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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-01 · 288 added, 296 removed, 585 unchanged (50% of the section changed)

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

As of December 31, 2022, through our Dealerships segment, we owned and operated 186 new vehicle franchises (139 dealership locations), representing 31 brands of automobiles, within 14 states.

We also operated 32 collision centers, seven stand-alone used vehicle stores, one used vehicle wholesale business, one auto auction and Total Care Auto, Powered by Landcar ("TCA"), our F&I product provider.

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.

The finance and insurance products are provided by both independent third parties and TCA.

The F&I products offered by TCA are sold through affiliated dealerships.

For the year ended December 31, 2022, our new vehicle revenue brand mix consisted of 40% imports, 31% luxury, and 29% domestic brands.

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

The Company manages its operations in two reportable segments:

Dealerships and TCA.

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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.

Amounts presented have been calculated using non-rounded amounts for all periods presented and therefore certain amounts may not compute or tie to prior year financial statements due to rounding.

Our dealerships gross profit margin varies with our revenue mix.

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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.

However, recently, new vehicle gross profit margins have been above historical levels and higher than used vehicle gross margins as a result of inventory disruptions caused primarily by a shortage of semiconductor chips required in the vehicle assembly process.

Our TCA segment revenues, reflected in F&I revenue, net, are derived from the sale of various vehicle protection products including vehicle service contracts, GAP, prepaid maintenance contracts, and appearance protection contracts.

These products are sold through company-owned dealerships.

TCA's F&I revenues also include 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 performance of our investment portfolio.

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

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

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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.

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

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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.

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.

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

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.

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 "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 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 "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.

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

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions, that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities, as of the date of the financial statements, and reported amounts of revenues and expenses during the periods presented.

On an ongoing basis, management evaluates their estimates and assumptions and the effects of any such revisions are reflected in the financial statements, in the period in which they are determined to be necessary.

Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Consolidated Financial Statements.

Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.

Goodwill and Manufacturer Franchise Rights—

Goodwill represents the excess cost of an acquired business over the fair market value of its identifiable assets and liabilities.

We have determined, based on how we integrate acquisitions into our business, how the components of our business share resources and interact with one another, and how we review the results of our operations, that we have several geographic market-based operating segments.

We have determined the dealerships in each of our operating segments are components that are aggregated into several geographic market-based reporting units for the purpose of testing goodwill for impairment, as they (i) have similar economic characteristics, (ii) offer similar products and services (all of our franchised dealerships offer new and used vehicles, parts and service, and arrange for third-party vehicle financing and the sale of insurance products), (iii) have similar customers, (iv) have similar distribution and marketing practices (all of our dealerships distribute products and services through dealership facilities that market to customers in similar ways) and (v) operate under similar regulatory environments.

Our only other significant identifiable intangible assets are our rights under franchise agreements with manufacturers, which are recorded at an individual franchise level.

The fair value of our manufacturer franchise rights are determined at the acquisition date, by discounting the projected cash flows specific to each franchise.

We have determined that manufacturer franchise rights have an indefinite life as there are no economic, contractual or other factors that limit their useful lives, and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers' brand names.

Furthermore, to the extent that any agreements evidencing our manufacturer franchise rights would expire, we expect that we would be able to renew those agreements in the ordinary course of business.

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 franchise right impairments were identified in 2021.

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

We review goodwill and manufacturer franchise rights for impairment annually as of October 1 st , or more often if events or circumstances indicate that any impairment may have occurred.

We are subject to financial statement risk to the extent that goodwill becomes impaired due to decreases in the fair value of our automotive retail business or manufacturer franchise rights become impaired due to decreases in the fair value of our individual franchises.

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, 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 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 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.

On December 17, 2021, the Company completed the acquisition of the businesses of the Larry H.

Miller ("LHM") Dealerships and TCA (collectively, 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 purchase price was financed through a combination of cash, debt, including senior notes, real estate facilities, new and used vehicle floor plan facilities and the proceeds from the issuance of common stock.

As part of our omni-channel strategy, we implemented Clicklane, the automotive retail industry’s first, end-to-end, 100% online vehicle retail tool, which offers our customers a convenient, seamless and transparent approach to purchase and sell vehicles completely online.

Our Clicklane platform provides our customers with the ability to (i) select a new or used vehicle, (ii) arrange for and obtain financing from a variety of lenders, (iii) obtain an offer on their trade-in vehicle, (iv) obtain an exact pay-off amount on any existing loan on a trade-in vehicle, (v) select and purchase F&I products designed for the customer’s vehicle and then (vi) complete the vehicle purchase and financing by signing the transaction documents and scheduling in-store pickup or home delivery, with each step performed entirely online.

We have implemented Clicklane across all of our stores.

The 2021 acquisitions have extended our footprint across seven western U.S.

states including Arizona, California, Idaho, New Mexico, Colorado, Utah, and Washington.

Financial Highlights

Highlights related to our financial condition and results of operations include the following:

• Consolidated revenue for the year ended December 31, 2022 increased to $15.43 billion, compared to $9.84 billion for the prior year.

