands. Used vehicle retail same store revenue on a constant currency basis increased 10.0%, driven by a 8.3% increase in used vehicle retail same store average sales price per unit sold and a 1.6% increase in used vehicle retail same store unit sales. The increase was driven by a recently implemented centralized used vehicle purchasing and pricing model which has improved our acquisition of used vehicle inventory and increased the profitability of our used vehicle business. Parts and service same store revenue on a constant currency basis increased 9.4% as a 12.8% increase in customer-pay business was partially offset by a 6.8% decrease in warranty business. The increase in customer-pay reflects management initiatives to enhance the effectiveness of our service sales process and improve efficiency of our parts and service operations. F&I same store revenue on a constant currency basis decreased 15.5% primarily as a result of a decline in fleet business.
Gross Profit
Total gross profit in Brazil during the year ended December 31, 2019 decreased $0.3 million, or 0.6%, as compared to the same period in 2018. Total same store gross profit in Brazil during the year ended December 31, 2019 decreased $2.1 million, or 3.9%, as compared to the same period in 2018. On a constant currency basis total same store gross profit increased 3.8% as growth in new vehicles, used vehicles and parts and service was partially offset by a decrease in F&I. New vehicle retail same store gross profit on a constant currency basis increased 0.6%, as a 0.9% increase in new vehicle retail same store average gross profit per unit sold was partially offset by a 0.3% decrease in new vehicle retail same store units sold. Used vehicle retail same store gross profit on a constant currency basis increased 17.0% on a 15.2% increase in used vehicle retail same store average gross profit per unit sold and a 1.6% increase in used vehicle retail same store unit sales. This increase was driven by a recently implemented centralized used vehicle purchasing and pricing model which has improved our acquisition of used vehicle inventory and increased the profitability of our used vehicle business. Parts and service same store gross profit increased 8.2% on a constant currency basis, driven by the 9.4% increase in parts and service revenue as discussed above. F&I same store gross profit on a constant currency basis decreased 15.5% driven by the decrease in revenue described above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in Brazil during the year ended December 31, 2019, decreased $4.6 million, or 9.1%, as compared to the same period in 2018. Total same store SG&A expenses in Brazil during the year ended December 31, 2019, decreased $4.4 million, or 9.0%, as compared to the same period in 2018. On a constant currency basis, total same store SG&A expenses decreased 2.4% while total gross profit increased 3.8%, resulting in a 480 basis points decrease in total SG&A expenses as a % of gross profit. The decrease in SG&A expenses was a result of cost control initiatives implemented by the management team and lower legal expenses. SG&A expenses in 2018 included $2.9 million related to accruals for certain legal items not recurring in 2019.
Reported Operating Data - Brazil
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 281.4 |
| | $ | 296.1 |
| | $ | (14.6 | ) | | (4.9 | )% | | | $ | (39.8 | ) | | 8.5 | % |
| Used vehicle retail sales | 87.4 |
| | 92.0 |
| | (4.7 | ) | | (5.1 | )% | | | (11.9 | ) | | 7.9 | % |
| Used vehicle wholesale sales | 16.9 |
| | 12.7 |
| | 4.2 |
| | 33.4 | % | | | (2.6 | ) | | 53.9 | % |
| Total used | 104.2 |
| | 104.7 |
| | (0.4 | ) | | (0.4 | )% | | | (14.5 | ) | | 13.4 | % |
| Parts and service sales | 46.0 |
| | 47.9 |
| | (1.9 | ) | | (3.9 | )% | | | (6.5 | ) | | 9.7 | % |
| F&I, net | 9.0 |
| | 8.5 |
| | 0.5 |
| | 5.9 | % | | | (1.4 | ) | | 22.0 | % |
| Total revenues | $ | 440.7 |
| | $ | 457.2 |
| | $ | (16.4 | ) | | (3.6 | )% | | | $ | (62.2 | ) | | 10.0 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 18.2 |
| | $ | 17.1 |
| | $ | 1.1 |
| | 6.4 | % | | | $ | (2.7 | ) | | 22.4 | % |
| Used vehicle retail sales | 5.3 |
| | 6.8 |
| | (1.4 | ) | | (21.2 | )% | | | (0.7 | ) | | (10.4 | )% |
| Used vehicle wholesale sales | 0.6 |
| | 0.9 |
| | (0.2 | ) | | (24.5 | )% | | | (0.1 | ) | | (13.0 | )% |
| Total used | 6.0 |
| | 7.6 |
| | (1.6 | ) | | (21.5 | )% | | | (0.8 | ) | | (10.7 | )% |
| Parts and service sales | 20.7 |
| | 21.7 |
| | (1.0 | ) | | (4.7 | )% | | | (2.9 | ) | | 8.7 | % |
| F&I, net | 9.0 |
| | 8.5 |
| | 0.5 |
| | 5.9 | % | | | (1.4 | ) | | 22.0 | % |
| Total gross profit | $ | 53.9 |
| | $ | 54.9 |
| | $ | (1.1 | ) | | (1.9 | )% | | | $ | (7.8 | ) | | 12.3 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 6.5 | % | | 5.8 | % | | 0.7 | % | | | | | | | |
| Used vehicle retail sales | 6.1 | % | | 7.3 | % | | (1.2 | )% | | | | | | | |
| Used vehicle wholesale sales | 3.8 | % | | 6.8 | % | | (2.9 | )% | | | | | | | |
| Total used | 5.7 | % | | 7.3 | % | | (1.5 | )% | | | | | | | |
| Parts and service sales | 44.9 | % | | 45.2 | % | | (0.4 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 12.2 | % | | 12.0 | % | | 0.2 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 8,928 |
| | 8,488 |
| | 440 |
| | 5.2 | % | | | | | |
| Retail used vehicles sold | 4,227 |
| | 4,140 |
| | 87 |
| | 2.1 | % | | | | | |
| Wholesale used vehicles sold | 1,596 |
| | 1,148 |
| | 448 |
| | 39.0 | % | | | | | |
| Total used | 5,823 |
| | 5,288 |
| | 535 |
| | 10.1 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 31,521 |
| | $ | 34,879 |
| | $ | (3,359 | ) | | (9.6 | )% | | | $ | (4,463 | ) | | 3.2 | % |
| Used vehicle retail | $ | 20,665 |
| | $ | 22,227 |
| | $ | (1,562 | ) | | (7.0 | )% | | | $ | (2,814 | ) | | 5.6 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 2,042 |
| | $ | 2,019 |
| | $ | 23 |
| | 1.1 | % | | | $ | (307 | ) | | 16.3 | % |
| Used vehicle retail sales | $ | 1,259 |
| | $ | 1,631 |
| | $ | (371 | ) | | (22.8 | )% | | | $ | (171 | ) | | (12.3 | )% |
| Used vehicle wholesale sales | $ | 406 |
| | $ | 747 |
| | $ | (341 | ) | | (45.6 | )% | | | $ | (61 | ) | | (37.4 | )% |
| Total used | $ | 1,025 |
| | $ | 1,439 |
| | $ | (413 | ) | | (28.8 | )% | | | $ | (141 | ) | | (18.9 | )% |
| F&I PRU | $ | 686 |
| | $ | 675 |
| | $ | 11 |
| | 1.6 | % | | | $ | (104 | ) | | 17.1 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 50.6 |
| | $ | 50.7 |
| | $ | (0.1 | ) | | (0.1 | )% | | | $ | (7.7 | ) | | 15.0 | % |
| SG&A as % gross profit | 93.9 | % | | 92.2 | % | | 1.7 | % | | | | | | | |
Same Store personnel costsOperating Data - Brazil
(In millions, except unit and per unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2018 | | 2017 | | Increase/ (Decrease) | | % Change | | | Currency Impact on Current Period Results | | Constant Currency % Change |
| Revenues: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 267.3 |
| | $ | 293.8 |
| | $ | (26.6 | ) | | (9.0 | )% | | | $ | (37.0 | ) | | 3.6 | % |
| Used vehicle retail sales | 85.0 |
| | 90.2 |
| | (5.2 | ) | | (5.8 | )% | | | (11.4 | ) | | 6.9 | % |
| Used vehicle wholesale sales | 16.4 |
| | 12.6 |
| | 3.8 |
| | 30.1 | % | | | (2.5 | ) | | 49.8 | % |
| Total used | 101.4 |
| | 102.8 |
| | (1.4 | ) | | (1.4 | )% | | | (13.9 | ) | | 12.2 | % |
| Parts and service sales | 44.6 |
| | 47.2 |
| | (2.6 | ) | | (5.6 | )% | | | (6.2 | ) | | 7.5 | % |
| F&I, net | 8.6 |
| | 8.3 |
| | 0.3 |
| | 4.2 | % | | | (1.3 | ) | | 19.7 | % |
| Total revenues | $ | 421.9 |
| | $ | 452.2 |
| | $ | (30.3 | ) | | (6.7 | )% | | | $ | (58.4 | ) | | 6.2 | % |
| Gross profit: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 17.5 |
| | $ | 17.0 |
| | $ | 0.5 |
| | 2.8 | % | | | $ | (2.6 | ) | | 18.0 | % |
| Used vehicle retail sales | 5.3 |
| | 6.7 |
| | (1.5 | ) | | (21.7 | )% | | | (0.7 | ) | | (11.1 | )% |
| Used vehicle wholesale sales | 0.6 |
| | 0.9 |
| | (0.2 | ) | | (26.5 | )% | | | (0.1 | ) | | (15.6 | )% |
| Total used | 5.9 |
| | 7.6 |
| | (1.7 | ) | | (22.2 | )% | | | (0.8 | ) | | (11.6 | )% |
| Parts and service sales | 19.8 |
| | 21.6 |
| | (1.7 | ) | | (8.1 | )% | | | (2.7 | ) | | 4.6 | % |
| F&I, net | 8.6 |
| | 8.3 |
| | 0.3 |
| | 4.2 | % | | | (1.3 | ) | | 19.7 | % |
| Total gross profit | $ | 51.9 |
| | $ | 54.5 |
| | $ | (2.6 | ) | | (4.8 | )% | | | $ | (7.4 | ) | | 8.9 | % |
| Gross margin: | | | | | | | | | | | | |
| New vehicle retail sales | 6.6 | % | | 5.8 | % | | 0.8 | % | | | | | | | |
| Used vehicle retail sales | 6.2 | % | | 7.4 | % | | (1.3 | )% | | | | | | | |
| Used vehicle wholesale sales | 3.8 | % | | 6.8 | % | | (3.0 | )% | | | | | | | |
| Total used | 5.8 | % | | 7.4 | % | | (1.6 | )% | | | | | | | |
| Parts and service sales | 44.5 | % | | 45.7 | % | | (1.2 | )% | | | | | | | |
| F&I, net | 100.0 | % | | 100.0 | % | | — | % | | | | | | | |
| Total gross margin | 12.3 | % | | 12.0 | % | | 0.2 | % | | | | | | | |
| Units sold: | | | | | | | | | | | | |
| Retail new vehicles sold | 8,369 |
| | 8,390 |
| | (21 | ) | | (0.3 | )% | | | | | |
| Retail used vehicles sold | 4,098 |
| | 4,094 |
| | 4 |
| | 0.1 | % | | | | | |
| Wholesale used vehicles sold | 1,487 |
| | 1,038 |
| | 449 |
| | 43.3 | % | | | | | |
| Total used | 5,585 |
| | 5,132 |
| | 453 |
| | 8.8 | % | | | | | |
| Average sales price per unit sold: | | | | | | | | | | | | |
| New vehicle retail | $ | 31,935 |
| | $ | 35,020 |
| | $ | (3,086 | ) | | (8.8 | )% | | | $ | (4,424 | ) | | 3.8 | % |
| Used vehicle retail | $ | 20,738 |
| | $ | 22,035 |
| | $ | (1,297 | ) | | (5.9 | )% | | | $ | (2,791 | ) | | 6.8 | % |
| Gross profit per unit sold: | | | | | | | | | | | | |
| New vehicle retail sales | $ | 2,093 |
| | $ | 2,031 |
| | $ | 62 |
| | 3.0 | % | | | $ | (311 | ) | | 18.3 | % |
| Used vehicle retail sales | $ | 1,282 |
| | $ | 1,638 |
| | $ | (356 | ) | | (21.7 | )% | | | $ | (172 | ) | | (11.2 | )% |
| Used vehicle wholesale sales | $ | 424 |
| | $ | 826 |
| | $ | (402 | ) | | (48.7 | )% | | | $ | (63 | ) | | (41.1 | )% |
| Total used | $ | 1,053 |
| | $ | 1,474 |
| | $ | (421 | ) | | (28.6 | )% | | | $ | (144 | ) | | (18.8 | )% |
| F&I PRU | $ | 692 |
| | $ | 664 |
| | $ | 29 |
| | 4.2 | % | | | $ | (103 | ) | | 19.9 | % |
| Other: | | | | | | | | | | | | |
| SG&A expenses | $ | 48.1 |
| | $ | 49.6 |
| | $ | (1.5 | ) | | (3.1 | )% | | | $ | (7.2 | ) | | 11.3 | % |
| SG&A as % gross profit | 92.6 | % | | 91.0 | % | | 1.6 | % | | | | | | | |
Year Ended December 31, 2018 compared to 2017
The following discussion of our Brazil operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenue
Total revenue in Brazil for the U.K.year ended December 31, 2018 decreased $16.4 million, or 3.6%, as compared to the same period in 2017. Total same store revenue in Brazil for the year ended December 31, 2018 decreased $30.3 million, or 6.7%, as compared to the same period in 2017. On a constant currency basis, total same store revenue increased 6.2% with increases in all revenue lines. New vehicle retail same store revenue on a constant currency basis increased 3.6%, as a 3.8% increase in new vehicle retail same store average sales price per unit sold more than offset a 0.3% decrease in new vehicle retail same store unit sales. Used vehicle retail same store revenue on a constant currency basis increased 6.9%, driven by a 6.8% increase in used vehicle retail same store average sales price per unit sold and a 0.1% increase in used vehicle retail same store unit sales. These increases reflect improved market conditions, inventory management initiatives, and ongoing process improvements. Parts and service same store revenue on a constant currency basis increased 7.5% as a 9.8% increase in customer-pay business and a 12.5% increase in warranty business was partially offset by an 7.5% decrease in collision business. F&I same store revenue on a constant currency basis increased 19.7% primarily relates toas a result of an increase in variable costs largelycommissions on fleet sales for our BMW, Honda, and Toyota brands and improvements in our income per contract and penetration rates on our retail finance fees.
Gross Profit
Total gross profit in Brazil for the year ended December 31, 2018 decreased $1.1 million, or 1.9%, as compared to the same period in 2017. Total same store gross profit in Brazil for the year ended December 31, 2018 decreased $2.6 million, or 4.8%, as compared to the same period in 2017. On a constant currency basis total same store gross profit increased 8.9% as growth in new vehicles, parts and service and F&I was partially offset by a decrease in used vehicles. New vehicle retail same store gross profit and gross profit per unit sold on a constant currency basis increased 18.0% and 18.3%, respectively, as compared to the same period in 2017, driven by our efforts to prioritize margins over volume growth. Used vehicle retail same store gross profit on a constant currency basis decreased 11.1%, which resulted from an 11.2% decrease in used vehicle retail same store average gross profit per unit sold, as we strategically sacrificed margin to manage inventory levels. Parts and service same store gross profit increased 4.6% on a constant currency basis, primarily reflecting the implementation of new and enhanced processes. F&I same store revenue on a constant currency basis increased 19.7% driven by an overall improvementincrease in revenue described above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in Brazil for the profitabilityyear ended December 31, 2018 decreased $0.1 million, or 0.1%, as compared to the same period in 2017. Total same store SG&A expenses in Brazil for the year ended December 31, 2018, decreased $1.5 million, or 3.1%, as compared to the same period in 2017. On a constant currency basis, total same store SG&A expenses increased 11.3% while total gross profit increased 8.9%, resulting in a 160 basis points increase in total same store SG&A expenses as a % of gross profit to 92.6%. The increase in SG&A expenses was primarily driven by a non-core charge of $2.9 million related to legal settlements in 2018 that did not occur in 2017 and an increase in advertising expense driven by initiatives designed to grow our used vehicle and parts and service businesses.
For the year ended December 31, 2017,
The following discussion of our total Same Store advertising costs decreased 3.4%, to $71.4 million, explained by decreasesresults of 2.9%, 5.8% and 24.3% in the U.S., the U.K and Brazil, respectively. The decreases in both the U.S. and U.K. are the result of initiatives to control costs in response to the overall decline in sales in the retail automotive industry. The decrease in Brazil can also be explained by management's cost rationalization efforts through most of 2017.
Our total Same Store rent and facility costs increased 0.3% to $104.5 million for the year ended December 31, 2017, as compared to the same period in 2016, reflecting increases of 17.0% and 2.1% in Brazil and the U.K., respectively, substantially offset by a decrease of 1.6% in the U.S. The increase in Brazil resulted from additional rent expense incurred following annual increases in rental rates during 2017. The increase in the U.K. was more than explained by an increase in property taxes, as well as rent expense, associated with new facilities. The decrease in the U.S. can be explained by management’s strategy to own more real estate, thereby reducing rent costs, and ongoing initiatives to control costs, partially offset by an increase associated with non-core charges for building and property damage as a result of Hurricanes Harvey and Irma.
Our total Same Store other SG&A increased 9.5% to $264.2 million for the year ended December 31, 2017, as compared to the same period in 2016, explained by increases of 10.1%, 5.8% and 11.8% in the U.S., the U.K. and Brazil, respectively. The increase in the U.S. can be partially attributed to the non-core charges for vehicle damage as a result of Hurricane Harvey. The increases in the U.K. and Brazil were primarily explained by increases in expenses that generally correlate to the overall growth in gross profit of 6.6% and 16.4%, respectively,operations is on a constant currency basis.
For the year ended December 31, 2017, as compared to the same period in 2016, our total Same Store SG&A as a percentage of gross profit increased 90consolidated basis, points to 73.8% primarily driven by 170 and 80 basis point increases in the U.K. and U.S., respectively. Offsetting these increases, our Same Store SG&A as a percentage of gross profit in Brazil improved 520 basis points to 90.0%, primarily reflecting continued leverage of our cost structure realized with a growth in gross profit. On an adjusted basis, total Same Store SG&A as a percentage of gross profit improved by 10 basis points to 72.9%, as compared to the same period in 2016, driven by a 550 basis point improvement in Brazil and a 40 basis point improvement in the U.S. resulting from the further leveraging of our cost structure from revenue and gross profit growth and cost rationalization efforts that resulted in particular reductions in advertising and rent and facilities cost in the U.S. The improvements in Brazil and the U.S. were partially offset by an increase in the U.K. of 200 basis points.
Year Ended December 31, 2016 compared to 2015
Our total Same Store SG&A increased $10.0 million, or 0.9%, for the year ended December 31, 2016, as compared to the same period in 2015, primarily the result of a 1.4% increase in the U.S. Same Store SG&A that was partially offset by a 2.9% and 2.0% decline in Brazil and U.K, respectively. The increase in the U.S. is largely related to increased personnel costs. The decline in the U.K. and Brazil can be explained by the change in exchange rates between periods, as total Same Store SG&A increased 10.6% and 2.7%, respectively, on a constant currency basis. After adjusting for non-core items of $5.9 million in deductible charges related to catastrophic events, $1.8 million in severance costs, $0.6 million of costs related to dealership acquisition activities, $0.4 million related to real estate and dealership disposition transactions and $0.3 million charge related to a foreign transaction tax in Brazil, offset by $9.9 million gain associated with the settlement of a claim with one of our OEM partners, our adjusted total Same Store SG&A increased 1.3% for the year ended December 31, 2016, as compared to the same period in 2015 adjusted for comparable non-core items.
Our total Same Store personnel costs increased $13.9 million, or 2.0%, for the year ended December 31, 2016, as compared to the same period in 2015, primarily as a result of a 2.4% and 0.1% increase in the U.S. and the Brazil, respectively, partially offset by a 0.6% decline in the U.K. The increase in the U.S. is a result of the fluctuation in variable costs such as salesperson commission payments, which increased due to higher new vehicle margins, incremental severance costs and an increase in our overall employee healthcare costs. The U.S. Same Store personnel costs included $1.8 million of severance costs for 2016. The decrease in total Same Store personnel costs in the U.K is the result of the change in exchange rates between periods. On a constant currency basis, Same Store personnel costs in the U.K. rose 12.2%, primarily driven by commission payments as a result of an overall improvement in the profitability of our new and used vehicle and finance and insurance departments in the U.K.
For the twelve months ended December 31, 2016, our total Same Store advertising costs increased 0.7%, to $72.9 million, driven by a 1.2% increase in the U.S. that was partially offset by a 5.7% and 2.6% decline in the U.K and Brazil, respectively. The increase in the U.S. is a result of advertising activity designed to generate incremental sales opportunities. The decreases in Same Store advertising costs in the U.K. and Brazil can be explained by the changes in exchange rates between periods, as Same Store advertising costs increased by 6.8% and 1.6%, respectively, on a constant currency basis. These increases in both the U.K. and Brazil were also largely driven by activity designed to generate incremental sales opportunities and capture market share.
Our total Same Store rent and facility costs decreased 0.6% to $98.9 million for the twelve months ended December 31, 2016, as compared to the same period a year ago, reflecting declines of 9.1% and 4.4% in the U.K. and Brazil, respectively, partially offset by an increase of 0.8% in the U.S. The decrease in Same Store rent and facility costs in the U.K. was driven by lower utility expense associated with a reduction in oil and gas prices. The decrease in Brazil can be explained by the changes in exchange rates between periods, as Same Store rent and facility costs remained relatively flat on a constant currency basis, as compared to the same period in 2015. The increase in the U.S. is primarily driven by increased property taxes, as compared to the same period in 2015, associated with higher property values that stem from continued improvements to our existing facilities designed to enhance the profitability of our dealerships and the overall customer experience.
Our total Same Store other SG&A decreased 1.8% to $227.8 million as compared to the same period in 2015, driven by an 8.1%, 2.4% and 1.4% decline in Brazil, the U.K. and the U.S., respectively. The decline in our U.K. Same Store other SG&A was primarily a result of the change in the exchange rate between periods, as Same Store other SG&A costs in U.K. increased 10.4% on a constant currency basis. The 1.4% decrease in Same Store other SG&A in the U.S. is partially attributable to a net gain of $9.9 million recognized for a settlement with one of our OEM partners. Also included in total Same Store other SG&A for the year ended December 31, 2016 were non-core items of $5.9 million in charges related to catastrophic events and $0.4 million of costs related to real estate and dealership activities in the U.S., $0.6 million associated with dealership acquisition costs in the U.K. and $0.3 million in charges related to a foreign transaction tax in Brazil.
For the twelve months ended December 31, 2016, as compared to the same period in 2015, our total Same Store SG&A as a percentage of gross profit remained flat at 72.8%. Our adjusted total Same Store SG&A as a percentage of gross profit increased 30 basis points to 72.9%, primarily driven by 1,100 and 20 basis point increase in Brazil and the U.S., respectively, offset by a 150 basis point decrease in the U.K. segment. The increase in Brazil was due to a 14.2% decline in gross profit. The improvement in the U.K. is a reflection of the leverage of our cost structure realized with the growth of revenue and gross profit.
Depreciation and Amortization Data
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Same Stores | | | |
| | | | | | | | |
| | | | |
| U.S. | | $ | 47,217 |
| | 11.0% | | N/A | | $ | 42,554 |
| | | $ | 42,510 |
| | 6.4% | | N/A | | $ | 39,936 |
|
| U.K. | | 6,787 |
| | 8.3% | | 13.1% | | 6,264 |
| | | 4,589 |
| | 6.5% | | 20.4% | | 4,307 |
|
| Brazil | | 1,395 |
| | 17.0% | | 7.8% | | 1,192 |
| | | 1,160 |
| | (3.2)% | | 3.1% | | 1,198 |
|
| Total Same Stores | | 55,399 |
| | 10.8% | | 11.2% |
| 50,010 |
| |
| 48,259 |
| | 6.2% | | 7.7% | | 45,441 |
|
| Transactions | | 2,537 |
| | | | | | 1,224 |
| | | 2,975 |
| | | | | | 1,798 |
|
| Total | | $ | 57,936 |
| | 13.1% | | 13.6% | | $ | 51,234 |
| | | $ | 51,234 |
| | 8.5% | | 10.5% | | $ | 47,239 |
|
Our total Same Store depreciation and amortization expense increased 10.8%was $71.6 million, $67.1 million, and 6.2%$57.9 million for the years ended December 31, 2019, 2018, and 2017, and 2016, respectively, as compared torespectively. The year over year increases are substantially explained by the respective prior year periods,increase in our U.S. segment, as we continue to strategically add dealership-related real estate to our investment portfolio and make improvements to our existing facilities that are designedintended to enhance the profitability of our dealerships and the overall customer experience. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments.
Impairment of Assets
We perform an annual review of the fair value of our goodwill and indefinite-lived intangible assets duringevaluate franchise rights for impairment annually in the fourth quarter.quarter, based on the respective carrying values as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred. We also perform interim reviewsreview long-lived assets, including our property and equipment and ROU assets, that are held-for-use for impairment at the lowest level of all of our long-lived and indefinite-lived assets whenidentifiable cash flows whenever there is evidence
exists that the carrying value of suchthese assets may not be recoverable. recoverable (i.e., triggering events).
During the years ended December 31, 2019, 2018 and 2017, we recorded $19.0 million, $38.7 million and $19.3 million, respectively, of impairments of intangible franchise rights. Also during the years ended December 31, 2019, 2018 and 2017, we recorded $1.8 million, $5.1 million and $0.2 million of impairments of property and equipment, respectively, and additionally recognized an ROU asset impairment charge of $1.4 million during the year ended December 31, 2019.
See Note 1511 “Intangible Franchise Rights and Goodwill,” Note 9 “Property and Equipment, Net” and Note 10 “Leases” within our Notes to our Consolidated Financial Statements “Asset Impairments,” for further discussion of our annual impairment assessments.
During the fourth quarters of 2017 and 2016, we performed our annual impairment assessment of the carrying value of our goodwill. The fair value of each of our reporting units exceeded the carrying value of the respective net assets (step one of the goodwill impairment test). As a result, we were not required to conduct the second step of the impairment test for goodwill. During the 2015 goodwill assessment, it was determined that, in Brazil, the carrying value of goodwill exceeded the implied fair value and as a result a $55.4 million impairment was recorded.
During 2017, 2016, and 2015, we determined that the carrying value of certain of our intangible franchise rights were greater than fair value. As a result, we recognized $19.3 million, $30.0 million and $30.1 million of pre-tax non-cash impairment charges, respectively. Also, in 2017, 2016, and 2015, we recognized $0.2 million, $2.8 million, and $2.1 million, respectively, in pre-tax non-cash asset impairment charges, associated with non-operating real estate holdings and other long-lived assets of our existing dealership facilities.impairments.
Floorplan Interest Expense
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For The Year Ended December 31, |
| | | 2017 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2016 | | | 2016 | | % Increase/ (Decrease) | | Constant Currency % Increase/(Decrease) | | 2015 |
| Same Stores | | | |
| | | | | | | | | | | | | |
| U.S. | | $ | 46,845 |
| | 16.6% | | N/A | | $ | 40,186 |
| | | $ | 39,955 |
| | 12.8% | | N/A | | $ | 35,424 |
|
| U.K. | | 4,182 |
| | 4.8% | | 8.9% | | 3,991 |
| | | 2,190 |
| | (3.8)% | | 9.3% | | 2,276 |
|
| Brazil | | 315 |
| | (7.4)% | | (8.3)% | | 340 |
| | | 63 |
| | (91.9)% | | (88.6)% | | 781 |
|
| Total Same Stores | | 51,342 |
| | 15.3% | | 15.7% | | 44,517 |
| | | 42,208 |
| | 9.7% | | 10.5% | | 38,481 |
|
| Transactions | | 1,030 |
| | | | | | 410 |
| | | 2,719 |
| | | | | | 783 |
|
| Total | | $ | 52,372 |
| | 16.6% | | 17.0% | | $ | 44,927 |
| | | $ | 44,927 |
| | 14.4% | | 16.0% | | $ | 39,264 |
|
| Memo: | | | | | | | | | | | | | | | | | |
| Manufacturer’s assistance | | $ | 48,935 |
| | (0.5)% | | (0.4)% | | $ | 49,202 |
| | | $ | 49,202 |
| | (2.5)% | | (2.3)% | | $ | 50,474 |
|
Our floorplan interest expense fluctuates with changes in our borrowings outstanding and interest rates, which are based on the one-month LIBOR (or Prime rate in some cases), plus a spread in the U.S. and U.K., and a benchmark rate plus a spread in Brazil. To mitigate the impact of U.S. interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure for a fixed interest rate over the term of the U.S. variable interest rate debt.
During 2017 and 2016, our average notional amount of interest rate swaps in effect was $822.2 million and $612.0 million, respectively, that fixed our underlying one-month LIBOR at a weighted average rate of 2.53% and 2.65%, respectively. The majority of the monthly settlements of these interest rate swap liabilities are recognized as floorplan interest expense. From time to time, we utilize excess cash on hand to pay down our floorplan borrowings, and the resulting interest earned is recognized as an offset to our gross floorplan interest expense.
Year Ended December 31, 2017 compared to 2016
Our total Same Store floorplan interest expense increased 15.3% to $51.3 million forFor the year ended December 31, 2017,2019, our total floorplan interest expense increased 2.8% as compared to the same period in 2016. The increase was2018, primarily driven by our Same Store floorplan interest expensedue to higher inventory levels in the U.S. that grew $6.7 million, or 16.6%, from the same period a year ago, which is more than explained by the increase in LIBOR interest rates since the fourth quarter of 2016. The increase was partially offset by a decline in our U.S. weighted average borrowings compared to the same period in 2016.
Year Ended December 31, 2016 compared to 2015
Our total Same Store floorplan interest expense increased 9.7% to $42.2 million forFor the year ended December 31, 2016,2018, our total floorplan interest expense increased 14.3% as compared to the same period in 2015. The2017, primarily explained by the increase was driven by our Same Store floorplan interest expensein LIBOR in the U.S. that grew $4.5 million, or 12.8%, driven by a rise in the weighted average borrowing rate primarily as a result of an increase in LIBOR compared to the same period a year ago. Additionally, we experienced an increase in our weighted average floorplan borrowings in the U.S. of $62.3 million for year ended December 31, 2016 reflecting higher inventory levels in 2016 when compared with 2015. Beginning in the later part of the fourth quarter of 2015, we experienced an increase in our supply of
luxury brand units as several of our manufacturer partners redirected additional inventory supply to the U.S. to offset weakness in other global markets. Furthermore, for most of 2016, several manufacturers issued stop sales on a number of vehicle models due to recall campaigns that contributed to an increase in our new and used vehicle inventory as compared to the same period in 2015.
Other Interest Expense, net
Year Ended December 31, 2017 compared to 2016Net
Other interest expense, net consists of interest charges primarily on our 5.00% and 5.25% Notes, real estate related debt, working capital lines of credit and our other long-term debt, partially offset by interest income. For the twelve monthsyear ended December 31, 2017,2019, other interest expense, increased $2.6net decreased from $75.8 million or 3.8%, to $70.5$74.9 million as compared to the same period in 2016.2018. The increasedecrease was primarily attributable to an increasea decrease in the weighted average interest rates associated withborrowings on our real estate and other long-termrelated debt.
Year Ended December 31, 2016 compared to 2015
For the twelve monthsyear ended December 31, 2016,2018, other interest expense, net increased $11.0from $70.5 million or 19.4%, to $67.9$75.8 million as compared to the same period in 2015.2017. The increase was primarily attributable to the impact of rising interest incurredrates in the U.S. on our 5.25% Notes offering that was executed in December 2015. As a partial offset, we used a portion of the proceeds from the 5.25% Notes offering to repay the outstanding borrowings of the Company’s Acquisition Line and to payoff certain real estate related mortgages.variable-rate borrowings.
Provision for Income Taxes
For the year ended December 31, 2017,2019, we recorded a tax provision of $5.6 million.$53.3 million. The 20172019 effective tax rate of 2.5% decreased from23.4% was slightly higher than the 20162018 effective tax rate of 35.3%23.2%, primarily dueas a result of increased valuation allowances with respect to the enactment of new tax legislationnet operating losses in the United States during 2017, as well as excess tax deductions for restricted stock resulting from the adoption of ASU 2016-09,certain U.S. states, partially offset by unrecognized tax benefits with respect to uncertain tax positions recordedreduced net operating losses in 2017. On an adjusted basis, for the year ended December 31, 2017, our effective tax rate decreased to 35.7% from 35.8% as compared to the same period in 2016.Brazil.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. TheGenerally effective January 1, 2018, the Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35%35 percent to 21%,21 percent and creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and requiring companies to pay a one-time transition tax on unrepatriated earnings of their foreign subsidiaries. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Job Act (“SAB 118”), we have determined a reasonable estimate of the tax rate reduction on our existing deferred taxes, based on a remeasurement of our deferred tax assets and liabilities, and recorded a provisional tax benefit of $73.0 million, with a corresponding reduction in our deferred tax liabilities for the year ended December 31, 2017. Additionally, we have provisionally determined that we do not have a transition tax liability for previously untaxed accumulated and current earnings and profits (E&P) of our foreign subsidiaries.
Due to the timing of the enactment and complexity involved in applying the provisions of the Tax Act, we based our provisions on reasonable estimates of the law’s effects in our financial statements as of December 31, 2017. We will complete our accounting for the Tax Act after we have considered additional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and we have gathered and analyzed additional data relative to our calculations. This may result in adjustments to our provisional amounts, which would impact our provision for income taxes and effective tax rate in the period the adjustments are made. We will complete our accounting for the Tax Act in 2018.
For the year ended December 31, 2016,2018, we recorded a tax provision of $80.3$47.6 million. The 20162018 effective tax rate of 35.3% decreased23.2% increased from the 20152017 effective tax rate of 48.4%2.5%, primarily resulting from the impact that was recorded in 2017 of the remeasurement of deferred taxes recorded in 2017 due to the mix effect resultingTax Act that reduced the U.S. corporate tax rate from proportionately more pretax income generated in our U.K. region and changes35.0% to 21.0%, as well as the valuation allowances provided for net operating losses and other deferred tax assets in certain U.S. states and in Brazil, as well aspartially offset by the deferredemployment tax impact of a dealership disposition in Brazil. In addition,credits and the 2016 effective tax rate decreasedenactment date adjustments from the 2015 rate due to the impairment of non-deductible goodwill in Brazil in 2015. On an adjusted basis, for the year ended December 31, 2016, our effective tax rate decreased to 35.8% from 37.4% as compared to the same period in 2015.Tax Act.
We believe that it is more likely than not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on the assumption of future taxable income. We expect our effective tax rate in 20182020 will be approximately between 23.0% and 24.0%23.5%.
As of December 31, 2017, we had net deferred tax liabilities totaling $119.8 million relatingFor further discussion, please see Note 14 “Income Taxes” within our Notes to the differences between the financial reporting and tax basis of assets and liabilities. This includes $115.7 million of net deferred tax liabilities relating
to intangibles for goodwill and franchise rights that are deductible for tax purposes and will not reverse until the related intangibles are disposed. We also had $17.4 million of deferred tax assets for net operating losses in U.S. states, as well as $40.6 million of deferred tax assets for foreign net operating losses. As of December 31, 2017, we had $44.0 million of deferred tax assets relating to loss reserves and accruals. In addition, we had $54.4 million of valuation allowances for net operating losses in certain U.S. states, as well as the deferred tax assets (including net operating losses) for certain entities in Brazil. Refer to Note 7 to our Consolidated Financial Statements for more details.Statements.
Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our Floorplan Line and FMCC facilityFacility levels (see Note 12 “Floorplan Notes Payable” within our Notes to Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, which provide vehicle floorplan financing, working capital, and dealership and real estate acquisition financing real estate mortgages, and proceeds from debt and equity offerings. Based on current facts and circumstances, we believe we will have adequate cash flow, coupled with available borrowing capacity, to fund our current operations, capital expenditures, and acquisitions for 2018.2020. If economic and business conditions deteriorate or if our capital expenditures or acquisition plans for 20182020 change, we may need to access the private or public capital markets to obtain additional funding. See “Sources and Uses of Liquidity from Investing Activities” below for further discussion of expectations regarding future capital expenditures.
Cash on Hand.Hand
As of December 31, 2017,2019, our total cash on hand was $28.8$23.8 million. The balance of cash on hand excludes $109.0$110.9 million of immediately available funds used to pay down our Floorplan Line and FMCC Facility and $4.3 million of restricted cash as of December 31, 2017.2019. We use the pay down of our Floorplan Line and FMCC Facility as a channel for the short-term investment of excess cash.
Cash Flows.Flows
We utilize various credit facilities to finance the purchase of our new and used vehicle inventory. With respect to all new vehicle floorplan borrowings in the normal course of business, the manufacturers of the vehicles draft our credit facilities directly with no cash flow to or from us. With respect to borrowings for used vehicle financing, we finance up to 85% of the value of our used vehicle inventory in the U.S., and the funds flow directly to us from the lender.
We categorize the cash flows associated with borrowings and repayment on these various credit facilities as Cash Flows from Operating Activities or Cash Flows from Financing Activities in our Consolidated Statements of Cash Flow. All borrowings from, and repayments to, lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) are presented within Cash Flows from Operating Activities on the in our Consolidated Statements of Cash Flows in conformity with U.S. GAAP. All borrowings from, and repayments to, the Revolving Credit Facility (see Note 12 “Floorplan Notes Payable” within our Notes to Consolidated Financial Statements for additional information) (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K. and Brazil unaffiliated with our manufacturer partners (collectively, “Non-OEM Floorplan Credit Facilities”), are presented within Cash Flows from Financing Activities in conformity with U.S. GAAP. However, the incurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale, resulting in a trade payable. Our decision to utilize our Revolving Credit Facility does not substantially alter the process by which our vehicle inventory is financed, nor does it significantly impact the economics of our vehicle procurement activities. Therefore, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cash provided by/used in operating activities” and “Adjusted net cash provided by/used in financing activities” to evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP and avoids the potential to mislead the users of our financial statements.
In addition, because the majority of ourfor dealership acquisitions and dispositions that are negotiated as asset purchases, we do not assume transfer of liabilities for floorplan financing in the execution of the transactions. Therefore, borrowings and repayments of all floorplan financing associated with dealership acquisition and disposition are characterized as either operating or financing activities in our statement of cash flows presented in conformity with U.S. GAAP, depending on the relationship described above. However, the floorplan financing activity is so closely related to the inventory acquisition process that we believe the presentation of all dealership acquisition-acquisition and disposition-relateddisposition related floorplan financing activities should be classified as investing activity to correspond with the associated inventory activity, which more closely reflects the cash flows associated with our acquisition and wedisposition strategy and eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP. We have made such adjustments in our adjusted operating cash flow presentations.
The following tables sets forth selected historical information regardingtable reconciles cash flows from our Consolidated Statements of Cash Flowsflow provided by (used in) operating, investing and financing activities on a U.S. GAAP and on an adjusted, non-GAAP basis. For further explanation and reconciliationbasis to the most directly comparable U.S. GAAP measures see “Non-GAAP Financial Measures” below. corresponding adjusted amounts (in millions): |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 370.9 |
| | $ | 270.0 |
| | $ | 196.5 |
|
| Change in Floorplan notes payable – credit facility and other, excluding floorplan offset and net acquisitions and dispositions | | (42.8 | ) | | 62.2 |
| | 88.7 |
|
| Change in Floorplan notes payable – manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity | | 4.0 |
| | (22.4 | ) | | (3.0 | ) |
| Adjusted net cash provided by (used in) operating activities | | $ | 332.1 |
| | $ | 309.8 |
| | $ | 282.3 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Net cash provided by (used in) investing activities | | $ | (291.6 | ) | | $ | (168.0 | ) | | $ | (312.6 | ) |
| Change in cash paid for acquisitions, associated with Floorplan notes payable | | 25.2 |
| | 16.3 |
| | 14.7 |
|
| Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable | | (19.5 | ) | | (24.3 | ) | | — |
|
| Adjusted net cash provided by (used in) investing activities | | $ | (285.9 | ) | | $ | (176.0 | ) | | $ | (297.9 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Net cash provided by (used in) financing activities | | $ | (67.0 | ) | | $ | (109.5 | ) | | $ | 121.5 |
|
| Change in floorplan notes payable, excluding floorplan offset | | 33.1 |
| | (31.8 | ) | | (100.5 | ) |
| Adjusted net cash provided by (used in) financing activities | | $ | (33.9 | ) | | $ | (141.4 | ) | | $ | 21.0 |
|
|
| | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| U.S. GAAP Basis | | 2017 | | 2016 | | 2015 |
| | | | | (In thousands) | | |
| Net cash provided by operating activities | | $ | 198,925 |
| | $ | 384,857 |
| | $ | 141,047 |
|
| Net cash used in investing activities | | (312,598 | ) | | (174,040 | ) | | (284,502 | ) |
| Net cash provided by (used in) financing activities | | 121,476 |
| | (205,007 | ) | | 121,009 |
|
| Effect of exchange rate changes on cash | | (8 | ) | | 2,145 |
| | (5,492 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | 7,795 |
| | $ | 7,955 |
| | $ | (27,938 | ) |
|
| | | | | | | | | | | | |
| | | For the Year Ended December 31, |
Adjusted, Non-GAAP Basis(1) | | 2017 | | 2016 | | 2015 |
| | | | | (In thousands) | | |
| Adjusted net cash provided by operating activities | | $ | 284,667 |
| | $ | 271,741 |
| | $ | 244,349 |
|
| Adjusted net cash used in investing activities | | (297,865 | ) | | (190,639 | ) | | (266,791 | ) |
| Adjusted net cash provided by (used in) financing activities | | 21,001 |
| | (75,292 | ) | | (4 | ) |
| Effect of exchange rate changes on cash | | (8 | ) | | 2,145 |
| | (5,492 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | 7,795 |
| | $ | 7,955 |
| | $ | (27,938 | ) |
(1) See “Non-GAAP Financial Measures” for details
Sources and Uses of Liquidity from Operating Activities
For the twelve monthsyear ended December 31, 2017,2019, we generated $198.9$370.9 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $284.7$332.1 million in net cash flow from operating activities, primarily consisting of $174.0 million in net income, as well as non-cash adjustments related to depreciation and amortization of $71.6 million, amortization of operating lease ROU assets of $28.2 million, asset impairments of $22.2 million related to our intangible franchise rights, property and equipment and ROU assets (see Note 11 “Intangible Franchise Rights and Goodwill,” Note 9 “Property and Equipment, Net” and Note 10 “Leases” within our Notes to Consolidated Financial Statements for additional discussion), stock-based compensation of $18.8 million and deferred income taxes of $16.2 million, partially offset by a $5.9 million gain on the disposition of assets. Adjusted net cash flows from operating activities also includes $1.8 million adjusted net change in operating assets and liabilities, including cash inflows of $123.1 million from increases in accounts payable and accrued expenses and $12.7 million from net decrease in contracts-in-transit and vehicle receivables. These cash inflows were partially offset by cash outflows of $44.0 million from net increases in prepaid expenses and other current assets, $32.5 million from net increases of accounts and notes receivable, $28.8 million from an increase in inventory level and $28.3 million from the decrease in operating lease liabilities.
For the year ended December 31, 2018, we generated $270.0 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $309.8 million in net cash flow from operating activities, primarily consisting of $157.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $67.1 million, stock-based compensation of $18.7 million, deferred income taxes of $3.5 million and asset impairments of $43.9 million, partially offset by a $26.8 million gain on disposition of assets. Also included in adjusted net cash flow from operating activities was a $41.4 million net change in operating assets and liabilities, consisting of cash inflows of $78.2 million from a net increase in floorplan borrowings, $2.9 million from the net decrease in accounts and notes receivable, $39.5 million from decreases in vehicle receivables and contracts-in-transit, and $18.4 million from increases in accounts payable and accrued expenses. These cash inflows were partially offset by cash outflows of $80.6 million from the increase in inventory levels and $16.3 million from the net increase in prepaid expenses and other assets.
For the year ended December 31, 2017, we generated $196.5 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $282.3 million in net cash flow from operating activities, primarily consisting of $213.4 million in net income, as well as non-cash adjustments related to depreciation and amortization of $57.9 million, stock-based compensation of $18.9 million and asset impairments of $19.5 million, partially offset by a $46.1 million non-cash adjustment related to deferred income taxes, which includes the provisional deferred tax benefit of $73.0 million recognized as a result of the Tax Act. Also included in adjusted net cash flow from operating activities was an $18.5a $16.1 million net change in operating assets and liabilities, consisting of cash inflows of $77.4 million from a net increase in floorplan borrowings and $35.6 million from increases in accounts payable and accrued expenses. These cash inflows were partially offset by cash outflows of $10.7 million from the net increase in accounts and notes receivable, $44.0 million from the increase in inventory levels, $33.5 million from increases in vehicle receivables and contracts-in-transit, and $6.9$9.3 million from the net increase in prepaid expenses and other assets.
For the twelve months endedWorking Capital
At December 31, 2016,2019, we generated $384.9had $94.0 million of net cash flow from operating activities. Onworking capital. This represents an adjusted basis for the same period, we generated $271.7 million in net cash flow from operating activities, primarily consistingincrease of $147.1 million in net income, as well as non-cash adjustments related to depreciation and amortization of $51.2 million, stock-based compensation of $21.1 million, deferred income taxes of $14.2 million and asset impairments of $32.8 million. Also included in adjusted net cash flow from operating activities was a $3.3 million net change in operating assets and liabilities. Included in the adjusted net changes of operating assets and liabilities were cash inflows of $79.3$78.2 million from a net decrease in inventory levels, $76.1 million from increases in accounts payable and accrued expenses, and $8.2 million from the net decrease in prepaid expenses and other assets. These cash inflows were partially offset by cash outflows of $18.7 million from the net increase in accounts and notes receivable, $125.7 million from a net decrease in floorplan borrowings, and $15.6 million from increases in vehicle receivables and contracts-in-transit.
For the twelve months ended December 31, 2015, we generated $141.0 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $244.3 million in net cash flow from operating activities, primarily consisting of $94.0 million in net income, as well as non-cash adjustments related to depreciation and amortization of $47.2 million, stock-based compensation of $18.9 million, deferred income taxes of $11.9 million, and asset impairments of $87.6 million. Partially offsetting these adjusted net cash flow from operating activities was a $10.3 million net outflow related to the change in operating assets and liabilities. Included in the adjusted net changes of operating assets and liabilities were cash outflows of $17.9 million from the net increase in accounts and notes receivable, $186.6 million from the increase in inventory levels, $17.9 million from increases in vehicle receivables and contracts-in-transit, and $3.2 million from the net increase in prepaid expenses and other assets. The cash outflows were partially offset by cash inflows of $190.8 million from a net increase in floorplan borrowings and $25.1 million from increases in accounts payable and accrued expenses.
Working Capital. At December 31, 2017,2018, when we had $130.7$15.8 million of working capital. Changes in our working capital are explained primarily by changes in floorplan notes payable outstanding. Borrowings on our new vehicle floorplan notes payable,
subject to agreed upon pay-off terms, are equal to 100% of the factory invoice of the vehicles. Borrowings on our used vehicle floorplan notes payable, subject to agreed upon pay-off terms, are limited to 85% of the aggregate book value of our used vehicle inventory, except in the U.K. and Brazil. At times, we have made payments on our floorplan notes payable using excess cash flow from operations and the proceeds of debt and equity offerings. As needed, we re-borrow the amounts later, up to the limits on the floorplan notes payable discussed above, for working capital, acquisitions, capital expenditures or general corporate purposes.
Sources and Uses of Liquidity from Investing Activities
For the twelve monthsyear ended December 31, 2019, we used $291.6 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $285.9 million in net cash flow for investing activities, primarily consisting of $191.8 million used for purchases of property and equipment and to construct new and improve existing facilities and $118.0 million used for dealership acquisition activity, partially offset by cash inflow of $23.9 million related to the disposition of franchises and property and equipment. Of the $191.8 million in property and equipment purchases, $95.2 million was used for non-real estate related capital expenditures, $92.5 million was used for the purchase of real estate associated with existing dealership operations and $4.1 million represents the net year over year decrease in the accrual for capital expenditures.
For the year ended December 31, 2018, we used $168.0 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $176.0 million in net cash flow for investing activities, primarily consisting of $141.0 million for purchases of property and equipment and to construct new and improve existing facilities and $119.0 million used for dealership acquisition activity, partially offset by cash inflows of $83.6 million related to dispositions of franchises and property and equipment. Of the $141.0 million in property and equipment purchases, $110.1 million was used for non-real estate related capital expenditures and $31.4 million was used for the purchase of real estate associated with existing dealership operations and $0.5 million represents the net year over year increase in the accrual for capital expenditures.
