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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 307 added, 238 removed, 574 unchanged (49% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This MD&A should be read in conjunction with the accompanying audited consolidated financial statements and notes.

Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected.

Refer to the "Forward-Looking Statements"] and Part I, Item 1A.

Risk Factors for a discussion of these risks and uncertainties.

The discussion of our financial condition and results of operations for the year ended December 31, 2019 is included in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

We are one of the largest automotive retailers in the United States.

As of December 31, 2020 we owned and operated 112 new vehicle franchises (91 dealership locations), representing 31 brands of automobiles, 25 collision centers, and one auto auction in 16 metropolitan markets, within nine states.

As of December 31, 2021, through our Dealerships segment, we owned and operated 205 new vehicle franchises (155 dealership locations), representing 31 brands of automobiles, 35 collision centers, seven stand-alone used vehicle dealerships, one used vehicle wholesale business and one auto auction, within 15 states.

Our stores offer an extensive range of automotive products and services, including new and used vehicles;

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and finance and insurance products.

The finance and insurance products are provided by independent third parties and our recently acquired F&I product provider, TCA.

The F&I products offered by TCA are primarily sold through LHM Dealerships.

For the year ended December 31, 2021, our new vehicle revenue brand mix consisted of 39% imports, 44% luxury, and 17% domestic brands.

Our revenues are derived primarily from:

As a result of the LHM Acquisition on December 17, 2021, as outlined below, the Company now reflects its operations in two reportable segments:

Dealerships and TCA.

Our Dealerships segment revenues are derived primarily from:

(i) the sale of new vehicles;

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(iii) repair and maintenance services, including collision repair, the sale of automotive replacement parts, and the reconditioning of used vehicles (collectively referred to as "parts and service");

and (iv) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products (defined below and collectively referred to as "F&I").

and (iv) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products.

F&I products are offered by dealerships to customers in connection with the purchase of vehicles through either TCA or independent third parties.

F&I revenue recorded by the Dealerships segment related to TCA products is eliminated upon consolidation.

We evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold, our parts and service operations based on aggregate gross profit, and our F&I business based on F&I gross profit per vehicle sold.

Our gross profit margin varies with our revenue mix.

Sales of new vehicles generally result in a lower gross profit margin than used vehicle sales, sales of parts and service, and sales of F&I products.

Our dealerships gross profit margin varies with our revenue mix.

Historically, the sales of new vehicles generally results in a lower gross profit margin than used vehicle sales, sales of parts and service, and sales of F&I products.

As a result, when used vehicle, parts and service, and F&I revenue increase as a percentage of total revenue, we expect our overall gross profit margin to increase.

Our TCA segment revenues, reflected in F&I Revenues, are derived from the sale of various vehicle protection products including vehicle service contracts, guaranteed asset protection insurance, prepaid maintenance contracts, vehicle theft assistance contracts and appearance protection contracts.

These products are sold primarily through LHM Dealerships.

TCA's F&I Revenues are supplemented with investment gains or losses and income earned associated with the performance of TCA's investment portfolio.

Our TCA segment gross profit margin can vary due to incurred claims expense and the amortization of deferred acquisition costs expensed over the life of a customer contract.

Certain F&I products may result in higher TCA gross profit margins.

Therefore, the product mix of F&I products sold by TCA can affect the gross profits earned.

In addition, interest rate volatility based on economic and market conditions outside the control of the Company, may increase or reduce TCA segment gross profit margins as well as the fair market values of certain securities within our investment portfolio.

Fair market values typically fluctuate inversely to the fluctuations in interest rates.

Selling, general, and administrative ("SG&A") expenses consist primarily of fixed and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses.

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We evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit, advertising expense on a per vehicle retailed ("PVR") basis, and all other SG&A expenses in the aggregate as a percentage of total gross profit.

Commissions expense paid by TCA to our affiliated dealerships and reflected as F&I Revenue in our Dealerships segment is eliminated upon consolidation.

Our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy, the continued strength of our brand mix, and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell.

Our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions, including consumer confidence, availability of consumer credit, fuel prices, and employment levels.

Our vehicle sales may also be impacted by manufacturer imposed stop-sales or open safety recalls.

In addition, our ability to sell certain new and used vehicles can be negatively impacted by a number of factors, some of which are outside of our control.

As a result of the COVID-19 global pandemic, certain vehicle manufacturers have needed to slow or temporarily halt assembly lines for the safety of their workers.

Manufacturers have also been hampered by the lack of availability of parts and key components from suppliers such as semi-conductor chips, which has also caused disruption to production.

Manufacturers continue to be hampered by the lack of availability of parts and key components from suppliers such as semi-conductor chips, which has disrupted production and impacted new vehicle inventory levels.

In addition, as a result of the COVID-19 global pandemic, certain vehicle manufacturers have needed to slow or temporarily halt assembly lines for the safety of their workers.

We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these production slowdowns or when normalized production will resume at these manufacturers.

Further, governmental actions, such as travel restrictions imposed in response to national emergencies or the imposition of tariffs or trade restrictions on imported goods may adversely affect vehicle sales and depress demand.

Although we cannot adequately predict the ongoing impact of COVID-19 on our business, we continue to believe that any future negative trends in new vehicle sales caused by lack of inventory availability would be partially mitigated by (i) the expected relative stability of our parts and service operations over the long-term, (ii) the variable nature of significant components of our cost structure, and (iii) our diversified brand and geographic mix.

We continue to monitor and respond as necessary to the Company’s operational needs during the ongoing outbreak of the COVID-19 global pandemic and the resulting economic uncertainty.

Miller Acquisition

On September 28, 2021, Asbury Automotive Group, LLC (“Purchaser”), a Delaware limited liability company and a wholly-owned subsidiary of the Company, entered into (i) a Purchase Agreement (the “Equity Purchase Agreement”) with certain members of the Larry H.

Miller Dealership family of entities;

(ii) a Real Estate Purchase and Sale Agreement (the “Real Estate Purchase Agreement”) with Miller Family Real Estate, L.L.C.

and (iii) a Purchase Agreement (the “TCA Purchase Agreement” and together with the Equity Purchase Agreement and the Real Estate Purchase Agreement, the “Transaction Agreements”) with certain equity owners of the Total Care Auto, Powered by Landcar (“TCA”) business affiliated with the Larry H.

Miller Dealership family of entities.

Pursuant to the Transaction Agreements, we agreed to acquire the equity interests of, and the real property related to (collectively, the “Transactions”), the businesses of the Larry H.

Miller Dealerships ("LHM") and TCA (collectively, the “Businesses”), each described in the Equity Purchase Agreement, the Real Estate Purchase Agreement and the TCA Purchase Agreement, for an aggregate purchase price of approximately $3.48 billion, comprising approximately $2.51 billion of goodwill and franchise rights intangible assets, $792.6 million of property and equipment, and $285.0 million in inventories less $105.6 million of liabilities assumed, net of other assets acquired.

On December 17, 2021, the Company completed the acquisition of the Businesses, thereby acquiring 54 new vehicle dealerships, seven used cars dealerships, 11 collision centers, a used vehicle wholesale business, the real property related thereto, and the entities comprising the TCA business for a total purchase price of $3.48 billion.

The real property was acquired in escrow, to be released, together with the related portion of the purchase price, subject to the satisfaction of certain title related conditions.

The purchase price was financed through a combination of cash, proceeds from the issuance of common stock and borrowings including the issuance of the 2029 Senior Notes and 2032 Senior Notes, the drawdown on the 2021 Real Estate Facility and the 2019 Senior Credit Facility and other floor plan borrowings.

Park Place Acquisition

On December 11, 2019, the Company entered into (1) an Asset Purchase Agreement (the "2019 Asset Purchase Agreement") with certain members of the Park Place Dealership family of entities, Park Place Mid-Cities, Ltd., a Texas limited partnership, and the identified principal (collectively, "Park Place") and (2) a Real Estate Purchase Agreement (the "Real Estate Purchase Agreement" and, together with the 2019 Asset Purchase Agreement, the "Transaction Agreements") with certain members of the Park Place Dealership family of entities to acquire substantially all of the assets of, and certain real property related to, the Park Place business.

On December 11, 2019, the Company entered into (1) an Asset Purchase Agreement (the "2019 Asset Purchase Agreement") with certain members of the Park Place Dealership family of entities, Park Place Mid-Cities, Ltd., a Texas limited partnership, and the identified principal (collectively, "Park Place") and (2) a Real Estate Purchase Agreement (the "Real Estate Purchase Agreement" and, together with the 2019 Asset Purchase Agreement, the "2019 Park Place Agreements") with certain members of the Park Place Dealership family of entities to acquire substantially all of the assets of, and certain real property related to, the Park Place business.

The 2019 Asset Purchase Agreement included the purchase of 19 franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 2 Jaguar, 2 Land Rover, 1 Porsche, and 1 Volvo and 5 ultra luxury brands including 1 Bentley, 1 Rolls Royce, 1 McLaren, 1 Maserati and 1 Karma), two collision centers and an auto auction.

On March 24, 2020, Asbury delivered notice to the sellers terminating the Transaction Agreements pursuant to the terms thereof in exchange for the

payment of $10.0 million of liquidated damages.

On March 24, 2020, Asbury delivered notice to the sellers terminating the 2019 Park Place Agreements pursuant to the terms thereof in exchange for the payment of $10.0 million of liquidated damages.

Please refer to Liquidity and Capital Resources for additional details regarding the impact on financing transactions.

As a result of the Company's efforts to mitigate the financial impact of the COVID-19 global pandemic, along with a strong May and June 2020 performance, the Company reengaged on the Park Place Dealership group acquisition under more favorable pricing and more flexible financing terms, including limiting the purchase of luxury dealership franchises to those most aligned with the Company's core strategic business.

On July 6, 2020, the Company entered into an Asset Purchase Agreement (the "Revised Asset Purchase Agreement") with Park Place to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 1 Jaguar, 1 Land Rover, 1 Porsche, and 1 Volvo), two collision centers and an auto auction comprising the Park Place Dealership group (collectively, the "Revised Transaction") for a purchase price of $889.9 million.

The Revised Transaction was completed on August 24, 2020.

On July 6, 2020, the Company entered into an Asset Purchase Agreement (the "Revised Asset Purchase Agreement") with Park Place to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 1 Jaguar, 1 Land Rover, 1 Porsche, and 1 Volvo), two collision centers and an auto auction comprising the Park Place Dealership group (collectively, the "Park Place acquisition") for a purchase price of $889.9 million.

The Park Place acquisition was completed on August 24, 2020.

The purchase price was financed through a combination of cash, floor plan facilities and seller financing.

Impact of COVID-19 on Our Business

In response to the economic downturn to our business experienced as a result of the COVID-19 global pandemic, in early April 2020 management took various actions in an attempt to mitigate the financial impact.

These actions included the furlough of employees, reduced store hours, and the suspension of the Company's 401(k) match.

In addition, the Company implemented temporary reductions in pay for all employees and the Company’s directors also agreed to waive portions of their annual cash retainers.

We continued to evaluate these actions throughout the second quarter of the 2020 fiscal year and made the difficult decision to permanently reduce the workforce by approximately 1,300 employees to help align our expense structure with the current business environment.

By the end of July 2020 we had reinstated full pay to all employees impacted by the temporary reductions and the Company's 401(k) match for eligible employees.

We continue to monitor and respond as necessary to the Company’s operational needs during the ongoing outbreak of the COVID-19 global pandemic and the resulting economic uncertainty.

The gradual rebound to our business we began to experience in May and June, continued through the third and fourth quarters of 2020.

The seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S.

during 2020 was 14.6 million compared to 17.1 million in 2019.

On a same-store basis, all of our revenue streams declined from the prior year with the exception of used vehicle wholesale revenue.

Despite this decline in revenue, we experienced a significant increase in our new and used gross profit margins in 2020 when compared to 2019, as new vehicle supply disruptions as a result of the COVID-19 global pandemic reduced the availability of new vehicle inventory, which eventually drove up demand for used vehicles.

Our parts and service business also showed signs of a recovery and by year-end was approaching pre-pandemic levels.

We continue to monitor and manage our cash flows and have enacted cost saving measures to respond to the uncertain environment.

The Company has significantly reduced its marketing expenses, deferred certain capital expenditures, and managed other controllable expenses.

The flexibility of our cost structure has resulted in profitability throughout the COVID-19 pandemic, with profitability in the second half of 2020 exceeding that of the prior year period.

At this time, we cannot predict the duration or scope, and future effects, of the impacts from the pandemic.

Vaccines are currently being administered with the objective of having the country return to some sense of normalcy by the second half of 2021.

However, vaccine availability, distribution, efficacy to new strains of the virus and the public's willingness to get vaccinated all remain challenges, which could lengthen the duration of the impacts of the pandemic.

We continue to manage the business as appropriate in order to preserve our financial flexibility during this challenging time.

During the first quarter of 2020, we recorded a $23.0 million non-cash impairment charge related to our intangible manufacturer franchise rights.

If the COVID-19 pandemic continues, future outbreaks in the markets in which we operate may cause changes in customer behaviors, including a potential reduction in traffic at our dealerships and could result in additional impairment charges.

The uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations.

These and other factors may adversely impact our financial condition, liquidity and cash flow.

We cannot accurately predict the amount and timing of any additional impairment charge at this time, however, any such impairment charge could have an adverse effect on our results of operations and stockholders’ equity.

Our top priority continues to be the safety and protection of our customers, team members and their families.

We have modified certain business practices to conform to government restrictions and are taking precautionary measures as directed by government and regulatory authorities.

Following the CDC’s recommendation, we are providing face masks to employees and guests as required.

Additionally, we increased the frequency of dealership cleanings, implemented the use of plastic seat and steering wheel covers when performing service on guest vehicles, performed thorough cleaning and sanitizing of loaner vehicles after each use, and secured extra supplies of hand sanitizer, alcohol wipes, gloves and disinfectants for both employee

and guest use at our dealerships.

Many of our stores are also offering complimentary pick-up and delivery services to our customers, and we continue to offer online purchasing of new and used vehicles with delivery to the customer.

In September 2020, the

Company redeemed the amounts outstanding related to the seller financing.

Certain of the leased real property was subsequently acquired in May 2021 for $217.1 million.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

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As a result of the COVID-19 pandemic, we performed quantitative impairment tests as of March 31, 2020, and identified eleven dealerships with franchise rights carrying values that exceeded their fair values, and as a result, recorded non-cash impairment charges of $23.0 million.

No additional franchise right impairments were identified in 2020.

No franchise right impairments were identified in 2021.

We do not amortize goodwill and other intangible assets that are deemed to have indefinite lives.

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F&I Chargeback Reserves—

We receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts, guaranteed asset protection (known as "GAP") debt cancellation, and other insurance to customers (collectively "F&I").

We receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts, GAP insurance, and other vehicle protection products.

F&I commissions are recorded at the time the associated vehicle is sold.

We may be charged back for F&I commissions in the event a contract is prepaid, defaulted upon, or terminated ("chargebacks").

F&I commissions, net of estimated future chargebacks, are included in Finance and Insurance, net in the accompanying Consolidated Statements of Income.

We reserve for chargebacks on finance, insurance, or vehicle service contract commissions received.

F&I commissions, net of estimated future chargebacks, are included in Revenues - Finance and Insurance, net in the accompanying Consolidated Statements of Income.

We reserve for chargebacks on finance and vehicle service and other protection product contract commissions received.

The reserve is established based on historical operating results and the termination provisions of the applicable contracts and is evaluated on a product-by-product basis.

Our F&I cash chargebacks for the year ended December 31, 2020, 2019, and 2018 were $38.0 million, $40.6 million, and $37.5 million, respectively.

Our chargeback reserves were $47.3 million and $48.2 million as of December 31, 2020 and December 31, 2019, respectively.

Total chargebacks as a percentage of F&I commissions for the year ended December 31, 2020, 2019, and 2018, were 12%, 13%, and 13%, respectively.

A 100 basis point change in our estimated reserve rate for future

chargebacks, would change our finance and insurance chargeback reserve by approximately $3.2 million as of December 31, 2020.

Insurance Reserves—

We are self-insured for employee medical claims and maintain stop loss insurance for large-dollar individual claims.

We have large deductible insurance programs for workers compensation, property and general liability claims.

We maintain and review our claim and loss history to assist in assessing our expected future liability for these claims.

We also use professional service providers, such as account administrators and actuaries, to help us accumulate and assess this information.

Provisions for retained losses and deductibles are made by charges to expense based upon periodic evaluations of the estimated ultimate liabilities on reported and unreported claims.

We had $17.9 million and $17.0 million of insurance reserves for incurred and expected employee medical, workers' compensation, property, and general liability claims, net of anticipated insurance recoveries, as of December 31, 2020 and December 31, 2019, respectively.

Expenses associated with employee medical, workers' compensation, property, and general liability claims, including premiums for insurance coverage, for the year ended December 31, 2020, 2019, and 2018, totaled $37.9 million, $33.3 million, and $29.9 million, respectively.

RESULTS OF OPERATIONS

Our F&I cash chargebacks for the years ended December 31, 2021, 2020, and 2019 were $45.5 million, $38.0 million, and $40.6 million, respectively.

Our chargeback reserves were $50.4 million and $47.3 million as of December 31, 2021 and 2020, respectively.

Total chargebacks as a percentage of F&I commissions for the years ended December 31, 2021, 2020, and 2019, were 11%, 12%, and 13%, respectively.

A 100 basis point change in our estimated reserve rate for future chargebacks, would

change our finance and insurance chargeback reserve by approximately $4.2 million as of December 31, 2021.

Chargeback reserves estimated for products underwritten by TCA are eliminated in consolidation.

CONSOLIDATED RESULTS OF OPERATIONS

The Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

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Depreciation and amortization 41.9 38.5 3.4 9 %

Franchise rights impairment 23.0 7.1 15.9 NM

Other operating expenses, net 9.2 0.8 8.4 NM

Franchise rights impairment — 23.0 (23.0) (100) %

Other operating (income) expense, net (5.4) 9.2 (14.6) (159) %

INCOME FROM OPERATIONS 791.8 370.8 421.0 114 %

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Loss on extinguishment of long-term debt, net — 20.6 (20.6) (100) %

Gain on dealership divestitures, net (62.3) (11.7) (50.6) NM

Gain on dealership divestitures, net (8.0) (62.3) 54.3 87 %

Total other expenses, net 94.1 32.7 61.4 188 %

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Net income per common share—Diluted $ 26.49 $ 13.18 $ 13.31 101 %

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NM — Not Meaningful

For the Year Ended December 31,

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SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT 56.5 % 63.9 %

Total revenue during 2020 decreased by $78.5 million (1%) compared to 2019, due to a $95.9 million (2%) decrease in new vehicle revenue, a $9.6 million (1%) decrease in parts and service revenue and a $10.9 million (3%) decrease in F&I revenue, partially offset by a $37.9 million (2%) increase in used vehicle revenue.

The $54.5 million (5%) increase in gross profit during 2020 was the result of a $59.0 million (37%) increase in new vehicle gross profit, a $22.5 million (17%) increase in used vehicle gross profit, partially offset by a $16.1 million (3%) decrease in parts and service gross profit and a $10.9 million (3%) decrease in F&I gross profit.

Total revenue during 2021 increased by $2.71 billion (38%) compared to 2020, due to a $1.17 billion (31%) increase in new vehicle revenue, a $1.15 billion (53%) increase in used vehicle revenue, a $293.1 million (33%) increase in parts and service revenue and a $100.0 million (33%) increase in F&I revenue.

The $678.8 million (55%) increase in gross profit during 2021 was the result of a $272.0 million (124%) increase in new vehicle gross profit, a $131.7 million (84%) increase in used vehicle gross profit, a $178.7 million (33%) increase in parts and service gross profit and a $96.4 million (32%) increase in F&I gross profit.

Our total gross profit margin increased 210 basis points from 17.2% in 2020 to 19.3% in 2021.

Income from operations during 2020 increased by $45.8 million (14%) compared to 2019, primarily due to a $54.5 million (5%) increase in gross profit and a $17.9 million (2%) decrease in selling, general, and administrative expenses partially offset by a $15.9 million increase in franchise rights impairment, an $8.4 million increase in other operating expenses, net and a $2.3 million (6%) increase in depreciation and amortization expenses.

Total other expenses, net decreased by $48.4 million (60)% in 2020, primarily due to a $50.6 million increase in gain on dealership divestitures and a $20.2 million decrease in floor plan interest expense, partially offset by a $20.6 million loss on extinguishment of debt and a $1.8 million increase in other interest expense, net.

Income from operations during 2021 increased by $421.0 million (114%) compared to 2020, primarily due to a $678.8 million (55%) increase in gross profit, a $23.0 million decrease in franchise rights impairment, a $14.6 million decrease in other operating expenses, net, partially offset by a $292.0 million (37%) increase in selling, general, and administrative expenses and a $3.4 million (9%) increase in depreciation and amortization expenses.

Total other expenses, net increased by $61.4 million (188%) in 2021, primarily due to a $54.3 million decrease in gain on dealership divestitures, a $37.2 million increase in other interest expense, net, partially offset by a $9.5 million decrease in floor plan interest expense and a $20.6 million decrease in loss on extinguishment of debt.

As a result, income before income taxes increased by $359.6 million (106%) to $697.7 million in 2021.

The $24.2 million (41%) increase in income tax expense was primarily attributable to the 39% increase in income before taxes and a 40 basis point increase in the 2020 effective tax rate.

The $81.6 million (97%) increase in income tax expense was primarily attributable to the 106% increase in income before taxes, partially offset by a 110 basis point decrease in the 2021 effective tax rate.

Overall, net income increased by $278.0 million (109%) from $254.4 million in 2020 to $532.4 million in 2021.

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Additionally, amounts related to divested dealerships are excluded from each comparative period.

DEALERSHIP SEGMENT

For the Year Ended December 31, Increase

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New vehicle gross margin 8.9 % 5.9 % 3.0 %

New vehicle revenue decreased by $95.9 million (2%), as a result of a 10% decrease in new vehicle unit sales partially offset by an 8% increase in revenue per new vehicle sold.

Same store new vehicle revenue decreased by $317.1 million (9%) as a result of a 12% decrease in new vehicle units sold, partially offset by a 4% increase in revenue per new vehicle sold.

Same store new vehicle gross profit in 2020 increased by $27.9 million (19%), as a result of a 36% increase in gross profit per new vehicle sold partially offset by a 12% decrease in unit volumes.

Same store new vehicle gross margin increased 120 basis points to 5.4% in 2020, primarily as a result of a supply shortage for much of 2020 caused by manufacturers reducing or halting production due to the COVID-19 pandemic.

We finished 2020 with a 40 day supply of new vehicle inventory which is below our target of 70 to 75 days primarily as a result of production challenges caused by the COVID-19 pandemic.

