Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Part I, including the matters set forth in Item 1A. Risk Factors, and our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.
Overview
We are a leading operator in the automotive retail industry. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our operations are aligned into three regions, which comprise our reportable segments: the U.S., U.K. and Brazil. The U.S. and Brazil segments are led by the President, U.S. and Brazilian Operations, and the U.K. segment is led by an Operations Director, each reporting directly to our Chief Executive Officer, who is the CODM. The President, U.S. and Brazilian Operations, and the U.K. Operations Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.
As of December 31, 2020, our retail network consisted of 117 dealerships in the U.S., 50 dealerships in the U.K. and 17 dealerships in Brazil. Our operations are primarily located in major metropolitan areas in 15 states in the U.S., 33 towns in the U.K. and three states in Brazil.
Our operating results reflect the combined performance of each of our interrelated business activities, which include the sale of new vehicles, used vehicles, F&I products and parts, as well as maintenance and repair business. Historically, each of these activities has been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices and interest rates. For example, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles. Some consumers may delay their purchasing decisions altogether, electing instead to continue to maintain and repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services, such as used vehicles and parts, as well as maintenance, repair and collision services. In addition, our ability to expediently adjust our cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such sales volume changes.
In 2020, the industry sales in each of our regions was negatively impacted by economic restrictions as a result of the COVID-19 pandemic and the inventory shortages resulting from reduced manufacturer production and parts disruptions, including semiconductor chips. According to U.S. industry experts, the annual new light vehicle unit sales for 2020 decreased 14.8%, to 14.5 million units as compared to the same period in 2019. During 2020, new vehicle registrations decreased 29.4%, to 1.6 million units in the U.K. and decreased 26.6%, to 2.0 million units in Brazil as compared to the same period in 2019. We expect sustained improvements in industry sales volumes in 2021 as all three markets recover from the pandemic.
We were able to partially offset the profit impact from a reduction in total revenues of 9.9% in 2020 as compared to 2019 by increasing gross margins from 15.1% in 2019 to 16.3% in 2020, resulting in a decline in total gross profit of only 2.6%. The increase in gross margins was primarily a result of increased new and used vehicle gross margins due to the inventory shortages. Our cost reduction actions in the spring and summer and an increase in our employee productivity resulted in a decrease in SG&A as a % of gross profit of 8.7% which more than offset the decrease in gross profit and drove record dilutive earnings per share of $15.51 in 2020, a 66.0% increase over 2019.
As of December 31, 2020, our total cash liquidity was $263.7 million, which included $87.3 million of cash on hand and $176.4 million of immediately available funds used to pay down our Floorplan Line and FMCC Facility. We had additional liquidity available under our Acquisition Line. As further discussed in Liquidity and Capital Resources, we have sufficient liquidity currently and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with debt covenants.
Recent Accounting Pronouncements
Refer to Note 1. Business and Summary of Significant Accounting Policies within our Notes to Consolidated Financial Statements for further discussion of the most recent pronouncements that impact us.
Critical Accounting Policies and Accounting Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions, including those associated with the difficult, subjective and complex areas described above. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Below are the accounting policies and estimates that have been determined to be critical to our business operations and the understanding of our results of operations.
21
Goodwill and Intangible Franchise Rights
Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. We are organized into three geographic regions, the U.S. region, U.K. region and Brazil region. We have determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment. Our only recognized identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which are recorded at an individual dealership level.
We evaluate goodwill and intangible franchise rights for impairment annually in the fourth quarter as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred. In evaluating goodwill and intangibles for impairment, an optional qualitative assessment may be initially performed to determine whether it is more-likely-than-not (i.e., a likelihood of greater than 50%) that an impairment exists. If it is concluded that it is more-likely-than-not that an impairment exists, a quantitative test is required to measure the amount of impairment which, for goodwill, consists of comparing the fair value of the reporting unit to its carrying amount and, for intangibles, consists of comparing the fair value of the intangible asset to its carrying amount.
When a quantitative impairment test is performed, we estimate fair value of goodwill using a combination of the discounted cash flow, or income approach, and the market approach. We weight the income approach and market approach 80% and 20%, respectively, in the fair value model. For our intangible franchise rights, we estimate the fair value of the respective franchise right using a discounted cash flow, or income approach. The income approach measures fair value by discounting expected future cash flows at a WACC that proportionately weights the cost of debt and equity. Significant assumptions in the model include revenue growth rates, future gross margins, future SG&A expenses, the WACC and terminal growth rates. We apply a five year projection period which aligns with our strategic plan. Key considerations in the assumed growth rates include industry SAAR projections, macroeconomic conditions including consumer confidence levels, unemployment rates and gross domestic product growth, and internal measures such as historical financial performance, cost control and planned capital expenditures. The revenue growth rates assume a significant increase in 2021 as the business recovers from the pandemic and limited increases in the next four years corresponding with the industry SAAR projections plus a return to more normal vehicle gross margins as inventories recover. Beyond the five forecasted years, the terminal value is determined using a perpetuity growth rate based on long-term inflation projections for each reporting unit. Significant inputs to the WACC include the risk free rate, an adjustment for stock market risk, an adjustment for company size risk and country risk adjustments for the U.K. and Brazil. In 2020, the WACC applied in the impairment tests for the U.S., U.K. and Brazil was 11%, 13% and 16%, respectively. For the market approach, we utilize recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit. Developing these assumptions requires applying management’s knowledge of the industry, recent transactions and reasonable performance expectations for its operations.
The qualitative test includes a review of changes, since the last quantitative test was performed, in those assumptions having the most significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above.
During the year ended December 31, 2020, we recorded goodwill impairment charges of $10.7 million within the Brazil reporting unit, largely due to the impact of the COVID-19 pandemic on our Brazilian markets and our operations. There was no remaining goodwill balance in the Brazil segment following the impairment charges recorded in 2020. As of the last quantitative test performed for the U.S. and U.K. reporting units in the fourth quarter of 2018, the fair value of the reporting units each exceeded their respective carrying values by over 90%. Based on the qualitative test performed for the U.S. and U.K. reporting units in the fourth quarter of 2020, no quantitative test was deemed necessary. No goodwill impairments were recorded on any reporting units during the year ended December 31, 2019.
During the years ended December 31, 2020 and 2019, we recorded $20.8 million and $19.0 million, respectively, of impairments of intangible franchise rights. As our intangible franchise rights are tested for impairment at the dealership level, any impairments are specific to the performance and outlook of the respective dealership. The impact of the COVID-19 pandemic on the economy and unemployment in 2020 adversely impacted our long-term outlook projections, which resulted in the impairment charges on certain dealerships in the U.S., U.K. and Brazil. See Item 1. Business for a discussion of the impact of COVID-19 pandemic on each of our regions and our response to date. If the COVID-19 pandemic and any lockdowns or other restrictions to contain the pandemic continue and impact our long-term projections, we may be required to record additional impairment charges in the future.
Refer to Note 11. Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of our goodwill and intangibles, including the results of our impairment testing.
22
Results of Operations
The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each period presented in comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. For example, the results for a dealership acquired on August 15, 2020 will appear in our same store comparison beginning in 2021 for the period September 2021 through December 2021, when comparing to September 2020 through December 2020 results. If we disposed of a store on August 15, 2020, the results from this store would be excluded from same store results beginning in August 2020 as July 2020 was the last full month the dealership was owned by us. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allows management to manage and monitor the performance of the business and is also useful to investors.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures, and the related reconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance. These metrics also allow investors to better understand and evaluate the information used by management to assess operating performance.
Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2019 compared to fiscal year 2018.
23
The following tables summarize our operating results on a reported basis and on a Same Store basis for the year ended December 31, 2020 as compared to 2019.
