What changed in this filing

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Item 1A. Risk Factors

2021-11-04 compared with 2021-08-05 · 52 added, 6 removed, 26 unchanged (69% of the section changed)

Except as set forth below, during the six months ended June 30, 2021, there were no changes to the Risk Factors disclosed in Item 1A.

Except as set forth below, during the nine months ended September 30, 2021, there were no changes to the Risk Factors disclosed in Item 1A.

Risk Factors of our 2020 Form 10-K.

11 unchanged sentences

The OEMs are also impacted by the COVID-19 pandemic’s impact on the economy, factory production, parts shortages, including semiconductor chips, and other disruptions.

These and other risks could materially adversely affect the financial condition of any manufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a material adverse effect on our business, results of operations and financial condition.

During the six months ended June 30, 2021 and through the date of this report, vehicle manufacturers are producing and delivering fewer vehicles to our dealerships due to a global semiconductor chip shortage.

These and other risks could have a material adverse effect on the financial condition of any manufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a material adverse effect on our business, results of operations and financial condition.

During the nine months ended September 30, 2021 and through the date of this report, vehicle manufacturers were producing and delivering fewer vehicles to our dealerships due to a global semiconductor chip shortage.

The chip shortage is impacting the automobile industry’s new vehicle production which has decreased our new vehicle inventory.

Our new vehicle days’ supply of inventory was approximately 20 days for the quarter ended June 30, 2021, as compared to 52 days for the quarter ended December 31, 2020 and 61 days for the quarter ended June 30, 2020.

Our new vehicle days’ supply of inventory was approximately 14 days for the quarter ended September 30, 2021, as compared to 20 days for the quarter ended June 30, 2021, 52 days for the quarter ended December 31, 2020, and 41 days for the quarter ended September 30, 2020.

If new vehicle days’ supply of inventory continues to decline, it will impact our ability to satisfy customer demand.

It is impossible to predict with certainty the duration of the semiconductor chip shortage, but we expect our inventory levels to be low through the remainder of 2021.

It is impossible to predict with certainty the duration of the semiconductor chip shortage, but we expect our inventory levels to be low through the remainder of 2021 and into the first half of 2022.

If our manufacturers’ production remains at current reduced levels or continues to decline, diminishing our ability to meet the immediate needs of our customers, the semiconductor shortage could have a material and adverse impact on our financial and operating results.

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Certain of our vehicle manufacturers serving the U.K.

market recently announced plans to explore an agency model of selling new vehicles.

market recently announced plans to explore an agency model for selling new vehicles.

Under an agency model, our franchised dealerships would receive a fee for facilitating the sale of a new vehicle to a customer but would no longer record the vehicle in inventory, as has been historical practice.

3 unchanged sentences

and, if so, the impact to our results of operations.

We cannot assure you that manufacturers will approve our operation of dealership locations acquired in connection with the Prime Acquisition in a timely manner, if at all, which may have a material adverse effect on our acquisition strategy.

In connection with the Prime Acquisition, we must obtain manufacturer approval in order to operate the associated dealerships.

However, manufacturer approval is not a condition to the closing of the Prime Acquisition, and we are obligated to close on the Prime Acquisition even if we are unable to obtain the necessary manufacturer approvals with respect to some or all of the associated dealerships.

Receipt of manufacturer approval may be subject to established limitations or guidelines, including the:

• number of such manufacturers’ dealership locations that may be acquired by a single owner;

• number of dealership locations that may be acquired in any market or region;

• percentage of market share that may be controlled by one automotive retailer group;

• ownership of dealership locations in contiguous markets;

• performance requirements for existing dealership locations;

• frequency of acquisitions and other expansions.

In addition, some manufacturers require that no other manufacturers’ brands be sold from the same dealership location, and many manufacturers have site control agreements in place that limit our ability to change the use of the facility without their approval.

Therefore, there are no assurances we will get approval and be able to operate the dealerships associated with the Prime Acquisition.