For the year ended December 31, 2017, we used $312.6 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $297.9 million in net cash flow for investing activities, primarily consisting of $94.3 million of cash outflows for dealership acquisition activity and $215.8 million for purchases of property and equipment and to construct new and improve existing facilities. Within this totalfacilities and $94.3 million used for dealership acquisition activity, partially offset by cash inflows of $10.7 million related to dispositions of franchises and property and equipment. Of the $215.8 million in property and equipment purchases, $98.3 million was used for capital expenditures, $110.4 million was used for the purchase of real estate associated with existing dealership operations, $98.3 million was used for non-real estate related capital expenditures and $7.1 million represents the net year over year decrease in the accrual for capital expenditures from year-end. These cash outflows were partially offset by cash inflows of $10.7 million related to dispositions of franchises and fixed assets and $1.6 million of other items.expenditures.
For the twelve months ended December 31, 2016, we used $174.0 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $190.6 million in net cash flow for investing activities, primarily consisting of $57.3 million of cash outflows for dealership acquisition activity and $156.5 million for purchases of property and equipment and to construct new and improve existing facilities. Within this total of property and equipment purchases, $100.6 million was used for capital expenditures, $39.1 million was used for the purchase of real estate associated with existing dealership operations, and $16.8 million was a net decrease in the accrual for capital expenditures from year-end. These cash outflows were partially offset by cash inflows of $20.2 million related to dispositions of franchises and fixed assets and $3.0 million of other items.Capital Expenditures
For the twelve months ended December 31, 2015, we used $284.5 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $266.8 million in net cash flow for investing activities, primarily consisting of $180.1 million of cash outflows for dealership acquisition activity and $120.3 million for purchases of property and equipment and to construct new and improve existing facilities. Within this total of property and equipment purchases, $107.2 million was used for capital expenditures and $24.6 million was used for the purchase of real estate associated with existing dealership operations, partially offset by an $11.5 million net increase in the accrual for capital expenditures from year-end. These cash outflows were partially offset by cash inflows of $27.2 million related to dispositions of franchises and fixed assets and $6.4 million of other items.
Capital Expenditures.Our capital expenditures include costs to extend the useful lives of current facilities, as well as to start or expand operations. In general, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises being granted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities, or manufacturer imaging programs. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments. We forecast our capital expenditures for 20182020 to be no more than $140.0approximately $125.0 million excluding expenditures related to future acquisitions, which could generally be funded from excess cash.
Acquisitions & Dispositions.
We generally purchase businesses based onevaluate the expected return on investment.investment in our consideration of potential business purchases. Cash needed to complete our acquisitions generally comes from excess working capital, operating cash flows of our dealerships, and borrowings under our floorplan facilities, term loans and our Acquisition Line.
Sources and Uses of Liquidity from Financing Activities
For the twelve monthsyear ended December 31, 2019, we used $67.0 million in net cash flow from financing activities. On an adjusted basis for the same period, we used $33.9 million in net cash flow from financing activities, primarily related to cash outflows of $82.9 million in net repayment on our Floorplan lines (representing the net cash activity in our floorplan offset account), $20.3 million in dividend payments, partially offset by $37.6 million in net borrowings on our Acquisition Line and $26.2 million in net borrowings on debt related to real estate.
For the year ended December 31, 2018, we used $109.5 million in net cash flow from financing activities. On an adjusted basis for the same period, we used $141.4 million in net cash flow from financing activities, primarily related to cash outflows of $183.9 million related to the repurchase of our common stock, $36.8 million of net payments on our real estate debt, and $20.9 million for dividend payments. These outflows were partially offset by cash inflows of $75.3 million in net borrowings on our Floorplan lines (representing the net cash activity in our floorplan offset accounts), $6.9 million of net borrowings on our Acquisition Line and $14.3 million of net borrowings of other debt.
For the year ended December 31, 2017, we generated $121.5 million in net cash flow from financing activities. On an adjusted basis for the same period, we generated $21.0 million in net cash flow from financing activities, primarily related to cash inflows of $25.8 million of net borrowings on our Acquisition Line, $45.9 million of net borrowings of real estate debt, and $29.2 million of net borrowings of other debt. These inflows were partially offset by cash outflows of $40.1 million related to the repurchase of our Company's common stock, $23.9 million in net payments on our Floorplan lines (representing the net cash activity in our floorplan offset accounts), and $20.5 million for dividend payments.
For the twelve months ended December 31, 2016, we used $205.0 million in net cash flow from financing activities. On an adjusted basis for the same period, we used $75.3 million in net cash flow from financing activities, primarily related to cash outflows of $127.6 million to repurchase our Company's common stock and $20.0 million for dividend payments. These outflows were partially offset by cash inflows of $17.2 million of net borrowings of real estate debt, $4.2 million of net borrowings of other debt, and $50.8 million in net borrowings on our Floorplan lines (representing the net cash activity in our floorplan offset accounts).
For the twelve months ended December 31, 2015, we generated $121.0 million in net cash flow from financing activities. On an adjusted basis for the same period, net cash outflows from financing activities were essentially offset by cash inflows. The cash inflows primarily related to $296.3 million of 5.25% Notes borrowings. The cash inflows were offset by cash outflows of $97.5 million to repurchase our Company's common stock, $19.9 million for dividend payments, $40.1 million of net payments of real estate debt, $6.6 million of net payments of other debt, $65.6 million in net payments on our Floorplan lines (representing the net cash activity in our floorplan offset accounts), and $68.1 million in net payments on our Acquisition Line.
56
Credit Facilities, Debt Instruments and Other Financing Arrangements.Arrangements
Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.
The following table summarizes the position of our U.S. credit facilities as of December 31, 2017:2019 (in millions):
|
| | | | | | | | | | | | |
| | | As of December 31, 2017 |
| U.S. Credit Facilities | | Total Commitment | | Outstanding | | Available |
| | | (In thousands) |
Floorplan Line(1) | | $ | 1,440,000 |
| | $ | 1,133,296 |
| | $ | 306,704 |
|
Acquisition Line(2) | | 360,000 |
| | 51,816 |
| | 308,184 |
|
| Total Revolving Credit Facility | | 1,800,000 |
| | 1,185,112 |
| | 614,888 |
|
FMCC Facility(3) | | 300,000 |
| | 130,484 |
| | 169,516 |
|
Total U.S. Credit Facilities(4) | | $ | 2,100,000 |
| | $ | 1,315,596 |
| | $ | 784,404 |
|
|
| | | | | | | | | | | | |
| | | As of December 31, 2019 |
| | | Total Commitment | | Outstanding | | Available |
Floorplan line(1) | | $ | 1,440.0 |
| | $ | 1,099.1 |
| | $ | 340.9 |
|
Acquisition line(2) | | 360.0 |
| | 94.6 |
| | 265.4 |
|
| Total revolving credit facility | | 1,800.0 |
| | 1,193.7 |
| | 606.3 |
|
FMCC facility(3) | | 300.0 |
| | 204.5 |
| | 95.5 |
|
Total U.S. credit facilities(4) | | $ | 2,100.0 |
| | $ | 1,398.2 |
| | $ | 701.8 |
|
| |
(1) | The available balance as of December 31, 20172019 includes $86.5$106.8 million of immediately available funds. |
| |
(2) | The outstanding balance of $51.8$94.6 million is related to outstanding letters of credit of $25.0$23.6 million and $26.8$71.0 million in borrowings as of December 31, 2017.2019. The borrowings outstanding under the Acquisition Line represent 20.055.0 million British pound sterlingGBP translated at the spot rate on the day borrowed, solely for the purpose of calculating the Outstanding and Available borrowings under the Acquisition Line. The available borrowings may be limited from time to time, based on certain debt covenants. |
| |
(3) | The available balance as of December 31, 20172019 includes $22.5$4.1 million of immediately available funds. |
| |
(4) | The outstanding balance excludes $265.1$300.6 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and rental vehicle financing not associated with any of our U.S. credit facilities. |
Revolving Credit Facility. The Revolving Credit Facility contains a number of significant covenants that, among other things, restrict our ability to make disbursements outside of the ordinary course of business, dispose of assets, incur additional indebtedness, create liens on assets, make investments and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios defined in the Revolving Credit Facility, such as the fixed charge coverage and total adjusted leverage ratios. Further, the Revolving Credit Facility restricts our ability to make certain payments, such as dividends or other distributions of assets, properties, cash, rights, obligations or securities (“Restricted Payments”). As of December 31, 2017, the Credit Facility Restricted Payment Basket totaled $184.8 million and we were in compliance with all our financial covenants, including:
|
| | |
| As of December 31, 2017 |
| Required | Actual |
Total Adjusted Leverage Ratio | < 5.50 | 3.83 |
Fixed Charge Coverage Ratio | > 1.20 | 2.31 |
Based upon our current five year operating and financial projections, we believe that we will remain compliant with such covenants in the future.
Other Inventory Credit Facilities and Financing Arrangements.We have other credit facilities in the U.S., U.K. and Brazil with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicle inventories. In addition, we have outstanding debt instruments, including our 5.00% Notes and 5.25% Notes,senior notes, as well as real estate related and other long-term debt instruments.
Our Revolving Credit Facility, indentures governing our senior notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets, and to merge or consolidate with other entities. Certain of our mortgage agreements contain cross-default provisions that in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.
As of December 31, 2019, we were in compliance with the requirements of the financial covenants under our debt agreements. We are required to maintain the ratios detailed in the following table:
|
| | |
| As of December 31, 2019 |
| Required | Actual |
| Total adjusted leverage ratio | < 5.50 | 3.26 |
| Fixed charge coverage ratio | > 1.20 | 2.82 |
See Note 1112 “Floorplan Notes Payable” and 12Note 13 “Debt” within our Notes to our Consolidated Financial Statements “Credit Facilities” and “Long-Term Debt”, respectively, for further discussion of our credit facilities, debt instruments and other financing arrangements existing as of December 31, 2017.2019.
Stock Repurchases. FromRepurchases
Our Board of Directors from time to time our Boardauthorizes the repurchase of Directors gives authorization to repurchase shares of our common stock subjectup to a certain monetary limit. During the restrictions of various debt agreements and our judgment. The Company issues newyear ended December 31, 2019, 14,200 shares or treasury shares, if available, when restricted stock vests. With respect to shares issued under the Purchase Plan, the Company’s Board of Directors has authorized specific share repurchases to fund the shares issuable under the Purchase Plan.
In May 2017, our Board of Directors approved a new authorization of $75.0 million for the purchase of our common shares, replacing the prior $150.0 million authorization. Under both of the authorizations, wewere repurchased 649,298 shares during 2017 at an average price of $61.75$99.98 per share, for a total of $40.1$1.4 million, leaving $49.6$73.6 million available for future repurchases.under our stock repurchase limit of $75.0 million most recently authorized by our Board of Directors. Our stock repurchase program does not have an expiration date. Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions and other factors.
Dividends.In December 2019, we entered into a Rule 10b5-1 repurchase plan that was effective from January 2, 2020 to February 3, 2020. Under the plan, we have purchased 149,284 shares subsequent to December 31, 2019, at an average price of $98.12 per share for an aggregate cost of $14.7 million, leaving $58.9 million available under our stock repurchase program.
Dividends
Our Board of Directors approved four quarterly cash dividends on all outstanding shares of our common stock totaling $1.09 per share during 2019. For the year ended December 31, 2019, we paid dividends of $19.6 million to common stock shareholders and $0.7 million to unvested RSA holders.
The payment of dividendsany future dividend is subject to the discretionbusiness judgment of our Board of Directors, after considering thetaking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, outlook for our business, general business conditions, the political and legislative environmentscovenant compliance, share repurchases, current economic environment and other factors.
Further, we are limited under the terms of the Revolving Credit Facility, certain mortgage term loans, 5.00% Notesfactors considered relevant. There is no guarantee that additional dividends will be declared and 5.25% Notes in our ability to make cash dividend payments to our stockholders and to repurchase shares of our outstanding common stock. As of December 31, 2017, the restricted payment baskets limited us to $184.8 million in restricted payments. Generally, these restricted payment baskets will increasepaid at any time in the future periods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount of future payments for cash dividends and share repurchases. For the twelve months ended December 31, 2017, we paid dividends of $19.7 million to common stock shareholders and $0.8 million to unvested restricted stock award holders.future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2017:2019 (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| | | Total | | 1 Year | | 2-3 Years | | 4-5 Years | | Thereafter |
Floorplan notes payable (1) | | $ | 1,604.3 |
| | $ | 1,604.3 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Debt obligations (2) | | 1,501.7 |
| | 58.2 |
| | 673.8 |
| | 527.2 |
| | 242.4 |
|
| Estimated interest payments on fixed-rate long-term debt obligations | | 174.0 |
| | 50.0 |
| | 81.1 |
| | 38.7 |
| | 4.3 |
|
Estimated interest payments on variable-rate long-term debt obligations (3) | | 78.9 |
| | 19.6 |
| | 27.1 |
| | 20.8 |
| | 11.5 |
|
Operating lease obligations (4) | | 235.4 |
| | 24.6 |
| | 52.2 |
| | 42.9 |
| | 115.6 |
|
Estimated interest on operating lease obligations (4) | | 102.6 |
| | 12.6 |
| | 20.7 |
| | 15.6 |
| | 53.7 |
|
Estimated interest payments on interest rate risk management obligations (5) | | 5.3 |
| | 3.3 |
| | 2.4 |
| | 0.4 |
| | (0.7 | ) |
Purchase commitments (6) | | 51.6 |
| | 22.8 |
| | 25.7 |
| | 3.0 |
| | — |
|
| Total | | $ | 3,753.8 |
| | $ | 1,795.4 |
| | $ | 883.1 |
| | $ | 648.5 |
| | $ | 426.8 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| Contractual Obligations | | Total | | 1 Year | | 2-3 Years | | 4-5 Years | | Thereafter |
| | | | | | | (In thousands) | | | | |
| Floorplan notes payable | | $ | 1,528,831 |
| | $ | 1,528,831 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Acquisition line payable | | 26,988 |
| | — |
| | — |
| | 26,988 |
| | — |
|
Estimated interest payments on floor plan notes payable (1) | | 16,974 |
| | 10,411 |
| | 5,250 |
| | 1,313 |
| | — |
|
Debt obligations (2) | | 1,345,687 |
| | 98,194 |
| | 132,878 |
| | 638,868 |
| | 475,747 |
|
Estimated interest payments on fixed-rate long-term debt obligations (3) | | 229,046 |
| | 46,857 |
| | 91,725 |
| | 74,288 |
| | 16,176 |
|
Estimated interest payments on variable-rate long-term debt obligations (4) | | 54,169 |
| | 11,438 |
| | 17,449 |
| | 13,208 |
| | 12,074 |
|
| Capital lease obligations | | 51,665 |
| | 4,633 |
| | 9,259 |
| | 9,886 |
| | 27,887 |
|
| Estimated interest on capital lease obligations | | 31,390 |
| | 4,681 |
| | 8,204 |
| | 6,329 |
| | 12,176 |
|
| Operating lease obligations | | 327,587 |
| | 42,693 |
| | 71,672 |
| | 55,013 |
| | 158,209 |
|
Estimated interest payments on interest rate risk management obligations (5) | | 10,582 |
| | 6,925 |
| | 3,657 |
| | — |
| | — |
|
Purchase commitments (6) | | 32,723 |
| | 11,281 |
| | 17,503 |
| | 3,939 |
| | — |
|
| Total | | $ | 3,655,642 |
| | $ | 1,765,944 |
| | $ | 357,597 |
| | $ | 829,832 |
| | $ | 702,269 |
|
| |
(1) | Calculated using the Floorplan Line outstanding balance and weighted average interest rate at December 31, 2017, and the assumption that these liabilities would be settledSee Note 12 “Floorplan Notes Payable” within 61 days, which approximates our weighted average new vehicle inventory days outstanding. In addition, amounts include estimated commitment fees on the unused portion of the Floorplan Line through the term of the Revolving Credit Facility, assuming noNotes to Consolidated Financial Statements for additional Floorplan Line borrowings beyond 61 days.details. |
| |
(2) | Payments dueSee Note 13 “Debt” within 1 year include $25.0 million of outstanding letters of credit associated with the Acquisition Line of our Revolving Credit Facility.Notes to Consolidated Financial Statements for additional details. |
| |
(3) | IncludesEstimated future interest payments on our 5.00% Notes, 5.25% Notes and other real estate related debt.variable-rate long-term debt were projected using variable interest rates in effect as of December 31, 2019. |
| |
(4) | Includes interest on letters of credit associated with the Acquisition Line ofSee Note 10 “Leases” within our Revolving Credit Facility, commitment fees on the unused portion of the Acquisition Line through the term of the Revolving Credit Facility, and estimated interest on our U.K. Notes Brazil Note and other real estate related debt.to Consolidated Financial Statements for additional details. |
| |
(5) | Amounts represent theRepresents estimated future net future settlement of our obligationobligations related to pay a fixedour interest rate swaps. See Note 6 “Financial Instruments and rightFair Value Measurements” within our Notes to receive a variable interest rate, based upon a forecasted LIBOR forward curve and the maturity date of each obligation. The estimated fair value of these obligations as of December 31, 2017 was $10.6 million. These amounts exclude the impact of estimated net future settlements in which our right to receive a variable interest rate exceeds our obligation to pay a fixed interest rate of $2.5 million and $4.5 millionConsolidated Financial Statements for periods 4-5 years and thereafter, respectively. |
| |
(6) | Includes Information Technology commitments and other.additional details. |
Refer to Note 14 of our Consolidated Financial Statements, “Commitments and Contingencies,” for additional discussion of our contractual obligations.
Non-GAAP Financial Measures
In addition to evaluating the financial condition and results of our operations in accordance with U.S. GAAP, from time to time our management evaluates and analyzes results and any impact on the Company of strategic decisions and actions relating to, among other things, cost reduction, growth, and profitability improvement initiatives, and other events outside of normal, or "core," business and operations, by considering alternative financial measures not prepared in accordance with U.S. GAAP. In our evaluation of results from time to time, we exclude items that do not arise directly from core operations, such as non-cash asset impairment charges, gains and losses on dealership franchise or real estate transactions, and catastrophic weather events such as hail storms, hurricanes, and snow storms. Because these non-core charges and gains materially affect the Company's financial condition or results in the specific period in which they are recognized, management also evaluates, and makes resource allocation and performance evaluation decisions based on, the related non-GAAP measures excluding such items. This includes evaluating measures such as adjusted selling, general and administrative expenses, adjusted net income, adjusted diluted income per share, adjusted cash flows from operating, investing and financing activities and constant currency. These adjusted measures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures. Non-GAAP measures do not have definitions under U.S. GAAP and may be defined differently by and not be comparable to similarly titled measures used by other companies. As a result, any non-GAAP financial measures
considered and evaluated by management are reviewed in conjunction with a review of the most directly comparable measures calculated in accordance with U.S. GAAP. We caution investors not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures.
In addition to using such non-GAAP measures to evaluate results in a specific period, management believes that such measures may provide more complete and consistent comparisons of operational performance on a period-over-period historical basis and a better indication of expected future trends. Our management also uses these adjusted measures in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures, and the related reconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance, and to allow investors to better understand and evaluate the information used by management to assess operating performance. The exclusion of certain expenses in the calculation of non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. We anticipate excluding these expenses in the future presentation of our non-GAAP financial measures.
In addition, we evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than U.S. dollars using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.
The following tables reconcile certain reported non-GAAP measures to the most comparable U.S. GAAP measure from our Statements of Operations by segment and on a consolidated basis (dollars in thousands, except per share amounts; may not foot due to rounding). Only adjusted amounts are reconciled below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Adjustments for |
| | Year Ended December 31, 2017 |
| | U.S. GAAP | | Catastrophic events | | Gain (loss) on real estate and dealership transactions | | Legal settlements | | Non-cash asset impairment | | Allowance for uncertain tax positions | | Tax rate changes | | Non-GAAP Adjusted |
| Finance, insurance, and other revenues, net | $ | 375,954 |
| | $ | 6,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 382,504 |
|
| Selling, general and administrative expenses | 983,974 |
| | (8,792 | ) | | (798 | ) | | 1,113 |
| | — |
| | — |
| | — |
| | 975,497 |
|
| Asset impairments | 12,762 |
| | — |
| | — |
| | — |
| | (12,762 | ) | | — |
| | — |
| | — |
|
| Income (loss) from operations | 320,293 |
| | 15,342 |
| | 798 |
| | (1,113 | ) | | 12,762 |
| | — |
| | — |
| | 348,082 |
|
| Income (loss) before income taxes | 206,579 |
| | 15,342 |
| | 798 |
| | (1,113 | ) | | 12,762 |
| | — |
| | — |
| | 234,368 |
|
| Benefit (provision) for income taxes | (5,679 | ) | | (5,926 | ) | | (301 | ) | | 426 |
| | (4,801 | ) | | 834 |
| | (73,028 | ) | | (88,475 | ) |
| Net income (loss) | $ | 200,900 |
| | $ | 9,416 |
| | $ | 497 |
| | $ | (687 | ) | | $ | 7,961 |
| | $ | 834 |
| | $ | (73,028 | ) | | $ | 145,893 |
|
| | | | | | | | | | | | | | | | |
| SG&A as % Gross Profit: | 72.1 | | | | | | | | | | | | | | 71.1 |
|
| Operating Margin %: | 3.7 | | | | | | | | | | | | | | 4.0 |
|
| Pretax Margin %: | 2.4 | | | | | | | | | | | | | | 2.7 |
|
| | | | | | | | | | | | | | | | |
| Same Store Finance, insurance, and other revenues, net | $ | 372,001 |
| | $ | 6,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 378,551 |
|
| Same Store SG&A | 975,701 |
| | (8,792 | ) | | (798 | ) | | 1,113 |
| | — |
| | — |
| | — |
| | 967,224 |
|
| Same Store SG&A as % Gross Profit: | 72.0 |
| | | | | | | | | | | | | | 71.0 |
|
| | | | | | | | | | | | | | | | |
| Same Store income (loss) from operations | $ | 319,800 |
| | $ | 15,342 |
| | $ | 798 |
| | $ | (1,113 | ) | | $ | 12,762 |
| | $ | — |
| | $ | — |
| | $ | 347,589 |
|
| Same Store Operating Margin %: | 3.7 |
| | | | | | | | | | | | | | 4.0 |
|
|
| | | | | | | | | | | |
| | U.K. Adjustments for |
| | Year Ended December 31, 2017 |
| | U.S. GAAP | | Acquisition costs | | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 191,570 |
| | $ | (288 | ) | | $ | 191,282 |
|
| Income from operations | 25,485 |
| | 288 |
| | 25,773 |
|
| Income before income taxes | 17,094 |
| | 288 |
| | 17,382 |
|
| Provision for income taxes | (2,142 | ) | | — |
| | (2,142 | ) |
| Net income | $ | 14,952 |
| | $ | 288 |
| | $ | 15,240 |
|
| | | | | | |
| SG&A as % Gross Profit: | 85.0 |
| | | | 84.9 |
|
| Operating Margin %: | 1.3 |
| | | | 1.3 |
|
| Pretax Margin %: | 0.9 |
| | | | 0.9 |
|
| | | | | | |
| Same Store SG&A | $ | 156,369 |
| | $ | (288 | ) | | $ | 156,081 |
|
| Same Store SG&A as % Gross Profit: | 81.8 |
| | | | 81.7 |
|
| | | | | | |
| Same Store income from operations | $ | 27,967 |
| | $ | 288 |
| | $ | 28,255 |
|
| Same Store Operating Margin %: | 1.7 |
| | | | 1.7 |
|
|
| | | | | | | | | | | | | | | |
| | Brazil Adjustments for |
| | Year Ended December 31, 2017 |
| | U.S. GAAP | | Severance costs | | Non-cash asset impairment | | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 50,651 |
| | $ | (475 | ) | | $ | — |
| | $ | 50,176 |
|
| Asset impairments | 6,744 |
| | — |
| | (6,744 | ) | | — |
|
| Income (loss) from operations | (3,906 | ) | | 475 |
| | 6,744 |
| | 3,313 |
|
| Income (loss) before income taxes | (4,670 | ) | | 475 |
| | 6,744 |
| | 2,549 |
|
| Benefit (provision) for income taxes | 2,260 |
| | (122 | ) | | (2,293 | ) | | (155 | ) |
| Net income (loss) | $ | (2,410 | ) | | $ | 353 |
| | $ | 4,451 |
| | $ | 2,394 |
|
| | | | | | | | |
| SG&A as % Gross Profit: | 92.2 |
| | | | | | 91.3 |
|
| Operating Margin %: | (0.9 | ) | | | | | | 0.7 |
|
| Pretax Margin %: | (1.0 | ) | | | | | | 0.6 |
|
| | | | | | | | |
| Same Store SG&A | $ | 47,926 |
| | $ | (475 | ) | | $ | — |
| | $ | 47,451 |
|
| Same Store SG&A as % Gross Profit: | 90.0 |
| | | | | | 89.1 |
|
| | | | | | | | |
| Same Store income (loss) from operations | $ | (2,835 | ) | | $ | 475 |
| | $ | 6,744 |
| | $ | 4,384 |
|
| Same Store Operating Margin %: | (0.6 | ) | | | | | | 1.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Adjustments for |
| | Year Ended December 31, 2017 |
| | U.S. GAAP | | Catastrophic events | | Gain (loss) on real estate and dealership transactions | | Severance costs | | Acquisition costs | | Legal settlements (1) | | Non-cash asset impairment | | Allowance for uncertain tax positions | | Tax rate changes | | Non-GAAP Adjusted |
| Finance, insurance, and other revenues, net | $ | 429,002 |
| | $ | 6,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 435,552 |
|
| Selling, general and administrative expenses | 1,226,195 |
| | (8,792 | ) | | (798 | ) | | (475 | ) | | (288 | ) | | 1,113 |
| | — |
| | — |
| | — |
| | 1,216,955 |
|
| Asset impairments | 19,506 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19,505 | ) | | — |
| | — |
| | — |
|
| Income (loss) from operations | 341,872 |
| | 15,342 |
| | 798 |
| | 475 |
| | 288 |
| | (1,113 | ) | | 19,505 |
| | — |
| | — |
| | 377,167 |
|
| Income (loss) before income taxes | 219,003 |
| | 15,342 |
| | 798 |
| | 475 |
| | 288 |
| | (1,113 | ) | | 19,505 |
| | — |
| | — |
| | 254,298 |
|
| Benefit (provision) for income taxes | (5,561 | ) | | (5,926 | ) | | (301 | ) | | (122 | ) | | — |
| | 426 |
| | (7,094 | ) | | 834 |
| | (73,028 | ) | | (90,772 | ) |
| Net income (loss) | $ | 213,442 |
| | $ | 9,416 |
| | $ | 497 |
| | $ | 353 |
| | $ | 288 |
| | $ | (687 | ) | | $ | 12,411 |
| | $ | 834 |
| | $ | (73,028 | ) | | $ | 163,526 |
|
| Less: Adjusted earnings (loss) allocated to participating securities | 7,511 |
| | 334 |
| | 18 |
| | 13 |
| | 10 |
| | (24 | ) | | 441 |
| | 30 |
| | (2,595 | ) | | 5,738 |
|
| Adjusted net income (loss) available to diluted common shares | $ | 205,931 |
| | $ | 9,081 |
| | $ | 479 |
| | $ | 340 |
| | $ | 278 |
| | $ | (663 | ) | | $ | 11,971 |
| | $ | 804 |
| | $ | (70,433 | ) | | $ | 157,788 |
|
| | | | | | | | | | | | | | | | | | | | |
| Diluted income (loss) per common share | $ | 10.08 |
| | $ | 0.45 |
| | $ | 0.03 |
| | $ | 0.01 |
| | $ | 0.01 |
| | $ | (0.03 | ) | | $ | 0.59 |
| | $ | 0.04 |
| | $ | (3.45 | ) | | $ | 7.73 |
|
| | | | | | | | | | | | | | | | | | | | |
| Effective tax rate % | 2.5 |
| | | | | | | | | | | | | | | | | | 35.7 |
|
| | | | | | | | | | | | | | | | | | | | |
| SG&A as % Gross Profit: | 74.5 |
| | | | | | | | | | | | | | | | | | 73.7 |
|
| Operating Margin %: | 3.1 |
| | | | | | | | | | | | | | | | | | 3.4 |
|
| Pretax Margin %: | 2.0 |
| | | | | | | | | | | | | | | | | | 2.3 |
|
| | | | | | | | | | | | | | | | | | | | |
| Same Store Finance, insurance, and other revenues, net | $ | 417,905 |
| | $ | 6,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 424,455 |
|
| Same Store SG&A | 1,179,996 |
| | (8,792 | ) | | (798 | ) | | (475 | ) | | (288 | ) | | 1,113 |
| | — |
| | — |
| | — |
| | 1,170,756 |
|
| Same Store SG&A as % Gross Profit: | 73.8 |
| | | | | | | | | | | | | | | | | | 72.9 |
|
| | | | | | | | | | | | | | | | | | | | |
| Same Store income (loss) from operations | $ | 90,909 |
| | $ | 15,342 |
| | $ | 798 |
| | $ | 475 |
| | $ | 288 |
| | $ | (1,113 | ) | | $ | 19,505 |
| | $ | — |
| | $ | — |
| | $ | 126,204 |
|
| Same Store Operating Margin %: | 3.2 |
| | | | | | | | | | | | | | | | | | 3.5 |
|
| |
(1)
| For the year ended December 31, 2017, we recognized a net pre-tax gain related to a settlement with an OEM of $1.8 million. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Adjustments for |
| | Year Ended December 31, 2016 |
| | U.S. GAAP | Catastrophic events | Gain (loss) on real estate and dealership transactions | Severance costs | Acquisition costs | Legal settlements | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 965,139 |
| $ | (5,873 | ) | $ | 2,838 |
| $ | (1,837 | ) | $ | (30 | ) | $ | 11,671 |
| $ | — |
| $ | 971,908 |
|
| Asset impairments | 21,794 |
| — |
| (124 | ) | — |
| — |
| — |
| (21,670 | ) | — |
|
| Income (loss) from operations | 324,944 |
| 5,873 |
| (2,714 | ) | 1,837 |
| 30 |
| (11,671 | ) | 21,670 |
| 339,969 |
|
| Income (loss) before income taxes | 222,180 |
| 5,873 |
| (2,714 | ) | 1,837 |
| 30 |
| (11,671 | ) | 21,670 |
| 237,205 |
|
| Benefit (provision) for income taxes | (82,541 | ) | (2,207 | ) | 1,015 |
| (686 | ) | (11 | ) | 4,359 |
| (8,126 | ) | (88,197 | ) |
| Net income (loss) | $ | 139,639 |
| $ | 3,666 |
| $ | (1,699 | ) | $ | 1,151 |
| $ | 19 |
| $ | (7,312 | ) | $ | 13,544 |
| $ | 149,008 |
|
| | | | | | | | | |
| SG&A as % Gross Profit: | 71.2 | | | | | | | 71.7 |
|
| Operating Margin %: | 3.7 | | | | | | | 3.9 |
|
| Pretax Margin %: | 2.5 | | | | | | | 2.7 |
|
| 2016 v. 2017 | | | | | | | | |
Same Store SG&A (1) | $ | 955,108 |
| $ | (5,873 | ) | $ | (384 | ) | $ | (1,837 | ) | $ | (30 | ) | $ | 9,864 |
| $ | — |
| $ | 956,848 |
|
Same Store SG&A as % Gross Profit: (1) | 71.2 |
| | | | | | | 71.4 |
|
| | | | | | | | | |
Same Store income (loss) from operations (1) | $ | 321,658 |
| $ | 5,873 |
| $ | 385 |
| $ | 1,837 |
| $ | 30 |
| $ | (9,864 | ) | $ | 21,671 |
| $ | 341,590 |
|
Same Store Operating Margin %:(1) | 3.7 |
| | | | | | | 4.0 |
|
| 2016 v. 2015 | | | | | | | | |
Same Store SG&A (1) | $ | 952,597 |
| $ | (5,873 | ) | $ | (385 | ) | $ | (1,837 | ) | $ | (30 | ) | $ | 9,864 |
| $ | — |
| $ | 954,336 |
|
Same Store SG&A as % Gross Profit: (1) | 71.5 |
| | | | | | | 71.6 |
|
| | | | | | | | | |
Same Store income (loss) from operations (1) | $ | 315,206 |
| $ | 5,873 |
| $ | 385 |
| $ | 1,837 |
| $ | 30 |
| $ | (9,864 | ) | $ | 21,653 |
| $ | 335,120 |
|
Same Store Operating Margin %:(1) | 3.7 |
| | | | | | | 3.9 |
|
(1) (6)As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.
|
| | | | | | | | | | | | | | | | | | |
| | U.K. Adjustments for |
| | Year Ended December 31, 2016 |
| | U.S. GAAP | Gain (loss) on real estate and dealership transactions | Severance costs | Acquisition costs | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 158,636 |
| $ | (223 | ) | $ | (122 | ) | $ | (561 | ) | $ | — |
| $ | 157,730 |
|
| Asset impairments | 201 |
| (168 | ) | — |
| — |
| (33 | ) | — |
|
| Income from operations | 27,551 |
| 391 |
| 122 |
| 561 |
| 33 |
| 28,658 |
|
| Income before income taxes | 18,132 |
| 391 |
| 122 |
| 561 |
| 33 |
| 19,239 |
|
| Provision for income taxes | (3,697 | ) | (78 | ) | (24 | ) | — |
| (7 | ) | (3,806 | ) |
| Net income | $ | 14,435 |
| $ | 313 |
| $ | 98 |
| $ | 561 |
| $ | 26 |
| $ | 15,433 |
|
| | | | | | | |
| SG&A as % Gross Profit: | 82.2 |
| | | | | 81.7 |
|
| Operating Margin %: | 1.6 |
| | | | | 1.7 |
|
| Pretax Margin %: | 1.1 |
| | | | | 1.1 |
|
| 2016 v. 2017 | | | | | | |
Same Store SG&A (1) | $ | 150,626 |
| $ | (61 | ) | $ | (122 | ) | $ | (561 | ) | $ | — |
| $ | 149,882 |
|
Same Store SG&A as % Gross Profit: (1) | 80.1 |
| | | | | 79.7 |
|
| | | | | | | |
Same Store income from operations (1) | $ | 30,875 |
| $ | 229 |
| $ | 122 |
| $ | 561 |
| $ | 33 |
| $ | 31,820 |
|
Same Store Operating Margin %: (1) | 1.8 |
| | | | | 1.9 |
|
| 2016 v. 2015 | | | | | | |
Same Store SG&A (1) | $ | 106,551 |
| $ | (61 | ) | $ | — |
| $ | (561 | ) | $ | — |
| $ | 105,929 |
|
Same Store SG&A as % Gross Profit: (1) | 77.9 |
| | | | | 77.4 |
|
| | | | | | | |
Same Store income from operations (1) | $ | 25,718 |
| $ | 61 |
| $ | — |
| $ | 561 |
| $ | — |
| $ | 26,340 |
|
Same Store Operating Margin %: (1) | 2.1 |
| | | | | 2.2 |
|
(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.
|
| | | | | | | | | | | | | | | | | | |
| | Brazil Adjustments for |
| | Year Ended December 31, 2016 |
| | U.S. GAAP | Gain (loss) on real estate and dealership transactions | Foreign transaction tax | Foreign deferred income tax benefit | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 46,988 |
| $ | (372 | ) | $ | (274 | ) | $ | — |
| $ | — |
| $ | 46,342 |
|
| Asset impairments | 10,843 |
| (423 | ) | — |
| — |
| (10,420 | ) | — |
|
| Income (loss) from operations | (12,261 | ) | 795 |
| 274 |
| — |
| 10,420 |
| (772 | ) |
| Income (loss) before income taxes | (12,941 | ) | 795 |
| 274 |
| — |
| 10,420 |
| (1,452 | ) |
| Benefit (provision) for income taxes | 5,932 |
| — |
| $ | — |
| (1,686 | ) | (3,543 | ) | 703 |
|
| Net income (loss) | $ | (7,009 | ) | $ | 795 |
| $ | 274 |
| $ | (1,686 | ) | $ | 6,877 |
| $ | (749 | ) |
| | | | | | | |
| SG&A as % Gross Profit: | 100.5 |
| | | | | 99.2 |
|
| Operating Margin %: | (2.9 | ) | | | | | (0.2 | ) |
| Pretax Margin %: | (3.0 | ) | | | | | (0.3 | ) |
| 2016 v. 2017 | | | | | | |
Same Store SG&A (1) | $ | 40,315 |
| $ | — |
| $ | (274 | ) | $ | — |
| $ | — |
| $ | 40,041 |
|
Same Store SG&A as % Gross Profit: (1) | 95.2 |
| | | | | 94.6 |
|
| | | | | | | |
Same Store income (loss) from operations (1) | $ | (9,590 | ) | $ | — |
| $ | 274 |
| $ | — |
| $ | 10,420 |
| $ | 1,104 |
|
Same Store Operating Margin %: (1) | (2.4 | ) | | | | | 0.3 |
|
| 2016 v. 2015 | | | | | | |
Same Store SG&A (1) | $ | 43,393 |
| $ | — |
| $ | (274 | ) | $ | — |
| $ | — |
| $ | 43,119 |
|
Same Store SG&A as % Gross Profit: (1) | 96.5 |
| | | | | 95.9 |
|
| | | | | | | |
Same Store income (loss) from operations (1) | $ | (9,903 | ) | $ | 423 |
| $ | 274 |
| $ | — |
| $ | 9,901 |
| $ | 695 |
|
Same Store Operating Margin %: (1) | (2.4 | ) | | | | | 0.2 |
|
(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consolidated Adjustments for | |
| | | Year Ended December 31, 2016 | |
| | U.S. GAAP | Catastrophic events | Gain (loss) on real estate and dealership transactions | Severance costs | Acquisition costs | Legal settlements (2) | Foreign transaction tax | Foreign deferred income tax benefit | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 1,170,763 |
| $ | (5,873 | ) | $ | 2,243 |
| $ | (1,959 | ) | $ | (591 | ) | $ | 11,671 |
| $ | (274 | ) | $ | — |
| $ | — |
| $ | 1,175,980 |
|
| Asset impairments | 32,838 |
| — |
| (714 | ) | — |
| — |
| — |
| — |
| — |
| (32,124 | ) | — |
|
| Income (loss) from operations | 340,234 |
| 5,873 |
| (1,529 | ) | 1,959 |
| 591 |
| (11,671 | ) | 274 |
| — |
| 32,124 |
| 367,855 |
|
| Income (loss) before income taxes | 227,371 |
| 5,873 |
| (1,529 | ) | 1,959 |
| 591 |
| (11,671 | ) | 274 |
| — |
| 32,124 |
| 254,992 |
|
| Benefit (provision) for income taxes | (80,306 | ) | (2,207 | ) | 937 |
| (710 | ) | (11 | ) | 4,359 |
| — |
| (1,686 | ) | (11,676 | ) | (91,300 | ) |
| Net income (loss) | $ | 147,065 |
| $ | 3,666 |
| $ | (592 | ) | $ | 1,249 |
| $ | 580 |
| $ | (7,312 | ) | $ | 274 |
| $ | (1,686 | ) | $ | 20,448 |
| $ | 163,692 |
|
| Less: Adjusted earnings (loss) allocated to participating securities | 5,869 |
| 147 |
| (24 | ) | 50 |
| 23 |
| (293 | ) | 11 |
| (68 | ) | 822 |
| 6,537 |
|
| Adjusted net income (loss) available to diluted common shares | $ | 141,196 |
| $ | 3,519 |
| $ | (568 | ) | $ | 1,199 |
| $ | 557 |
| $ | (7,019 | ) | $ | 263 |
| $ | (1,618 | ) | $ | 19,626 |
| $ | 157,155 |
|
| | | | | | | | | | | |
| Diluted income (loss) per common share | $ | 6.67 |
| $ | 0.17 |
| $ | (0.03 | ) | $ | 0.05 |
| $ | 0.02 |
| $ | (0.33 | ) | $ | 0.01 |
| $ | (0.07 | ) | $ | 0.93 |
| $ | 7.42 |
|
| | | | | | | | | | | |
| Effective tax rate % | 35.3 |
| | | | | | | | | 35.8 |
|
| | | | | | | | | | | |
| SG&A as % Gross Profit: | 73.4 |
| | | | | | | | | 73.7 |
|
| Operating Margin %: | 3.1 |
| | | | | | | | | 3.4 |
|
| Pretax Margin %: | 2.1 |
| | | | | | | | | 2.3 |
|
| 2016 v. 2017 | | | | | | | | | | |
Same Store SG&A (1) | $ | 1,146,049 |
| $ | (5,873 | ) | $ | (446 | ) | $ | (1,959 | ) | $ | (591 | ) | $ | 9,864 |
| $ | (274 | ) | $ | — |
| $ | — |
| $ | 1,146,770 |
|
Same Store SG&A as % Gross Profit: (1) | 72.9 |
| | | | | | | | | 73.0 |
|
| | | | | | | | | | | |
Same Store income (loss) from operations (1) | $ | 342,943 |
| $ | 5,873 |
| $ | 614 |
| $ | 1,959 |
| $ | 591 |
| $ | (9,864 | ) | $ | 274 |
| $ | — |
| $ | 32,124 |
| $ | 374,514 |
|
Same Store Operating Margin %: (1) | 3.2 |
| | | | | | | | | 3.5 |
|
| 2016 v. 2015 | | | | | | | | | | |
Same Store SG&A (1) | $ | 1,102,541 |
| $ | (5,873 | ) | $ | (446 | ) | $ | (1,837 | ) | $ | (591 | ) | $ | 9,864 |
| $ | (274 | ) | $ | — |
| $ | — |
| $ | 1,103,384 |
|
Same Store SG&A as % Gross Profit: (1) | 72.8 |
| | | | | | | | | 72.9 |
|
| | | | | | | | | | | |
Same Store income (loss) from operations (1)(3) | $ | 331,021 |
| $ | 5,873 |
| $ | 869 |
| $ | 1,837 |
| $ | 591 |
| $ | (9,864 | ) | $ | 274 |
| $ | — |
| $ | 31,554 |
| $ | 362,155 |
|
Same Store Operating Margin %: (1) | 3.2 |
| | | | | | | | | 3.6 |
|
(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.
(2)For the year ended December 31, 2016, the Company recognized a net pre-tax gain Represents fixed purchase commitments, mainly related to a settlement with an OEM of $11.7 million ($9.9 million on ainformation technology.
Same Store basis).
(3) Same Store loss on real estate and dealership transactions of $0.9 million, includes the impact of non-cash impairment charges of $0.4 million related to
Brazil.
|
| | | | | | | | | | | | | | | | | | |
| | U.S. Adjustments for |
| | Year Ended December 31, 2015 |
| | U.S. GAAP | Catastrophic events | Gain (loss) on real estate and dealership transactions | Legal settlements | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 958,608 |
| $ | (1,588 | ) | $ | 8,891 |
| $ | (1,000 | ) | $ | — |
| $ | 964,911 |
|
| Asset impairments | 18,983 |
| — |
| — |
| — |
| (18,983 | ) | — |
|
| Income (loss) from operations | 320,136 |
| 1,588 |
| (8,891 | ) | 1,000 |
| 18,983 |
| 332,816 |
|
| Income (loss) before income taxes | 231,797 |
| 1,588 |
| (8,892 | ) | 1,000 |
| 18,983 |
| 244,476 |
|
| Benefit (provision) for income taxes | (89,433 | ) | (597 | ) | 3,413 |
| (390 | ) | (7,080 | ) | (94,087 | ) |
| Net income (loss) | $ | 142,364 |
| $ | 991 |
| $ | (5,479 | ) | $ | 610 |
| $ | 11,903 |
| $ | 150,389 |
|
| | | | | | | |
| SG&A as % Gross Profit: | 71.6 | | | | | 72.1 |
|
| Operating Margin %: | 3.6 | | | | | 3.7 |
|
| Pretax Margin %: | 2.6 | | | | | 2.7 |
|
| | | | | | | |
| Same Store SG&A | $ | 939,535 |
| $ | (1,588 | ) | $ | (569 | ) | $ | (1,000 | ) | $ | — |
| $ | 936,378 |
|
| Same Store SG&A as % Gross Profit: | 71.6 |
| | | | | 71.4 |
|
| | | | | | | |
| Same Store income from operations | $ | 315,399 |
| $ | 1,588 |
| $ | 569 |
| $ | 1,000 |
| $ | 16,535 |
| $ | 335,091 |
|
| Same Store Operating Margin %: | 3.6 |
| | | | | 3.9 |
|
|
| | | | | | | | | | | | |
| | U.K. Adjustments for |
| | Year Ended December 31, 2015 |
| | U.S. GAAP | Severance costs | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 108,719 |
| (208 | ) | $ | — |
| $ | 108,511 |
|
| Asset impairments | 330 |
| — |
| (330 | ) | — |
|
| Income from operations | 24,290 |
| 208 |
| 330 |
| 24,828 |
|
| Income before income taxes | 18,879 |
| 208 |
| 330 |
| 19,417 |
|
| Provision for income taxes | (3,655 | ) | (41 | ) | (67 | ) | (3,763 | ) |
| Net income | $ | 15,224 |
| 167 |
| $ | 263 |
| $ | 15,654 |
|
| | | | | |
| SG&A as % Gross Profit: | 79.0 |
| | | 78.8 |
|
| Operating Margin %: | 2.0 |
| | | 2.0 |
|
| Pretax Margin %: | 1.5 |
| | | 1.6 |
|
| | | | | |
| Same Store SG&A | $ | 108,770 |
| (208 | ) | $ | — |
| $ | 108,562 |
|
| Same Store SG&A as % Gross Profit: | 79.0 |
| | | 78.9 |
|
| | | | | |
| Same Store income from operations | $ | 24,232 |
| $ | 208 |
| $ | 330 |
| $ | 24,770 |
|
| Same Store Operating Margin %: | 2.0 |
| | | 2.0 |
|
|
| | | | | | | | | | | | | | | |
| | Brazil Adjustments for |
| | Year Ended December 31, 2015 |
| | U.S. GAAP | Gain (loss) on real estate and dealership transactions | Severance costs | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 53,506 |
| $ | (520 | ) | $ | (226 | ) | $ | — |
| $ | 52,760 |
|
| Asset impairments | 68,249 |
| — |
| — |
| (68,249 | ) | — |
|
| Income from operations | (66,088 | ) | 520 |
| 226 |
| 68,249 |
| 2,907 |
|
| Income (loss) before income taxes | (68,505 | ) | 520 |
| 226 |
| 68,249 |
| 490 |
|
| Benefit (provision) for income taxes | 4,916 |
| — |
| (7 | ) | (5,996 | ) | (1,087 | ) |
| Net income (loss) | $ | (63,589 | ) | $ | 520 |
| $ | 219 |
| $ | 62,253 |
| $ | (597 | ) |
| | | | | | |
| SG&A as % Gross Profit: | 93.3 |
| | | | 92.0 |
|
| Operating Margin %: | (12.8 | ) | | | | 0.6 |
|
| Pretax Margin %: | (13.2 | ) | | | | 0.1 |
|
| | | | | | |
| Same Store SG&A | $ | 44,677 |
| $ | — |
| $ | (150 | ) | $ | — |
| $ | 44,527 |
|
| Same Store SG&A as % Gross Profit: | 85.2 |
| | | | 84.9 |
|
| | | | | | |
| Same Store income (loss) from operations | $ | (59,460 | ) | $ | — |
| $ | 150 |
| $ | 66,021 |
| $ | 6,711 |
|
| Same Store Operating Margin %: | (12.3 | ) | | | | 1.4 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Adjustments for |
| | Year Ended December 31, 2015 |
| | U.S. GAAP | Catastrophic events | Gain (loss) on real estate and dealership transactions | Severance costs | Legal settlements | Non-cash asset impairment | Non-GAAP Adjusted |
| Selling, general and administrative expenses | $ | 1,120,833 |
| $ | (1,588 | ) | $ | 8,372 |
| $ | (435 | ) | $ | (1,000 | ) | $ | — |
| $ | 1,126,182 |
|
| Asset impairments | 87,562 |
| — |
| — |
| — |
| — |
| (87,562 | ) | — |
|
| Income (loss) from operations | 278,338 |
| 1,588 |
| (8,372 | ) | 435 |
| 1,000 |
| 87,562 |
| 360,554 |
|
| Income (loss) before income taxes | 182,171 |
| 1,588 |
| (8,372 | ) | 435 |
| 1,000 |
| 87,562 |
| 264,387 |
|
| Benefit (provision) for income taxes | (88,172 | ) | (597 | ) | 3,413 |
| (48 | ) | (390 | ) | (13,143 | ) | (98,937 | ) |
| Net income (loss) | $ | 93,999 |
| $ | 991 |
| $ | (4,959 | ) | $ | 387 |
| $ | 610 |
| $ | 74,419 |
| $ | 165,450 |
|
| Less: Adjusted earnings (loss) allocated to participating securities | 3,595 |
| 38 |
| (190 | ) | 15 |
| 23 |
| 2,857 |
| 6,338 |
|
| Adjusted net income (loss) available to diluted common shares | $ | 90,404 |
| $ | 953 |
| $ | (4,769 | ) | $ | 372 |
| $ | 587 |
| $ | 71,562 |
| $ | 159,112 |
|
| | | | | | | | |
| Diluted income (loss) per common share | $ | 3.90 |
| $ | 0.04 |
| $ | (0.21 | ) | $ | 0.02 |
| $ | 0.03 |
| $ | 3.09 |
| $ | 6.87 |
|
| | | | | | | | |
| Effective tax rate | 48.4 |
| | | | | | 37.4 |
|
| | | | | | | | |
| SG&A as % Gross Profit: | 73.1 |
| | | | | | 73.4 |
|
| Operating Margin %: | 2.6 |
| | | | | | 3.4 |
|
| Pretax Margin %: | 1.7 |
| | | | | | 2.5 |
|
| | | | | | | | |
| Same Store SG&A | $ | 1,092,982 |
| $ | (1,588 | ) | $ | (569 | ) | $ | (358 | ) | $ | (1,000 | ) | $ | — |
| $ | 1,089,467 |
|
| Same Store SG&A as % Gross Profit: | 72.8 |
| | | | | | 72.6 |
|
| | | | | | | | |
| Same Store income from operations | $ | 280,171 |
| $ | 1,588 |
| $ | 569 |
| $ | 358 |
| $ | 1,000 |
| $ | 82,889 |
| $ | 366,575 |
|
| Same Store Operating Margin %: | 2.7 |
| | | | | | 3.5 |
|
The following table reconciles cash flow provided by (used in) operating, investing and financing activities on a GAAP basis to the corresponding adjusted amounts (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net cash provided by operating activities | | $ | 198,925 |
| | $ | 384,857 |
| | $ | 141,047 |
|
| Change in floorplan notes payable-credit facilities, excluding floorplan offset account and net acquisition and disposition related activity | | 88,742 |
| | (113,116 | ) | | 100,302 |
|
| Change in floorplan notes payable-manufacturer affiliates associated with net acquisition and disposition related activity | | (3,000 | ) | | — |
| | 3,000 |
|
| Adjusted net cash provided by operating activities | | $ | 284,667 |
| | $ | 271,741 |
| | $ | 244,349 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
| Net cash used in investing activities | | $ | (312,598 | ) | | $ | (174,040 | ) | | $ | (284,502 | ) |
| Change in cash paid for acquisitions, associated with floorplan notes payable | | 14,733 |
| | — |
| | 32,140 |
|
| Change in proceeds from disposition of franchises, property and equipment, associated with floorplan notes payable | | — |
| | (16,599 | ) | | (14,429 | ) |
| Adjusted net cash used in investing activities | | $ | (297,865 | ) | | $ | (190,639 | ) | | $ | (266,791 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 121,476 |
| | $ | (205,007 | ) | | $ | 121,009 |
|
| Change in net borrowings and repayments on floorplan notes payable-credit facilities, excluding net activity associated with our floorplan offset account | | (100,475 | ) | | 129,715 |
| | (121,013 | ) |
| Adjusted net cash provided by (used in) financing activities | | $ | 21,001 |
| | $ | (75,292 | ) | | $ | (4 | ) |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including interest rate risk and foreign currency exchange rate risk. We manage a portion of ouraddress interest rate risks primarily through the use of interest rate swaps. We do not currently hedge foreign exchange risk, as discussed further below. The following quantitative and qualitative information is provided aboutregarding our foreign currency exchange rates and financial instruments to which we are a party at December 31, 20172019, and from which we may incur future gains or losses from changes in market interest rates and/or foreign currency rates. We do not enter into derivative or other financial instruments for speculative or trading purposes.