Reported Operating Data — Consolidated
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 5,580.8 $ 6,314.1 $ (733.3) (11.6) % $ (37.5) (11.0) %
Used vehicle retail sales 3,105.7 3,366.6 (261.0) (7.8) % (5.8) (7.6) %
Used vehicle wholesale sales 308.1 355.2 (47.1) (13.3) % (2.3) (12.6) %
Total used 3,413.7 3,721.8 (308.1) (8.3) % (8.1) (8.1) %
Parts and service sales 1,389.3 1,510.0 (120.7) (8.0) % (7.1) (7.5) %
F&I, net 467.9 497.9 (29.9) (6.0) % (1.1) (5.8) %
Total revenues $ 10,851.8 $ 12,043.8 $ (1,191.9) (9.9) % $ (53.8) (9.4) %
Gross profit:
New vehicle retail sales $ 330.5 $ 300.8 $ 29.7 9.9 % $ (3.1) 10.9 %
Used vehicle retail sales 208.7 201.3 7.4 3.7 % (0.6) 4.0 %
Used vehicle wholesale sales 11.0 1.0 10.0 991.6 % (0.3) 1017.5 %
Total used 219.7 202.3 17.4 8.6 % (0.9) 9.0 %
Parts and service sales 750.8 815.0 (64.1) (7.9) % (2.9) (7.5) %
F&I, net 467.9 497.9 (29.9) (6.0) % (1.1) (5.8) %
Total gross profit $ 1,769.0 $ 1,816.0 $ (47.0) (2.6) % $ (7.9) (2.2) %
Gross margin:
New vehicle retail sales 5.9 % 4.8 % 1.2 %
Used vehicle retail sales 6.7 % 6.0 % 0.7 %
Used vehicle wholesale sales 3.6 % 0.3 % 3.3 %
Total used 6.4 % 5.4 % 1.0 %
Parts and service sales 54.0 % 54.0 % 0.1 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.3 % 15.1 % 1.2 %
Units sold:
Retail new vehicles sold 140,221 169,136 (28,915) (17.1) %
Retail used vehicles sold 140,118 158,549 (18,431) (11.6) %
Wholesale used vehicles sold 41,786 51,205 (9,419) (18.4) %
Total used 181,904 209,754 (27,850) (13.3) %
Average sales price per unit sold:
New vehicle retail $ 39,800 $ 37,332 $ 2,469 6.6 % $ (268) 7.3 %
Used vehicle retail $ 22,165 $ 21,234 $ 931 4.4 % $ (42) 4.6 %
Gross profit per unit sold:
New vehicle retail sales $ 2,357 $ 1,778 $ 578 32.5 % $ (22) 33.7 %
Used vehicle retail sales $ 1,490 $ 1,270 $ 220 17.3 % $ (4) 17.6 %
Used vehicle wholesale sales $ 263 $ 20 $ 244 1,237.7 % $ (6) 1,269.3 %
Total used $ 1208 $ 965 $ 243 25.2 % $ (5) 25.7 %
F&I PRU $ 1,669 $ 1,519 $ 150 9.9 % $ (4) 10.1 %
Other:
SG&A expenses $ 1,169.3 $ 1,358.4 $ (189.1) (13.9) % $ (7.3) (13.4) %
SG&A as % gross profit 66.1 % 74.8 % (8.7) %
Floorplan expense:
Floorplan interest expense $ 39.5 $ 61.6 $ (22.1) (35.8) % $ (0.1) (35.7) %
Less: floorplan assistance (1)
47.3 49.1 (1.8) (3.7) % — (3.7) %
Net floorplan expense $ (7.8) $ 12.4 $ (20.2) (162.6) % $ (0.1) (162.0) %
(1) Floorplan assistance is included within New vehicle retail Gross profit above and New vehicle retail Cost of sales in our Consolidated Statements of Operations.
24
Same Store Operating Data — Consolidated
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 5,463.0 $ 6,260.6 $ (797.7) (12.7) % $ (37.0) (12.2) %
Used vehicle retail sales 3,023.6 3,328.2 (304.6) (9.2) % (5.7) (9.0) %
Used vehicle wholesale sales 299.8 346.4 (46.6) (13.4) % (2.2) (12.8) %
Total used 3,323.4 3,674.6 (351.2) (9.6) % (7.9) (9.3) %
Parts and service sales 1,356.7 1,483.3 (126.6) (8.5) % (7.2) (8.0) %
F&I, net 461.9 494.3 (32.4) (6.6) % (1.1) (6.3) %
Total revenues $ 10,605.0 $ 11,912.9 $ (1,307.9) (11.0) % $ (53.1) (10.5) %
Gross profit:
New vehicle retail sales $ 321.3 $ 298.7 $ 22.6 7.6 % $ (3.1) 8.6 %
Used vehicle retail sales 203.7 199.9 3.7 1.9 % (0.6) 2.2 %
Used vehicle wholesale sales 10.9 1.3 9.7 757.1 % (0.3) 777.5 %
Total used 214.6 201.2 13.4 6.7 % (0.9) 7.1 %
Parts and service sales 732.3 802.1 (69.7) (8.7) % (2.9) (8.3) %
F&I, net 461.9 494.3 (32.4) (6.6) % (1.1) (6.3) %
Total gross profit $ 1,730.1 $ 1,796.3 $ (66.2) (3.7) % $ (7.9) (3.2) %
Gross margin:
New vehicle retail sales 5.9 % 4.8 % 1.1 %
Used vehicle retail sales 6.7 % 6.0 % 0.7 %
Used vehicle wholesale sales 3.6 % 0.4 % 3.3 %
Total used 6.5 % 5.5 % 1.0 %
Parts and service sales 54.0 % 54.1 % (0.1) %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.3 % 15.1 % 1.2 %
Units sold:
Retail new vehicles sold 137,302 167,245 (29,943) (17.9) %
Retail used vehicles sold 136,865 156,539 (19,674) (12.6) %
Wholesale used vehicles sold 40,767 50,282 (9,515) (18.9) %
Total used 177,632 206,821 (29,189) (14.1) %
Average sales price per unit sold:
New vehicle retail $ 39,788 $ 37,434 $ 2,354 6.3 % $ (269) 7.0 %
Used vehicle retail $ 22,092 $ 21,261 $ 830 3.9 % $ (41) 4.1 %
Gross profit per unit sold:
New vehicle retail sales $ 2,340 $ 1,786 $ 554 31.0 % $ (22) 32.3 %
Used vehicle retail sales $ 1,488 $ 1,277 $ 211 16.5 % $ (4) 16.9 %
Used vehicle wholesale sales $ 268 $ 25 $ 243 957.2 % $ (6) 982.3 %
Total used $ 1,208 $ 973 $ 235 24.2 % $ (5) 24.7 %
F&I PRU $ 1,685 $ 1,527 $ 158 10.3 % $ (4) 10.6 %
Other:
SG&A expenses $ 1,143.0 $ 1,338.9 $ (195.9) (14.6) % $ (7.2) (14.1) %
SG&A as % gross profit 66.1 % 74.5 % (8.5) %
25
Reported Operating Data — U.S.
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 4,406.6 $ 4,832.2 $ (425.6) (8.8) %
Used vehicle retail sales 2,348.5 2,509.9 (161.4) (6.4) %
Used vehicle wholesale sales 169.4 174.5 (5.0) (2.9) %
Total used 2,517.9 2,684.4 (166.5) (6.2) %
Parts and service sales 1,162.6 1,234.4 (71.8) (5.8) %
F&I, net 416.3 433.2 (16.9) (3.9) %
Total revenues $ 8,503.4 $ 9,184.2 $ (680.8) (7.4) %
Gross profit:
New vehicle retail sales $ 272.4 $ 228.8 $ 43.5 19.0 %
Used vehicle retail sales 162.8 161.7 1.1 0.7 %
Used vehicle wholesale sales 7.7 2.5 5.2 207.5 %
Total used 170.5 164.2 6.3 3.9 %
Parts and service sales 626.8 668.5 (41.8) (6.2) %
F&I, net 416.3 433.2 (16.9) (3.9) %
Total gross profit $ 1,486.0 $ 1,494.8 $ (8.8) (0.6) %
Gross margin:
New vehicle retail sales 6.2 % 4.7 % 1.4 %
Used vehicle retail sales 6.9 % 6.4 % 0.5 %
Used vehicle wholesale sales 4.6 % 1.4 % 3.1 %
Total used 6.8 % 6.1 % 0.7 %
Parts and service sales 53.9 % 54.2 % (0.2) %
F&I, net 100.0 % 100.0 % — %
Total gross margin 17.5 % 16.3 % 1.2 %
Units sold:
Retail new vehicles sold 105,022 122,096 (17,074) (14.0) %
Retail used vehicles sold 108,411 121,016 (12,605) (10.4) %
Wholesale used vehicles sold 24,679 28,577 (3,898) (13.6) %
Total used 133,090 149,593 (16,503) (11.0) %
Average sales price per unit sold:
New vehicle retail $ 41,959 $ 39,577 $ 2,382 6.0 %
Used vehicle retail $ 21,663 $ 20,740 $ 922 4.4 %
Gross profit per unit sold:
New vehicle retail sales $ 2,593 $ 1,874 $ 719 38.4 %
Used vehicle retail sales $ 1,502 $ 1,336 $ 166 12.4 %
Used vehicle wholesale sales $ 313 $ 88 $ 225 256.0 %
Total used $ 1,281 $ 1,098 $ 184 16.7 %
F&I PRU $ 1,951 $ 1,782 $ 169 9.5 %
Other:
SG&A expenses $ 947.0 $ 1,075.6 $ (128.5) (12.0) %
SG&A as % gross profit 63.7 % 72.0 % (8.2) %
26
Same Store Operating Data — U.S.