If we are unable to obtain the necessary manufacturer consents, enter into new franchise agreements, or maintain or renew the existing franchise agreements on favorable terms in connection with the Prime Acquisition, our operations may be significantly impaired, and we may be required to sell such non-approved dealerships and related assets at our sole expense and potentially at a loss.

The Prime Acquisition, if consummated, will create numerous risks and uncertainties which could adversely affect our business, financial condition and results of operations.

After consummation of the Prime Acquisition, we will have a significantly larger business and more assets and employees than we did prior to the transaction.

The integration process will require us to expend significant capital and significantly expand the scope of our operations and financial and other systems.

Our management will be required to devote a substantial amount of time and attention to the process of integrating the operations of Prime into our business.

There is a great degree of difficulty and management involvement inherent in that process.

These difficulties include:

• integrating the operations of Prime while carrying on the ongoing operations of our business;

• managing a significantly larger company than before consummation of the Prime Acquisition;

• the possibility of faulty or inaccurate assumptions underlying our expectations regarding the integration process, including, among other things, unanticipated delays, costs or inefficiencies;

• the effects of unanticipated liabilities;

• operating a more diversified business;

• integrating two separate business cultures, which may prove to be incompatible;

• attracting, retaining and motivating the necessary personnel associated with the business of Prime following the Prime Acquisition;

• implementing uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters;

• integrating information, purchasing, accounting, finance, sales, billing, payroll and regulatory compliance systems.

As a private company, Prime was not required to obtain an audit of its internal control over financial reporting or otherwise have such internal control assessed, except to the extent required in connection with audits pursuant to GAAP;

however, following the consummation of the Prime Acquisition, the financial systems of Prime will be integrated into our financial system and subject to the internal control audit required with respect to the Company as a public company.

If any of these factors limits our ability to integrate Prime into our operations successfully or on a timely basis, our expectations regarding future results of operations, including certain run-rate synergies expected to result from the Prime Acquisition, might not be met.

As a result, we may not be able to realize the expected benefits that we seek to achieve from the Prime Acquisition.

In addition, we may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of our business, including efforts to further expand our product portfolio.

If the Prime Acquisition is consummated, our post-closing recourse for liabilities related to Prime is limited.

As part of the Prime Acquisition, we will assume certain liabilities of Prime.

There may be liabilities that we failed or were unable to discover in the course of performing due diligence investigations into Prime.

In addition, as Prime is integrated into our business, we may learn additional information about Prime, such as unknown or contingent liabilities or other issues relating to the operations of Prime.

Any such liabilities or issues, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

Under the Purchase Agreement, the sellers will be liable for certain breaches of representations, warranties and covenants but our recovery may be contingent upon the aggregate damages arising out of any such breaches exceeding specified dollar thresholds and is subject to other time-based and monetary-based limitations.

Accordingly, we may not be able to enforce certain claims against the sellers with respect to liabilities of Prime.

The purchase price for the Prime Acquisition could increase significantly from our estimates, which may adversely impact our liquidity.

The estimated Purchase Price for the Prime Acquisition is based, in part, on the value of the vehicle inventory at the Prime dealerships as of July 31, 2021.

The actual purchase price will be based, in part, on the value of vehicle inventory at the Prime dealerships on the closing date of the Prime Acquisition.

The value of vehicle inventories at automobile dealerships fluctuates significantly due to changes in economic conditions, the availability of consumer financing and the seasonality of demand for vehicles, among other factors.

If the value of the vehicle inventory at the Prime dealerships is greater than we estimated at July 31, 2021, we will be required to pay additional purchase price consideration, which may require us to draw on existing sources of liquidity, including the Revolving Credit Facility and cash on hand.

To the extent we are required to pay a higher purchase price for the Prime Acquisition, we may have less liquidity to fund our other operations and growth strategies, which may adversely impact our financial condition, results of operations or cash flows.

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-Q

Item 1A. Risk Factors