New vehicle revenue increased by $1.17 billion (31%), as a result of a 15% increase in new vehicle unit sales and a 13% increase in revenue per new vehicle sold.

Same store new vehicle revenue increased by $496.3 million (13%) as a result of a 4% increase in new vehicle units sold and a 9% increase in revenue per new vehicle sold.

Same store new vehicle gross profit in 2021 increased by $190.6 million (89%), as a result of a 82% increase in gross profit per new vehicle sold and a 4% increase in unit volumes.

Same store new vehicle gross margin increased 390 basis points to 9.7% in 2021, primarily as a result of a supply shortage for much of 2021 caused by manufacturer production challenges caused by the semi-conductor shortage and the COVID-19 pandemic.

We finished 2021 with a eight day supply of new vehicle inventory which is below our targeted days supply primarily as a result of these manufacturer production challenges.

Used Vehicle—

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Used vehicle retail gross profit $ 262.0 $ 145.3 $ 116.7 80 %

Used vehicle wholesale gross profit 11.3 1.0 10.3 NM

Used vehicle wholesale gross profit 26.3 11.3 15.0 133 %

Used vehicle gross profit $ 288.3 $ 156.6 $ 131.7 84 %

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Used vehicle retail gross profit $ 226.5 $ 141.9 $ 84.6 60 %

Used vehicle wholesale gross profit 9.1 1.6 7.5 NM

Used vehicle wholesale gross profit 18.9 11.4 7.5 66 %

Used vehicle gross profit $ 245.4 $ 153.3 $ 92.1 60 %

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Used vehicle retail gross margin 8.6 % 7.6 % 1.0 %

Used vehicle revenue increased by $37.9 million (2%), due to a $49.2 million (26%) increase in used vehicle wholesale revenue partially offset by a $11.3 million (1%) decrease in used retail revenue.

Same store used vehicle revenue decreased by $71.4 million (4%) due to an $86.6 million (5%) decrease in used vehicle retail revenue, partially offset by a $15.2 million (9%) increase in used vehicle wholesale revenues.

In 2020, total Company and same store used vehicle retail gross profit margins increased 60 basis points to 7.5% and 7.6%, respectively.

We primarily attribute the increases in used vehicle retail gross profit margin to increased demand for used vehicles as a result of new vehicle inventory shortages caused by the COVID-19 pandemic.

Used vehicle revenue increased by $1.15 billion (53%), due to a $1.13 billion (58%) increase in used retail revenue and a $20.2 million (8%) increase in used vehicle wholesale revenue.

Same store used vehicle revenue increased by $689.7 million (33%) due to an $749.8 million (40%) increase in used vehicle retail revenue, partially offset by a $60.1 million (26%) decrease in used vehicle wholesale revenues.

In 2021, total Company and same store used vehicle retail gross profit margins both increased 110 and 100 basis points, respectively, to 8.6%.

We primarily attribute the increases in used vehicle retail gross profit margin to increased demand for used vehicles as a result of new vehicle inventory shortages caused by semiconductor supply chain and COVID-19 disruptions.

We believe that our used vehicle inventory continues to be well-aligned with current consumer demand, with approximately 34 days of supply as of December 31, 2021.

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* Reconditioning and preparation represents the gross profit earned by our parts and service departments for internal work performed and is included as a reduction of Parts and service cost of sales within the accompanying Consolidated Statements of Income upon the sale of the vehicle.

The $9.6 million (1%) decrease in parts and service revenue was primarily due to a $11.2 million decrease in wholesale parts revenue and a $0.3 million decrease in customer pay revenue partially offset by a $1.9 million increase in warranty revenue.

The wholesale parts business was negatively affected by the COVID-19 pandemic which significantly reduced demand as a result of fewer miles being driven.

Same store parts and service revenue decreased $64.6 million (8%) from $840.0 million in 2019 to $775.4 million in 2020.

The decrease in same store parts and service revenue was due to a $33.9 million (7%) decrease in customer pay revenue, a $13.6 million (9%) decrease in warranty revenue, and a $11.1 million (9%) decrease in wholesale parts revenue.

Parts and service gross profit, excluding reconditioning and preparation, decreased by $4.4 million (1%) to $425.5 million and same store gross profit, excluding reconditioning and preparation, decreased by $38.0 million (9%) to $365.9 million.

The $38.0 million decrease in same store gross profit, excluding reconditioning and preparation, is primarily due to a $29.2 million (10%) decrease in customer pay gross profit, a $6.7 million (8%) decrease in warranty gross profit, and a $2.1 million (10%) decrease in wholesale parts gross profit.

The COVID-19 global pandemic negatively impacted our parts and service business for most of 2020 as a result of people driving fewer miles and therefore requiring less vehicle maintenance.

In addition, fewer accidents on the roadways negatively impacted our collision repair business.

The $294.5 million (33%) increase in parts and service revenue was due to a $218.7 million (37%) increase in customer pay revenue, a $65.8 million (54%) increase in wholesale parts revenue, and a $10.0 million (6%) increase in warranty revenue.

Same store parts and service revenue increased $126.7 million (15%) from $867.8 million in 2020 to $994.5 million in 2021.

The increase in same store parts and service revenue was due to a $103.7 million (18%) increase in customer pay revenue and a $41.7 million (35%) increase in wholesale parts revenue, partially offset by a $18.7 million (11%) decrease in warranty revenue.

Parts and service gross profit, excluding reconditioning and preparation, increased by $141.1 million (33%) to $566.6 million and same store gross profit, excluding reconditioning and preparation, increased by $55.1 million (13%) to $470.1 million.

The $55.1 million increase in same store gross profit, excluding reconditioning and preparation, is primarily due to a $59.8 million (20%) increase in customer pay gross profit, and a $7.1 million (33%) increase in wholesale parts gross profit, partially offset by an $11.8 million (13%) decrease in warranty gross profit.

The parts and service business was negatively impacted by the COVID-19 pandemic in 2020 but has since recovered to pre-pandemic levels.

In addition, the shortage of new vehicle inventory has increased demand for used vehicles which in turn has generated addition reconditioning and preparation gross profit for the parts and service departments.

Finance and Insurance, net—

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Finance and insurance, net per vehicle sold $ 1,906 $ 1,745 $ 161 9 %

F&I revenue, net decreased by $10.9 million (3%) in 2020 when compared to 2019 primarily as a result of a 9% decrease in new and used retail unit sales partially offset by a 7% increase in F&I per vehicle retailed.

On a same store basis F&I revenue, net decreased by $12.9 million (4%) in 2020 when compared to 2019 primarily as a result of a 11% decrease in new and used retail unit sales partially offset by a 8% increase in F&I per vehicle retailed.

F&I revenue, net increased by $97.6 million (32%) in 2021 when compared to 2020 primarily as a result of a 22% increase in new and used retail unit sales and an 8% increase in F&I per vehicle retailed.

On a same store basis F&I revenue, net increased by $64.9 million (22%) in 2021 when compared to 2020 primarily as a result of an 11% increase in new and used retail unit sales and a 9% increase in F&I per vehicle retailed.

During 2021 we continued to benefit from a favorable consumer lending environment, which allowed more of our customers to take advantage of a broader array of F&I products and our continued focus on improving the F&I results at our lower-performing stores through our F&I training programs.

Selling, General, and Administrative Expense—

For the Year Ended December 31, Increase

(Dollars in millions)

Finance and insurance, gross revenue $ 12.0 $ — $ 12.0 N/A

Finance and insurance, cost of sales $ 6.5 $ — $ 6.5 N/A

Finance and insurance, gross profit $ 5.5 $ — $ 5.5 N/A

On December 17, 2021 we acquired TCA.

TCA offers a variety of F&I products, such as extended vehicle service contracts, prepaid maintenance contracts, GAP insurance, vehicle theft assistance contracts, key replacement contracts, paintless dent repair contracts, appearance protection contracts, tire and wheel, and lease wear-and-tear contracts.

The majority of TCA's products are sold through affiliated LHM automobile dealerships.

Revenue generated by TCA is earned over the period of the related service product contract.

The method for recognizing revenue is assigned based on contract type and expected claim patterns.

Premium revenues are supplemented with investment gains or losses and income earned associated with the performance of TCA's investment portfolio.

During the 15-day period the Company owned TCA in December 2021, TCA generated $12.0 million of revenue, consisting of both earned premium and investment income.

Direct expenses paid for the acquisition of contracts on which revenue has been received but not yet earned have been deferred and are amortized over the related contract period.

Expenses are matched with earned premiums resulting in recognition over the life of the contracts.

During the 15-day period the Company owned TCA in December 2021, TCA recorded $6.5 million of cost of sales consisting primarily of claims expense and amortization of deferred acquisition costs.

S elling, General, and Administrative Expense—

For the Year Ended December 31, Increase

(Decrease) % of Gross

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Same store SG&A expense as a percentage of gross profit decreased 630 basis points from 63.8% in 2020 to 57.5% in 2021.

The decrease in SG&A as a percentage of gross profit is the result of broad cost cutting measures implemented as a result of the COVID-19 global pandemic and higher gross profits on new and used vehicle sales triggered by new vehicle inventory shortages caused by pandemic related production disruptions.

In addition to personnel cost savings realized as a result of headcount reductions, our cost cutting measures significantly reduced controllable expenses, such as advertising and travel.

We were also able to generate savings by adjusting our loaner vehicle fleet to accommodate the COVID-19 triggered service volume downturn.

We anticipate our SG&A expense as a percentage of gross profit to gradually increase as new vehicle inventory levels begin to normalize in 2021.

The decrease in SG&A as a percentage of gross profit is primarily the result of higher gross profits earned across our Dealership segment, as well as maintaining expense discipline, particularly in personnel costs, with enhanced productivity of our team members.

Depreciation and Amortization Expense —

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We assessed our manufacturer franchise rights for impairment by comparing the present value of cash flows attributable to each franchise right to its carrying value.

As a result of our impairment testing performed as of March 31, 2020, we recognized

a $23.0 million pretax non-cash charge related to eleven dealerships during the year ended December 31, 2020 and a $7.1 million charge as a result of our annual impairment test related to six dealerships during the year ended December 31, 2019.

Other Operating Expenses (Income), net —

Other operating expenses (income), net includes gains and losses from the sale of property and equipment, income derived from lease arrangements, and other non-core operating items.

As a result of our impairment testing performed, we recognized no impairment charges during the year ended December 31, 2021 and a $23.0 million pre-tax non-cash charge related to eleven dealerships during the year ended December 31, 2020.

Other Operating (Income) Expenses, net —

Other operating (income) expenses, net includes gains and losses from the sale of property and equipment, income derived from lease arrangements, and other non-core operating items.

During the twelve months ended December 31, 2021, the Company recorded other operating income, net of $5.4 million, which included a $3.5 million gain related to legal settlements and a $1.9 million gain on divestitures of certain real estate.

During the twelve months ended December 31, 2020, the Company recorded other operating expense, net of $9.2 million, which included $12.9 million related to the Park Place acquisition, $0.7 million real estate related impairment partially offset by a $2.1 million gain related to legal settlements and a $0.3 million gain related to the sale of vacant real estate.

During the twelve months ended December 31, 2019, the Company recorded expense of $0.8 million, net, which included a $2.6 million pre-tax loss related to the write-off of fixed assets, partially offset by $1.8 million, net of other non-core operating income.

Floor Plan Interest Expense —

Floor plan interest decreased by $20.2 million (53%) to $17.7 million during 2020 compared to $37.9 million during 2019, as a result of a decrease in the LIBOR rate on which our floor plan interest rate is calculated as well as generally lower new vehicle inventory levels during 2020 as a result of pandemic related production issues.

