AN 10-Q
Autonation, Inc. (AN)
10-Q
2022-07-21
For: 2022-06-30
View Original
Added on
April 07, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 1-13107
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| , | ||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(954 )769-6000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
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.
| þ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of July 20, 2022, the registrant had 55,983,586 shares of common stock outstanding.
AUTONATION, INC.
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventory | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $ | |||||||||||
| OPERATING LEASE ASSETS | |||||||||||
| GOODWILL | |||||||||||
| OTHER INTANGIBLE ASSETS, NET | |||||||||||
| OTHER ASSETS | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Vehicle floorplan payable - trade | $ | $ | |||||||||
| Vehicle floorplan payable - non-trade | |||||||||||
| Accounts payable | |||||||||||
| Commercial paper | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Accrued payroll and benefits | |||||||||||
| Other current liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| LONG-TERM DEBT, NET OF CURRENT MATURITIES | |||||||||||
| NONCURRENT OPERATING LEASE LIABILITIES | |||||||||||
| DEFERRED INCOME TAXES | |||||||||||
| OTHER LIABILITIES | |||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 13) | |||||||||||
| SHAREHOLDERS’ EQUITY: | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Total Shareholders’ Equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
1
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| New vehicle | $ | $ | $ | $ | |||||||||||||||||||
| Used vehicle | |||||||||||||||||||||||
| Parts and service | |||||||||||||||||||||||
| Finance and insurance, net | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| TOTAL REVENUE | |||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||
| New vehicle | |||||||||||||||||||||||
| Used vehicle | |||||||||||||||||||||||
| Parts and service | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| TOTAL COST OF SALES (excluding depreciation shown below) | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||
| New vehicle | |||||||||||||||||||||||
| Used vehicle | |||||||||||||||||||||||
| Parts and service | |||||||||||||||||||||||
| Finance and insurance | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| TOTAL GROSS PROFIT | |||||||||||||||||||||||
| Selling, general, and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Other income, net | ( | ( | ( | ||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||
| Non-operating income (expense) items: | |||||||||||||||||||||||
| Floorplan interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income (loss), net | ( | ( | |||||||||||||||||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| NET INCOME FROM CONTINUING OPERATIONS | |||||||||||||||||||||||
| Loss from discontinued operations, net of income taxes | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| BASIC EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| DILUTED EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| COMMON SHARES OUTSTANDING, net of treasury stock, at period end | |||||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
2
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except share data)
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Shares awarded under stock-based compensation plans, net of shares withheld for taxes | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Shares awarded under stock-based compensation plans, net of shares withheld for taxes | — | — | ( | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Shares awarded under stock-based compensation plans, net of shares withheld for taxes | — | — | ( | — | |||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Treasury stock cancellation | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Shares awarded under stock-based compensation plans, net of shares withheld for taxes | — | — | ( | — | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Loss from discontinued operations | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs and accretion of debt discounts | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income tax provision (benefit) | ( | ||||||||||
| Net gain related to business/property dispositions | ( | ( | |||||||||
| Non-cash impairment charges | |||||||||||
| Loss (gain) on equity investments | ( | ||||||||||
| Loss (gain) on corporate-owned life insurance asset | ( | ||||||||||
| Other | |||||||||||
| (Increase) decrease, net of effects from business acquisitions and divestitures: | |||||||||||
| Receivables | |||||||||||
| Inventory | ( | ||||||||||
| Other assets | ( | ||||||||||
| Increase (decrease), net of effects from business acquisitions and divestitures: | |||||||||||
| Vehicle floorplan payable - trade | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by continuing operations | |||||||||||
| Net cash used in discontinued operations | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from assets held for sale | |||||||||||
| Cash received from business divestitures, net of cash relinquished | |||||||||||
| Proceeds from the sale of equity securities | |||||||||||
| Investment in equity securities | ( | ||||||||||
| Other | ( | ( | |||||||||
| Net cash used in continuing operations | ( | ( | |||||||||
| Net cash used in discontinued operations | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Continued)
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: | |||||||||||
| Repurchases of common stock | ( | ( | |||||||||
Proceeds from | |||||||||||
Payment of | ( | ||||||||||
| Net proceeds from (payments of) commercial paper | ( | ||||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Net payments of vehicle floorplan payable - non-trade | ( | ( | |||||||||
| Payments of other debt obligations | ( | ( | |||||||||
| Proceeds from the exercise of stock options | |||||||||||
| Payments of tax withholdings for stock-based awards | ( | ( | |||||||||
| Net cash used in continuing operations | ( | ( | |||||||||
| Net cash used in discontinued operations | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | ||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at end of period | $ | $ | |||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data)
1.INTERIM FINANCIAL STATEMENTS
Business and Basis of Presentation
AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of June 30, 2022, we owned and operated 339 new vehicle franchises from 247 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well-known in our key markets, sell 33 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 89 % of the new vehicles that we sold during the six months ended June 30, 2022, are manufactured by Toyota (including Lexus), Honda, Ford, Mercedes-Benz, BMW, General Motors, Stellantis, and Volkswagen (including Audi and Porsche). As of June 30, 2022, we also owned and operated 56 AutoNation-branded collision centers, 11 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service” (also referred to as “After-Sales”), which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. For convenience, the terms “AutoNation,” “Company,” and “we” are used to refer collectively to AutoNation, Inc. and its subsidiaries, unless otherwise required by the context. Our dealership operations are conducted by our subsidiaries.
2. REVENUE RECOGNITION
Disaggregation of Revenue
The significant majority of our revenue is from contracts with customers. Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that these categories depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The tables below also include a reconciliation of the disaggregated revenue to reportable segment revenue.
6
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Corporate and other(1) | Total | ||||||||||||||||||||||||||||
| Major Goods/Service Lines | ||||||||||||||||||||||||||||||||
| New vehicle | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Used vehicle | ||||||||||||||||||||||||||||||||
| Parts and service | ||||||||||||||||||||||||||||||||
| Finance and insurance, net | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Goods and services transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Goods and services transferred over time(2) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Corporate and other(1) | Total | ||||||||||||||||||||||||||||
| Major Goods/Service Lines | ||||||||||||||||||||||||||||||||
| New vehicle | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Used vehicle | ||||||||||||||||||||||||||||||||
| Parts and service | ||||||||||||||||||||||||||||||||
| Finance and insurance, net | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Goods and services transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Goods and services transferred over time(2) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
7
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Corporate and other(1) | Total | ||||||||||||||||||||||||||||
| Major Goods/Service Lines | ||||||||||||||||||||||||||||||||
| New vehicle | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Used vehicle | ||||||||||||||||||||||||||||||||
| Parts and service | ||||||||||||||||||||||||||||||||
| Finance and insurance, net | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Goods and services transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Goods and services transferred over time(2) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Corporate and other(1) | Total | ||||||||||||||||||||||||||||
| Major Goods/Service Lines | ||||||||||||||||||||||||||||||||
| New vehicle | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Used vehicle | ||||||||||||||||||||||||||||||||
| Parts and service | ||||||||||||||||||||||||||||||||
| Finance and insurance, net | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Goods and services transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Goods and services transferred over time(2) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Transaction Price Allocated to Remaining Performance Obligations
We sell a vehicle maintenance program (the AutoNation Vehicle Care Program or “VCP”) under which a customer purchases a specific number of maintenance services to be redeemed at an AutoNation location over a five-year term from the date of purchase. We satisfy our performance obligations related to this program and recognize revenue as the maintenance services are rendered, since the customer benefits when we have completed the maintenance service.
8
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table includes estimated revenue expected to be recognized in the future related to VCP performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
| Revenue Expected to Be Recognized by Period | ||||||||||||||||||||||||||
| Total | Next 12 Months | 13 - 36 Months | 37 - 60 Months | |||||||||||||||||||||||
Revenue expected to be recognized on VCP contracts sold as of period end | $ | $ | $ | $ | ||||||||||||||||||||||
As a practical expedient, since automotive repair and maintenance services are performed within one year or less, we do not disclose estimated revenue expected to be recognized in the future for automotive repair and maintenance performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue.
Contract Assets and Liabilities
When the timing of our provision of goods or services is different from the timing of payments made by our customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with automotive repair and maintenance services, as well as our estimate of variable consideration that has been included in the transaction price for certain finance and insurance products (retrospective commissions). These contract assets are reclassified to receivables when the right to consideration becomes unconditional. Contract liabilities primarily relate to upfront payments received from customers for the sale of VCP contracts.
Our receivables from contracts with customers are included in Receivables, net, our current contract asset is included in Other Current Assets, our long-term contract asset is included in Other Assets, our current contract liability is included in Other Current Liabilities, and our long-term contract liability is included in Other Liabilities in our Unaudited Condensed Consolidated Balance Sheets.
The following table provides the balances of our receivables from contracts with customers and our current and long-term contract assets and contract liabilities:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Receivables from contracts with customers, net | $ | $ | |||||||||
| Contract Asset (Current) | $ | $ | |||||||||
| Contract Asset (Long-Term) | $ | $ | |||||||||
| Contract Liability (Current) | $ | $ | |||||||||
| Contract Liability (Long-Term) | $ | $ | |||||||||
The change in the balances of our contract assets and contract liabilities primarily result from the timing differences between our performance and the customer’s payment, as well as changes in the estimated transaction price related to variable consideration that was constrained for performance obligations satisfied in previous periods. The following table presents revenue recognized during the period from amounts included in the contract liability balance at the beginning of the period and performance obligations satisfied in previous periods:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Amounts included in contract liability at the beginning of the period | $ | $ | $ | $ | |||||||||||||||||||
| Performance obligations satisfied in previous periods | $ | $ | $ | $ | |||||||||||||||||||
9
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.EARNINGS PER SHARE
The following table presents the calculation of basic and diluted EPS:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Loss from discontinued operations, net of income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Basic weighted average common shares outstanding | |||||||||||||||||||||||
Dilutive effect of stock options and unvested RSUs | |||||||||||||||||||||||
Diluted weighted average common shares outstanding | |||||||||||||||||||||||
Basic EPS amounts(1): | |||||||||||||||||||||||
Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Diluted EPS amounts(1): | |||||||||||||||||||||||
Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Anti-dilutive equity instruments excluded from the computation of diluted EPS | |||||||||||||||||||||||
10
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.RECEIVABLES, NET
The components of receivables, net of allowances for expected credit losses, are as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Contracts-in-transit and vehicle receivables | $ | $ | |||||||||
| Trade receivables | |||||||||||
| Manufacturer receivables | |||||||||||
| Income taxes receivable (see Note 8) | |||||||||||
| Other | |||||||||||
| Less: allowances for expected credit losses | ( | ( | |||||||||
Receivables, net | $ | $ | |||||||||
5.INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory are as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| New vehicles | $ | $ | |||||||||
| Used vehicles | |||||||||||
| Parts, accessories, and other | |||||||||||
Inventory | $ | $ | |||||||||
The components of vehicle floorplan payable are as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Vehicle floorplan payable - trade | $ | $ | |||||||||
| Vehicle floorplan payable - non-trade | |||||||||||
Vehicle floorplan payable | $ | $ | |||||||||
Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle floorplan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under our secured used vehicle floorplan facilities. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle floorplan payable-non-trade are reported as financing cash flows in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.
Our inventory costs are generally reduced by manufacturer holdbacks, incentives, floorplan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floorplan payables are reflective of the gross cost of the vehicle. The vehicle floorplan payables, as shown in the above table, may also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability.
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
At June 30, 2022, most of our new vehicle floorplan facilities utilized LIBOR-based interest rates and a smaller portion utilized Prime-based or SOFR-based interest rates. Our new vehicle floorplan outstanding had a weighted-average interest rate of 3.2 % at June 30, 2022, and 1.6 % at December 31, 2021. As of June 30, 2022, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $4.8 billion, of which $0.9 billion had been borrowed.