Hypothetical changes in interest rates and foreign currency exchange rates chosen for the following estimated sensitivity analysis are considered to be reasonable near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rate and foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.Interest Rates
The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”
As of December 31, 2017, our 5.00% Notes, with an outstanding principal amount of $550.0 million, had a fair value and carrying amount of $567.9 million and $542.1 million, respectively. Our 5.25% Notes, with an outstanding principal amount of $300.0 million, had a fair value and carrying amount of $310.9 million and $296.2 million, respectively, at December 31, 2017. Our other fixed-rate debt, primarily consisting of real estate related debt, had outstanding borrowings of $86.8 million and a fair value of $92.9 million as of December 31, 2017.
Interest Rates. We have interest rate risk inon our variable-rate debt obligations. Our policy is to monitor the effects of market changes in interest rates and manage our interest rate exposure through the use of a combination of fixed and floating-rate debt and interest rate swaps.
We use interest rate swaps to adjust our exposure to interest rate movements, when appropriate, based upon market conditions. As of December 31, 2017, we held interest rate swaps in effect with aggregate notional amounts of $623.0 million that fixed our underlying one-month LIBOR at a weighted average rate of 2.5%. These hedge instruments are designed to convert floating rate vehicle floorplan payables under our Revolving Credit Facility and variable rate real estate related borrowings to fixed rate debt. We entered into these swaps with several financial institutions that have investment grade credit ratings, thereby minimizing the risk of credit loss. We reflect the current fair value of all derivatives on our Consolidated Balance Sheets. The fair value of interest rate swaps is impacted by the forward one-month LIBOR curve and the length of time to maturity of the swap contracts. The related gains or losses on these transactions are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. As of December 31, 2017, net unrealized losses, net of income taxes, totaled $0.7 million. These deferred gains and losses are recognized in income in the period in which the related items being hedged are recognized in expense. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the items being hedged, that ineffective portion is immediately recognized in the results of operations. Allobligations, primarily consisting of our interest rate hedges are designated as cash flow hedgesFloorplan Line which had an outstanding balance of $1.1 billion and were determined to be effective. In addition to the $623.0 million of swaps in effect as of December 31, 2017, we also held 11 interest rate swaps with forward start dates between January 2018$1.9 billion and December 2020 and expiration dates between December 2020 and December 2030. As of December 31, 2017, the aggregate notional amount of these swaps was $575.0 million with a weighted average interest rate of 2.1%. The combination2.7% and 3.7% as of these swaps is structured such thatDecember 31, 2019 and 2018, respectively, excluding the notional value in effect at any given time through December 2030 does not exceed $918.4 million.
A summaryimpact of our interest rate swaps including those in effect, as well as forward-starting, follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 |
| Average notional amount in effect during the period | | $ | 822 |
| | $ | 821 |
| | $ | 917 |
| | $ | 564 |
| | $ | 432 |
| | $ | 168 |
| | $ | 134 |
| | $ | 125 |
| | $ | 125 |
| | $ | 100 |
| | $ | 100 |
| | $ | 100 |
| | $ | 100 |
| | $ | 100 |
| | $ | — |
|
| Weighted average interest rate during the period | | 2.53 | % | | 2.59 | % | | 2.28 | % | | 2.19 | % | | 1.76 | % | | 1.74 | % | | 1.81 | % | | 1.81 | % | | 1.81 | % | | 1.85 | % | | 1.85 | % | | 1.85 | % | | 1.85 | % | | 1.85 | % | | — | % |
As of December 31, 2017, we had $1,761.7 million of variable-rate borrowings outstanding.described below. Based on the average amount of variable-rate borrowings outstanding for 2017,the years ended December 31, 2019 and 2018, and before the impact of our interest rate swaps, described below, a 100 basis-point change in interest rates would have resulted in an approximate $16.5$18.3 million and $17.5 million change to our annual interest expense.expense, respectively. After consideration of the average interest rate swaps in effect during 2017,the years ended December 31, 2019 and 2018, a 100 basis-point change would have yielded a net annual change of $8.3$9.3 million in annual interest expense. This interest rate sensitivity increased fromexpense for both years.
The majority of our floorplan notes payable, mortgages and other debt are benchmarked to LIBOR. On July 27, 2017, the similar
analysis prepared for 2016, primarily as a resultChief Executive of the increaseU.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or requiring banks to submit rates for the calculation of LIBOR after 2021. The use of an alternative rate could result in variable-rate floorplan borrowings, which was partially offset by an increaseincreased interest expense, in addition to costs to amend the average notional swap amount outstanding between periods.loan agreements and other applicable arrangements to a new reference rate. For further discussion, refer to “Item 1A. Risk Factors.”
Our exposure to changes in interest rates with respect to our variable-rate floorplan borrowings is partially mitigated by manufacturers’ interest assistance, which in some cases is influenced by changes in market based variable interest rates. We reflect interest assistance as a reduction of new vehicle inventory cost until the associated vehicle is sold. During the years ended December 31, 20172019 and December 31, 2016,2018, we recognized $48.9$49.1 million and $49.2$47.3 million of interest assistance as a reduction of new vehicle cost of sales, respectively. For the past three years, the reduction to our new vehicle cost of sales has ranged from 88.0% of our floorplan interest expense for the first quarter of 2017 to 139.9% in the third quarter of 2015. In the U.S., manufacturer’s interest assistance was 105.6% of floorplan interest expense in the fourth quarter of 2017. Although we can provide no assurance as to the amount of future interest assistance, it is our expectation, based on historical practice of the OEMs, that an increase in prevailing interest rates would result in increased assistance from certain manufacturers over time.
Foreign Currency Exchange Rates.As of December 31, 2017, we had dealership operations in the U.K. and Brazil. Rates
The functional currency of our U.K. subsidiaries is the British pound sterling (£)GBP and of our Brazil subsidiaries is the Brazilian real (R$). We intendBRL. Our exposure to remain permanently invested in these foreign operations and, as such,fluctuating exchange rates relates to the effects of translating financial statements of those subsidiaries into our reporting currency, which we do not hedge against foreign currency fluctuations that may temporarily impactbased on our investment strategy in our U.K. and Brazil subsidiaries. If we change our intent with respect to such international investment, we would expect to implement strategies designed to manage those risks in an effort to mitigate the effect ofthese foreign currency fluctuations on our earnings and cash flows.operations. A 10% devaluation in average exchange rates for the British pound sterlingGBP to the U.S. dollarUSD would have resulted in a $180.5$219.4 million and $221.6 million decrease to our revenues for the yearyears ended December 31, 2017.2019 and 2018, respectively. A 10% devaluation in average exchange rates for the Brazilian realBRL to the U.S. dollarUSD would have resulted in a $41.6$40.5 million and $40.1 million decrease to our revenues for the yearyears ended December 31, 2017. We believe that inflation rates over the last few years have not had a significant impact on2019 and 2018, respectively.
For additional information about our consolidated revenues or profitability. We do not expect inflationmarket sensitive financial instruments, see Note 6 “Financial Instruments and Fair Value Measurements” within our Notes to have near-term material effects on the sale of our products and services on a consolidated basis; however, we cannot be sure there will be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
See our Consolidated Financial Statements beginning on page F-1 for the information required by this Item and incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 20172019 at the reasonable assurance level.
Our management, including the principal executive officer and the principal financial officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the intentional acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2017,2019, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by management, under the supervision of our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S.,GAAP, and includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S.,GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2019. In making this assessment, management used the 2013 framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that, as of December 31, 2017,2019, our internal control over financial reporting was effective.
Ernst & Young LLP, the independent registered accounting firm who audited the Consolidated Financial Statements included in this Form 10-K, has issued an attestation report on our internal control over financial reporting. This report, dated February 16, 2018,13, 2020, appears on the following page.
Item 9B. Other Information
None.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Group 1 Automotive, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Group 1 Automotive, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Group 1 Automotive, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Group 1 Automotive, Inc. and subsidiariesthe Company as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and our report dated February 16, 201813, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control overOver Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ErnstERNST & YoungYOUNG LLP
Houston, Texas
February 16, 201813, 2020
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of Group 1
The following sets forth certain information regarding our executive officers as of February 16, 2018.13, 2020.
| | | Name | Age | Position | Years with Group 1 | Years of Automotive Experience | | Age | | Position | | Years with Group 1 | | Years of Automotive Experience |
| Earl J. Hesterberg | 64 | President and Chief Executive Officer | 12.5 | 43 | | 66 | | President and Chief Executive Officer | | 14.5 | | 45 |
| Daryl Kenningham | 53 | President, U.S. Operations | 6.5 | 30 | |
| Daryl A. Kenningham | | | 55 | | President, U.S. and Brazilian Operations | | 8.5 | | 32 |
| John C. Rickel | 56 | Senior Vice President and Chief Financial Officer | 12 | 34 | | 58 | | Senior Vice President and Chief Financial Officer | | 14 | | 36 |
| Frank Grese Jr. | 66 | Senior Vice President of Human Resources, Training, and Operations Support | 13 | 43 | | 67 | | Senior Vice President of Human Resources, Training, and Operations Support | | 15 | | 45 |
| Darryl M. Burman | 59 | Senior Vice President and General Counsel | 11 | 20 | |
| Peter C. DeLongchamps | 57 | Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs | 13.5 | 35 | | 59 | | Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs | | 15.5 | | 37 |
Earl J. Hesterberg has served as our President and Chief Executive Officer and as a director since April 2005. Prior to joining us, Mr. Hesterberg served as Group Vice President, North America Marketing, Sales and Service for Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts, since October 2004. From July 1999 to September 2004, he served as Vice President, Marketing, Sales and Service for Ford of Europe, and from 1999 until 2005, he served on the supervisory board of Ford Werke AG. Mr. Hesterberg has also served as President and Chief Executive Officer of Gulf States Toyota, an independent regional distributor of new Toyota vehicles, parts and accessories. He has also held various senior sales, marketing, general management, and parts and service positions with Nissan Motor Corporation in U.S.A. and Nissan Europe, both of which are wholly‑ownedwholly-owned by Nissan Motor Co., Ltd., a global provider of automotive products and services. Mr. Hesterberg serves on the Board of Directors of Stage Stores, Inc., a national retail clothing chain with over 800775 stores located in 3942 states where he is a member of the Corporate Governance and Nominating Committee and Chairman of the Compensation Committee. He is a past member of the Board of Trustees of Davidson College. Mr. Hesterberg also serves on the Board of TrusteesDirectors of the Greater Houston Partnership, where he serves on the Executive Committee and is Chairman of the Business Issues Committee. Mr. Hesterberg received his B.A. in Psychology at Davidson College.College and his M.B.A. from Xavier University in 1978.
Daryl A. Kenninghamhas served as President, U.S. and Brazilian Operations since AprilNovember 2019 and as President U.S. Operations since May 2017. Previously, he served as Regional Vice President of the West Region from February 2016 through April 2017 and as Regional Vice President of the East Region from April 2011 through January 2016. Prior to joining the Company, heGroup 1, Mr. Kenningham served as the Chief Operating Officer of Ascent Automotive in Houston and previously heldHouston. In addition to a variety of sales, marketing, finance and automotive-logisticsautomotive logistics positions with Gulf States Toyota.Toyota, from 2005 through 2008, Mr. Kenningham served as President of Gulf States Financial Services Group, a leading provider of F&I products and reinsurance structures to the automotive industry, and from 2002 to 2005, as President of USA Logistics (previously known as Gulf States Transportation), a leader in the movement and management of automotive shipments nationwide. He also held various sales, marketing and vehicle distribution positions in the United StatesU.S. and Japan with Nissan Motor Corporation, where he began his career in 1988. Mr. Kenningham earned his Bachelor of Arts degree from the University of Michigan and his Master of Business Administration from the University of Florida.
John C. Rickel was appointed Senior Vice President and Chief Financial Officer in December 2005. From 1984 until joining Group 1, Mr. Rickel held a number of executive and managerial positions of increasing responsibility with Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts. In his last position with Ford, heHe most recently served as Controller, Ford Americas, where he was responsible for the financial management of Ford’s western hemisphere automotive operations. Immediately prior to that, he was Chief Financial Officer of Ford Europe, where he oversaw all accounting, financial planning, information services, tax and investor relations activities. Mr. Rickel serves on the Board of Directors, on the Audit Committee, Compensation Committee, and as Chair of the Governance Committee, and is the lead independent Director of U.S. Xpress, a large truckload carrier providing services primarily throughout the U.S. From 2002 to 2004, Mr. Rickel was Chairman of the Board of Directors of Ford Russia, and a member of the Board of Directors and the Audit Committee of Ford Otosan, a publicly traded automotive company located in Turkey and owned 41% by Ford. Mr. Rickel received his B.S.B.A. and M.B.A. from The Ohio State University.
Frank Grese Jr. has served as thewas appointed Senior Vice President of Human Resources, Training and Operations Support sinceeffective February 1, 2016. Prior to that appointment, Mr. Grese previously served as Regional Vice President of the West Region from January 2006 throughto January 2016, and served as the Platform President of Group 1 Atlanta from December 2004 throughto December 2005. After graduating from the University of Georgia, Mr. Grese began his automotive career in the Ford Management Training Program in 1974. Following1974 where he progressed through various assignments in district offices as well as Ford heheadquarters in Detroit. He joined Nissan in 1982 where he ultimately held the position of National Dealer Advertising Manager. In 1986, Mr. Grese left the manufacturer side of the business and began working in various executive positions, including chief operating officer and district president, with large public and private dealer groups. Mr. GreseHe last served as Director of Dealership Operations, working extensively with underperforming stores, for a large private dealer group. Mr. Grese graduated from the University of Georgia with a degree in journalism.
Darryl M. BurmanPeter C. DeLongchampshas served as Senior Vice President and General Counsel since January 2018 and as Vice President and General Counsel from December 2006 through December 2017. From September 2005 to December 2006, Mr. Burman was a partner and head of the corporate and securities practice in the Houston office of Epstein Becker Green Wickliff & Hall, P.C. From September 1995 until September 2005, Mr. Burman served as the head of the corporate and securities practice of
Fant & Burman, L.L.P. in Houston, Texas, specializing in mergers and acquisitions, including automotive dealerships. Mr. Burman currently serves as a Director of the Texas General Counsel Forum - Houston Chapter and serves on the Board of Directors of the University of South Florida Foundation and South Texas College of Law.
Peter C. DeLongchampshas served asGroup 1’s Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs since January 2018. He previously served as Group 1’s Vice President, Manufacturer Relations, Financial Services and Public Affairs from January 2012 through December 2017, and as Vice President, Manufacturer Relations and Public Affairs from January 2006 through December 2011. HeMr. DeLongchamps served as Vice President, Manufacturer Relations from July 2004 through December 2005. Mr. DeLongchamps began his automotive retailing career in 1980, having workedserved as District Manager for General Motors Corporation and Regional Operations Manager for BMW of North America, and holdingas well as various other management positions in the automotive industry. Immediately prior to joining the CompanyGroup 1 in 2004, Mr. DeLongchampshe was President of Advantage BMW, a Houston‑basedHouston-based automotive retailer. Mr. DeLongchamps also serves on the Board of Directors of Junior Achievement of Southeast Texas.Texas, Houston Christian High School and the Texas Bowl. Mr. DeLongchamps received his B.B.A. from Baylor University.
Code of Ethics
We have adopted a Code of Ethics for Specified Officers, which is applicable to our principal executive officer and other senior financial officers, who include our principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code, which we refer to as our Financial Code of Ethics, is available on our internet website at www.group1auto.com. To the extent required by SEC rules, we intend to disclose any amendments to this code and any waiver of a provision of the code for the benefit of our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website within four business days following any such amendment of waiver, or within any other period that may be required under SEC rules from time to time.
Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 10 the information to be disclosed in our definitive proxy statement prepared in connection with the 20182020 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.2019.
Item 11. Executive Compensation
Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 11 the information to be disclosed in our definitive proxy statement prepared in connection with the 20182020 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 12, the information to be disclosed in our definitive proxy statement prepared in connection with the 20182020 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 13, the information to be disclosed in our definitive proxy statement prepared in connection with the 20182020 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.2019.
Item 14. Principal Accounting Fees and Services
Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 14, the information to be disclosed in our definitive proxy statement prepared in connection with the 20182020 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.2019.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) List of documents filed as part of this Form 10-K:
(1) Financial Statements
The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Form 10-K.
(2) Financial Statement Schedules
All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and notes thereto.
(3) Index to Exhibits
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
EXHIBIT INDEX TO FINANCIAL STATEMENTS
Group 1 Automotive, Inc. and Subsidiaries — Consolidated Financial Statements
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| | | | |
Exhibit Number | | Description |
| | — | | Amended and Restated Certificate of Incorporation of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)
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| | — | | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.2 of Group 1’s Quarterly Report on Form 10-Q (File No. 001-13461) for the period ended March 31, 2007) |
| | — | | Third Amended and Restated Bylaws of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed April 6, 2017)
|
| | — | | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 (Registration No. 333-29893)) |
| | — | | Indenture, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the subsidiary guarantors party hereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014) |
| | — | | Form of 5.000% Senior Notes due 2022 (included as Exhibit A to Exhibit 4.1) |
| | — | | Registration Rights Agreement, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014) |
| | — | | Registration Rights Agreement, dated as of September 9, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 11, 2014) |
| | — | | Indenture, dated as of December 8, 2015, by and among Group 1 Automotive, Inc., the subsidiary guarantors party hereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed December 9, 2015)
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| | — | | Form of 5.250% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed December 9, 2015)
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| | — | | Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 |
| | — | | Eleventh Amended and Restated Revolving Credit Agreement, dated effective as of June 27, 2019 (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed July 1, 2019) |
| | — | | Stockholders Agreement dated as of February 28, 2013, by and among Group 1 Automotive, Inc. and former shareholders of UAB Motors Participações S.A. named therein (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 5, 2013) |
| | — | | Master Assignment and Acceptance Agreement, dated effective December 11, 2012, between JPMorgan Chase Bank, N.A., Comerica Bank, and Bank of America, N.A., each, an Assignor, and VW Credit, Inc., as Assignee, pursuant to the terms of the Eighth Amended and Restated Revolving Credit Agreement, dated effective as of July 1, 2011, as amended (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2012) |
| | — | | Loan Facility dated as of October 3, 2008 by and between Chandlers Garage Holdings Limited and BMW Financial Services (GB) Limited. (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2008) |
| | — | | Form of Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2003) |
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| | | | |
Exhibit Number | | Description |
| | — | | Supplemental Terms and Conditions dated September 4, 1997 between Ford Motor Company and Group 1 Automotive, Inc. (incorporated by reference to Exhibit 10.16 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Form of Agreement between Toyota Motor Sales, U.S.A., Inc. and Group 1 Automotive, Inc. (incorporated by reference to Exhibit 10.12 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Toyota Dealer Agreement effective April 5, 1993 between Gulf States Toyota, Inc. and Southwest Toyota, Inc. (incorporated by reference to Exhibit 10.17 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Lexus Dealer Agreement effective August 21, 1995 between Lexus, a division of Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. (incorporated by reference to Exhibit 10.18 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Form of General Motors Corporation U.S.A. Sales and Service Agreement (incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Form of Ford Motor Company Sales and Service Agreement (incorporated by reference to Exhibit 10.38 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998) |
| | — | | Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
| | — | | Form of Chrysler Corporation Sales and Service Agreement (incorporated by reference to Exhibit 10.39 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998) |
| | — | | Form of Nissan Division of Nissan North America, Inc. Dealer Sales and Service Agreement (incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2003) |
| | — | | Policy on Payment or Recoupment of Performance-Based Cash Bonuses and Performance-Based Stock Bonuses in the Event of Certain Restatement (incorporated by reference to the section titled “Policy on Payment or Recoupment of Performance-Based Cash Bonuses and Performance-Based Stock Bonuses in the Event of Certain Restatement” in Item 5.02 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 13461) filed November 16, 2009) |
| | — | | Form of Indemnification Agreement of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 13, 2007) |
| | — | | Officer’s Terms of Engagement and Guarantees between UAB Motors Participações S.A. and Lincoln da Cunha Pereira Filho dated as of February 28, 2013 (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended March 31, 2013) |
| | — | | Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.28 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2007) |
| | — | | First Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2008) |
| | — | | Second Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2009) |
| | — | | Third Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 15, 2010) |
|
| | | | |
Exhibit Number | | Description |
| | — | | Fourth Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, signed August 15, 2018 (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13451) for the quarter ended September 30, 2018) |
| | — | | Group 1 Automotive, Inc. 2007 Long Term Incentive Plan (As Amended and Restated Effective as of March 11, 2010) (incorporated by reference to Exhibit A to Group 1 Automotive, Inc.’s definitive proxy statement on Schedule 14A filed on April 8, 2010) |
| | — | | Group 1 Automotive, Inc. 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to Group 1 Automotive, Inc.’s definitive proxy statement on Schedule 14A filed April 10, 2014)
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| | — | | Form of Restricted Stock Agreement for Employees (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)
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| | — | | Form of Senior Executive Officer Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 9, 2010) |
| | — | | Form of Phantom Stock Agreement for Employees (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005) |
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| | | | |
| | — | | Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.36 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2009)
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| | — | | Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)
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| | — | | Form of Restricted Stock Agreement with Qualified Retirement Provisions (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8K (File No. 001-13461) filed May 22, 2018) |
| | — | | Form of Phantom Stock Agreement (Cash Settlement) for Non-Employee Directors (incorporated by reference to Exhibit 10.33 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461 for the year ended December 31, 2018) |
| | — | | Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.34 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2018 |
| | — | | Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended March 31, 2019) |
| | — | | Form of Senior Executive Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014) |
| | — | | Form of Restricted Stock Agreement with Qualified Retirement Provisions (incorporated by reference to Exhibit 10.4 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
| | — | | Form of Restricted Stock Agreement for Employees (incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014) |
| | — | | Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.7 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014) |
| | — | | Amendment to Employment Agreement dated effective as of May 17, 2018 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated by reference to Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2018) |
| | | | |
| | | | |
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| | | | |
Exhibit Number | | Description |
| | — | | Employment Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015) |
| | — | | Non-Compete Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated by reference to Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015) |
| | — | | Employment Agreement dated January 1, 2009 between Group 1 Automotive, Inc. and John C. Rickel (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 17, 2009) |
| | — | | Incentive Compensation and Non-Compete Agreement dated June 2, 2006 between Group 1 Automotive, Inc. and John C. Rickel (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 7, 2006) |
| | — | | Employment Agreement dated effective as of December 1, 2009 between Group 1 Automotive, Inc. and Darryl M. Burman (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 16, 2009) |
| | — | | Incentive Compensation and Non-Compete Agreement dated December 1, 2006 between Group 1 Automotive, Inc. and Darryl M. Burman (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K/A (File No. 001-13461) filed December 1, 2006) |
| | — | | Group 1 Automotive, Inc. Aircraft Usage Policy (incorporated by reference to Exhibit 10.41 to Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2017.) |
| | — | | Group 1 Automotive, Inc. Subsidiary List |
| | — | | Consent of Ernst & Young LLP |
| | — | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | | — | | XBRL Instance Document |
| 101.SCH | | — | | XBRL Taxonomy Extension Schema Document |
| 101.CAL | | — | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | — | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | — | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | — | | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | | — | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101) |
| † | Filed herewith |
| * | Management contract or compensatory plan or arrangement |
| ** | Furnished herewith |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on February 13, 2020.
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| | | |
| Group 1 Automotive, Inc. |
| | |
| By: | | /s/ Earl J. Hesterberg |
| | | Earl J. Hesterberg |
| | | President and Chief Executive Officer |
|
| | |
| Signature | | Title |
| |
| /s/ Earl J. Hesterberg | | President and Chief Executive Officer and Director |
| Earl J. Hesterberg | | (Principal Executive Officer) |
| |
| /s/ John C. Rickel | | Senior Vice President and Chief Financial Officer |
| John C. Rickel | | (Principal Financial and Accounting Officer) |
| |
| /s/ Stephen D. Quinn | | Chairman and Director |
| Stephen D. Quinn | | |
| | |
| /s/ John L. Adams | | Director |
| John L. Adams | | |
| | |
| /s/ Carin M. Barth | | Director |
| Carin M. Barth | | |
| |
| /s/ Lincoln da Cunha Pereira Filho | | Director |
| Lincoln da Cunha Pereira Filho | | |
| |
| /s/ Steven P. Stanbrook | | Director |
| Steven P. Stanbrook | | |
| | |
| /s/ Charles L. Szews | | Director |
| Charles L. Szews | | |
| | |
| /s/ Anne Taylor | | Director |
| Anne Taylor | |
| | |
| /s/ Max P. Watson, Jr. | | Director |
| Max P. Watson, Jr. | | |
| |
| /s/ MaryAnn Wright | | Director |
| MaryAnn Wright | | |
INDEX TO FINANCIAL STATEMENTS
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
The
To the Board of Directors and Stockholders of Group 1 Automotive, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc. and subsidiaries (the Company) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 201813, 2020 expressed an unqualified opinion thereon.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue and related costs effective January 1, 2018 due to the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and the related amendments.
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases effective January 1, 2019 due to the adoption of ASC Topic 842, Leases, and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedinclude examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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| |
| Valuation of Indefinite-Lived Intangible Assets |
| Description of the Matter | At December 31, 2019, the Company's indefinite-lived intangible assets consisted of rights under franchise agreements with manufacturers with an aggregate carrying value of approximately $253.5 million. As explained in Note 1 of the consolidated financial statements, these assets are recorded at an individual dealership level and are assessed for impairment at least annually. In evaluating indefinite-lived intangible assets for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not that the intangible asset was impaired. If it is concluded that it is more likely than not that the fair value of the intangible asset is less than its carrying amount, a quantitative test comparing the fair value of the intangible asset to its carrying amount is required to measure the amount of impairment. If the estimated fair value of any intangible franchise rights asset is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Based on the results of the qualitative assessment, the Company identified circumstances indicating possible impairment of certain of its franchise rights, requiring a quantitative assessment.
Auditing the Company's quantitative impairment assessment was complex and highly judgmental due to the significant estimation required to determine the fair values of the franchise rights assets. In particular, the fair value estimates were sensitive to significant assumptions, such as changes in revenue growth rates, future gross margins, future selling, general and administrative expenses, the weighted average cost of capital and terminal growth rates, which are affected by expectations about future market or economic conditions. |
| |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s intangible franchise rights impairment testing process, including controls over management’s review of the significant data and assumptions described above.
To test the estimated fair values of the franchise rights, our audit procedures included, among others, assessing the Company's valuation methodology, testing the significant assumptions for certain dealerships in the valuation model discussed above, and testing the completeness and accuracy of the underlying data used by the Company in its analysis. We compared the significant assumptions to current industry, market and economic trends, and the Company's historical results. as well as assessed the accuracy of the Company's historical estimates. We involved a valuation specialist to assist in our evaluation of the valuation methodology used by the Company, the weighted average cost of capital assumptions and the calculation of the fair value of franchise rights. |
/s/ ErnstERNST & YoungYOUNG LLP
We have served as the Company’s auditor since 2002.
Houston, Texas
February 16, 2018
13, 2020
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data) |
| | | | | | | | |
| | | As of December 31, |
| | | 2019 | | 2018 |
| ASSETS |
| CURRENT ASSETS: | | | | |
| Cash and cash equivalents | | $ | 23.8 |
| | $ | 15.9 |
|
| Contracts-in-transit and vehicle receivables, net | | 253.8 |
| | 265.7 |
|
| Accounts and notes receivable, net | | 225.1 |
| | 194.0 |
|
| Inventories, net | | 1,901.7 |
| | 1,844.1 |
|
| Prepaid expenses | | 96.4 |
| | 56.3 |
|
| Other current assets | | 15.5 |
| | 26.4 |
|
| TOTAL CURRENT ASSETS | | 2,516.3 |
| | 2,402.4 |
|
| Property and equipment, net | | 1,547.1 |
| | 1,347.8 |
|
| Operating lease assets | | 220.1 |
| | — |
|
| Goodwill | | 1,008.3 |
| | 963.9 |
|
| Intangible franchise rights | | 253.5 |
| | 259.6 |
|
| Other long-term assets | | 24.8 |
| | 27.3 |
|
| TOTAL ASSETS | | $ | 5,570.2 |
| | $ | 5,001.1 |
|
| | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES: | | | | |
| Floorplan notes payable — credit facility and other, net of offset account of $106.8 and $33.6, respectively | | $ | 1,144.4 |
| | $ | 1,258.8 |
|
| Floorplan notes payable — manufacturer affiliates, net of offset account of $4.1 and $0.1, respectively | | 459.9 |
| | 417.8 |
|
| Current maturities of long-term debt | | 59.1 |
| | 93.0 |
|
| Current operating lease liabilities | | 24.6 |
| | — |
|
| Accounts payable | | 527.5 |
| | 419.4 |
|
| Accrued expenses and other current liabilities | | 206.7 |
| | 197.6 |
|
| TOTAL CURRENT LIABILITIES | | 2,422.3 |
| | 2,386.6 |
|
| Long-term debt, net of current maturities | | 1,432.1 |
| | 1,281.5 |
|
| Operating lease liabilities, net of current portion | | 210.7 |
| | — |
|
| Deferred income taxes | | 145.7 |
| | 134.7 |
|
| Other long-term liabilities | | 103.6 |
| | 102.6 |
|
| Commitments and Contingencies (Note 16) | |
| |
|
| STOCKHOLDERS’ EQUITY: | | | | |
| Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued or outstanding | | — |
| | — |
|
| Common stock, $0.01 par value, 50,000,000 shares authorized; 25,486,711 and 25,494,328 issued, respectively | | 0.3 |
| | 0.3 |
|
| Additional paid-in capital | | 295.3 |
| | 292.8 |
|
| Retained earnings | | 1,542.4 |
| | 1,394.8 |
|
| Accumulated other comprehensive income (loss) | | (147.0 | ) | | (137.8 | ) |
| Treasury stock, at cost; 6,858,503 and 7,171,661 shares, respectively | | (435.3 | ) | | (454.4 | ) |
| TOTAL STOCKHOLDERS’ EQUITY | | 1,255.7 |
| | 1,095.7 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 5,570.2 |
| | $ | 5,001.1 |
|
|
| | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| | | (In thousands, except per share amounts) |
| ASSETS |
| CURRENT ASSETS: | | | | |
| Cash and cash equivalents | | $ | 28,787 |
| | $ | 20,992 |
|
| Contracts-in-transit and vehicle receivables, net | | 306,433 |
| | 269,508 |
|
| Accounts and notes receivable, net | | 188,611 |
| | 173,364 |
|
| Inventories, net | | 1,763,293 |
| | 1,651,815 |
|
| Prepaid expenses and other current assets | | 42,062 |
| | 34,908 |
|
| Total current assets | | 2,329,186 |
| | 2,150,587 |
|
| PROPERTY AND EQUIPMENT, net | | 1,318,959 |
| | 1,125,883 |
|
| GOODWILL | | 913,034 |
| | 876,763 |
|
| INTANGIBLE FRANCHISE RIGHTS | | 285,632 |
| | 284,876 |
|
| OTHER ASSETS | | 24,254 |
| | 23,794 |
|
| Total assets | | $ | 4,871,065 |
| | $ | 4,461,903 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES: | | | | |
| Floorplan notes payable — credit facility and other | | $ | 1,240,695 |
| | $ | 1,136,654 |
|
| Offset account related to floorplan notes payable - credit facility | | (86,547 | ) | | (59,626 | ) |
| Floorplan notes payable — manufacturer affiliates | | 397,183 |
| | 392,661 |
|
| Offset account related to floorplan notes payable - manufacturer affiliates | | (22,500 | ) | | (25,500 | ) |
| Current maturities of long-term debt and short-term financing | | 77,609 |
| | 72,419 |
|
| Current liabilities from interest rate risk management activities | | 1,996 |
| | 3,941 |
|
| Accounts payable | | 412,981 |
| | 356,099 |
|
| Accrued expenses | | 177,070 |
| | 176,469 |
|
| Total current liabilities | | 2,198,487 |
| | 2,053,117 |
|
| LONG-TERM DEBT, net of current maturities | | 1,318,184 |
| | 1,212,809 |
|
| DEFERRED INCOME TAXES | | 124,404 |
| | 161,502 |
|
| LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES | | 8,583 |
| | 20,470 |
|
| OTHER LIABILITIES | | 97,125 |
| | 83,805 |
|
| COMMITMENTS AND CONTINGENCIES (NOTE 14) | | — |
| |
|
| | | | | |
| STOCKHOLDERS’ EQUITY: | | | | |
| Preferred stock, $0.01 par value, 1,000 shares authorized; none issued or outstanding | | — |
| | — |
|
| Common stock, $0.01 par value, 50,000 shares authorized; 25,515 and 25,663 issued, respectively | | 255 |
| | 257 |
|
| Additional paid-in capital | | 291,461 |
| | 290,899 |
|
| Retained earnings | | 1,246,323 |
| | 1,053,301 |
|
| Accumulated other comprehensive loss | | (123,226 | ) | | (146,944 | ) |
| Treasury stock, at cost; 4,617 and 4,258 shares, respectively | | (290,531 | ) | | (267,313 | ) |
| Total stockholders’ equity | | 1,124,282 |
| | 930,200 |
|
| Total liabilities and stockholders’ equity | | $ | 4,871,065 |
| | $ | 4,461,903 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| | | | | Year Ended December 31, | | | | | | | |
| | | 2017 | | 2016 | | 2015 | | Years Ended December 31, |
| | | (In thousands, except per share amounts) | | 2019 | | 2018 | | 2017 |
| REVENUES: | | | | | | | | | | | | |
| New vehicle retail sales | | $ | 6,157,531 |
| | $ | 6,046,075 |
| | $ | 6,001,306 |
| | $ | 6,314.1 |
| | $ | 6,181.4 |
| | $ | 6,157.5 |
|
| Used vehicle retail sales | | 2,798,986 |
| | 2,757,713 |
| | 2,638,969 |
| | 3,366.6 |
| | 3,166.1 |
| | 2,799.0 |
|
| Used vehicle wholesale sales | | 400,170 |
| | 401,863 |
| | 397,251 |
| | 355.2 |
| | 369.6 |
| | 400.2 |
|
| Parts and service sales | | 1,338,032 |
| | 1,261,307 |
| | 1,186,193 |
| | 1,510.0 |
| | 1,416.9 |
| | 1,338.0 |
|
| Finance, insurance and other, net | | 429,002 |
| | 420,654 |
| | 408,786 |
| | 497.9 |
| | 467.5 |
| | 429.0 |
|
| Total revenues | | 11,123,721 |
| | 10,887,612 |
| | 10,632,505 |
| | 12,043.8 |
| | 11,601.4 |
| | 11,123.7 |
|
| COST OF SALES: | | | | | | | | | | | | |
| New vehicle retail sales | | 5,835,526 |
| | 5,729,697 |
| | 5,695,829 |
| | 6,013.3 |
| | 5,870.5 |
| | 5,835.5 |
|
| Used vehicle retail sales | | 2,621,431 |
| | 2,575,234 |
| | 2,459,499 |
| | 3,165.3 |
| | 2,980.1 |
| | 2,621.4 |
|
| Used vehicle wholesale sales | | 402,912 |
| | 406,305 |
| | 399,171 |
| | 354.1 |
| | 367.9 |
| | 402.9 |
|
| Parts and service sales | | 618,343 |
| | 581,307 |
| | 544,034 |
| | 695.0 |
| | 657.7 |
| | 618.3 |
|
| Total cost of sales | | 9,478,212 |
| | 9,292,543 |
| | 9,098,533 |
| | 10,227.8 |
| | 9,876.3 |
| | 9,478.2 |
|
| GROSS PROFIT | | 1,645,509 |
| | 1,595,069 |
| | 1,533,972 |
| | 1,816.0 |
| | 1,725.1 |
| | 1,645.5 |
|
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | 1,226,195 |
| | 1,170,763 |
| | 1,120,833 |
| |
| DEPRECIATION AND AMORTIZATION EXPENSE | | 57,936 |
| | 51,234 |
| | 47,239 |
| |
| ASSET IMPAIRMENTS | | 19,506 |
| | 32,838 |
| | 87,562 |
| |
| INCOME FROM OPERATIONS | | 341,872 |
| | 340,234 |
| | 278,338 |
| |
| OTHER EXPENSE: | | | | | | | |
| Selling, general and administrative expenses | | | 1,358.4 |
| | 1,273.1 |
| | 1,226.2 |
|
| Depreciation and amortization expense | | | 71.6 |
| | 67.1 |
| | 57.9 |
|
| Asset impairments | | | 22.2 |
| | 43.9 |
| | 19.5 |
|
| INCOME (LOSS) FROM OPERATIONS | | | 363.7 |
| | 341.1 |
| | 341.9 |
|
| INTEREST EXPENSE: | | | | | | | |
| Floorplan interest expense | | (52,372 | ) | | (44,927 | ) | | (39,264 | ) | | 61.6 |
| | 59.9 |
| | 52.4 |
|
| Other interest expense, net | | (70,497 | ) | | (67,936 | ) | | (56,903 | ) | | 74.9 |
| | 75.8 |
| | 70.5 |
|
| INCOME BEFORE INCOME TAXES | | 219,003 |
| | 227,371 |
| | 182,171 |
| |
| PROVISION FOR INCOME TAXES | | (5,561 | ) | | (80,306 | ) | | (88,172 | ) | |
| NET INCOME | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
| |
| BASIC EARNINGS PER SHARE | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.91 |
| |
| INCOME (LOSS) BEFORE INCOME TAXES | | | 227.3 |
| | 205.4 |
| | 219.0 |
|
| (Benefit) provision for income taxes | | | 53.3 |
| | 47.6 |
| | 5.6 |
|
| NET INCOME (LOSS) | | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
|
| BASIC EARNINGS (LOSS) PER SHARE | | | $ | 9.35 |
| | $ | 7.83 |
| | $ | 10.08 |
|
| Weighted average common shares outstanding | | 20,420 |
| | 21,161 |
| | 23,148 |
| | 17.9 |
| | 19.5 |
| | 20.4 |
|
| DILUTED EARNINGS PER SHARE | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.90 |
| |
| Weighted average common shares outstanding | | 20,425 |
| | 21,170 |
| | 23,152 |
| |
| CASH DIVIDENDS PER COMMON SHARE | | $ | 0.97 |
| | $ | 0.91 |
| | $ | 0.83 |
| |
| DILUTED EARNINGS (LOSS) PER SHARE | | | $ | 9.34 |
| | $ | 7.83 |
| | $ | 10.08 |
|
| Weighted average dilutive common shares outstanding | | | 17.9 |
| | 19.5 |
| | 20.4 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| NET INCOME | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
|
| Other comprehensive income (loss), net of taxes: | | | | | | |
| Foreign currency translation adjustment | | 15,061 |
| | (19,081 | ) | | (54,457 | ) |
| Net unrealized gain (loss) on interest rate risk management activities: | | | | | | |
| Unrealized gain (loss) arising during the period, net of tax benefit (provision) of ($620), ($1,037), and $5,914, respectively | | 1,034 |
| | 1,728 |
| | (9,856 | ) |
| Reclassification adjustment for loss included in interest expense, net of tax provision of $4,573, $5,036, and $4,987, respectively | | 7,623 |
| | 8,393 |
| | 8,313 |
|
| Unrealized gain (loss) on interest rate risk management activities, net of tax | | 8,657 |
| | 10,121 |
| | (1,543 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | | 23,718 |
| | (8,960 | ) | | (56,000 | ) |
| COMPREHENSIVE INCOME | | $ | 237,160 |
| | $ | 138,105 |
| | $ | 37,999 |
|
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| NET INCOME (LOSS) | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
|
| Other comprehensive income (loss), net of taxes: | | | | | | |
| Foreign currency translation adjustment | | 3.9 |
| | (24.2 | ) | | 15.1 |
|
| Net unrealized gain (loss) on interest rate risk management activities, net of tax: | | | | | | |
| Unrealized gain (loss) arising during the period, net of tax benefit (provision) of $4.1, ($2.1) and ($0.6), respectively | | (13.3 | ) | | 6.5 |
| | 1.0 |
|
| Reclassification adjustment for realized (gain) loss on interest rate swap termination included in SG&A expenses, net of tax benefit (provision) of $-, ($0.2) and $-, respectively | | — |
| | (0.7 | ) | | — |
|
| Reclassification adjustment for (gain) loss included in interest expense, net of tax benefit (provision) of $0.1, $1.2, and $4.6, respectively | | 0.2 |
| | 3.9 |
| | 7.6 |
|
| Unrealized gain (loss) on interest rate risk management activities, net of tax | | (13.0 | ) | | 9.8 |
| | 8.7 |
|
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | | (9.2 | ) | | (14.4 | ) | | 23.7 |
|
| COMPREHENSIVE INCOME (LOSS) | | $ | 164.8 |
| | $ | 143.4 |
| | $ | 237.2 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share and per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| | | Shares | | Amount | |
| | | (In thousands) |
| BALANCE, December 31, 2014 | | 25,724 |
| | $ | 257 |
| | $ | 286,854 |
| | $ | 852,057 |
| | $ | (81,984 | ) | | $ | (79,174 | ) | | $ | 978,010 |
|
| Net income | | — |
| | — |
| | — |
| | 93,999 |
| | — |
| | — |
| | 93,999 |
|
| Other comprehensive loss, net | | — |
| | — |
| | — |
| | — |
| | (56,000 | ) | | — |
| | (56,000 | ) |
| Acquisition of treasury stock | | — |
| | — |
| | — |
| | — |
| | — |
| | (99,015 | ) | | (99,015 | ) |
| Net issuance of treasury shares to employee stock compensation plans | | (18 | ) | | — |
| | (16,701 | ) | | — |
| | — |
| | 16,907 |
| | 206 |
|
| Stock-based compensation, including tax effect of $2,142 | | — |
| | — |
| | 20,939 |
| | — |
| | — |
| | — |
| | 20,939 |
|
| Cash dividends, net of estimated forfeitures relative to participating securities | | — |
| | — |
| | — |
| | (19,887 | ) | | — |
| | — |
| | (19,887 | ) |
| BALANCE, December 31, 2015 | | 25,706 |
| | $ | 257 |
| | $ | 291,092 |
| | $ | 926,169 |
| | $ | (137,984 | ) | | $ | (161,282 | ) | | $ | 918,252 |
|
| Net income | | — |
| | — |
| | — |
| | 147,065 |
| | — |
| | — |
| | 147,065 |
|
| Other comprehensive loss, net | | — |
| | — |
| | — |
| | — |
| | (8,960 | ) | | — |
| | (8,960 | ) |
| Acquisition of treasury stock | | — |
| | — |
| | — |
| | — |
| | — |
| | (129,187 | ) | | (129,187 | ) |
| Net issuance of treasury shares to employee stock compensation plans | | (43 | ) | | — |
| | (20,963 | ) | | — |
| | — |
| | 23,156 |
| | 2,193 |
|
| Stock-based compensation, including tax effect of ($249) | | — |
| | — |
| | 20,770 |
| | — |
| | — |
| | — |
| | 20,770 |
|
| Cash dividends, net of estimated forfeitures relative to participating securities | | — |
| | — |
| | — |
| | (19,933 | ) | | — |
| | — |
| | (19,933 | ) |
| BALANCE, December 31, 2016 | | 25,663 |
| | $ | 257 |
| | $ | 290,899 |
| | $ | 1,053,301 |
| | $ | (146,944 | ) | | $ | (267,313 | ) | | $ | 930,200 |
|
| Net income | | — |
| | — |
| | — |
| | 213,442 |
| | — |
| | — |
| | 213,442 |
|
| Other comprehensive income, net | | — |
| | — |
| | — |
| | — |
| | 23,718 |
| | — |
| | 23,718 |
|
| Acquisition of treasury stock | | — |
| | — |
| | — |
| | — |
| | — |
| | (42,084 | ) | | (42,084 | ) |
| Net issuance of treasury shares to employee stock compensation plans | | (148 | ) | | (2 | ) | | (18,293 | ) | | — |
| | — |
| | 18,866 |
| | 571 |
|
| Stock-based compensation | | — |
| | — |
| | 18,855 |
| | — |
| | — |
| | — |
| | 18,855 |
|
| Cash dividends, net of estimated forfeitures relative to participating securities | | — |
| | — |
| | — |
| | (20,420 | ) | | — |
| | — |
| | (20,420 | ) |
| BALANCE, December 31, 2017 | | 25,515 |
| | $ | 255 |
| | $ | 291,461 |
| | $ | 1,246,323 |
| | $ | (123,226 | ) | | $ | (290,531 | ) | | $ | 1,124,282 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total |
| | Shares | | Amount | |
| BALANCE, DECEMBER 31, 2016 | 25,662,982 |
| | $ | 0.3 |
| | $ | 290.9 |
| | $ | 1,053.3 |
| | $ | (146.9 | ) | | $ | (267.3 | ) | | $ | 930.2 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 213.4 |
| | — |
| | — |
| | 213.4 |
|
| Other comprehensive income (loss), net of taxes | — |
| | — |
| | — |
| | — |
| | 23.7 |
| | — |
| | 23.7 |
|
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | (42.1 | ) | | (42.1 | ) |
| Net issuance of treasury shares to stock compensation plans | (147,608 | ) | | — |
| | (18.3 | ) | | — |
| | — |
| | 18.9 |
| | 0.6 |
|
| Stock-based compensation | — |
| | — |
| | 18.9 |
| | — |
| | — |
| | — |
| | 18.9 |
|
| Cash dividends, net of estimated forfeitures related to participating securities ($0.97 per share) | — |
| | — |
| | — |
| | (20.4 | ) | | — |
| | — |
| | (20.4 | ) |
| BALANCE, DECEMBER 31, 2017 | 25,515,374 |
| | $ | 0.3 |
| | $ | 291.5 |
| | $ | 1,246.3 |
| | $ | (123.2 | ) | | $ | (290.5 | ) | | $ | 1,124.3 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 157.8 |
| | — |
| | — |
| | 157.8 |
|
| Other comprehensive income (loss), net of taxes | — |
| | — |
| | — |
| | — |
| | (14.4 | ) | | — |
| | (14.4 | ) |
| Tax effects reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | 0.2 |
| | (0.2 | ) | | — |
| | — |
|
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | (183.9 | ) | | (183.9 | ) |
| Net issuance of treasury shares to stock compensation plans | (21,046 | ) | | — |
| | (17.4 | ) | | — |
| | — |
| | 20.1 |
| | 2.7 |
|
| Stock-based compensation | — |
| | — |
| | 18.7 |
| | — |
| | — |
| | — |
| | 18.7 |
|
| Cash dividends, net of estimated forfeitures related to participating securities ($1.04 per share) | — |
| | — |
| | — |
| | (20.8 | ) | | — |
| | — |
| | (20.8 | ) |
| ASC 606 cumulative adjustment | — |
| | — |
| | — |
| | 11.4 |
| | — |
| | — |
| | 11.4 |
|
| BALANCE, DECEMBER 31, 2018 | 25,494,328 |
| | $ | 0.3 |
| | $ | 292.8 |
| | $ | 1,394.8 |
| | $ | (137.8 | ) | | $ | (454.4 | ) | | $ | 1,095.7 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 174.0 |
| | — |
| | — |
| | 174.0 |
|
| Other comprehensive income (loss), net of taxes | — |
| | — |
| | — |
| | — |
| | (9.2 | ) | | — |
| | (9.2 | ) |
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | (1.4 | ) | | (1.4 | ) |
| Net issuance of treasury shares to stock compensation plans | (7,617 | ) | | — |
| | (16.3 | ) | | — |
| | — |
| | 20.5 |
| | 4.2 |
|
| Stock-based compensation | — |
| | — |
| | 18.8 |
| | — |
| | — |
| | — |
| | 18.8 |
|
| Cash dividends, net of estimated forfeitures related to participating securities ($1.09 per share) | — |
| | — |
| | — |
| | (20.3 | ) | | — |
| | — |
| | (20.3 | ) |
| ASC 842 cumulative adjustment | — |
| | — |
| | — |
| | (6.1 | ) | | — |
| | — |
| | (6.1 | ) |
| BALANCE, DECEMBER 31, 2019 | 25,486,711 |
| | $ | 0.3 |
| | $ | 295.3 |
| | $ | 1,542.4 |
| | $ | (147.0 | ) | | $ | (435.3 | ) | | $ | 1,255.7 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | | | Year Ended December 31, | | | | | | | |
| | | 2017 | | 2016 | | 2015 | | Years Ended December 31, |
| | | (In thousands) | | 2019 | | 2018 | | 2017 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
| Net income | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
| |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Net income (loss) | | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
|
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | |
| Depreciation and amortization | | 57,936 |
| | 51,234 |
| | 47,239 |
| | 71.6 |
| | 67.1 |
| | 57.9 |
|
| Change in operating lease assets | | | 28.2 |
| | — |
| | — |
|
| Deferred income taxes | | (46,063 | ) | | 14,162 |
| | 11,884 |
| | 16.2 |
| | 3.5 |
| | (46.1 | ) |
| Asset impairments | | 19,506 |
| | 32,838 |
| | 87,562 |
| | 22.2 |
| | 43.9 |
| | 19.5 |
|
| Stock-based compensation | | 18,900 |
| | 21,073 |
| | 18,851 |
| | 18.8 |
| | 18.7 |
| | 18.9 |
|
| Amortization of debt discount and issue costs | | 3,661 |
| | 3,694 |
| | 3,652 |
| | 4.0 |
| | 3.4 |
| | 3.7 |
|
| Gain on disposition of assets | | (781 | ) | | (2,675 | ) | | (9,719 | ) | |
| (Gain) loss on disposition of assets | | | (5.9 | ) | | (26.8 | ) | | (0.8 | ) |
| Other | | (407 | ) | | 1,084 |
| | 1,192 |
| | 1.1 |
| | 0.9 |
| | (0.4 | ) |
| Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | 35,576 |
| | 76,126 |
| | 25,108 |
| | 123.1 |
| | 18.4 |
| | 35.6 |
|
| Accounts and notes receivable | | (10,674 | ) | | (18,663 | ) | | (17,887 | ) | | (32.5 | ) | | 2.9 |
| | (10.7 | ) |
| Inventories | | (44,021 | ) | | 79,319 |
| | (186,634 | ) | | (28.8 | ) | | (80.6 | ) | | (44.0 | ) |
| Contracts-in-transit and vehicle receivables | | (33,484 | ) | | (15,621 | ) | | (17,944 | ) | | 12.7 |
| | 39.5 |
| | (33.5 | ) |
| Prepaid expenses and other assets | | (6,889 | ) | | 8,244 |
| | (3,153 | ) | | (44.0 | ) | | (16.3 | ) | | (9.3 | ) |
| Floorplan notes payable — manufacturer affiliates | | (8,294 | ) | | (12,630 | ) | | 87,516 |
| | 38.9 |
| | 38.4 |
| | (8.3 | ) |
| Deferred revenues | | 517 |
| | (393 | ) | | (619 | ) | | (0.5 | ) | | (0.8 | ) | | 0.5 |
|
| Net cash provided by operating activities | | 198,925 |
| | 384,857 |
| | 141,047 |
| |
| Operating lease liabilities | | | (28.3 | ) | | — |
| | — |
|
| Net cash provided by (used in) operating activities | | | 370.9 |
| | 270.0 |
| | 196.5 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Cash paid for acquisitions, net of cash received | | (109,081 | ) | | (57,327 | ) | | (212,252 | ) | | (143.2 | ) | | (135.3 | ) | | (109.1 | ) |
| Proceeds from disposition of franchises, property and equipment | | 10,708 |
| | 36,843 |
| | 41,581 |
| | 43.4 |
| | 107.9 |
| | 10.7 |
|
| Purchases of property and equipment, including real estate | | (215,832 | ) | | (156,521 | ) | | (120,252 | ) | |
| Purchases of property and equipment | | | (191.8 | ) | | (141.0 | ) | | (215.8 | ) |
| Other | | 1,607 |
| | 2,965 |
| | 6,421 |
| | — |
| | 0.5 |
| | 1.6 |
|
| Net cash used in investing activities | | (312,598 | ) | | (174,040 | ) | | (284,502 | ) | |
| Net cash provided by (used in) investing activities | | | (291.6 | ) | | (168.0 | ) | | (312.6 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Borrowings on credit facility — floorplan line and other | | 7,019,070 |
| | 6,597,406 |
| | 7,557,237 |
| | 7,304.6 |
| | 6,954.3 |
| | 7,019.1 |
|
| Repayments on credit facility — floorplan line and other | | (6,957,866 | ) | | (6,676,161 | ) | | (7,504,516 | ) | | (7,423.2 | ) | | (6,870.1 | ) | | (6,957.9 | ) |
| Borrowings on credit facility — acquisition line | | 68,086 |
| | 220,020 |
| | 489,548 |
| | 319.0 |
| | 165.3 |
| | 68.1 |
|
| Repayments on credit facility — acquisition line | | (42,278 | ) | | (220,020 | ) | | (557,696 | ) | | (281.4 | ) | | (158.5 | ) | | (42.3 | ) |
| Net borrowings on 5.25% Senior Unsecured Notes | | — |
| | — |
| | 296,250 |
| |
| Debt issue costs | | | (5.4 | ) | | — |
| | — |
|
| Borrowings on other debt | | 165,702 |
| | 49,972 |
| | 59,855 |
| | 177.4 |
| | 156.0 |
| | 165.7 |
|
| Principal payments on other debt | | (121,199 | ) | | (45,928 | ) | | (63,769 | ) | | (166.7 | ) | | (118.8 | ) | | (121.2 | ) |
| Borrowings on debt related to real estate, net of debt issue costs | | 75,309 |
| | 39,141 |
| | 31,238 |
| |
| Borrowings on debt related to real estate | | | 173.5 |
| | 54.7 |
| | 75.3 |
|
| Principal payments on debt related to real estate | | (29,391 | ) | | (25,463 | ) | | (72,079 | ) | | (147.3 | ) | | (91.5 | ) | | (29.4 | ) |
| Employee stock purchase plan purchases, net of employee tax withholdings | | 4,603 |
| | 3,868 |
| | 214 |
| |
| Proceeds from employee stock purchase plan | | | 8.6 |
| | 7.6 |
| | 7.1 |
|
| Payment of tax withholding for stock-based awards | | | (4.4 | ) | | (4.9 | ) | | (2.5 | ) |
| Proceeds from termination of mortgage swap | | | — |
| | 0.9 |
| | — |
|
| Repurchases of common stock, amounts based on settlement date | | (40,094 | ) | | (127,606 | ) | | (97,473 | ) | | (1.4 | ) | | (183.9 | ) | | (40.1 | ) |
| Tax effect from stock-based compensation | | — |
| | (249 | ) | | 2,142 |
| |
| Dividends paid | | (20,466 | ) | | (19,987 | ) | | (19,942 | ) | | (20.3 | ) | | (20.9 | ) | | (20.5 | ) |
| Net cash provided by (used in) financing activities | | 121,476 |
| | (205,007 | ) | | 121,009 |
| | (67.0 | ) | | (109.5 | ) | | 121.5 |
|
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | (8 | ) | | 2,145 |
| | (5,492 | ) | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 7,795 |
| | 7,955 |
| | (27,938 | ) | |
| CASH AND CASH EQUIVALENTS, beginning of period | | 20,992 |
| | 13,037 |
| | 40,975 |
| |
| CASH AND CASH EQUIVALENTS, end of period | | $ | 28,787 |
| | $ | 20,992 |
| | $ | 13,037 |
| |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | |
| Purchases of property and equipment, including real estate, accrued in accounts payable and accrued expenses | | $ | 8,759 |
| | $ | 15,930 |
| | $ | 32,720 |
| |
| Effect of exchange rate changes on cash | | | (2.9 | ) | | (3.3 | ) | | — |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash | | | 9.3 |
| | (10.9 | ) | | 5.4 |
|
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | | | 18.7 |
| | 29.6 |
| | 24.2 |
|
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | | | $ | 28.1 |
| | $ | 18.7 |
| | $ | 29.6 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ANNUAL FINANCIAL INFORMATIONBUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Group 1 Automotive, Inc., a Delaware corporation, is a leading operator in the automotive retailing industry with business activities in 15 states in the United States of America (“U.S.”), 2833 towns in the United Kingdom (“U.K.”), and four3 states in Brazil. Group 1 Automotive, Inc. and its subsidiaries are collectively referred to as the “Company” in these Notes to Consolidated Financial Statements. The Company, through its regions, sells new and used cars and light trucks; arranges related vehicle financing; sells service and insurance contracts; provides automotive maintenance and repair services; and sells vehicle parts.