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 4,343.5 $ 4,806.3 $ (462.8) (9.6) %
Used vehicle retail sales 2,299.4 2,489.2 (189.8) (7.6) %
Used vehicle wholesale sales 167.1 171.5 (4.4) (2.6) %
Total used 2,466.5 2,660.7 (194.2) (7.3) %
Parts and service sales 1,145.6 1,225.2 (79.7) (6.5) %
F&I, net 412.8 430.8 (18.0) (4.2) %
Total revenues $ 8,368.4 $ 9,123.1 $ (754.6) (8.3) %
Gross profit:
New vehicle retail sales $ 265.5 $ 227.6 $ 37.9 16.7 %
Used vehicle retail sales 159.5 160.7 (1.2) (0.7) %
Used vehicle wholesale sales 7.7 2.5 5.2 204.5 %
Total used 167.2 163.2 4.0 2.5 %
Parts and service sales 616.6 663.7 (47.1) (7.1) %
F&I, net 412.8 430.8 (18.0) (4.2) %
Total gross profit $ 1,462.2 $ 1,485.3 $ (23.1) (1.6) %
Gross margin:
New vehicle retail sales 6.1 % 4.7 % 1.4 %
Used vehicle retail sales 6.9 % 6.5 % 0.5 %
Used vehicle wholesale sales 4.6 % 1.5 % 3.2 %
Total used 6.8 % 6.1 % 0.6 %
Parts and service sales 53.8 % 54.2 % (0.3) %
F&I, net 100.0 % 100.0 % — %
Total gross margin 17.5 % 16.3 % 1.2 %
Units sold:
Retail new vehicles sold 103,790 121,322 (17,532) (14.5) %
Retail used vehicles sold 106,611 119,655 (13,044) (10.9) %
Wholesale used vehicles sold 24,410 28,113 (3,703) (13.2) %
Total used 131,021 147,768 (16,747) (11.3) %
Average sales price per unit sold:
New vehicle retail $ 41,849 $ 39,616 $ 2,233 5.6 %
Used vehicle retail $ 21,568 $ 20,803 $ 765 3.7 %
Gross profit per unit sold:
New vehicle retail sales $ 2,558 $ 1,876 $ 682 36.4 %
Used vehicle retail sales $ 1,496 $ 1,343 $ 153 11.4 %
Used vehicle wholesale sales $ 317 $ 90 $ 227 250.7 %
Total used $ 1,276 $ 1,104 $ 172 15.6 %
F&I PRU $ 1,962 $ 1,788 $ 174 9.8 %
Other:
SG&A expenses $ 934.6 $ 1,068.9 $ (134.3) (12.6) %
SG&A as % gross profit 63.9 % 72.0 % (8.0) %
27
Year Ended December 31, 2020 compared to 2019
The following discussion of our U.S. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. Our U.S. dealership operations have been impacted by the reduced demand caused by the COVID-19 pandemic and the restrictions put in place by local governments to contain the virus.
Revenues
Total revenues in the U.S. during the year ended December 31, 2020 decreased $680.8 million, or 7.4%, as compared to the same period in 2019. Total same store revenues in the U.S. during the year ended December 31, 2020 decreased $754.6 million, or 8.3%, as compared to the same period in 2019. The decrease in U.S. same store revenues was driven by declines in all of our revenues streams. The declines of 9.6% in new vehicle retail same store sales, 7.6% in used vehicle retail same store sales and 2.6% in used vehicle wholesale same store sales were driven by decreases of 14.5%, 10.9% and 13.2% in new vehicle, used vehicle retail and used vehicle wholesale unit sales, respectively, reflecting reduced demand at our dealerships caused by the COVID-19 pandemic and inventory supply shortages, in part due to reduced OEM production rates. Our recent online new and used vehicle sales platform, AcceleRide®, was instrumental in allowing us to connect with and serve our customers throughout the social distancing requirements and served to help limit our declines. Parts and service same store revenues decreased 6.5% driven by an 18.9% decrease in collision revenues, a 9.6% decrease in warranty revenues, a 3.9% decrease in customer-pay revenues and a 0.9% decrease in wholesale parts revenues. F&I same store revenues decreased 4.2% as a result of a decrease of 12.7% in our retail unit sales as discussed above, which was partially offset by higher penetration rates and income per contract on many of our finance and insurance product offerings and a decline in our overall chargeback experience.
Gross Profit
Total gross profit in the U.S. during the year ended December 31, 2020 decreased $8.8 million, or 0.6%, as compared to the same period in 2019. Total same store gross profit in the U.S. during the year ended December 31, 2020 decreased $23.1 million, or 1.6%, as compared to the same period in 2019. The decrease in total gross profit was driven by decreases in all of our operations except for new vehicle retail and used vehicle wholesale. New vehicle retail same store gross profit increased 16.7% driven by a 36.4% increase in new vehicle same store gross profit per unit sold, which was partially offset by a 14.5% decrease in new vehicle retail unit sales. The increase in same store new vehicle gross profit per unit sold was related to supply constraints of new vehicle inventory as many manufacturers put a hold on production due to the COVID-19 pandemic earlier in the year and have not yet returned to normal production levels. Used vehicle retail same store gross profit remained relatively flat, as a 10.9% decrease in used vehicle unit sales was offset by an 11.4% increase in used vehicle retail same store average gross profit per unit. Used vehicle retail same store gross profit was impacted by both inventory supply constraints and the reduced demand during the first half of the year caused by the COVID-19 pandemic. Used vehicle wholesale same store gross profit was driven by an increase in used vehicle wholesale same store gross profit per unit sold, which was partially offset by a 13.2% decrease in used vehicle wholesale unit sales. The increase in same store used vehicle wholesale profit per unit sold was driven by higher auction prices due to industry supply constraints. Parts and service same store gross profit and F&I same store gross profit decreased 7.1% and 4.2%, respectively, driven by the decreases described above. Total same store gross margin increased 120 basis points primarily as a result of higher new vehicle and used vehicle retail and wholesale margins related to inventory supply constraints.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in the U.S. during the year ended December 31, 2020 decreased $128.5 million, or 12.0%, as compared to the same period in 2019. Total same store SG&A expenses in the U.S. during the year ended December 31, 2020, decreased $134.3 million, or 12.6%, as compared to the same period in 2019. As market conditions have improved in the second half of 2020, we have strived to retain the lower operating cost structure put in place as a result of the pandemic. Total same store SG&A expenses in the U.S. for the year ended 2019 included $17.8 million in net costs associated with hailstorms and flooding from Tropical Storm Imelda in Texas; $1.1 million in non-core legal expenses; and $0.5 million in net gains on real estate and dealership transactions. Total same store SG&A expenses in the U.S. for the year ended 2020 included $10.6 million in expense for an out-of-period adjustment related to stock-based compensation and a $2.7 million gain related to a favorable legal settlement. Total same store SG&A as a percent of gross profit decreased from 72.0% for the twelve months ended 2019 to 63.9% for the same period of 2020, driven by cost cutting measures taken to mitigate the impact of the COVID-19 pandemic.
28
Reported Operating Data — U.K.