• Consolidated gross profit for the year ended December 31, 2022 increased to $3.10 billion, compared to $1.90 billion for the prior year.

• The increase in consolidated revenue and gross profit is primarily due to the inclusion of a full year of results related to our acquisitions that were completed in December 2021.

• During the year ended December 31, 2022, we completed the divestitures of sixteen dealerships and received $701.2 million in cash proceeds.

• Our capital allocation priorities were supported by share repurchases of approximately 1.6 million shares for $297.0 million during the year ended December 31, 2022.

• On January 26, 2023, our Board of Directors approved an increase in the Company’s common share repurchase authorization to $200.0 million.

CONSOLIDATED RESULTS OF OPERATIONS

The Company's full year results for 2022 include the results of the dealerships acquired in the fourth quarter of 2021.

Accordingly, the significant increases in revenue, gross profit and income from operations for 2022 compared to 2021 are largely a result of these acquisitions.

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 full month we owned the dealership.

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

The Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

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Depreciation and amortization 69.0 41.9 27.1 65 %

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

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

Other operating income, net (4.4) (5.4) 1.0 (19) %

INCOME FROM OPERATIONS 1,272.6 791.8 480.8 61 %

OTHER EXPENSES (INCOME):

OTHER (INCOME) EXPENSES:

Floor plan interest expense 8.4 8.2 0.2 2 %

Other interest expense, net 152.2 93.9 58.3 62 %

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

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

Total other expenses, net 94.1 32.7 61.4 188 %

Gain on dealership divestitures, net (207.1) (8.0) (199.1) NM

Total other (income) expenses, net (46.5) 94.1 (140.6) NM

INCOME BEFORE INCOME TAXES 1,319.1 697.7 621.4 89 %

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Net income per common share—Diluted $ 44.61 $ 26.49 $ 18.12 68 %

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NM — Not Meaningful

For the Year Ended December 31,

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Total revenue during 2022 increased by $5.60 billion (57%) compared to 2021, due to a $2.43 billion (49%) increase in new vehicle revenue, a $1.88 billion (57%) increase in used vehicle revenue, a $891.4 million (75%) increase in parts and service revenue and a $391.9 million (97%) 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.

The $1.20 billion (63%) increase in gross profit during 2022 was the result of a $353.5 million (72%) increase in new vehicle gross profit, a $64.9 million (22%) increase in used vehicle gross profit, a $430.8 million (60%) increase in parts and service gross profit and a $349.2 million (87%) increase in F&I gross profit.

Our total gross profit margin increased 75 basis points from 19.3% in 2021 to 20.1% in 2022.

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 $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.

Income from operations during 2022 increased by $480.8 million (61%) compared to 2021, primarily due to a $1.20 billion (63%) increase in gross profit, partially offset by a 689.4 (64%) increase in selling, general, and administrative expenses and a $27.1 million (65%) increase in depreciation and amortization expenses.

Total other (income) expenses, net decreased by $140.6 million (149%) from expense of $94.1 million in 2021 to $46.5 million of income in 2022, primarily due to a $199.1 million increase in gain on dealership divestitures, partially offset by a $58.3 million increase in other interest expense, net, and a $0.2 million increase in floor plan interest expense.

As a result, income before income taxes increased by $621.4 million (89%) to $1.32 billion in 2022.

The $156.5 million (95%) increase in income tax expense was primarily attributable to the 89% increase in income before taxes and a 70 basis point increase in the 2022 effective tax rate.

Overall, net income increased by $464.9 million (87%) from $532.4 million in 2021 to $997.3 million in 2022.

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.

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

DEALERSHIP SEGMENT

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New vehicle revenue increased by $2.43 billion (49%), as a result of a 38% increase in new vehicle unit sales and a 9% 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.

Same store new vehicle revenue decreased by $407.8 million (9%) as a result of a 18% decrease in new vehicle units sold offset by a 10% increase in revenue per new vehicle sold.

New vehicle gross profit increased by $353.5 million (72%) as a result of a 25% increase in gross profit per new vehicle sold and a 38% increase in unit volumes.

Same store new vehicle gross profit increased by $31.2 million (7%) in 2022, as a result of a 30% increase in gross profit per new vehicle sold partially offset by a 18% decrease in unit volumes.

Same store new vehicle gross margin increased 179 basis points to 11.7% in 2022, primarily as a result of supply challenges for much of 2022 caused by a global semi-conductor shortage which led to manufacturer production challenges.

We finished 2022 with a 26 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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(Dollars in millions, except for per vehicle data)

Used vehicle retail revenues $ 3,055.9 $ 1,930.0 $ 1,125.9 58 %

Used vehicle wholesale revenues 259.7 239.5 20.2 8 %

Used vehicle retail revenue $ 4,828.8 $ 3,055.9 $ 1,772.8 58 %

Used vehicle wholesale revenue 368.3 259.7 108.6 42 %

Used vehicle revenue $ 5,197.1 $ 3,315.6 $ 1,881.4 57 %

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Used vehicle retail units 151,464 105,206 46,258 44 %

Used vehicle retail revenues $ 2,621.9 $ 1,872.1 $ 749.8 40 %

Used vehicle wholesale revenues 175.1 235.2 (60.1) (26) %

Used vehicle retail revenue $ 2,988.0 $ 2,761.1 $ 226.9 8 %

Used vehicle wholesale revenue 154.3 232.4 (78.1) (34) %

Used vehicle revenue $ 3,142.3 $ 2,993.6 $ 148.7 5 %

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Used vehicle revenue increased by $1.88 billion (57%), due to a $1.77 billion (58%) increase in used retail revenue and a $108.6 million (42%) 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.