As of December 31, 2017,2019, the Company’s U.S. retail network consisted of 115119 dealerships withinin the following states: Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina,U.S, 50 dealerships in the U.K. and Texas.17 dealerships in Brazil. The U.S. and Brazil are led by the President, of U.S. and Brazilian Operations, reportsand the U.K is led by a Managing Director, each reporting directly to the Company's Chief Executive Officer and is responsible for the overall performance of the U.S. region,their respective regions, as well as for overseeing field level management.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and reflect the market directorsconsolidated accounts of the parent company, Group 1 Automotive, Inc., and dealership general managers. In addition, asits subsidiaries, all of December 31, 2017, the Company had two international regions: (a) the U.K., which consistedare wholly owned. The results of 42 dealerships and (b) Brazil, which consisted of 16 dealerships. The operations of all business combinations completed during the Company's international regionsperiod are structured similarincluded from the effective dates of the closings of the acquisitions. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior periods to conform with current period presentation with no effect on the U.S. region, each with a regional vice president reporting directlyCompany’s previously reported consolidated financial position, results of operations or cash flows. Certain disclosures are reported as zero balances, or may not compute, due to the Company's Chief Executive Officer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATESrounding.
Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”)GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Management analyzes the Company’s estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances; however, actual results could differ materially from such estimates. The significant estimates made by management in the accompanying Consolidated Financial Statements relate to inventory marketvaluation adjustments, reserves for future chargebacks on finance, insurance and vehicle service contract fees, self-insured property/property and casualty insurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill and intangible franchise rights, and reserves for potential litigation.
Basis of PresentationSegment Reporting
All business acquisitions completed during the periods presented have been accounted by applying the aquisition method of accounting, and their results of operations are included from the effective datesSee discussion of the closings of the acquisitions. The allocations of purchase price to the assets acquired and liabilities assumed are assigned and recorded based on estimates of fair value and are subject to change within the purchase price allocation period (generally one year from the respective acquisition date). All intercompany balances and transactions have been eliminatedCompany’s reportable segments in consolidation.Note 19 “Segment Information.”
Revenue Recognition
Revenues from vehicle sales, parts sales and vehicle service are recognized upon completionSee discussion of the sale or serviceCompany’s revenue streams and deliveryaccounting policies related to the customer. Conditions to completing a sale entail having an agreement with the customer, including pricing, and having a reasonable expectation that the sales price will be collected. The Company includes revenues from its collision center operationsrevenue recognition in parts and services sales. Taxes collected from customers and remitted to governmental agencies are not included in total revenues.
The Company records the profit it receives for arranging vehicle fleet transactions, net, in other finance and insurance revenues. Since all sales of new vehicles must occur through franchised new vehicle dealerships, the dealerships effectively act as agents for the automobile manufacturers in completing sales of vehicles to fleet customers. As these customers typically order the vehicles, the Company has no significant general inventory risk. Additionally, fleet customers generally receive special purchase incentives from the automobile manufacturers and the Company receives only a nominal fee for facilitating the transactions.
The Company arranges financing for customers through various institutions and receives financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution. In
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
addition, the Company receives fees from the sale of insurance and vehicle service contracts to customers. Revenues from these fees are recorded at the time of the sale of the vehicles as finance and insurance revenue earned. Further, through agreements with certain vehicle service contract administrators, the Company earns volume incentive rebates and interest income on reserves, as well as participates in the underwriting profits of the products. These amounts earned are also recognized as finance and insurance revenue. The Company may be charged back for unearned financing, insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers. A reserve for future amounts estimated to be charged back is recorded, as a reduction of Finance, insurance and other revenue, net in the accompanying Consolidated Statement of Operations, based on the Company’s historical chargeback results and the termination provisions of the applicable contracts. While chargeback results vary depending on the type of contract sold, a 10% increase in the historical chargeback experience used in determining estimates of future amounts that might be charged back would have increased the reserve at December 31, 2017 by $5.0 million.Note 2 “Revenues.”
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and various other short-term investments with original maturities of three months or less at the date of purchase. As of December 31, 2017 and 2016, cash and cash equivalents excluded $109.0 million and $85.1 million, respectively, of immediately available funds used to pay down the Floorplan Line of the Revolving Credit Facility and the FMCC Facility (as defined in Note 11, “Credit Facilities”), which are the Company’s primary options for the short-term investment of excess cash. These amounts are reflected in the Company’s Consolidated Balance Sheets as the offset accounts related to Floorplan Notes Payable - Credit Facility and Floorplan Notes Payable - Manufacturer Affiliates.
Receivables
Contracts-in-Transit and Vehicle Receivables
Contracts-in-transit and vehicle receivables consist primarily of amounts due from financing institutions on retail finance contracts from vehicle sales, and dealer incentives due from manufacturers. Also included are amounts receivable fromalso includes receivables related to vehicle wholesale sales.
Accounts and Notes Receivable
Accounts and notes receivable consist primarily of amounts due from manufacturers related to dealer incentives, and also includes receivables related to parts and service sales.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based on the age of the receivable, the creditworthiness of the customer, and it’s historical experience with the customer.
See Note 7 “Receivables, Net” for details of the Company’s receivable accounts and related allowance for doubtful accounts.
Inventories
New and used retail vehicles are initially valued in inventory at cost, which consists of the amount paid to acquire the inventory, plus the cost of reconditioning, cost of equipment added and demonstrator vehicle inventoriestransportation cost. All vehicles are carried at the lower of specific cost or net realizable value and are removed from inventory using the specific identification method in the Consolidated Balance Sheets. Vehicle inventoryIn determining the lower of specific cost consists of the amount paid to acquire the inventory, plus the cost of reconditioning, cost of equipment added and transportation cost. Additionally, the Company receives interest assistance from some of the automobile manufacturers. This assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on the Company’s Consolidated Balance Sheets and as a reduction to cost of sales in its Statements of Operations as the vehicles are sold. At December 31, 2017 and 2016, inventory cost had been reduced by $9.1 million and $9.6 million, respectively, for interest assistance received from manufacturers. New vehicle cost of sales was reduced by $48.9 million, $49.2 million and $50.5 million for interest assistance received related to vehicles sold for the years ended December 31, 2017, 2016 and 2015, respectively. The interest assistance over the past three years has ranged from approximately 88.0% of the Company’s quarterly floorplan interest expense in the first quarter of 2017 to 139.9% for the third quarter of 2015.
Since the marketor net realizable value of inventory typically declines over time, the Company establishes new and used vehicle reserves based on itsvehicles, the Company considers historical loss experience and management’s considerations of current market trends. These reserves are charged to cost of sales and reduce the carrying value of inventory on hand. Used vehicles are complex to value as there is no standardized source for determining exact values and each vehicle and each market in which the Company operates is unique. As a result, the value of each used vehicle taken at trade-in, or purchased at auction, is determined based on industry data, primarily accessed via the Company’s used vehicle management software and the industry expertise of the responsible used vehicle manager. Valuation risk is partially mitigated by the speed at which the Company turns this inventory. At
Impairments of inventory, net of insurance proceeds, related to catastrophic events are included in Selling, general and administrative expenses in the Consolidated Statements of Operations. During the year ended December 31, 2019, the Company recorded $16.0 million in impairment charges as a result of hail storms and flood damage from Tropical Storm Imelda. During the years ended December 31 2018 and 2017,, impairments of inventory were $6.1 million and $5.0 million, respectively.
The Company receives interest assistance from certain automobile manufacturers that is reflected as a vehicle purchase price discount. The Company also receives dealer rebates and incentive payments, typically on parts purchases from the automobile manufacturers and on new vehicle retail sales. The interest assistance and dealer incentives are reflected as a reduction to cost of sales in the Statements of Operations as the vehicles are sold. Interest assistance reduces inventory cost in the Consolidated Balance Sheets.
Certain manufacturers offer rebates that result in purchase discounts once the incentives are met, providing the Company with volume incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time. Under the terms of the Company’s used vehicle days’ supply was 39 days.dealership franchise agreements, the respective manufacturers are able to perform warranty, incentive, and rebate audits and charge the Company back for unsupported or non-qualifying warranty repairs, rebates or incentives.
Parts and accessories inventories are valued at lower of cost (determinedor net realizable value and determined on a first-in, first-out basis) or net realizable valuebasis in the Consolidated Balance Sheets. The Company incurs shipping costs in connection with selling parts to customers. The cost of shipping these partscustomers which is included in costCost of sales onSales in the Consolidated Statements of Operations.
Property and Equipment
Property and equipment are recorded at cost and depreciation is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the estimated term of the lease or the estimated useful life of the asset. The amortization of assets recorded under capital leases is included with depreciation
Property and amortization expense in the Consolidated Statement of Operations.equipment estimated useful lives are as follows: |
| | |
| | Estimated Useful Lives in Years |
| |
| Land | | — |
| Buildings | | 25 to 50 |
| Leasehold improvements | | Varies |
| Machinery and dealership equipment | | 7 to 20 |
| Office equipment, furniture and fixtures | | 3 to 20 |
| Company vehicles | | 3 to 5 |
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Expenditures for major additions or improvements, which improve or extend the useful lives of the assets are capitalized. Minor replacements, maintenance and repairs, which do not improve or extend the lives of the assets, are expensed as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations.Selling, general and administrative expenses in the Consolidated Statements of Operations.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company reviews long-lived assets that are held-for-use for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events). This review consists of comparing the carrying amount of the asset with its expected future undiscounted cash flows without non-floorplan interest costs. If the asset’s carrying amount is greater than such cash flow estimate, then itan impairment charge is requiredrecorded to be writtenwrite the asset down to its fair value. Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions.
During the year ended December 31, 2019, 2018 and 2017, the Company recorded $1.8 million, $5.1 million and $0.2 million of impairment of property and equipment, respectively. See Note 15, “Asset Impairments,”9“Property and Equipment, Net” for additional details regardingdetails.
Business Combinations
Business acquisitions are accounted for under the acquisition method of accounting. The allocations of purchase price to the assets acquired and liabilities assumed are assigned and recorded based on estimates of fair value and are subject to change within the purchase price allocation period (generally one year from the respective acquisition date).
The fair values of assets acquired and liabilities assumed in business combinations are estimated using various assumptions. The most significant assumptions, and those requiring the most judgment, involve the estimated fair values of property and equipment and intangible franchise rights. The Company generally utilizes third-party experts to determine the fair values of property and equipment purchased, including real estate, and utilizes its fair value model as discussed under “Intangible Franchise Rights” below, supplemented with assistance from third-party experts, to determine the fair value of intangible franchise rights acquired.
See Note 3 “Acquisitions and Dispositions” for additional discussion of the Company’s impairment of long-lived assets.business combinations.
Goodwill
Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. During 2016, theThe Company wasis organized into four geographic regions, East and West regions in the U.S., the U.K. region and the Brazil region. During 2017, the Company reorganized into three3 geographic regions, the U.S. region, the U.K. region and the Brazil region. The Company has determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment. Annually in the fourth quarter, based on the carrying values of the Company’s regions as of October 31,st, the Company performs a fair value and potentialan impairment assessment of its goodwill. An impairment analysis is done more frequently if certain events or circumstances arise that would indicate aan adverse change in the fair value of the intangible asset has occurred (i.e., an impairment indicator).
In evaluating its goodwill for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that goodwill was impaired. If it is concluded based on the Company compares the carrying value of the net assets of each reporting unit to its respective fair value, whichqualitative assessment that it is calculated by using unobservable inputs based upon the Company’s internally developed assumptions. This represents the first step of the impairment test. Ifnot more likely than not that the fair value of athe reporting unit is less than theits carrying value of its net assets,amount, the Company proceedsdoes not have to step two ofquantitatively determine the impairment test. Step two involves allocatingasset’s fair value. However if it is concluded that it is more likely than not that the calculated fair value to all of the tangible and identifiable intangible assets of the reporting unit as ifis less than its carrying amount, a quantitative test comparing the calculated fair value were the purchase price in a business combination. The Company then compares the value of the implied goodwill resulting from this second stepreporting unit to its carrying amount is required to measure the carryingamount of impairment.
When a quantitative test is performed, the Company estimates the fair value of the goodwill in therespective reporting unit. To the extent the carrying value of the goodwill exceeds its implied fair value under step two of the impairment test, a non-cash impairment charge equal to the difference is recorded.
The Company usesunits using a combination of the discounted cash flow, or income approach, (80% weighted), and the market approach (20% weighted) to determine the fair value of the Company’s reporting units. Includedapproach. Significant assumptions included in the discounted cash flow approach are assumptions regardingmodel include changes in revenue growth rates, future gross margins, future selling, generalSG&A expenses, and administrative expenses (“SG&A”)the WACC and an estimated weighted average cost of capital (“WACC”). The Company also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Specifically, with regard to the valuation assumptions utilized in the income approach for the U.S. reporting unit (which represents the Company’s largest reporting unit) as of October 31, 2017, the Company based its analysis on an estimate of industry sales of 16.9 million units in 2018, 16.7 million units in 2019, 16.5 million units in 2020 and remaining flat for the remainder of the forecasted years.terminal growth rates. For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pretaxpre-tax net income weighted as appropriate by reporting unit. Each of these assumptions requires the Company to use its knowledge of (1) the industry, (2) recent transactions and (3) reasonable performance expectations for its operations. If any one
The Company’s qualitative test includes a review of changes since the abovelast quantitative test was performed in those assumptions change or fails to materialize,having the resulting declinemost significant impact on the current year fair value, which are consistent with the significant assumptions identified in the estimated fair value could result in a material, non-cash impairment charge to the goodwill associated with the reporting unit(s). quantitative test above.
See Note 15, “Asset Impairments,” and Note 16,11 “Intangible Franchise Rights and Goodwill,”Goodwill” for additional details regardingof the Company’s goodwill.intangibles, including results of its impairment testing.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible Franchise Rights
The Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which are recorded at an individual dealership level. The Company expects these franchise agreements to continue for an indefinite period and, for agreements that do not have indefinite terms, the Company believes that renewal of these agreements can be obtained without substantial cost, based on the history with the manufacturer. As such, the franchise rights are considered indefinite-lived intangible assets and not amortized, as the Company believes that its franchise agreements will contribute to cash flows for an indefinite period and, therefore, the carrying amounts of the franchise rights are not amortized.period. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as part of goodwill in the U.S. reporting unit and remain as part ofrecorded in goodwill in the U.S. reporting unit at December 31, 20172019 and 20162018 in the accompanying Consolidated Balance Sheets. Since July 1, 2001, intangible franchise rights acquired in business combinations have been recorded as distinctly separate intangible assets. In accordance with guidance primarily codified within Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other, theThe Company evaluates these franchise rights for impairment annually in the fourth quarter, based on the respective carrying values of the Company’s
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
individual dealerships as of October 31,st, or more frequently if events or circumstances indicate possible impairment has occurred.
In performingevaluating indefinite-lived intangible assets for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that the intangible asset was impaired. If it is concluded based on the qualitative assessment that it is not more likely than not that the fair value of the intangible asset is less than its impairment assessments,carrying amount, the Company testsdoes not have to quantitatively determine the carryingasset’s fair value. However if it is concluded that it is more likely than not that the fair value of each individualthe intangible asset is less than its carrying amount, a quantitative test comparing the fair value of the intangible asset to its carrying amount is required to measure the amount of impairment.
When a quantitative test is performed, the Company estimates the fair value of the respective franchise right that was recorded by using a direct value method discounted cash flow model, or income approach, specifically the excess earnings method. IncludedSignificant assumptions included in this analysis are assumptions, at a dealership level, regarding the cash flows directly attributable to the franchise rights,model include changes in revenue growth rates, future gross margins, and future SG&A expenses. Using an estimatedexpenses, and the WACC estimated residual values atand terminal growth rates.
The Company’s qualitative test includes a review of changes since the end oflast quantitative test was performed in those assumptions having the forecast periodmost significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above.
During the year ended December 31, 2019, 2018 and estimated future capital expenditure requirements,2017, the Company calculates the fair valuerecorded $19.0 million, $38.7 million and $19.3 million, respectively, of each dealership’simpairment of intangible franchise rights. See Note 15, “Asset Impairments,” and Note 16,11 “Intangible Franchise Rights and Goodwill,”Goodwill” for additional details regardingof the Company’s intangible franchise rights.intangibles, including results of its impairment testing.
Income Taxes
Currently, the Company operates in 15 different states in the U.S., in the U.K. and in Brazil, each of which has unique tax rates and payment calculations. As the amount of income generated in each jurisdiction varies from period to period, the Company’s estimated effective tax rate can vary based on the proportion of taxable income generated in each jurisdiction.
The Company follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred income taxes are recorded based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. A valuation allowance reduces deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recognized deferred tax assets, net of valuation allowances, that it believes will be realized, based primarily on the assumption of future taxable income. As it relates to U.S. state net operating losses, as well as deferred tax assets primarily relating to net operating losses and goodwill for certain Brazil subsidiaries, a corresponding valuation allowance has been established to the extent that the Company has determined that net income attributable to certain jurisdictions may not be sufficient to realize the benefit. See Note 7,14 “Income Taxes” for additional details.
Fair Value of Financial Assets and Liabilities
The Company’s financial instruments consist primarily of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, credit facilities, long-term debt and interest rate derivative instruments. The fair values of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, credit facilities and variable-rate long-term debt approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates. However, the carrying value of the Company’s fixed-rate long-term debt differs from fair value.
For discussion on the fair value of the Company’s interest rate derivative instruments and fixed-rate long-term debt, refer to “Derivative Financial Instruments” and Note 12, “Long-Term Debt” below, respectively.
Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
The fair values of assets acquired and liabilities assumed in business combinations are estimated using various assumptions. The most significant assumptions, and those requiring the most judgment, involve the estimated fair values of property and equipment and intangible franchise rights. The Company utilizes third-party experts to determine the fair values of property and equipment purchased, including real estate, and utilizes its fair value model as discussed under “Intangible Franchise Rights” above, supplemented with assistance from third-party experts, to determine the fair value of intangible franchise rights acquired.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Financial Instruments
OneThe Company holds derivative financial instruments consisting of the Company’s primary market risk exposures is increasing interest rates. Interest rate derivatives,swaps which are designated as cash flow hedges, are used to adjust interest rate exposures, when determined appropriate based on current and forecasted future market conditions.
The Company follows the requirements of guidance primarily codified within ASC 815, Derivatives and Hedging (“ASC 815”) pertaining to the accounting for derivatives and hedging activities. ASC 815 requires the Company to recognize all cash flow hedges on its balance sheet at fair value. The related gains or losses on these interest rate derivatives are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. These deferred gains and losses are recognized in income in the period in which the related items being hedged are recognized in expense. Monthly contractual settlements of these swap positions are recognized as floorplan or other interest expense in the Company’s accompanying Consolidated Statements of Operations. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the items being hedged, that ineffective portion is immediately recognized in other income or expense. Allhedges. See discussion of the Company’s interest rate hedges were designated as cash flow hedges and were deemedaccounting policies relating to be effective at December 31, 2017, 2016 and 2015.
The Company measures the fair value of its interest rate derivative instruments utilizing an income approach valuation technique, converting estimated future amounts of cash flows to a single present value in order to obtain a transfer exit price within the bid and ask spread that is most representative of the fair value of its derivative instruments. In measuring fair value, the Company utilizes the option-pricing Black-Scholes present value technique for all of its derivative instruments. This option-pricing technique utilizes a one-month London Interbank Offered Rate (“LIBOR”) forward yield curve, obtained from an independent external service provider, matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. The fair value estimate of the interest rate derivative instruments also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated by using the spread between the one-month LIBOR yield curve and the relevant average 10 and 20-year rate according to Standard and Poor’s.
The Company has determined the valuation measurement inputs of these derivative instruments to maximize the use of observable inputs that market participants would use in pricing similar or identical instruments and market data obtained from independent sources, which is readily observable or can be corroborated by observable market data for substantially the full term of the derivative instrument. Further, the valuation measurement inputs minimize the use of unobservable inputs. Accordingly, the Company has classified the derivatives within Level 2 of the ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), hierarchy framework in Note 13, “Fair Value Measurements.” The Company validates the outputs of its valuation technique by comparison to valuations from the respective counterparties. See Note 4, “Derivative Instruments and Risk Management Activities,” and Note 13, “Fair Value Measurements,” for further details regarding the Company’s derivative financial instruments, andincluding fair value measurements.measurements, in Note 6 “Financial Instruments and Fair Value Measurements.”
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency Translation
The functional currency for the Company’s U.K. subsidiaries is the British pound sterlingGBP (£) and offor the Company’s Brazil subsidiaries is the Brazilian realBRL (R$). The financial statements of all the Company’s foreign subsidiaries have been translated into U.S. dollars. All assets and liabilities of foreign subsidiaries are translated into U.S. dollarsUSD using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period. The difference in the U.S. dollar results that arisegains and losses resulting from the translation of all assets and liabilities are included in the cumulative currency translation adjustments are recorded in accumulated other comprehensive income/lossincome (loss) in stockholders’ equity and in other income/expense, when applicable. Upon disposition of the Company’s investment in a foreign subsidiary, the Company removes the accumulated translation adjustment attributable to that subsidiary from equity and recognizes it through earnings as a part of the gain or loss on the disposition transaction.
Factory Incentives
In addition to the interest assistance discussed above, the Company receives various dealer incentive payments from certain of the automobile manufacturers. These incentive payments are typically received on parts purchases from the automobile manufacturers and on new vehicle retail sales. These incentives are reflected as reductions of cost of sales in the Consolidated Statements of Operations. Factory incentive amounts related to parts and vehicles still in inventory as of the balance sheet date are reflected in inventory.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equity.
Earnings Per Share
The Company utilizesSee discussion of the two-class method for the computation ofCompany’s earnings per share (“EPS”). The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents. The Company’s restricted stock awards qualify as participating securities as each contain non-forfeitable rights to dividends. Income allocated to these participating securities is excluded from net earnings available to common shares. Basic EPS is computed by dividing net income available to basic common shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net income available to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.calculation in Note 5 “Earnings Per Share.”
Advertising
The Company expenses the costs of advertising as incurred. Advertising expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations and totaled $75.2 million for both years ended December 31, 2019 and 2018, respectively and $74.1 million for the yearsyear ended December 31, 2017, 2016, and 2015, totaled $74.1 million, $75.3 million and $74.6 million, respectively.2017. The Company receives advertising assistance from some of thecertain automobile manufacturers thatwhich the Company mustis required to spend on qualified advertising and which is subject to audit and chargeback by the manufacturer. The assistance is accounted for as a reduction of advertising expense, which is included into SG&A expenses in the accompanying Consolidated Statements of Operations, as the assistance is earned. Advertising assistance amounts received relatedearned and amounted to vehicles still in inventory as of the balance sheet date are reflected in accrued expenses.
Advertising expense has been reduced by $15.3$15.4 million,, $16.7 $14.8 million and $17.3$15.3 million for advertising assistance earned related to vehicles sold for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively.
Business and Credit Risk Concentrations
The Company owns and operates franchised automotive dealerships in the U.S., the U.K. and Brazil. Automotive dealerships operate pursuant to franchise agreements with vehicle manufacturers. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the operations of the dealership. The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management, marketing, production and distribution capabilities of the vehicle manufacturers or distributors of which the Company holds franchises. The Company purchases substantially all of its new vehicles from various manufacturers or distributors at the prevailing prices to all franchised dealers. The Company’s sales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the dealerships with an adequate supply of vehicles. For the year ended December 31, 2017, Toyota (including Lexus, Scion and Toyota brands), Volkswagen (including Audi, Porsche, and Volkswagen brands), BMW (including MINI and BMW brands), Ford (including Ford and Lincoln brands), Honda (including Acura and Honda brands), Nissan, General Motors (including Chevrolet, GMC, Buick, and Cadillac brands), Daimler (including Mercedes-Benz, smart and Sprinter brands), Hyundai (including Hyundai and Kia brands) and FCA US (formerly Chrysler) (including Chrysler, Dodge, RAM and Jeep brands), accounted for 25.3%, 13.0%, 12.7%, 11.5%, 9.2%, 7.4%, 6.2%, 4%, 3.9%, and 3.9% of the Company’s new vehicle sales volume, respectively. No other manufacturer accounted for more
The following table sets forth manufacturers with greater than 2.9%10% of the Company’s total new vehicle unit sales volume in 2017. Throughduring the use of an open account, theyear ended December 31, 2019: |
| |
| Manufacturer | Percentage of New Vehicle Retail Units Sold |
| Toyota/Lexus | 24.7 % |
| Volkswagen/Audi/Porsche/SEAT/SKODA | 14.1 % |
| BMW/MINI | 12.0 % |
| Honda/Acura | 10.7 % |
| Ford/Lincoln | 10.4 % |
The Company purchases and returns parts and accessories from/to the manufacturers and receives reimbursement for rebates, incentives and other earned credits.credits from manufacturers. As of December 31, 2017,2019, the Company was due $109.6$124.0 million from various manufacturers (see Note 8, “Accounts and Notes Receivable”7 “Receivables, Net”). Receivable balances from Toyota, General Motors, BMW, Volkswagen, Daimler, Ford, Nissan, Hyundai, Honda, and FCA US (formerly Chrysler), represented 16.6%, 14.1%, 14.0%, 13.5%, 11.2%, 9.0%, 5.0%, 3.8%, 3.4% and 3.2%, respectively, of this total balance due from manufacturers.
Statements of Cash Flows
With respect to all new vehicle floorplan borrowings, the vehicle manufacturers ofdraft the vehicles draftfunds directly from the Company’s credit facilities directly with no cash flow to or from the Company. With respect to borrowings for used vehicle financing in the U.S., the Company finances up to 85% of the value of the used vehicle inventory and the borrowed funds flow from the lender directly to the Company from the lender.Company. In the U.K. and Brazil, the Company chooses which used vehicles to finance and the borrowings flow directly to the Company from the lender.
All borrowings from, and repayments to, lenders affiliated with the vehicle manufacturers (excluding the cash flows from or to manufacturer affiliated lenders participating in the Company’s syndicated lending group under the Revolving Credit Facility)Facility as defined in Note 12 “Floorplan Notes Payable”) are presented within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. All borrowings from, and repayments to, the syndicated lending group under the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”)Company’s credit facilities (including the cash flows from or to manufacturer affiliated lenders participating in the facility), as well as borrowing from, and repayments to, the Company’s other credit facilitiesRevolving Credit Facility) are presented within Cash Flows from Financing Activities. See Note 18 “Cash Flow Information” for additional details.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash paid for interest, including the monthly settlementStock-Based Compensation
See discussion of the Company’s interest rate derivatives, was $117.1 million, $109.3 millionshare-based payment awards and $92 millionrelated accounting policies in 2017, 2016 and 2015, respectively. Cash paid for taxes, net of refunds, was $61.0 million, $56.9 million and $74.8 million in 2017, 2016 and 2015, respectively.
Stock-BasedNote 4 “Stock-Based Compensation
Stock-based compensation represents the expense related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation expense at grant date based on the estimated fair value of the award and recognizes the cost on a straight-line basis, net of estimated forfeitures, over the employee requisite service period. The Company estimates the fair value of its employee stock purchase rights issued pursuant to the Employee Stock Purchase Plan using a Black-Scholes valuation model. The expense for stock-based awards is recognized as an SG&A expense in the accompanying Consolidated Statement of Operations.
Business Segment Information
The Company, through its regions, conducts business in the automotive retailing industry, including selling new and used cars and light trucks, arranging related vehicle financing, selling service and insurance contracts, providing automotive maintenance and repair services and selling vehicle parts. The Company has three reportable segments: the U.S., which includes the activities of the Company’s corporate office, the U.K., and Brazil. The reportable segments are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by its chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. See Note 20, “Segment Information, Plans.” for additional details regarding the Company’s reportable segments.
Self-Insured Medical, Property and Casualty Reserves
The Company purchases insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefits and other risks consistingand maintains reserves for liabilities related to its self-insured portions.
With the assistance of large deductibles and/or self-insured retentions.
The Company’s U.S. auto physical damage insurance coverage is composed of a $10.0 million per occurrence company deductible with an annual maximum aggregate deductible of $30.0 million with no maximum payout.
Under the Company’s U.S. workers’ compensation and general liability insurance coverage, its exposure per claim is limited to $1.0 million per occurrence, with unlimited exposure on the number of claims up to $1.0 million that may be incurred. As of December 31, 2017, the Company had accrued $20.5 million for its estimated liability on incurred workers’ compensation and general liability claims.
At least annually, the Company engages a third-party actuary, to conduct a study of the exposures under the self-insured portion of our worker’s compensationCompany estimates these reserves using historical claims experience adjusted for loss trending and general liability insurance programs for all open policy years.loss development factors, which are compiled at least on an annual basis. In the interim, the Company reviews the estimates within the study and monitors actual experience for unusual variances. The appropriate adjustments are made to the accrual, based upon these procedures. Actuarial estimates for the portion
As of claims not covered by insurance are based on historical claims experience adjusted for loss trending and loss development factors. Changes in the frequency or severity of claims from historical levels could influence our reserve for claims and our financial position, results of operations and cash flows. A 10% increase in the actuarially determined estimate of aggregate future losses would have increased the reserve for these losses at December 31, 2017, by $2.1 million.2019 and 2018, the Company had accrued $24.4 million and $24.0 million for its estimated reserves related to self-insured liabilities, respectively.
The Company’s U.S. insurance coverage for employee medical benefits limits the Company’s exposure to $1.0 million per occurrence. The Company’s U.S. property insurance includes coverage for building damage, content damage and business interruption. Deductibles for the U.S. property insurance vary depending on the cause of damage and the location.
The Company has insurance policies covering similar risks with smaller deductibles and/or self-insured retentions in both the U.K. and Brazil.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recently AdoptedRecent Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in the accounting standard replaced the lower of cost or market test with a lower of cost and net realizable value test. The amendments in this ASU were to be applied prospectively and were effective for interim and annual periods beginning after December 15, 2016. The Company adopted ASU 2015-11 during the first quarter of 2017. The adoption of this ASU did not materially impact its consolidated financial statements or results of operations.Leases
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendment addresses several aspects of the accounting for share-based payment award transactions, including: income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The Company adopted ASU 2016-09 during the first quarter of 2017. The adoption of this ASU did not materially impact its consolidated financial statements or results of operations.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) that amends the accounting guidance on revenue recognition. The amendments in this ASU are intended to provide a framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. To assess the impact of the ASU, the Company established an internal implementation team to review its current accounting policies and practices, identify all material revenue streams, assess the impact of the ASU on its material revenue streams and identify potential differences with current policies and practices.
The team identified the Company’s material revenue streams to be the sale of new and used vehicles; arrangement of associated vehicle financing and the sale of service and other insurance contracts; the performance of vehicle maintenance and repair services; and the sale of vehicle parts. The team reviewed a sample of contracts and other related documents associated with each revenue stream in each region. Based upon this review and application within the ASU, the team has concluded that no changes to the timing of revenue recognition for the sale of new and used vehicles, as well as parts are necessary. As it relates to vehicle maintenance and repair services, the team identified a change in the Company’s accounting policies and procedures. Through December 31, 2017, the Company has recognized revenue once the maintenance or repair services are completed and the vehicle is delivered to the customer. Under the new standard, the team has determined that the Company has an enforceable right to payment during the course of the work being performed and, thus, will be required to recognize revenue over time as the maintenance and repair services are performed. With regards to the revenue generated from the arrangement of vehicle financing and the sale of service and other insurance contracts, the team also identified a change in the Company’s accounting policies and procedures. Generally, the Company receives an upfront commission for these transactions from the finance or insurance provider and recognizes the associated revenue when the contract is executed. In some cases, the Company also earns retrospective commission income by participating in the future profitability of the portfolio of contracts sold by the Company. Through December 31, 2017, the Company’s accounting policy was to recognize the retrospective commission income as the amounts were determined and realized. The team has concluded that this retrospective commission income represents variable consideration for which the Company’s performance obligation is satisfied when the contract is executed. Under the new standard, an estimate of variable consideration, subject to a constraint, is to be included in the transaction price and recognized when or as the performance obligation is satisfied. Therefore, the Company’s accounting policy must change under the new ASU such that the Company will estimate the amount of future earnings that it will realize from the ultimate profitability of the portfolio and recognize such estimate, subject to any constraint in the estimate, upfront when the contract is executed. Changes in the Company’s estimates of the amount of variable consideration to be ultimately realized will be adjusted through revenue as determined. The Company will adopt the amendments of this ASU during the first fiscal quarter of 2018, using the modified retrospective approach. As a result of adopting the new standard and implementing the changes aforementioned, the Company expects the net, after-tax cumulative effect adjustment to increase retained earnings as of the date of adoption. The Company is in the process of finalizing its estimate of the cumulative effect adjustment, pending certain data and considerations of the appropriate level of constraint. The Company expects to complete its calculation in the first quarter of adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this ASU relate to(“Topic 842”), that amends the accounting for leasing transactions. Thisguidance on leases. The standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet the assets and liabilities for
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the rights and obligations created by all leases with lease terms of morelonger than 12 months. In addition,The Company adopted this standard requires both lesseesASU and lessorsall subsequent amendments on January 1, 2019, using the optional transition method applied to disclose certain key information about lease transactions. This standard will be effectiveleases existing at January 1, 2019, with no restatement of comparative periods. Results for fiscal yearsreporting periods beginning after December 15, 2018, including interim periods within those fiscal years. January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting policies under ASC Topic 840, Leases (“ASC 840”).
The Company iselected the package of practical expedients available under the transition guidance within Topic 842, which among other things, permits the Company to carry forward its historical lease classification. The Company also elected other practical expedients under the transition guidance to (i) not record leases with an initial term of 12 months or less on the balance sheet for all asset classes; (ii) not apply hindsight when determining its lease terms or assessing impairment of its ROU assets during transition; and (iii) combine and account for both lease and non-lease components as a single component for all asset classes, except dealership operating assets. For the Company’s dealership operating leases, the Company elected to separate lease and non-lease components and have allocated the consideration between the lease and non-lease components based on the estimated fair value of the leased component.
Upon adoption of Topic 842, the Company recognized ROU assets and lease liabilities based on the present value of its remaining minimum rental payments for existing operating leases as of the adoption date, utilizing the Company’s applicable incremental borrowing rate also as of the adoption date. The adoption of Topic 842 resulted in the processCompany recognizing $222.6 million of evaluatingoperating ROU assets and $236.7 million of operating lease liabilities as of January 1, 2019. The difference between ROU assets and lease liabilities is primarily due to the recognition of a $6.1 million cumulative-effect adjustment, net of deferred tax impact, that adoption will have on its consolidated balance sheet and statementto retained earnings as of income. However,January 1, 2019 resulting from the Company expects thatimpairment of certain operating ROU assets upon the adoption of Topic 842. The remaining difference between the provisionsROU assets and lease liabilities is primarily the result of the ASU will have a significantprepaid rent. The Company’s accounting for its finance leases, previously termed as capital leases under ASC 840, remained substantially unchanged. The adoption of Topic 842 had no material impact on its consolidated balance sheet, as currently approximately halfthe Company’s Consolidated Statements of its real estate is rented, not owned, via operating leases. AdoptionOperations or Consolidated Statements of this ASU is required to be done usingCash Flows. During the year ended December 31, 2019, the Company recognized a modified retrospective approach.ROU asset impairment charge of $1.4 million. For further details, see Note 10 “Leases.”
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendment in this update replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. The standard will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for periods after December 15, 2018. The Company is currently evaluating the impact that the2019.
Upon adoption of the provisions ofstandard on January 1, 2020, the ASU will haveCompany expects that, based on current expectations, its consolidated financial statements or results of operations, but does not expect the amendments in this ASU to materially impact its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendment addresses several specific cash flow issues with the objective of reducing the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standardallowance for credit losses will be effective for fiscal years beginning after December 15, 2017,less than $1.5 million, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging Issues Task Force ("EITF"). The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The standard will be effective for fiscal years beginning after December 15, 2017,calculated primarily based on a loss-rate method. Under the existing standard, the Company’s reserve is primarily based on an aging schedule and interim periodsis within those fiscal years.the range above. The Company is currently evaluating theultimate impact that theupon adoption of the provisions of the ASU will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business in order to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements as it will depend on the facts and circumstances of any specific future transactions.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The amendments in this update should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2019. Earlier application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The impactcharacteristics of the adoption of the provisions of the ASU on the Company’s consolidated financial statements will depend upon the significance of future impairments realized.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this update provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance of Topic 718 to a change to the terms or conditions of a share-based payment award. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: 1) the award's fair value (or calculated value or intrinsic value, if those measurement methods are used), 2) the award's vestingportfolios, economic conditions and 3)forecasts, and the award's classificationfinalized validation of models and methodologies, as an equity or liability instrument. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statementswell as it will depend on the facts and circumstances of any specific future transactions.other management judgments.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2017,2. REVENUES
The Company’s material revenue streams are the FASB issued ASU 2017-12, Derivativessale of new and Hedging (Topic 715): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align an entity's risk management activitiesused vehicles; the sale of vehicle parts; the performance of maintenance and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationshipsrepair services; and the presentationarrangement of hedge results. The guidance eliminatesvehicle financing and the requirementsale of service and other insurance contracts. Revenue recognition for each of these streams is discussed below. With respect to separately measurethe cost of freight and report hedge ineffectiveness and generally requiresshipping from the entire changeCompany’s dealerships to its customers, its policy is to recognize such cost within cost of sales in the fair valueConsolidated Statements of a hedging instrumentOperations. Also, with respect to taxes assessed by governmental authorities that are imposed upon new and used vehicle sales transactions and collected by the Company from its customers, the Company’s policy is to exclude such amounts from revenues.
On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. The Company recognized an after-tax cumulative-effect adjustment to retained earnings of $4.8 million for maintenance and repair services and $6.6 million for the arrangement of associated vehicle financing and the sale of service and insurance contracts as of the date of adoption. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be presentedreported in accordance with historical accounting policies under Topic 605, Revenue Recognition.