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 1,021.8 $ 1,195.1 $ (173.2) (14.5) % $ 3.7 (14.8) %
Used vehicle retail sales 707.2 771.3 (64.1) (8.3) % 7.4 (9.3) %
Used vehicle wholesale sales 126.4 162.3 (36.0) (22.2) % 1.2 (22.9) %
Total used 833.5 933.7 (100.1) (10.7) % 8.5 (11.6) %
Parts and service sales 194.8 227.9 (33.1) (14.5) % 2.2 (15.5) %
F&I, net 46.6 57.0 (10.4) (18.2) % 0.3 (18.7) %
Total revenues $ 2,096.8 $ 2,413.7 $ (316.8) (13.1) % $ 14.7 (13.7) %
Gross profit:
New vehicle retail sales $ 47.0 $ 54.2 $ (7.2) (13.4) % $ — (13.4) %
Used vehicle retail sales 42.1 33.7 8.4 24.9 % 0.5 23.4 %
Used vehicle wholesale sales 2.5 (2.7) 5.2 190.8 % — 191.2 %
Total used 44.6 31.0 13.6 43.8 % 0.5 42.1 %
Parts and service sales 109.9 125.4 (15.5) (12.4) % 1.3 (13.4) %
F&I, net 46.6 57.0 (10.4) (18.2) % 0.3 (18.7) %
Total gross profit $ 248.1 $ 267.7 $ (19.6) (7.3) % $ 2.1 (8.1) %
Gross margin:
New vehicle retail sales 4.6 % 4.5 % 0.1 %
Used vehicle retail sales 6.0 % 4.4 % 1.6 %
Used vehicle wholesale sales 1.9 % (1.7) % 3.6 %
Total used 5.3 % 3.3 % 2.0 %
Parts and service sales 56.4 % 55.0 % 1.4 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 11.8 % 11.1 % 0.7 %
Units sold:
Retail new vehicles sold 29,684 37,565 (7,881) (21.0) %
Retail used vehicles sold 29,091 33,121 (4,030) (12.2) %
Wholesale used vehicles sold 15,651 20,694 (5,043) (24.4) %
Total used 44,742 53,815 (9,073) (16.9) %
Average sales price per unit sold:
New vehicle retail $ 34,424 $ 31,814 $ 2,610 8.2 % $ 124 7.8 %
Used vehicle retail $ 24,309 $ 23,288 $ 1,021 4.4 % $ 253 3.3 %
Gross profit per unit sold:
New vehicle retail sales $ 1,583 $ 1,443 $ 139 9.7 % $ 2 9.5 %
Used vehicle retail sales $ 1,448 $ 1,018 $ 430 42.2 % $ 17 40.5 %
Used vehicle wholesale sales $ 157 $ (131) $ 288 220.1 % $ (1) 220.6 %
Total used $ 997 $ 576 $ 420 72.9 % $ 11 71.0 %
F&I PRU $ 793 $ 806 $ (13) (1.6) % $ 5 (2.3) %
Other:
SG&A expenses $ 191.2 $ 236.9 $ (45.6) (19.3) % $ 1.6 (19.9) %
SG&A as % gross profit 77.1 % 88.5 % (11.4) %
29
Same Store Operating Data — U.K.
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 967.0 $ 1,170.3 $ (203.2) (17.4) % $ 4.2 (17.7) %
Used vehicle retail sales 674.2 756.5 (82.3) (10.9) % 7.5 (11.9) %
Used vehicle wholesale sales 120.4 158.7 (38.2) (24.1) % 1.2 (24.9) %
Total used 794.7 915.1 (120.5) (13.2) % 8.7 (14.1) %
Parts and service sales 179.3 211.2 (31.9) (15.1) % 2.1 (16.1) %
F&I, net 44.1 55.9 (11.9) (21.2) % 0.3 (21.8) %
Total revenues $ 1,985.0 $ 2,352.6 $ (367.5) (15.6) % $ 15.3 (16.3) %
Gross profit:
New vehicle retail sales $ 44.7 $ 53.3 $ (8.7) (16.2) % $ 0.1 (16.4) %
Used vehicle retail sales 40.4 33.4 7.0 21.1 % 0.5 19.6 %
Used vehicle wholesale sales 2.4 (2.5) 4.8 196.2 % — 196.6 %
Total used 42.8 30.9 11.9 38.4 % 0.5 36.8 %
Parts and service sales 101.5 117.6 (16.1) (13.7) % 1.2 (14.7) %
F&I, net 44.1 55.9 (11.9) (21.2) % 0.3 (21.8) %
Total gross profit $ 233.1 $ 257.8 $ (24.8) (9.6) % $ 2.1 (10.4) %
Gross margin:
New vehicle retail sales 4.6 % 4.6 % 0.1 %
Used vehicle retail sales 6.0 % 4.4 % 1.6 %
Used vehicle wholesale sales 2.0 % (1.6) % 3.5 %
Total used 5.4 % 3.4 % 2.0 %
Parts and service sales 56.6 % 55.7 % 0.9 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 11.7 % 11.0 % 0.8 %
Units sold:
Retail new vehicles sold 27,997 36,493 (8,496) (23.3) %
Retail used vehicles sold 27,638 32,550 (4,912) (15.1) %
Wholesale used vehicles sold 14,901 20,302 (5,401) (26.6) %
Total used 42,539 52,852 (10,313) (19.5) %
Average sales price per unit sold:
New vehicle retail $ 34,541 $ 32,069 $ 2,472 7.7 % $ 151 7.2 %
Used vehicle retail $ 24,394 $ 23,240 $ 1,154 5.0 % $ 270 3.8 %
Gross profit per unit sold:
New vehicle retail sales $ 1,596 $ 1,462 $ 134 9.2 % $ 3 9.0 %
Used vehicle retail sales $ 1,462 $ 1,025 $ 437 42.6 % $ 18 40.8 %
Used vehicle wholesale sales $ 159 $ (121) $ 280 231.0 % $ (1) 231.6 %
Total used $ 1,006 $ 585 $ 421 71.9 % $ 12 69.9 %
F&I PRU $ 792 $ 810 $ (18) (2.2) % $ 6 (2.9) %
Other:
SG&A expenses $ 177.2 $ 224.7 $ (47.5) (21.1) % $ 1.7 (21.9) %
SG&A as % gross profit 76.0 % 87.2 % (11.1) %
30
Year Ended December 31, 2020 compared to 2019
The following discussion of our U.K. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. Our U.K. dealership operations have been impacted by the restrictions put in place by the national government in efforts to contain the COVID-19 pandemic.
Revenues
Total revenues in the U.K. during the year ended December 31, 2020 decreased $316.8 million, or 13.1%, as compared to the same period in 2019. Total same store revenues in the U.K. during the year ended December 31, 2020 decreased $367.5 million, or 15.6%, as compared to the same period in 2019. On a constant currency basis, total same store revenues decreased 16.3% driven by decreases in all of our operations due to the COVID-19 pandemic. Beginning March 21, 2020, the government mandated the closure of all U.K. dealerships in efforts to stop the spread of the virus. The government shutdown remained in effect through May 18, 2020 for service, with the exception of emergency vehicle repairs. U.K. showrooms were allowed to reopen on June 1, 2020. However, cases of COVID-19 started to rise again causing another government-ordered lockdown beginning November 5, 2020, continuing at different levels through December. Business recovered between June and November but not enough to offset the declines caused by the shutdowns. New vehicle retail same store revenues on a constant currency basis decreased 17.7%, as a 23.3% decrease in new vehicle retail same store unit sales was partially offset by a 7.2% increase in new vehicle retail same store average sales price per unit sold. On a constant currency basis, used vehicle retail same store revenues decreased 11.9%, as a 15.1% decline in used vehicle retail same store unit sales was partially offset by a 3.8% increase in used vehicle retail same store average sales price per unit sold. Parts and service same store revenues decreased 16.1% on a constant currency basis driven by declines of 9.4% in customer-pay, 24.8 % i n warranty, 29.9% in collision and 23.0 % in wholesale parts revenues. The decreases in all parts and service businesses are a result of the limitations put in place due to the COVID-19 pandemic. F&I same store revenues on a constant currency basis decreased 21.8% driven by the decline in retail unit sales and lower penetration rates.