Same store used vehicle revenue increased by $148.7 million (5%) due to an $226.9 million (8%) increase in used vehicle retail revenue, partially offset by a $78.1 million (34%) decrease in used vehicle wholesale revenue.

In 2022, total Company and same store used vehicle retail gross profit margins both decreased 139 and 224 basis points to 7.2% and 6.4%, respectively.

We attribute the decreases in used vehicle retail gross profit margin to a softening in the used

vehicle market, which was at record highs in 2021 as a result of new vehicle inventory shortages caused by semiconductor supply chain issues and COVID-19 disruptions.

We believe that our used vehicle inventory continues to be well-aligned with current consumer demand, with approximately 27 days of supply as of December 31, 2022.

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The $923.3 million (78%) increase in parts and service revenue was due to a $568.1 million (70%) increase in customer pay revenue, a $270.2 million (143%) increase in wholesale parts revenue, and a $85.0 million (47%) 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.

Same store parts and service revenue increased $126.3 (12%) from $1.06 billion in 2021 to $1.18 billion in 2022.

The increase in same store parts and service revenue was due to a $108.7 million (15%) increase in customer pay revenue and a $26.8 million (17%) increase in wholesale parts revenue, partially offset by a $9.1 million (6%) 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.

Parts and service gross profit, excluding reconditioning and preparation, increased by $380.2 million (67%) to $946.7 and same store gross profit, excluding reconditioning and preparation, increased by $57.5 million (11%) to $565.7 million.

The $57.5 million increase in same store gross profit, excluding reconditioning and preparation, is primarily due to a $60.1 million (15%) increase in customer pay gross profit, and a 3.2 million (11%) increase in wholesale parts gross profit, partially offset by a $5.7 million (7%) decrease in warranty gross profit.

As a result of the shortage of new vehicle inventory, many customers have elected to keep their current vehicles longer which has generated additional customer pay and wholesale parts gross profit for the parts and service departments.

Finance and Insurance, net—

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F&I revenue, net increased by $268.2 million (67%) in 2022 when compared to 2021 primarily as a result of a 41% increase in new and used retail unit sales and an 18% 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.

On a same store basis F&I revenue, net increased by $40.4 million (11%) in 2022 when compared to 2021 primarily as a result of a 24% increase in F&I per vehicle retailed, partially offset by a 11% decrease in new and used retail unit sales.

During 2022 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.

For the Year Ended December 31, Increase

For the Year Ended December 31,

As Reported Dealership Inter-company Eliminations TCA After Dealership Eliminations As Reported Dealership Inter-company Eliminations TCA After Dealership Eliminations

(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.

Finance and insurance, revenue $ 245.8 $ (119.8) $ 126.0 $ 12.0 $ (9.6) $ 2.3

Finance and insurance, cost of sales $ 191.9 $ (145.7) $ 46.3 $ 6.4 $ (2.8) $ 3.6

Finance and insurance, gross profit $ 53.8 $ 25.9 $ 79.7 $ 5.5 $ (6.8) $ (1.3)

TCA offers a variety of F&I products, such as extended vehicle service contracts, prepaid maintenance contracts, GAP, appearance protection contracts and lease wear-and-tear contracts.

TCA's products are sold through our automobile dealerships.

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

During the year ended December 31, 2022, TCA generated $245.8 million of revenue, consisting primarily of earned premium partially offset by a loss of $8.0 million in the investment portfolio.

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.

During the year ended December 31, 2022, TCA recorded $191.9 million of cost of sales consisting primarily of claims expense.

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

As we continue to integrate TCA, we expect a rollout of TCA products to our remaining stores by the end of 2023.

With the ownership of TCA, while the overall profitability of the transaction is higher, the timing of revenue and cost recognition is deferred and amortized over the life of the contract.

We expect that this rollout will result in lower F&I revenue and gross profit over the next two to three years.

S elling, General, and Administrative Expense—

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Gross profit $ 1,773.0 $ 1,710.1

SG&A expense as a percentage of gross profit decreased 740 basis points from 63.9% in 2020 to 56.5% in 2021.

SG&A expense as a percentage of gross profit increased 41 basis points from 56.5% in 2021 to 56.9% in 2022.

Same store SG&A expense as a percentage of gross profit decreased 35 basis points from 57.2% in 2021 to 56.9% in 2022.

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.

With respect to the TCA F&I products sold at our dealerships, sales compensation expense is reduced for commission costs that are capitalized and recognized over the life of the contract.