6.GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, consist of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Goodwill | $ | $ | |||||||||
| Franchise rights - indefinite-lived | $ | $ | |||||||||
| Other intangibles | |||||||||||
| Less: accumulated amortization | ( | ( | |||||||||
| Other intangible assets, net | $ | $ | |||||||||
Goodwill for our reporting units and our franchise rights assets are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may exist.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as of April 30, 2022, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts. We elected to perform quantitative franchise rights impairment tests as of April 30, 2022, and no
12
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt consists of the following:
| Debt Description | Maturity Date | Interest Payable | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| May 15 and November 15 | $ | $ | ||||||||||||||||||||||||
| April 1 and October 1 | ||||||||||||||||||||||||||
| May 15 and November 15 | ||||||||||||||||||||||||||
| February 1 and August 1 | ||||||||||||||||||||||||||
| June 1 and December 1 | ||||||||||||||||||||||||||
| February 1 and August 1 | ||||||||||||||||||||||||||
| March 1 and September 1 | ||||||||||||||||||||||||||
| Revolving credit facility | Monthly | |||||||||||||||||||||||||
| Finance leases and other debt | Various dates through 2041 | |||||||||||||||||||||||||
| Less: unamortized debt discounts and debt issuance costs | ( | ( | ||||||||||||||||||||||||
| Less: current maturities | ( | ( | ||||||||||||||||||||||||
| Long-term debt, net of current maturities | $ | $ | ||||||||||||||||||||||||
Senior Unsecured Notes and Credit Agreement
On February 28, 2022, we issued $700 million aggregate principal amount of 3.85 % Senior Notes due 2032, which were sold at 99.835 % of the aggregate principal amount.
The interest rates payable on our 3.5 % Senior Notes, 4.5 % Senior Notes, 3.8 % Senior Notes, and 4.75 % Senior Notes are subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.
Under our amended and restated credit agreement, we have a $1.8 billion revolving credit facility that matures on March 26, 2025 . The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to $500.0 million in the aggregate. As of June 30, 2022, we had no borrowings outstanding under our revolving credit facility. We have a $200.0 million letter of credit sublimit as part of our revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which was $39.8 million at June 30, 2022, leaving a borrowing capacity under the revolving credit facility of $1.8 billion at June 30, 2022.
Our revolving credit facility under the amended credit agreement provides for a commitment fee on undrawn amounts ranging from 0.125 % to 0.20 % and interest on borrowings at LIBOR or the base rate, in each case plus an applicable margin. The applicable margin ranges from 1.125 % to 1.50 % for LIBOR borrowings and 0.125 % to 0.50 % for base rate borrowings. The interest rate charged for our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater than or equal to 2.0 x but less than 3.25 x to greater than or equal to 3.25 x would result in a 12.5 basis point increase in the applicable margin.
Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations. If guarantees of our subsidiaries were to be issued under our existing registration statement, we expect that such guarantees would be full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries would be minor.
Other Long-Term Debt
At June 30, 2022, we had finance leases and other debt obligations of $324.4 million, which are due at various dates through 2041.
13
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Commercial Paper
We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $1.0 billion. The interest rate for the commercial paper notes varies based on duration and market conditions. The maturities of the commercial paper notes may vary, but may not exceed 397 days from the date of issuance. Proceeds from the issuance of commercial paper notes are used to repay borrowings under the revolving credit facility, to finance acquisitions, and for strategic initiatives, working capital, capital expenditures, share repurchases, and/or other general corporate purposes. We plan to use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper program. A downgrade in our credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper notes.
8.INCOME TAXES
Income taxes receivable included in Receivables, net totaled $5.5 million at June 30, 2022, and income taxes payable included in Other Current Liabilities totaled $6.9 million at December 31, 2021.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently, no tax years are under examination by the IRS, and tax years from 2014 to 2019 are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes.
It is our policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated Statements of Operations.
9.SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Shares repurchased | |||||||||||||||||||||||
| Aggregate purchase price | $ | $ | $ | $ | |||||||||||||||||||
| Average purchase price per share | $ | $ | $ | $ | |||||||||||||||||||
As of June 30, 2022, $109.7 million remained available under our stock repurchase limit most recently authorized by our Board of Directors. In July 2022, our Board of Directors increased the share repurchase authorization by $1.0 billion.
Our Board of Directors authorized the retirement of 16.0 million shares of our treasury stock in April 2021, which assumed the status of authorized but unissued shares. Upon the retirement of treasury stock, it is our policy to charge the excess of the cost of the treasury stock over its par value entirely to additional paid-in capital. Any amounts exceeding additional paid-in capital are charged to retained earnings. This retirement had the effect of reducing treasury stock and issued common stock, which includes treasury stock. Our common stock, additional paid-in capital, retained earnings, and treasury stock accounts were adjusted accordingly. There was no impact to shareholders’ equity or outstanding common stock.
We have 5.0 million authorized shares of preferred stock, par value $0.01 per share, none of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences, and dividends of such preferred stock.
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of shares of common stock issued in connection with the exercise of stock options follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Shares issued (in actual number of shares) | |||||||||||||||||||||||
| Proceeds from the exercise of stock options | $ | $ | $ | $ | |||||||||||||||||||
| Average exercise price per share | $ | $ | $ | $ | |||||||||||||||||||
The following table presents a summary of shares of common stock issued in connection with the settlement of RSUs, as well as shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the settlement of RSUs:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In actual number of shares) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Shares issued | |||||||||||||||||||||||
Shares surrendered to AutoNation to satisfy tax withholding obligations | |||||||||||||||||||||||
10.ACQUISITIONS
We did not purchase any stores during the six months ended June 30, 2022 and 2021. During the second half of 2021, we purchased 20 stores and 4 collision centers operating in South Carolina, Georgia, and Maryland.
The amounts of revenue and earnings of the stores and collision centers acquired during 2021 included in our Unaudited Condensed Consolidated Statement of Operations were $261.7 million and $12.6 million, respectively, for the three months ended June 30, 2022, and $499.5 million and $20.8 million, respectively, for the six months ended June 30, 2022. Our supplemental pro forma revenue and net income from continuing operations for the three and six months ended June 30, 2021, had the acquisition dates been January 1, 2021, are as follows:
| Unaudited supplemental pro forma: | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | ||||||||||||
| Revenue | $ | $ | ||||||||||||
| Net income from continuing operations | $ | $ | ||||||||||||
11.CASH FLOW INFORMATION
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents reported on our Unaudited Condensed Consolidated Balance Sheets to the total amounts, which include cash, cash equivalents, and restricted cash, reported on our Unaudited Condensed Consolidated Statements of Cash Flows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in Other Current Assets | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Non-Cash Investing and Financing Activities
We had accrued purchases of property and equipment of $22.5 million at June 30, 2022, and $12.1 million at June 30, 2021.
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental noncash information on adjustments to right-of-use assets, including right-of-use assets obtained in exchange for new: | |||||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Finance lease liabilities | $ | $ | |||||||||
Interest and Income Taxes Paid
We made interest payments, net of amounts capitalized and including interest on vehicle inventory financing, of $62.0 million during the six months ended June 30, 2022, and $63.7 million during the six months ended June 30, 2021. We made income tax payments, net of income tax refunds, of $252.0 million during the six months ended June 30, 2022, and $190.5 million during the six months ended June 30, 2021.
12.FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which 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 (unadjusted) in active markets for identical assets or liabilities that a reporting entity can access at the measurement date | ||||
| Level 2 | Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly | ||||
| Level 3 | Unobservable inputs | ||||
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
•Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, and variable rate debt: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
•Investments in Equity Securities: Our equity investments with readily determinable fair values are measured at fair value using Level 1 inputs. In the first quarter of 2021, we sold one of our minority equity investments with a readily determinable fair value for total proceeds of $109.4 million. The fair value of our equity investments with readily determinable fair values totaled $2.1 million at June 30, 2022 and $2.2 million at December 31, 2021.
Our equity investment that does not have a readily determinable fair value is measured using the measurement alternative as permitted by accounting standards and was recorded at cost, to be subsequently adjusted for observable price changes. The carrying amount of our equity investment without a readily determinable fair value was $56.7 million at June 30, 2022, and $56.7 million at December 31, 2021. This equity investment reflects a cumulative upward adjustment of $3.4 million based on an observable price change. We did not record any upward adjustments during the six months ended June 30, 2022. Additionally, we have not recorded any impairments or downward adjustments to the carrying amount of our equity investment as of and for the six months ended June 30, 2022.
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Investments in equity securities are reported in Other Assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. Realized and unrealized gains and losses are reported in Other Income (Loss), Net (non-operating) in the Unaudited Condensed Consolidated Statements of Operations and in the “Corporate and other” category of our segment information.
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net gains (losses) recognized during the period on equity securities | $ | ( | $ | ||||||||
| Less: Net gains recognized during the period on equity securities sold during the period | |||||||||||
| Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | $ | ( | $ | ||||||||
•Fixed rate long-term debt: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Carrying value | $ | $ | |||||||||
| Fair value | $ | $ | |||||||||
The following table presents assets measured and recorded at fair value on a nonrecurring basis during the six months ended June 30, 2022 and 2021:
| 2022 | 2021 | |||||||||||||||||||||||||
| Description | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Gain/(Loss) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Gain/(Loss) | ||||||||||||||||||||||
| Equity investment | $ | $ | $ | $ | ||||||||||||||||||||||
| Right-of-use assets | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Long-lived assets held and used | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
Goodwill and Other Intangible Assets
Goodwill for our reporting units and our franchise rights assets are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may exist. Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as of April 30, 2022 and 2021, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We elected to perform quantitative franchise rights impairment tests as of April 30, 2022 and 2021, and no
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using Level 3 inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable.
Long-Lived Assets and Right-of-Use Assets
Fair value measurements for our long-lived assets and right-of-use assets are based on Level 3 inputs. Changes in fair value measurements are reviewed and assessed each quarter for long-lived assets classified as held for sale, or when an indicator of impairment exists for long-lived assets classified as held and used or for right-of-use assets. The valuation process is generally based on a combination of the market and replacement cost approaches.
In a market approach, we use transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. We evaluate changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.
To validate the fair values determined under the valuation process noted above, we also obtain independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and we evaluate any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market.
The non-cash impairment charges related to right-of-use assets and long-lived assets held and used are included in Other Income, Net in our Unaudited Condensed Consolidated Statements of Operations and in the “Corporate and other” category of our segment information.
We had assets held for sale in continuing operations of $59.1 million as of June 30, 2022, and $53.3 million as of December 31, 2021, primarily related to property held for sale, as well as inventory, goodwill, and property of disposal groups held for sale. We had assets held for sale in discontinued operations of $1.1 million as of June 30, 2022, and $1.1 million as of December 31, 2021, related to property held for sale. Assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.
13.COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter.
As of June 30, 2022 and 2021, we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable, and there was no indication of a reasonable possibility that a material loss, or additional material loss, may have been incurred. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related 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, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from 2022 to 2034 are approximately $7 million at June 30, 2022. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at June 30, 2022. There can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.
At June 30, 2022, surety bonds, letters of credit, and cash deposits totaled $106.5 million, of which $39.8 million were letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.
14.BUSINESS AND CREDIT CONCENTRATIONS
We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle manufacturers. During the six months ended June 30, 2022, approximately 62 % of our total retail new vehicle unit sales was generated by our stores in Florida, Texas, and California. We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately 89 % of the new vehicles sold during the six months ended June 30, 2022, are manufactured by Toyota (including Lexus), Honda, Ford, Mercedes-Benz, BMW, General Motors, Stellantis, and Volkswagen (including Audi and Porsche). Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
We had receivables from manufacturers or distributors of $148.4 million at June 30, 2022, and $148.4 million at December 31, 2021. Additionally, a large portion of our contracts-in-transit included in Receivables, net, in the accompanying Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at June 30, 2022, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15.SEGMENT INFORMATION
At June 30, 2022 and 2021, we had three
“Corporate and other” is comprised of our other businesses, including collision centers, AutoNation USA used vehicle stores, auction operations, and parts distribution centers, all of which generate revenues but do not meet the quantitative thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
The following table provides information on revenues from external customers and segment income of our reportable segments:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, 2022 | June 30, 2022 | ||||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Domestic | Import | Premium Luxury | ||||||||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Segment income (1) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, 2021 | June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Domestic | Import | Premium Luxury | Domestic | Import | Premium Luxury | ||||||||||||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Segment income (1) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following is a reconciliation of total segment income for reportable segments to our consolidated income from continuing operations before income taxes:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Total segment income for reportable segments | $ | $ | $ | $ | ||||||||||||||||||||||
| Corporate and other | ( | ( | ( | ( | ||||||||||||||||||||||
| Other interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other income (loss), net | ( | ( | ||||||||||||||||||||||||
| Income from continuing operations before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K.