Floor plan interest expense decreased by $9.5 million (54%) to $8.2 million during 2021 compared to $17.7 million during 2020, as a result of lower new vehicle inventory levels during 2021 caused by production issues related to the semiconductor shortage and COVID-19.

Other Interest Expense —

Other interest expense increased $37.2 million (66%) from $56.7 million in 2020 to $93.9 million in 2021.

In 2021, we incurred approximately $27.5 million in bridge commitment fees related to our acquisition of LHM and TCA.

During 2021, we also incurred additional interest expense related to our $800.0 million 2029 Notes (as defined below) and $600.0 million 2032 Notes (as defined below) issued in November 2021, the proceeds of which were also used to finance recent acquisitions.

In addition, we incurred interest expense in connection with the 2021 BofA Real Estate Facility, the proceeds of which was used to finance the acquisition of previously leased Park Place Dealership premises.

Gain on Dealership Divestitures —

During the year ended December 31, 2021, we sold one franchise (one dealership location) in the Charlottesville, Virginia market.

The Company recorded a pre-tax gain totaling $8.0 million, which is presented in our accompanying Consolidated Statements of Income as Gain on dealership divestitures, net.

During the year ended December 31, 2020, we sold two franchises (two dealership locations) in the Atlanta, Georgia market, we sold six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market, and we sold one franchise (one dealership location) in the Greenville, South Carolina market.

The Company recorded a pre-tax gain totaling $62.3 million.

Income Tax Expense —

The $81.6 million (97%) increase in income tax expense was the result of a $359.6 million (106%) increase in income before income taxes.

Our effective tax rate increased 40 basis points from 24.4% in 2019 to 24.8% in 2020.

The increase in our effective tax rate was primarily due to an increased state rate attributed to higher apportionment in certain jurisdictions in states in which the Company has significant activity.

We expect our effective tax rate to be around 25% in 2021.

Our effective tax rate decreased 110 basis points from 24.8% in 2020 to 23.7% in 2021.

The decrease in our effective tax rate was primarily due to decreases in state rates in jurisdictions in which the Company has significant activity.

We expect our effective tax rate to be in the 25%-26% in 2022 as we expand our operations into states with higher tax rates.

Refer to Note 16 "Income Taxes" for additional information regarding income taxes.

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Depreciation and amortization 38.5 36.2 2.3 6 %

Franchise rights impairment 7.1 3.7 3.4 92 %

Other operating expenses (income), net 0.8 (1.1) 1.9 (173) %

Franchise rights impairment 23.0 7.1 15.9 NM

Other operating expenses, net 9.2 0.8 8.4 NM

INCOME FROM OPERATIONS 370.8 325.0 45.8 14 %

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Other interest expense, net 56.7 54.9 1.8 3 %

Swap interest expense — 0.5 (0.5) (100) %

Gain on dealership divestitures, net (11.7) — (11.7) —

Loss on extinguishment of long-term debt, net 20.6 — 20.6 —

Gain on dealership divestitures, net (62.3) (11.7) (50.6) NM

Total other expenses, net 32.7 81.1 (48.4) (60) %

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Net income per common share—Diluted $ 13.18 $ 9.55 $ 3.63 38 %

______________________________

NM — Not Meaningful

For the Year Ended December 31,

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SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT 63.9 % 68.4 %

Total revenue during 2019 increased by $335.9 million (5%) compared to 2018, due to a $74.6 million (2%) increase in new vehicle revenue, a $159.2 million (8%) increase in used vehicle revenue, a $78.4 million (10%) increase in parts and service revenue and a $23.7 million (8%) increase in F&I revenue.

The $65.9 million (6%) increase in gross profit during 2019 was the result of a $4.4 million (3%) increase in used vehicle gross profit, a $23.7 million (8%) increase in F&I gross profit and a $43.5 million (8%) increase in parts and service gross profit, partially offset by a $5.7 million (3%) decrease in new vehicle gross profit.

Our total gross profit margin increased 100 basis points from 16.2% in 2019 to 17.2% in 2020.

Income from operations during 2019 increased by $14.1 million (5%) compared to 2018, primarily due to a $65.9 million (6%) increase in gross profit, partially offset by a $44.0 million (6%) increase in selling, general, and administrative expenses, a $3.4 million increase in franchise rights impairment, a $2.5 million (7%) increase in depreciation and amortization expenses, and a $1.9 million increase in other operating expenses (income), net.

Total other expenses (income), net decreased by $5.0 million in 2019, primarily due to an $11.7 million increase in gain on divestitures and a $0.5 million decrease in swap interest expense in 2019, partially offset by a $5.4 million increase in floor plan interest expense and a $1.8 million increase in other interest expense, net.

Total other expenses, net decreased by $48.4 million (60%) in 2020, primarily due to a $50.6 million increase in gain on dealership divestitures and a $20.2 million decrease in floor plan interest expense, partially offset by a $20.6 million loss on extinguishment of debt and a $1.8 million increase in other interest expense, net.

As a result, income before income taxes increased by $94.2 million (39%) to $338.1 million in 2020.

The $2.7 million (5%) increase in income tax expense was primarily attributable to the 8% increase in income before taxes, partially offset by a 3% decrease associated with a lower effective tax rate.

The $24.2 million (41%) increase in income tax expense was primarily attributable to the 39% increase in income before taxes and a 40 basis point increase in the 2020 effective tax rate.

Overall, net income increased by $70.0 million (38%) from $184.4 million in 2019 to $254.4 million in 2020.

On January 1, 2019, we adopted ASC 842, utilizing the optional transition relief method, which allowed for the effective date of the new leases standard as the date of initial application.

Our prior period comparative information has not been adjusted and continues to be reported under accounting standards in effect for those periods.

The adoption of this accounting standard had a minimal impact on the financial results of the Company for the twelve months ended December 31, 2020.

For additional information related to the impacts from the adoption of this update, please refer to Note 18 "Leases" within the accompanying Consolidated Financial Statements.

On January 1, 2019, the Company adopted ASU 2017-12.

This update aligns the recognition and presentation, which are to be applied prospectively, of the effects of the hedging instrument and the hedged item in the financial statements.

As a result of the adoption of this update, the Company's swap interest expense is now presented within other interest expense, net.

Please refer to Note 14 "Financial Instruments and Fair Value" within the accompanying Consolidated Financial Statements for additional details regarding the Company's interest rate swap agreements.

We assess the organic growth of our revenue and gross profit on a same store basis.

We believe that our assessment on a same store basis represents an important indicator of comparative financial performance and provides relevant information to assess our performance.

As such, for the following discussion, same store amounts consist of information from dealerships for

identical months in each comparative period, commencing with the first month we owned the dealership.

As such, for the following discussion, same store amounts consist of information from dealerships for identical months in each comparative period, commencing with the first month we owned the dealership.

Additionally, amounts related to divested dealerships are excluded from each comparative period.

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New vehicle gross margin 5.8 % 4.2 % 1.6 %

New vehicle revenue increased by $74.6 million (2%), as a result of a 2% increase in revenue per new vehicle sold.

Same store new vehicle revenue decreased by $60.8 million (2%) as a result of a 3% decreases in new vehicle units sold, partially offset by an increase in revenue per new vehicle sold.

The 3% decrease in same store unit sale volume was driven by a 3% and 13% decrease in import and domestic units, respectively, partially offset by a 4% increase in luxury units.

Same store new vehicle gross profit in 2019 decreased by $12.4 million (8%), as a result of a 4% decrease in gross profit per new vehicle sold, and a 3% decrease in unit volumes.

Same store new vehicle gross margin decreased 30 basis point to 4.1% in 2019, as a result of margin pressure across our brand offerings, but particularly our import brands, which decreased 50 basis points from 2.9% in 2018 to 2.4% in 2019.

New vehicle revenue decreased by $95.9 million (2%), as a result of a 10% decrease in new vehicle unit sales partially offset by an 8% increase in revenue per new vehicle sold.

Same store new vehicle revenue decreased by $317.1 million (9%) as a result of a 12% decrease in new vehicle units sold, partially offset by a 4% increase in revenue per new vehicle sold.

Same store new vehicle gross profit in 2020 increased by $27.9 million (19%), as a result of a 36% increase in gross profit per new vehicle sold partially offset by a 12% decrease in unit volumes.

Same store new vehicle gross margin increased 120 basis point to 5.4% in 2020, primarily as a result of a supply shortage for much of 2020 caused by manufactures reducing or halting production due to the COVID-19 pandemic.

We finished 2020 with a 40 day supply of new vehicle inventory which is below our target of 70 to 75 days primarily as a result of production challenges caused by the COVID-19 pandemic.

Used Vehicle—

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Used vehicle retail gross profit $ 145.3 $ 133.1 $ 12.2 9 %

Used vehicle wholesale gross profit 1.0 1.9 (0.9) (47) %

Used vehicle wholesale gross profit 11.3 1.0 10.3 NM

Used vehicle gross profit $ 156.6 $ 134.1 $ 22.5 17 %

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Used vehicle retail gross profit $ 127.4 $ 124.1 $ 3.3 3 %

Used vehicle wholesale gross profit 1.1 2.0 (0.9) (45) %

Used vehicle wholesale gross profit 9.1 1.6 7.5 NM

Used vehicle gross profit $ 136.5 $ 125.7 $ 10.8 9 %

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Used vehicle retail units 72,468 80,717 (8,249) (10) %

______________________________

NM — Not Meaningful

Used Vehicle Metrics—

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Used vehicle retail gross margin 7.6 % 7.0 % 0.6 %

Used vehicle revenue increased by $159.2 million (8%), due to a $158.0 million (9%) increase in used retail revenue and $1.2 million (1%) increase in used vehicle wholesale revenue.

Same store used vehicle revenue increase by $91.7 million (5%) due to a $93.2 million (5%) increase in used vehicle retail revenue, partially offset by a $1.5 million (1%) decrease in used vehicle wholesale revenues.

In 2019, total Company and same store used vehicle retail gross profit margins decreased 30 and 40 basis points to 6.9% and 6.8%, respectively.

We primarily attribute the decrease in used vehicle retail gross profit margin to the Company's efforts to grow our sales volume, which benefits our reconditioning and preparation business and finance and insurance, net, as well as increased competition and price transparency within the used vehicle marketplace.

Used vehicle revenue increased by $37.9 million (2%), due to a $49.2 million (26%) increase in used vehicle wholesale revenue partially offset by a $11.3 million (1%) decrease in used retail revenue.

In 2020, total Company and same store used vehicle retail gross profit margins increased 60 basis points to 7.5% and 7.6%, respectively.

We primarily attribute the increase in used vehicle retail gross profit margin to increased demand for used vehicles as a result of new vehicle inventory shortages caused by the COVID-19 pandemic.

We believe that our used vehicle inventory continues to be well-aligned with current consumer demand, with approximately 31 days of supply as of December 31, 2020.

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The $78.4 million (10%) increase in parts and service revenue was due to a $48.0 million (9%) increase in customer pay revenue, a $21.6 million (15%) increase in warranty revenue, and an $8.8 million (7%) increase in wholesale parts revenue.

Same store parts and service revenue increased $56.1 million (7%) from $810.9 million in 2018 to $867.0 million in 2019.

The increase in same store parts and service revenue was due to a $32.7 million (6%) increase in customer pay revenue, a $16.4 million (11%) increase in warranty revenue, and a $7.0 million (6%) increase in wholesale parts revenue.