Gross Profit
Total gross profit in the U.K. during the year ended December 31, 2020 decreased $19.6 million, or 7.3%, as compared to the same period in 2019. Total same store gross profit in the U.K. during the year ended December 31, 2020 decreased $24.8 million, or 9.6%, as compared to the same period in 2019. On a constant currency basis, total same store gross profit decreased 10.4% driven by decreases in all of our operations, except for used vehicle, as a result of the COVID-19 pandemic. New vehicle retail same store gross profit on a constant currency basis decreased 16.4% driven by the decline in retail units discussed above, partially offset by a 9.0% increase in new vehicle retail same store average gross profit per unit sold. The increase in new vehicle retail same store gross profit per unit sold reflects supply constraints related to the COVID-19 pandemic as many manufacturers had put a hold on production earlier in the year. Used vehicle retail same store gross profit on a constant currency basis increased 19.6%, as a 15.1% decrease in used vehicle retail same store unit sales was more than offset by a 40.8% increase in used vehicle retail same store average gross profit per unit sold. The increase in used vehicle retail same store average gross profit per unit sold reflects supply constraints similar to new vehicles. Used vehicle wholesale same store gross profit improved 196.6% on a constant currency basis driven by an increase in auction prices due to supply constraints and improved processes. Parts and service same store gross profit on a constant currency basis decreased 14.7% as a result of a 16.1% decline in revenues discussed above. F&I same store gross profit on a constant currency basis decreased 21.8% as discussed above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in the U.K. during the year ended December 31, 2020 decreased $45.6 million, or 19.3%, as compared to the same period in 2019. Total same store SG&A expenses in the U.K. during the year ended December 31, 2020, decreased $47.5 million, or 21.1%, as compared to the same period in 2019. On a constant currency basis, total same store SG&A expenses decreased 21.9% driven by the implementation and execution of cost reduction strategies as a reaction to the COVID-19 pandemic coupled with a temporary suspension of the city tax. These cost savings enabled us to more than offset the decline in gross profit. Total same store SG&A expenses in 2020 included $1.2 million in severance costs for redundancy due to the COVID-19 pandemic. Total same store SG&A expenses in 2019 included $0.2 million in losses on dealership and real estate transactions. As a percentage of gross profit, total same store SG&A expenses improved from 87.2% for the year ended 2019 to 76.0% for the same period in 2020.
31
Reported Operating Data — Brazil
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 152.4 $ 286.8 $ (134.4) (46.9) % $ (41.2) (32.5) %
Used vehicle retail sales 50.0 85.4 (35.4) (41.4) % (13.2) (26.0) %
Used vehicle wholesale sales 12.3 18.3 (6.1) (33.1) % (3.5) (14.2) %
Total used 62.3 103.7 (41.5) (40.0) % (16.7) (23.9) %
Parts and service sales 31.9 47.6 (15.7) (33.0) % (9.3) (13.5) %
F&I, net 5.0 7.6 (2.7) (34.9) % (1.4) (16.6) %
Total revenues $ 251.6 $ 445.9 $ (194.3) (43.6) % $ (68.6) (28.2) %
Gross profit:
New vehicle retail sales $ 11.1 $ 17.8 $ (6.7) (37.5) % $ (3.1) (19.8) %
Used vehicle retail sales 3.8 5.9 (2.1) (36.2) % (1.1) (17.3) %
Used vehicle wholesale sales 0.8 1.2 (0.4) (32.7) % (0.3) (11.9) %
Total used 4.6 7.1 (2.5) (35.6) % (1.4) (16.4) %
Parts and service sales 14.2 21.0 (6.8) (32.5) % (4.1) (12.8) %
F&I, net 5.0 7.6 (2.7) (34.9) % (1.4) (16.6) %
Total gross profit $ 34.8 $ 53.5 $ (18.7) (34.9) % $ (10.0) (16.2) %
Gross margin:
New vehicle retail sales 7.3 % 6.2 % 1.1 %
Used vehicle retail sales 7.5 % 6.9 % 0.6 %
Used vehicle wholesale sales 6.6 % 6.6 % — %
Total used 7.3 % 6.8 % 0.5 %
Parts and service sales 44.5 % 44.2 % 0.3 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 13.9 % 12.0 % 1.8 %
Units sold:
Retail new vehicles sold 5,515 9,475 (3,960) (41.8) %
Retail used vehicles sold 2,616 4,412 (1,796) (40.7) %
Wholesale used vehicles sold 1,456 1,934 (478) (24.7) %
Total used 4,072 6,346 (2,274) (35.8) %
Average sales price per unit sold:
New vehicle retail $ 27,639 $ 30,274 $ (2,636) (8.7) % $ (7,475) 16.0 %
Used vehicle retail $ 19,120 $ 19,356 $ (236) (1.2) % $ (5,041) 24.8 %
Gross profit per unit sold:
New vehicle retail sales $ 2,012 $ 1,874 $ 139 7.4 % $ (568) 37.7 %
Used vehicle retail sales $ 1,438 $ 1,336 $ 102 7.6 % $ (426) 39.5 %
Used vehicle wholesale sales $ 559 $ 625 $ (66) (10.6) % $ (172) 17.0 %
Total used $ 1,124 $ 1,120 $ 4 0.4 % $ (335) 30.3 %
F&I PRU $ 612 $ 551 $ 61 11.1 % $ (172) 42.4 %
Other:
SG&A expenses $ 31.1 $ 46.0 $ (14.9) (32.4) % $ (8.9) (13.0) %
SG&A as % gross profit 89.2 % 85.8 % 3.4 %
32
Same Store Operating Data — Brazil
(In millions, except unit data)
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 152.4 $ 284.0 $ (131.6) (46.3) % $ (41.2) (31.8) %
Used vehicle retail sales 50.0 82.6 (32.6) (39.5) % (13.1) (23.5) %
Used vehicle wholesale sales 12.3 16.2 (4.0) (24.4) % (3.4) (3.2) %
Total used 62.3 98.8 (36.5) (37.0) % (16.6) (20.2) %
Parts and service sales 31.9 46.9 (15.0) (32.0) % (9.3) (12.1) %
F&I, net 5.0 7.6 (2.6) (34.3) % (1.4) (15.8) %
Total revenues $ 251.6 $ 437.3 $ (185.7) (42.5) % $ (68.4) (26.8) %
Gross profit:
New vehicle retail sales $ 11.1 $ 17.8 $ (6.7) (37.5) % $ (3.1) (19.9) %
Used vehicle retail sales 3.8 5.9 (2.1) (36.2) % (1.1) (17.2) %
Used vehicle wholesale sales 0.8 1.2 (0.4) (31.7) % (0.3) (10.7) %
Total used 4.6 7.1 (2.5) (35.4) % (1.4) (16.1) %
Parts and service sales 14.2 20.7 (6.5) (31.5) % (4.1) (11.6) %
F&I, net 5.0 7.6 (2.6) (34.3) % (1.4) (15.8) %
Total gross profit $ 34.8 $ 53.1 $ (18.3) (34.4) % $ (10.0) (15.6) %
Gross margin:
New vehicle retail sales 7.3 % 6.3 % 1.0 %
Used vehicle retail sales 7.5 % 7.1 % 0.4 %
Used vehicle wholesale sales 6.6 % 7.3 % (0.7) %
Total used 7.3 % 7.2 % 0.2 %
Parts and service sales 44.5 % 44.2 % 0.3 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 13.9 % 12.2 % 1.7 %
Units sold:
Retail new vehicles sold 5,515 9,430 (3,915) (41.5) %
Retail used vehicles sold 2,616 4,334 (1,718) (39.6) %
Wholesale used vehicles sold 1,456 1,867 (411) (22.0) %
Total used 4,072 6,201 (2,129) (34.3) %
Average sales price per unit sold:
New vehicle retail $ 27,639 $ 30,118 $ (2,480) (8.2) % $ (7,467) 16.6 %
Used vehicle retail $ 19,109 $ 19,051 $ 59 0.3 % $ (5,021) 26.7 %
Gross profit per unit sold:
New vehicle retail sales $ 2,013 $ 1,884 $ 129 6.8 % $ (568) 37.0 %
Used vehicle retail sales $ 1,437 $ 1,359 $ 78 5.8 % $ (427) 37.2 %
Used vehicle wholesale sales $ 559 $ 638 $ (79) (12.4) % $ (172) 14.5 %
Total used $ 1,123 $ 1,142 $ (19) (1.6) % $ (336) 27.8 %
F&I PRU $ 612 $ 550 $ 62 11.2 % $ (172) 42.5 %
Other:
SG&A expenses $ 31.1 $ 45.3 $ (14.2) (31.3) % $ (8.9) (11.7) %
SG&A as % gross profit 89.3 % 85.2 % 4.0 %
33
Year Ended December 31, 2020 compared to 2019
The following discussion of our Brazil operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. Our Brazil dealership operations have been significantly impacted by the reduced demand caused by the COVID-19 pandemic and the restrictions put in place by local governments to contain the virus.