Overview
AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of June 30, 2022, we owned and operated 339 new vehicle franchises from 247 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 33 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 89% of the new vehicles that we sold during the six months ended June 30, 2022, are manufactured by Toyota (including Lexus), Honda, Ford, Mercedes-Benz, BMW, General Motors, Stellantis, and Volkswagen (including Audi and Porsche). As of June 30, 2022, we also owned and operated 56 AutoNation-branded collision centers, 11 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service” (also referred to as “After-Sales”), which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, leveraging the AutoNation retail brand and advertising, implementing standardized processes, and increasing productivity across all of our stores.
At June 30, 2022, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and Stellantis. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Hyundai, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
For the six months ended June 30, 2022, new vehicle sales accounted for 42% of our total revenue and 26% of our total gross profit. Used vehicle sales accounted for 37% of our total revenue and 11% of our total gross profit. Our parts and service operations, while comprising 15% of our total revenue, contributed 35% of our total gross profit. Our finance and insurance sales, while comprising 5% of our total revenue, contributed 27% of our total gross profit.
Market Conditions
In the second quarter of 2022, U.S. industry retail new vehicle unit sales decreased 15% as compared to the second quarter of 2021, primarily as a result of the limited supply of new vehicles to sell. During the second quarter of 2022, the demand for vehicles continued to exceed supply. While market demand for vehicles remains high, there continues to be a shortage of available new vehicles for sale driven largely by disruptions in the manufacturers’ supply chains. This demand and supply imbalance continues to result in higher levels of profitability for available new vehicles. The reduced levels of new vehicle availability is currently expected to continue throughout 2022; however, there is still significant uncertainty as to when new vehicle availability will improve, as well as the duration and/or degree of the higher levels of profitability being realized during this time. Additionally, rising interest rates and high levels of inflation could adversely impact consumer demand for vehicles.
Results of Operations
During the three months ended June 30, 2022, we had net income from continuing operations of $376.5 million and diluted earnings per share of $6.48, as compared to net income from continuing operations of $384.9 million and diluted earnings per share of $4.83 during the same period in 2021.
Our total gross profit increased 2.7% during the second quarter of 2022 compared to the second quarter of 2021, driven by increases in new vehicle gross profit of 10.3% and parts and service gross profit of 11.4%. each as compared to the second quarter of 2021. New vehicle gross profit benefited from an increase in gross profit per vehicle retailed (“PVR”) resulting from strong demand and historically low new vehicle inventory levels due to disruptions in the manufacturers’ supply chains. Parts
21
and service results benefited primarily from increases in gross profit from customer-pay service and the preparation of vehicles for sale. The increases in gross profit were partially offset by a decrease in used vehicle gross profit of 22.8% due to margin pressure as a result of a decline in used vehicle values.
SG&A expenses increased largely due to newly acquired and opened stores. With improvements in gross profit and our continued focus on cost control, SG&A expenses as a percentage of gross profit decreased to 55.4% during the three months ended June 30, 2022, from 56.5% in the same period in 2021. Other interest expense increased due to higher average debt balances, partially offset by lower average interest rates.
Net income from continuing operations during the three months ended June 30, 2021, benefited from an after-tax gain of $2.6 million related to changes in the fair value of the underlying securities of our minority equity investment.
Strategic Initiatives
We entered into an agreement in July 2022 to acquire CIG Financial, an auto finance company headquartered in Irvine, California, for $85 million as well as the assumption of certain liabilities as of the acquisition date. The acquisition of CIG Financial aligns with our strategic business model and singular focus on personalized finance and mobility solutions that are easy, transparent, and customer-centric. This acquisition will further extend our relationship with our customers beyond the buying experience and throughout the vehicle ownership life cycle. The transaction remains subject to customary closing conditions and regulatory approvals and is expected to close within the next 90 days.
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or net realizable value on our consolidated balance sheets. We monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends. Our new vehicle inventory units at June 30, 2022 and 2021, were 10,782 and 14,338, respectively. By historical standards, our inventory unit levels are significantly lower driven by strong demand and disruptions in the manufacturers’ supply chains. Inadequate levels of new vehicle availability could adversely affect our financial results.
We have typically not experienced significant losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We monitor our new vehicle inventory values as compared to net realizable values, and had no new vehicle inventory write-downs at June 30, 2022, or at December 31, 2021.
We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of $4.3 million at June 30, 2022, and $3.6 million at December 31, 2021.
Parts, accessories, and other inventory are carried at the lower of cost or net realizable value. We estimate the amount of potentially damaged and/or excess and obsolete inventory based upon historical experience, manufacturer return policies, and industry trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $6.3 million at June 30, 2022, and $5.8 million at December 31, 2021.
Critical Accounting Estimates
We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, and we base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Unaudited Condensed Consolidated Financial Statements. For additional discussion of our critical accounting estimates, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K.
Goodwill
Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. We may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is
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influenced by a number of factors, including the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, macroeconomic conditions, automotive industry and market conditions, and our operating performance.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as of April 30, 2022, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.
As of June 30, 2022, we have $228.7 million of goodwill related to the Domestic reporting unit, $517.9 million related to the Import reporting unit, $482.1 million related to the Premium Luxury reporting unit, and $4.6 million related to the Collision Centers reporting unit.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We may first perform a qualitative assessment to determine whether it is more likely than not that a franchise right asset is impaired. The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using unobservable (Level 3) inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable.
We elected to perform quantitative tests for our annual franchise rights impairment testing as of April 30, 2022, and no impairment charges resulted from these quantitative tests.
If the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2022, no impairment would have resulted. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome.
23
Reported Operating Data
Historical operating results include the results of acquired businesses from the date of acquisition.
| ($ in millions, except per vehicle data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | ||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 2,935.8 | $ | 3,428.3 | $ | (492.5) | (14.4) | $ | 5,743.0 | $ | 6,410.6 | $ | (667.6) | (10.4) | |||||||||||||||||||||||||||||||||
| Retail used vehicle | 2,362.2 | 2,085.8 | 276.4 | 13.3 | 4,754.4 | 3,729.9 | 1,024.5 | 27.5 | |||||||||||||||||||||||||||||||||||||||
| Wholesale | 158.2 | 137.1 | 21.1 | 15.4 | 338.4 | 242.1 | 96.3 | 39.8 | |||||||||||||||||||||||||||||||||||||||
| Used vehicle | 2,520.4 | 2,222.9 | 297.5 | 13.4 | 5,092.8 | 3,972.0 | 1,120.8 | 28.2 | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 367.6 | 369.0 | (1.4) | (0.4) | 731.5 | 682.0 | 49.5 | 7.3 | |||||||||||||||||||||||||||||||||||||||
Total variable operations(1) | 5,823.8 | 6,020.2 | (196.4) | (3.3) | 11,567.3 | 11,064.6 | 502.7 | 4.5 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 1,036.3 | 950.8 | 85.5 | 9.0 | 2,040.2 | 1,801.8 | 238.4 | 13.2 | |||||||||||||||||||||||||||||||||||||||
| Other | 9.1 | 7.4 | 1.7 | 14.5 | 15.8 | (1.3) | |||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 6,869.2 | $ | 6,978.4 | $ | (109.2) | (1.6) | $ | 13,622.0 | $ | 12,882.2 | $ | 739.8 | 5.7 | |||||||||||||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 353.5 | $ | 320.5 | $ | 33.0 | 10.3 | $ | 698.5 | $ | 510.5 | $ | 188.0 | 36.8 | |||||||||||||||||||||||||||||||||
| Retail used vehicle | 147.6 | 180.4 | (32.8) | (18.2) | 272.5 | 305.6 | (33.1) | (10.8) | |||||||||||||||||||||||||||||||||||||||
| Wholesale | 8.9 | 22.3 | (13.4) | 20.6 | 37.3 | (16.7) | |||||||||||||||||||||||||||||||||||||||||
| Used vehicle | 156.5 | 202.7 | (46.2) | (22.8) | 293.1 | 342.9 | (49.8) | (14.5) | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance | 367.6 | 369.0 | (1.4) | (0.4) | 731.5 | 682.0 | 49.5 | 7.3 | |||||||||||||||||||||||||||||||||||||||
Total variable operations(1) | 877.6 | 892.2 | (14.6) | (1.6) | 1,723.1 | 1,535.4 | 187.7 | 12.2 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 481.7 | 432.5 | 49.2 | 11.4 | 942.8 | 821.5 | 121.3 | 14.8 | |||||||||||||||||||||||||||||||||||||||
| Other | 2.4 | 1.6 | 0.8 | 4.7 | 2.2 | 2.5 | |||||||||||||||||||||||||||||||||||||||||
| Total gross profit | 1,361.7 | 1,326.3 | 35.4 | 2.7 | 2,670.6 | 2,359.1 | 311.5 | 13.2 | |||||||||||||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 754.8 | 748.9 | (5.9) | (0.8) | 1,496.2 | 1,396.8 | (99.4) | (7.1) | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 48.8 | 47.9 | (0.9) | 98.8 | 95.8 | (3.0) | |||||||||||||||||||||||||||||||||||||||||
| Other income, net | — | (0.7) | (0.7) | (1.5) | (0.6) | 0.9 | |||||||||||||||||||||||||||||||||||||||||
| Operating income | 558.1 | 530.2 | 27.9 | 5.3 | 1,077.1 | 867.1 | 210.0 | 24.2 | |||||||||||||||||||||||||||||||||||||||
| Non-operating income (expense) items: | |||||||||||||||||||||||||||||||||||||||||||||||
| Floorplan interest expense | (5.8) | (6.6) | 0.8 | (11.0) | (16.0) | 5.0 | |||||||||||||||||||||||||||||||||||||||||
| Other interest expense | (34.1) | (20.9) | (13.2) | (63.7) | (42.1) | (21.6) | |||||||||||||||||||||||||||||||||||||||||
| Other income (loss), net | (13.7) | 8.9 | (22.6) | (20.1) | 19.9 | (40.0) | |||||||||||||||||||||||||||||||||||||||||
| Income from continuing operations before income taxes | $ | 504.5 | $ | 511.6 | $ | (7.1) | (1.4) | $ | 982.3 | $ | 828.9 | $ | 153.4 | 18.5 | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | 57,890 | 77,164 | (19,274) | (25.0) | 114,332 | 146,525 | (32,193) | (22.0) | |||||||||||||||||||||||||||||||||||||||
| Used vehicle | 77,080 | 80,589 | (3,509) | (4.4) | 156,843 | 152,369 | 4,474 | 2.9 | |||||||||||||||||||||||||||||||||||||||
| 134,970 | 157,753 | (22,783) | (14.4) | 271,175 | 298,894 | (27,719) | (9.3) | ||||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 50,713 | $ | 44,429 | $ | 6,284 | 14.1 | $ | 50,231 | $ | 43,751 | $ | 6,480 | 14.8 | |||||||||||||||||||||||||||||||||