Parts and service gross profit, excluding reconditioning and preparation, increased by $38.3 million (10%) to $429.9 million and same store gross profit, excluding reconditioning and preparation, increased by $27.0 million (7%) to $414.2 million.

The $27.0 million increase in same store gross profit, excluding reconditioning and preparation, is primarily due to a $16.8 million (6%) increase in customer pay gross profit, a $9.3 million (12%) increase in warranty gross profit, and a $0.9 million (4%) increase in wholesale parts gross profit.

We attribute the increase in same store gross profit to our continued strategic focus on customer retention as well as additional warranty work.

The wholesale parts business was negatively affected by the COVID-19 pandemic which significantly reduced demand as a result of fewer miles being driven.

Same store parts and service revenue decreased $64.6 million (8%) from $840.0 million in 2019 to $775.4 million in 2020.

The COVID-19 global pandemic negatively impacted our parts and service business for most of 2020 as a result of people driving fewer miles and therefore requiring less vehicle maintenance.

In addition, fewer accidents on the roadways negatively impacted our collision repair business.

Finance and Insurance, net—

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Finance and insurance, net per vehicle sold $ 1,775 $ 1,645 $ 130 8 %

F&I revenue, net increased by $23.7 million (8%) in 2019 when compared to 2018 primarily as a result of a 5% increase in F&I per vehicle retailed and a 3% increase in new and used retail unit sales.

On a same store basis F&I revenue, net increased by $15.3 million (5%) in 2019 when compared to 2018 primarily as a result of a 6% increase in F&I per vehicle retailed.

We continued to benefit from a favorable consumer lending environment, which allowed more of our customers to take advantage of a broader array of F&I products and our continued focus on improving the F&I results at our lower-performing stores through our F&I training programs.

During 2020 we continued to benefit from a favorable consumer lending environment, which allowed more of our customers to take advantage of a broader array of F&I products and our continued focus on improving the F&I results at our lower-performing stores through our F&I training programs.

S elling, General, and Administrative Expense—

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SG&A expense as a percentage of gross profit decreased 450 basis points from 68.4% in 2019 to 63.9% in 2020.

Same store SG&A expense as a percentage of gross profit remained at 68.4% in both 2018 and 2019.

Same store SG&A expense as a percentage of gross profit decreased 340 basis points from 68.6% in 2019 to 65.2% in 2020.

In addition to personnel cost savings realized as a result of headcount reductions, our cost cutting measures significantly reduced controllable expenses, such as advertising and travel.

We were also able to generate savings by adjusting our loaner vehicle fleet to accommodate the COVID-19 triggered service volume downturn.

We anticipate our SG&A expense as a percentage of gross profit to gradually increase as new vehicle inventory levels begin to normalize in 2021.

Depreciation and Amortization Expense —

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We assessed our manufacturer franchise rights for impairment by comparing the present value of cash flows attributable to each franchise right to its carrying value.

As a result of our impairment testing, we recognized a $7.1 million pretax non-cash charge related to six dealerships for the year ended December 31, 2019 and a $3.7 million charge related to three dealerships for the year ended December 31, 2018.

As a result of our impairment testing performed as of March 31, 2020, we recognized

Other Operating Expenses (Income), net —

Other operating expenses (income), net includes gains and losses from the sale of property and equipment, income derived from lease arrangements, and other non-core operating items.

During the twelve months ended December 31, 2020, the Company recorded other operating expense, net of $9.2 million, which included a $12.9 million related to the Park Place acquisition, $0.7 million real estate related impairment, partially offset by a $2.1 million gain related to legal settlements and a $0.3 million gain related to the sale of vacant real estate.

The $1.1 million in other operating income, net for 2018, is primarily due to a $0.7 million gain resulting from legal settlements and $.04 million of other non-core operating income.

Floor Plan Interest Expense —

Floor plan interest increased by $5.4 million (17%) to $37.9 million during 2019 compared to $32.5 million during 2018, as a result of an increase in LIBOR from which our floor plan interest rate is calculated and increased floor plan borrowings from higher inventory levels during 2019.

Income Tax Expense —

The $2.7 million (5%) increase in income tax expense was the result of a $19.1 million (8%) increase in income before income taxes, partially offset by a decrease as a result of a lower effective tax rate and an excess tax benefit related to the vesting of share-based awards.

Our effective tax decreased from 25.3% in 2018 to 24.4 in 2019.

The decrease in our effective tax rate was primarily due to a reduced state rate attributed to lower apportionment in certain jurisdictions and statutory rate reductions in states in which the Company has significant activity.

We expect our effective tax rate to be between 24.5% and 25.5% for 2020.

The $24.2 million (41%) increase in income tax expense was the result of a $94.2 million (39%) increase in income before income taxes.

Our effective tax rate increased 40 basis points from 24.4% in 2019 to 24.8% in 2020.

The increase in our effective tax rate was primarily due to an increased sate rate attributed to higher apportionment in certain jurisdictions in states in which the Company has significant activity.

We expect our effective tax rate to be around 25% in 2021.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2020, we had total available liquidity of $461.9 million, which consisted of $1.4 million of cash and cash equivalents, $85.4 million of available funds in our floor plan offset accounts, $237.3 million of availability under our revolving credit facility, and $137.8 million of availability under our used vehicle revolving floor plan facility.

As of December 31, 2021, we had total available liquidity of $437.0 million, which consisted of cash and cash equivalents (excluding TCA), $83.5 million of available funds in our floor plan offset accounts, $270.2 million of availability under our revolving credit facility, and $20.6 million of availability under our used vehicle revolving floor plan facility.

The borrowing capacities under our revolving credit facility and our used vehicle revolving floor plan facility are limited by borrowing base calculations and, from time to time, may be further limited by our required compliance with certain financial covenants.

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For more information on our financial covenants, see "Covenants and Defaults" and "Share Repurchases and Dividend Restrictions" below.

We continually evaluate our liquidity and capital resources based upon (i) our cash and cash equivalents on hand, (ii) the funds that we expect to generate through future operations, (iii) current and expected borrowing availability under our 2019 Senior Credit Facility, our other floor plan facilities, our Real Estate Credit Agreement, our Restated Master Loan Agreement, and our mortgage financings (each, as defined below), (iv) amounts in our new vehicle floor plan notes payable offset accounts, and (v) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, financings, acquisitions, dispositions, equity and/or debt repurchases, dividends, or other capital expenditures.

We continually evaluate our liquidity and capital resources based upon (i) our cash and cash equivalents on hand, (ii) the funds that we expect to generate through future operations, (iii) current and expected borrowing availability under our 2019 Senior Credit Facility (discussed further below), (iv) amounts in our new vehicle floor plan notes payable offset accounts, and (v) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, financings, acquisitions, dispositions, equity and/or debt repurchases, dividends, or other capital expenditures.

We believe we will have sufficient liquidity to meet our debt service and working capital requirements;

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and any operating requirements for at least the next twelve months.

LHM Acquisition

On December 17, 2021, the Company completed the LHM Acquisition, thereby acquiring 54 new vehicle dealerships, seven used cars stores, 11 collision centers, a used vehicle wholesale business, the real property related thereto, and the entities comprising the TCA business for a total purchase price of $3.48 billion.

The real property was acquired in escrow, to be released, together with the related portion of the purchase price, subject to the satisfaction of certain title related conditions.

Park Place Acquisition

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In connection with the termination of the Transaction Agreements, the Company delivered a notice of special mandatory redemption to holders of its $525.0 million aggregate principal amount of Senior Notes due 2028 (the"2028 Notes") and $600.0 million aggregate principal amount of Senior Notes due 2030 (the "2030 Notes") pursuant to which it redeemed on a pro rata basis (1) $245.0 million of the 2028 Notes and (2) $280.0 million of the 2030 Notes, in each case, at 100% of the respective principal amount plus accrued and unpaid interest to, but excluding the special mandatory redemption date (the "Special Mandatory Redemption").

On July 6, 2020, the Company entered into the Revised Asset Purchase Agreement with respect to the Revised Transaction.

The Revised Transaction was completed on August 24, 2020 for a purchase price of $889.9 million.

On July 6, 2020, the Company entered into the Revised Asset Purchase Agreement with respect to the Park Place acquisition.

The Park Place acquisition was completed on August 24, 2020 for a purchase price of $889.9 million.

The purchase price was financed through a combination of cash, floor plan facilities and seller financing discussed in more detail below.

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We currently are party to the following material credit facilities and agreements, and have the following material indebtedness outstanding.

For a more detailed description of the material terms of these agreements and facilities, and this indebtedness, refer to the "Long-Term Debt" footnote included in the Notes to Consolidated Financial Statements.

For a more detailed description of the material terms of these agreements and facilities, and this indebtedness, see Note 14 "Debt" footnote included in the Notes to Consolidated Financial Statements.

• 2019 Senior Credit Facility —On September 25, 2019, the Company and certain of its subsidiaries entered into the 2019 third amended and restated credit agreement with Bank of America, as administrative agent, and the other lenders party thereto (the "2019 Senior Credit Facility").

The 2019 Senior Credit Agreement provides for the following:

In connection with LHM Acquisition, the Company entered into a 2021 Third Amendment to the 2019 Senior Credit Facility on October 29, 2021.

As amended, the 2019 Senior Credit Agreement provides for the following:

Revolving Credit Facility — A $450.0 million Revolving Credit Facility for, among other things, acquisitions, working capital and capital expenditures, including a $50.0 million sub-limit for letters of credit.

We had $12.7 million in outstanding letters of credit as of December 31, 2020, resulting in $237.3 million of borrowing availability as of December 31, 2020.

As of December 31, 2021, we had $10.8 million in outstanding letters of credit, $169.0 million in borrowings and $270.2 million of borrowing availability.

New Vehicle Floor Plan Facility — A $1.75 billion New Vehicle Floor Plan Facility which allows us to transfer cash as an offset to floor plan notes payable.

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We began the year with nothing drawn on our used vehicle floor plan facility.

During the year ended December 31, 2020, we had borrowings of $220.0 million and repayments of $220.0 million, resulting in no borrowings outstanding on our Used Vehicle Floor Plan Facility as of December 31, 2020.

Our borrowing capacity under the Used Vehicle Floor Plan Facility was limited to $137.8 million based on our borrowing base calculation as of December 31, 2020.

As of December 31, 2021, we had borrowings of $294.0 million on our Used Vehicle Floor Plan Facility.

Our remaining borrowing capacity under the Used Vehicle Floor Plan Facility was limited to $20.6 million based on our borrowing base calculation as of December 31, 2021.

Subject to compliance with certain conditions, the 2019 Senior Credit Agreement provides that we have the ability, at our option and subject to the receipt of additional commitments from existing or new lenders, to increase the size of the facilities by up to $350.0 million in the aggregate without lender consent.

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In addition, we are able to re-designate any amounts moved to the New Vehicle Floor Plan Facility or the Used Vehicle Floor Plan Facility back to the Revolving Credit Facility.

We started the year with $190.0 million of availability under the Revolving Credit Facility re-designated to the New Vehicle Floor Plan Facility to take advantage of the lower commitment fee rates on the New Vehicle Floor Plan Facility when compared to the Revolving Credit Facility.

On March 17, 2020, we re-allocated the entire $190.0 million from the New Vehicle Floor Plan Facility to the Revolving Credit Facility.

As of December 31, 2021, no availability was re-designated.

Borrowings under the 2019 Senior Credit Facility bear interest, at our option, based on LIBOR or the Base Rate, in each case, plus an Applicable Rate.

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• Manufacturer affiliated new vehicle floor plan and other financing facilities —We have a floor plan facility with the Ford Motor Credit Company ("Ford Credit") to purchase new Ford and Lincoln vehicle inventory.