Depreciation and Amortization Expense —

The $3.4 million (9%) increase in depreciation and amortization expense during 2021 compared to 2020, was primarily the result of depreciation associated with dealership acquisitions during 2021, additional assets placed into service during 2021, and depreciation expense associated with the purchase of previously leased properties.

Franchise Rights Impairment —

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, 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.

The $27.1 million (65%) increase in depreciation and amortization expense during 2022 compared to 2021, was primarily the result of depreciation associated with dealership acquisitions during 2021 and additional assets placed into service during 2022.

Floor Plan Interest Expense —

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.

Floor plan interest expense increased by $0.2 million (2%) to $8.4 million during 2022 compared to $8.2 million during 2021.

Other Interest Expense —

Other interest expense increased $58.3 million (62%) from $93.9 million in 2021 to $152.2 million in 2022.

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.

The increase is due to having a full year of interest expense in 2022 in connection with acquisition-related financing that we entered into during the fourth quarter of 2021.

Gain on Dealership Divestitures —

During the year ended December 31, 2022, we sold one franchise (one dealership location) in St.

Louis, Missouri, three franchises (three dealership locations) and one collision center in Colorado, two franchises (two dealership locations) in Spokane, Washington, one franchise (one dealership location) in Albuquerque, New Mexico and 11 franchises (nine dealership locations) and two collision centers in North Carolina.

The Company recorded a net pre-tax gain totaling $207.1 million.

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 $8.0 million.

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The $156.5 million (95%) increase in income tax expense was the result of a $621.4 million (89%) increase in income before income taxes.

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.

Our effective tax rate increased 70 basis points from 23.7% in 2021 to 24.4% in 2022.

The increase in our effective tax rate was primarily due to the apportionment of income to states with higher tax rates we began doing business in as a result of the acquisitions made during the fourth quarter of 2021.

We are forecasting our 2023 effective tax rate to be approximately 24.5%.

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

RESULTS OF OPERATIONS

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) expenses, net (5.4) 9.2 (14.6) (159) %

INCOME FROM OPERATIONS 791.8 370.8 420.9 114 %

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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, $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 $678.7 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 $420.9 million (114%) compared to 2020, primarily due to a $678.7 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.

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.

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

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.

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 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.

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 an 82% increase in gross profit per new vehicle sold and a 4% increase in unit volumes.

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

Used Vehicle—

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(Dollars in millions, except for per vehicle data)

Used vehicle retail revenues $ 1,930.0 $ 1,941.3 $ (11.3) (1) %

Used vehicle wholesale revenues 239.5 190.3 49.2 26 %

Used vehicle retail revenue $ 3,055.9 $ 1,930.0 $ 1,125.9 58 %

Used vehicle wholesale revenue 259.7 239.5 20.2 8 %

Used vehicle revenue $ 3,315.6 $ 2,169.5 $ 1,146.1 53 %

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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 26.4 11.4 15.0 132 %

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

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Used vehicle retail units 105,206 80,537 24,669 31 %

Used vehicle retail revenues $ 1,685.8 $ 1,772.4 $ (86.6) (5) %

Used vehicle wholesale revenues 190.7 175.5 15.2 9 %

Used vehicle retail revenue $ 2,621.9 $ 1,872.1 $ 749.8 40 %

Used vehicle wholesale revenue 175.1 235.2 (60.1) (26) %

Used vehicle revenue $ 2,797.0 $ 2,107.3 $ 689.7 33 %

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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 units 93,803 78,144 15,659 20 %

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NM — Not Meaningful

Used Vehicle Metrics—

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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 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.

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.

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 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 $141.0 million (33%) to $566.5 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, 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 additional 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 a 11% decrease 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.

For the Year Ended December 31, Increase

(Dollars in millions)

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

Finance and insurance, cost of sales $ 6.4 $ — $ 6.4 N/A

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

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.

During the 15-day period the Company owned TCA in December 2021, TCA recorded $6.4 million of cost of sales consisting primarily of claims expense.

S elling, General, and Administrative Expense—

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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 Dealerships segments, 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 for 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.

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.

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.

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.

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 expenses 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 (65%) from $56.8 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.

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.

During the year ended December 31, 2020, we sold 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.

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 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.

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.

LIQUIDITY AND CAPITAL RESOURCES

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.

As of December 31, 2022, we had total available liquidity of $1.54 billion, which consisted of cash and cash equivalents of $181.6 million (excluding $53.7 million held by TCA), available funds in our floor plan offset accounts of $691.0 million of which $627.8 million is offset against new vehicle floor plan notes payable and $63.2 million is netted against loaner vehicle notes payable, $437.3 million of availability under our revolving credit facility (of which $389.0 million is under our new vehicle floorplan facility that is able to be converted to a revolving credit facility), and $230.6 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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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

On March 24, 2020, the Company delivered notice to the sellers terminating the 2019 Asset Purchase Agreement and the Real Estate Purchase Agreement related to the Park Place acquisition in exchange for the payment of $10.0 million of liquidated damages.

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 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.

Material Indebtedness

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• 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").