| Used vehicle | $ | 30,646 | $ | 25,882 | $ | 4,764 | 18.4 | $ | 30,313 | $ | 24,479 | $ | 5,834 | 23.8 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 6,106 | $ | 4,153 | $ | 1,953 | 47.0 | $ | 6,109 | $ | 3,484 | $ | 2,625 | 75.3 | |||||||||||||||||||||||||||||||||
| Used vehicle | $ | 1,915 | $ | 2,239 | $ | (324) | (14.5) | $ | 1,737 | $ | 2,006 | $ | (269) | (13.4) | |||||||||||||||||||||||||||||||||
| Finance and insurance | $ | 2,724 | $ | 2,339 | $ | 385 | 16.5 | $ | 2,698 | $ | 2,282 | $ | 416 | 18.2 | |||||||||||||||||||||||||||||||||
Total variable operations(2) | $ | 6,436 | $ | 5,514 | $ | 922 | 16.7 | $ | 6,278 | $ | 5,012 | $ | 1,266 | 25.3 | |||||||||||||||||||||||||||||||||
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results. | |||||||||||||||||||||||||||||||||||||||||||||||
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales. | |||||||||||||||||||||||||||||||||||||||||||||||
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 (%) | 2021 (%) | 2022 (%) | 2021 (%) | ||||||||||||||||||||
| Revenue mix percentages: | |||||||||||||||||||||||
| New vehicle | 42.7 | 49.1 | 42.2 | 49.8 | |||||||||||||||||||
| Used vehicle | 36.7 | 31.9 | 37.4 | 30.8 | |||||||||||||||||||
| Parts and service | 15.1 | 13.6 | 15.0 | 14.0 | |||||||||||||||||||
| Finance and insurance, net | 5.4 | 5.3 | 5.4 | 5.3 | |||||||||||||||||||
| Other | 0.1 | 0.1 | — | 0.1 | |||||||||||||||||||
| Total | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||
| Gross profit mix percentages: | |||||||||||||||||||||||
| New vehicle | 26.0 | 24.2 | 26.2 | 21.6 | |||||||||||||||||||
| Used vehicle | 11.5 | 15.3 | 11.0 | 14.5 | |||||||||||||||||||
| Parts and service | 35.4 | 32.6 | 35.3 | 34.8 | |||||||||||||||||||
| Finance and insurance | 27.0 | 27.8 | 27.4 | 28.9 | |||||||||||||||||||
| Other | 0.1 | 0.1 | 0.1 | 0.2 | |||||||||||||||||||
| Total | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||
| Operating items as a percentage of revenue: | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||
| New vehicle | 12.0 | 9.3 | 12.2 | 8.0 | |||||||||||||||||||
| Used vehicle - retail | 6.2 | 8.6 | 5.7 | 8.2 | |||||||||||||||||||
| Parts and service | 46.5 | 45.5 | 46.2 | 45.6 | |||||||||||||||||||
| Total | 19.8 | 19.0 | 19.6 | 18.3 | |||||||||||||||||||
| Selling, general, and administrative expenses | 11.0 | 10.7 | 11.0 | 10.8 | |||||||||||||||||||
| Operating income | 8.1 | 7.6 | 7.9 | 6.7 | |||||||||||||||||||
Other operating items as a percentage of total gross profit: | |||||||||||||||||||||||
| Selling, general, and administrative expenses | 55.4 | 56.5 | 56.0 | 59.2 | |||||||||||||||||||
| Operating income | 41.0 | 40.0 | 40.3 | 36.8 | |||||||||||||||||||
| June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Inventory days supply: | |||||||||||||||||||||||
| New vehicle (industry standard of selling days) | 11 days | 14 days | |||||||||||||||||||||
| Used vehicle (trailing calendar month days) | 40 days | 34 days | |||||||||||||||||||||
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Same Store Operating Data
We have presented below our operating results on a same store basis, which reflect the results of our stores for the identical months in each period presented in the comparison, commencing with the first full month in which the store was owned by us. Results from divested stores are excluded from both current and prior periods. Therefore, the amounts presented in the 2021 columns may differ from the same store amounts presented for 2021 in the prior year. We believe the presentation of this information provides a meaningful comparison of period-over-period results of our operations.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per vehicle data) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 2,829.5 | $ | 3,425.7 | $ | (596.2) | (17.4) | $ | 5,536.9 | $ | 6,403.0 | $ | (866.1) | (13.5) | |||||||||||||||||||||||||||||||||
| Retail used vehicle | 2,245.2 | 2,083.4 | 161.8 | 7.8 | 4,526.3 | 3,724.2 | 802.1 | 21.5 | |||||||||||||||||||||||||||||||||||||||
| Wholesale | 151.8 | 136.9 | 14.9 | 10.9 | 323.8 | 241.8 | 82.0 | 33.9 | |||||||||||||||||||||||||||||||||||||||
| Used vehicle | 2,397.0 | 2,220.3 | 176.7 | 8.0 | 4,850.1 | 3,966.0 | 884.1 | 22.3 | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 351.2 | 368.7 | (17.5) | (4.7) | 702.2 | 681.2 | 21.0 | 3.1 | |||||||||||||||||||||||||||||||||||||||
Total variable operations(1) | 5,577.7 | 6,014.7 | (437.0) | (7.3) | 11,089.2 | 11,050.2 | 39.0 | 0.4 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 995.9 | 937.0 | 58.9 | 6.3 | 1,962.2 | 1,773.8 | 188.4 | 10.6 | |||||||||||||||||||||||||||||||||||||||
| Other | 8.9 | 7.1 | 1.8 | 14.5 | 15.7 | (1.2) | |||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 6,582.5 | $ | 6,958.8 | $ | (376.3) | (5.4) | $ | 13,065.9 | $ | 12,839.7 | $ | 226.2 | 1.8 | |||||||||||||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 341.4 | $ | 320.4 | $ | 21.0 | 6.6 | $ | 674.8 | $ | 510.0 | $ | 164.8 | 32.3 | |||||||||||||||||||||||||||||||||
| Retail used vehicle | 140.3 | 180.2 | (39.9) | (22.1) | 259.3 | 305.0 | (45.7) | (15.0) | |||||||||||||||||||||||||||||||||||||||
| Wholesale | 9.4 | 22.3 | (12.9) | 21.4 | 37.3 | (15.9) | |||||||||||||||||||||||||||||||||||||||||
| Used vehicle | 149.7 | 202.5 | (52.8) | (26.1) | 280.7 | 342.3 | (61.6) | (18.0) | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance | 351.2 | 368.7 | (17.5) | (4.7) | 702.2 | 681.2 | 21.0 | 3.1 | |||||||||||||||||||||||||||||||||||||||
Total variable operations(1) | 842.3 | 891.6 | (49.3) | (5.5) | 1,657.7 | 1,533.5 | 124.2 | 8.1 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 461.0 | 426.7 | 34.3 | 8.0 | 902.9 | 809.9 | 93.0 | 11.5 | |||||||||||||||||||||||||||||||||||||||
| Other | 2.3 | 1.4 | 0.9 | 4.5 | 2.2 | 2.3 | |||||||||||||||||||||||||||||||||||||||||
| Total gross profit | $ | 1,305.6 | $ | 1,319.7 | $ | (14.1) | (1.1) | $ | 2,565.1 | $ | 2,345.6 | $ | 219.5 | 9.4 | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | 55,889 | 77,081 | (21,192) | (27.5) | 110,428 | 146,293 | (35,865) | (24.5) | |||||||||||||||||||||||||||||||||||||||
| Used vehicle | 73,211 | 80,452 | (7,241) | (9.0) | 149,152 | 152,018 | (2,866) | (1.9) | |||||||||||||||||||||||||||||||||||||||
| 129,100 | 157,533 | (28,433) | (18.0) | 259,580 | 298,311 | (38,731) | (13.0) | ||||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 50,627 | $ | 44,443 | $ | 6,184 | 13.9 | $ | 50,140 | $ | 43,768 | $ | 6,372 | 14.6 | |||||||||||||||||||||||||||||||||
| Used vehicle | $ | 30,668 | $ | 25,896 | $ | 4,772 | 18.4 | $ | 30,347 | $ | 24,498 | $ | 5,849 | 23.9 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 6,109 | $ | 4,157 | $ | 1,952 | 47.0 | $ | 6,111 | $ | 3,486 | $ | 2,625 | 75.3 | |||||||||||||||||||||||||||||||||
| Used vehicle | $ | 1,916 | $ | 2,240 | $ | (324) | (14.5) | $ | 1,738 | $ | 2,006 | $ | (268) | (13.4) | |||||||||||||||||||||||||||||||||
| Finance and insurance | $ | 2,720 | $ | 2,340 | $ | 380 | 16.2 | $ | 2,705 | $ | 2,284 | $ | 421 | 18.4 | |||||||||||||||||||||||||||||||||
Total variable operations(2) | $ | 6,452 | $ | 5,518 | $ | 934 | 16.9 | $ | 6,304 | $ | 5,016 | $ | 1,288 | 25.7 | |||||||||||||||||||||||||||||||||
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results. | |||||||||||||||||||||||||||||||||||||||||||||||
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales. | |||||||||||||||||||||||||||||||||||||||||||||||
26
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 (%) | 2021 (%) | 2022 (%) | 2021 (%) | ||||||||||||||||||||
| Revenue mix percentages: | |||||||||||||||||||||||
| New vehicle | 43.0 | 49.2 | 42.4 | 49.9 | |||||||||||||||||||
| Used vehicle | 36.4 | 31.9 | 37.1 | 30.9 | |||||||||||||||||||
| Parts and service | 15.1 | 13.5 | 15.0 | 13.8 | |||||||||||||||||||
| Finance and insurance, net | 5.3 | 5.3 | 5.4 | 5.3 | |||||||||||||||||||
| Other | 0.2 | 0.1 | 0.1 | 0.1 | |||||||||||||||||||
| Total | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||
| Gross profit mix percentages: | |||||||||||||||||||||||
| New vehicle | 26.1 | 24.3 | 26.3 | 21.7 | |||||||||||||||||||
| Used vehicle | 11.5 | 15.3 | 10.9 | 14.6 | |||||||||||||||||||
| Parts and service | 35.3 | 32.3 | 35.2 | 34.5 | |||||||||||||||||||
| Finance and insurance | 26.9 | 27.9 | 27.4 | 29.0 | |||||||||||||||||||
| Other | 0.2 | 0.2 | 0.2 | 0.2 | |||||||||||||||||||
| Total | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||
| Operating items as a percentage of revenue: | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||
| New vehicle | 12.1 | 9.4 | 12.2 | 8.0 | |||||||||||||||||||
| Used vehicle - retail | 6.2 | 8.6 | 5.7 | 8.2 | |||||||||||||||||||
| Parts and service | 46.3 | 45.5 | 46.0 | 45.7 | |||||||||||||||||||
| Total | 19.8 | 19.0 | 19.6 | 18.3 | |||||||||||||||||||
27
New Vehicle
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per vehicle data) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Reported: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,935.8 | $ | 3,428.3 | $ | (492.5) | (14.4) | $ | 5,743.0 | $ | 6,410.6 | $ | (667.6) | (10.4) | |||||||||||||||||||||||||||||||||
| Gross profit | $ | 353.5 | $ | 320.5 | $ | 33.0 | 10.3 | $ | 698.5 | $ | 510.5 | $ | 188.0 | 36.8 | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales | 57,890 | 77,164 | (19,274) | (25.0) | 114,332 | 146,525 | (32,193) | (22.0) | |||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed | $ | 50,713 | $ | 44,429 | $ | 6,284 | 14.1 | $ | 50,231 | $ | 43,751 | $ | 6,480 | 14.8 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 6,106 | $ | 4,153 | $ | 1,953 | 47.0 | $ | 6,109 | $ | 3,484 | $ | 2,625 | 75.3 | |||||||||||||||||||||||||||||||||
| Gross profit as a percentage of revenue | 12.0% | 9.3% | 12.2% | 8.0% | |||||||||||||||||||||||||||||||||||||||||||
| Inventory days supply (industry standard of selling days) | 11 days | 14 days | |||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | ||||||||||||||||||||||||||||||||||||||||
| Same Store: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,829.5 | $ | 3,425.7 | $ | (596.2) | (17.4) | $ | 5,536.9 | $ | 6,403.0 | $ | (866.1) | (13.5) | |||||||||||||||||||||||||||||||||
| Gross profit | $ | 341.4 | $ | 320.4 | $ | 21.0 | 6.6 | $ | 674.8 | $ | 510.0 | $ | 164.8 | 32.3 | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales | 55,889 | 77,081 | (21,192) | (27.5) | 110,428 | 146,293 | (35,865) | (24.5) | |||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed | $ | 50,627 | $ | 44,443 | $ | 6,184 | 13.9 | $ | 50,140 | $ | 43,768 | $ | 6,372 | 14.6 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 6,109 | $ | 4,157 | $ | 1,952 | 47.0 | $ | 6,111 | $ | 3,486 | $ | 2,625 | 75.3 | |||||||||||||||||||||||||||||||||
| Gross profit as a percentage of revenue | 12.1% | 9.4% | 12.2% | 8.0% | |||||||||||||||||||||||||||||||||||||||||||
The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $106.3 million and $2.6 million in new vehicle revenue and $12.1 million and $0.1 million in new vehicle gross profit for the three months ended June 30, 2022 and 2021, respectively, and $206.1 million and $7.6 million in new vehicle revenue and $23.7 million and $0.5 million in new vehicle gross profit for the six months ended June 30, 2022 and 2021, respectively, is related to acquisition and divestiture activity.
Second Quarter 2022 compared to Second Quarter 2021
Same store new vehicle revenue decreased during the three months ended June 30, 2022, as compared to the same period in 2021, due to a decrease in same store unit volume, partially offset by an increase in same store revenue PVR. Same store unit volume in the current year was adversely impacted by historically low inventory levels due to manufacturer supply shortages.
Same store revenue PVR and gross profit PVR both increased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to strong demand and reduced availability of new vehicle inventory.
First Six Months 2022 compared to First Six Months 2021
Same store new vehicle revenue decreased during the six months ended June 30, 2022, as compared to the same period in 2021, due to a decrease in same store unit volume, partially offset by an increase in same store revenue PVR. Same store unit volume in the current year was adversely impacted by historically low inventory levels due to manufacturer supply shortages.