The following tables present the Company's revenues disaggregated by its geographical segments (in millions): |
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2019 |
| | | U.S. | | U.K. | | Brazil | | Total |
| New vehicle retail sales | | $ | 4,832.2 |
| | $ | 1,195.1 |
| | $ | 286.8 |
| | $ | 6,314.1 |
|
| Used vehicle retail sales | | 2,509.9 |
| | 771.3 |
| | 85.4 |
| | 3,366.6 |
|
| Used vehicle wholesale sales | | 174.5 |
| | 162.3 |
| | 18.3 |
| | 355.2 |
|
| Total new and used vehicle sales | | 7,516.6 |
| | 2,128.7 |
| | 390.6 |
| | 10,035.9 |
|
Parts and service sales (1) | | 1,234.4 |
| | 227.9 |
| | 47.6 |
| | 1,510.0 |
|
Finance, insurance and other, net (2) | | 433.2 |
| | 57.0 |
| | 7.6 |
| | 497.9 |
|
| Total revenues | | $ | 9,184.2 |
| | $ | 2,413.7 |
| | $ | 445.9 |
| | $ | 12,043.8 |
|
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 |
| | | U.S. | | U.K. | | Brazil | | Total |
| New vehicle retail sales | | $ | 4,682.8 |
| | $ | 1,217.1 |
| | $ | 281.4 |
| | $ | 6,181.4 |
|
| Used vehicle retail sales | | 2,307.0 |
| | 771.7 |
| | 87.4 |
| | 3,166.1 |
|
| Used vehicle wholesale sales | | 178.9 |
| | 173.8 |
| | 16.9 |
| | 369.6 |
|
| Total new and used vehicle sales | | 7,168.7 |
| | 2,162.6 |
| | 385.7 |
| | 9,717.0 |
|
Parts and service sales (1) | | 1,153.3 |
| | 217.6 |
| | 46.0 |
| | 1,416.9 |
|
Finance, insurance and other, net (2) | | 401.3 |
| | 57.2 |
| | 9.0 |
| | 467.5 |
|
| Total revenues | | $ | 8,723.3 |
| | $ | 2,437.4 |
| | $ | 440.7 |
| | $ | 11,601.4 |
|
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2017 |
| | | U.S. | | U.K. | | Brazil | | Total |
| New vehicle retail sales | | $ | 4,768.9 |
| | $ | 1,092.6 |
| | $ | 296.1 |
| | $ | 6,157.5 |
|
| Used vehicle retail sales | | 2,160.7 |
| | 546.3 |
| | 92.0 |
| | 2,799.0 |
|
| Used vehicle wholesale sales | | 250.7 |
| | 136.8 |
| | 12.7 |
| | 400.2 |
|
| Total new and used vehicle sales | | 7,180.2 |
| | 1,775.7 |
| | 400.7 |
| | 9,356.7 |
|
| Parts and service sales | | 1,124.4 |
| | 165.8 |
| | 47.9 |
| | 1,338.0 |
|
| Finance, insurance and other, net | | 376.0 |
| | 44.5 |
| | 8.5 |
| | 429.0 |
|
| Total revenues | | $ | 8,680.6 |
| | $ | 1,986.0 |
| | $ | 457.2 |
| | $ | 11,123.7 |
|
(1) The Company has applied the optional exemption not to disclose revenue related to remaining performance obligations on its maintenance and repair services as the duration of these contracts is less than one year.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) Includes variable consideration recognized of $19.5 million and $18.7 million during the years ended December 31, 2019 and 2018, respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts. Refer to Arrangement of Vehicle Financing and the Sale of Service and Other Insurance Contracts for further discussion of these arrangements.
New and Used Vehicle Sales
Revenue from the sale of new and used vehicles is recognized upon delivery of the vehicle to the customer, which is the point at which transfer of control occurs and when the performance obligation is satisfied. In some cases, the Company uses a third-party auction as an agent to facilitate delivery of used vehicles to the customer.
The transaction price for new and used vehicle sales is the stand-alone sales price of each individual vehicle and is generally settled within 30 days of the satisfaction of the performance obligation.
Parts Sales
Revenue from the sale of vehicle parts is recognized upon delivery of the parts to the customer, which is the point at which transfer of control occurs and when the performance obligation is satisfied.
The transaction price for vehicle parts sales is the stand-alone sales price of each individual part and is generally settled within 30 days of the satisfaction of the performance obligation.
Maintenance and Repair Services
The Company performs maintenance and repair services, including collision restoration, and revenue is recognized upon completion of the services, which occurs over time. The Company has an enforceable right to payment in certain jurisdictions, and as such, the transfer of control of vehicle maintenance and repair services and satisfaction of the performance obligation to its customer occurs over time. The Company uses the input method for the measurement of progress and recognition of revenue, utilizing labor hours and parts applied to the customer vehicle to estimate the services performed for which the Company has an enforceable right to payment. The Company believes this method is the most objective measure of progress and provides a faithful depiction of the Company’s transfer of services to the customer.
The transaction price for maintenance and repair services is the total of the labor and, if applicable, vehicle parts used in the same income statement lineperformance of the service, as well as the hedged item. The guidance also easesmargin above cost charged to the administrative burdencustomer.
Arrangement of hedge documentation requirementsVehicle Financing and assessing hedge effectiveness. The amendments to cash flowthe Sale of Service and net investment hedge relationships should be applied using a modified retrospective approach while the presentation and disclosure requirements are applied prospectively, effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Other Insurance Contracts
The Company receives commissions from F&I providers for the arrangement of vehicle financing and the sale of service and other insurance products. Within the context of these contracts with the F&I providers, the Company has determined that it is currently evaluatingan agent for the impact thatF&I providers.
The Company has a single performance obligation associated with the adoptionF&I contracts, which is the facilitation of the financing of the vehicle or sale of the insurance product. Revenue from these contracts is recognized when the finance or insurance contract is executed with the purchaser and when the performance obligation is satisfied.
With regards to the upfront commission for these contracts, the transaction price is the amount earned for each individual contract executed and is generally collected within 30 days of the satisfaction of the performance obligation.
Charge backs
The Company may be charged back in the future for unearned financing, insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers. A reserve for future amounts estimated to be charged back, representing variable consideration, is recorded as a reduction of Finance, insurance and other, net in the Consolidated Statements of Operations. The reserve is estimated based on the Company’s historical charge back results and the termination provisions of the ASUapplicable contracts, and was $49.7 million and $46.4 million at December 31, 2019 and 2018, respectively.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Retrospective commissions and associated contract assets
In some cases, the Company also earns retrospective commission income by participating in the future profitability of the portfolio of product contracts sold by the Company. This contingent consideration is variable and is generally settled over five to seven years from the satisfaction of the performance obligation. The Company utilizes the “expected value” method to predict the amount of consideration to which the Company will have on its consolidated financial statements.be entitled, subject to constraint in the estimate. The estimated amount under the expected value method is accrued upfront when the product contract is executed with the end user, which is when the performance obligation is satisfied. The estimated amount is reflected as a contract asset within Other current assets and Other long-term assets in the Consolidated Balance Sheets until the right to such consideration becomes unconditional, at which time amounts due are reclassified to accounts receivable. Changes in the estimated amount of variable consideration to be ultimately realized are adjusted through revenue.
The change in contract assets during the year ended December 31, 2019 is reflected in the table below (in millions): |
| | | | |
| | | F&I, net |
| Contract Assets, January 1, 2019 | | $ | 14.6 |
|
| Changes related to revenue recognition during the period | | 19.5 |
|
| Invoiced during the period | | (12.5 | ) |
| Contract Assets, December 31, 2019 | | $ | 21.6 |
|
3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
As described in Note 1 “Business and Summary of Significant Accounting Policies,” the Company accounts for business combinations under the acquisition method of accounting, under which the Company allocates the purchase price to the assets and liabilities assumed based on an estimate of fair value.
During the twelve monthsyear ended December 31, 2017,2019, the Company acquired 12 U.K.4 dealerships inclusive of 14representing 6 franchises in the U.S. and opened one additional dealership for one awarded franchise4 dealerships representing 5 franchises in the U.K. In addition, theAggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $143.2 million. The Company acquired three dealerships in the U.S., inclusive of four franchises,also opened one1 dealership for one awardedrepresenting 1 franchise in the U.S. and added motorcycles to an existing BMW2 dealerships representing 3 franchises in the U.K.
During the year ended December 31, 2018, the Company acquired 4 dealerships representing 4 franchises in the U.S., 5 dealerships representing 8 franchises in the U.K. and 1 dealership representing 1 franchise in Brazil. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $120.3$140.4 million, including the associated real estate and goodwill, as well as $11.2$5.1 million of cash receivedreceived. The Company also opened 1 dealership representing 1 franchise in the acquisition ofU.S., added 1 franchise and opened 1 additional dealership representing 1 franchise in the dealerships. The purchase prices have been allocated based uponU.K. and opened 1 dealership representing 1 franchise in Brazil.
During the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates. The allocation of the purchase prices is preliminary and based on estimates and assumptions that are subject to change within the purchase price allocation periods (generally one year from the respective acquisition date). In addition, during the twelve months ended December 31, 2017, the Company disposed of three dealerships: two in Brazilacquired 3 dealerships representing two franchises and one in the U.K. representing one franchise.
During the twelve months ended December 31, 2016, the Company acquired 12 U.K. dealerships, inclusive of 15 franchises, and opened two additional dealerships for two awardedfour franchises in the U.K. The Company also acquired one dealershipU.S. and 12 dealerships representing 14 franchises in Brazil, representing one franchise, and opened two additional dealerships in Brazil representing one acquired and two previously awarded franchises.the U.K. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $61.2$120.3 million, including the associated real estate and goodwill, as well as $3.9$11.2 million of cash receivedreceived. The Company also opened 1 dealership representing 1 franchise in the acquisition ofU.S. and 1 dealership representing 1 franchise in the dealerships. The purchase prices were allocated based uponU.K.
Dispositions
During the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates. In addition, during the twelve monthsyear ended December 31, 2016,2019, the Company disposed of ten franchises: fiveCompany’s dispositions included 4 dealerships representing 7 franchises and 2 terminated franchises in the U.S., four in Brazil and one3 dealerships representing 4 terminated franchises in the U.K. Primarily as a result of these U.S., Brazil and U.K.1 dealership dispositions,representing 1 franchise in Brazil. The Company recorded a net pre-tax gain of $2.7totaling $5.0 million and net pretax losses of $0.8 million and $0.3 million, respectively, were recognized forrelated to these dispositions.
During the twelve monthsyear ended December 31, 2016.
4. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES
The periodic interest rates of2018, the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”)Company’s dispositions included 2 dealerships representing 3 franchises and certain variable-rate real estate related borrowings1 terminated franchise in the U.S. are indexed toand 1 dealership representing 1 franchise and one terminated franchise in the one-month LIBOR plus an associated company credit risk rate. In order to minimize the earnings variabilityU.K. The Company recorded a net pre-tax gain totaling $24.4 million related to fluctuations in these rates, the Company employs an interest rate hedging strategy, whereby it enters into arrangements with various financial institutional counterparties with investment grade credit ratings, swapping its variable interest rate exposure for a fixed interest rate over terms not to exceed the related variable-rate debt.dispositions.
In effect as of December 31, 2017 and December 31, 2016, the Company held interest rate derivative instruments with an aggregate notional value of $623.0 million and $765.3 million, respectively, that fixed its underlying one-month LIBOR at a weighted average rate of 2.5% and 2.5%, respectively. Of the $623.0 million in notional value of swaps in effect as of December 31, 2017, $110.6 million became effective duringDuring the year ended December 31, 2017. The following table presents the notional value of the annual expiration of swaps in effect as of December 31, 2017 (excludes forward starting swaps):
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 |
| Notional amount of swaps expiring (in millions) | $ | 153.6 |
| $ | 353.7 |
| $ | 53.7 |
| $ | 12.0 |
| $ | 18.8 |
| $ | 26.9 |
| $ | 4.2 |
|
The Company records the majority of the impact of the periodic settlements of these swaps as a component of floorplan interest expense. For the years ended December 31, 2017, 2016 and 2015, the impact of the Company’s interest rate hedgesdispositions included 1 dealership representing 1 franchise in effect increased floorplan interest expense by $10.3 million, $11.1 million,the U.K. and $11.5 million, respectively. Total floorplan2 dealerships representing 2 franchises in Brazil.
The Company’s dispositions generally consist of dealership assets and related real estate. Gains and losses on dispositions are recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest expense, inclusive of the aforementioned impact of the Company’s interest rate hedges, was $52.4 million, $44.9 million, and $39.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
In addition to the $623.0 million of swaps in effect as of December 31, 2017, the Company held 11 additional interest rate derivative instruments with forward start dates between January 2018 and December 2020 and expiration dates between December 2020 and December 2030. As of December 31, 2017, the aggregate notional value of these 11 forward-starting swaps was $575.0 million, of which $200.0 million were to become effective by January 2, 2018, and the weighted average interest rate was 2.1%. The combination of the interest rate derivative instruments currently in effect and these forward-starting derivative instruments is structured such that the notional value in effect at any given time through December 2030 does not exceed $918.4 million, which is less than the Company’s expectation for variable rate debt outstanding during such period.
In aggregate, as of December 31, 2017 and December 31, 2016, the Company reflected liabilities from interest rate risk management activities of $10.6 million and $24.4 million, respectively, in its Consolidated Balance Sheets. In addition, as of both December 31, 2017 and December 31, 2016, the Company reflected $9.5 million of assets from interest rate risk management activities included in Other Assets in the Consolidated Balance Sheet. Included in Accumulated Other Comprehensive Loss at December 31, 2017, 2016 and 2015, were accumulated unrealized losses, net of income taxes, totaling $0.7 million, $9.3 million, and $19.5 million, respectively, related to these interest rate derivative instruments. As of December 31, 2017 and 2016, all of the Company’s derivative contracts that were in effect were determined to be effective. The Company had no gains or losses related to ineffectiveness or amounts excluded from effectiveness testing recognized in the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 or 2015, respectively. The following table presents the impact during the current and comparative prior year periods for the Company’s derivative financial instruments on its Consolidated Statements of Operations and Consolidated Balance Sheets.
|
| | | | | | | | | | | | |
| | | Amount of Unrealized Income (Loss), Net of Tax, Recognized in OCI |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| Derivatives in Cash Flow Hedging Relationship | | | | | | |
| Interest rate derivative instruments | | $ | 1,034 |
| | $ | 1,728 |
| | $ | (9,856 | ) |
| | | | | | | |
| | | Amount of Loss Reclassified from OCI into Statement of Operations |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| Location of Loss Reclassified from OCI into Statements of Operations | | | | | | |
| Floorplan interest expense | | $ | (10,272 | ) | | $ | (11,097 | ) | | $ | (11,486 | ) |
| Other interest expense | | (1,924 | ) | | (2,332 | ) | | (1,814 | ) |
The amount expected to be reclassified out of other comprehensive income (loss) into earnings as additional floorplan interest expense or other interest expense in the next twelve months is $6.9 million.
5.4. STOCK-BASED COMPENSATION PLANS
The Company provides stock-based compensation benefits to employees and non-employee directors pursuant to itsUnder the Company’s 2014 Long Term Incentive Plan (the "Incentive Plan"“Incentive Plan”), the Company currently grants RSAs, RSUs (also referred to as well as“Phantom Stock”) and performance awards to Company employees pursuant to its Employee Stock Purchase Plan, as amended (the "Purchase Plan", formerly namedand non-employee directors. The aggregate maximum number of shares that may be issued or transferred under the 1998 Employee Stock Purchase Plan).
Long Term Incentive Plan
The Incentive Plan provides for the grant of options (including options qualified as incentive stock options under the Internal Revenue Code of 1986 and options that are non-qualified), restricted stock, performance awards, bonus stock, and phantom stock to the Company's employees, consultants, non-employee directors and officers.is 1.2 million. The Incentive Plan expires on May 21, 2024. The terms of the awards (including vesting schedules) are established by the Compensation Committee of the Company’s Board of Directors. As of December 31, 2017,2019, there were 1,063,9750.6 million shares available for issuance under the Incentive Plan.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Awards
Under the Incentive Plan, theThe Company grants RSAs to employees and non-employee directors, and certain employees restricted stock awards or, at their election, restricted stock units at no cost to the recipient. Restricted stock awardsRSAs qualify as participating securities becauseas each award contains non-forfeitable rights to dividends. As such, the two-class method is required for the computation of earnings per share.EPS. RSAs contain voting rights and are accounted for as outstanding when granted. See Note 6,5 “Earnings Per Share,”Share” for further details. Restricted stock awardsRSAs are subject to vesting periods of up to five years and are considered outstanding at the date of grant, but are subject to vesting periods upon issuance of up to five years. Restricted stock units are considered vested at the time of issuance. However, since they convey no voting rights, they are not considered outstanding when issued. Restricted stock units settle in cash upon the termination of the grantees’ employment or directorship. In the event an employee or non-employee director terminates his or her employment or directorship with the Company prior to the lapse of the restrictions, the shares, in most cases, will be forfeited to the Company. The Company issues new shares or treasury shares, if available, when restricted stock vests.grant. Compensation expense for restricted stock awardsRSAs is calculated based on the market price of the Company’s common stock at the date of grant and recognized over the requisite service period.vesting period on a straight-line basis. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted annually based on the extent to which actual or expected forfeitures differ from the previous estimate. The Company issues new shares of common stock or treasury shares, if available, when RSAs vest.
A summary of the restricted stock awards as of December 31, 2017, along with the changes during the year then ended, is as follows:The following table summarizes information about RSAs for 2019:
|
| | | | | | | |
| | | Awards | | Weighted Average Grant Date Fair Value |
| Nonvested at January 1, 2019 | | 681,800 |
| | $ | 71.60 |
|
| Granted | | 257,199 |
| | $ | 65.92 |
|
| Vested | | (225,753 | ) | | $ | 69.87 |
|
| Forfeited | | (39,040 | ) | | $ | 68.72 |
|
| Nonvested at December 31, 2019 | | 674,206 |
| | $ | 70.19 |
|
|
| | | | | | | |
| | | Awards | | Weighted Average Grant Date Fair Value |
| Nonvested at December 31, 2016 | | 850,422 |
| | $ | 67.25 |
|
| Granted | | 223,139 |
| | 75.45 |
|
| Vested | | (270,335 | ) | | 70.93 |
|
| Forfeited | | (100,448 | ) | | 68.79 |
|
| Nonvested at December 31, 2017 | | 702,778 |
| | $ | 68.23 |
|
The total fair value of restricted stock awardsRSAs which vested during the years ended December 31, 2017, 20162019, 2018 and 20152017, was$19.2 $15.8 million, $15.2 million and $19.2 million, respectively.
Restricted Stock Units
Under the Incentive Plan, the Company grants to non-employee directors, at their election, RSUs, at no cost to the recipient. RSUs are vested 100% at the time of grant, and settled on the date of the directors “separation of service”, $16.5 millionas such term is defined in IRS code §1.409A-1(h), and $13.9 million, respectively.generally includes departure due to either death, disability, or retirement. RSUs convey no voting rights, and therefore are not considered outstanding when granted. Granted RSUs participate in dividends, however the dividends are not payable until the directors separation of service with the Company. In the event a director terminates his or her directorship with the Company for reasons other than defined above, the RSUs granted and any accrued dividends will be forfeited.
Prior to January 1, 2019, RSUs settled in shares of the Company’s common stock. Effective January 1, 2019, RSUs will settle in a lump sum cash payment equal to the to the average of the Company’s high and low stock price on the separation of service date (no stock is issued) and constitute liability instruments, which require remeasurements to fair value each reporting period. On January 2, 2019, 10,689 cash-settled RSUs were granted with a weighted average grant-date fair value of $53.33 per share. At December 31, 2019, the vested and unpaid cash-settled RSUs were measured at $100.25 per share. The changes in fair value as a result of the changes in the Company’s stock price is recognized though stock-based compensation expense.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance Awards
During the year ended December 31, 2019 under the Incentive Plan, the Company granted 30,555 performance awards to certain employees at no cost to the recipient. The weighted average grant date fair value of these awards was $65.83 per share. The performance awards do not qualify as participating securities. The performance awards contain both performance and market conditions to be evaluated over a two-year performance period and are subject to vesting over a three-year service period. Based on the performance criteria, up to 200% of the granted shares may be earned. Compensation expense for the awards with performance conditions is calculated based on the market price of the Company’s common stock at the date of grant and the forecasted achievement of such performance conditions and is recognized over the requisite service period. Compensation expense for the awards with market conditions is calculated based upon the fair value of the award on the date of grant and is recognized over the requisite service period. All performance awards remained unvested as of December 31, 2019.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) authorizes the issuance of up to 4.5 million shares of common stock and provides that no options to purchase shares may be granted under the Purchase Plan after May 19, 2025. The Purchase Plan is available to all employees of the Company and its participating subsidiaries and is a qualified plan as defined by Section 423 of the Internal Revenue Code. At the end of each fiscal quarter (the “Option Period”) during the term of the Purchase Plan, employees can acquire shares of common stock from the Company at 85% of the fair market value of the common stock on the first or the last day of the Option Period, whichever is lower. As of December 31, 2017,2019, there were 1,139,095848,511 shares available for issuance under the Purchase Plan. During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, the Company issued 123,448, 152,138,142,576, 148,007, and 102,029123,448 shares, respectively, of common stock to employees participating in the Purchase Plan. With respect to shares issued under the Purchase Plan, the Company’s Board of Directors has authorized specific share repurchases to fund the shares issuable under the Purchase Plan.
The weighted average per share fair value of employee stock purchase rights issued pursuant to the Purchase Plan was $16.51, $13.40,$16.00, $15.15, and $18.56$16.51 during the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. The fair value of stock purchase rights is calculated using the grant date stock price, the value of the embedded call option and the value of the embedded put option. Cash received from Purchase Plan purchases was $8.6 million, $7.6 million and $7.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Employees can contribute a maximum of 10% of their compensation, up to a maximum of $25,000 annually under the Purchase Plan.
Stock-Based Compensation
Total stock-based compensation cost was $19.9 million, $18.7 million, and $18.9 million $21.1with an associated tax benefit recognized of $3.5 million,, $3.4 million, and $18.9$5.4 million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. Stock-based compensation for the year ended December 31, 2019 included $1.1 million related to cash-settled RSUs.
As of December 31, 2017,2019, there was $34.7$33.4 million of total unrecognized compensation cost related to stock-based compensation arrangementsplans which is expected to be recognized over a weighted-average period of 3.1 years. Cash received from Purchase Plan purchases was $7.1 million, $7.1 million and $7.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.3.3 years.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.5. EARNINGS (LOSS) PER SHARE
The two-class method is utilized for the computation of the Company’s EPS. The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents.dividends. The Company’s restricted stock awards qualify asRSAs are participating securities as each contain non-forfeitable rights to dividends.securities. Income allocated to these participating securities is excluded from net earnings available to common shares, as shown in the table below. Basic EPS is computed by dividing net income available to basic common shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net income available to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the calculation of EPS for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 (in millions, except share and per share data): |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Weighted average basic common shares outstanding | | 17,917,195 |
| | 19,452,560 |
| | 20,419,858 |
|
| Dilutive effect of stock awards and employee stock purchases, net of assumed repurchase of treasury stock | | 18,879 |
| | 8,492 |
| | 5,041 |
|
| Weighted average dilutive common shares | | 17,936,074 |
| | 19,461,052 |
| | 20,424,899 |
|
| Basic: | | | | | | |
| Net income (loss) | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
|
| Less: Earnings (loss) allocated to participating securities | | 6.4 |
| | 5.4 |
| | 7.5 |
|
| Net income (loss) available to basic common shares | | $ | 167.6 |
| | $ | 152.4 |
| | $ | 205.9 |
|
| Basic earnings (loss) per common share | | $ | 9.35 |
| | $ | 7.83 |
| | $ | 10.08 |
|
| Diluted: | | | | | | |
| Net income (loss) | | $ | 174.0 |
| | $ | 157.8 |
| | $ | 213.4 |
|
| Less: Earnings (loss) allocated to participating securities | | 6.4 |
| | 5.4 |
| | 7.5 |
|
| Net income (loss) available to diluted common shares | | $ | 167.6 |
| | $ | 152.4 |
| | $ | 205.9 |
|
| Diluted earnings (loss) per common share | | $ | 9.34 |
| | $ | 7.83 |
| | $ | 10.08 |
|
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands, except per share amounts) |
| Weighted average basic common shares outstanding | | 20,420 |
| | 21,161 |
| | 23,148 |
|
| Dilutive effect of employee stock purchases, net of assumed repurchase of treasury stock | | 5 |
| | 9 |
| | 4 |
|
| Weighted average dilutive common shares outstanding | | 20,425 |
| | 21,170 |
| | 23,152 |
|
| Basic: | | | | | | |
| Net income | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
|
| Less: Earnings allocated to participating securities | | 7,512 |
| | 5,871 |
| | 3,595 |
|
| Earnings available to basic common shares | | $ | 205,930 |
| | $ | 141,194 |
| | $ | 90,404 |
|
| Basic earnings per common share | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.91 |
|
| Diluted: | | | | | | |
| Net income | | $ | 213,442 |
| | $ | 147,065 |
| | $ | 93,999 |
|
| Less: Earnings allocated to participating securities | | 7,511 |
| | 5,869 |
| | 3,595 |
|
| Earnings available to diluted common shares | | $ | 205,931 |
| | $ | 141,196 |
| | $ | 90,404 |
|
| Diluted earnings per common share | | $ | 10.08 |
| | $ | 6.67 |
| | $ | 3.90 |
|
6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the most advantageous market in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
The Company’s financial instruments consist of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, investments in debt and equity securities, accounts payable, credit facilities, long-term debt and interest rate derivative instruments. Other than the Company’s fixed rate long-term debt, the carrying amount of all significant financial instruments approximates fair value due to either the length of maturity, the existence of variable interest rates that approximate prevailing market rates or as a result of mark to market accounting.
Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivable, Accounts Payable and Credit Facilities
The fair values of these financial instruments approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates.
Fixed Rate Long-Term Debt
The Company’s fixed rate long-term debt primarily consists of amounts outstanding under its senior unsecured notes and mortgage facilities. The Company estimates the fair value of its senior unsecured notes using quoted prices for the identical liability (Level 1) and estimates the fair value of its mortgage facilities using a present value technique based on current market interest rates for similar type of financial instruments (Level 2).
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. INCOME TAXES
Income/(loss) before income taxes by geographic area wasThe carrying value and fair value of the Company’s fixed rate long-term debt were as follows:
follows at the dates indicated (in millions): |
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| Domestic | | $ | 206,579 |
| | $ | 222,178 |
| | $ | 231,798 |
|
| Foreign | | 12,424 |
| | 5,193 |
| | (49,627 | ) |
| Total income before income taxes | | $ | 219,003 |
| | $ | 227,371 |
| | $ | 182,171 |
|
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| | | Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value |
| 5.00% Senior Notes | | $ | 546.4 |
| | $ | 559.5 |
| | $ | 545.0 |
| | $ | 521.6 |
|
| 5.25% Senior Notes | | 298.0 |
| | 309.7 |
| | 297.5 |
| | 286.5 |
|
| Real estate related | | 40.7 |
| | 41.1 |
| | 79.7 |
| | 76.2 |
|
| Total | | $ | 885.1 |
| | $ | 910.3 |
| | $ | 922.2 |
| | $ | 884.3 |
|
Federal, state(1)Carrying value includes unamortized discount and foreignexcludes debt issuance costs
Investments
The Company maintains investment balances with certain financial institutions in Brazil that provide credit facilities for the financing of new, used and rental vehicle inventories. The investment balances bear interest at a variable rate and are redeemable by the Company in the future under certain conditions. The investment balances totaled $4.3 million and $2.8 million as of December 31, 2019 and December 31, 2018, respectively, which the Company has classified as restricted cash within Other long-term assets in its Consolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices that are observable or that can be corroborated by observable data by correlation (Level 2). See Note 18 “Cash Flow Information” for further details regarding the Company’s investment balances.
Derivative financial instruments
The Company holds derivative financial instruments consisting of interest rate swaps which are designated as cash flow hedges. The related gains or losses on these interest rate swaps are deferred in stockholders’ equity as a component of accumulated other comprehensive income tax provisions/(benefits) were(loss). The deferred gains or losses are recognized in income in the period in which the related items being hedged are recognized in expense. Monthly contractual settlements of the positions are recognized as follows:Floorplaninterest expense or Other interest expense, net, in the Consolidated Statements of Operations. The Company had 0 gains or losses related to ineffectiveness recognized in the Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| Federal: | | | | | | |
| Current | | $ | 44,921 |
| | $ | 57,321 |
| | $ | 66,973 |
|
| Deferred | | (46,938 | ) | | 18,704 |
| | 15,528 |
|
| State: | | | | | | |
| Current | | 3,774 |
| | 4,636 |
| | 5,165 |
|
| Deferred | | 3,921 |
| | 1,878 |
| | 1,768 |
|
| Foreign: | | | | | | |
| Current | | 2,929 |
| | 4,187 |
| | 4,150 |
|
| Deferred | | (3,046 | ) | | (6,420 | ) | | (5,412 | ) |
| Provision for income taxes | | $ | 5,561 |
| | $ | 80,306 |
| | $ | 88,172 |
|
Actual income tax expense differed from income tax expense computed by applyingAs of December 31, 2019, the U.S. federal statutory corporate taxCompany held 18 interest rate swaps in effect with a total notional value of $546.2 million that fixed its underlying one-month LIBOR at a weighted average rate of 35% to income before income taxes in 2017, 2016 and 2015 as follows: |
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | (In thousands) |
| Provision at the U.S. federal statutory rate | | $ | 76,651 |
| | $ | 79,580 |
| | $ | 63,760 |
|
| Increase (decrease) resulting from: | | | | | | |
| State income tax, net of benefit for federal deduction | | 4,472 |
| | 4,230 |
| | 4,448 |
|
| Foreign income tax rate differential | | (2,443 | ) | | (2,799 | ) | | (2,002 | ) |
| Employment credits | | (862 | ) | | (821 | ) | | (407 | ) |
| Changes in valuation allowances | | 629 |
| | 749 |
| | 14,667 |
|
| Non-deductible goodwill | | — |
| | 34 |
| | 4,651 |
|
| Tax Cuts and Jobs Act - Deferred Tax Effect | | (73,028 | ) | — |
| — |
| | — |
|
| Stock-based compensation | | (136 | ) | | 368 |
| | 386 |
|
| Other | | 278 |
| | (1,035 | ) | | 2,669 |
|
| Provision for income taxes | | $ | 5,561 |
| | $ | 80,306 |
|
| $ | 88,172 |
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”)2.2%. The Tax Act made broadCompany also held 8 interest rate swaps with forward start dates beginning December 2020, that had an aggregate notional value of $450.0 million with a weighted average interest rate of 1.7% as of December 31, 2019. The maturity dates of the Company’s interest rate swaps range between December 2020 and complex changesDecember 2030.
The Company’s interest rate swaps are measured at fair value utilizing the option-pricing Black-Scholes present value technique. This technique utilizes a one-month LIBOR forward yield curve matched to the U.S. tax code, including, but not limitedidentical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. The fair value of the interest rate swaps also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated using the spread between the one-month LIBOR yield curve and the relevant interest rate according to reducingStandard and Poor’s. The inputs to the U.S. federal corporate tax rate from 35% to 21%, creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and requiring companies to pay a one-time transition tax on unrepatriated earnings of their foreign subsidiaries.fair value measurements reflect level 2 inputs.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2017,Assets and liabilities associated with the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Job Act (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not exceed one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimateCompany’s interest rate swaps as reflected in the financial statements. If a company cannot determine a provisional estimateConsolidated Balance Sheets were as follows (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Assets from interest rate risk management activities: | | | | |
| Other current assets | | $ | — |
| | $ | 0.4 |
|
| Other long-term assets | | 1.9 |
| | 13.1 |
|
| Total | | $ | 1.9 |
| | $ | 13.5 |
|
| Liabilities from interest rate risk management activities: | | | | |
| Accrued expenses and other current liabilities | | $ | 2.8 |
| | $ | 0.1 |
|
| Other liabilities | | 4.4 |
| | 1.7 |
|
| Total | | $ | 7.2 |
| | $ | 1.8 |
|
Included in the financial statements, it should continue to apply ASC 740 on the basisAccumulated other comprehensive income (loss) as of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
For the year ended December 31, 2017,2019 and 2018, were unrealized gains (losses), net of income taxes, totaling $(4.1) million and $8.9 million, respectively, related to the Company was able to determine a reasonable estimate ofCompany’s interest rate swaps.
The following tables present the impact of the Tax Act and recognized that estimateCompany’s interest rate swaps (in millions): |
| | | | | | | | | | | | |
| | | Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss) |
| | | Years Ended December 31, |
| Derivatives in Cash Flow Hedging Relationship | | 2019 | | 2018 | | 2017 |
| Interest rate swaps | | $ | (13.3 | ) | | $ | 6.5 |
| | $ | 1.0 |
|
| | | | | | | |
| | | Amount of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations |
| Location of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations | | Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Floorplan interest expense, net | | $ | (0.4 | ) | | $ | (4.7 | ) | | $ | (10.3 | ) |
| Other interest expense, net | | $ | 0.1 |
| | $ | (0.5 | ) | | $ | (1.9 | ) |
The net amount of loss expected to be reclassified out of other comprehensive income (loss) into earnings as a provisional amount. Based on the reduction of the U.S. federal corporate taxan offset to 21%, effective January 1, 2018, the Company recorded a provisional $73.0 million tax benefit to continuing operations, with a corresponding reduction in itsFloorplan interest expense or Other interest expense, net deferred tax liabilities. This was based on the remeasurement of the Company’s deferred tax assets and liabilities, and a review of the Company’s valuation allowances, using the new tax rate prescribed in the Tax Act effective in 2018. In addition, the Company provisionally determined that it does not have a transition tax liability for previously untaxed accumulated and current earnings and profits (E&P) of our foreign subsidiaries, based on its estimated calculation of E&P as of the relevant measurement dates.
Due to the timing of the enactment and complexity involved in applying the provisions of the Tax Act, we based our provisions on reasonable estimates of the law’s effects in our financial statements as of December 31, 2017. We will complete our accounting for the Tax Act after we have considered additional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and we have gathered and analyzed additional data relative to our calculations. This may result in adjustments to our provisional amounts, which would impact our provision for income taxes and effective tax rate in the period the adjustments are made. We will complete our accounting for the Tax Act in 2018. With regard to the new tax on post-2017 “global intangible low-taxed income” (GILTI) created by the Tax Act, the Company has elected to adopt an accounting policy of accounting for this tax as a period charge in the future period the tax may arise, and has not provided any deferred taxes related to its foreign investments with respect to GILTI.
For the year ended December 31, 2017, the Company recorded a tax provision of $5.6 million. This included the tax benefit for the deferred tax impact of the Tax Act noted above, as well as excess tax deductions for restricted stock resulting from the adoption of ASU 2016-09, which were partially offset by certain expenses for stock-based compensation recorded in 2017 that were non-deductible for income tax purposes. For the year ended December 31, 2017, the Company also provided valuation allowances with respect to deferred tax assets primarily relating to goodwill and net operating losses of certain Brazil subsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of these items recorded in 2017 compared to the 2016 items discussed below, the effective tax rate for the year ended December 31, 2017 decreased to 2.5%, as compared to 35.3% for the year ended December 31, 2016.
During 2016, the Company recorded a tax provision of $80.3 million. Certain expenses for stock-based compensation recorded in 2016 were non-deductible for income tax purposes. The Company provided valuation allowances with respect to goodwill and net operating losses of certain Brazil subsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of these items, the impact of a relatively higher proportion of the Company’s pretax income being generated in the Company’s U.K. region, relatively less valuation allowances recognized in 2016 compared to 2015 and the 2015 items discussed below, the effective tax rate for the year ended December 31, 2016 decreased to 35.3%, as compared to 48.4% for the year ended December 31, 2015.
During 2015, the Company recorded a tax provision of $88.2 million. Certain expenses for stock-based compensation recorded in 2015 were non-deductible for income tax purposes. The Company provided valuation allowances with respect to goodwill and net operating losses of certain Brazil subsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. In addition, no substantial deferred tax benefit relative to the impairment of goodwill in the Brazil reporting unit was recognized for U.S. GAAP reporting purposes.
Deferred income tax provisions resulted from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences representing deferred tax assets/liabilities resulted principally from the following:
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| Deferred tax assets: | | | | |
| Loss reserves and accruals | | $ | 44,004 |
| | $ | 59,884 |
|
| Interest rate swaps | | 259 |
| | 5,598 |
|
| Goodwill and intangible franchise rights | | 2,770 |
| | 5,907 |
|
| U.S. state net operating loss (“NOL”) carryforwards | | 17,430 |
| | 16,848 |
|
| Depreciation expense | | — |
| | 775 |
|
| Foreign NOL carryforwards | | 40,582 |
| | 34,946 |
|
| Other | | 379 |
| | — |
|
| Deferred tax assets | | 105,424 |
| | 123,958 |
|
| Valuation allowance on deferred tax assets | | (54,415 | ) | | (53,946 | ) |
| Net deferred tax assets | | $ | 51,009 |
| | $ | 70,012 |
|
| Deferred tax liabilities: | | | | |
| Goodwill and intangible franchise rights | | $ | (118,447 | ) | | $ | (160,439 | ) |
| Depreciation expense | | (50,166 | ) | | (64,465 | ) |
| Deferred gain on bond redemption | | (327 | ) | | (1,023 | ) |
| Other | | (1,820 | ) | | (3,317 | ) |
| Deferred tax liabilities | | (170,760 | ) | | (229,244 | ) |
| Net deferred tax liability | | $ | (119,751 | ) | | $ | (159,232 | ) |
As of December 31, 2017, the Company had state NOL carryforwards in the U.S. of $261.9 million that will expire between 2018 and 2037, and foreign NOL carryforwards of $122.0 million that may be carried forward indefinitely. To the extent that the Company expects that net income will not be sufficient to realize these NOLs in certain jurisdictions, a valuation allowance has been established.
The Company believes itnext twelve months is more likely than not that its deferred tax assets, net of valuation allowances provided, will be realized, based primarily on our expectation of future taxable income, considering future reversals of existing taxable temporary differences.$2.8 million.
As of December 31, 2017, the Company had two controlled foreign corporations that own its foreign operations (the “Foreign Subsidiaries”). The Company has not provided for U.S. deferred taxes on the outside basis differences of its Foreign Subsidiaries, as the Company has taken the position that its investment in the Foreign Subsidiaries will be permanently reinvested outside the U.S. The book basis for one of the Company’s Foreign Subsidiaries that consists of the Company’s U.K. operations exceeded the tax basis by approximately $15.0 million, as of December 31, 2017. If a taxable event resulting in the recognition of these outside basis differences occurred, the resulting tax would not be material.
The Company is subject to income tax in U.S. federal and numerous state jurisdictions, as well as in the U.K. and Brazil. Based on applicable statutes of limitations, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2013, by U.K. tax authorities in years prior to 2013 and by Brazil tax authorities in years prior to 2012.
The Company had no unrecognized tax benefits as of December 31, 2016 with respect to uncertain tax positions and did not incur any interest and penalties for the year then ended. The Company added $1.0 million of unrecognized tax benefits during 2017, based upon tax positions in prior years, that was also the total unrecognized tax benefit balance as of December 31, 2017. To the extent that any such tax benefits are recognized in the future, such recognition would impact the effective tax rate in that period by approximately $0.8 million. For the year ended December 31, 2017, the Company recorded approximately $0.2 million of interest and penalty related to its uncertain tax positions. Consistent with prior practice, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense in the accompanying Consolidated Statements of Operations.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. ACCOUNTS AND NOTES RECEIVABLE,7. RECEIVABLES, NET
The Company’s accounts and notes receivable consisted of the following:following (in millions):
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Amounts due from manufacturers | | $ | 124.0 |
| | $ | 105.1 |
|
| Parts and service receivables | | 57.0 |
| | 51.9 |
|
| Finance and insurance receivables | | 28.3 |
| | 26.4 |
|
| Other | | 18.6 |
| | 13.7 |
|
| Total accounts and notes receivable | | 227.9 |
| | 197.2 |
|
| Less: allowance for doubtful accounts | | 2.8 |
| | 3.2 |
|
| Accounts and notes receivable, net | | $ | 225.1 |
| | $ | 194.0 |
|
|
| | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| Amounts due from manufacturers | | $ | 109,599 |
| | $ | 95,754 |
|
| Parts and service receivables | | 39,343 |
| | 35,318 |
|
| Finance and insurance receivables | | 25,293 |
| | 24,866 |
|
| Other | | 17,514 |
| | 20,322 |
|
| Total accounts and notes receivable | | 191,749 |
| | 176,260 |
|
| Less allowance for doubtful accounts | | 3,138 |
| | 2,896 |
|
| Accounts and notes receivable, net | | $ | 188,611 |
| | $ | 173,364 |
|
9. INVENTORIES, NET
The Company’s inventories consisted of the following:
|
| | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| New vehicles | | $ | 1,194,632 |
| | $ | 1,156,383 |
|
| Used vehicles | | 350,760 |
| | 294,812 |
|
| Rental vehicles | | 144,213 |
| | 131,080 |
|
| Parts, accessories and other | | 82,755 |
| | 77,762 |
|
| Total inventories | | 1,772,360 |
| | 1,660,037 |
|
| Less lower of cost or net realizable value allowance | | 9,067 |
| | 8,222 |
|
| Inventories, net | | $ | 1,763,293 |
| | $ | 1,651,815 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10.8. INVENTORIES, NET
The Company’s inventories, net, consisted of the following (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
New vehicles (1), (2) | | $ | 1,328.6 |
| | $ | 1,274.3 |
|
Used vehicles (1) | | 346.7 |
| | 347.4 |
|
| Rental vehicles | | 140.9 |
| | 142.9 |
|
Parts, accessories and other (1) | | 85.5 |
| | 79.4 |
|
| Total inventories, net | | $ | 1,901.7 |
| | $ | 1,844.1 |
|
(1) The lower of specific cost or net realizable value reserves reduced total inventory cost by $9.7 million and $8.5 million at December 31, 2019 and 2018, respectively.
(2) Interest assistance from certain manufacturers reduced inventory costs by $10.7 million and $9.7 million at December 31, 2019 and 2018, respectively, and reduced cost of sales by $49.1 million, $47.3 million and $48.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Refer to Note 1 “Business and Summary of Significant Accounting Policies” for further discussion of the Company’s accounting policy for inventories.
9. PROPERTY AND EQUIPMENT, NET
The Company’s property and equipment consisted of the following:following (in millions):
|
| | | | | | | | |
| | | December 31, |
| | 2019 | | 2018 |
| Land | | $ | 571.3 |
| | $ | 487.6 |
|
| Buildings | | 849.9 |
| | 727.8 |
|
| Leasehold improvements | | 217.8 |
| | 189.2 |
|
| Machinery and dealership equipment | | 138.2 |
| | 125.9 |
|
| Office equipment, furniture and fixtures | | 118.5 |
| | 109.3 |
|
| Company vehicles | | 15.1 |
| | 12.3 |
|
| Construction in progress | | 36.5 |
| | 43.0 |
|
| Total | | 1,947.3 |
| | 1,695.2 |
|
| Less: accumulated depreciation and amortization | | 400.2 |
| | 347.3 |
|
| Property and equipment, net | | $ | 1,547.1 |
| | $ | 1,347.8 |
|
|
| | | | | | | | | | | |
| | | Estimated Useful Lives in Years | | December 31, |
| | | 2017 | | 2016 |
| | | | | (In thousands) |
| Land | | — |
| | $ | 482,600 |
| | $ | 400,163 |
|
| Buildings | | 25 to 50 |
| | 700,257 |
| | 553,961 |
|
| Leasehold improvements | | varies |
| | 172,071 |
| | 170,060 |
|
| Machinery and equipment | | 7 to 20 |
| | 117,781 |
| | 100,164 |
|
| Furniture and fixtures | | 3 to 10 |
| | 100,881 |
| | 87,691 |
|
| Company vehicles | | 3 to 5 |
| | 11,933 |
| | 11,632 |
|
| Construction in progress | | — |
| | 41,824 |
| | 66,658 |
|
| Total | | | | 1,627,347 |
| | 1,390,329 |
|
| Less accumulated depreciation and amortization | | | | 308,388 |
| | 264,446 |
|
| Property and equipment, net | | | | $ | 1,318,959 |
| | $ | 1,125,883 |
|
During 2017,For the year ended December 31, 2019, the Company incurred $98.3recognized $1.3 million of capital expenditures for the construction of new or expanded facilities and the purchase of equipment and other fixed assets in the maintenance of the Company’s dealerships and facilities, excluding $15.9 million of capital expenditures accrued as of December 31, 2016. As of December 31, 2017, the Company had accrued $8.8 million of capital expenditures. In addition, in 2017, the Company purchased real estate (including land and buildings) associated with existing dealership operations totaling $110.4 million. And, in conjunction with the acquisition of dealerships and franchises in 2017, the Company acquired $29.0 million of real estate and other property and equipment. The Company recognized $0.2$0.5 million in asset impairmentsimpairment charges related to property and equipment forin the yearCompany’s U.S. and Brazil segments, respectively. For the years ended December 31, 2017.
During 2016,2018 and 2017, the Company incurred $100.6recognized $5.1 million of capital expenditures for the construction of new or expanded facilities and the purchase of equipment and other fixed assets in the maintenance of the Company’s dealerships and facilities, excluding $32.7$0.2 million, of capital expenditures accrued as of December 31, 2015. As of December 31, 2016, the Company had accrued $15.9 million of capital expenditures. In addition, the Company purchased real estate (including land and buildings) associated with existing dealership operations totaling $39.1 million. And, in conjunction with the acquisition of dealerships and franchises in 2016, the Company acquired $28.8 million of real estate and other property and equipment. The Company recognized $2.8 millionrespectively, in asset impairmentsimpairment charges related to property and equipment forin the year ended December 31, 2016.Company’s U.S. segment. Property and equipment impairment charges are reflected in Asset impairments in the Consolidated Statements of Operations.
Depreciation and amortization expense, including amortization of capitalfinance leases, totaled $57.9$71.6 million, $51.2$67.1 million and $47.2$57.9 million for the years ended December 31, 2019, 2018 and 2017, 2016respectively. See Note 10“Leases” for discussion of finance leases.
The Company capitalized $1.3 million, $1.3 million, and 2015,$1.6 million of interest on construction projects in 2019, 2018 and 2017, respectively. As
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. LEASES
The Company leases real estate, office equipment, dealership operating assets under long-term lease agreements and subleases certain real estate to third parties. For leases effective on or after January 1, 2019, the Company determines if an arrangement is a lease at inception and recognizes ROU assets and lease liabilities at commencement date based on the present value of lease payments over the lease term. For such leases, the aggregate present value of the Company’s lease payments may include options to purchase the leased property or lease terms with options to renew or terminate the lease, when it is reasonably certain that the Company will exercise such an option. The exercise of lease renewals, terminations, or purchase options is generally at the Company’s discretion. The Company’s leases may also include rental payments adjusted periodically for inflation. Payments based on a change in an index or rates are not considered in the determination of lease payments for purposes of measuring the related lease liability. The Company discounts lease payments using its incremental borrowing rate based on information available as of the measurement date. Subsequent to the recognition of its ROU assets and lease liabilities, the Company recognizes lease expense related to its operating lease payments on a straight-line basis over the lease term. None of the Company’s lease agreements contain material residual value guarantees or material restrictive covenants.
The Company performs interim reviews of its ROU assets for impairment when evidence exists that the carrying value of an asset may not be recoverable. During the year ended December 31, 20172019, the Company recognized a ROU asset impairment charge of $1.4 million relating to certain operating leases within the U.K. segment. The impairment charge was recognized within Asset impairments in the Company's Consolidated Statements of Operations.