Revenues
Total revenues in Brazil during the year ended December 31, 2020 decreased $194.3 million, or 43.6%, as compared to the same period in 2019. Total same store revenues in Brazil during the year ended December 31, 2020 decreased $185.7 million, or 42.5%, as compared to the same period in 2019 . On a constant currency basis, total same store revenues decreased 26.8% with declines in all business line s. Beginning March 20, 2020, all our dealerships were required to close in efforts to stop the spread of the virus and while our service centers reopened and operated throughout the second quarter, our showrooms did not reopen until May 2020 with reduced hours. New vehicle retail same store revenues on a constant currency basis decreased 31.8%, as a 41.5% decrease in new vehicle retail same store unit sales was partially offset by a 16.6% increase in new vehicle retail same store average sales price per unit sold. Used vehicle retail same store revenues on a constant currency basis decreased 23.5%, reflecting a 39.6% decrease in used vehicle retail same store unit sales partially offset by a 26.7% increase in used vehicle retail same store average sales price per unit sold. Used vehicle wholesale same store revenues declined 3.2%. Reduced demand, limited availability of inventory and the closure of our dealerships during the COVID-19 pandemic drove the reduction in new and used vehicle same store unit sales. The increases in new and used vehicle retail same store average sales price per unit reflect the supply constraints and a change in brand mix, which has shifted towards our higher priced luxury brands. Parts and service same store revenues on a constant currency basis decreased 12.1% driven by declines in customer-pay, warranty and collision business. F&I same store revenues on a constant currency basis decreased 15.8% primarily due to the decline in retail unit sales partially offset by an increase in income per contract for our retail finance fees.
Gross Profit
Total gross profit in Brazil during the year ended December 31, 2020 decreased $18.7 million, or 34.9%, as compared to the same period in 2019. Total same store gross profit in Brazil during the year ended December 31, 2020 decreased $18.3 million, or 34.4%, as compared to the same period in 2019. On a constant currency basis, total same store gross profit decreased 15.6% driven by declines in all business lines. New vehicle retail same store gross profit on a constant currency basis decreased 19.9%, as a 41.5% decline in new vehicle retail same store units sold was partially offset by a 37.0% increase in new vehicle retail same store average gross profit per unit sold. Used vehicle retail same store gross profit on a constant currency basis decreased 17.2% driven by the 39.6% decline in used vehicle retail same store unit sales, partially offset by 37.2% increase in used vehicle retail same store average gross profit per unit sold. Used vehicle wholesale same store gross profit on a constant currency basis decreased 10.7% reflecting the 22.0% decline in wholesale used vehicles same store unit sales partially offset by a 14.5% increase in used vehicle wholesale same store average gross profit per unit sold. The improvement in new and used same store gross profit PRU reflects the shift towards our higher priced luxury brands and the supply constraints experienced during the COVID-19 pandemic as many manufacturers put a hold on production earlier in the year and have not yet returned to normal production levels. Parts and service same store gross profit decreased 11.6% on a constant currency basis, driven by the 12.1% decrease in parts and service revenues as discussed above. F&I same store gross profit on a constant currency basis decreased 15.8% as discussed above.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses, which include legal, professional fees and general corporate expenses. Total SG&A expenses in Brazil during the year ended December 31, 2020, decreased $14.9 million, or 32.4%, as compared to the same period in 2019. Total same store SG&A expenses in Brazil during the year ended December 31, 2020, decreased $14.2 million, or 31.3%, as compared to the same period in 2019. On a constant currency basis, total same store SG&A expenses decreased 11.7% while total gross profit decreased 15.6%, resulting in a 400 basis points increase in total SG&A expenses as a percentage of gross profit. The decrease in same store SG&A expenses was a result of cost control initiatives implemented by the management team centered around reducing personnel expense. Total same store SG&A expenses in 2020 included $0.9 million of severance costs associated with the te rmination of employees as a result of the COVID-19 pandemic.
34
The following table (in millions) and discussion of our results of operations is on a consolidated basis, unless otherwise noted.
For the Years Ended December 31,
2020 2019 Increase/ (Decrease) % Change
Depreciation and amortization expense $ 75.8 $ 71.6 $ 4.2 5.8 %
Asset impairments $ 37.7 $ 22.2 $ 15.5 69.6 %
Floorplan interest expense $ 39.5 $ 61.6 $ (22.1) (35.8) %
Other interest expense, net $ 62.6 $ 74.9 $ (12.3) (16.5) %
(Gain) loss on extinguishment of debt $ 13.7 $ — $ 13.7 — %
(Benefit) provision for income taxes $ 83.8 $ 53.3 $ 30.6 57.4 %
Depreciation and Amortization Expense
Total depreciation and amortization expense during the year ended December 31, 2020 increased $4.2 million, or 5.8%, as compared to the same period in 2019. The year over year increase is substantially explained by the increase in our U.S. segment, as we continue to strategically add dealership-related real estate to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and the overall customer experience.
Impairment of Assets
We evaluate goodwill and intangible franchise rights for impairment annually in the fourth quarter as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred. During the year ended December 31, 2020, we recorded goodwill impairment charges of $10.7 million within the Brazil reporting unit. No goodwill impairments were recorded during the year ended December 31, 2019. During the year ended December 31, 2020, we recorded franchise rights impairment charges of $11.1 million in the U.K. segment, $9.7 million in the U.S. segment and $0.1 million in the Brazil segment. During the year ended December 31, 2019, we recorded franchise rights impairment charges of $13.4 million in the U.S. segment and $5.6 million in the U.K. segment.
We review long-lived assets including property and equipment and ROU assets for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events). During the year ended December 31, 2020, we recorded property and equipment impairment charges of $4.2 million in the U.S. segment, and ROU asset impairment charges of $1.8 million in the U.K. segment and $0.2 million in the Brazil segment. During the year ended December 31, 2019, we recorded property and equipment impairment charges of $1.3 million in the U.S. segment and $0.5 million in the Brazil segment, and ROU asset impairment charges of $1.4 million in the U.K. segment.
See Note 11. Intangible Franchise Rights and Goodwill, Note 9. Property and Equipment, Net and Note 10. Leases within our Notes to Consolidated Financial Statements for further discussion of our impairments.
Floorplan Interest Expense
Total floorplan interest expense during the year ended December 31, 2020 decreased $22.1 million, or 35.8%, as compared to the same period in 2019. Our floorplan interest expense fluctuates with changes in our borrowings outstanding and interest rates, which are based on LIBOR, Prime rate or a benchmark rate. To mitigate the impact of interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure on a portion of our borrowings for a fixed interest rate. The year over year decrease was primarily due to lower inventory levels and lower weighted average interest rates mainly due to a decline in LIBOR, partially offset by higher expense on our interest rate swaps.
Other Interest Expense, Net
Total other interest expense, net during the year ended December 31, 2020 decreased $12.3 million, or 16.5%, as compared to the same period in 2019. Other interest expense, net consists of interest charges primarily on our Senior Notes, real estate related debt and other debt, partially offset by interest income. The year over year decrease was primarily attributable to lower interest rates achieved through debt refinancing in the current year, including the redemption of $300.0 million in aggregate principal of our 5.25% Senior Notes on April 2, 2020, which was funded at lower interest rates through increased borrowings on our real estate related debt and Acquisition Line, and the redemption of $550.0 million aggregate principal of our 5.00% Senior Notes on September 2, 2020, which was funded through the issuance of $550.0 million aggregate principal amount of our 4.00% Senior Notes on August 17, 2020.
35
Loss on Extinguishment of Debt
On April 2, 2020, we fully redeemed $ 300.0 million in aggregate principal amount of our outstanding 5.25 % Senior Notes due June 2023, at a premium of 102.625 %. The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $ 307.9 million. We recognized a loss on extinguishment of $ 10.4 million which included write offs of an unamortized discount in the amount of $ 1.9 million and unamortized debt issuance costs in the amount of $ 0.6 million.
On September 2, 2020, we fully redeemed $ 550.0 million in aggregate principal amount of our outstanding 5.00 % Senior Notes due June 2022, at par value. We recognized a loss on extinguishmen t of $ 3.3 million whi ch included write offs of an unamortized discount in the amount of $ 2.6 million and unamortized debt issuance costs in the amount of $ 0.7 million.
Provision for Income Taxes
Provision for income taxes during the year ended December 31, 2020 increased $30.6 million, or 57.4%, as compared to the same period in 2019. For the year ended December 31, 2020, we recorded a tax provision of $83.8 million. The 2020 effective tax rate of 22.6% was lower than the 2019 effective tax rate of 23.4%, primarily as a result of a lower overall effective state tax rate based on the m ix of income among the states we operate in and the relevant apportionment factors, decreased valuation allowances with respect to net operating losses in certain U.S. states and higher excess tax deductions for stock compensation, partially offset by increased valuation allowances for Brazil goodwill.