Same store revenue PVR and gross profit PVR both increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to strong demand and reduced availability of new vehicle inventory.
28
New Vehicle Inventory Carrying Benefit
The following table details net new vehicle inventory carrying benefit, consisting of new vehicle floorplan interest expense, net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit in accordance with GAAP.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||||||||||||
| Floorplan assistance | $ | 27.3 | $ | 34.7 | $ | (7.4) | $ | 54.8 | $ | 66.7 | $ | (11.9) | |||||||||||||||||||||||
| New vehicle floorplan interest expense | (5.1) | (6.0) | 0.9 | (8.8) | (14.9) | 6.1 | |||||||||||||||||||||||||||||
| Net new vehicle inventory carrying benefit | $ | 22.2 | $ | 28.7 | $ | (6.5) | $ | 46.0 | $ | 51.8 | $ | (5.8) | |||||||||||||||||||||||
Second Quarter 2022 compared to Second Quarter 2021
The net new vehicle inventory carrying benefit decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to a decrease in floorplan assistance as a result of a decrease in unit volume, partially offset by an increase in the average floorplan assistance rate per unit.
First Six Months 2022 compared to First Six Months 2021
The net new vehicle inventory carrying benefit decreased during the six months ended June 30, 2022, as compared to the same period in 2021, due to a decrease in floorplan assistance, partially offset by a decrease in floorplan interest expense. Floorplan assistance decreased due to a decrease in unit volume, partially offset by an increase in the average floorplan assistance rate per unit. Floorplan interest expense decreased due to lower average floorplan balances, partially offset by higher average interest rates. Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates.
29
Used Vehicle
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per vehicle data) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Reported: | |||||||||||||||||||||||||||||||||||||||||||||||
| Retail revenue | $ | 2,362.2 | $ | 2,085.8 | $ | 276.4 | 13.3 | $ | 4,754.4 | $ | 3,729.9 | $ | 1,024.5 | 27.5 | |||||||||||||||||||||||||||||||||
| Wholesale revenue | 158.2 | 137.1 | 21.1 | 15.4 | 338.4 | 242.1 | 96.3 | 39.8 | |||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,520.4 | $ | 2,222.9 | $ | 297.5 | 13.4 | $ | 5,092.8 | $ | 3,972.0 | $ | 1,120.8 | 28.2 | |||||||||||||||||||||||||||||||||
| Retail gross profit | $ | 147.6 | $ | 180.4 | $ | (32.8) | (18.2) | $ | 272.5 | $ | 305.6 | $ | (33.1) | (10.8) | |||||||||||||||||||||||||||||||||
| Wholesale gross profit | 8.9 | 22.3 | (13.4) | 20.6 | 37.3 | (16.7) | |||||||||||||||||||||||||||||||||||||||||
| Total gross profit | $ | 156.5 | $ | 202.7 | $ | (46.2) | (22.8) | $ | 293.1 | $ | 342.9 | $ | (49.8) | (14.5) | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales | 77,080 | 80,589 | (3,509) | (4.4) | 156,843 | 152,369 | 4,474 | 2.9 | |||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed | $ | 30,646 | $ | 25,882 | $ | 4,764 | 18.4 | $ | 30,313 | $ | 24,479 | $ | 5,834 | 23.8 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 1,915 | $ | 2,239 | $ | (324) | (14.5) | $ | 1,737 | $ | 2,006 | $ | (269) | (13.4) | |||||||||||||||||||||||||||||||||
| Retail gross profit as a percentage of retail revenue | 6.2% | 8.6% | 5.7% | 8.2% | |||||||||||||||||||||||||||||||||||||||||||
| Inventory days supply (trailing calendar month days) | 40 days | 34 days | |||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | ||||||||||||||||||||||||||||||||||||||||
| Same Store: | |||||||||||||||||||||||||||||||||||||||||||||||
| Retail revenue | $ | 2,245.2 | $ | 2,083.4 | $ | 161.8 | 7.8 | $ | 4,526.3 | $ | 3,724.2 | $ | 802.1 | 21.5 | |||||||||||||||||||||||||||||||||
| Wholesale revenue | 151.8 | 136.9 | 14.9 | 10.9 | 323.8 | 241.8 | 82.0 | 33.9 | |||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,397.0 | $ | 2,220.3 | $ | 176.7 | 8.0 | $ | 4,850.1 | $ | 3,966.0 | $ | 884.1 | 22.3 | |||||||||||||||||||||||||||||||||
| Retail gross profit | $ | 140.3 | $ | 180.2 | $ | (39.9) | (22.1) | $ | 259.3 | $ | 305.0 | $ | (45.7) | (15.0) | |||||||||||||||||||||||||||||||||
| Wholesale gross profit | 9.4 | 22.3 | (12.9) | 21.4 | 37.3 | (15.9) | |||||||||||||||||||||||||||||||||||||||||
| Total gross profit | $ | 149.7 | $ | 202.5 | $ | (52.8) | (26.1) | $ | 280.7 | $ | 342.3 | $ | (61.6) | (18.0) | |||||||||||||||||||||||||||||||||
| Retail vehicle unit sales | 73,211 | 80,452 | (7,241) | (9.0) | 149,152 | 152,018 | (2,866) | (1.9) | |||||||||||||||||||||||||||||||||||||||
| Revenue per vehicle retailed | $ | 30,668 | $ | 25,896 | $ | 4,772 | 18.4 | $ | 30,347 | $ | 24,498 | $ | 5,849 | 23.9 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 1,916 | $ | 2,240 | $ | (324) | (14.5) | $ | 1,738 | $ | 2,006 | $ | (268) | (13.4) | |||||||||||||||||||||||||||||||||
| Retail gross profit as a percentage of retail revenue | 6.2% | 8.6% | 5.7% | 8.2% | |||||||||||||||||||||||||||||||||||||||||||
The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $123.4 million and $2.6 million in total used vehicle revenue and $6.8 million and $0.2 million in total used vehicle gross profit for the three months ended June 30, 2022 and 2021, respectively, and $242.7 million and $6.0 million in total used vehicle revenue and $12.4 million and $0.6 million in total used vehicle gross profit for the six months ended June 30, 2022 and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.
Second Quarter 2022 compared to Second Quarter 2021
Same store retail used vehicle revenue increased during the three months ended June 30, 2022, as compared to the same period in 2021, due to an increase in same store revenue PVR, partially offset by a decrease in same store unit volume of lower-priced entry-level vehicles.
Same store revenue PVR increased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to reduced availability of new vehicle inventory.
Same store gross profit PVR decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to margin pressure as a result of a decline in used vehicle values.
30
First Six Months 2022 compared to First Six Months 2021
Same store retail used vehicle revenue increased during the six months ended June 30, 2022, as compared to the same period in 2021, due to an increase in same store revenue PVR, partially offset by a decrease in same store unit volume of lower-priced entry-level vehicles.
Same store revenue PVR increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to reduced availability of new vehicle inventory.
Same store gross profit PVR decreased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to margin pressure as a result of a decline in used vehicle values.
31
Parts and Service
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Reported: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 1,036.3 | $ | 950.8 | $ | 85.5 | 9.0 | $ | 2,040.2 | $ | 1,801.8 | $ | 238.4 | 13.2 | |||||||||||||||||||||||||||||||||
| Gross Profit | $ | 481.7 | $ | 432.5 | $ | 49.2 | 11.4 | $ | 942.8 | $ | 821.5 | $ | 121.3 | 14.8 | |||||||||||||||||||||||||||||||||
| Gross profit as a percentage of revenue | 46.5% | 45.5% | 46.2% | 45.6% | |||||||||||||||||||||||||||||||||||||||||||
| Same Store: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 995.9 | $ | 937.0 | $ | 58.9 | 6.3 | $ | 1,962.2 | $ | 1,773.8 | $ | 188.4 | 10.6 | |||||||||||||||||||||||||||||||||
| Gross Profit | $ | 461.0 | $ | 426.7 | $ | 34.3 | 8.0 | $ | 902.9 | $ | 809.9 | $ | 93.0 | 11.5 | |||||||||||||||||||||||||||||||||
| Gross profit as a percentage of revenue | 46.3% | 45.5% | 46.0% | 45.7% | |||||||||||||||||||||||||||||||||||||||||||
Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales, collision services, and the preparation of vehicles for sale.
The following discussion of parts and service results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $40.4 million and $13.8 million in parts and service revenue and $20.7 million and $5.8 million in parts and service gross profit for the three months ended June 30, 2022 and 2021, respectively, and $78.0 million and $28.0 million in parts and service revenue and $39.9 million and $11.6 million in parts and service gross profit for the six months ended June 30, 2022 and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.
Second Quarter 2022 compared to Second Quarter 2021
During the three months ended June 30, 2022, same store parts and service gross profit increased compared to the same period in 2021, primarily due to increases in gross profit associated with customer-pay service of $17.3 million and the preparation of vehicles for sale of $9.1 million.
Gross profit associated with customer-pay service benefited from higher value repair orders, partially offset by a decrease in repair order volume. Gross profit associated with the preparation of vehicles for sale benefited from higher value repair orders and improved margin performance, partially offset by a decrease in repair order volume.
First Six Months 2022 compared to First Six Months 2021
During the six months ended June 30, 2022, same store parts and service gross profit increased compared to the same period in 2021, primarily due to increases in gross profit associated with customer-pay service of $38.4 million and the preparation of vehicles for sale of $25.3 million.
Gross profit associated with customer-pay service benefited from higher value repair orders, partially offset by decreases in repair order volume and margin performance. Gross profit associated with the preparation of vehicles for sale benefited from higher value repair orders and improved margin performance, partially offset by a decrease in repair order volume.
32
Finance and Insurance
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per vehicle data) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Reported: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue and gross profit | $ | 367.6 | $ | 369.0 | $ | (1.4) | (0.4) | $ | 731.5 | $ | 682.0 | $ | 49.5 | 7.3 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 2,724 | $ | 2,339 | $ | 385 | 16.5 | $ | 2,698 | $ | 2,282 | $ | 416 | 18.2 | |||||||||||||||||||||||||||||||||
| Same Store: | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue and gross profit | $ | 351.2 | $ | 368.7 | $ | (17.5) | (4.7) | $ | 702.2 | $ | 681.2 | $ | 21.0 | 3.1 | |||||||||||||||||||||||||||||||||
| Gross profit per vehicle retailed | $ | 2,720 | $ | 2,340 | $ | 380 | 16.2 | $ | 2,705 | $ | 2,284 | $ | 421 | 18.4 | |||||||||||||||||||||||||||||||||
Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a commission basis, and we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products.
The following discussion of finance and insurance results is on a same store basis. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $16.4 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively, and $29.3 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.
Second Quarter 2022 compared to Second Quarter 2021
Same store finance and insurance revenue and gross profit decreased during the three months ended June 30, 2022, as compared to the same period in 2021, due to a decrease in vehicle unit volume, partially offset by an increase in finance and insurance gross profit PVR. The increase in finance and insurance gross profit PVR was primarily due to higher realized margins on vehicle service contracts and an increase in product penetration. Finance and insurance gross profit PVR also benefited from increases in amounts financed per transaction and gross profit per transaction associated with arranging customer financing.
First Six Months 2022 compared to First Six Months 2021
Same store finance and insurance revenue and gross profit increased during the six months ended June 30, 2022, as compared to the same period in 2021, due to an increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. The increase in finance and insurance gross profit PVR was primarily due to higher realized margins on vehicle service contracts and an increase in product penetration. Finance and insurance gross profit PVR also benefited from increases in amounts financed per transaction and gross profit per transaction associated with arranging customer financing.