Additional information regarding the Company’s operating and 2016, $77.4 millionfinance leases is as follows (in millions, except for lease term and $68.9 million of buildings under capital leases were recorded as property and equipment, before accumulated depreciation, respectively.discount rate information): |
| | | | | | |
| Leases | | Balance Sheet Classification | | December 31, 2019 |
| Assets: | | | | |
| Operating | | Operating lease assets | | $ | 220.1 |
|
| Finance | | Property and equipment, net | | 75.5 |
|
| Total | | | | $ | 295.5 |
|
| Liabilities: | | | | |
| Current: | | | | |
| Operating | | Current operating lease liabilities | | $ | 24.6 |
|
| Finance | | Current maturities of long-term debt | | 6.6 |
|
| Noncurrent: | | | | |
| Operating | | Operating lease liabilities, net of current portion | | 210.7 |
|
| Finance | | Long-term debt, net of current maturities | | 76.3 |
|
| Total | | | | $ | 318.3 |
|
|
| | | | | | |
| Lease Expense | | Income Statement Classification | | Year Ended December 31, 2019 |
| Operating | | Selling, general and administrative expenses | | $ | 40.1 |
|
| Operating | | Asset impairments | | 1.4 |
|
| Variable | | Selling, general and administrative expenses | | 2.3 |
|
| Sublease income | | Selling, general and administrative expenses | | (1.5 | ) |
| Finance: | | | | |
| Amortization of lease assets | | Depreciation and amortization expense | | 5.5 |
|
| Interest on lease liabilities | | Other interest expense, net | | 4.8 |
|
| Net lease expense | | | | $ | 52.6 |
|
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | |
| | | December 31, 2019 |
| Maturities of Lease Liabilities | | Operating Leases | | Finance Leases |
| 2020 | | $ | 37.3 |
| | $ | 12.7 |
|
| 2021 | | 38.7 |
| | 9.6 |
|
| 2022 | | 34.4 |
| | 9.2 |
|
| 2023 | | 31.4 |
| | 7.7 |
|
| 2024 | | 27.1 |
| | 22.4 |
|
| Thereafter | | 169.4 |
| | 62.3 |
|
| Total lease payments | | 338.3 |
| | 123.9 |
|
| Less: Interest | | (103.0 | ) | | (40.9 | ) |
| Present value of lease liabilities | | $ | 235.4 |
| | $ | 83.0 |
|
|
| | | |
| Weighted-Average Lease Term and Discount Rate | | December 31, 2019 |
| Weighted-average remaining lease terms: | | |
| Operating | | 11.0 |
|
| Financing | | 11.8 |
|
| Weighted-average discount rates: | | |
| Operating | | 6.1 | % |
| Financing | | 7.2 | % |
|
| | | | |
| Other Information | | December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows used in operating leases | | $ | 41.6 |
|
| Operating cash flows used in finance leases | | $ | 4.8 |
|
| Financing cash flows used in finance leases | | $ | 3.8 |
|
| ROU assets obtained in exchange for lease obligations: | | |
| Operating leases, initial recognition | | $ | 34.0 |
|
| Operating leases, modifications and remeasurements | | $ | (9.1 | ) |
| Finance leases, initial recognition | | $ | 29.6 |
|
| Finance leases, modifications and remeasurements | | $ | 8.2 |
|
11. CREDIT FACILITIESINTANGIBLE FRANCHISE RIGHTS AND GOODWILL
As discussed in Note 1 “Business and Summary of Significant Accounting Policies,” the Company evaluates its intangible assets, consisting entirely of indefinite-lived franchise rights and goodwill assets, for impairment annually, or more frequently if events or circumstances indicate possible impairment. In the third quarter of 2019, the ongoing uncertainty related to the ultimate resolution of the Referendum of the U.K.’s Membership of the EU advising for Brexit, continued to generate much uncertainty in the U.K., as well as in global markets. During the three months ended September 30, 2019, as a result of increased uncertainty in the U.K. regarding the outcome and timing of Brexit and the related impact on the Company’s U.K. new vehicle business and certain U.S. dealerships identified in its third quarter review, the Company identified circumstances indicating possible impairment of certain franchise rights, requiring a quantitative assessment as of August 31, 2019. In estimating fair value, the Company used a discounted cash flow model, or income approach, specifically the excess earnings method. Significant inputs to the model included changes in revenue growth rates, future gross margins, future SG&A expenses, terminal growth rates and the WACC. Based on the results of the Company's assessment, the Company determined that the fair value of the franchise rights on 7 of its U.K. dealerships and 1 of its U.S. dealerships were below their respective carrying values. This resulted in franchise rights impairment charges of $5.6 million in the U.K segment and $3.0 million in the U.S. segment. The impairment charges were recognized within Asset impairments in the Company's Consolidated Statements of Operations.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company performed its annual impairment assessment of the carrying value of its goodwill and intangible franchise rights as of October 31, 2019. For the goodwill test, the Company elected to perform a qualitative assessment of each of its reporting units and determined that it was not more likely than not that the fair value of the reporting unit was less than its respective carrying amount. Thus, 0 goodwill impairment was recorded for the year ended December 31, 2019. The Company elected to perform a qualitative assessment as of October 31, 2019 to determine whether it was more likely than not that the carrying value of the franchise rights were more than their respective fair values. Based on the results of the qualitative assessment, the Company identified circumstances indicating possible impairment of certain of its franchise rights, requiring a quantitative assessment as of October 31, 2019, which was performed using the same methodology discussed above as of August 31, 2019. This resulted in additional franchise rights impairment charges of $10.4 million in the U.S. segmentduring the fourth quarter of 2019.
During the years ended December 31, 2019 and 2018, the Company recorded additional indefinite-lived intangible franchise rights associated with acquisitions of $12.1 million and $11.5 million, respectively, in the U.S segment. During the year ended December 31, 2018, the Company recorded additional indefinite-lived intangibles associated with acquisitions of $8.4 million, in the U.K. segment.
See Note 3 “Acquisitions and Dispositions” for additional discussion.
The following table presents the Company’s intangible franchise rights balances by reportable segment as of December 31, 2019 and 2018 (in millions): |
| | | | | | | | | | | | | | | | |
| | | Intangible Franchise Rights |
| | | U.S. | | U.K. | | Brazil | | Total |
| Balance, December 31, 2018 | | $ | 224.4 |
| | $ | 35.1 |
| | $ | 0.1 |
| | $ | 259.6 |
|
| Balance, December 31, 2019 | | $ | 223.1 |
| | $ | 30.4 |
|
| $ | 0.1 |
| | $ | 253.5 |
|
The following is a roll-forward of the Company’s goodwill accounts by reportable segment (in millions): |
| | | | | | | | | | | | | | | | |
| | | Goodwill |
| | | U.S. | | U.K. | | Brazil | | Total |
Balance, December 31, 2017 (1) | | $ | 835.3 |
| | $ | 65.0 |
| | $ | 12.7 |
| | $ | 913.0 |
|
| Additions through acquisitions | | 39.7 |
| | 28.5 |
| | 4.3 |
| | 72.5 |
|
| Disposals | | (13.4 | ) | | — |
| | — |
| | (13.4 | ) |
| Currency translation | | — |
| | (5.9 | ) | | (2.3 | ) | | (8.2 | ) |
Balance, December 31, 2018 (1) | | $ | 861.6 |
| | $ | 87.6 |
|
| $ | 14.7 |
| | $ | 963.9 |
|
| Additions through acquisitions | | 42.0 |
| | 1.3 |
| | — |
| | 43.3 |
|
| Disposals | | (1.3 | ) | | — |
| | (0.3 | ) | | (1.6 | ) |
| Currency translation | | — |
| | 3.2 |
| | (0.5 | ) | | 2.7 |
|
Balance, December 31, 2019 (1) | | $ | 902.3 |
| | $ | 92.1 |
|
| $ | 13.9 |
| | $ | 1,008.3 |
|
(1) Net of accumulated impairments of $97.8 million
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. FLOORPLAN NOTES PAYABLE
The Company’s floorplan notes payable consisted of the following (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Revolving credit facility - floorplan notes payable | | $ | 1,206.0 |
| | $ | 1,251.4 |
|
| Revolving credit facility - floorplan notes payable offset account | | (106.8 | ) | | (33.6 | ) |
| Revolving credit facility - floorplan notes payable, net | | 1,099.1 |
| | 1,217.8 |
|
| Other non-manufacturer facilities | | 45.3 |
| | 41.1 |
|
| Floorplan notes payable - credit facility and other, net | | $ | 1,144.4 |
| | $ | 1,258.8 |
|
| | | | | |
| FMCC facility | | $ | 208.5 |
| | $ | 160.8 |
|
| FMCC facility offset account | | (4.1 | ) | | (0.1 | ) |
| FMCC facility, net | | 204.5 |
| | 160.7 |
|
| Other manufacturer affiliate facilities | | 255.4 |
| | 257.1 |
|
| Floorplan notes payable - manufacturer affiliates, net | | $ | 459.9 |
| | $ | 417.8 |
|
Floorplan Notes Payable - Credit Facility
Revolving Credit Facility
In the U.S., the Company has a $1.8 billion revolving syndicated credit arrangement that matures on June 17, 2021 and is comprised of 24 financial institutions, including six manufacturer-affiliated finance companies27, 2024 (“Revolving Credit Facility”). The Company also has a $300.0 million floorplan financing arrangement (“FMCC Facility”) with Ford Motor Credit Company (“FMCC”) for financing of new Ford vehicles in the U.S. and other floorplan financing arrangements with several other automobile manufacturers for financing of a portion of its U.S. rental vehicle inventory. In the U.K., the Company has financing arrangements with BMW Financial Services NA, LLC (“BMWFS”), Volkswagen Finance, Toyota Motor Credit Corporation, FMCC and a third-party financial institution for financing of its new, used, and rental vehicles. In Brazil, the Company has financing arrangements for new, used, and rental vehicles with several financial institutions, most of which are manufacturer affiliated. Within the Company’s Consolidated Balance Sheets, Floorplan notes payable - credit facility and other primarily reflects amounts payable for the purchase of specific new, used and rental vehicle inventory (with the exception of new and rental vehicle purchases financed through lenders affiliated with the respective manufacturer) whereby financing is provided by the Revolving Credit Facility. Floorplan notes payable - manufacturer affiliates reflects amounts related to the purchase of vehicles whereby financing is provided by the FMCC Facility, the financing of a portion of the Company’s rental vehicles in the U.S. (through lenders affiliated with the respective manufacturer), as well as the financing of new, used, and rental vehicles with manufacturer affiliates in both the U.K. and Brazil. Payments on the floorplan notes payable are generally due as the
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
vehicles are sold. As a result, these obligations are reflected in the accompanying Consolidated Balance Sheets as current liabilities. The outstanding balances under these financing arrangements were as follows:
|
| | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| Floorplan notes payable — credit facility and other | | | | |
| New vehicles | | $ | 1,019,511 |
| | $ | 941,913 |
|
| Used vehicles | | 176,802 |
| | 160,070 |
|
| Rental vehicles | | 23,530 |
| | 29,735 |
|
| Floorplan offset | | (86,547 | ) | | (59,626 | ) |
| Total floorplan notes payable - credit facility | | 1,133,296 |
| | 1,072,092 |
|
| Other floorplan notes payable | | 20,852 |
| | 4,936 |
|
| Total floorplan notes payable - credit facility and other | | $ | 1,154,148 |
| | $ | 1,077,028 |
|
| Floorplan notes payable — manufacturer affiliates | | | | |
| FMCC Facility | | $ | 152,984 |
| | $ | 175,244 |
|
| Floorplan offset | | (22,500 | ) | | (25,500 | ) |
| Total FMCC Facility | | 130,484 |
| | 149,744 |
|
| Foreign and rental vehicles | | 244,199 |
| | 217,417 |
|
| Total floorplan notes payable — manufacturer affiliates | | $ | 374,683 |
| | $ | 367,161 |
|
Revolving Credit Facility
The Company’s Revolving Credit Facility provides a total borrowing capacity of $1.8 billion and expires on June 17, 2021. The Revolving Credit Facility consists of two tranches, providingtranches: (i) a maximum of $1.75 billion maximum capacity tranche for U.S. vehicle inventory floorplan financing (“Floorplan Line”), which had an outstanding balance, net of offset account discussed below, of $1.1 billion, as well asof December 31, 2019 reported in Floorplan notes payable - credit facility and other, net;and (ii) a$360.0 million maximum of $360.0 millioncapacity and a minimum of $50.0 million for working capital and general corporate purposes, including acquisitionsminimum capacity tranche (“Acquisition Line”). The Acquisition Line, which is not due until maturity of the facilityRevolving Credit Facility and is therefore classified as long-term debt in the accompanying Consolidated Balance Sheets. See further discussion Long-termdebt, net of the Acquisition Line incurrent maturities - see Note 12, “Long-Term Debt”.13 “Debt” for additional discussion. The capacity under these two tranches can be re-designated within the overall $1.8 billion commitment, subject to the aforementioned limits. Up to $125.0 million of theThe Acquisition Line can be borrowedincludes a $100 million sub-limit for letters of credit. As of December 31, 2019 and 2018, the Company had $23.6 million and $25.4 million, respectively, in either euros or British pound sterling. Theoutstanding letters of credit.
In June, 2019, the Company amended the Revolving Credit Facility can be expanded to a maximum commitmentextend the maturity date to June 27, 2024 and reduce the number of $2.1 billion, subjectparticipating financial institutions to participating lender approval. The23. Additionally, following the amendment, the Floorplan Line bears interest at rates equal to the LIBOR plus 125110 basis points for new vehicle inventory and the LIBOR plus 150140 basis points for used vehicle inventory. The Acquisition Line bears interest at the LIBOR plus 150 basis points plus a margin that ranges from zero to 100 basis points, depending on the Company’s total adjusted leverage ratio, for borrowings in U.S. dollars andor a LIBOR equivalent plus 125100 to 250200 basis points, depending on the Company’s total adjusted leverage ratio, on borrowings in eurosUSD, Euros or British pound sterling.GBP. The Floorplan Line requires a commitment fee of 0.15% per annum on the unused portion. Amounts borrowed by the Company under the Floorplan Line for specific vehicle inventory are to be repaid upon the sale of the vehicle financed and in no case is a borrowing for a vehicle to remain outstanding for greater than one year. The Acquisition Line also requires a commitment fee ranging from 0.20%0.15% to 0.45%0.40% per annum, depending on the Company’s total adjusted leverage ratio, based on a minimum commitment of $50.0 million less outstanding borrowings.
The weighted average interest rate on the Floorplan Line was 2.7% as of December 31, 2019, excluding the impact of the Company’s interest rate derivative instruments.
In conjunction with the Revolving Credit Facility, the Company has $4.2$4.7 million of related unamortized debt issuance costs as of December 31, 2017,2019, which are included in Prepaid expenses and other currentOther long-term assets and Other Assets on in the accompanyingCompany’s Consolidated Balance Sheets and amortized over the term of the facility.
After consideringUnder the outstanding balanceRevolving Credit Facility, dividends are permitted to the extent that no event of $1,133.3 million at December 31, 2017,default exists and the Company had $306.7is in compliance with the financial covenants contained therein. The indentures governing the 5.00% and the 5.25% senior notes and certain mortgage term loans also contain restrictions on the Company’s ability to pay dividends and to repurchase shares of outstanding common stock. After giving effect to the applicable restrictions on share repurchases and certain other transactions under the debt agreements, the Company was limited to $152.0 million of available floorplan borrowing capacity under the Floorplan Line. Included in the $306.7 million available borrowings under the Floorplan Line was $86.5 million of immediately available funds. The weighted average interest rate on the Floorplan Line was 2.7% and 2.0% as of December 31, 2017 and 2016, respectively, excluding the impact of the Company’s interest rate derivative instruments. With regards to the Acquisition Line, there were $27.0 million borrowings outstanding as of December 31, 2017 and no borrowings outstandingsuch restrictions as of December 31, 2016. The interest rate on the Acquisition Line was 2.25% as of December 31, 2017. After considering $25.0 million of outstanding letters of credit and other factors included in the Company’s available borrowing base calculation, there was $308.2 million of available borrowing capacity under the Acquisition Line as of2019.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2017. The amountOffset accounts
Offset accounts consist of immediately available borrowing capacity undercash used to pay down the AcquisitionFloorplan Line is limited from time to time based upon certain debt covenants.
All ofand the U.S. dealership-owning subsidiaries are co-borrowers underFMCC Facility, and therefore offset the Revolving Credit Facility. The Company’s obligations under the Revolving Credit Facility are secured by essentially all ofrespective outstanding balances in the Company’s U.S. personal property (other than equity interests in dealership-owning subsidiaries), including all motor vehicle inventory and proceeds from the disposition of dealership-owning subsidiaries, excluding inventory financed directly with manufacturer-affiliates and other third-party financing institutions.Consolidated Balance Sheets. The Revolving Credit Facility contains a number of significant covenants that, among other things, restrictoffset accounts are the Company’s ability to make disbursements outside of the ordinary course of business, dispose of assets, incur additional indebtedness, create liens on assets, make investments and engage in mergers or consolidations. The Company is also required to comply with specified financial tests and ratios defined in the Revolving Credit Facility, such as the fixed charge coverage and total adjusted leverage ratios. Further, the Revolving Credit Facility restricts the Company’s ability to make certain payments, such as dividends or other distributions of assets, properties, cash, rights, obligations or securities (“Restricted Payments”). The Restricted Payments cannot exceed the sum of $208.5 million plus (or minus if negative) (a) one-half of the aggregate consolidated net incomeprimary options for the period beginning on April 1, 2014 and ending on the dateshort-term investment of determination and (b) the amount of net cash proceeds received from the sale of capital stock after June 2, 2014 and ending on the date of determination less (c) cash dividends and share repurchases after June 2, 2014 (“Credit Facility Restricted Payment Basket”). For purposes of the calculation of the Credit Facility Restricted Payment Basket, net income represents such amounts per the Consolidated Financial Statements adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation. As of December 31, 2017, the Credit Facility Restricted Payment Basket totaled $184.8 million.excess cash.
As of December 31, 2017 and 2016, the Company was in compliance with all applicable covenants and ratios under the Revolving Credit Facility.Floorplan Notes Payable - Manufacturer Affiliates
Ford Motor Credit Company Facility
The FMCC Facility providesCompany has a $300.0 million floorplan arrangement with Ford Motor Credit Company for the financing of and is collateralized by, the Company’snew Ford new vehicle inventoryvehicles in the U.S., including affiliated brands. This arrangement provides for $300.0 million of floorplan financing and is an evergreen arrangement that may be canceled with 30 days’ notice by either party. As of December 31, 2017, the Company had an outstanding balance of $130.5 million under the (“FMCC Facility with an available floorplan borrowing capacity of $169.5 million. Included in the $169.5 million available borrowings under the FMCC Facility was $22.5 million of immediately available funds.Facility”). This facility bears interest at a rate of Prime plus 150 basis points minus certain incentives. The interest rate on the FMCC Facility was 6.00% and 5.25%6.3% before considering the applicable incentives as of December 31, 2017 and 2016, respectively.2019.
Other CreditManufacturer Facilities
The Company has other credit facilities in the U.S., U.K. and Brazil with BMWFS, Volkswagen Finance, Toyota Motor Credit Corporation, FMCC and a third-party financial institutioninstitutions affiliated with manufacturers for the financing of new, used and rental vehicle inventories related to its U.K. operations. These facilities are denominated in British pound sterling and are evergreen arrangements that may be canceled with notice by either party and bear interest at a base rate, plus a surcharge that varies based upon the type of vehicle being financed.inventories. As of December 31, 2017,2019, borrowings outstanding under these facilities totaled $122.8 million. Annual$255.4 million, comprised of $113.9 million in the U.S. with annual interest rates charged on borrowings outstanding under these facilities, afterranging from 2.7% to 6.3%, $125.8 million in the grace period of zeroU.K. with annual interest rates ranging from 1.4% to 30 days, ranged from 1.25% to 3.95%.
The Company has credit facilities with financial institutions4.3%, and $15.6 million in Brazil most of which are affiliated with the manufacturers, for the financing of new, used and rental vehicle inventories related to its Brazilian operations. These facilities are denominated in Brazilian real and have renewal termsannual interest rates ranging from one month4.9% to twelve months. They may be canceled with notice by either party14.0%.
13. DEBT
Long-term debt, net of current maturities consisted of the following (in millions):
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
5.00% Senior Notes aggregate principal (1) | | $ | 550.0 |
| | $ | 550.0 |
|
5.25% Senior Notes aggregate principal (1) | | 300.0 |
| | 300.0 |
|
| Acquisition Line | | 72.5 |
| | 31.8 |
|
| Real estate related | | 453.3 |
| | 420.8 |
|
Finance leases (2) | | 83.0 |
| | 48.6 |
|
| Other | | 42.8 |
| | 33.6 |
|
| Total debt | | 1,501.7 |
| | 1,384.8 |
|
| Less: unamortized discount on 5.00% notes & 5.25% notes | | (5.6 | ) | | (7.4 | ) |
| Less: unamortized debt issuance costs | | (4.8 | ) | | (2.9 | ) |
| Less: current maturities of long-term debt and short-term financing | | (59.1 | ) | | (93.0 | ) |
| Long-term debt, net of current maturities | | $ | 1,432.1 |
| | $ | 1,281.5 |
|
(1) See Note 6 “Financial Instruments and bear interest at a benchmark rate, plus a surcharge that varies based uponFair Value Measurements” for further discussion of the type of vehicle being financed. Asfair value.
(2) Balances as of December 31, 2017, borrowings2018 were unchanged under these facilities totaled $22.7 million. Annual interest rates charged on borrowings outstanding under these facilities, after the grace period of zero to 90 days, ranged from 11.42% to 18.02%.
Excluding rental vehicles financed through the Revolving Credit Facility, financing for U.S. rental vehicles is typically obtained directly from the automobile manufacturers. These financing arrangements generally require small monthly payments and mature in varying amounts over a period of two years. Rental vehicles are typically transferred to used vehicle inventory when they are removed from service and repaymentoptional transition method applied as part of the borrowing is required at that time. Asimplementation of December 31, 2017, borrowings outstanding under these rental vehicle facilities totaled $119.6 million, with interest rates that vary up to 6.00%.Topic 842. See Note 1 “Business and Summary of Significant Accounting Policies” and Note 10 “Leases” for further information.
The aggregate annual maturities of long-term debt for the next five years, excluding unamortized discount and debt issuance costs, are as follows (in millions): |
| | | | |
| | | Total |
| Years Ended December 31, | | |
| 2020 | | $ | 58.2 |
|
| 2021 | | 75.1 |
|
| 2022 | | 598.7 |
|
| 2023 | | 374.5 |
|
| 2024 | | 152.8 |
|
| Thereafter | | 242.4 |
|
| Total | | $ | 1,501.7 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. LONG-TERM DEBTSenior Notes
The Company has the following Senior Notes issued as of December 31, 2019 (amount in millions): |
| | | | | | |
| Description | | Principal Amount | | Maturity Date | | Interest Payment Date |
| 5.00% Senior Notes | | $550.0 | | June 1, 2022 | | June 1, December 1 |
| 5.25% Senior Notes | | $300.0 | | December 15, 2023 | | June 15, December 15 |
The Company, carriesat its long-term debt at face value, net of applicable discounts and capitalized debt issuance costs. Long-term debt consisted of the following:
|
| | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| 5.00% Senior Notes (aggregate principal of $550,000 at December 31, 2017 and 2016) | | $ | 542,063 |
| | $ | 540,465 |
|
| 5.25% Senior Notes (aggregate principal of $300,000 at December 31, 2017 and 2016) | | 296,151 |
| | 295,591 |
|
| Acquisition Line | | 26,988 |
| | — |
|
| Real Estate Related and Other Long-Term Debt | | 440,845 |
| | 385,358 |
|
| Capital lease obligations related to real estate, maturing in varying amounts through June 2034 with a weighted average interest rate of 10.4% and 9.9%, respectively | | 51,665 |
| | 47,613 |
|
| | | 1,357,712 |
| | 1,269,027 |
|
| Less current maturities of long-term debt | | 39,528 |
| | 56,218 |
|
| | | $ | 1,318,184 |
| | $ | 1,212,809 |
|
Included in current maturities of long-term debt and short-term financing in the Company’s Consolidated Balance Sheets, the Company has two short-term revolving working capital loan agreements with third-party financial institutions in the U.K. and an unsecured loan agreement with a third-party financial institution in the U.S. As of December 31, 2017 and December 31, 2016, short-term borrowings under the U.K. third-party loans totaled $13.4 million and $16.2 million, respectively. During 2017, the Company made borrowings of $5.1 million and no principal payments under the U.K. third-party loans. As of December 31, 2017, short-term borrowings under the U.S. third-party loan totaled $24.7 million. During 2017, the Company made borrowings of $25.1 million and made principal payments of $0.3 million under the U.S. third-party loan.
5.00% Senior Notes
On June 2, 2014, the Company issued $350.0 million aggregate principal amount of its 5.00% senior notes due 2022 (“5.00% Notes”). Subsequently, on September 9, 2014, the Company issued an additional $200.0 million of 5.00% Notes at a discount of 1.5% from face value. The 5.00% Notes will mature on June 1, 2022 and pay interest semiannually, in arrears, in cash on each June 1 and December 1, beginning December 1, 2014. On or after June 1, 2017, the Companyoption, may redeem some or all of the 5.00%Senior Notes at specifiedthe redemption prices (expressed as percentages of principal amount of the notes) set forth below, plus accrued and unpaid interest.
|
| | |
| Redemption Period | | Redemption Price |
| June 1, 2019 - May 31, 2020 | | 101.250% |
| June 1, 2020 and thereafter | | 100.000% |
5.25% Senior Notes |
| | |
| Redemption Period | | Redemption Price |
| December 15, 2019 - December 14, 2020 | | 102.625% |
| December 15, 2020 - December 14, 2021 | | 101.313% |
| December 15, 2021 and thereafter | | 100.000% |
The Company may be required to purchase the 5.00%Senior Notes if it sells certain assets or triggers the change in control provisions defined in the 5.00% Notessenior notes indenture. The 5.00% Notesnotes are senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and future senior unsecured debt and senior in right of payment to all of its future subordinated debt. The 5.00%Senior Notes are guaranteed by substantially all of the Company’s U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to all of the Company’s U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, theThe 5.00% Notes are structurally subordinated to the liabilities of its non-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restricted payment basket calculation under the terms of the 5.00% Notes is the same as under the Credit Facility Restricted Payment Basket. The 5.00%Senior Notes were registered with the Securities and Exchange CommissionSEC in June 2015. The 5.00% Notes are presented net2015, which require the disclosure of unamortized underwriters’ fees, discount and debt issuance costs, which are being amortized over a periodcondensed consolidated financial information as required by Rule 3-10 of eight years in conjunction with the term of the 5.00% Notes, of $7.9 million as of December 31, 2017.Regulation S-X. See Note 20 “Condensed Consolidated Financial Information.”
5.25% Senior Notes
On December 8, 2015, the Company issued 5.25% senior unsecured notes with a face amount of $300.0 million due to mature on December 15, 2023 (“5.25% Notes”). The 5.25% Notes pay interest semiannually, in arrears, in cash on each June 15 and December 15, beginning June 15, 2016. Using proceeds of certain equity offerings, the Company may redeem up to 35.0% of the 5.25% Notes prior to December 15, 2018, subject to certain conditions, at a redemption price equal to 105.25% of principal amount of the 5.25% Notes plus accrued and unpaid interest. Otherwise, the Company may redeem some or all of the 5.25% Notes prior to December 15, 2018 at a redemption price equal to 100% of the principal amount of the 5.25% Notes redeemed, plus an applicable make-whole premium, and plus accrued and unpaid interest. On or after December 15, 2018, the Company may redeem some or all of the 5.25% Notes at specified prices, plus accrued and unpaid
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest. The Company may be required to purchase the 5.25% Notes if it sells certain assets or triggers the change in control provisions defined in the 5.25% Notes indenture. The 5.25% Notes are senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and future senior unsecured debt and senior in right of payment to all of its future subordinated debt. The 5.25% Notes are guaranteed by substantially all of the Company’s U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to all of the Company’s U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, the 5.25% Notes are structurally subordinated to the liabilities of its non-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restricted payment basket calculation under the terms of the 5.25% Notes is the same as under the Credit Facility Restricted Payment Basket. The 5.25% Notes are presented net of unamortized underwriters’ fees, discount and debt issuance costs, which are being amortized over a period of eight years in conjunction with the term of the 5.25% Notes, of $3.8 million as of December 31, 2017.
Acquisition Line
The proceeds of the Acquisition Line are used for working capital, general corporate and acquisition purposes.As of December 31, 2019, borrowings under the Acquisition Line, a component of the Revolving Credit Facility has(as described in Note 12 “Floorplan Notes Payable”), totaled $72.5 million. The interest rate on this facility was 1.95% as of December 31, 2019, representing the total borrowing capacity of $1.8 billion and expires on June 17, 2021. This arrangement provides a maximum of $360.0 million and a minimum of $50.0 millionapplicable rate for working capital and general corporate purposes, including acquisitions. See Note 11, “Credit Facilities,” for further discussion on the Company’s Revolving Credit Facility and Acquisition Line.borrowings in GBP.
Real Estate Related and Other Long-Term Debt
The Company as well as certain of its wholly-owned subsidiaries, has entered into separate term mortgage loans in the U.S. with three, U.K. and Brazil that are paid in monthly installments. As of its manufacturer-affiliated finance partners - Toyota Motor Credit Corporation (“TMCC”)December 31, 2019, borrowings outstanding under these facilities totaled $453.3 million, gross of debt issuance costs, comprised of $361.5 million in the U.S., BMW Financial Services NA, LLC (“BMWFS”)$75.2 million in the U.K. and FMCC, as well as several third-party financial institutions. These$16.6 million in Brazil. The Company’s mortgage loans may be expanded for borrowings related to specific buildings and/or properties and are guaranteed by the Company. Each mortgage loan was made in connection with, and is secured by mortgage liens on, the real property owned by the Company that is mortgaged underCompany. The carrying values of the loans. The mortgage loans bear interest at fixed rates between 3.25% and 4.69%, and at variable indexed rates plus a spread between 1.50% and 2.50% per annum. The mortgage loans consist of 57 term loans for an aggregate principal amount of $398.0 million. As of December 31, 2017, borrowings outstanding under these notes totaled $350.0 million, with $26.4 million classified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets, as compared to $321.9 million outstanding with $39.8 million classified as currentrelated collateralized real estate as of December 31, 2016. During 2017, the Company made additional net borrowings2019 and principal payments of $46.42018 was $436.2 million and $18.4 million,$390.3, respectively. These mortgage loansThe Brazilian mortgages are presented net of unamortized underwriters’ fees, discount, and debt issuance costs, which are being amortized over the terms of the mortgage loans, of $0.6 million as of December 31, 2017. The agreements provide for monthly payments based on 15 or 30-year amortization schedules and mature between December 2018 and November 2032. These mortgage loans are cross-collateralized and cross-defaulted with each other.
The Company has entered into 16 separate term mortgage loans in the U.K. with other third-party financial institutions, which areadditionally secured by the Company’s U.K. properties. These mortgage loans (collectively, “U.K. Notes”) are denominated in British pound sterling and are being repaid in monthly installments that will mature by September 2034. As of December 31, 2017, borrowings under the U.K. Notes totaled $79.2 million, with $7.4 million classified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets, as compared to $50.4 million outstanding with $4.3 million classified as current as of December 31, 2016. During 2017, the Company made additional borrowings and principal payments of $28.9 million and $5.7 million, respectively, associated with the U.K. Notes.
The Company has a separate term mortgage loan in Brazil with a third-party financial institution (the “Brazil Note”). The Brazil Note is denominated in Brazilian real and is secured by one of the Company’s Brazilian properties, as well as a guarantee from the Company.
14. INCOME TAXES
The Brazil NoteCompany is being repaidsubject to U.S. federal income taxes and income taxes in monthly installments that will mature by April 2025. As of December 31, 2017, borrowings undernumerous U.S. states. In addition, the Brazil Note totaled $3.3 million, with $0.4 million classified as a current maturity of long-term debtCompany is subject to income tax in the accompanying Consolidated Balance Sheets. During 2017, the Company made no additional borrowingsU.K. and made principal payments of $0.6 million associated with the Brazil Note.relative to its foreign subsidiaries. Income (loss) before income taxes by geographic area was as follows (in millions): |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Domestic | | $ | 227.9 |
| | $ | 192.1 |
| | $ | 206.6 |
|
| Foreign | | (0.6 | ) | | 13.3 |
| | 12.4 |
|
| Total income (loss) before income taxes | | $ | 227.3 |
| | $ | 205.4 |
| | $ | 219.0 |
|
The Company also has a working capital loan agreement with a third-party financial institution in Brazil. The principal balance on the loan is due by February 2020 with interest only payments being made until the due date. As of December 31, 2017, borrowings under the Brazilian third-party loan totaled $6.6 million. During 2017, the Company made no additional borrowings or principal payments.
Fair Value of Long-Term Debt
The Company’s outstanding 5.00% Notes had a fair value of $567.9 million and $548.4 million as of December 31, 2017 and December 31, 2016, respectively. The Company’s outstanding 5.25% Notes had a fair value of $310.9 million and $297.0
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
million
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as of December 31, 2017the Tax Act. Generally effective January 1, 2018, the Tax Act made broad and December 31, 2016, respectively. The carrying value of the Company’s fixed interest rate borrowings included in real estate related and other long-term debt totaled $86.8 million and $93.9 million as of December 31, 2017 and December 31, 2016, respectively. The fair value of such fixed interest rate borrowings was $92.9 million and $94.5 million as of December 31, 2017 and December 31, 2016, respectively. The fair value estimates are based on Level 2 inputs of the fair value hierarchy available as of December 31, 2017 and December 31, 2016. The Company determined the estimated fair value of its long-term debt using available market information and commonly accepted valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a material effect on estimated fair values. The carrying value of the Company’s variable rate debt approximates fair value duecomplex changes to the short-term natureU.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, and creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries.
Federal, state and foreign income tax (benefits) provisions were as follows (in millions): |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Federal: | | | | | | |
| Current | | $ | 30.9 |
| | $ | 35.9 |
| | $ | 44.9 |
|
| Deferred | | 16.5 |
| | 2.6 |
| | (46.9 | ) |
| State: | | | | | | |
| Current | | 3.8 |
| | 4.3 |
| | 3.8 |
|
| Deferred | | 4.0 |
| | 0.9 |
| | 3.9 |
|
| Foreign: | | | | | | |
| Current | | 2.3 |
| | 3.9 |
| | 2.9 |
|
| Deferred | | (4.3 | ) | | — |
| | (3.0 | ) |
| (Benefit) provision for income taxes | | $ | 53.3 |
| | $ | 47.6 |
| | $ | 5.6 |
|
Actual income tax expense differed from income tax expense computed by applying the applicable U.S. federal statutory corporate tax rate of 21.0% in 2019 and 2018 and 35% in 2017 to income before income taxes, as follows (in millions): |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Provision at the U.S. federal statutory rate | | $ | 47.7 |
| | $ | 43.1 |
| | $ | 76.7 |
|
| Increase (decrease) resulting from: | | | | | | |
| State income tax, net of benefit for federal deduction | | 5.2 |
| | 3.6 |
| | 4.5 |
|
| Foreign income tax rate differential | | 0.9 |
| | (0.3 | ) | | (2.4 | ) |
| Tax Credits | | (1.1 | ) | | (1.3 | ) | | (0.9 | ) |
| Changes in valuation allowances | | (1.7 | ) | | 3.4 |
| | 0.6 |
|
| Tax Act - Enactment date effect | | — |
| | (0.6 | ) | | (73.0 | ) |
| Stock-based compensation | | — |
| | (0.1 | ) | | (0.1 | ) |
| Uncertain tax benefits | | 0.7 |
| | 0.4 |
| | 0.8 |
|
| Other | | 1.6 |
| | (0.7 | ) | | (0.5 | ) |
| (Benefit) provision for income taxes | | $ | 53.3 |
| | $ | 47.6 |
|
| $ | 5.6 |
|
For the interest rates.
All Long-Term Debt
Total interest expense on the 5.00% Notes and 5.25% Notes for the yearsyear ended December 31, 2017, 2016,2019, the Company recorded a tax provision of $53.3 million. The Company recognizes the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, the Company has not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period. For the year ended December 31, 2019, the Company estimated it has no GILTI tax liability.
The Company's 2019 effective income tax rate was more than the U.S. federal statutory rate of 21.0%, due primarily to: (1) the taxes provided for in U.S. state jurisdictions; and 2015 was $43.3 million, $43.3 million, and $28.5 million, respectively, excluding amortization of discounts and capitalized cost of $2.2 million, $2.1 million, and $1.5 million, respectively.
Total interest expense on real estate related(2) valuation allowances provided for net operating losses and other long-term debt, as well asdeferred tax assets in certain U.S. states, partially offset by: (1) reduced valuation allowances provided for net operating losses in Brazil; and (2) tax credits. As a result of these items recorded in 2019 compared to the Acquisition Line,2018 items discussed below, the effective tax rate for the yearsyear ended December 31, 20172019 increased to 23.4%, 2016 and 2015, was $15.0 million, $13.7 million and $17.6 million, respectively. These amounts exclude the impact of the interest rate derivative instruments relatedas compared to various real estate related mortgage loans of $1.9 million, $2.3 million, and $1.8 million23.2% for the yearsyear ended December 31, 2017, 2016, and 2015, respectively.2018.
In addition, the Company recognized $8.2 million, $6.6 million and $7.6 million of total interest expense related to capital leases and various other notes payable, net of interest income, for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company capitalized $1.6 million, $1.7 million, and $0.7 million of interest on construction projects in 2017, 2016 and 2015, respectively.
The aggregate annual maturities of long-term debt, excluding unamortized capitalized debt issuance costs of $3.5 million, for the next five years are as follows:
|
| | | |
| | Total |
| | (In thousands) |
| Year Ended December 31, | |
| 2018 | $ | 39,721 |
|
| 2019 | 86,967 |
|
| 2020 | 55,170 |
|
| 2021 | 86,336 |
|
| 2022 | 589,406 |
|
| Thereafter | 503,634 |
|
| Total | $ | 1,361,234 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. FAIR VALUE MEASUREMENTS
ASC 820 defines fair value asThe Company's 2018 effective income tax rate was more than the price that would be receivedU.S. federal statutory rate of 21.0%, due primarily to: (1) the taxes provided for in U.S. state jurisdictions; and (2) valuation allowances provided for net operating losses and other deferred tax assets in certain U.S. states and in Brazil, partially offset by: (1) income generated in the saleU.K., which is taxed at a 19.0% statutory rate; (2) employment tax credits; and (3) the enactment date adjustments from the Tax Act. As a result of an asset or paidthese items recorded in 2018 compared to transferthe 2017 items discussed below, the effective tax rate for the year ended December 31, 2018 increased to 23.2%, as compared to 2.5% for the year ended December 31, 2017.
During 2017, the Company recorded a liability in an orderly transaction between market participants attax provision of $5.6 million. This included the measurement date; requires disclosuretax benefit for the deferred tax impact of the extentTax Act noted above, as well as excess tax deductions for restricted stock resulting from the adoption of ASU 2016-09, which were partially offset by certain expenses for stock-based compensation recorded in 2017 that were non-deductible for income tax purposes. For the year ended December 31, 2017, the Company also provided valuation allowances with respect to which fair value is useddeferred tax assets primarily relating to measuregoodwill and net operating losses of certain Brazil subsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of these items, the effective tax rate for the year ended December 31, 2017 was 2.5%.
Deferred income tax provisions resulted from temporary differences in the recognition of income and expenses for financial reporting purposes and non-financial assets and for tax purposes. The tax effects of these temporary differences representing deferred tax assets/liabilities resulted principally from the inputs utilized in calculating valuation measurements, and the effectfollowing (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Deferred tax assets: | | | | |
| Loss reserves and accruals | | $ | 42.8 |
| | $ | 41.8 |
|
| Interest rate swaps | | 1.3 |
| | — |
|
| U.S. state net operating loss (“NOL”) carryforwards | | 38.2 |
| | 17.9 |
|
| Depreciation expense | | — |
| | 0.4 |
|
| Foreign NOL carryforwards | | 37.6 |
| | 37.6 |
|
| Operating lease liabilities | | 55.5 |
| | — |
|
| Other | | 1.5 |
| | 0.1 |
|
| Deferred tax assets | | 176.9 |
| | 97.8 |
|
| Valuation allowance on deferred tax assets | | (69.7 | ) | | (52.3 | ) |
| Net deferred tax assets | | $ | 107.2 |
| | $ | 45.6 |
|
| Deferred tax liabilities: | | | | |
| Goodwill and intangible franchise rights | | $ | (135.1 | ) | | $ | (123.7 | ) |
| Depreciation expense | | (68.0 | ) | | (50.2 | ) |
| Interest rate swaps | | — |
| | (2.8 | ) |
| Operating lease ROU assets | | (45.4 | ) | | — |
|
| Other | | — |
| | (0.1 | ) |
| Deferred tax liabilities | | (248.5 | ) | | (176.7 | ) |
| Net deferred tax liability | | $ | (141.3 | ) | | $ | (131.1 | ) |
The classification of the measurementCompany’s net deferred tax liability within the Consolidated Balance Sheets is as follows (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
Deferred tax asset, included in Other long-term assets | | $ | 4.4 |
| | $ | 3.6 |
|
Deferred tax liability, included in Deferred income taxes | | (145.7 | ) | | (134.7 | ) |
| Net deferred tax liability | | $ | (141.3 | ) | | $ | (131.1 | ) |
As of significant unobservable inputs on earnings, or changes in net assets, as ofDecember 31, 2019, the measurement date; and establishes a three-level valuation hierarchy based upon the transparency of inputs utilizedCompany had state pre-tax NOL carryforwards in the measurementU.S. of $620.1 million that will expire between 2020 and valuation2039, and foreign pre-tax NOL carryforwards of financial assets or liabilities as of$113.2 million that may be carried forward indefinitely. To the measurement date:
Level 1 — unadjusted, quoted prices for identical assets or liabilities in active markets;
Level 2 — quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in marketsextent that arethe Company expects that net income will not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and
Level 3 — unobservable inputs based upon the reporting entity’s internally developed assumptions that market participants would use in pricing the asset or liability.
The Company’s financial instruments consist primarily of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, investments in debt and equity securities, accounts payable, credit facilities, long-term debt and interest rate swaps. The fair values of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, and credit facilities approximate their carrying values duesufficient to the short-term nature ofrealize these instruments and/or the existence of variable interest rates. The Company evaluated its assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework of ASC 820 and identified demand obligations, interest rate derivative instruments, and investment balancesNOLs in certain financial institutions as having met such criteria.jurisdictions, a valuation allowance has been established.
The Company periodically invests in unsecured, corporate demand obligations with manufacturer-affiliated finance companies, which bear interest at a variable rate and are redeemable on demand by the Company. Therefore, the Company has classified these demand obligations as cash and cash equivalents in theaccompanying Consolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices, that are observable or that can be corroborated by observable data by correlation. Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.
In addition, the Company maintains an investment balance with certain of the financial institutions in Brazil that provide credit facilities for the financing of new, used and rental vehicle inventories. The investment balances bear interest at a variable rate and are redeemable by the Company in the future under certain conditions. The Company has classified these investment balances as long-term assets in the accompanying Consolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices, that are observable or that can be corroborated by observable data by correlation. Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.
Refer to Note 2 of the Consolidated Financial Statements, “Summary of Significant Accounting Policies and Estimates,” for more information on fair value measurements of interest rate derivative instruments.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Asset and liabilities recorded at fair value, within LevelThe Company believes it is more likely than not that its deferred tax assets, net of valuation allowances provided, will be realized, based primarily on its expectation of future taxable income, considering future reversals of existing taxable temporary differences.
As of December 31, 2019, the Company had 2 controlled foreign corporations that own its foreign operations (the “Foreign Subsidiaries”). The Company has not provided for U.S. deferred taxes on the outside basis differences of its Foreign Subsidiaries, as the Company has taken the position that its investment in the Foreign Subsidiaries will be permanently reinvested outside the U.S. The book basis for one of the hierarchy framework,Company’s Foreign Subsidiaries that consists of the Company’s U.K. operations exceeded the tax basis by approximately $21.9 million, as of December 31, 2019. If a taxable event resulting in the accompanyingrecognition of these outside basis differences occurred, the resulting tax would not be material.
Based on the statutes of limitations in the applicable jurisdiction in which the Company operates, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2015, by U.K. tax authorities in years prior to 2015 and by Brazil tax authorities in years prior to 2014.
A reconciliation of the Company’s unrecognized tax benefits is as follows (in millions): |
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Balance at January 1 | $ | 1.6 |
| | $ | 1.2 |
| | $ | — |
|
| Additions for current tax | 1.0 |
| | 0.6 |
| | 1.2 |
|
| Additions based on tax positions in prior years | — |
| | — |
| | — |
|
| Reductions for tax positions | — |
| | — |
| | — |
|
| Settlements with tax authorities | — |
| | — |
| | — |
|
| Reductions due to lapse of statutes of limitations | (0.2 | ) | | (0.1 | ) | | — |
|
| Balance at December 31 | $ | 2.4 |
| | $ | 1.6 |
| | $ | 1.2 |
|
Included in the balance sheetsof unrecognized tax benefits as of December 31, 20172019, 2018 and 2016,2017, are $2.1 million, $1.4 million and $1.0 million, respectively, were as follows:of tax benefits that would affect the effective tax rate if recognized.
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
| Assets: | | | |
| Investments | $ | 844 |
| | $ | 3,254 |
|
| Demand obligations | 13 |
| | 12 |
|
| Interest rate derivative financial instruments | 9,501 |
| | 9,484 |
|
| Total | $ | 10,358 |
| | $ | 12,750 |
|
| Liabilities: | | | |
| Interest rate derivative financial instruments | $ | 10,579 |
| | $ | 24,411 |
|
| Total | $ | 10,579 |
| | $ | 24,411 |
|
14.15. EMPLOYEE SAVINGS PLANS
The Company has a deferred compensation plan to provide select employees and non-employee members of the Company’s Board of Directors with the opportunity to accumulate additional savings for retirement on a tax-deferred basis (“Deferred Compensation Plan”). Participants in the Deferred Compensation Plan are allowed to defer receipt of a portion of their salary, compensation or bonus, or in the case of the Company’s non-employee directors, annual retainer and meeting fees earned. The participants can choose from various defined investment options to determine their earnings crediting rate. However, the Company has complete discretion over how the funds are utilized. Participants in the Deferred Compensation Plan are unsecured creditors of the Company. The balances due to participants of the Deferred Compensation Plan as of December 31, 2019 and 2018 were $72.3 million and $61.9 million, respectively, with $3.3 million and $0.8 million classified as current for each respective period.
The Company offers a 401(k) plan to eligible employees and provides a matching contribution to employees that participate in the plan. For the years ended December 31, 2019 and 2018, the matching contributions paid by the Company totaled $6.6 million and $6.2 million, respectively.
16. COMMITMENTS AND CONTINGENCIES
From time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, as well as claims involving the manufacturermanufacturers of automobiles, contractual disputes and other matters arising in the ordinary course of business. Due to the nature of the automotive retailing business, theThe Company may be involved in legal proceedings or suffer losses that could have a material adverse effect on the Company’s business. In the normal course of business, the Company is required to respond to customer, employee and other third-party complaints. Amounts that have been accrued or paid related to the settlement of litigation are included in SG&A expenses in the Company’s Consolidated Statements of Operations. In addition, the manufacturers of the vehicles that the Company sells and services have audit rights allowing them to review the validity of amounts claimed for incentive, rebate, or warranty-related items and charge the Company back for amounts determined to be invalid payments under the manufacturers’ programs, subject to the Company’s right to appeal any such decision. Amounts that have been accrued or paid related to the settlement of manufacturer chargebacks of recognized incentives and rebates are included in cost of sales in the Company’s Consolidated Statements of Operations, while such amounts for manufacturer chargebacks of recognized warranty-related items are included as a reduction of revenues in the Company’s Consolidated Statements of Operations.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Legal Proceedings
In September 2015, Volkswagen admitted that certainAs of its diesel models were intentionally programmed to meet various regulatory emissions standards only during laboratory emissions testing. In late June 2016, Volkswagen agreed to pay up to an aggregate of $14.7 billion to settle claims stemming from the diesel emissions scandal, including claims from customers and automotive dealers. In October 2016, a U.S. Federal judge approved this settlement. In September 2016, Volkswagen agreed to allocate $1.2 billion among its 652 dealers for a class settlement in exchange for their agreement not to sue Volkswagen. In October 2016,December 31, 2019, the Company received notification from Volkswagen that it is entitled to receive, in the aggregate, approximately $13.2 million in connection with the Company's current and prior ownership of seven Volkswagen dealerships in the U.S. segment to date. The Company accepted and executed the offer in the fourth quarter of 2016. As of December 31, 2017, the Company has received half of the aggregate compensation in a lump sum amount and is to receive the remaining half in 18 equal installments, of which 11 payments have been made to date. The Company recognized the entire settlement as an offset to Selling, General and Administrative Expenses in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016. In addition, as a result of Volkswagen’s agreement to repurchase customers’ vehicles in the settlement, the Company identified its potential liability as it relates to chargebacks for finance and insurance products sold by the Company to such customers. So, in conjunction with the recognition of the Company’s settlement with Volkswagen, the Company estimated its liability for these chargebacks and recognized such as an offset to the settlement for the year ended December 31, 2016. The Volkswagen brand represented 2.6% of the Company's total new vehicle retail unit sales for the twelve months ended December 31, 2017. Also, in conjunction with the Volkswagen diesel emissions scandal, Volkswagen agreed in March 2017 to settle allegations of damages by the Company relative to its three Audi branded dealerships. The Company received the cash and recognized the settlement as an offset to SG&A in the accompanying Consolidated Statements of Operations for the twelve months ended December 31, 2017.
Currently, the Company iswas not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition, or cash flows, including
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
class action lawsuits. However, the results of current, or future, matters cannot be predicted with certainty and an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition, or cash flows.