Our floor plan facility with Ford Credit was amended in July 2020 to extend the maturity date to July 31, 2021.

Our floor plan facility with Ford Credit was amended in July 2020 and can be terminated by either the Company or Ford Credit with a 30-day notice period.

We have also established a floor plan offset account with Ford Credit, which operates in a similar manner to our floor plan offset account with Bank of America.

As of December 31, 2021, we had $37.3 million, which is net of $2.0 million in our floor plan offset account, outstanding under our floor plan facility.

Additionally, we had $132.7 million, outstanding under our 2019 Senior Credit Facility and facilities with certain manufacturers for the financing of loaner vehicles,

which were presented within Accounts payable and accrued liabilities in our Consolidated Balance Sheets.

Additionally, we had $146.3 million, outstanding under our 2019 Senior Credit Facility and facilities with certain manufacturers for the financing of loaner vehicles, which were presented within Accounts payable and accrued liabilities in our Consolidated Balance Sheets.

Neither our floor plan facility with Ford Credit nor our facilities for loaner vehicles have stated borrowing limitations.

• The New Senior Notes —On February 19, 2020, the Company completed its offering of senior unsecured notes, consisting of $525.0 million aggregate principal amount of the Existing 2028 Notes and $600.0 million aggregate principal amount of the Existing 2030 Notes.

• 2029 and 2032 Senior Notes — On November 19, 2021, the Company completed its offering of $800.0 million aggregate principal amount of 4.625% senior notes due 2029 (the “2029 Senior Notes”) and $600.0 million aggregate principal amount of 5.000% senior notes due 2032 (the “2032 Senior Notes”).

The 2029 Senior Notes and 2032 Senior Notes mature on November 15, 2024 and February 15, 2032, respectively.

Interest is payable semiannually, on November 15 and May 15 of each year.

The 2029 Senior Notes and the 2032 Senior Notes were offered, together with additional borrowings and cash on hand, to (i) fund the LHM Acquisition and (ii) pay fees and expenses in connection with the foregoing.

The 2029 Notes and 2032 Notes have been fully and unconditionally guaranteed, on a joint and several basis, by substantially all of our subsidiaries other than the TCA Non-Guarantor Subsidiaries.

In addition, the notes are subject to customary covenants, events of default and optional redemption revisions.

• 2028 and 2030 Senior Notes —On February 19, 2020, the Company completed its offering of senior unsecured notes, consisting of $525.0 million aggregate principal amount of the Existing 2028 Notes and $600.0 million aggregate principal amount of the Existing 2030 Notes.

The 2028 Notes and 2030 Notes mature on March 1, 2028 and March 1, 2030, respectively.

Interest is payable semiannually, on March 1 and September 1 of each year.

The New Senior Notes were offered, together with additional borrowings and cash on hand, to (i) fund, if consummated, the acquisition of substantially all of the assets of Park Place, (ii) redeem all of our outstanding $600.0 million aggregate principal amount of 6.0% Senior Subordinated Notes due 2024 (the "6.0% Notes") and (iii) pay fees and expenses in connection with the foregoing.

On March 24, 2020, the Company delivered notice to the sellers terminating the 2019 Asset Purchase Agreement and the Real Estate Purchase Agreement.

The 2028 Notes and the 2030 Notes were offered, together with additional borrowings and cash on hand, to (i) fund the acquisition of substantially all of the assets of Park Place, (ii) redeem all of our outstanding $600.0 million aggregate principal amount of 6.0% Senior Subordinated Notes due 2024 (the "6.0% Notes") and (iii) pay fees and expenses in connection with the foregoing.

On March 24, 2020, the Company delivered notice to the sellers terminating the 2019 Park Place Agreements.

As a result, the Company redeemed $245.0 million aggregate principal million of the 2028 Notes and $280.0 million aggregate principal amount of the 2030 Notes pursuant to the Special Mandatory Redemption.

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The $3.5 million premium paid by the initial purchasers of the Additional Notes was recorded as a component of long-term debt on our Consolidated Balance Sheet and is being amortized as a reduction of interest expense over the remaining term of the Notes.

The proceeds of the September 2020 Offering were used to redeem the Seller Notes issued in connection with the Revised Transaction.

The notes of each series are guaranteed, jointly and severally, on a senior unsecured basis, by each of our existing and future restricted subsidiaries, with certain exceptions.

The proceeds of the September 2020 Offering were used to redeem the Seller Notes issued in connection with the Park Place Acquisition.

The notes of each series are guaranteed, jointly and severally, on a senior unsecured basis, by each of our existing and future restricted subsidiaries, other than the TCA Non-Guarantor Subsidiaries.

In addition, the notes are subject to customary covenants, events of default and optional redemption revisions.

The notes are required to be registered under the Securities Act of 1933 within 270 days of the closing date for the offering of the notes.

The Company completed the registration of the cash series of Notes in October 2020.

• Seller Notes — The Seller Notes comprised $150.0 million in aggregate principal amount of 4.00% promissory note due August 2021 and $50.0 million in aggregate principal amount of 4.00% promissory note due February 2022 and were issued on August 24, 2020 in conjunction with the Revised Transaction.

In September 2020, the Company redeemed the Seller Notes with the proceeds of the September 2020 Offering of Senior Notes.

The 2028 Notes and the 2030 Notes were required to be registered under the Securities Act of 1933 within 270 days of the closing date for the offering of each respective series.

The Company completed the registration of the 2028 Notes and 2030 Notes in October 2020.

• 6.0% Senior Subordinated Notes due 2024 — In connection with the issuance of the Existing 2028 Notes and Existing 2030 Notes, on March 4, 2020, we redeemed all of our 6.0% Notes at 103% of par, plus accrued and unpaid interest up to, but excluding, the date of redemption.

• Mortgage notes —As of December 31, 2020, we had $79.2 million of various mortgage note obligations.

These obligations are collateralized by the associated real estate at our dealership locations.

• 2013 BofA Real Estate Facility —On September 26, 2013, we entered into a real estate term loan credit agreement (the "2013 BofA Real Estate Credit Agreement") with Bank of America, N.A.

("Bank of America"), as lender, providing for term loans in an aggregate amount not to exceed $75.0 million, subject to customary terms and conditions (the "2013 BofA Real Estate Facility").

In September 2020, the Company redeemed the Seller Notes with the proceeds of the September 2020 Offering of Senior Notes.

• Mortgage Financings —We have multiple mortgage agreements with finance companies affiliated with our vehicle manufacturers ("captive mortgages") and other lenders.

As of December 31, 2021 we had total mortgage notes payable outstanding of $71.7 million which are collateralized by the associated real estate.

• 2021 Real Estate Facility —On December 17, 2021, we entered into a real estate term loan credit agreement with Bank of America, N.A., as administrative agent and the other lenders party thereto, which provides for term loans in an aggregate amount equal to $689.7 million (the “2021 Real Estate Facility”).

As of December 31, 2021, we had $689.7 million of outstanding borrowings under the 2021 Real Estate Facility.

There is no further borrowing availability under this agreement.

• 2021 BofA Real Estate Facility —On May 10, 2021, we entered into a real estate term loan credit agreement (the “2021 BofA Real Estate Credit Agreement”), by and among the Company and certain of its subsidiaries, Bank of America, N.A., as administrative agent and the various financial institutions party thereto, as lenders, which provides for term loans in an aggregate amount equal to $184.4 million, subject to customary terms and conditions (the “2021 BofA Real Estate Facility”).

As of December 31, 2021, we had $180.7 million of outstanding borrowings under the 2021 BofA Real Estate Facility.

There is no further borrowing availability under this agreement.

• 2015 Wells Fargo Master Loan Facility —On February 3, 2015, certain of our subsidiaries entered into an amended and restated master loan agreement (the "2015 Wells Fargo Master Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as lender, which provides for term loans to certain of our subsidiaries that are borrowers under the 2015 Wells Fargo Master Loan Agreement in an aggregate amount not to exceed $100.0 million (the "2015 Wells Fargo Master Loan Facility").

Borrowings under the 2015 Wells Fargo Master Loan Facility are guaranteed by us and are collateralized by the real property financed under the 2015 Wells Fargo Master Loan Facility.

As of December 31, 2020, the outstanding balance under this agreement was $65.5 million, which included $3.8 million classified as Liabilities associated with assets held for sale.

There is no further borrowing availability under this facility.

• 2018 Bank of America Facility —On November 13, 2018, we entered into a real estate term loan credit agreement (as amended, restated or supplemented from time to time, the "2018 BofA Real Estate Credit Agreement") with Bank of America, as lender, providing for term loans in an aggregate amount not to exceed $128.1 million, subject to customary terms and conditions (the "2018 BofA Real Estate Facility").

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As of December 31, 2021, we had $78.8 million of outstanding borrowings under the 2018 BofA Real Estate Facility.

There is no further borrowing availability under this facility.

• 2018 Wells Fargo Master Loan Facility — On November 16, 2018, certain of our subsidiaries entered into a master loan agreement (the "2018 Wells Fargo Master Loan Agreement") with Wells Fargo as lender, which provides for term loans to certain of our subsidiaries that are borrowers under the 2018 Wells Fargo Master Loan Agreement in an aggregate amount not to exceed $100.0 million (the "2018 Wells Fargo Master Loan Facility").

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On November 16, 2018 and June 26, 2020, we borrowed an aggregate amount of $25.0 million and $69.4 million, respectively, under the 2018 Wells Fargo Master Loan Facility, the proceeds of which were used for general corporate purposes.

As of December 31, 2020, we had $92.0 million which includes $5.1 million classified as Liabilities associated with assets held for sale, outstanding borrowings under the 2018 Wells Fargo Master Loan Facility.

As of December 31, 2021, we had $81.9 million, outstanding borrowings under the 2018 Wells Fargo Master Loan Facility.

There is no further borrowing availability under this agreement.

Borrowings under the 2015 Wells Fargo Master Loan Facility are guaranteed by us and are collateralized by the real property financed under the 2015 Wells Fargo Master Loan Facility.

As of December 31, 2021, the outstanding balance under this agreement was $53.2 million.

There is no further borrowing availability under this facility.

• 2013 BofA Real Estate Facility —On September 26, 2013, we entered into a real estate term loan credit agreement (the "2013 BofA Real Estate Credit Agreement") with Bank of America, N.A.

("Bank of America"), as lender, providing for term loans in an aggregate amount not to exceed $75.0 million, subject to customary terms and conditions (the "2013 BofA Real Estate Facility").

As of December 31, 2021, we had $31.1 million of outstanding borrowings under the 2013 BofA Real Estate Facility.

There is no further borrowing availability under this agreement

Covenants and Defaults

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We cannot give any assurance that we would be able to successfully take any of these actions on terms, or at times, that may be necessary or desirable.

The representations and covenants contained in the 2018 BofA Real Estate Credit Agreement, 2018 Wells Fargo Master Loan Agreement, 2013 BofA Real Estate Credit Agreement, 2015 Wells Fargo Master Loan Agreement and the related documents are customary for financing transactions of this nature, including, among others, requirements to comply with a minimum consolidated current ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated total lease adjusted leverage ratio, in each case, as applicable.

The representations and covenants contained in the 2021 Real Estate Facility, 2021 BofA Real Estate Facility, 2018 BofA Real Estate Credit Agreement, 2018 Wells Fargo Master Loan Agreement, 2013 BofA Real Estate Credit Agreement, 2015 Wells Fargo Master Loan Agreement and the related documents are customary for financing transactions of this nature, including, among others, requirements to comply with a minimum consolidated fixed charge coverage ratio and maximum consolidated total lease adjusted leverage ratio, in each case, as applicable.