33
Segment Results
In the following table, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income, respectively. The following discussions of segment results are on a reported basis.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | $ | 2,040.9 | $ | 2,124.8 | $ | (83.9) | (3.9) | $ | 4,075.3 | $ | 3,971.5 | $ | 103.8 | 2.6 | |||||||||||||||||||||||||||||||||
| Import | 1,949.7 | 2,175.0 | (225.3) | (10.4) | 3,923.8 | 3,944.6 | (20.8) | (0.5) | |||||||||||||||||||||||||||||||||||||||
| Premium Luxury | 2,616.6 | 2,468.5 | 148.1 | 6.0 | 5,095.3 | 4,572.0 | 523.3 | 11.4 | |||||||||||||||||||||||||||||||||||||||
| Total | 6,607.2 | 6,768.3 | (161.1) | (2.4) | 13,094.4 | 12,488.1 | 606.3 | 4.9 | |||||||||||||||||||||||||||||||||||||||
| Corporate and other | 262.0 | 210.1 | 51.9 | 24.7 | 527.6 | 394.1 | 133.5 | 33.9 | |||||||||||||||||||||||||||||||||||||||
| Total consolidated revenue | $ | 6,869.2 | $ | 6,978.4 | $ | (109.2) | (1.6) | $ | 13,622.0 | $ | 12,882.2 | $ | 739.8 | 5.7 | |||||||||||||||||||||||||||||||||
Segment income(1): | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | $ | 153.1 | $ | 169.0 | $ | (15.9) | (9.4) | $ | 302.5 | $ | 287.5 | $ | 15.0 | 5.2 | |||||||||||||||||||||||||||||||||
| Import | 192.5 | 203.7 | (11.2) | (5.5) | 378.7 | 329.6 | 49.1 | 14.9 | |||||||||||||||||||||||||||||||||||||||
| Premium Luxury | 257.5 | 225.7 | 31.8 | 14.1 | 487.0 | 384.2 | 102.8 | 26.8 | |||||||||||||||||||||||||||||||||||||||
| Total | 603.1 | 598.4 | 4.7 | 0.8 | 1,168.2 | 1,001.3 | 166.9 | 16.7 | |||||||||||||||||||||||||||||||||||||||
| Corporate and other | (50.8) | (74.8) | 24.0 | (102.1) | (150.2) | 48.1 | |||||||||||||||||||||||||||||||||||||||||
| Floorplan interest expense | 5.8 | 6.6 | 0.8 | 11.0 | 16.0 | 5.0 | |||||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 558.1 | $ | 530.2 | $ | 27.9 | 5.3 | $ | 1,077.1 | $ | 867.1 | $ | 210.0 | 24.2 | |||||||||||||||||||||||||||||||||
| Retail new vehicle unit sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 16,760 | 21,459 | (4,699) | (21.9) | 33,125 | 43,128 | (10,003) | (23.2) | |||||||||||||||||||||||||||||||||||||||
| Import | 23,612 | 36,136 | (12,524) | (34.7) | 48,148 | 66,979 | (18,831) | (28.1) | |||||||||||||||||||||||||||||||||||||||
| Premium Luxury | 17,518 | 19,569 | (2,051) | (10.5) | 33,059 | 36,418 | (3,359) | (9.2) | |||||||||||||||||||||||||||||||||||||||
| 57,890 | 77,164 | (19,274) | (25.0) | 114,332 | 146,525 | (32,193) | (22.0) | ||||||||||||||||||||||||||||||||||||||||
| Retail used vehicle unit sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 25,180 | 28,056 | (2,876) | (10.3) | 51,776 | 52,535 | (759) | (1.4) | |||||||||||||||||||||||||||||||||||||||
| Import | 25,786 | 27,128 | (1,342) | (4.9) | 52,315 | 52,229 | 86 | 0.2 | |||||||||||||||||||||||||||||||||||||||
| Premium Luxury | 21,381 | 22,370 | (989) | (4.4) | 43,330 | 41,904 | 1,426 | 3.4 | |||||||||||||||||||||||||||||||||||||||
| 72,347 | 77,554 | (5,207) | (6.7) | 147,421 | 146,668 | 753 | 0.5 | ||||||||||||||||||||||||||||||||||||||||
(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense. | |||||||||||||||||||||||||||||||||||||||||||||||
34
Domestic
The Domestic segment operating results included the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 858.1 | $ | 991.3 | $ | (133.2) | (13.4) | $ | 1,680.6 | $ | 1,926.7 | $ | (246.1) | (12.8) | |||||||||||||||||||||||||||||||||
| Used vehicle | 786.8 | 749.1 | 37.7 | 5.0 | 1,609.9 | 1,312.8 | 297.1 | 22.6 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 275.5 | 257.9 | 17.6 | 6.8 | 544.2 | 492.0 | 52.2 | 10.6 | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 119.4 | 125.8 | (6.4) | (5.1) | 238.6 | 235.1 | 3.5 | 1.5 | |||||||||||||||||||||||||||||||||||||||
| Other | 1.1 | 0.7 | 0.4 | 2.0 | 4.9 | (2.9) | |||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 2,040.9 | $ | 2,124.8 | $ | (83.9) | (3.9) | $ | 4,075.3 | $ | 3,971.5 | $ | 103.8 | 2.6 | |||||||||||||||||||||||||||||||||
| Segment income | $ | 153.1 | $ | 169.0 | $ | (15.9) | (9.4) | $ | 302.5 | $ | 287.5 | $ | 15.0 | 5.2 | |||||||||||||||||||||||||||||||||
| Retail new vehicle unit sales | 16,760 | 21,459 | (4,699) | (21.9) | 33,125 | 43,128 | (10,003) | (23.2) | |||||||||||||||||||||||||||||||||||||||
| Retail used vehicle unit sales | 25,180 | 28,056 | (2,876) | (10.3) | 51,776 | 52,535 | (759) | (1.4) | |||||||||||||||||||||||||||||||||||||||
Second Quarter 2022 compared to Second Quarter 2021
Domestic revenue decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to decreases in new and used vehicle unit volume, partially offset by increases in new and used vehicle revenue PVR. New vehicle unit volume was adversely impacted by historically low new vehicle inventory levels due to manufacturer supply shortages, which also favorably impacted new and used vehicle revenue PVR. Domestic revenue also benefited from increases in parts and service revenue associated with wholesale parts sales, the preparation of vehicles for sale, and customer-pay service.
Domestic segment income decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to a decrease in used vehicle gross profit due to margin pressure as a result of a decline in used vehicle values and a decrease in used vehicle unit volume. Domestic segment income was also adversely impacted by a decrease in finance and insurance gross profit due to the decrease in vehicle unit volume. Decreases in segment income were partially offset by increases in parts and service gross profit associated with the preparation of vehicles for sale, wholesale parts sales, and customer-pay service.
First Six Months 2022 compared to First Six Months 2021
Domestic revenue increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to increases in used vehicle revenue and parts and service revenue. Used vehicle revenue increased due to an increase in used vehicle revenue PVR primarily due to reduced availability of new vehicle inventory. Parts and service revenue benefited from increases in revenue associated with wholesale parts sales, the preparation of vehicles for sale, and customer-pay service. Increases in Domestic revenue were partially offset by a decrease in new vehicle revenue, which was adversely impacted by historically low new vehicle inventory levels due to manufacturer supply shortages.
Domestic segment income increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to increases in new vehicle gross profit, parts and service gross profit, and finance and insurance gross profit. New vehicle gross profit benefited from reduced availability of new vehicle inventory. Parts and service results benefited from increases in gross profit associated with the preparation of vehicles for sale, customer-pay service, and wholesale parts sales. Finance and insurance gross profit benefited from an increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. Increases to Domestic segment income were partially offset by a decrease in used vehicle gross profit due to margin pressure as a result of a decline in used vehicle values, as well as an increase in performance-driven SG&A expenses.
35
Import
The Import segment operating results included the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 852.4 | $ | 1,184.2 | $ | (331.8) | (28.0) | $ | 1,734.0 | $ | 2,142.2 | $ | (408.2) | (19.1) | |||||||||||||||||||||||||||||||||
| Used vehicle | 699.6 | 604.5 | 95.1 | 15.7 | 1,407.2 | 1,089.2 | 318.0 | 29.2 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 266.3 | 248.5 | 17.8 | 7.2 | 521.8 | 462.6 | 59.2 | 12.8 | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 125.7 | 133.2 | (7.5) | (5.6) | 252.1 | 242.3 | 9.8 | 4.0 | |||||||||||||||||||||||||||||||||||||||
| Other | 5.7 | 4.6 | 1.1 | 8.7 | 8.3 | 0.4 | |||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 1,949.7 | $ | 2,175.0 | $ | (225.3) | (10.4) | $ | 3,923.8 | $ | 3,944.6 | $ | (20.8) | (0.5) | |||||||||||||||||||||||||||||||||
| Segment income | $ | 192.5 | $ | 203.7 | $ | (11.2) | (5.5) | $ | 378.7 | $ | 329.6 | $ | 49.1 | 14.9 | |||||||||||||||||||||||||||||||||
| Retail new vehicle unit sales | 23,612 | 36,136 | (12,524) | (34.7) | 48,148 | 66,979 | (18,831) | (28.1) | |||||||||||||||||||||||||||||||||||||||
| Retail used vehicle unit sales | 25,786 | 27,128 | (1,342) | (4.9) | 52,315 | 52,229 | 86 | 0.2 | |||||||||||||||||||||||||||||||||||||||
Second Quarter 2022 compared to Second Quarter 2021
Import revenue decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to decreases in new and used vehicle unit volume, partially offset by increases in new and used vehicle revenue PVR. New vehicle unit volume was adversely impacted by historically low new vehicle inventory levels due to manufacturer supply shortages, which also favorably impacted new and used vehicle revenue PVR. Import revenue also benefited from an increase in parts and service revenue associated with customer-pay service. Additionally, Import revenue benefited from the acquisitions we completed in 2021.
Import segment income decreased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to decreases in used vehicle gross profit and finance and insurance gross profit. Used vehicle gross profit was adversely impacted by margin pressure as a result of a decline in used vehicle values. Finance and insurance gross profit was adversely impacted by a decrease in vehicle unit volume. Decreases to Import segment income were partially offset by an increase in parts and service gross profit associated with customer-pay service. Additionally, Import segment income benefited from the acquisitions we completed in 2021.
First Six Months 2022 compared to First Six Months 2021
Import revenue decreased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to a decrease in new vehicle unit volume, partially offset by increases in new and used vehicle revenue PVR. New vehicle unit volume was adversely impacted by historically low new vehicle inventory levels due to manufacturer supply shortages, which also favorably impacted new and used vehicle revenue PVR. Import revenue also benefited from increases in parts and service revenue associated with wholesale parts sales and customer-pay service. Additionally, Import revenue benefited from the acquisitions we completed in 2021.
Import segment income increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to increases in new vehicle gross profit, parts and service gross profit, and finance and insurance gross profit. New vehicle gross profit benefited from reduced availability of new vehicle inventory. Parts and service results benefited from increases in gross profit associated with customer-pay service and the preparation of vehicles for sale. Finance and insurance gross profit benefited from an increase in finance and insurance gross profit PVR, partially offset by a decrease in new vehicle unit volume. Increases to Import segment income were partially offset by an increase in performance-driven SG&A expenses.
36
Premium Luxury
The Premium Luxury segment operating results included the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| New vehicle | $ | 1,225.3 | $ | 1,252.8 | $ | (27.5) | (2.2) | $ | 2,328.4 | $ | 2,341.7 | $ | (13.3) | (0.6) | |||||||||||||||||||||||||||||||||
| Used vehicle | 904.6 | 788.8 | 115.8 | 14.7 | 1,820.7 | 1,431.1 | 389.6 | 27.2 | |||||||||||||||||||||||||||||||||||||||
| Parts and service | 367.0 | 317.6 | 49.4 | 15.6 | 718.9 | 602.8 | 116.1 | 19.3 | |||||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 118.4 | 108.0 | 10.4 | 9.6 | 225.6 | 194.8 | 30.8 | 15.8 | |||||||||||||||||||||||||||||||||||||||
| Other | 1.3 | 1.3 | — | 1.7 | 1.6 | 0.1 | |||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 2,616.6 | $ | 2,468.5 | $ | 148.1 | 6.0 | $ | 5,095.3 | $ | 4,572.0 | $ | 523.3 | 11.4 | |||||||||||||||||||||||||||||||||
| Segment income | $ | 257.5 | $ | 225.7 | $ | 31.8 | 14.1 | $ | 487.0 | $ | 384.2 | $ | 102.8 | 26.8 | |||||||||||||||||||||||||||||||||
| Retail new vehicle unit sales | 17,518 | 19,569 | (2,051) | (10.5) | 33,059 | 36,418 | (3,359) | (9.2) | |||||||||||||||||||||||||||||||||||||||
| Retail used vehicle unit sales | 21,381 | 22,370 | (989) | (4.4) | 43,330 | 41,904 | 1,426 | 3.4 | |||||||||||||||||||||||||||||||||||||||
Second Quarter 2022 compared to Second Quarter 2021
Premium Luxury revenue increased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to the acquisitions we completed in 2021. Premium Luxury revenue also benefited from increases in new and used vehicle revenue PVR, partially offset by decreases in new and used vehicle unit volume. New and used vehicle revenue PVR benefited from historically low new vehicle inventory levels due to manufacturer supply shortages, which also negatively impacted new vehicle unit volume. Additionally, Premium Luxury revenue benefited from an increase in parts and service revenue associated with customer-pay service.