Other Matters
The Company acting through its subsidiaries, is the lessee under many real estate leases that providesold a number of dealerships to third parties and as a condition to certain of those dispositions, remains liable for the use by the Company’s subsidiaries of their respective dealership premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the lessor and other parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of theremaining lease by the lessee. Additionally, from time to time, the Company enters into agreements in connection with the sale of assets or businesses in which it agrees to indemnify the purchaser, or other parties, from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dealership dispositions, the Company’s subsidiaries sublet to the dealership purchaser the subsidiaries’ interests in any real property leases associated with such dealerships and continue to be primarily obligated on the lease. In these situations, the Company’s subsidiaries retain primary responsibility for the performance of certain obligations under such leases. To the extent that the Company remains primarily responsible under such leases, a quantificationpayments of such lease obligations is included in the Company’s disclosure of future minimum lease payments for non-cancelable operating leases in Note 18, “Operating Leases”.
In certain instances, also in connection with dealership dispositions, the Company’s subsidiaries assign to the dealership purchaser the subsidiaries’ interests in any real property leases associated with such dealerships. The Company’s subsidiaries may retain secondary responsibility for the performance of certain obligations under such leases to the extent that the assignee does not perform, if such performance is required following the assignment of the lease. Additionally, the Company and its subsidiaries may remain subject to the terms of a guaranty made by the Company and its subsidiaries in connection with such leases. In these circumstances, the Company generally has indemnification rights against the assigneedealerships in the event of non-performance under these leases, as well as certain defenses. Thenon-payment by the purchaser. Although the Company and its subsidiaries also may be called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repair of the leased premises upon termination of the lease. However, potential environmental liabilities are generally known at the time of the sale of the dealership if not previously remediated. The Company does not have any known material environmental commitments or contingencies and presently has no reason to believe that it or its subsidiaries will be called upon to perform under any such assigned leases, the Company estimates that lessee remaining rental obligations were $38.6 million as of December 31, 2019. From time-to-time, in certain instances, the Company obtains collateral support for the rental obligations that the Company remains obligated upon sale of a dealership to a lessee. Total associated letters of credit issued on to so perform. Although not estimated to be material, the Company’s exposure under these leases is difficult to estimate and there can be no assurance that any performancebehalf of the lessee where the Company or its subsidiaries required under these leases would not have a material adverse effect onis the Company’s business, financial condition, or cash flows.beneficiary, was $7.1 million as of December 31, 2019.
15. ASSET IMPAIRMENTS17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The Company performs its annual impairment assessment ofChanges in the carrying value of its goodwill and intangible franchise rights as of October 31stbalances of each year. The Company also performs interim reviewscomponent of all of its long-livedAccumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and indefinite-lived assets for impairment when evidence exists that the carrying value may not be recoverable. In the Company’s 2017 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value of its net assets (step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill. If, in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value of its goodwill for any or all of its reporting units, the Company could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). In the Company’s 2017 interim and annual impairment assessments of long-lived assets and intangible franchise rights, the Company recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:
The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized $19.3 million in aggregate pre-tax non-cash asset impairment charges during the third and fourth quarters of 2017.
In addition, the Company determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $0.2 million in pre-tax non-cash asset impairment charges.
If any of the Company’s assumptions change, or fail to materialize, the resulting decline in its estimated fair market value of intangible franchise rights could result in a material non-cash impairment charge. For example, the Company performed two separate sensitivity analyses on its 2017 annual impairment assessment of goodwill and intangible franchise rights. If the
follows (in millions):
F-33 |
| | | | | | | | | | | | |
| | | Year Ended December 31, 2019 |
| | | Accumulated income (loss) on foreign currency translation | | Accumulated income (loss) on interest rate swaps | | Total |
| Balance, December 31, 2018 | | $ | (146.7 | ) | | $ | 8.9 |
| | $ | (137.8 | ) |
| Other comprehensive income (loss) before reclassifications: | | | | | | |
| Pre-tax | | 3.9 |
| | (17.4 | ) | | (13.5 | ) |
| Tax effect | | — |
| | 4.1 |
| | 4.1 |
|
| Amounts reclassified from accumulated other comprehensive income (loss): | | | | | | |
| Floorplan interest expense (pre-tax) | | — |
| | 0.4 |
| | 0.4 |
|
| Other interest expense, net (pre-tax) | | — |
| | (0.2 | ) | | (0.2 | ) |
| Provision (benefit) for income taxes | | — |
| | (0.1 | ) | | (0.1 | ) |
| Net current period other comprehensive income (loss) | | 3.9 |
| | (13.0 | ) | | (9.2 | ) |
| Balance, December 31, 2019 | | $ | (142.9 | ) | | $ | (4.1 | ) | | $ | (147.0 | ) |
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company’s assumptions regarding the risk-free rate and cost of debt differed such that the estimated WACC used in its 2017 assessment increased by 200 basis points, and all other assumptions remained constant, an additional $33.2 million of non-cash franchise rights impairment charges would have resulted, excluding franchises acquired since the previous annual test. This additional impairment would have consisted of $33.1 million in the U.S. and $0.1 million in the U.K. The Company’s Brazil reporting unit would have failed the step one impairment test for goodwill in this scenario, while the U.S. and U.K. reporting units would have passed step one. The Company’s second sensitivity analysis represented a recessionary sales environment in the U.S., utilizing the U.S. SAAR equivalent to 2009 levels for 2018. Similar industry sales levels were also applied to the U.K. reporting unit. Relative to the Brazil reporting unit, the recessionary case forecasted revenues to be flat in 2019 and 2020, with increases for the remaining years at lower levels as compared to the base case. In this sensitivity analysis, an additional $51.8 million of non-cash franchise rights impairment charges would have resulted, including $51.0 million and $0.8 million for the U.S. and the U.K., respectively. In this scenario, none of the Company’s reporting units would have failed the step one impairment test for goodwill.
On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU. The majority vote in favor of Brexit has created uncertainty in the global markets and in the regulatory environment in the U.K., as well as the overall European Union. The impact on our financial results and operations may not be known for some time, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislative doctrine of Block Exemption to govern market representation activities of competing dealers and dealer groups. To date, there has been no clear indication of how such legislation may be effected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of these uncertainties, the estimates, assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize, the resulting decline in the estimated fair market value of such assets could result in a material non-cash impairment charge. While the Company is not aware of any changes in circumstances that has resulted in a decline in fair value of these assets at this time, the Company continues to closely monitor the situation.
In the Company’s 2016 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value of its net assets (step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill. If, in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value of its goodwill for any or all of its reporting units, the Company could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). During 2016, the Company also completed other impairment assessments on an annual and interim basis, as applicable, and recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:
The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized a $30.0 million pre-tax non-cash asset impairment charge.
In addition, the Company determined that the carrying amounts of various real estate holdings and other long-lived assets were no longer fully recoverable, and recognized $2.8 million in pre-tax non-cash asset impairment charges.
In the Company’s 2015 goodwill assessment, the fair value of its two U.S. reporting units, as well as the U.K. reporting unit, exceeded the carrying value of its net assets (i.e., step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill relating to its two U.S. and U.K. reporting units. The Brazil reporting unit’s fair value did not exceed the carrying value of its net assets. As a result, the Company performed a step two analysis for this reporting unit, measured the estimated fair value of the reporting unit’s assets and liabilities as of the test date using level 3 inputs and compared the resulting implied fair value of the reporting unit’s goodwill to its carrying value. As a result of the carrying value of goodwill exceeding the implied fair value, a $55.4 million impairment was recorded as of December 31, 2015. During 2015, the Company also completed other impairment assessments on an annual or interim basis, as applicable, and recorded the following non-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:
The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result, recognized a $30.1 million pre-tax non-cash asset impairment charge.
In addition, the Company determined that the carrying amounts of various real estate holdings were no longer recoverable, and recognized $1.3 million in pre-tax non-cash asset impairment charges.
The Company also determined that the carrying values of various other long-term assets were no longer recoverable, and recognized $0.8 million in pre-tax non-cash asset impairment charges.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, 2018 |
| | | Accumulated income (loss) on foreign currency translation | | Accumulated income (loss) on interest rate swaps | | Total |
| Balance, December 31, 2017 | | $ | (122.6 | ) | | $ | (0.7 | ) | | $ | (123.2 | ) |
| Other comprehensive income (loss) before reclassifications: | | | | | | |
| Pre-tax | | (24.2 | ) | | 8.6 |
| | (15.5 | ) |
| Tax effect | | — |
| | (2.1 | ) | | (2.1 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) to: | | | | | | |
| Floorplan interest expense (pre-tax) | | — |
| | 4.7 |
| | 4.7 |
|
| Other interest expense (pre-tax) | | — |
| | 0.5 |
| | 0.5 |
|
| Realized (gain) loss on interest rate swap termination (pre-tax) | | — |
| | (0.7 | ) | | (0.7 | ) |
| Provision (benefit) for income taxes | | — |
| | (1.2 | ) | | (1.2 | ) |
| Net current period other comprehensive income (loss) | | (24.2 | ) | | 9.8 |
| | (14.4 | ) |
| Tax effects reclassified from accumulated other comprehensive income (loss) | | — |
| | (0.2 | ) | | (0.2 | ) |
| Balance, December 31, 2018 | | $ | (146.7 | ) | | $ | 8.9 |
| | $ | (137.8 | ) |
F-34 |
| | | | | | | | | | | | |
| | | Year Ended December 31, 2017 |
| | | Accumulated income (loss) on foreign currency translation | | Accumulated income (loss) on interest rate swaps | | Total |
| Balance, December 31, 2016 | | $ | (137.6 | ) | | $ | (9.3 | ) | | $ | (146.9 | ) |
| Other comprehensive income (loss) before reclassifications: | | | | | | |
| Pre-tax | | 15.1 |
| | 1.7 |
| | 16.7 |
|
| Tax effect | | — |
| | (0.6 | ) | | (0.6 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) to: | | | | | | |
| Floorplan interest expense (pre-tax) | | — |
| | 10.3 |
| | 10.3 |
|
| Other interest expense (pre-tax) | | — |
| | 1.9 |
| | 1.9 |
|
| Provision (benefit) for income taxes | | — |
| | (4.6 | ) | | (4.6 | ) |
| Net current period other comprehensive income (loss) | | 15.1 |
| | 8.7 |
| | 23.7 |
|
| Balance, December 31, 2017 | | $ | (122.6 | ) | | $ | (0.7 | ) | | $ | (123.2 | ) |
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. INTANGIBLE FRANCHISE RIGHTS AND GOODWILL18. CASH FLOW INFORMATION
Cash, Cash Equivalents and Restricted Cash
The total amounts presented on the Company’s Consolidated Statements of Cash Flows include cash, cash equivalents and restricted cash. Restricted cash includes certain unsecured investment obligations with manufacturer-affiliated finance companies, which bear interest at a variable rate and are redeemable on demand by the Company. The following is a roll-forward of the Company’s intangible franchise rightstable reconciles cash and goodwill accounts by reportable segment:
|
| | | | | | | | | | | | | | | | |
| | | Intangible Franchise Rights |
| | | U.S. | | U.K. | | Brazil | | Total |
| | | (In thousands) |
| BALANCE, December 31, 2015 | | $ | 285,659 |
| | $ | 7,773 |
| | $ | 14,156 |
| | $ | 307,588 |
|
| Additions through acquisitions | | — |
| | 12,833 |
| | — |
| | 12,833 |
|
| Disposals | | (5,203 | ) | | — |
| | — |
| | (5,203 | ) |
| Impairments | | (19,922 | ) | | — |
| | (9,901 | ) | | (29,823 | ) |
| Currency translation | | — |
| | (3,269 | ) | | 2,750 |
| | (519 | ) |
| BALANCE, December 31, 2016 | | 260,534 |
| | 17,337 |
| | 7,005 |
| | 284,876 |
|
| Additions through acquisitions | | 8,035 |
| | 10,133 |
| | — |
| | 18,168 |
|
| Impairments | | (12,588 | ) | | — |
| | (6,744 | ) | | (19,332 | ) |
| Currency translation | | — |
| | 2,013 |
| | (93 | ) | | 1,920 |
|
| BALANCE, December 31, 2017 | | $ | 255,981 |
| | $ | 29,483 |
|
| $ | 168 |
| | $ | 285,632 |
|
The increasecash equivalents reported in the Company’s
intangible franchise rights in 2017 was primarily relatedConsolidated Balance Sheets to the
addition of franchise rights associated with the purchase of 12 dealerships in the U.K. and three dealerships in the U.S. The 2017 additions were partially offset by impairments of $12.6 million and $6.7 million in the U.S. and Brazil, respectively. The decreasetotal amounts reported in the Company’s
intangible franchise rights in 2016 was primarily related to impairments in the U.S.Consolidated Statements of Cash Flows (in millions): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Cash and cash equivalents | | $ | 23.8 |
| | $ | 15.9 |
|
Restricted cash, included in Other long-term assets | | 4.3 |
| | 2.8 |
|
| Total cash, cash equivalents and restricted cash | | $ | 28.1 |
| | $ | 18.7 |
|
Non-cash Investing and BrazilFinancing Activities
The Company accrued for purchases of $19.9property and equipment of $5.2 million and $9.9$9.2 million respectively, as a result ofat December 31, 2019 and 2018, respectively. Additionally, the Company’s interim and annual impairment assessments. The impairments were partially offset by the addition of franchise rights associated with the purchase of 12 dealershipsCompany obtained ROU assets in the U.K.exchange for lease obligations during the year ended December 31, 2016.2019. See Note 10 “Leases” for supplemental information on lease liabilities.
Interest and Income Taxes Paid |
| | | | | | | | | | | | | | | | | |
| | | Goodwill |
| | | U.S. | | U.K. | | Brazil | | Total |
| | | (In thousands) |
| BALANCE, December 31, 2015 | | $ | 809,775 |
| | $ | 35,320 |
| | $ | 9,820 |
| | $ | 854,915 |
| (1) |
| Additions through acquisitions | | — |
| | 31,644 |
| | 1,855 |
| | 33,499 |
| |
| Purchase price allocation adjustments | | 28 |
| | 1,024 |
| | — |
| | 1,052 |
| |
| Disposals | | (3,868 | ) | | — |
| | (191 | ) | | (4,059 | ) | |
| Currency translation | | — |
| | (10,934 | ) | | 2,290 |
| | (8,644 | ) | |
| BALANCE, December 31, 2016 | | 805,935 |
| | 57,054 |
|
| 13,774 |
| | 876,763 |
| (1) |
| Additions through acquisitions | | 29,332 |
| | 2,575 |
| | 95 |
| | 32,002 |
| |
| Disposals | | — |
| | — |
| | (933 | ) | | (933 | ) | |
| Currency translation | | — |
| | 5,405 |
| | (203 | ) | | 5,202 |
| |
| BALANCE, December 31, 2017 | | $ | 835,267 |
| | $ | 65,034 |
|
| $ | 12,733 |
| | $ | 913,034 |
| (1) |
(1) Net of accumulated impairment of $97.8 million
The increase inCash paid for interest, including the Company’s goodwill in 2017 was primarily related to the goodwill associated with the purchase of three dealerships in the U.S. and 12 dealerships in the U.K. and foreign currency translation adjustments in the U.K. and Brazil, partially offset by the disposal of two dealerships in Brazil. The increase in the Company’s goodwill in 2016 was primarily related to the goodwill associated with the purchase of 12 dealerships in the U.K., partially offset by foreign currency translation adjustments in the U.K. and Brazil and the disposal of five U.S. dealerships.
17. EMPLOYEE SAVINGS PLANS
The Company has a deferred compensation plan to provide select employees and non-employee membersmonthly settlement of the Company’s Board of Directors with the opportunity to accumulate additional savings for retirement on a tax-deferred basis
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(“Deferred Compensation Plan”). Participants in the Deferred Compensation Plan are allowed to defer receipt of a portion of their salary and/or bonus compensation, or in the case of the Company’s non-employee directors, annual retainer and meeting fees earned. The participants can choose from various defined investment options to determine their earnings crediting rate. However, the Company has complete discretion over how the funds are utilized. Participants in the Deferred Compensation Plan are unsecured creditors of the Company. The balances due to participants of the Deferred Compensation Plan as of December 31, 2017 and 2016 were $56.6interest rate derivatives, was $125.3 million, and $49.0 million, respectively, and are included in other liabilities in the accompanying Consolidated Balance Sheets.
The Company offers a 401(k) plan to all of its employees and provides a matching contribution to employees that participate in the plan. For the years ended December 31, 2017 and 2016, the matching contributions paid by the Company totaled $5.1 million and $5.4 million, respectively.
18. OPERATING LEASES
The Company leases various facilities and equipment under long-term operating lease agreements. Generally, our real estate and facility leases in the U.S. have 30-year total terms with initial terms of 15 years and three additional five-year terms, at our option. In the U.K. and Brazil, our real estate and facility leases generally have 20-year terms and 5-year terms, respectively.
Future minimum lease payments for non-cancelable operating leases as of December 31, 2017, are as follows:
|
| | | |
| | |
| | Total |
| | (In thousands) |
| Year Ended December 31, | |
| 2018 | $ | 42,693 |
|
| 2019 | 37,980 |
|
| 2020 | 33,692 |
|
| 2021 | 29,447 |
|
| 2022 | 25,566 |
|
| Thereafter | 158,209 |
|
Total (1) | $ | 327,587 |
|
(1) Includes $1.3 million of future, non-cancelable sublease payments to be received.Total rent expense under all operating leases was $51.8 million, $53.8 $128.6 million and $51.5$117.1 million for the years ended December 31, 2019, 2018 and 2017, 2016respectively. Cash paid for taxes, net of refunds, was $48.3 million, $40.8 million and 2015, respectively.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in the balances of each component of accumulated other comprehensive income$61.0 million for the years ended December 31, 2017, 20162019, 2018 and 2015 are as follows:
|
| | | | | | | | | | | | |
| | | Accumulated loss on foreign currency translation | | Accumulated loss on interest rate swaps | | Total |
| | | (In thousands) |
| BALANCE, December 31, 2014 | | $ | (64,075 | ) | | $ | (17,909 | ) | | $ | (81,984 | ) |
| Other comprehensive loss, net of tax | | (54,457 | ) | | (1,543 | ) | | (56,000 | ) |
| BALANCE, December 31, 2015 | | (118,532 | ) | | (19,452 | ) | | (137,984 | ) |
| Other comprehensive (loss) income, net of tax | | (19,081 | ) | | 10,121 |
| | (8,960 | ) |
| BALANCE, December 31, 2016 | | (137,613 | ) | | (9,331 | ) | | (146,944 | ) |
| Other comprehensive income, net of tax | | 15,061 |
| | 8,657 |
| | 23,718 |
|
| BALANCE, December 31, 2017 | | $ | (122,552 | ) | | $ | (674 | ) | | $ | (123,226 | ) |
20.19. SEGMENT INFORMATION
As of December 31, 2017,2019, the Company had three3 reportable segments: (1) the U.S., (2) the U.K., and (3) Brazil. The U.S. and Brazil segments are led by the President, U.S. and Brazilian Operations, and the U.K segment is led by a Managing Director, each reporting directly to the Company's Chief Executive Officer, who is the Chief Operating Decision Maker. The President, U.S. and Brazilian Operations, and the U.K Managing Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management. Each of the reportable segments is comprised of retail automotive franchises which sellsthat sell new and used cars and light trucks; arrangesarrange related vehicle financing; sellssell service insurance contracts; providesprovide automotive maintenance and repair services; and sellssell vehicle parts. The vast majority of the Company’s corporate activities are associated with the operations of the U.S. operating segmentssegment and therefore the corporate financial results are included within the U.S. reportable segment.
Reportable segment revenue, gross profit, SG&A,revenues, depreciation and amortization expense, asset impairment,expenses, floorplan interest expense, net, other interest expense, benefit (provision) for income taxes, net, income (loss) andbefore income taxes, capital expenditures wereand assets are as follows for the years ended December 31, 2017, 2016 and 2015:(in millions):
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | U.S. | | U.K. | | Brazil | | Total |
| Total revenues | $ | 9,184.2 |
|
| $ | 2,413.7 |
| | $ | 445.9 |
| | $ | 12,043.8 |
|
| Gross profit | $ | 1,494.8 |
| | $ | 267.7 |
| | $ | 53.5 |
| | $ | 1,816.0 |
|
Selling, general and administrative expenses (1) | $ | 1,075.6 |
|
| $ | 236.9 |
| | $ | 46.0 |
| | $ | 1,358.4 |
|
| Depreciation and amortization expense | $ | 55.4 |
| | $ | 14.6 |
| | $ | 1.6 |
| | $ | 71.6 |
|
| Floorplan interest expense | $ | 53.7 |
| | $ | 7.2 |
| | $ | 0.7 |
| | $ | 61.6 |
|
| Other interest expense, net | $ | 67.5 |
| | $ | 7.3 |
| | $ | 0.1 |
| | $ | 74.9 |
|
Income (loss) before income taxes (2) | $ | 227.9 |
| | $ | (5.3 | ) | | $ | 4.6 |
| | $ | 227.3 |
|
| Capital expenditures: | | | | | | | |
| Real estate related capital expenditures | $ | 63.8 |
| | $ | 25.7 |
| | $ | 3.1 |
| | $ | 92.5 |
|
Non-real estate related capital expenditures (3) | 70.7 |
| | 25.9 |
| | 2.6 |
| | 99.3 |
|
| Total capital expenditures | $ | 134.5 |
| | $ | 51.6 |
| | $ | 5.7 |
| | $ | 191.8 |
|
|
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 | |
| | U.S. | | U.K. | | Brazil | | Total | |
| | (In thousands) | |
| New vehicle retail sales | $ | 4,768,864 |
| | $ | 1,092,612 |
| | $ | 296,055 |
| | $ | 6,157,531 |
| |
| Used vehicle retail sales | 2,160,699 |
| | 546,266 |
| | 92,021 |
| | 2,798,986 |
| |
| Used vehicle wholesale sales | 250,668 |
| | 136,847 |
| | 12,655 |
| | 400,170 |
| |
| Parts and service | 1,124,380 |
| | 165,755 |
| | 47,897 |
| | 1,338,032 |
| |
| Finance, insurance and other, net | 375,954 |
| | 44,523 |
| | 8,525 |
| | 429,002 |
| |
| Total revenues | 8,680,565 |
| (1) | 1,986,003 |
| | 457,153 |
| | 11,123,721 |
| |
| Gross profit | 1,365,314 |
| | 225,253 |
| | 54,942 |
| | 1,645,509 |
| |
| Selling, general and administrative expense | 983,974 |
| (2) | 191,570 |
| | 50,651 |
| | 1,226,195 |
| |
| Depreciation and amortization expense | 48,285 |
| | 8,198 |
| | 1,453 |
| | 57,936 |
| |
| Asset impairment | 12,762 |
| | — |
| | 6,744 |
| | 19,506 |
| |
| Floorplan interest expense | (47,221 | ) | | (4,727 | ) | | (424 | ) | | (52,372 | ) | |
| Other interest expense, net | (66,493 | ) | | (3,664 | ) | | (340 | ) | | (70,497 | ) | |
| Income (loss) before income taxes | 206,579 |
| | 17,094 |
| | (4,670 | ) | | 219,003 |
| |
| (Provision) benefit for income taxes | (5,679 | ) | (3) | (2,142 | ) | | 2,260 |
| | (5,561 | ) | |
| Net income (loss) | 200,900 |
| (4) | 14,952 |
| | (2,410 | ) | (5) | 213,442 |
| |
| Capital expenditures | $ | 77,477 |
| | $ | 19,944 |
| | $ | 880 |
| | $ | 98,301 |
| |
(1) Includes the impact of chargeback reserves for finance and insurance revenues associated with catastrophic events of $6.6 million.
(2) Includes the following, pre-tax: gain on OEM settlement of $1.8 million and loss due to catastrophic events of $8.8 million.
(3) Includes a tax benefit of $73.0 million associated with a reduction in the corporate income tax rate enacted in the Tax Act.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | U.S. | | U.K. | | Brazil | | Total |
| Total revenues | $ | 8,723.3 |
| | $ | 2,437.4 |
| | $ | 440.7 |
| | $ | 11,601.4 |
|
| Gross profit | $ | 1,391.3 |
| | $ | 279.9 |
| | $ | 53.9 |
| | $ | 1,725.1 |
|
Selling, general and administrative expenses (4) | $ | 982.1 |
|
| $ | 240.4 |
| | $ | 50.6 |
|
| $ | 1,273.1 |
|
| Depreciation and amortization expense | $ | 52.9 |
| | $ | 12.6 |
| | $ | 1.6 |
| | $ | 67.1 |
|
| Floorplan interest expense | $ | 52.8 |
| | $ | 6.3 |
| | $ | 0.8 |
| | $ | 59.9 |
|
| Other interest expense, net | $ | 68.1 |
| | $ | 6.8 |
| | $ | 0.9 |
| | $ | 75.8 |
|
Income (loss) before income taxes (5) | $ | 192.1 |
| | $ | 13.3 |
| | $ | — |
| | $ | 205.4 |
|
| Capital expenditures: | | | | | | | |
| Real estate related capital expenditures | $ | 20.5 |
| | $ | 5.0 |
| | $ | 5.8 |
| | $ | 31.4 |
|
Non-real estate related capital expenditures (3) | 80.2 |
| | 27.5 |
| | 2.0 |
| | 109.6 |
|
| Total capital expenditures | $ | 100.7 |
| | $ | 32.5 |
| | $ | 7.8 |
| | $ | 141.0 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | U.S. | | U.K. | | Brazil | | Total |
| Total revenues | $ | 8,680.6 |
| | $ | 1,986.0 |
| | $ | 457.2 |
| | $ | 11,123.7 |
|
| Gross profit | $ | 1,365.3 |
| | $ | 225.3 |
| | $ | 54.9 |
| | $ | 1,645.5 |
|
| Selling, general and administrative expenses | $ | 984.0 |
|
| $ | 191.6 |
| | $ | 50.7 |
| | $ | 1,226.2 |
|
| Depreciation and amortization expense | $ | 48.3 |
| | $ | 8.2 |
| | $ | 1.5 |
| | $ | 57.9 |
|
| Floorplan interest expense | $ | 47.2 |
| | $ | 4.7 |
| | $ | 0.4 |
| | $ | 52.4 |
|
| Other interest expense, net | $ | 66.5 |
| | $ | 3.7 |
| | $ | 0.3 |
| | $ | 70.5 |
|
Income (loss) before income taxes (6) | $ | 206.6 |
| | $ | 17.1 |
| | $ | (4.7 | ) | | $ | 219.0 |
|
| Capital expenditures: | | | | | | | |
| Real estate related capital expenditures | $ | 101.8 |
| | $ | 1.7 |
| | $ | 6.9 |
| | $ | 110.4 |
|
Non-real estate related capital expenditures (7) | 84.3 |
| | 20.9 |
| | 0.2 |
| | 105.4 |
|
| Total capital expenditures | $ | 186.1 |
| | $ | 22.6 |
| | $ | 7.1 |
| | $ | 215.8 |
|
(4)(1) Includes SG&A expenses for the after-tax impactyear ended December 31, 2019 includes $17.8 million of expense in the items notedU.S. segment related to flood damage from Tropical Storm Imelda and hail storm damages primarily in Texas.
(2) Income (loss) before taxes for the year ended December 31, 2019 includes the SG&A expenses described in note 1 above and the after-tax non-cashadditionally includes asset impairment charges of $8.0 million.$14.7 million in the U.S. segment, $7.0 million in the U.K. segment and $0.5 million in the Brazil segment.
(5) (3)Includes after-tax non-cash asset impairment charges Non-real estate related capital expenditures exclude the net decrease (increase) in the accrual for capital expenditures of $4.4 million.$4.1 million, ($0.5 million) and $7.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. |
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 | |
| | U.S. | | U.K. | | Brazil | | Total | |
| | (In thousands) | |
| New vehicle retail sales | $ | 4,766,047 |
| | $ | 987,538 |
| | $ | 292,490 |
| | $ | 6,046,075 |
| |
| Used vehicle retail sales | 2,242,508 |
| | 434,203 |
| | 81,002 |
| | 2,757,713 |
| |
| Used vehicle wholesale sales | 276,710 |
| | 121,747 |
| | 3,406 |
| | 401,863 |
| |
| Parts and service | 1,071,651 |
| | 143,362 |
| | 46,294 |
| | 1,261,307 |
| |
| Finance, insurance and other, net | 377,756 |
| | 36,305 |
| | 6,593 |
| | 420,654 |
| |
| Total revenues | 8,734,672 |
| | 1,723,155 |
| | 429,785 |
| | 10,887,612 |
| |
| Gross profit | 1,355,349 |
| | 192,982 |
| | 46,738 |
| | 1,595,069 |
| |
| Selling, general and administrative expense | 965,139 |
| (1) | 158,636 |
| | 46,988 |
| (3) | 1,170,763 |
| |
| Depreciation and amortization expense | 43,472 |
| | 6,594 |
| | 1,168 |
| | 51,234 |
| |
| Asset impairment | 21,794 |
| | 201 |
| | 10,843 |
| | 32,838 |
| |
| Floorplan interest expense | (40,444 | ) | | (4,222 | ) | | (261 | ) | | (44,927 | ) | |
| Other interest expense, net | (62,320 | ) | | (5,197 | ) | | (419 | ) | | (67,936 | ) | |
| Income (loss) before income taxes | 222,180 |
| | 18,132 |
| | (12,941 | ) | | 227,371 |
| |
| (Provision) benefit for income taxes | (82,541 | ) | | (3,697 | ) | | 5,932 |
| | (80,306 | ) | |
| Net income (loss) | 139,639 |
| (2) | 14,435 |
| | (7,009 | ) | (4) | 147,065 |
| |
| Capital expenditures | $ | 86,692 |
| | $ | 12,602 |
| | $ | 1,312 |
| | $ | 100,606 |
| |
(1)(4) Includes SG&A expenses for the following, pre-tax:year ended December 31, 2018 includes a $25.2 million net gain on OEM settlement of $11.7 million, loss due to catastrophic events of $5.9 million, a net gaindisposition on real estate and dealership transactions and $6.4 million of $2.7expense related to catastrophic events mainly as a result of hail storms in the U.S. segment and a $3.7 million gain on legal settlements in the Brazil segment.
(5) Income (loss) before taxes for the year ended December 31, 2018 includes the SG&A expenses described in note 4 above and severance costs of $1.8 million.
(2) Includes the following, after tax: non-cashadditionally includes asset impairment charges of $13.5$43.4 million gain on OEM settlementin in the U.S. segment and $0.5 million in the U.K. segment.
(6) SG&A expenses for the year ended December 31, 2017 includes $15.3 million of $7.3 million, loss dueexpense related to catastrophic events mainly as a result of $3.7 million, net gain on real estateHurricane Harvey in the U.S. segment.
(7) Income (loss) before taxes for the year ended December 31, 2017the SG&A expenses described in note 6 above and dealership transactions of $1.7 million, and severance costs of $1.2 million.
(3) Includes pre-tax loss on real estate and dealership transactions of $0.8 million.
(4) Includes after-tax non-cashadditionally includes asset impairment charges of $6.9$12.8 million of in the U.S. segment and a foreign deferred income tax benefit of $1.7 million.$6.7 million in the Brazil segment.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | U.S. | | U.K. | | Brazil | | Total |
| Property and equipment, net | | $ | 1,251.4 |
| | $ | 271.0 |
| | $ | 24.7 |
| | $ | 1,547.1 |
|
| Operating lease assets | | $ | 114.8 |
| | $ | 100.1 |
| | $ | 5.2 |
| | $ | 220.1 |
|
| Total assets | | $ | 4,256.1 |
| | $ | 1,225.6 |
| | $ | 88.6 |
| | $ | 5,570.2 |
|
|
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 | |
| | U.S. | | U.K. | | Brazil | | Total | |
| | (In thousands) | |
| New vehicle retail sales | $ | 4,989,290 |
| | $ | 641,888 |
| | $ | 370,128 |
| | $ | 6,001,306 |
| |
| Used vehicle retail sales | 2,204,728 |
| | 351,311 |
| | 82,930 |
| | 2,638,969 |
| |
| Used vehicle wholesale sales | 289,580 |
| | 100,706 |
| | 6,965 |
| | 397,251 |
| |
| Parts and service | 1,032,960 |
| | 102,183 |
| | 51,050 |
| | 1,186,193 |
| |
| Finance, insurance and other, net | 377,432 |
| | 24,117 |
| | 7,237 |
| | 408,786 |
| |
| Total revenues | 8,893,990 |
| | 1,220,205 |
| | 518,310 |
| | 10,632,505 |
| |
| Gross profit | 1,338,947 |
| | 137,646 |
| | 57,379 |
| | 1,533,972 |
| |
| Selling, general and administrative expense | 958,608 |
| (1) | 108,719 |
| | 53,506 |
| | 1,120,833 |
| |
| Depreciation and amortization expense | 41,220 |
| | 4,307 |
| | 1,712 |
| | 47,239 |
| |
| Asset impairment | 18,983 |
| | 330 |
| | 68,249 |
| | 87,562 |
| |
| Floorplan interest expense | (36,062 | ) | | (2,276 | ) | | (926 | ) | | (39,264 | ) | |
| Other interest expense, net | (52,277 | ) | | (3,135 | ) | | (1,491 | ) | | (56,903 | ) | |
| Income before income taxes | 231,797 |
| | 18,879 |
| | (68,505 | ) | | 182,171 |
| |
| (Provision) benefit for income taxes | (89,433 | ) | | (3,655 | ) | | 4,916 |
| | (88,172 | ) | |
| Net income (loss) | 142,364 |
| (2) | 15,224 |
| | (63,589 | ) | (3) | 93,999 |
| |
| Capital expenditures | $ | 97,504 |
| | $ | 9,395 |
| | $ | 333 |
| | $ | 107,232 |
| |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | U.S. | | U.K. | | Brazil | | Total |
| Property and equipment, net | | $ | 1,124.6 |
| | $ | 199.0 |
| | $ | 24.3 |
| | $ | 1,347.8 |
|
| Total assets | | $ | 4,113.0 |
| | $ | 756.4 |
| | $ | 131.7 |
| | $ | 5,001.1 |
|
(1) IncludesSee Note 11 “Intangible Franchise Rights and Goodwill” for details of the following, pre-tax: loss due to catastrophic events of $1.6 million, a net gain on real estate and dealership transactions of $8.9 million, and legal items of $1.0 million.
(2) Includes the following, after tax: loss due to catastrophic events of $1.0 million, net gain on real estate and dealership transactions of $5.5 million, and non-cash asset impairment charges of $12.0 million.
(3) Includes after-tax non-cash asset impairment charges of $62.4 million.
Goodwill andCompany’s intangible franchise rights and total assetsgoodwill by reportable segment were as follows:segment.
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2017 |
| | | U.S. | | U.K. | | Brazil | | Total |
| | | (In thousands) |
| Goodwill and intangible franchise rights | | $ | 1,091,248 |
| | $ | 94,517 |
| | $ | 12,901 |
| | $ | 1,198,666 |
|
| Total assets | | $ | 4,087,039 |
| | $ | 654,154 |
| | $ | 129,872 |
| | $ | 4,871,065 |
|
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2016 |
| | | U.S. | | U.K. | | Brazil | | Total |
| | | (In thousands) |
| Goodwill and intangible franchise rights | | $ | 1,066,469 |
| | $ | 74,391 |
| | $ | 20,779 |
| | $ | 1,161,639 |
|
| Total assets | | $ | 3,855,701 |
| | $ | 482,937 |
| | $ | 123,265 |
| | $ | 4,461,903 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter | | |
| | | First | | Second | | Third | | Fourth | | Full Year |
| | | (In thousands, except per share data) |
| Year Ended December 31, | | | | | | | | | | |
| 2017 | | | | | | | | | | |
| Total revenues | | $ | 2,518,829 |
| | $ | 2,672,195 |
| | $ | 3,012,292 |
| | $ | 2,920,405 |
| | $ | 11,123,721 |
|
| Gross profit | | 383,522 |
| | 404,892 |
| | 431,420 |
| | 425,675 |
| | 1,645,509 |
|
| Net income | | 33,939 |
| | 39,133 |
| | 29,881 |
| | 110,489 |
| | 213,442 |
|
Basic earnings per share (1) | | 1.58 |
| | 1.84 |
| | 1.43 |
| | 5.27 |
| | 10.08 |
|
Diluted earnings per share (1) | | 1.58 |
| | 1.84 |
| | 1.43 |
| | 5.27 |
| | 10.08 |
|
| 2016 | | | | | | | | | | |
| Total revenues | | $ | 2,608,355 |
| | $ | 2,782,449 |
| | $ | 2,823,176 |
| | $ | 2,673,632 |
| | $ | 10,887,612 |
|
| Gross profit | | 389,101 |
| | 410,119 |
| | 406,668 |
| | 389,181 |
| | 1,595,069 |
|
| Net income | | 34,291 |
| | 46,580 |
| | 35,366 |
| | 30,828 |
| | 147,065 |
|
Basic earnings per share (1) | | 1.47 |
| | 2.12 |
| | 1.65 |
| | 1.44 |
| | 6.67 |
|
Diluted earnings per share (1) | | 1.47 |
| | 2.12 |
| | 1.65 |
| | 1.44 |
| | 6.67 |
|
(1) The sum of the quarterly income per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on the respective weighted average common shares outstanding.During the third and fourth quarters of 2017, the Company incurred charges of $9.5 million and $10.0 million, respectively, related to the impairment of assets. Included in these charges for the third and fourth quarters were impairments of the Company’s intangible assets of $9.5 million and $9.8 million, respectively. Also included in the third quarter was $14.7 million related to chargeback expense for reserves associated with expected finance and insurance product cancellations and property damage as a result of Hurricanes Harvey and Irma.
During the first, second, third and fourth quarters of 2016, the Company incurred charges of $0.9 million, $1.0 million, $10.9 million and $20.0 million, respectively, related to the impairment of assets. Included in these charges for the first, third, and fourth quarters were impairments of the Company’s intangible assets of $0.2 million, $10.6 million, and $19.2 million, respectively. In addition, during 2016, the Company sold five dealerships in the U.S., four dealerships in Brazil and one dealership in the U.K., and recognized an aggregate net pre-tax gain of $2.2 million, excluding related asset impairments of $0.6 million.
For more information on non-cash impairment charges, refer to Note 15, “Asset Impairments.”
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
22.20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables include condensed consolidating financial information as of December 31, 20172019 and 2016,2018, and for each of the years in the three-year period ended December 31, 2017,2019, for Group 1 Automotive, Inc.’s (as issuer of the 5.00% Notes), guarantor subsidiaries and non-guarantor subsidiaries (representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, statement of operations and cash flows items that are not necessarily indicative of the financial position, results of operations or cash flows of these entities had they operated on a stand-alone basis. In accordance with Rule 3-10 of Regulation S-X, condensed consolidated financial statements of non-guarantors are not required. The Company has no assets or operations independent of its subsidiaries. Obligations under the 5.00% Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by the Company’s current 100%-owned domestic subsidiaries and certain of the Company’s future domestic subsidiaries, with the exception of the Company’s “minor” subsidiaries (as defined by Rule 3-10 of Regulation S-X). There are no significant restrictions on the ability of the Company or subsidiary guarantors for the Company to obtain funds from its subsidiary guarantors by dividend or loan. None of the subsidiary guarantors’ assets represent restricted assets pursuant to SEC Rule 4-08(e)(3) of Regulation S-X.