For the year ended December 31, 2019, we recorded a tax provision of $53.3 million. The 2019 effective tax rate of 23.4% was slightly higher than the 2018 effective tax rate of 23.2%, primarily as a result of increased valuation allowances with respect to net operating losses in certain U.S. states, partially offset by reduced valuation allowances for net operating losses in Brazil.
We believe that it is more-likely-than-not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on the assumption of future taxable income. We expect our effective tax rate in 2021 will be between approximately 23.0% and 23.5%.
For further discussion, please see Note 14. Income Taxes within our Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our Floorplan Line and FMCC Facility levels (see Note 12. Floorplan Notes Payable in our Notes to Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, which provide vehicle floorplan financing, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings. Based on current facts and circumstances, we believe we will have adequate cash flow, coupled with available borrowing capacity, to fund our current operations, capital expenditures and acquisitions for 2021. If economic and business conditions deteriorate or if our capital expenditures or acquisition plans for 2021 change, we may need to access the private or public capital markets to obtain additional funding. See Sources and Uses of Liquidity from Investing Activities section for further discussion of expectations regarding future capital expenditures.
Cash on Hand
As of December 31, 2020, our total cash on hand was $87.3 million. The balance of cash on hand excludes $176.4 million of immediately available funds used to pay down our Floorplan Line and FMCC Facility as of December 31, 2020. We use the pay down of our Floorplan Line and FMCC Facility as a channel for the short-term investment of excess cash.
Cash Flows
We utilize various credit facilities to finance the purchase of our new and used vehicle inventory. With respect to all new vehicle floorplan borrowings in the normal course of business, the manufacturers of the vehicles draft our credit facilities directly with no cash flows to or from us. With respect to borrowings for used vehicle financing, we finance up to 85% of the value of our used vehicle inventory in the U.S. and the funds flow directly between us and the lender.
36
We categorize the cash flows associated with borrowings and repayments on these various credit facilities as Cash Flows from Operating Activities or Cash Flows from Financing Activities in our Consolidated Statements of Cash Flows. All borrowings from, and repayments to, lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) are presented within Cash Flows from Operating Activities in the Consolidated Statements of Cash Flows in conformity with U.S. GAAP. All borrowings from, and repayments to, the Revolving Credit Facility (see Note 12. Floorplan Notes Payable in the Notes to Consolidated Financial Statements for additional information) (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K. and Brazil unaffiliated with our manufacturer partners (collectively, “Non-OEM Floorplan Credit Facilities”), are presented within Cash Flows from Financing Activities in conformity with U.S. GAAP. However, the incurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale, resulting in a trade payable. Our decision to utilize our Revolving Credit Facility does not substantially alter the process by which our vehicle inventory is financed, nor does it significantly impact the economics of our vehicle procurement activities. Therefore, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cash provided by/used in operating activities” and “Adjusted net cash provided by/used in financing activities” to further evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP and avoids the potential to mislead the users of our financial statements.
In addition, for dealership acquisitions and dispositions that are negotiated as asset purchases, we do not assume transfer of liabilities for floorplan financing in the execution of the transactions. Therefore, borrowings and repayments of all floorplan financing associated with dealership acquisitions and dispositions are characterized as either Cash Flow from Operating Activities or Cash Flow from Financing Activities in the Consolidated Statements of Cash Flows presented in conformity with U.S. GAAP, depending on the relationship described above. However, the floorplan financing activity is so closely related to the inventory acquisition process that we believe the presentation of all dealership acquisition and disposition related floorplan financing activities should be classified as investing activity to correspond with the associated inventory activity, which more closely reflects the cash flows associated with our acquisition and disposition strategy and eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP. We have made such adjustments in our adjusted operating cash flow presentations.
The following table reconciles cash flow provided by (used in) operating, investing and financing activities on a U.S. GAAP basis to the corresponding adjusted amounts (in millions):
Years Ended December 31,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 805.4 $ 370.9
Change in Floorplan notes payable — credit facility and other, excluding floorplan offset and net acquisitions and dispositions (313.7) (42.8)
Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity 12.0 4.0
Adjusted net cash provided by (used in) operating activities $ 503.7 $ 332.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by (used in) investing activities $ (74.7) $ (291.6)
Change in cash paid for acquisitions, associated with Floorplan notes payable — 25.2
Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable (8.6) (19.5)
Adjusted net cash provided by (used in) investing activities $ (83.3) $ (285.9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by (used in) financing activities $ (668.1) $ (67.0)
Change in Floorplan notes payable, excluding floorplan offset 310.3 33.1
Adjusted net cash provided by (used in) financing activities $ (357.8) $ (33.9)
37
Sources and Uses of Liquidity from Operating Activities
F or the year ended December 31, 2020, we generated $805.4 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $503.7 million in net cash flow from operating activities, primarily consisting of $286.5 million in net income, coupled with non-cash adjustments related to depreciation and amortization of $75.8 million, asset impairments of $37.7 million, stock-based compensation of $32.3 million, operating lease assets of $24.0 million, loss on extinguishment of $13.7 million related to the 5.00% Senior Notes and 5.25% Senior Notes, partially offset by a $5.8 million gain on the disposition of assets. Adjusted net cash flo ws from operating activities also includes a $35.0 million adjusted net change in operating assets and liabilities, including cash inflows of $416.1 million from decreases in inventory levels, $56.9 million from net decreases in prepaid expenses and other assets, and $43.5 million from net decreases in contracts-in-transit and vehicle receivables. These cash inflows were partially offset by cash outflows of $433.9 million from adjusted net floorplan repayments and $45.9 million from decreases in accounts payable and accrued expenses.
For the year ended December 31, 2019, we generated $370.9 million of net cash flow from operating activities. On an adjusted basis for the same period, we generated $332.1 million in net cash flow from operating activities, primarily consisting of $174.0 million in net income, as well as non-cash adjustments related to depreciation and amortization of $71.6 million, operating lease assets of $28.2 million, asset impairments of $22.2 million, stock-based compensation of $18.8 million and deferred income taxes of $16.2 million, partially offset by a $5.9 million gain on the disposition of assets. Adjusted net cash flo ws from operating activities also includes a $1.8 million adjusted net change in operating assets and liabilities, including cash inflows of $123.1 million from increases in accounts payable and accrued expenses, and $12.7 million from net decreases in contracts-in-transit and vehicle receivables. These cash inflows were partially offset by cash outflows of $44.0 million from net increases in prepaid expenses and other assets, $32.5 million from net increases of accounts and notes receivable, $28.8 million from an increase in inventory levels and $28.3 million from the decrease in operating lease liabilities.
Working Capital
At December 31, 2020, we had a $161.5 million surplus of working capital. This represents an increase of $67.4 million from December 31, 2019, when we had a $94.0 million surplus of working capital. Changes in our working capital are typically explained by changes in floorplan notes payable outstanding. Borrowings on our new vehicle floorplan notes payable, subject to agreed-upon pay-off terms, are equal to 100% of the factory invoice of the vehicles. Borrowings on our used vehicle floorplan notes payable, subject to agreed-upon pay-off terms, are limited to 85% of the aggregate book value of our used vehicle inventory, except in the U.K. and Brazil. At times, we have made payments on our floorplan notes payable using excess cash flow from operations and the proceeds of debt and equity offerings. As needed, we re-borrow the amounts later, up to the limits on the floorplan notes payable discussed above, for working capital, acquisitions, capital expenditures or general corporate purposes.
Sources and Uses of Liquidity from Investing Activities
For the year ended December 31, 2020, we used $74.7 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $83.3 million in net cash flow for investing activities, primarily consisting of $103.2 million used for purchases of property and equipment and to construct new and improve existing facilities, and $1.3 million used for acquisition activity, partially offset by cash inflow of $21.2 million related to the disposition of franchises and property and equipment. Of the $103.2 million in property and equipment purchases, $77.4 million was used for non-real estate related capital expenditures, $24.1 million was used for the purchase of real estate associated with existing dealership operations and $1.7 million represented the net decrease in the accrual for capital expenditures from year-end.
For the year ended December 31, 2019, we used $291.6 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $285.9 million in net cash flow for investing activities, primarily consisting of $191.8 million for purchases of property and equipment and to construct new and improve existing facilities and $118.0 million used for acquisition activity, partially offset by cash inflows of $23.9 million related to the dispositions of franchises and property and equipment. Of the $191.8 million in property and equipment purchases, $95.2 million was used for non-real estate related capital expenditures, $92.5 million was used for the purchase of real estate associated with existing dealership operations and $4.1 million represented the net decrease in the accrual for capital expenditures from year-end.