Premium Luxury segment income increased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to increases in new vehicle gross profit, parts and service gross profit, and finance and insurance gross profit. New vehicle gross profit benefited from reduced availability of new vehicle inventory. Parts and service results benefited from an increase in gross profit associated with customer-pay service. Finance and insurance gross profit benefited from an increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. Additionally, Premium Luxury segment income benefited from the acquisitions we completed in 2021. Increases to Premium Luxury segment income were partially offset by an increase in performance-driven SG&A expenses.
First Six Months 2022 compared to First Six Months 2021
Premium Luxury revenue increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to the acquisitions we completed in 2021. Premium Luxury revenue also benefited from increases in new and used vehicle revenue PVR and used vehicle unit volume, partially offset by a decrease in new vehicle unit volume. New and used vehicle revenue PVR and used vehicle unit volume benefited from historically low new vehicle inventory levels due to manufacturer supply shortages, which also negatively impacted new vehicle unit volume. Premium Luxury revenue also benefited from increases in parts and service revenue associated with customer-pay service, wholesale parts sales, and the preparation of vehicles for sale.
Premium Luxury segment income increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to increases in new vehicle gross profit, parts and service gross profit, and finance and insurance gross profit. New vehicle gross profit benefited from reduced availability of new vehicle inventory. Parts and service results benefited from increases in gross profit associated with customer-pay service and the preparation of vehicles for sale. Finance and insurance gross profit benefited from an increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. Increases to Premium Luxury segment income were partially offset by an increase in performance-driven SG&A expenses.
37
Corporate and other
Corporate and other results included the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Used vehicle | $ | 129.4 | $ | 80.5 | $ | 48.9 | 60.7 | $ | 255.0 | $ | 138.9 | $ | 116.1 | 83.6 | |||||||||||||||||||||||||||||||||
| Parts and service | 127.5 | 126.8 | 0.7 | 0.6 | $ | 255.3 | $ | 244.4 | $ | 10.9 | 4.5 | ||||||||||||||||||||||||||||||||||||
| Finance and insurance, net | 4.1 | 2.0 | 2.1 | 105.0 | 15.2 | 9.8 | 5.4 | 55.1 | |||||||||||||||||||||||||||||||||||||||
| Other | 1.0 | 0.8 | 0.2 | 2.1 | 1.0 | 1.1 | |||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 262.0 | $ | 210.1 | $ | 51.9 | 24.7 | $ | 527.6 | $ | 394.1 | $ | 133.5 | 33.9 | |||||||||||||||||||||||||||||||||
| Income (loss) | $ | (50.8) | $ | (74.8) | $ | 24.0 | $ | (102.1) | $ | (150.2) | $ | 48.1 | |||||||||||||||||||||||||||||||||||
“Corporate and other” is comprised of our other businesses, including collision centers, AutoNation USA used vehicle stores, auction operations, and parts distribution centers, all of which generate revenues but do not meet the quantitative thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items.
As of June 30, 2022, we had 56 AutoNation-branded collision centers, 11 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers. We plan to expand our AutoNation USA used vehicle stores and are targeting to have over 130 stores by the end of 2026. The planned expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, availability and cost of building supplies and materials, and our ability to identify, acquire, and build out suitable locations in a timely manner.
38
Selling, General, and Administrative Expenses
Our Selling, General, and Administrative (“SG&A”) expenses consist primarily of compensation, including store and corporate salaries, commissions, and incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer advertising rebates), and store and corporate overhead expenses, which include occupancy costs, legal, accounting, and professional services, and general corporate expenses. The following table presents the major components of our SG&A expenses.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | 2022 | 2021 | Variance Favorable / (Unfavorable) | % Variance | |||||||||||||||||||||||||||||||||||||||
| Reported: | |||||||||||||||||||||||||||||||||||||||||||||||
| Compensation | $ | 523.5 | $ | 534.0 | $ | 10.5 | 2.0 | $ | 1,039.3 | $ | 975.6 | $ | (63.7) | (6.5) | |||||||||||||||||||||||||||||||||
| Advertising | 44.5 | 42.8 | (1.7) | (4.0) | 84.4 | 79.5 | (4.9) | (6.2) | |||||||||||||||||||||||||||||||||||||||
| Store and corporate overhead | 186.8 | 172.1 | (14.7) | (8.5) | 372.5 | 341.7 | (30.8) | (9.0) | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 754.8 | $ | 748.9 | $ | (5.9) | (0.8) | $ | 1,496.2 | $ | 1,396.8 | $ | (99.4) | (7.1) | |||||||||||||||||||||||||||||||||
| SG&A as a % of total gross profit: | |||||||||||||||||||||||||||||||||||||||||||||||
| Compensation | 38.4 | 40.3 | 190 | bps | 38.9 | 41.4 | 250 | bps | |||||||||||||||||||||||||||||||||||||||
| Advertising | 3.3 | 3.2 | (10) | bps | 3.2 | 3.4 | 20 | bps | |||||||||||||||||||||||||||||||||||||||
| Store and corporate overhead | 13.7 | 13.0 | (70) | bps | 13.9 | 14.4 | 50 | bps | |||||||||||||||||||||||||||||||||||||||
| Total | 55.4 | 56.5 | 110 | bps | 56.0 | 59.2 | 320 | bps | |||||||||||||||||||||||||||||||||||||||
Second Quarter 2022 compared to Second Quarter 2021
SG&A expenses increased during the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to newly acquired and opened stores, partially offset by divested stores as well as a decrease in deferred compensation obligations of $19.4 million as a result of changes in market performance of the underlying investments. As a percentage of total gross profit, SG&A expenses decreased to 55.4% during the three months ended June 30, 2022, from 56.5% in the same period in 2021, primarily due to improvements in gross profit PVR and effective cost management.
First Six Months 2022 compared to First Six Months 2021
SG&A expenses increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to a performance-driven increase in compensation expense, as well as newly acquired and opened stores. Increases were partially offset by divested stores as well as a decrease in deferred compensation obligations of $28.9 million as a result of changes in market performance of the underlying investments. As a percentage of total gross profit, SG&A expenses decreased to 56.0% during the six months ended June 30, 2022, from 59.2% in the same period in 2021, primarily due to improvements in gross profit PVR and effective cost management.
Non-Operating Income (Expense)
Floorplan Interest Expense
Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates.
Second Quarter 2022 compared to Second Quarter 2021
Floorplan interest expense was $5.8 million for the three months ended June 30, 2022, compared to $6.6 million for the same period in 2021. The decrease in floorplan interest expense of $0.8 million was the result of lower average vehicle floorplan balances, partially offset by higher average interest rates.
First Six Months 2022 compared to First Six Months 2021
Floorplan interest expense was $11.0 million for the six months ended June 30, 2022, compared to $16.0 million for the same period in 2021. The decrease in floorplan interest expense of $5.0 million was the result of lower average vehicle floorplan balances, partially offset by higher average interest rates.
39
Interest Expense
Second Quarter 2022 compared to Second Quarter 2021
Other interest expense was $34.1 million for the three months ended June 30, 2022, compared to $20.9 million for the same period in 2021. The increase in interest expense of $13.2 million was driven by higher average debt balances, partially offset by lower average interest rates.
First Six Months 2022 compared to First Six Months 2021
Other interest expense was $63.7 million for the six months ended June 30, 2022, compared to $42.1 million for the same period in 2021. The increase of $21.6 million was driven by higher average debt balances, partially offset by lower average interest rates.
Other Income (Loss), Net (included in Non-Operating Income)
We recognized a net loss of $14.1 million and a net gain of $5.3 million for the three months ended June 30, 2022 and 2021, respectively, and a net loss of $20.8 million and a net gain of $8.8 million for the six months ended June 30, 2022 and 2021, respectively, related to changes in the cash surrender value of corporate-owned life insurance (“COLI”) for deferred compensation plan participants as a result of changes in market performance of the underlying investments. Gains and losses related to the COLI are substantially offset by corresponding increases and decreases, respectively, in the deferred compensation obligations, which are reflected in SG&A expenses.
In the first quarter of 2021, we sold the remaining shares of one of our minority equity investments and recorded a realized gain of $7.5 million. Additionally, we recorded an unrealized gain of $3.4 million during the second quarter of 2021 related to the change in fair value of the underlying securities of our minority equity investment.
Income Tax Provision
Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any discrete tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent upon our geographic revenue mix.
Our effective income tax rate was 25.4% for the three months ended June 30, 2022, and 24.8% for the three months ended June 30, 2021. Our effective income tax rate was 24.8% for the six months ended June 30, 2022, and 24.7% for the six months ended June 30, 2021.
Discontinued Operations
Discontinued operations are related to stores that were sold or terminated prior to January 1, 2014. Results from discontinued operations, net of income taxes, were primarily related to carrying costs for real estate we have not yet sold associated with stores that were closed prior to January 1, 2014, and other adjustments related to disposed operations.
Liquidity and Capital Resources
We manage our liquidity to ensure access to sufficient funding at acceptable costs to fund our ongoing operating requirements and future capital expenditures while continuing to meet our financial obligations. We believe that our cash and cash equivalents, funds generated through operations, and amounts available under our revolving credit facility, commercial paper program, and secured used vehicle floorplan facilities will be sufficient to fund our working capital requirements, service our debt, pay our tax obligations and commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future. Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to augment our liquidity, to reduce our cost of capital, or for general corporate purposes.
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Available Liquidity Resources
We had the following sources of liquidity available:
| (In millions) | June 30, 2022 | December 31, 2021 | |||||||||
| Cash and cash equivalents | $ | 336.5 | $ | 60.4 | |||||||
| Revolving credit facility | $ | 1,760.2 | (1) | $ | 1,760.3 | ||||||
Secured used vehicle floorplan facilities (2) | $ | 0.1 | $ | 0.1 | |||||||
(1) At June 30, 2022, we had $39.8 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had no commercial paper notes outstanding at June 30, 2022. See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.
(2) Based on the eligible used vehicle inventory that could have been pledged as collateral. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.
In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance relating to insurance matters. At June 30, 2022, surety bonds, letters of credit, and cash deposits totaled $106.5 million, of which $39.8 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit.
In February 2022, we filed an automatic shelf registration statement with the SEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, warrants, subscription rights, depositary shares, stock purchase contracts, units, and guarantees of debt securities.
Capital Allocation
Our capital allocation strategy is focused on growing long-term value per share. We invest capital in our business to maintain and upgrade our existing facilities and to build new facilities for existing franchises and new AutoNation USA used vehicle stores, as well as for other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions or investments, build facilities for newly awarded franchises, and/or repurchase our common stock and/or debt. Our capital allocation decisions will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the market price of our debt, the potential impact on our capital structure, our ability to complete acquisitions that meet our market and vehicle brand criteria and return on investment threshold, and limitations set forth in our debt agreements.
Share Repurchases
Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Shares repurchased | 3.7 | 7.5 | 7.2 | 11.3 | |||||||||||||||||||
| Aggregate purchase price | $ | 403.9 | $ | 736.1 | $ | 784.9 | $ | 1,042.2 | |||||||||||||||
| Average purchase price per share | $ | 109.22 | $ | 98.17 | $ | 109.62 | $ | 91.94 | |||||||||||||||
In July 2022, our Board of Directors increased the share repurchase authorization by $1.0 billion. As of July 20, 2022, $1.1 billion remained available for share repurchases under the program.
The decision to repurchase shares at any given point in time is based on factors such as the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure (including compliance with our maximum leverage ratio and other financial covenants in our debt agreements as well as our available liquidity), and the expected return on competing uses of capital such as acquisitions or investments, capital investments in our current businesses, or repurchases of our debt.
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Capital Expenditures
The following table sets forth information regarding our capital expenditures:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Purchases of property and equipment, including operating lease buy-outs (1) | $ | 106.1 | $ | 74.3 | $ | 156.9 | $ | 118.7 | |||||||||||||||
(1)Includes accrued construction in progress and excludes property associated with leases entered into during the year.
At June 30, 2022, we owned approximately 82% of our new vehicle franchise store locations with a net book value of $2.3 billion, as well as other properties associated with our collision centers, AutoNation USA used vehicle stores, parts distribution centers, auction operations, and other excess properties with a net book value of $663.5 million. None of these properties are mortgaged or encumbered.
We plan to expand our AutoNation USA used vehicle stores and are targeting to have over 130 stores by the end of 2026. We anticipate that the initial capital investment will be approximately $10 million to $12 million for each new store on average. The planned expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, availability and cost of building supplies and materials, and our ability to identify, acquire, and build out suitable locations in a timely manner.
Acquisitions and Divestitures
The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, and cash received from business divestitures, net of cash relinquished:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Cash received from (used in) business acquisitions, net | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Cash received from (used in) business divestitures, net | $ | — | $ | 2.4 | $ | — | $ | 4.3 | |||||||||||||||
We did not purchase or divest stores during the six months ended June 30, 2022. We divested two stores and two collision centers during the six months ended June 30, 2021.
We entered into an agreement in July 2022 to acquire CIG Financial, an auto finance company headquartered in Irvine, California.
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Long-Term Debt and Commercial Paper
The following table sets forth our non-vehicle long-term debt, net of debt issuance costs, as of June 30, 2022, and December 31, 2021.
| Debt Description | Maturity Date | Interest Payable | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
3.5% Senior Notes | November 15, 2024 | May 15 and November 15 | $ | 450.0 | $ | 450.0 | ||||||||||||||||||||
4.5% Senior Notes | October 1, 2025 | April 1 and October 1 | 450.0 | 450.0 | ||||||||||||||||||||||
3.8% Senior Notes | November 15, 2027 | May 15 and November 15 | 300.0 | 300.0 | ||||||||||||||||||||||
1.95% Senior Notes | August 1, 2028 | February 1 and August 1 | 400.0 | 400.0 | ||||||||||||||||||||||
4.75% Senior Notes | June 1, 2030 | June 1 and December 1 | 500.0 | 500.0 | ||||||||||||||||||||||
2.40% Senior Notes | August 1, 2031 | February 1 and August 1 | 450.0 | 450.0 | ||||||||||||||||||||||
3.85% Senior Notes | March 1, 2032 | March 1 and September 1 | 700.0 | — | ||||||||||||||||||||||
| Revolving credit facility | March 26, 2025 | Monthly | — | — | ||||||||||||||||||||||
| Finance leases and other debt | Various dates through 2041 | 324.4 | 330.6 | |||||||||||||||||||||||
| 3,574.4 | 2,880.6 | |||||||||||||||||||||||||
| Less: unamortized debt discounts and debt issuance costs | (27.9) | (22.2) | ||||||||||||||||||||||||
| Less: current maturities | (11.8) | (12.2) | ||||||||||||||||||||||||
| Long-term debt, net of current maturities | $ | 3,534.7 | $ | 2,846.2 | ||||||||||||||||||||||
On February 28, 2022, we issued $700 million aggregate principal amount of 3.85% Senior Notes due 2032, which were sold at 99.835% of the aggregate principal amount.
We had no commercial paper notes outstanding at June 30, 2022, and $340.0 million commercial paper notes outstanding at December 31, 2021.
A downgrade in our credit ratings could negatively impact the interest rate payable on our 3.5% Senior Notes, 4.5% Senior Notes, 3.8% Senior Notes, and 4.75% Senior Notes and could negatively impact our ability to issue, or the interest rates for, commercial paper notes. Additionally, an increase in our leverage ratio could negatively impact the interest rates charged for borrowings under our revolving credit facility.
See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our long-term debt and commercial paper.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, and our vehicle floorplan facilities contain numerous customary financial and operating covenants that place significant restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. The specific terms of these covenants can be found in our credit agreement, which we filed with our Current Report on Form 8-K on March 26, 2020.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.
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As of June 30, 2022, we were in compliance with the requirements of the financial covenants under our debt agreements. Under the terms of our credit agreement, at June 30, 2022, our leverage ratio and capitalization ratio were as follows:
| June 30, 2022 | |||||||||||
| Requirement | Actual | ||||||||||
| Leverage ratio | ≤ 3.75x | 1.53x | |||||||||
| Capitalization ratio | ≤ 70.0% | 55.1% | |||||||||
Vehicle Floorplan Payable
The components of vehicle floorplan payable are as follows:
| (In millions) | June 30, 2022 | December 31, 2021 | |||||||||
| Vehicle floorplan payable - trade | $ | 556.5 | $ | 489.9 | |||||||
| Vehicle floorplan payable - non-trade | 960.9 | 967.7 | |||||||||
Vehicle floorplan payable | $ | 1,517.4 | $ | 1,457.6 | |||||||
Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Our vehicle floorplan facilities currently primarily utilize LIBOR-based interest rates. In connection with global reference rate reform initiatives, particularly related to LIBOR, in October 2021, we began modifying our floorplan agreements to replace the reference rate from LIBOR to an alternative reference rate. The floorplan agreement modifications will be accounted for by prospectively adjusting the effective interest rate in accordance with accounting standards. We do not expect the change from LIBOR to an alternative reference rate to have a material impact on our annual floorplan interest expense. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our vehicle floorplan payable.
Cash Flows
The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities:
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Net cash provided by operating activities | $ | 895.0 | $ | 930.3 | |||||||
| Net cash used in investing activities | $ | (148.5) | $ | (8.5) | |||||||
| Net cash used in financing activities | $ | (470.5) | $ | (1,431.8) | |||||||
Cash Flows from Operating Activities
Our primary sources of operating cash flows result from the sale of vehicles and finance and insurance products, collections from customers for the sale of parts and services, and proceeds from vehicle floorplan payable-trade. Our primary uses of cash from operating activities are repayments of vehicle floorplan payable-trade, purchases of inventory, personnel-related expenditures, and payments related to taxes and leased properties.
Net cash provided by operating activities decreased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to an increase in working capital requirements, partially offset by an increase in earnings.
Cash Flows from Investing Activities
Net cash flows from investing activities consist primarily of cash used in capital additions and activity from business acquisitions, business divestitures, property dispositions, and other transactions.
Net cash used in investing activities increased during the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to a decrease in proceeds from the sale of equity securities and an increase in purchases of property and equipment, partially offset by an increase in proceeds from assets held for sale.
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Cash Flows from Financing Activities
Net cash flows from financing activities primarily include repurchases of common stock, debt activity, and changes in vehicle floorplan payable-non-trade.
During the six months ended June 30, 2022, we issued $700.0 million aggregate principal amount of 3.85% Senior Notes due 2032. Cash flows from financing activities during the six months ended June 30, 2022, reflect cash payments of $6.6 million for debt issuance costs associated with the senior note issuance that are being amortized to interest expense over the term of the senior notes. During the six months ended June 30, 2021, we repaid the outstanding $300.0 million of 3.35% Senior Notes due 2021.
Cash flows from financing activities include changes in commercial paper notes outstanding totaling net payments of $340.0 million during the six months ended June 30, 2022, and net proceeds of $200.0 million during the six months ended June 30, 2021, and vehicle floorplan payable-non-trade totaling net payments of $5.5 million and $316.9 million during the six months ended June 30, 2022 and 2021, respectively.
During the six months ended June 30, 2022, we repurchased 7.2 million shares of common stock for an aggregate purchase price of $784.9 million (average purchase price per share of $109.62), including repurchases for which settlement occurred subsequent to June 30, 2022. During the six months ended June 30, 2021, we repurchased 11.3 million shares of common stock for an aggregate purchase price of $1.0 billion (average purchase price per share of $91.94), including repurchases for which settlement occurred subsequent to June 30, 2021.
Forward-Looking Statements
Our business, financial condition, results of operations, cash flows, and prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our strategic initiatives, partnerships, or investments, including the planned expansion of our AutoNation USA used vehicle stores and our anticipated investments in connection therewith; our expectations for the future performance of our business and the automotive retail industry; our investments in digital and online capabilities; pending acquisitions; as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf that describe our objectives, goals, or plans constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “goal,” “target,” “project,” “plan,” “believe,” “continue,” “may,” “will,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include, but are not limited to, the following:
•The automotive retail industry is sensitive to changing economic conditions and various other factors, including, but not limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. Our business and results of operations are substantially dependent on new and used vehicle sales levels in the United States and in our particular geographic markets, as well as the gross profit margins that we can achieve on our sales of vehicles, all of which are very difficult to predict.
•The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, results of operations, and financial condition going forward. Future epidemics, pandemics, and other outbreaks could also disrupt our business, results of operations, and financial condition.
•Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers.
•We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with which we hold franchises.
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•We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores.
•We are investing significantly in various strategic initiatives, including the planned expansion of our AutoNation USA stores and the planned acquisition of an auto finance company, and if they are not successful, we will have incurred significant expenses without the benefit of improved financial results.
•If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.
•The carrying value of our minority equity investment that does not have a readily determinable fair value is required to be adjusted for observable price changes or impairments, both of which could adversely impact our results of operations and financial condition.
•New laws, regulations, or governmental policies in response to climate change, including fuel economy and greenhouse gas emission standards, or changes to existing standards, could adversely impact our business, results of operations, financial condition, cash flow, and prospects.
•We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially adversely affect our business, results of operations, financial condition, cash flows, and prospects.
•Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer.
•A failure of our information systems or any security breach or unauthorized disclosure of confidential information could have a material adverse effect on our business.
•Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business, and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from fulfilling our debt service obligations.
•We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and commercial paper program that could have a material adverse effect on our profitability.
•Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders’ equity.
•Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders. In addition, future share repurchases and fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our common stock.
•Natural disasters and adverse weather events, including the effects of climate change, can disrupt our business.
Please refer to our most recent Annual Report on Form 10-K for additional discussion of the foregoing risks. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.
Additional Information
Investors and others should note that we announce material financial information using our company website (www.autonation.com), our investor relations website (investors.autonation.com), SEC filings, press releases, public conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be announced by posts on AutoNation’s Twitter feed, www.twitter.com/autonation.
The information that we post on our websites and social media channels could be deemed to be material information. As a result, we encourage investors, the media, and others interested in AutoNation to review the information that we post on those websites and social media channels. Our social media channels may be updated from time to time on our investor relations
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website. The information on or accessible through our websites and social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have market risk exposure on various instruments that are based on variable interest rates. Interest rate derivatives may be used to hedge a portion of our variable rate debt, when appropriate, based on market conditions.
We had $1.5 billion of variable rate vehicle floorplan payable at June 30, 2022, and $1.5 billion at December 31, 2021. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change to our annual floorplan interest expense of $15.2 million at June 30, 2022, and $14.6 million at December 31, 2021. Our exposure to changes in interest rates with respect to total vehicle floorplan payable is partially mitigated by manufacturers’ floorplan assistance, which in some cases is based on variable interest rates.
We had no commercial paper notes outstanding at June 30, 2022, and $340.0 million at December 31, 2021. Based on the amount outstanding, a 100 basis point change in interest rates would result in an approximate change to our annual interest expense of $3.4 million at December 31, 2021.
Our fixed rate long-term debt, consisting of amounts outstanding under our senior unsecured notes and finance lease and other debt obligations, totaled $3.5 billion and had a fair value of $3.3 billion as of June 30, 2022, and totaled $2.9 billion and had a fair value of $3.0 billion as of December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition, or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information with respect to shares of common stock repurchased by AutoNation, Inc. during the three months ended June 30, 2022.
| Period | Total Number of Shares Purchased (1) | Avg. 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 (in millions)(1) | |||||||||||||||||||
| April 1, 2022 - April 30, 2022 | 1,858,043 | $ | 104.45 | 1,858,043 | $ | 319.6 | |||||||||||||||||
| May 1, 2022 - May 31, 2022 | 1,658,948 | $ | 114.89 | 1,658,948 | $ | 129.0 | |||||||||||||||||
| June 1, 2022 - June 30, 2022 | 181,348 | $ | 106.29 | 181,348 | $ | 109.7 | |||||||||||||||||
| Total | 3,698,339 | 3,698,339 | |||||||||||||||||||||
(1)Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. As of June 30, 2022, $109.7 million remained available under our stock repurchase limit. In July 2022, our Board of Directors increased the share repurchase authorization by $1.0 billion. Our stock repurchase program does not have an expiration date.
ITEM 6. EXHIBITS
| Exhibit No. | Description | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101.SCH | 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 - the cover page XBRL tags are embedded within the Inline XBRL document. | ||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AUTONATION, INC. | |||||||||||
| Date: | July 21, 2022 | By: | /s/ Christopher Cade | ||||||||
| Christopher Cade Senior Vice President and Chief Accounting Officer | |||||||||||
| (Duly Authorized Officer and Principal Accounting Officer) | |||||||||||
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