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
As of December 31, 20172019
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| | (In thousands) |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 10,096 |
| | $ | 18,691 |
| | $ | — |
| | $ | 28,787 |
|
| Contracts-in-transit and vehicle receivables, net | — |
| | 266,788 |
| | 39,645 |
| | — |
| | 306,433 |
|
| Accounts and notes receivable, net | — |
| | 144,872 |
| | 43,739 |
| | — |
| | 188,611 |
|
| Intercompany accounts receivable | 26,988 |
| | 12,948 |
| | — |
| | (39,936 | ) | | — |
|
| Inventories, net | — |
| | 1,434,852 |
| | 328,441 |
| | — |
| | 1,763,293 |
|
| Prepaid expenses and other current assets | 1,934 |
| | 8,378 |
| | 31,750 |
| | — |
| | 42,062 |
|
| Total current assets | 28,922 |
|
| 1,877,934 |
|
| 462,266 |
|
| (39,936 | ) | | 2,329,186 |
|
| PROPERTY AND EQUIPMENT, net | — |
| | 1,121,108 |
| | 197,851 |
| | — |
| | 1,318,959 |
|
| GOODWILL | — |
| | 835,268 |
| | 77,766 |
| | — |
| | 913,034 |
|
| INTANGIBLE FRANCHISE RIGHTS | — |
| | 255,980 |
| | 29,652 |
| | — |
| | 285,632 |
|
| INVESTMENT IN SUBSIDIARIES | 2,999,407 |
| | — |
| | — |
| | (2,999,407 | ) | | — |
|
| OTHER ASSETS | — |
| | 13,682 |
| | 10,572 |
| | — |
| | 24,254 |
|
| Total assets | $ | 3,028,329 |
| | $ | 4,103,972 |
| | $ | 778,107 |
| | $ | (3,039,343 | ) | | $ | 4,871,065 |
|
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Floorplan notes payable — credit facility and other | $ | — |
| | $ | 1,219,844 |
| | $ | 20,851 |
| | $ | — |
| | $ | 1,240,695 |
|
| Offset account related to floorplan notes payable - credit facility | — |
| | (86,547 | ) | | — |
| | — |
| | (86,547 | ) |
| Floorplan notes payable — manufacturer affiliates | — |
| | 272,563 |
| | 124,620 |
| | — |
| | 397,183 |
|
| Offset account related to floorplan notes payable - manufacturer affiliates | — |
| | (22,500 | ) | | — |
| | — |
| | (22,500 | ) |
| Current maturities of long-term debt and short-term financing | 24,741 |
| | 31,229 |
| | 21,639 |
| | — |
| | 77,609 |
|
| Current liabilities from interest rate risk management activities | — |
|
| 1,996 |
|
| — |
|
| — |
|
| 1,996 |
|
| Accounts payable | — |
| | 229,470 |
| | 183,511 |
| | — |
| | 412,981 |
|
| Intercompany accounts payable | 890,995 |
| | — |
| | 39,936 |
| | (930,931 | ) | | — |
|
| Accrued expenses | — |
| | 150,241 |
| | 26,829 |
| | — |
| | 177,070 |
|
| Total current liabilities | 915,736 |
|
| 1,796,296 |
|
| 417,386 |
|
| (930,931 | ) | | 2,198,487 |
|
| LONG-TERM DEBT, net of current maturities | 865,202 |
| | 360,526 |
| | 92,456 |
| | — |
| | 1,318,184 |
|
| LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES | — |
| | 8,583 |
| | — |
| | — |
| | 8,583 |
|
| DEFERRED INCOME TAXES AND OTHER LIABILITIES | (117 | ) | | 210,216 |
| | 11,430 |
| | — |
| | 221,529 |
|
| STOCKHOLDERS’ EQUITY: | | | | | | | | |
|
|
| Group 1 stockholders’ equity | 1,247,508 |
| | 2,619,346 |
| | 256,835 |
| | (2,999,407 | ) | | 1,124,282 |
|
| Intercompany note receivable | — |
| | (890,995 | ) | | — |
| | 890,995 |
| | — |
|
| Total stockholders’ equity | 1,247,508 |
|
| 1,728,351 |
|
| 256,835 |
|
| (2,108,412 | ) | | 1,124,282 |
|
| Total liabilities and stockholders’ equity | $ | 3,028,329 |
|
| $ | 4,103,972 |
|
| $ | 778,107 |
|
| $ | (3,039,343 | ) | | $ | 4,871,065 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 5.6 |
| | $ | 18.2 |
| | $ | — |
| | $ | 23.8 |
|
| Contracts-in-transit and vehicle receivables, net | — |
| | 211.0 |
| | 42.8 |
| | — |
| | 253.8 |
|
| Accounts and notes receivable, net | 0.4 |
| | 177.0 |
| | 47.7 |
| | — |
| | 225.1 |
|
| Intercompany accounts receivable | 72.3 |
| | 99.0 |
| | 1.0 |
| | (172.3 | ) | | — |
|
| Inventories, net | — |
| | 1,498.5 |
| | 403.2 |
| | — |
| | 1,901.7 |
|
| Prepaid and other current assets | 2.0 |
| | 31.0 |
| | 78.9 |
| | — |
| | 111.9 |
|
| TOTAL CURRENT ASSETS | 74.7 |
| | 2,022.1 |
| | 591.8 |
| | (172.3 | ) | | 2,516.3 |
|
| Property and equipment, net | — |
| | 1,251.4 |
| | 295.7 |
| | — |
| | 1,547.1 |
|
| Operating lease assets | — |
| | 114.8 |
| | 105.3 |
| | — |
| | 220.1 |
|
| Goodwill | — |
| | 902.3 |
| | 106.0 |
| | — |
| | 1,008.3 |
|
| Intangible franchise rights | — |
| | 223.0 |
| | 30.5 |
| | — |
| | 253.5 |
|
| Investment in subsidiaries | 3,393.2 |
| | — |
| | — |
| | (3,393.2 | ) | | — |
|
| Other long-term assets | — |
| | 14.9 |
| | 9.9 |
| | — |
| | 24.8 |
|
| TOTAL ASSETS | $ | 3,467.9 |
| | $ | 4,528.5 |
| | $ | 1,139.2 |
| | $ | (3,565.5 | ) | | $ | 5,570.2 |
|
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Floorplan notes payable — credit facility and other, net of offset account of $106.8 | $ | — |
| | $ | 1,099.1 |
| | $ | 45.3 |
| | $ | — |
| | $ | 1,144.4 |
|
| Floorplan notes payable — manufacturer affiliates, net of offset account of $4.1 | — |
| | 318.4 |
| | 141.5 |
| | — |
| | 459.9 |
|
| Current maturities of long-term debt | — |
| | 27.0 |
| | 32.1 |
| | — |
| | 59.1 |
|
| Current operating lease liabilities | — |
| | 17.4 |
| | 7.2 |
| | — |
| | 24.6 |
|
| Accounts payable | — |
| | 235.4 |
| | 292.1 |
| | — |
| | 527.5 |
|
| Intercompany accounts payable | 1,296.8 |
| | — |
| | 100.0 |
| | (1,396.8 | ) | | — |
|
| Accrued expenses and other current liabilities | — |
| | 177.2 |
| | 29.5 |
| | — |
| | 206.7 |
|
| TOTAL CURRENT LIABILITIES | 1,296.8 |
| | 1,874.5 |
| | 647.7 |
| | (1,396.8 | ) | | 2,422.3 |
|
| Long-term debt, net of current maturities | 915.3 |
| | 379.0 |
| | 137.8 |
| | — |
| | 1,432.1 |
|
| Operating lease liabilities, net of current portion | — |
| | 104.9 |
| | 105.8 |
| | — |
| | 210.7 |
|
| Deferred income taxes and other long-term liabilities | — |
| | 245.6 |
| | 3.7 |
| | — |
| | 249.3 |
|
| STOCKHOLDERS’ EQUITY: | | | | | | | | | |
| Group 1 stockholders’ equity | 1,255.7 |
| | 3,148.9 |
| | 244.3 |
| | (3,393.2 | ) | | 1,255.7 |
|
| Intercompany note receivable | — |
| | (1,224.5 | ) | | — |
| | 1,224.5 |
| | — |
|
| TOTAL STOCKHOLDERS’ EQUITY | 1,255.7 |
| | 1,924.4 |
| | 244.3 |
| | (2,168.7 | ) | | 1,255.7 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,467.9 |
| | $ | 4,528.5 |
| | $ | 1,139.2 |
| | $ | (3,565.5 | ) | | $ | 5,570.2 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
As of December 31, 20162018
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| | (In thousands) |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 8,039 |
| | $ | 12,953 |
| | $ | — |
| | $ | 20,992 |
|
| Contracts-in-transit and vehicle receivables, net | — |
| | 241,097 |
| | 28,411 |
| | — |
| | 269,508 |
|
| Accounts and notes receivable, net | — |
| | 140,985 |
| | 32,379 |
| | — |
| | 173,364 |
|
| Intercompany accounts receivable | — |
| | 8,929 |
| | — |
| | (8,929 | ) | | — |
|
| Inventories, net | — |
| | 1,386,871 |
| | 264,944 |
| | — |
| | 1,651,815 |
|
| Prepaid expenses and other current assets | 516 |
| | 7,188 |
| | 27,204 |
| | — |
| | 34,908 |
|
| Total current assets | 516 |
|
| 1,793,109 |
|
| 365,891 |
|
| (8,929 | ) | | 2,150,587 |
|
| PROPERTY AND EQUIPMENT, net | — |
| | 990,084 |
| | 135,799 |
| | — |
| | 1,125,883 |
|
| GOODWILL | — |
| | 805,935 |
| | 70,828 |
| | — |
| | 876,763 |
|
| INTANGIBLE FRANCHISE RIGHTS | — |
| | 260,534 |
| | 24,342 |
| | — |
| | 284,876 |
|
| INVESTMENT IN SUBSIDIARIES | 2,787,328 |
| | — |
| | — |
| | (2,787,328 | ) | | — |
|
| OTHER ASSETS | — |
| | 19,313 |
| | 4,481 |
| | — |
| | 23,794 |
|
| Total assets | $ | 2,787,844 |
|
| $ | 3,868,975 |
|
| $ | 601,341 |
|
| $ | (2,796,257 | ) | | $ | 4,461,903 |
|
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Floorplan notes payable — credit facility and other | $ | — |
| | $ | 1,131,718 |
| | $ | 4,936 |
| | $ | — |
| | $ | 1,136,654 |
|
| Offset account related to floorplan notes payable - credit facility | — |
| | (59,626 | ) | | — |
| | — |
| | (59,626 | ) |
| Floorplan notes payable — manufacturer affiliates | — |
| | 281,747 |
| | 110,914 |
| | — |
| | 392,661 |
|
| Offset account related to floorplan notes payable - manufacturer affiliates | — |
| | (25,500 | ) | | — |
| | — |
| | (25,500 | ) |
| Current maturities of long-term debt and short-term financing | — |
| | 44,659 |
| | 27,760 |
| | — |
| | 72,419 |
|
| Current liabilities from interest rate risk management activities | — |
| | 3,941 |
| | — |
| | — |
| | 3,941 |
|
| Accounts payable | — |
| | 211,050 |
| | 145,049 |
| | — |
| | 356,099 |
|
| Intercompany accounts payable | 875,662 |
| | — |
| | 8,929 |
| | (884,591 | ) | | — |
|
| Accrued expenses | — |
| | 156,648 |
| | 19,821 |
| | — |
| | 176,469 |
|
| Total current liabilities | 875,662 |
|
| 1,744,637 |
|
| 317,409 |
|
| (884,591 | ) | | 2,053,117 |
|
| LONG-TERM DEBT, net of current maturities | 836,056 |
| | 324,540 |
| | 52,213 |
| | — |
| | 1,212,809 |
|
| LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES | — |
| | 20,470 |
| | — |
| | — |
| | 20,470 |
|
| DEFERRED INCOME TAXES AND OTHER LIABILITIES | (1,020 | ) | | 240,348 |
| | 5,979 |
| | — |
| | 245,307 |
|
| STOCKHOLDERS’ EQUITY: | | | | | | | | |
|
|
| Group 1 stockholders’ equity | 1,077,146 |
| | 2,414,642 |
| | 225,740 |
| | (2,787,328 | ) | | 930,200 |
|
| Intercompany note receivable | — |
| | (875,662 | ) | | — |
| | 875,662 |
| | — |
|
| Total stockholders’ equity | 1,077,146 |
| | 1,538,980 |
|
| 225,740 |
|
| (1,911,666 | ) | | 930,200 |
|
| Total liabilities and stockholders’ equity | $ | 2,787,844 |
|
| $ | 3,868,975 |
|
| $ | 601,341 |
|
| $ | (2,796,257 | ) | | $ | 4,461,903 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 4.6 |
| | $ | 11.3 |
| | $ | — |
| | $ | 15.9 |
|
| Contracts-in-transit and vehicle receivables, net | — |
| | 232.1 |
| | 33.6 |
| | — |
| | 265.7 |
|
| Accounts and notes receivable, net | — |
| | 153.9 |
| | 40.1 |
| | — |
| | 194.0 |
|
| Intercompany accounts receivable | 31.9 |
| | 21.6 |
| | — |
| | (53.5 | ) | | — |
|
| Inventories, net | — |
| | 1,468.5 |
| | 375.6 |
| | — |
| | 1,844.1 |
|
| Prepaid expenses and other current assets | 1.0 |
| | 32.1 |
| | 49.6 |
| | — |
| | 82.7 |
|
| TOTAL CURRENT ASSETS | 32.9 |
| | 1,912.8 |
| | 510.2 |
| | (53.5 | ) | | 2,402.4 |
|
| Property and equipment, net | — |
| | 1,124.5 |
| | 223.3 |
| | — |
| | 1,347.8 |
|
| Goodwill | — |
| | 861.6 |
| | 102.3 |
| | — |
| | 963.9 |
|
| Intangible franchise rights | — |
| | 224.4 |
| | 35.2 |
| | — |
| | 259.6 |
|
| Investment in subsidiaries | 3,100.9 |
| | — |
| | — |
| | (3,100.9 | ) | | — |
|
| Other long-term assets | — |
| | 16.2 |
| | 11.2 |
| | — |
| | 27.3 |
|
| TOTAL ASSETS | $ | 3,133.8 |
| | $ | 4,139.5 |
| | $ | 882.2 |
| | $ | (3,154.4 | ) | | $ | 5,001.1 |
|
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | |
| Floorplan notes payable — credit facility and other, net of offset account of $33.6 | $ | — |
| | $ | 1,217.8 |
| | $ | 41.1 |
| | $ | — |
| | $ | 1,258.8 |
|
| Floorplan notes payable — manufacturer affiliates, net of offset account of $0.1 | — |
| | 276.7 |
| | 141.1 |
| | — |
| | 417.8 |
|
| Current maturities of long-term debt | — |
| | 73.9 |
| | 19.1 |
| | — |
| | 93.0 |
|
| Accounts payable | — |
| | 201.0 |
| | 218.4 |
| | — |
| | 419.4 |
|
| Intercompany accounts payable | 1,165.0 |
| | — |
| | 53.4 |
| | (1,218.4 | ) | | — |
|
| Accrued expenses and other current liabilities | — |
| | 165.0 |
| | 32.6 |
| | — |
| | 197.6 |
|
| TOTAL CURRENT LIABILITIES | 1,165.0 |
| | 1,934.4 |
| | 505.7 |
| | (1,218.4 | ) | | 2,386.6 |
|
| Long-term debt, net of current maturities | 872.3 |
| | 294.3 |
| | 114.8 |
| | — |
| | 1,281.5 |
|
| Deferred income taxes and other long-term liabilities | 0.8 |
| | 224.7 |
| | 11.8 |
| | — |
| | 237.3 |
|
| STOCKHOLDERS’ EQUITY: | | | | | | | | | |
| Group 1 stockholders’ equity | 1,095.7 |
| | 2,851.0 |
| | 249.9 |
| | (3,100.9 | ) | | 1,095.7 |
|
| Intercompany note receivable | — |
| | (1,164.9 | ) | | — |
| | 1,164.9 |
| | — |
|
| TOTAL STOCKHOLDERS’ EQUITY | 1,095.7 |
| | 1,686.1 |
| | 249.9 |
| | (1,936.0 | ) | | 1,095.7 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,133.8 |
| | $ | 4,139.5 |
| | $ | 882.2 |
| | $ | (3,154.4 | ) | | $ | 5,001.1 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
Year Ended December 31, 20172019
(In millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| | (In thousands) |
| REVENUES: | $ | — |
| | $ | 8,680,565 |
| | $ | 2,443,156 |
| | $ | — |
| | $ | 11,123,721 |
|
| COST OF SALES: | — |
| | 7,315,252 |
| | 2,162,960 |
| | — |
| | 9,478,212 |
|
| GROSS PROFIT | — |
| | 1,365,313 |
| | 280,196 |
| | — |
| | 1,645,509 |
|
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 3,381 |
| | 974,413 |
| | 248,401 |
| | — |
| | 1,226,195 |
|
| DEPRECIATION AND AMORTIZATION EXPENSE | — |
| | 48,284 |
| | 9,652 |
| | — |
| | 57,936 |
|
| ASSET IMPAIRMENTS | — |
| | 12,762 |
| | 6,744 |
| | — |
| | 19,506 |
|
| INCOME (LOSS) FROM OPERATIONS | (3,381 | ) | | 329,854 |
| | 15,399 |
| | — |
| | 341,872 |
|
| OTHER EXPENSE: | | | | | | | | |
|
|
| Floorplan interest expense | — |
| | (47,222 | ) | | (5,150 | ) | | — |
| | (52,372 | ) |
| Other interest income (expense), net | — |
| | (66,490 | ) | | (4,007 | ) | | — |
| | (70,497 | ) |
| INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | (3,381 | ) |
| 216,142 |
|
| 6,242 |
|
| — |
| | 219,003 |
|
| BENEFIT (PROVISION) FOR INCOME TAXES | 1,268 |
| | (6,947 | ) | | 118 |
| | — |
| | (5,561 | ) |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 215,556 |
| | — |
| | — |
| | (215,556 | ) | | — |
|
| NET INCOME (LOSS) | $ | 213,443 |
|
| $ | 209,195 |
|
| $ | 6,360 |
|
| $ | (215,556 | ) | | $ | 213,442 |
|
| COMPREHENSIVE INCOME | — |
| | 8,657 |
| | 15,061 |
| | — |
| | 23,718 |
|
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO PARENT | $ | 213,443 |
|
| $ | 217,852 |
|
| $ | 21,421 |
|
| $ | (215,556 | ) | | $ | 237,160 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| Revenues | $ | — |
| | $ | 9,184.3 |
| | $ | 2,859.5 |
| | $ | — |
| | $ | 12,043.8 |
|
| Cost of sales | — |
| | 7,689.5 |
| | 2,538.3 |
| | — |
| | 10,227.8 |
|
| Gross profit | — |
| | 1,494.8 |
| | 321.2 |
| | — |
| | 1,816.0 |
|
| Selling, general and administrative expenses | 4.1 |
| | 1,066.6 |
| | 287.7 |
| | — |
| | 1,358.4 |
|
| Depreciation and amortization expense | — |
| | 55.4 |
| | 16.2 |
| | — |
| | 71.6 |
|
| Asset impairments | — |
| | 14.6 |
| | 7.6 |
| | — |
| | 22.2 |
|
| Income (loss) from operations | (4.1 | ) | | 358.2 |
| | 9.7 |
| | — |
| | 363.7 |
|
| Interest expense: | | | | | | | | |
|
|
| Floorplan interest expense | — |
| | 53.8 |
| | 7.8 |
| | — |
| | 61.6 |
|
| Other interest expense, net | — |
| | 67.5 |
| | 7.4 |
| | — |
| | 74.9 |
|
| Income (loss) before income taxes and equity in earnings of subsidiaries | (4.1 | ) |
| 236.9 |
|
| (5.5 | ) |
| — |
| | 227.3 |
|
| (Benefit) provision for income taxes | (1.0 | ) | | 56.2 |
| | (1.9 | ) | | — |
| | 53.3 |
|
| Equity in earnings (loss) of subsidiaries | 177.1 |
| | — |
| | — |
| | (177.1 | ) | | — |
|
| Net income (loss) | $ | 174.0 |
|
| $ | 180.7 |
|
| $ | (3.6 | ) |
| $ | (177.1 | ) | | $ | 174.0 |
|
| Other comprehensive income (loss) | (9.2 | ) | | (13.0 | ) | | 3.8 |
| | 9.2 |
| | (9.2 | ) |
| Comprehensive income (loss) | $ | 164.8 |
|
| $ | 167.7 |
|
| $ | 0.2 |
|
| $ | (167.9 | ) | | $ | 164.8 |
|
Year Ended December 31, 2018
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| Revenues | $ | — |
| | $ | 8,723.3 |
| | $ | 2,878.1 |
| | $ | — |
| | $ | 11,601.4 |
|
| Cost of sales | — |
| | 7,332.0 |
| | 2,544.3 |
| | — |
| | 9,876.3 |
|
| Gross profit | — |
| | 1,391.3 |
| | 333.8 |
| | — |
| | 1,725.1 |
|
| Selling, general and administrative expenses | 3.4 |
| | 971.9 |
| | 297.7 |
| | — |
| | 1,273.1 |
|
| Depreciation and amortization expense | — |
| | 52.9 |
| | 14.2 |
| | — |
| | 67.1 |
|
| Asset impairments | — |
| | 43.4 |
| | 0.5 |
| | — |
| | 43.9 |
|
| Income (loss) from operations | (3.4 | ) | | 323.1 |
| | 21.4 |
| | — |
| | 341.1 |
|
| Interest expense: | | | | | | | | | |
| Floorplan interest expense | — |
| | (52.8 | ) | | (7.1 | ) | | — |
| | (59.9 | ) |
| Other interest expense, net | — |
| | (68.1 | ) | | (7.7 | ) | | — |
| | (75.8 | ) |
| Income (loss) before income taxes and equity in earnings of subsidiaries | (3.4 | ) | | 202.2 |
| | 6.5 |
| | — |
| | 205.4 |
|
| (Benefit) provision for income taxes | (0.8 | ) | | 44.5 |
| | 3.9 |
| | — |
| | 47.6 |
|
| Equity in earnings (loss) of subsidiaries | 160.4 |
| | — |
| | — |
| | (160.4 | ) | | — |
|
| Net income (loss) | $ | 157.8 |
| | $ | 157.7 |
| | $ | 2.6 |
| | $ | (160.4 | ) | | $ | 157.8 |
|
| Other comprehensive income (loss) | — |
| | 9.8 |
| | (24.2 | ) | | — |
| | (14.4 | ) |
| Comprehensive income (loss) | $ | 157.8 |
| | $ | 167.5 |
| | $ | (21.5 | ) | | $ | (160.4 | ) | | $ | 143.4 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
Year Ended December 31, 20162017
(In millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| | (In thousands) |
| REVENUES: | $ | — |
| | $ | 8,734,673 |
| | $ | 2,152,939 |
| | $ | — |
| | $ | 10,887,612 |
|
| COST OF SALES: | — |
| | 7,379,323 |
| | 1,913,220 |
| | — |
| | 9,292,543 |
|
| GROSS PROFIT | — |
| | 1,355,350 |
| | 239,719 |
| | — |
| | 1,595,069 |
|
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 2,722 |
| | 954,495 |
| | 213,546 |
| | — |
| | 1,170,763 |
|
| DEPRECIATION AND AMORTIZATION EXPENSE | — |
| | 43,472 |
| | 7,762 |
| | — |
| | 51,234 |
|
| ASSET IMPAIRMENTS | — |
| | 21,794 |
| | 11,044 |
| | — |
| | 32,838 |
|
| INCOME (LOSS) FROM OPERATIONS | (2,722 | ) | | 335,589 |
| | 7,367 |
| | — |
| | 340,234 |
|
| OTHER EXPENSE: | | | | | | | | |
|
|
| Floorplan interest expense | — |
| | (40,444 | ) | | (4,483 | ) | | — |
| | (44,927 | ) |
| Other interest expense, net | — |
| | (64,870 | ) | | (3,066 | ) | | — |
| | (67,936 | ) |
| INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | (2,722 | ) |
| 230,275 |
|
| (182 | ) |
| — |
| | 227,371 |
|
| BENEFIT (PROVISION) FOR INCOME TAXES | 1,020 |
| | (83,560 | ) | | 2,234 |
| | — |
| | (80,306 | ) |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 148,767 |
| | — |
| | — |
| | (148,767 | ) | | — |
|
| NET INCOME (LOSS) | $ | 147,065 |
|
| $ | 146,715 |
|
| $ | 2,052 |
|
| $ | (148,767 | ) | | $ | 147,065 |
|
| COMPREHENSIVE INCOME (LOSS) |
|
| | 10,121 |
| | (19,081 | ) | |
|
| | (8,960 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO PARENT | $ | 147,065 |
|
| $ | 156,836 |
|
| $ | (17,029 | ) |
| $ | (148,767 | ) | | $ | 138,105 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| Revenues | $ | — |
| | $ | 8,680.6 |
| | $ | 2,443.2 |
| | $ | — |
| | $ | 11,123.7 |
|
| Cost of sales | — |
| | 7,315.3 |
| | 2,163.0 |
| | — |
| | 9,478.2 |
|
| Gross profit | — |
| | 1,365.3 |
| | 280.2 |
| | — |
| | 1,645.5 |
|
| Selling, general and administrative expenses | 3.4 |
| | 974.4 |
| | 248.4 |
| | — |
| | 1,226.2 |
|
| Depreciation and amortization expense | — |
| | 48.3 |
| | 9.7 |
| | — |
| | 57.9 |
|
| Asset impairments | — |
| | 12.8 |
| | 6.7 |
| | — |
| | 19.5 |
|
| Income (loss) from operations | (3.4 | ) | | 329.9 |
| | 15.4 |
| | — |
| | 341.9 |
|
| Interest expense: | | | | | | | | | |
| Floorplan interest expense | — |
| | (47.2 | ) | | (5.2 | ) | | — |
| | (52.4 | ) |
| Other interest expense, net | — |
| | (66.5 | ) | | (4.0 | ) | | — |
| | (70.5 | ) |
| Income (loss) before income taxes and equity in earnings of subsidiaries | (3.4 | ) | | 216.1 |
| | 6.2 |
| | — |
| | 219.0 |
|
| (Benefit) provision for income taxes | (1.3 | ) | | 6.9 |
| | (0.1 | ) | | — |
| | 5.6 |
|
| Equity in earnings (loss) of subsidiaries | 215.6 |
| | — |
| | — |
| | (215.6 | ) | | — |
|
| Net income (loss) | $ | 213.4 |
| | $ | 209.2 |
| | $ | 6.4 |
| | $ | (215.6 | ) | | $ | 213.4 |
|
| Other comprehensive income (loss) | — |
| | 8.7 |
| | 15.1 |
| | — |
| | 23.7 |
|
| Comprehensive income (loss) | $ | 213.4 |
| | $ | 217.9 |
| | $ | 21.4 |
| | $ | (215.6 | ) | | $ | 237.2 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOMECASH FLOWS
Year Ended December 31, 20152019
|
| | | | | | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Elimination | | Total Company |
| | (In thousands) |
| REVENUES: | $ | — |
| | $ | 8,893,990 |
| | $ | 1,738,515 |
| | $ | — |
| | $ | 10,632,505 |
|
| COST OF SALES: | — |
| | 7,555,043 |
| | 1,543,490 |
| | — |
| | 9,098,533 |
|
| GROSS PROFIT | — |
| | 1,338,947 |
| | 195,025 |
| | — |
| | 1,533,972 |
|
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 3,024 |
| | 950,268 |
| | 167,541 |
| | — |
| | 1,120,833 |
|
| DEPRECIATION AND AMORTIZATION EXPENSE | — |
| | 41,220 |
| | 6,019 |
| | — |
| | 47,239 |
|
| ASSET IMPAIRMENTS | — |
| | 18,899 |
| | 68,663 |
| | — |
| | 87,562 |
|
| INCOME (LOSS) FROM OPERATIONS | (3,024 | ) | | 328,560 |
| | (47,198 | ) | | — |
| | 278,338 |
|
| OTHER EXPENSE: | | | | | | | | |
|
|
| Floorplan interest expense | — |
| | (36,063 | ) | | (3,201 | ) | | — |
| | (39,264 | ) |
| Other interest income (expense), net | 2,320 |
| | (52,276 | ) | | (6,947 | ) | | — |
| | (56,903 | ) |
| INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES | (704 | ) |
| 240,221 |
|
| (57,346 | ) |
| — |
| | 182,171 |
|
| BENEFIT (PROVISION) FOR INCOME TAXES | 264 |
| | (89,698 | ) | | 1,262 |
| | — |
| | (88,172 | ) |
| EQUITY IN EARNINGS OF SUBSIDIARIES | 94,439 |
| | — |
| | — |
| | (94,439 | ) | | — |
|
| NET INCOME (LOSS) | $ | 93,999 |
|
| $ | 150,523 |
|
| $ | (56,084 | ) |
| $ | (94,439 | ) | | $ | 93,999 |
|
| COMPREHENSIVE LOSS | — |
| | (1,543 | ) | | (54,457 | ) | | — |
| | (56,000 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO PARENT | $ | 93,999 |
|
| $ | 148,980 |
|
| $ | (110,541 | ) |
| $ | (94,439 | ) | | $ | 37,999 |
|
|
| | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 174.0 |
| | $ | 169.1 |
| | $ | 27.8 |
| | $ | 370.9 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| Cash paid for acquisitions, net of cash received | — |
| | (113.9 | ) | | (29.3 | ) | | (143.2 | ) |
| Proceeds from disposition of franchises, property and equipment | — |
| | 37.2 |
| | 6.2 |
| | 43.4 |
|
| Purchases of property and equipment | — |
| | (133.7 | ) | | (58.1 | ) | | (191.8 | ) |
| Net cash used in (provided by) investing activities | — |
|
| (210.4 | ) |
| (81.2 | ) |
| (291.6 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Borrowings on credit facility — floorplan line and other | — |
| | 7,248.9 |
| | 55.7 |
| | 7,304.6 |
|
| Repayments on credit facility — floorplan line and other | — |
| | (7,370.1 | ) | | (53.1 | ) | | (7,423.2 | ) |
| Borrowings on credit facility — acquisition line | 319.0 |
| | — |
| | — |
| | 319.0 |
|
| Repayments on credit facility — acquisition line | (281.4 | ) | | — |
| | — |
| | (281.4 | ) |
| Debt issue costs | — |
| | (3.5 | ) | | (1.9 | ) | | (5.4 | ) |
| Borrowings on other debt | — |
| | 55.7 |
| | 121.7 |
| | 177.4 |
|
| Principal payments on other debt | — |
| | (53.8 | ) | | (112.9 | ) | | (166.7 | ) |
| Borrowings on debt related to real estate | — |
| | 152.4 |
| | 21.1 |
| | 173.5 |
|
| Principal payments on debt related to real estate | — |
| | (138.7 | ) | | (8.6 | ) | | (147.3 | ) |
| Proceeds from employee stock purchase plan | 8.6 |
| | — |
| | — |
| | 8.6 |
|
| Payment of tax withholding for stock-based awards | (4.4 | ) | | — |
| | — |
| | (4.4 | ) |
| Repurchases of common stock, amounts based on settlement date | (1.4 | ) | | — |
| | — |
| | (1.4 | ) |
| Dividends paid | (20.3 | ) | | — |
| | — |
| | (20.3 | ) |
| Borrowings (repayments) with subsidiaries | 113.5 |
| | (155.9 | ) | | 42.5 |
| | — |
|
| Investment in subsidiaries | (307.5 | ) | | 307.3 |
| | 0.2 |
| | — |
|
| Net cash provided by (used in) financing activities | (174.0 | ) |
| 42.3 |
|
| 64.7 |
| | (67.0 | ) |
| Effect of exchange rate changes on cash | — |
| | — |
| | (2.9 | ) | | (2.9 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | — |
|
| 1.0 |
|
| 8.4 |
| | 9.3 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | — |
| | 4.6 |
| | 14.1 |
| | 18.7 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | — |
|
| $ | 5.6 |
|
| $ | 22.5 |
| | $ | 28.1 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
Year Ended December 31, 20172018
| | | | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company | | | | | | | | | |
| | (In thousands) | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 214,595 |
| | $ | (13,759 | ) | | $ | (1,911 | ) | | $ | 198,925 |
| $ | 157.8 |
| | $ | 98.9 |
| | $ | 13.3 |
| | $ | 270.0 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | |
| Cash paid in acquisitions, net of cash received | — |
| | (62,474 | ) | | (46,607 | ) | | (109,081 | ) | |
| Cash paid for acquisitions, net of cash received | | — |
| | (91.9 | ) | | (43.5 | ) | | (135.3 | ) |
| Proceeds from disposition of franchises, property and equipment | — |
| | 8,345 |
| | 2,363 |
| | 10,708 |
| — |
| | 101.5 |
| | 6.4 |
| | 107.9 |
|
| Purchases of property and equipment, including real estate | — |
| | (185,342 | ) | | (30,490 | ) | | (215,832 | ) | |
| Purchases of property and equipment | | — |
| | (97.2 | ) | | (43.8 | ) | | (141.0 | ) |
| Other | — |
| | 1,607 |
| | — |
| | 1,607 |
| 0.5 |
| | — |
| | — |
| | 0.5 |
|
| Net cash used in investing activities | — |
|
| (237,864 | ) |
| (74,734 | ) |
| (312,598 | ) | |
| Net cash provided by (used in) investing activities | | 0.5 |
|
| (87.7 | ) |
| (80.8 | ) | | (168.0 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | |
| Borrowings on credit facility - floorplan line and other | — |
| | 7,019,070 |
| | — |
| | 7,019,070 |
| |
| Repayments on credit facility - floorplan line and other | — |
| | (6,957,866 | ) | | — |
| | (6,957,866 | ) | |
| Borrowings on credit facility - acquisition line | 68,086 |
| | — |
| | — |
| | 68,086 |
| |
| Repayments on credit facility - acquisition line | (42,278 | ) | | — |
| | — |
| | (42,278 | ) | |
| Borrowings on credit facility — floorplan line and other | | — |
| | 6,858.5 |
| | 95.8 |
| | 6,954.3 |
|
| Repayments on credit facility — floorplan line and other | | — |
| | (6,797.1 | ) | | (72.9 | ) | | (6,870.1 | ) |
| Borrowings on credit facility — acquisition line | | 165.3 |
| | — |
| | — |
| | 165.3 |
|
| Repayments on credit facility — acquisition line | | (158.5 | ) | | — |
| | — |
| | (158.5 | ) |
| Borrowings on other debt | 25,054 |
| | 19 |
| | 140,629 |
| | 165,702 |
| — |
| | 95.8 |
| | 60.2 |
| | 156.0 |
|
| Principal payments on other debt | (313 | ) | | (718 | ) | | (120,168 | ) | | (121,199 | ) | (24.7 | ) | | (48.9 | ) | | (45.1 | ) | | (118.8 | ) |
| Borrowings on debt related to real estate | — |
| | 46,419 |
| | 28,890 |
| | 75,309 |
| — |
| | 42.7 |
| | 12.1 |
| | 54.7 |
|
| Principal payments on debt related to real estate | — |
| | (22,931 | ) | | (6,460 | ) | | (29,391 | ) | — |
| | (77.8 | ) | | (13.7 | ) | | (91.5 | ) |
| Employee stock purchase plan purchases, net of employee tax withholdings | 4,603 |
| | — |
| | — |
| | 4,603 |
| |
| Proceeds from employee stock purchase plan | | 7.6 |
| | — |
| | — |
| | 7.6 |
|
| Payment of tax withholding for stock-based awards | | (4.9 | ) | | — |
| | — |
| | (4.9 | ) |
| Proceeds from termination of mortgage swap | | — |
| | 0.9 |
| | — |
| | 0.9 |
|
| Repurchases of common stock, amounts based on settlement date | (40,094 | ) | | — |
| | — |
| | (40,094 | ) | (183.9 | ) | | — |
| | — |
| | (183.9 | ) |
| Dividends paid | (20,466 | ) | | — |
| | — |
| | (20,466 | ) | (20.9 | ) | | — |
| | — |
| | (20.9 | ) |
| Borrowings (repayments) with subsidiaries | 2,892 |
| | (32,719 | ) | | 29,827 |
| | — |
| 289.4 |
| | (300.7 | ) | | 11.3 |
| | — |
|
| Investment in subsidiaries | (212,079 | ) | | 202,406 |
| | 9,673 |
| | — |
| (227.8 | ) | | 209.9 |
| | 17.8 |
| | — |
|
| Net cash (used in) provided by financing activities | (214,595 | ) |
| 253,680 |
|
| 82,391 |
| | 121,476 |
| |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | — |
| | — |
| | (8 | ) | | (8 | ) | |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | — |
|
| 2,057 |
|
| 5,738 |
| | 7,795 |
| |
| CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 8,039 |
| | 12,953 |
| | 20,992 |
| |
| CASH AND CASH EQUIVALENTS, end of period | $ | — |
|
| $ | 10,096 |
|
| $ | 18,691 |
| | $ | 28,787 |
| |
| Net cash provided by (used in) financing activities | | (158.3 | ) |
| (16.8 | ) |
| 65.5 |
| | (109.5 | ) |
| Effect of exchange rate changes on cash | | — |
| | — |
| | (3.3 | ) | | (3.3 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | — |
|
| (5.5 | ) |
| (5.4 | ) | | (10.9 | ) |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | | — |
| | 10.1 |
| | 19.5 |
| | 29.6 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | | $ | — |
|
| $ | 4.6 |
|
| $ | 14.1 |
| | $ | 18.7 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
Year Ended December 31, 20162017
(In millions) |
| | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 214.6 |
| | $ | (13.8 | ) | | $ | (4.3 | ) | | $ | 196.5 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| Cash paid for acquisitions, net of cash received | — |
| | (62.5 | ) | | (46.6 | ) | | (109.1 | ) |
| Proceeds from disposition of franchises, property and equipment | — |
| | 8.3 |
| | 2.4 |
| | 10.7 |
|
| Purchases of property and equipment | — |
| | (185.3 | ) | | (30.5 | ) | | (215.8 | ) |
| Other | — |
| | 1.6 |
| | — |
| | 1.6 |
|
| Net cash provided by (used in) investing activities | — |
|
| (237.9 | ) |
| (74.7 | ) | | (312.6 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Borrowings on credit facility — floorplan line and other | — |
| | 7,019.1 |
| | — |
| | 7,019.1 |
|
| Repayments on credit facility — floorplan line and other | — |
| | (6,957.9 | ) | | — |
| | (6,957.9 | ) |
| Borrowings on credit facility — acquisition line | 68.1 |
| | — |
| | — |
| | 68.1 |
|
| Repayments on credit facility — acquisition line | (42.3 | ) | | — |
| | — |
| | (42.3 | ) |
| Borrowings on other debt | 25.1 |
| | — |
| | 140.6 |
| | 165.7 |
|
| Principal payments on other debt | (0.3 | ) | | (0.7 | ) | | (120.2 | ) | | (121.2 | ) |
| Borrowings on debt related to real estate | — |
| | 46.4 |
| | 28.9 |
| | 75.3 |
|
| Principal payments on debt related to real estate | — |
| | (22.9 | ) | | (6.5 | ) | | (29.4 | ) |
| Proceeds from employee stock purchase plan | 7.1 |
| | — |
| | — |
| | 7.1 |
|
| Payment of tax withholding for stock-based awards | (2.5 | ) | | — |
| | — |
| | (2.5 | ) |
| Repurchases of common stock, amounts based on settlement date | (40.1 | ) | | — |
| | — |
| | (40.1 | ) |
| Dividends paid | (20.5 | ) | | — |
| | — |
| | (20.5 | ) |
| Borrowings (repayments) with subsidiaries | 2.9 |
| | (32.7 | ) | | 29.8 |
| | — |
|
| Investment in subsidiaries | (212.1 | ) | | 202.4 |
| | 9.7 |
| | — |
|
| Net cash provided by (used in) financing activities | (214.6 | ) |
| 253.7 |
|
| 82.4 |
| | 121.5 |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash | — |
|
| 2.1 |
|
| 3.3 |
| | 5.4 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | — |
| | 8.0 |
| | 16.2 |
| | 24.2 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | — |
| | $ | 10.1 |
| | $ | 19.5 |
| | $ | 29.6 |
|
|
| | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company |
| | (In thousands) |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 147,065 |
| | $ | 238,552 |
| | $ | (760 | ) | | $ | 384,857 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| Cash paid in acquisitions, net of cash received | — |
| | — |
| | (57,327 | ) | | (57,327 | ) |
| Proceeds from disposition of franchises, property and equipment | — |
| | 35,317 |
| | 1,526 |
| | 36,843 |
|
| Purchases of property and equipment, including real estate | — |
| | (138,263 | ) | | (18,258 | ) | | (156,521 | ) |
| Other | — |
| | 2,748 |
| | 217 |
| | 2,965 |
|
| Net cash used in investing activities | — |
|
| (100,198 | ) |
| (73,842 | ) | | (174,040 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Borrowings on credit facility - floorplan line and other | — |
| | 6,597,406 |
| | — |
| | 6,597,406 |
|
| Repayments on credit facility - floorplan line and other | — |
| | (6,676,161 | ) | | — |
| | (6,676,161 | ) |
| Borrowings on credit facility - acquisition line | 220,020 |
| | — |
| | — |
| | 220,020 |
|
| Repayment on credit facility - acquisition line | (220,020 | ) | | — |
| | — |
| | (220,020 | ) |
| Debt issue costs | (2,997 | ) | | (516 | ) | | — |
| | (3,513 | ) |
| Borrowings on other debt | — |
| | — |
| | 49,972 |
| | 49,972 |
|
| Principal payments on other debt | — |
| | (923 | ) | | (45,005 | ) | | (45,928 | ) |
| Borrowings on debt related to real estate | — |
| | 42,654 |
| | — |
| | 42,654 |
|
| Principal payments on debt related to real estate loans | — |
| | (20,309 | ) | | (5,154 | ) | | (25,463 | ) |
| Issuance of common stock to benefit plans, net | 3,868 |
| | — |
| | — |
| | 3,868 |
|
| Repurchases of common stock, amounts based on settlement date | (127,606 | ) | | — |
| | — |
| | (127,606 | ) |
| Tax effect from stock-based compensation | (249 | ) | | — |
| | — |
| | (249 | ) |
| Dividends paid | (19,987 | ) | | — |
| | — |
| | (19,987 | ) |
| Borrowings (repayments) with subsidiaries | 399,151 |
| | (406,888 | ) | | 7,737 |
| | — |
|
| Investment in subsidiaries | (399,245 | ) | | 328,084 |
| | 71,161 |
| | — |
|
| Net cash (used in) provided by financing activities | (147,065 | ) |
| (136,653 | ) |
| 78,711 |
| | (205,007 | ) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | — |
| | — |
| | 2,145 |
| | 2,145 |
|
| NET DECREASE IN CASH AND CASH EQUIVALENTS | — |
|
| 1,701 |
|
| 6,254 |
| | 7,955 |
|
| CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 6,338 |
| | 6,699 |
| | 13,037 |
|
| CASH AND CASH EQUIVALENTS, end of period | $ | — |
|
| $ | 8,039 |
|
| $ | 12,953 |
| | $ | 20,992 |
|
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Year Ended December 31, 2015The following tables set forth the Company’s unaudited quarterly financial data (in millions, except per share amounts): |
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter | | |
| | | First | | Second | | Third | | Fourth | | Full Year |
| Years Ended December 31, | | | | | | | | | | |
| 2019: | | | | | | | | | | |
| Total revenues | | $ | 2,808.4 |
| | $ | 3,005.7 |
| | $ | 3,118.3 |
| | $ | 3,111.4 |
| | $ | 12,043.8 |
|
Gross profit (1) | | $ | 431.5 |
| | $ | 454.3 |
| | $ | 465.6 |
| | $ | 464.6 |
| | $ | 1,816.0 |
|
Income (loss) from operations (1) | | $ | 86.8 |
| | $ | 97.1 |
| | $ | 83.3 |
| | $ | 96.5 |
| | $ | 363.7 |
|
Net income (loss) (1) | | $ | 38.6 |
| | $ | 49.2 |
| | $ | 38.0 |
| | $ | 48.1 |
| | $ | 174.0 |
|
| Basic earnings (loss) per share | | $ | 2.09 |
| | $ | 2.65 |
| | $ | 2.04 |
| | $ | 2.57 |
| | $ | 9.35 |
|
| Diluted earnings (loss) per share | | $ | 2.08 |
| | $ | 2.64 |
| | $ | 2.04 |
| | $ | 2.57 |
| | $ | 9.34 |
|
| 2018: | | | | | | | | | | |
| Total revenues | | $ | 2,860.0 |
| | $ | 2,943.5 |
| | $ | 2,889.1 |
| | $ | 2,908.8 |
| | $ | 11,601.4 |
|
Gross profit (2) | | $ | 419.8 |
| | $ | 438.2 |
| | $ | 435.1 |
| | $ | 432.1 |
| | $ | 1,725.1 |
|
Income (loss) from operations (2) | | $ | 79.1 |
| | $ | 109.2 |
| | $ | 78.2 |
| | $ | 74.7 |
| | $ | 341.1 |
|
Net income (loss) (2) | | $ | 35.8 |
| | $ | 56.5 |
| | $ | 34.8 |
| | $ | 30.7 |
| | $ | 157.8 |
|
| Basic and diluted earnings (loss) per share | | $ | 1.70 |
| | $ | 2.72 |
| | $ | 1.74 |
| | $ | 1.62 |
| | $ | 7.83 |
|
|
| | | | | | | | | | | | | | | |
| | Group 1 Automotive, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Total Company |
| | (In thousands) |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
| Net cash (used in) provided by operating activities | $ | 93,999 |
| | $ | 49,710 |
| | $ | (2,662 | ) | | $ | 141,047 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| Cash paid in acquisitions, net of cash received | — |
| | (212,252 | ) | | — |
| | (212,252 | ) |
| Proceeds from disposition of franchises, property and equipment | — |
| | 40,833 |
| | 748 |
| | 41,581 |
|
| Purchases of property and equipment, including real estate | — |
| | (97,009 | ) | | (23,243 | ) | | (120,252 | ) |
| Other | — |
| | 6,421 |
| | — |
| | 6,421 |
|
| Net cash used in investing activities | — |
|
| (262,007 | ) |
| (22,495 | ) | | (284,502 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Borrowings on credit facility - floorplan line and other | — |
| | 7,557,237 |
| | — |
| | 7,557,237 |
|
| Repayments on credit facility - floorplan line and other | — |
| | (7,504,516 | ) | | — |
| | (7,504,516 | ) |
| Borrowings on credit facility - acquisition line | 489,548 |
| | — |
| | — |
| | 489,548 |
|
| Repayment on credit facility - acquisition line | (557,696 | ) | | — |
| | — |
| | (557,696 | ) |
| Net borrowings of 5.25% Senior Unsecured Notes | 296,250 |
| | — |
| | — |
| | 296,250 |
|
| Debt issue costs | — |
| | (788 | ) | | — |
| | (788 | ) |
| Borrowings on other debt | — |
| | 451 |
| | 59,404 |
| | 59,855 |
|
| Principal payments on other debt | — |
| | (1,386 | ) | | (62,383 | ) | | (63,769 | ) |
| Principal payments on debt related to real estate loans | — |
| | (68,234 | ) | | (3,845 | ) | | (72,079 | ) |
| Borrowings on debt related to real estate | — |
| | 9,596 |
| | 22,430 |
| | 32,026 |
|
| Issuance of common stock to benefit plans, net | 214 |
| | — |
| | — |
| | 214 |
|
| Repurchases of common stock, amounts based on settlement date | (97,473 | ) | | — |
| | — |
| | (97,473 | ) |
| Tax effect from stock-based compensation | — |
| | 2,142 |
| | — |
| | 2,142 |
|
| Dividends paid | (19,942 | ) | | — |
| | — |
| | (19,942 | ) |
| Borrowings (repayments) with subsidiaries | 220,281 |
| | (211,236 | ) | | (9,045 | ) | | — |
|
| Investment in subsidiaries | (425,181 | ) | | 409,990 |
| | 15,191 |
| | — |
|
| Net cash (used in) provided by financing activities | (93,999 | ) |
| 193,256 |
|
| 21,752 |
| | 121,009 |
|
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | — |
| | — |
| | (5,492 | ) | | (5,492 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — |
|
| (19,041 | ) |
| (8,897 | ) | | (27,938 | ) |
| CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 25,379 |
| | 15,596 |
| | 40,975 |
|
| CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | 6,338 |
| | $ | 6,699 |
| | $ | 13,037 |
|
EXHIBIT INDEX
|
| | | | |
Exhibit
Number
| | Description |
| | — | | Amended and Restated Certificate of Incorporation of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)
|
3.2 | | — | | Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of Group 1’s Quarterly Report on Form 10-Q (File No. 001-13461) for the period ended March 31, 2007) |
| | — | | Third Amended and Restated Bylaws of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed April 6, 2017)
|
4.1 | | — | | Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 (Registration No. 333-29893)) |
| | — | | Indenture, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014) |
4.3 | | — | | Form of 5.000% Senior Notes due 2022 (included as Exhibit A to Exhibit 4.2) |
| | — | | Registration Rights Agreement, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014) |
| | — | | Registration Rights Agreement, dated as of September 9, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 11, 2014) |
| | — | | Indenture, dated as of December 8, 2015, by and among Group 1 Automotive, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed December 9, 2015
|
| | — | | Form of 5.250% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed December 9, 2015)
|
| | — | | Ninth Amended and Restated Revolving Credit Agreement, dated effective as of June 20, 2013, among Group 1 Automotive, Inc., the Subsidiary Borrowers listed therein, the Lenders listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Comerica Bank, as Floor Plan Agent and Bank of America, N.A., as Syndication Agent (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 26, 2013) |
|
| | | | |
Exhibit
Number
| | Description |
| | — | | Stockholders Agreement dated as of February 28, 2013, by and among Group 1 Automotive, Inc. and former shareholders of UAB Motors Participações S.A. named therein (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 5, 2013) |
10.3 | | — | | Master Assignment and Acceptance Agreement, dated effective December 11, 2012, between JPMorgan Chase Bank, N.A., Comerica Bank, and Bank of America, N.A., each, an Assignor, and VW Credit, Inc., as Assignee, pursuant to the terms of the Eighth Amended and Restated Revolving Credit Agreement, dated effective as of July 1, 2011, as amended (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2012) |
10.4 | | — | | Loan Facility dated as of October 3, 2008 by and between Chandlers Garage Holdings Limited and BMW Financial Services (GB) Limited. (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2008) |
10.5 | | — | | Form of Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2003) |
10.6 | | — | | Supplemental Terms and Conditions dated September 4, 1997 between Ford Motor Company and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.16 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
10.7 | | — | | Form of Agreement between Toyota Motor Sales, U.S.A., Inc. and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.12 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
10.8 | | — | | Toyota Dealer Agreement effective April 5, 1993 between Gulf States Toyota, Inc. and Southwest Toyota, Inc. (Incorporated by reference to Exhibit 10.17 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
10.9 | | — | | Lexus Dealer Agreement effective August 21, 1995 between Lexus, a division of Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. (Incorporated by reference to Exhibit 10.18 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
10.10 | | — | | Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
10.11 | | — | | Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998) |
10.12 | | — | | Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893) |
|
| | | | |
Exhibit
Number
| | Description |
10.13 | | — | | Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998) |
10.14 | | — | | Form of Nissan Division of Nissan North America, Inc. Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2003) |
10.15 | | — | | Form of Infiniti Division of Nissan North America, Inc. Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.26 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2003) |
| | — | | Policy on Payment or Recoupment of Performance-Based Cash Bonuses and Performance-Based Stock Bonuses in the Event of Certain Restatement (Incorporated by reference to the section titled “Policy on Payment or Recoupment of Performance-Based Cash Bonuses and Performance-Based Stock Bonuses in the Event of Certain Restatement” in Item 5.02 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 13461) filed November 16, 2009) |
| | — | | Form of Indemnification Agreement of Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 13, 2007) |
| | — | | Group 1 Automotive, Inc. 2017 Short Term Incentive Plan Guidelines (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.'s Current Report on Form 8-K (File No. 001-134561) filed March 3, 2017)
|
10.19 | | — | | Officer’s Terms of Engagement and Guarantees between UAB Motors Participações S.A. and Lincoln da Cunha Pereira Filho dated as of February 28, 2013 (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended March 31, 2013) |
10.20 | | — | | Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.28 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2007) |
10.21 | | — | | First Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2008) |
10.22 | | — | | Second Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2009) |
| | — | | Third Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 15, 2010) |
| | — | | Group 1 Automotive, Inc. 2007 Long Term Incentive Plan (As Amended and Restated Effective as of March 11, 2010) (Incorporated by reference to Exhibit A to Group 1 Automotive, Inc.’s definitive proxy statement on Schedule 14A filed on April 8, 2010) |
| | — | | Group 1 Automotive, Inc. 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to Group 1 Automotive, Inc.’s definitive proxy statement on Schedule 14A filed April 10, 2014)
|
| | — | | Form of Restricted Stock Agreement for Employees (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)
|
| | — | | Form of Senior Executive Officer Restricted Stock Agreement (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 9, 2010)
|
10.28* | | — | | Form of Restricted Stock Agreement with Qualified Retirement Provisions (Incorporated by reference to Exhibit 10.27 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2011)
|
| | — | | Form of Phantom Stock Agreement for Employees (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)
|
|
| | | | |
Exhibit
Number
| | Description |
10.30* | | — | | Form of Phantom Stock Agreement for Non-Employee Directors (Incorporated by reference to Exhibit 10.36 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2009)
|
| | — | | Form of Phantom Stock Agreement for Non-Employee Directors (Incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)
|
| | — | | Employment Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)
|
| | — | | Non-Compete Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated by reference to Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)
|
10.34 | | — | | Transition Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara (Incorporated by reference to Exhibit 10.41 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2015) |
10.35* | | — | | Employment Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara (Incorporated by reference to Exhibit 10.42 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2015) |
| | — | | Employment Agreement dated January 1, 2009 between Group 1 Automotive, Inc. and John C. Rickel (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 17, 2009)
|
| | — | | Incentive Compensation and Non-Compete Agreement dated June 2, 2006 between Group 1 Automotive, Inc. and John C. Rickel (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 7, 2006)
|
| | — | | Employment Agreement dated effective as of December 1, 2009 between Group 1 Automotive, Inc. and Darryl M. Burman (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 16, 2009)
|
| | — | | Incentive Compensation and Non-Compete Agreement dated December 1, 2006 between Group 1 Automotive, Inc. and Darryl M. Burman (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K/A (File No. 001-13461) filed December 1, 2006)
|
10.40* | | — | | Incentive Compensation, Confidentiality, Non-Disclosure and Non-Compete Agreement dated January 1, 2010 between Group 1 Automotive, Inc. and Mark J. Iuppenlatz (Incorporated by reference to Exhibit 10.48 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2009)
|
| | — | | Group 1 Automotive, Inc. Aircraft Usage Policy
|
10.42* | | — | | Description of UAB Motors Participações S.A. Bonus Plan for 2013 (Incorporated by reference to Exhibit 10.4 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended March 31, 2013)
|
10.43* | | — | | Form of Senior Executive Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
10.44* | | — | | Form of Restricted Stock Agreement with Qualified Retirement Provisions (incorporated by reference to Exhibit 10.4 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
10.45* | | — | | Form of Restricted Stock Agreement for Employees (incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
10.46* | | — | | Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.6 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
10.47* | | — | | Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.7 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
10.48* | | — | | Form of Performance-Based Restricted Stock Agreement (incorporated by reference to Exhibit 10.8 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)
|
|
| | | | |
Exhibit
Number
| | Description |
11.1 | | — | | Statement re Computation of Per Share Earnings (Incorporated by reference to Note 6 to the financial statements) |
| | — | | Statement re Computation of Ratios |
| | — | | Group 1 Automotive, Inc. Subsidiary List |
| | — | | Consent of Ernst & Young LLP |
| | — | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | — | | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS | | — | | XBRL Instance Document |
101.SCH | | — | | XBRL Taxonomy Extension Schema Document |
101.CAL | | — | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | — | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | — | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | — | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
* | Management contract or compensatory plan or arrangement |
SIGNATURES
Pursuant to the requirements(1) Includes $2.0 million, $4.0 million and $11.9 million of Section 13 or 15(d) 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 on the 16th day of February, 2018.
|
| | | |
| Group 1 Automotive, Inc. |
| | |
| By: | | /s/ Earl J. Hesterberg |
| | | Earl J. Hesterberg |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantexpense in the capacities indicatedfirst, second and third quarters of 2019, respectively, related to catastrophic events mainly as a result of flood damage from Tropical Storm Imelda and hail storm damages primarily in Texas and $0.5 million, $10.3 million and $11.5 million in the second, third, and fourth quarter, respectively, related to asset impairment charges.
(2) Includes $20.1 million, $5.4 million and ($0.3) million of net gains / (losses) in the second, third and fourth quarters of 2018, respectively, related to disposition on real estate and dealership transactions; $5.8 million and $0.6 million of expenses in the 16th daysecond and fourth quarters of February, 2018.2018, respectively, related to catastrophic events mainly as a result of hail storms; $0.5 million and $3.1 million of gains in the second and third quarters of 2018, respectively, related to legal settlements and $4.3 million, $23.2 million and $16.5 million in the second, third and fourth quarters of 2018, respectively, related to asset impairments.
|
| | |
Signature | | Title |
| |
/s/ Earl J. Hesterberg | | President and Chief Executive Officer and Director |
Earl J. Hesterberg | | (Principal Executive Officer) |
| |
/s/ John C. Rickel | | Senior Vice President and Chief Financial Officer |
John C. Rickel | | (Principal Financial and Accounting Officer) |
| |
/s/ Stephen D. Quinn | | Chairman and Director |
Stephen D. Quinn | | |
| | |
/s/ John L. Adams | | Director |
John L. Adams | | |
| | |
/s/ Carin Barth | | Director |
Carin Barth | | |
| |
/s/ Lincoln da Cunha Pereira Filho | | Director |
Lincoln da Cunha Pereira Filho | | |
| |
/s/ J. Terry Strange | | Director |
J. Terry Strange | | |
| | |
/s/ Charles L. Szews | | Director |
Charles L. Szews | | |
| |
/s/ Max P. Watson, Jr. | | Director |
Max P. Watson, Jr. | | |
| |
/s/ MaryAnn Wright | | Director |
MaryAnn Wright | | |