In addition, certain other covenants could restrict our ability to incur additional debt, pay dividends or acquire or dispose of assets.

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Upon the occurrence of an event of default, we could be required by the applicable agreement to immediately repay all amounts outstanding thereunder.

The representations and covenants contained in the agreement governing the 2019 Senior Credit Facility are customary for financing transactions of this nature including, among others, a requirement to comply with a minimum consolidated current ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated total lease adjusted leverage ratio, in each case as set out in the agreement governing the 2019 Senior Credit Facility.

The representations and covenants contained in the agreement governing the 2019 Senior Credit Facility are customary for financing transactions of this nature including, among others, a requirement to comply with a minimum consolidated fixed charge coverage ratio and maximum consolidated total lease adjusted leverage ratio, in each case as set out in the agreement governing the 2019 Senior Credit Facility.

In addition, certain other covenants could restrict the Company's ability to incur additional debt, pay dividends or acquire or dispose of assets.

The agreement governing the 2019 Senior Credit Facility also provides for events of default that are customary for financing transactions of this nature, including cross-defaults to other material indebtedness.

The agreement governing the 2019 Senior Credit Facility also

provides for events of default that are customary for financing transactions of this nature, including cross-defaults to other material indebtedness.

In certain instances, an event of default under either the Revolving Credit Facility or the Used Vehicle Floor Plan Facility could be, or result in, an event of default under the New Vehicle Floor Plan Facility, and vice versa.

Upon the occurrence of an event of default, the Company could be required to immediately repay all amounts outstanding under the applicable facility.

The 2019 Senior Credit Facility and the Indentures currently allow for restricted payments without limit so long as our Consolidated Total Leverage ratio (as defined in the 2019 Senior Credit Facility and the Indenture) is no greater than 3.0 to 1.0 after giving effect to such proposed restricted payments.

The 2019 Senior Credit Facility and the Indentures currently allow for restricted payments without limit so long as our Consolidated Total Leverage Ratio (as defined in the 2019 Senior Credit Facility and the Indentures) is no greater than 3.0 to 1.0 after giving effect to such proposed restricted payments.

Restricted payments generally include items such as dividends, share repurchases, unscheduled repayments of subordinated debt, or purchases of certain investments.

In the event that our Consolidated Total Leverage ratio does (or would) exceed 3.0 to 1.0, the 2019 Senior Credit Facility and the Indenture would then also allow for restricted payments under the following mutually exclusive parameters, subject to certain exclusions:

• Restricted payments in an aggregate amount not to exceed $20.0 million in any fiscal year;

• General restricted payments allowance of $150.0 million;

• Subject to our continued compliance with a minimum consolidated current ratio, a consolidated fixed charge coverage ratio and a maximum consolidated total lease adjusted leverage ratio, in each case as set out in the Indentures, restricted payments capacity additions (or subtractions if negative) equal to (i) 50% of our net income (as defined in the 2019 Senior Credit Facility and the Indenture) beginning on October 1, 2014 and ending on the date of the most recently completed fiscal quarter (the "Measurement Period"), plus (ii) 100% of any cash proceeds we receive from the sale of equity interests during the Measurement Period minus (iii) the dollar amount of share purchases made and dividends paid on or after December 4, 2014.

Subject to our continued compliance with a consolidated fixed charge coverage ratio and a maximum consolidated total lease adjusted leverage ratio, in each case as set out in the Indentures, restricted payments capacity additions (or subtractions if negative) equal to a base level plus the cumulative amount of (i) 50% of our net income (as defined in the 2019 Senior Credit Facility) plus (ii) 100% of any cash proceeds we receive from the sale of equity interests minus (iii) the dollar amount of share purchases made and dividends paid during the defined measurement periods, subject to certain exceptions.

In the event that our Consolidated Total Leverage Ratio does (or would) exceed 3.0 to 1.0, the 2019 Senior Credit Facility and the Indentures would then also allow for restricted payments under mutually exclusive parameters, subject to certain exclusions.

Under the 2028 Senior Notes and 2030 Senior Notes, our most restrictive indentures, these parameters are:

• The Company may repurchase its own shares in an aggregate amount not to exceed $20.0 million in any fiscal year.

• The Company may otherwise make restricted payments only up the cumulative capacity above.

Our restricted payment capacity balance as of December 31, 2021 was $958.6 million.

Share Repurchases and Dividend Restrictions

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As of December 31, 2021 we had remaining authorization to repurchase $100.0 million in shares of our common stock under the Repurchase Program.

On January 27, 2021, the Board of Directors increased the Company’s share repurchase authorization under our Repurchase Program by $33.7 million to $100 million.

On February 14, 2022, the Board of Directors increased the Company’s share repurchase authorization under our Repurchase Program by $100.0 million to $200.0 million.

The extent that the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general market conditions, legal requirements and other corporate considerations.

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Classification of Cash Flows Associated with Floor Plan Notes Payable

Borrowings and repayments of floor plan notes payable to a lender unaffiliated with the manufacturer from which we purchase a particular new vehicle ("Non-Trade"), and all floor plan notes payable relating to used vehicles (together referred to as "Floor Plan Notes Payable—Non-Trade"), are classified as financing activities on the accompanying Consolidated Statements of Cash Flows, with borrowings reflected separately from repayments.

The net change in floor plan notes payable to a lender affiliated with the manufacturer from which we purchase a particular new vehicle (collectively referred to as "Floor Plan Notes Payable—Trade") is classified as an operating activity on the accompanying Consolidated Statements of Cash

Borrowings and repayments of floor plan notes payable through our 2019 Senior Credit Facility ("Non-Trade"), and all floor plan notes payable relating to used vehicles (together referred to as "Floor Plan Notes Payable—Non-Trade"), are classified as financing activities on the accompanying Consolidated Statements of Cash Flows, with borrowings reflected separately from repayments.

Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as a financing activity in the accompanying Consolidated Statement of Cash Flows.

Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to a lender not affiliated with the manufacturer from which we purchased the related inventory.

The majority of our floor plan notes are payable to parties unaffiliated with the entities from which we purchase our new vehicle inventory, with the exception of floor plan notes payable relating to the financing of new Ford and Lincoln vehicles.

Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to our 2019 Senior Credit Facility that includes lenders affiliated with the manufacturers and lenders not affiliated with the manufacturers from which we purchased the related inventory.

The majority of our floor plan notes are payable to our 2019 Senior Credit Facility, with the exception of floor plan notes payable relating to the financing of new Ford and Lincoln vehicles.

Floor plan borrowings are required by all vehicle manufacturers for the purchase of new vehicles, and all floor plan lenders require amounts borrowed for the purchase of a vehicle to be repaid within a short time period after the related vehicle is sold.

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In addition, we include all floor plan borrowings and repayments in our internal operating cash flow forecasts.

As a result, we use the non-GAAP measure "cash provided by operating activities, as adjusted" (defined below) to compare our results to forecasts.

As a result, we use the non-GAAP measure "Adjusted cash flow provided by operating activities" (defined below) to compare our results to forecasts.

We believe that splitting the cash flows of floor plan notes payable between operating activities and financing activities, while all new vehicle inventory activity is included in operating activities, results in significantly different operating cash flow than if all the cash flows of floor plan notes payable were classified together in operating activities.

Cash provided by operating activities, as adjusted, includes borrowings and repayments of floor plan notes payable to lenders not affiliated with the manufacturer from which we purchase the related new vehicles and all floor plan notes payable relating to used vehicles.

Cash provided by operating activities, as adjusted, has material limitations, and therefore, may not be comparable to similarly titled measures of other companies and should not be considered in isolation, or as a substitute for analysis of our operating results in accordance with GAAP.

Adjusted cash flow provided by operating activities includes borrowings and repayments of Floor Plan Notes Payable Non-Trade and used floor plan notes payable borrowing base changes.

Adjusted cash flow provided by operating activities may not be comparable to similarly titled measures of other companies and should not be considered in isolation, or as a substitute for analysis of our operating results in accordance with GAAP.

In order to compensate for these potential limitations we also review the related GAAP measures.

We have provided below a reconciliation of cash flow from operating activities, as if all changes in floor plan notes payable, except for (i) borrowings associated with acquisitions and repayments associated with divestitures and (ii) borrowings and repayments associated with the purchase of used vehicle inventory, were classified as an operating activity.

Adjusted cash flow provided by operating activities for the years ended December 31, 2020 and 2019 differ from previously disclosed non-gaap operating cash flow measures presented in Management's Discussion and Analysis due to the impact on operating cash flows, as reported, of the Company's material acquisitions during the year ended December 31, 2021.

We believe that the additional adjustments related to cash flows associated with our used vehicle borrowing base, floorplan offset accounts and the impact of acquisitions and divestitures eliminates cash flow volatility and provides an adjusted operating cash flow metric that best reflects our results of operations and our management of inventory and related financing activities.

We have provided below a reconciliation of cash flow provided by operating activities, as if all changes in floor plan notes payable, except for (i) borrowings associated with acquisitions and repayments associated with divestitures and (ii) borrowings and repayments associated with the purchase of used vehicle inventory and (iii) changes in the floorplan offset accounts were classified as an operating activity for both Floorplan Notes Payable - Non-Trade and Floor Plan Notes Payable - Trade.

For the Year Ended December 31,

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Cash provided by operating activities, as reported $ 1,163.7 $ 652.5 $ 349.8

New vehicle floor plan borrowings (repayments) — non-trade, net

(155.3) (194.7) 171.5

Cash provided by operating activities, as adjusted $ 497.2 $ 155.1 $ 181.6

Change in Floor Plan Notes Payable Non-Trade, net (608.7) (155.3) (194.7)

Change in Floor Plan Notes Payable Non-Trade associated with floor plan offset, used vehicle borrowing base changes adjusted for acquisition and divestitures 131.1 9.1 138.2

Change in Floor Plan Notes Payable Trade associated with floor plan offset and net acquisition and divestitures (54.0) (63.7) (11.0)

Adjusted cash flow provided by operating activities $ 632.1 $ 442.6 $ 282.3

Operating Activities—

Net cash provided by operating activities totaled $652.5 million, $349.8 million, and $10.1 million for the year ended December 31, 2020, 2019, and 2018, respectively.

Net cash provided by operating activities, as adjusted, totaled $497.2 million, $155.1 million, and $181.6 million for the year ended December 31, 2020, 2019, and 2018, respectively.

Net cash provided by operating activities, as adjusted, includes net income, adjustments to reconcile net income to net cash provided by operating activities, changes in working capital, and changes in floor plan notes payable—non-trade.

The $342.1 million increase in net cash provided by operating activities, as adjusted, for the year ended December 31, 2020 compared to the year ended December 31, 2019, was primarily the result of the following:

• $152.6 million related to a decrease in inventory, net of floor plan notes payable, including both trade and non-trade;

Net cash provided by operating activities totaled $1.16 billion, $652.5 million, and $349.8 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Adjusted cash flow provided by operating activities totaled $632.1 million, $442.6 million, and $282.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Adjusted cash flow provided by operating activities includes net income, adjustments to reconcile net income to net cash provided by operating activities, changes in working capital, changes in used vehicle borrowing base, changes in Floor Plan Notes Payable - Non-Trade and Trade, excluding the impact of offsets, and excluding operating cash flows associated with acquisitions and divestitures related to loaner vehicles and new vehicle inventories financed through Floor Plan Notes Payable - Trade.