38
Capital Expenditures
Our capital expenditures include costs to extend the useful lives of current facilities, as well as to start or expand operations. In general, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises being granted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities or manufacturer imaging programs. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments. We forecast our capital expenditures for 2021 will be approximately $95.0 million excluding expenditures related to real estate purchases and future acquisitions, which could generally be funded from excess cash.
Acquisitions
We evaluate the expected return on investment in our consideration of potential business purchases. Cash needed to complete our acquisitions generally comes from excess working capital, operating cash flows of our dealerships and borrowings under our floorplan facilities, term loans and our Acquisition Line.
Sources and Uses of Liquidity from Financing Activities
For the year ended December 31, 2020, we used $668.1 million in net cash flow from financing activities. On an adjusted basis for the same period, we used $357.8 million in net cash flow from financing activities, primarily related to cash outflows of $857.9 million related to the extinguishment of our 5.00% and 5.25% Senior Notes, $80.2 million related to the repurchase of our common stock, $65.5 million in net repayments on our Floorplan lines (representing the net cash activity in our floorplan offset account) and $11.0 million in dividend payments. These cash outflows were partially offset by $550.0 million from the issuance of our 4.00% Senior Notes and $137.9 million net borrowings on other debt, which primarily reflected increased mortgage borrowings in the U.S. to partially fund the redemption of the 5.25% Senior Notes.
For the year ended December 31, 2019, we used $67.0 million in net cash flow from financing activities. On an adjusted basis for the same period, we used $33.9 million in net cash flow from financing activities, primarily related to cash outflows of $82.9 million in net repayment on our Floorplan lines (representing the net cash activity in our floorplan offset account), $20.3 million in dividend payments, partially offset by $37.6 million in net borrowings on our Acquisition Line and $34.4 million in net borrowings on other debt.
Credit Facilities, Debt Instruments and Other Financing Arrangements
Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.
The following table summarizes the commitment of our credit facilities as of December 31, 2020 (in millions):
As of December 31, 2020
Total
Commitment Outstanding Available
U.S. Floorplan Line (1)
$ 1,396.0 $ 741.2 $ 654.8
Acquisition Line (2)
349.0 64.8 284.2
Total revolving credit facility 1,745.0 806.0 939.0
FMCC facility (3)
300.0 95.2 204.8
Total U.S. credit facilities (4)
$ 2,045.0 $ 901.2 $ 1,143.8
(1) The available balance at December 31, 2020 includes $160.4 million of immediately available funds. The remaining available balance can be used for inventory financing.
(2) The outstanding balance of $64.8 million is related to outstanding letters of credit of $17.8 million and $47.0 million in borrowings as of December 31, 2020. The borrowings outstanding under the Acquisition Line included no U.S dollar borrowings and £35.0 million of GBP borrowings translated at the spot rate on the day borrowed, solely for the purpose of calculating the outstanding and available borrowings under the Acquisition Line. The available borrowings may be limited from time to time, based on certain debt covenants.
(3) The available balance as of December 31, 2020 includes $16.0 million of immediately available funds. The remaining available balance can be used for Ford new vehicle inventory financing.
(4) The outstanding balance excludes $258.6 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and rental vehicle financing not associated with any of our U.S. credit facilities.
39
We have other credit facilities in the U.S., U.K. and Brazil with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicle inventories. In addition, we have outstanding debt instruments, including our 4.00% Senior Notes, as well as real estate related and other debt instruments. Refer to Note 13. Debt in our Notes to Consolidated Financial Statements for further information.
4.00% Senior Notes Issuance
On August 17, 2020, we issued Senior Notes maturing on August 15, 2028 in aggregate principal amount of $550.0 million. Interest on the notes is payable semi-annually on February 15th and August 15th at a coupon rate of 4.00%. The notes were issued at par and carry an effective interest rate of 4.21% after consideration of associated debt issuance costs. At our option, we may redeem some or all of the Senior Notes at varying redemption prices (expressed as percentages of principal amount of the notes) and redemption periods throughout the term. Refer to Note 13. Debt within our Notes to Consolidated Financial Statements for further information regarding our 4.00% Senior Notes.
5.00% Senior Notes Redemption and Debt Refinancing
On September 2, 2020, we fully redeemed $550.0 million in aggregate principal amount of our outstanding 5.00% Senior Notes due June 2022, at par value. We recognized a loss on extinguishment of $3.3 million which included write offs of an unamortized discount in the amount of $2.6 million and unamortized debt issuance costs in the amount of $0.7 million. Additionally, we paid accrued interest of $6.9 million. The redemption was funded with $550.0 million of our newly issued 4.00% Senior Notes due 2028. See 4.00% Senior Notes Issuance. These refinancings are expected to lower our annual interest expense by approximately $5.5 million.
5.25% Senior Notes Redemption and Debt Refinancing
On April 2, 2020, we fully redeemed $300.0 million in aggregate principal amount of our outstanding 5.25% Senior Notes due June 2023, at a premium of 102.625%. The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $307.9 million. We recognized a loss on extinguishment of $10.4 million, which included write offs of an unamortized discount in the amount of $1.9 million and unamortized debt issuance costs in the amount of $0.6 million. Additionally, we paid $4.6 million of accrued interest up to the date of redemption. The redemption was funded through a combination of Acquisition Line borrowings, mortgage borrowings and excess cash. Additional mortgage debt was funded during the second quarter of 2020 to provide supplemental liquidity. These refinancings are expected to lower our annual interest expense by approximately $10.8 million.
Covenants
Our revolving credit facility, indentures governing our senior notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets, and to merge or consolidate with other entities. Certain of our mortgage agreements contain cross-default provisions that in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.
As of December 31, 2020, we were in compliance with the requirements of the financial covenants under our debt agreements. We are required to maintain the ratios detailed in the following table:
As of December 31, 2020
Required Actual
Total adjusted leverage ratio < 5.50 2.29
Fixed charge coverage ratio > 1.20 4.11
Based on our position as of December 31, 2020 and our outlook as discussed within “Management's Discussion and Analysis of Financial Condition and Results of Operations,” we have sufficient liquidity currently and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with our debt covenants.
Refer to Note 12. Floorplan Notes Payable and Note 13. Debt in our Notes to Consolidated Financial Statements for further discussion of our debt instruments, credit facilities and other financing arrangements existing as of as of December 31, 2020.
Stock Repurchases and Dividends
Our Board of Directors from time to time, authorizes the repurchase of shares of our common stock up to a certain monetary limit. On October 5, 2020, our Board of Directors approved a $200.0 million share repurchase authorization. During 2020, we repurchased 863,572 shares of our common stock for a total of $80.2 million. As of December 31, 2020, we had $168.7 million available under our current stock repurchase authorization.
40
During 2020, our Board of Directors approved a first quarter and fourth quarter cash dividend on all outstanding shares of our common stock totaling $0.60 per share during 2020. For the year ended December 31, 2020, we paid dividends of $10.6 million to common stock shareholders and $0.4 million to unvested RSA holders.
Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, current economic environment and other factors considered relevant.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2020 (in millions):
Payments Due by Period
Total 1 Year 2-3 Years 4-5 Years Thereafter
Floorplan notes payable (1)
$ 1,095.0 $ 1,095.0 $ — $ — $ —
Debt obligations (2)
1,362.4 57.3 165.0 238.0 902.2
Estimated interest payments on fixed-rate long-term debt obligations 224.4 31.1 59.6 56.0 77.8
Estimated interest payments on variable-rate long-term debt obligations (3)
54.4 11.6 19.7 13.9 9.2
Operating lease payments (4)
330.3 33.4 64.3 50.6 182.0
Deferred compensation plan (5)
78.4 5.3 8.4 6.3 58.4
Purchase commitments (6)
62.2 22.1 28.9 11.2 —
Total $ 3,207.2 $ 1,255.9 $ 345.9 $ 376.0 $ 1,229.5
(1) Refer to Note 12. Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional details.
(2) Refer to Note 13. Debt within our Notes to Consolidated Financial Statements for additional details. Balances exclude unamortized debt issuance costs.
(3) Estimated future interest payments on our variable-rate long-term debt were projected using variable interest rates in effect as of December 31, 2020.
(4) Includes future minimum undiscounted lease payments under operating lease obligations. Refer to Note 10. Leases within our Notes to Consolidated Financial Statements for additional details.
(5) Refer to Note 15. Employee Savings Plans within our Notes to Consolidated Financial Statements for additional details.
(6) Represents fixed purchase commitments, mainly related to information technology.
41