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.

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.

As of December 31, 2022, we converted $389.0 million of availability from the Revolving Credit facility to the New Vehicle Floor Plan Facility (as defined below), resulting in $61.0 million of borrowing capacity.

In addition, as of December 31, 2022, we had $12.7 million in outstanding letters of credit, resulting in $48.3 million of borrowing availability.

We began the year with $169.0 million drawn on our revolving credit facility.

During the year ended December 31, 2022, we had additional borrowings of $330.0 million and $499.0 million in repayments, resulting in no outstanding borrowing as of December 31, 2022.

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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As a result of the use of this floor plan offset account, we experienced a reduction in Floor plan interest expense on our consolidated statements of income.

As of December 31, 2021, we had $233.2 million outstanding under the New Vehicle Floor Plan Facility, which is net of $81.5 million in our floor plan offset account.

Used Vehicle Floor Plan Facility — A $350.0 million Used Vehicle Floor Plan Facility to finance the acquisition of used vehicle inventory and for, among other things, working capital and capital expenditures, as well as to refinance used vehicles.

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

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.

As of December 31, 2022, we had $679.6 million outstanding under the New Vehicle Floor Plan Facility, which includes $2.8 million classified as liabilities associated with assets held for sale and $63.2 million classified in loaner vehicles notes payable which is included in accounts payable and accrued liabilities in our consolidated balance sheets.

As of December 31, 2022, we held $777.6 million in the floor plan notes payable offset account of which $100.8 million was reflected within cash and cash equivalents and $63.2 million was shown as an offset to loaner vehicles notes payable which is included in accounts payable and accrued liabilities in the consolidated balance sheets.

Used Vehicle Floor Plan Facility — A $350.0 million Used Vehicle Floor Plan Facility to finance the acquisition of used vehicle inventory and for working capital and capital expenditures, as well as to refinance used vehicles.

We began the year with $294.0 million drawn on our Used Vehicle Floor Plan Facility.

As of December 31, 2022, we had additional borrowings of $200.0 million and $494.0 million in repayments resulting in no outstanding borrowings as of December 31, 2022.

Our borrowing capacity under the Used

Vehicle Floor Plan Facility was $230.6 million based on our borrowing base calculation as of December 31, 2022.

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.

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.

The Base Rate is the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate, and (iii) one month LIBOR plus 1.00%.

Applicable Rate means with respect to the Revolving Credit Facility, a range from 1.00% to 2.00% for LIBOR loans and 0.15% to 1.00% for Base Rate loans, in each case based on the Company's consolidated total lease adjusted leverage ratio.

Borrowings under the New Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.10% or the Base Rate plus 0.10%.

Borrowings under the Used Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus 1.40% or the Base Rate plus 0.40%.

In addition to the payment of interest on borrowings outstanding under the 2019 Senior Credit Facility, we are required to pay a quarterly commitment fee on total unused commitments thereunder.

The fee for unused commitments under the Revolving Credit Facility is between 0.15% and 0.40% per year, based on the Company's total lease adjusted leverage ratio, and the fee for unused commitments under the New Vehicle Facility Floor Plan and the Used Vehicle Facility Floor Plan Facility is 0.15% per year.

As of December 31, 2022, $389.0 million of availability under the Revolving Credit Facility was re-designated to the New Vehicle Floor Plan Facility.

We re-designated this amount to take advantage of the lower commitment fee rates on the New Vehicle Floor Plan Facility when compared to the Revolving Credit Facility.

On September 30, 2022, the Company and certain of its subsidiaries entered into the fifth amendment to the 2019 Senior Credit Facility.

The amendment, among other things, increased the cap that the real estate component of the Revolving Borrowing Base can contribute to the Revolving Borrowing Base from 25% to 40% of the Aggregate Revolving Commitments, increased the amounts that any conversion of the Aggregate Revolving Commitments to Aggregate New Vehicle Floor Plan Commitments and/or Aggregate Used Vehicle Floor Plan Commitments (each way) can contribute to Aggregate Commitments from 20% to 40%, removed the $50 million limit on the portion of the Floorplan Offset Amount that may be subtracted from certain amounts outstanding under the floorplan facility and made certain changes to the criteria for Eligible Borrowing Base Real Property and the deliverables in connection with those properties (such capitalized terms, in each case, as defined in the amendment).

The amendment did not update or amend the maturity date, interest rates or total loan commitments under the 2019 Senior Credit Agreement.

On May 25, 2022, the Company and certain of its subsidiaries entered into the fourth amendment to the 2019 Senior Credit Facility with Bank of America, as administrative agent, and the other lenders party thereto, to replace the benchmark reference rate of LIBOR to Secured Overnight Financing Rate ("SOFR").

See Note 14 "Debt" for further details.

In addition to the payment of interest on borrowings outstanding under the 2019 Senior Credit Facility, we are

required to pay a quarterly commitment fee on total unused commitments thereunder.

• 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.

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As of December 31, 2022, we had $51.0 million, which is net of $14.2 million in our floor plan offset account, outstanding under our floor plan facility.

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.

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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 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 related fees and expenses.

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 2029 Senior Notes and the 2032 Senior Notes are not required to be registered under the Securities Act of 1933.

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 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.

On March 24, 2020, 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 a special mandatory redemption.

In September 2020, the Company completed an add-on issuance of $250.0 million aggregate principal amount of additional senior notes consisting of $125.0 million aggregate principal amount of additional 2028 Notes at a price of 101.00% of par, plus accrued interest from September 1, 2020, and $125.0 million aggregate principal amount of additional 2030 Notes (together with the additional 2028 Notes, the "Additional Notes") at a price of 101.75% of par, plus accrued interest from September 1, 2020 (the "September 2020 Offering").

After deducting the initial purchasers' discounts of $2.8 million, we received net proceeds of approximately $250.6 million from the September 2020 Offering.

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 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.

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 sheets 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 acquisition of Park Place.

The 2028 Notes and the 2030 Notes 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.

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• 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.

• 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 Park Place Acquisition.

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”).

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

As of December 31, 2022 we had total mortgage notes payable outstanding of $41.0 million which includes $2.7 million classified as liabilities associated with assets held for sale that 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 provided for term loans in an aggregate amount equal to $689.7 million (the "2021 Real Estate Facility").

As of December 31, 2022, we had $660.6 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”).

There is no further borrowing availability under the 2021 Real Estate Facility.

• 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 provided 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, 2022, we had $173.3 million of outstanding borrowings under the 2021 BofA Real Estate Facility.

There is no further borrowing availability under this agreement.

There is no further borrowing availability under the 2021 BofA Real Estate Credit Agreement.

On May 25, 2022, certain of our subsidiaries entered into amendments to our 2021 BofA Real Estate Facility to replace the benchmark reference rate of LIBOR to SOFR, effective June 1, 2022.

See Note 14 "Debt" for further details.

• 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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All of the real property financed by an operating dealership subsidiary of the Company under the 2018 BofA Real Estate Facility is collateralized by first priority liens, subject to certain permitted exceptions.

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.

As of December 31, 2022, we had $58.6 million, which includes $4.1 million classified as liabilities associated with assets held for sale, of outstanding borrowings under the 2018 Bank of America Facility.

There is no further borrowing availability under the 2018 BofA Real Estate Facility.

On May 25, 2022, certain of our

subsidiaries entered into an amendment to the 2018 BofA Real Estate Credit Agreement to replace the benchmark reference rate of LIBOR to SOFR, effective June 1, 2022.

See Note 14 "Debt" for further details.

• 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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As of December 31, 2022, we had $76.9 million, outstanding borrowings under the 2018 Wells Fargo Master Loan Facility.

There is no further borrowing availability under this agreement.

There is no further borrowing availability under the 2018 Wells Fargo Master Loan Facility.

On and with effect from June 1, 2022, certain of our subsidiaries entered into an amendment to our 2018 Wells Fargo Master Loan Agreement to replace the benchmark reference rate of LIBOR to SOFR.

See Note 14 "Debt" for further details.

• 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").

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As of December 31, 2022, the outstanding balance under this agreement was $42.3 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").

There is no further borrowing availability under the 2015 Wells Fargo Master Loan Facility.

On and with effect from June 1, 2022, certain of our subsidiaries entered into an amendment to our 2015 Wells Fargo Master Loan Agreement to replace the benchmark reference rate of LIBOR to SOFR.

See Note 14 "Debt" for further details.

• 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., 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, 2022, we had $24.9 million of outstanding borrowings under the 2013 BofA Real Estate Facility.

There is no further borrowing availability under this agreement

There is no further borrowing availability under the 2013 Real Estate Facility.

On May 25, 2022, certain of our subsidiaries entered into an amendment to our 2013 BofA Real Estate Credit Agreement to replace the benchmark reference rate of LIBOR to SOFR, effective June 1, 2022.

See Note 14 "Debt" for further details.

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 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.

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, 2015 Wells Fargo Master Loan Agreement, 2013 BofA Real Estate Credit 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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• 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.

Our restricted payment capacity balance as of December 31, 2022 and 2021 was $1.11 billion and $958.6 million, respectively.

Share Repurchases and Dividend Restrictions

Our ability to repurchase shares or pay dividends on our common stock is subject to our compliance with the covenants and restrictions described in "Covenants and Defaults" above.

On January 30, 2014, our Board of Directors authorized the Repurchase Program.

On October 19, 2018, our Board of Directors reset the authorization under our Repurchase Program to $100.0 million in the aggregate, for the repurchase of our common stock in open market transactions or privately negotiated transactions, from time to time.

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

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 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.

During the year ended December 31, 2022, we repurchased 1,635,030 shares of our common stock under our repurchase program for a total of $297.0 million and an additional 56,024 shares of our common stock for $9.2 million from employees in connection with a net share settlement feature of employee equity-based awards.

As of December 31, 2022, we had remaining authorization to repurchase up to an additional $103.0 million of our common stock.

Any repurchases will be subject to applicable limitations in our debt or other financing agreements that may be in existence from time to time.

On January 26, 2023, the Board of Directors increased the Company’s share repurchase authorization under our Repurchase Program by $108.0 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.

The repurchase program may be modified, suspended or terminated at any time without prior notice.

During 2021, we repurchased 65,937 shares of our common stock for $10.4 million from employees in connection with a net share settlement feature of employee equity-based awards.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act (the "IRA") into law.

The IRA, among other things, implements a 1% excise tax on share repurchases, which takes effect in tax years beginning after December 31, 2022.

We do not believe the IRA will have a material effect on our reported results, cash flows or financial position.

We expect to reflect the excise tax within equity as part of the repurchase price of common stock.

Contractual Obligations

As of December 31, 2021, we had the following contractual obligations (in millions;

note references are to the notes to our Consolidated Financial Statements included elsewhere herein):

Payments due by period

2022 2023 2024 2025 2026 Thereafter Total

Floor plan notes payable (Notes11&12) $ 564.5 $ — $ — $ — $ — $ — $ 564.5

Operating lease liabilities (a) 28.5 26.0 18.8 17.1 15.9 168.8 275.1

Operating lease liabilities expense (a) 11.5 10.6 9.8 9.1 8.4 60.7 110.1

Long-term debt (Note 14) (a) 53.7 75.9 263.7 142.7 574.3 2,504.2 3,614.5

Interest on long-term debt (a)(b) 131.2 129.6 127.6 123.0 120.7 369.9 1,002.0

Total contractual obligations $ 789.4 $ 242.1 $ 419.9 $ 291.9 $ 719.3 $ 3,103.6 $ 5,566.2

________________________________________

(a) For additional information related to the Company's operating and finance lease liabilities presented within the accompanying Consolidated Financial Statements, see Note 19 "Leases" of the Notes thereto.

(b) Includes variable rate interest payments calculated using an estimated LIBOR rate of 0.10%, and assumes that borrowings will not be refinanced prior to or upon maturity.

As of December 31, 2022, we had significant contractual obligations related to our floor plan notes payable disclosed in Notes 11 and 12, operating lease liabilities disclosed in Note 19 and long-term debt arrangements discussed in Note 14.

Disclosures related to our commitments and contingencies are outlined in Note 21.

All note references are to the notes to our consolidated financial statements included elsewhere herein.

Classification of Cash Flows Associated with Floor Plan Notes Payable

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 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.

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 flows.

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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.

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 and certain loaner vehicle programs.

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

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.

Adjusted cash flow provided by operating activities for the year ended December 31, 2020 differs from previously disclosed non-GAAP operating cash flow measures presented in Management's Discussion and Analysis due to methodology changes made during the year ended December 31, 2021 stemming from material acquisitions during the 2021 fiscal year.

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.

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Change in Floor Plan Notes Payable Non-Trade associated with floor plan offset, used vehicle borrowing base changes adjusted for acquisition and divestitures 462.4 131.1 9.1

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

Change in Floor Plan Notes Payable Trade associated with floor plan offset and acquisitions and divestitures, net 19.7 (54.0) (63.7)

Adjusted cash flow provided by operating activities $ 987.0 $ 632.1 $ 442.6

Operating Activities—

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.

Net cash provided by operating activities totaled $696.0 million, $1.16 billion, and $652.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Adjusted cash flow provided by operating activities totaled $987.0 million,

$632.1 million, and $442.6 million for the years ended December 31, 2022, 2021, and 2020, 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 $354.9 million increase in adjusted cash flow provided by operating activities for the year ended December 31, 2022 compared to the year ended December 31, 2021, was primarily the result of the following:

• increase in $431.9 million in net income and non-cash adjustments to net income;

• $126.7 million related to an 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;

• $16.2 million increase in other long term assets and liabilities, net.

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

• $53.2 million related to sale volume and the timing of collection of accounts receivable and contracts-in-transit during 2022 compared to 2021;

• $126.6 million related to the change in other current assets, net;

• $35.3 million related to the change in accounts payable and accrued liabilities;

• $4.8 million related to the change in operating lease liabilities.

The $189.5 million increase in our 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.

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

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

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• $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;

• $59.2 million related to non-cash adjustments to net income primarily related to the gain on dealership divestitures in 2020 when compared to 2019;

• $16.5 million related to sales volume and the timing of collection of accounts receivable and contracts-in-transit during 2020 as compared to 2019;

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

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.

Investing Activities—

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.

Net cash provided by investing activities totaled $464.7 million for the year ended December 31, 2022 compared to net cash used in investing activities of $3.92 billion and $820.8 million for the years ended December 31, 2021 and 2020, 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 $74.2 million, $46.5 million, and $57.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Capital expenditures, excluding the purchase of real estate, were $94.6 million, $74.2 million, and $46.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Purchases of real estate totaled $13.3 million, $7.8 million, and $2.3 million for the years ended December 31, 2022, 2021, and 2020, 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.

In addition, we purchased previously leased facilities for $217.1 million during the year ended December 31, 2021.

We expect that capital expenditures during 2023 will total approximately $200.0 million to upgrade or replace our existing facilities, construct new facilities, expand our service capacity, and invest in technology and equipment.

In addition, as part of our capital allocation strategy, we continually evaluate opportunities to purchase properties currently under lease and acquire properties in connection with future dealership relocations.

In addition, as part of our capital allocation strategy, we continually evaluate opportunities to purchase properties currently under lease and acquire

properties in connection with future dealership relocations.

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.

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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 addition to these acquisitions, during the year ended December 31, 2021, we acquired the assets of 11 franchises (10 dealership locations) 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 these acquisitions 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.

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In addition to the acquisition amounts above, we released $2.5 million of purchase price holdbacks related to a prior year acquisition.

During the year ended December 31, 2019, we acquired the assets of nine franchises (five dealership locations) and one collision center in the Indianapolis, Indiana market and one franchise (one dealership location) in the Denver, Colorado market for a combined purchase price of $210.4 million.

We funded these acquisitions with an aggregate of $153.9 million of cash and $55.3 million of floor plan borrowings for the purchase of the related new vehicle inventory.

In the aggregate, these acquisitions included purchase price holdbacks of $1.2 million for potential indemnity claims made by us with respect to the acquired franchises.

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, 2022, we sold one franchise (one dealership location) in St.

Louis, Missouri, three franchises (three dealership locations) and one collision center in Denver, Colorado, two franchises (two dealership locations) in Spokane, Washington, one franchise (one dealership location) in Albuquerque, New Mexico and 11 franchises (nine dealership locations) and two collision centers in North Carolina for proceeds of $701.2 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.

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.

Proceeds from the sale of assets, unrelated to a dealership divestiture, were $0.0 million, $21.5 million, and $4.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the years ended December 31, 2022 and 2021, we purchased $202.2 million and $1.1 million of debt securities and $41.4 million and $0.4 million of equity securities, respectively.

During the years ended December 31, 2022 and 2021, we also received proceeds of $69.7 million and $0.8 million from the sale of debt securities and $50.3 million and $0.4 million, from the sale of equity securities, respectively.

We did not hold debt or equity securities during the year ended December 31, 2020.

Financing Activities—

Net cash used in financing activities totaled $1.10 billion for the year ended December 31, 2022.

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 years ended December 31, 2022, 2021, and 2020, we had non-trade floor plan borrowings of $7.41 billion, $5.04 billion, and $4.31 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.

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

During the year ended December 31, 2022 and 2021, we borrowed $330.0 million and $439.0 million and repaid $499.0 million and $270.0 million, respectively, on our revolving line of credit.

We did not have any activity under our revolving line of credit in 2020.

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

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.

We did not have any acquisitions in 2022.

During the years ended December 31, 2022, 2021, and 2020, we made non-trade floor plan repayments of $7.89 billion, $5.36 billion, and $4.47 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.

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

We had no repayments for the years ended December 31, 2022 and 2021.

In addition, during the years ended December 31, 2022, 2021 and 2020, we had floor plan repayments associated with dealership divestitures of $48.4 million, $0.8 million, and $60.4 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.

We did repurchase 65,937 shares of our common stock for $10.4 million from employees in connection with a net share settlement feature of employee equity-based awards.

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

We did not have any proceeds from borrowings in 2022.

Repayments of borrowings totaled $106.2 million, $41.5 million, and $1.62 billion, for the years ended December 31, 2022, 2021, and 2020, respectively.

During the years ended December 31, 2022 and 2021, we received net proceeds from the issuance of common stock totaling $1.4 million and $666.9 million, respectively.

We did not have any net proceeds from the issuance of common stock in 2020.

During the year ended December 31, 2022, we repurchased 1,635,030 shares of our common stock under our Repurchase Program for a total of $297.0 million and 56,024 shares of our common stock for $9.2 million from employees in connection with a net share settlement feature of employee equity-based awards.

We did not have any share repurchases in 2021 or 2020.

Off Balance Sheet Arrangements

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.

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 Company's consolidated financial statements.

Guarantor Financial Information

19 unchanged sentences

Net income 925.8

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.

Goodwill and Manufacturer Franchise Rights

Goodwill represents the excess cost of an acquired business over the fair market value of its identifiable assets and liabilities.

Our TCA segment also represents a reporting unit for the purpose of testing goodwill for impairment.

Our only other significant identifiable intangible assets are our rights under franchise agreements with manufacturers, which are recorded at an individual franchise level.

The fair value of our manufacturer franchise rights are determined at the acquisition date, by discounting the projected cash flows specific to each franchise.

Furthermore, to the extent that any agreements evidencing our manufacturer franchise rights would expire, we expect that we would be able to renew those agreements in the ordinary course of business.

As a result of the effects 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 franchise right impairments were identified in 2022 or 2021.

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

We review goodwill and manufacturer franchise rights for impairment annually as of October 1 st , or more often if events or circumstances indicate that any impairment may have occurred.

We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative assessment for impairment is necessary.

The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit.

Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events.

If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.

We believe that the fair value of each of our reporting units is substantially in excess of its carrying amount.

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