The $189.5 million increase in Adjusted cash flow provided by operating activities for the year ended December 31, 2021 compared to the year ended December 31, 2020, was primarily the result of the following:

• increase in $314.2 million net income and non-cash adjustments to net income primarily related to less gain on dealership divestitures in 2021 when compared to 2020, partially offset by no franchise rights impairment in 2021;

• $69.7 million related to sales volume and the timing of collection of accounts receivable and contracts-in-transit during 2021 as compared to 2020.

The increase in our Adjusted cash flow provided by operating activities, was partially offset by:

• $67.3 million related to a decrease in inventory, net of floor plan notes payable, including both trade and non-trade, excluding offset and including used vehicle borrowing base changes adjusted for acquisitions and divestitures;

• $26.8 million related to the change in other long-term assets and liabilities;

• $43.8 million related to the change in other current assets, net;

• $56.8 million related to a decrease in accounts payable and accrued liabilities.

The $160.3 million increase in our Adjusted cash flow provided by operating activities for the year ended December 31, 2020 compared to the year ended December 31, 2019, was primarily the result of the following:

• $23.6 million related to a increase in inventory, net of floor plan notes payable, including both trade and non-trade, excluding offset and including used vehicle borrowing base changes adjusted for acquisitions and divestitures;

• $57.5 million related to an increase in accounts payable and accrued liabilities;

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• $14.3 million related to the change in other long-term assets and liabilities.

The increase in our net cash provided by operating activities, as adjusted, was partially offset by:

The decrease in our net cash provided by operating activities, as adjusted, was partially offset by:

• $9.6 million related to the change in other current assets, net;

• $1.2 million related to operating lease liabilities.

The $26.5 million decrease in our net cash provided by operating activities, as adjusted, for the year ended December 31, 2019 compared to the year ended December 31, 2018, was primarily the result of the following:

• $101.3 million increase related to the change in inventory, net of floor plan notes payable, including both trade and non-trade.

The decrease in our net cash provided by operating activities, as adjusted, was partially offset by:

• $34.9 million related to non-cash adjustments to net income;

• $26.9 million related to the change in accounts payable and accrued liabilities;

• $8.9 million related to the change in other current assets and other long-term assets and liabilities, net;

• $4.1 million related to timing and collection of accounts receivable and contracts-in-transit during 2019 as compared to 2018.

Investing Activities—

Net cash used in investing activities totaled $820.8 million, $227.6 million, and $149.6 million for the year ended December 31, 2020, 2019, and 2018, respectively.

Net cash used in investing activities totaled $3.92 billion, $820.8 million, and $227.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Cash flows from investing activities relate primarily to capital expenditures, acquisitions, divestitures, and the sale of property and equipment.

Capital expenditures, excluding the purchase of real estate and acquisitions, were $46.5 million, $57.6 million, and $40.3 million for the year ended December 31, 2020, 2019, and 2018, respectively.

Purchases of real estate totaled $2.3 million, $9.2 million, and $17.6 million for the year ended December 31, 2020, 2019, and 2018, respectively.

In addition, we purchased previously leased facilities for $4.9 million, and $4.4 million during the year ended December 31, 2019, and 2018, respectively.

Capital expenditures, excluding the purchase of real estate and acquisitions, were $74.2 million, $46.5 million, and $57.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Purchases of real estate totaled $7.8 million, $2.3 million, and $9.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

In addition, we purchased previously leased facilities for $217.1 million, and $4.9 million during the years ended December 31, 2021, and 2019, respectively.

We expect that capital expenditures during 2022 will total approximately $150.0 million to upgrade or replace our existing facilities, construct new facilities, expand our service capacity, and invest in technology and equipment.

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No assurances can be provided that we will have or be able to access capital at times or on terms in amounts deemed necessary to execute this strategy.

On December 17, 2021, we completed the acquisition of LHM and TCA for a total purchase price of approximately $3.48 billion.

The sources of the purchase price included 2029 Notes, 2032 Notes, 2021 Real Estate Facility, proceeds from our common stock offering, new floorplan notes payable trade and non-trade, used vehicle floorplan notes payable, payables to Seller and cash.

In addition to these acquisitions, during the year ended December 31, 2021, we acquired the assets of 11 franchises (10 dealership locations) in in the Denver, Colorado market and three franchises (one dealership location) in the Indianapolis, Indiana market for a combined purchase price of $485.7 million.

We funded this acquisition with an aggregate of $455.1 million of cash, and $9.6 million of floor plan borrowings for the purchase of the related new vehicle inventory.

In the aggregate, these acquisitions included purchase price holdbacks of $21.0 million for potential indemnity claims made by us with respect to the acquired franchises.

In addition to the acquisition amounts above, we released $1.0 million of purchase price holdbacks related to current and prior year acquisitions during the year ended December 31, 2021.

During the year ended December 31, 2020, we acquired substantially all of the assets of, and leased the real property related to 12 new vehicle dealership franchises (eight dealership locations), two collision centers and an auto auction comprising the Park Place Dealership group for a purchase price of $889.9 million.

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In addition to the acquisition amounts above, we released $0.8 million of purchase price holdbacks related to a prior year acquisition.

During the year ended December 31, 2018, we acquired three franchises (three dealership locations) for an aggregate purchase price of $91.3 million.

During the year ended December 31, 2021, we divested one franchise (one dealership location) in the Charlottesville, Virginia market for proceeds of $21.3 million.

During the year ended December 31, 2020, we divested two franchises (two dealership locations) in the Atlanta, Georgia market, six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market, and one franchise (one dealership location) in the Greenville, South Carolina market for proceeds of $177.9 million.

During the year ended December 31, 2019, we divested one franchise (one dealership location) and one collision center for proceeds of $39.1 million.

There were no divestitures during the year ended December 31, 2018.

Additionally, proceeds from the sale of assets, unrelated to a dealership divestiture, were $4.2 million, $15.0 million, and $4.0 million for the year ended December 31, 2020, 2019, and 2018, respectively.

Additionally, proceeds from the sale of assets, unrelated to a dealership divestiture, were $21.5 million, $4.2 million, and $15.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.

During the year ended December 31, 2021, upon the acquisition of TCA, we purchased available-for-sale debt securities and equity securities for $1.1 million and $0.4 million, respectively.

During December 2021, we also received proceeds of $0.8 million and $0.4 million from the sale of available for sale debt securities and equity securities, respectively.

Financing Activities—

Net cash provided by financing activities totaled $166.2 million and $143.1 million for the year ended December 31, 2020 and 2018, respectively.

Net cash provided by financing activities totaled $2.93 billion and $166.2 million for the years ended December 31, 2021 and 2020, respectively.

Net cash used in financing activities totaled $127.0 million for the year ended December 31, 2019.

During the year ended December 31, 2020, 2019, and 2018, we had non-trade floor plan borrowings of $4.31 billion, $4.32 billion, and $4.59 billion, respectively.

Included in our non-trade floor plan borrowings, were borrowings of $220.0 million, $80.0 million, and $300.0 million for the year ended December 31, 2020, 2019, and 2018, respectively, related to our used vehicle floor plan facility.

In addition, during the year ended December 31, 2020, 2019, and 2018, we had non-trade floor plan borrowings of $131.6 million, $55.3 million, and $22.7 million respectively, related to acquisitions.

During the years ended December 31, 2021, 2020, and 2019, we had non-trade floor plan borrowings of $5.04 billion, $4.31 billion, and $4.32 billion, respectively.

Included in our non-trade floor plan borrowings, were borrowings of $294.0 million, $220.0 million, and $80.0 million for the years ended December 31, 2021, 2020, and 2019, respectively, related to our used vehicle floor plan facility.

During the year ended December 31, 2021 we borrowed $439.0 million and repaid $270.0 million on our revolving line of credit.

In addition, during the years ended December 31, 2021, 2020, and 2019, we had non-trade floor plan borrowings of $214.5 million, $131.6 million, and $55.3 million respectively, related to acquisitions.

During the year ended December 31, 2020, 2019, and 2018, we made non-trade floor plan repayments of $4.47 billion, $4.51 billion, and $4.39 billion, respectively.

Included in our non-trade floor plan repayments were repayments of $220.0 million, $110.0 million, and $270.0 million for the year ended December 31, 2020, 2019, and 2018, respectively, related to our used vehicle floor plan facility.

In addition, during the year ended December 31, 2020 and 2019 we had floor plan repayments associated with dealership divestitures of $60.4 million and $14.1 million, respectively.

During the year ended December 31, 2020, 2019, and 2018, we received proceeds from borrowings totaling $1.88 billion, $97.7 million and $50.7 million, respectively.

Repayments of borrowings totaled $1.62 billion, $48.4 million, and $19.9 million, for the year ended December 31, 2020, 2019, and 2018, respectively.

During the years ended December 31, 2021, 2020, and 2019, we made non-trade floor plan repayments of $5.36 billion, $4.47 billion, and $4.51 billion, respectively.

Included in our non-trade floor plan repayments were repayments of $220.0 million and $110.0 million for the years ended December 31, 2020, and 2019, respectively, related to our used vehicle floor plan facility.

We had no repayment for the year ended December 31, 2021.

In addition, during the years ended December 31, 2021, 2020 and 2019 we had floor plan repayments associated with dealership divestitures of $0.8 million, $60.4 million, and $14.1 million respectively.

During the years ended December 31, 2021, 2020, and 2019, we received proceeds from borrowings totaling $2.27 billion, $1.88 billion and $97.7 million, respectively.

Repayments of borrowings totaled $41.5 million, $1.62 billion, and $48.4 million, for the years ended December 31, 2021, 2020, and 2019, respectively.

During the year ended December 31, 2021, we received net proceeds from the issuance of common stock totaling $666.9 million.

During the year ended December 31, 2021, we did not repurchase any shares of our common stock under our Repurchase Program.

1 unchanged sentence

Off Balance Sheet Arrangements

We had no off balance sheet arrangements during any of the periods presented other than those disclosed in Note 19 "Leases (Prior to Adoption of ASC 842)" and Note 20 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements thereto.

We had no off balance sheet arrangements during any of the periods presented other than those disclosed in Note 21 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements thereto.

Guarantor Financial Information

As of December 31, 2021, the Company had outstanding $405 million of 4.500% Senior Notes due 2028 and $445 million of 4.750% Senior Notes due 2030.

As explained in Note 14 of the Company's Consolidated Financial Statements as of and for the year ended December 31, 2021, the Senior Notes have been fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by each existing and future restricted subsidiary of the Company (the “Guarantor Subsidiaries”), which are listed in Exhibit 22, with the exception of Landcar Administration Company, Landcar Agency, Inc.

and Landcar Casualty Company and their respective subsidiaries (collectively, the “TCA Non-Guarantor Subsidiaries).

The following tables present summarized financial information for the Company and the Guarantor Subsidiaries on a combined basis after elimination of (i) intercompany transactions and balances among Asbury and the Guarantor Subsidiaries and (ii) assets, liabilities, and equity in earnings from and investments in any non-guarantor subsidiaries.

Summarized Balance Sheet Data of Asbury and Guarantor Subsidiaries

As of December 31,

(In millions)

Current assets $ 1,778.4

Current assets - affiliates —

Non-current assets 5,511.3

Current liabilities 1,473.2

Current liabilities - affiliates 6.9

Non-current liabilities 3,916.7

Summarized Statement of Operations Data for Asbury and Guarantor Subsidiaries

For the Year Ended December 31,

(In millions)

Net sales $ 9,825.7

Gross profit 1,901.7

Income from operations 788.3

Net income 529.1

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis