What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 181 added, 428 removed, 382 unchanged (61% of the section changed)

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Risk Factors, and our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.

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 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.

Refer to Item 1.

Business — General for an overview of our operations.

Additionally, refer to Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2020 compared to fiscal year 2019.

Our operating results reflect the combined performance of each of our interrelated business activities.

Historically, various facets of our business have 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, the COVID-19 pandemic, 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.

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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.

Basis of Presentation, Consolidation and Summary of Accounting Policies within our Notes to Consolidated Financial Statements.

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.

The preparation of our financial statements in conformity with GAAP requires management to make certain estimates and assumptions.

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.

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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 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.

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.

reporting units in the fourth quarter of 2018, the fair value of the reporting units each exceeded their respective carrying values by over 90%.

We are organized into two geographic regions, the U.S.

region and the U.K.

each region represents a reporting unit for the purpose of assessing goodwill for impairment.

In addition to goodwill, we have identifiable intangibles in the form of rights under our franchise agreements with manufacturers, which are recorded at an individual dealership level.

We evaluate goodwill and intangible franchise rights for impairment annually as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred.

Based on the qualitative test performed for the U.S.

reporting units in the fourth quarter of 2021, 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.

No goodwill impairments were recorded on any reporting units during the years ended December 31, 2021 and 2020.

The quantitative goodwill impairment test is dependent on management estimates and assumptions used to determine the fair value of our reporting units.

Refer to Note 12.

Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of goodwill, including management’s use of estimates and assumptions.

During the year ended December 31, 2021, no impairment was recorded for intangible franchise rights.

During the year ended December 31, 2020, we recorded $20.7 million 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.

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 12.

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.

Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of our intangibles, including fair value assumptions.

Results of Operations

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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.

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.

The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable GAAP measures.

Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with 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.

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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.

The following tables summarize our operating results on a reported basis and on a same store basis for the year ended December 31, 2021, as compared to 2020.

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Parts and service sales 54.6 % 54.3 % 0.4 %

F&I, net 100.0 % 100.0 % — %

Total gross margin 18.1 % 16.4 % 1.7 %

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Parts and service sales 54.6 % 54.3 % 0.4 %

F&I, net 100.0 % 100.0 % — %

Total gross margin 18.1 % 16.3 % 1.8 %

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Parts and service sales 53.8 % 53.9 % (0.1) %

F&I, net 100.0 % 100.0 % — %

Total gross margin 19.3 % 17.5 % 1.8 %

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Parts and service sales 53.7 % 53.8 % (0.1) %

F&I, net 100.0 % 100.0 % — %

Total gross margin 19.2 % 17.5 % 1.7 %

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SG&A as % gross profit 59.1 % 63.7 % (4.7) %

Year Ended December 31, 2020 compared to 2019

Region — Year Ended December 31, 2021 compared to 2020

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.

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.

operating results is on an as reported and same store basis.

The difference between as reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.

During 2021, our U.S.

dealership operations continued to be impacted by reduced demand caused by the COVID-19 pandemic and the restrictions put in place by local governments to contain the virus.

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.

during the year ended December 31, 2021, increased $2,342.9 million, or 27.6%, as compared to the same period in 2020.

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.

during the year ended December 31, 2021, increased $2,107.5 million, or 25.1%, as compared to the same period in 2020.

We experienced increases across all revenues streams, year-over-year.

New and used vehicle retail same store revenues benefited from a 77.2% increase in sales from our online digital platform, AcceleRide®, during the year ended December 31, 2021, as compared to the same period in 2020.

New vehicle retail same store sales revenues outperformed the prior year as a result of increased demand driving higher prices, coupled with a moderate increase in new vehicle retail units sold.

Supply chain issues, including an ongoing semiconductor shortage and other logistics challenges, persisted throughout 2021 for OEMs, leading to sustained lower vehicle production and deliveries of fewer vehicles to dealerships than customer purchases.

On December 31, 2021, our U.S.

new vehicle inventory supply was 9 days which was 39 days lower than December 31, 2020, days’ supply of 48.

Used vehicle retail same store units and sales revenues, outperformed the prior year as a result of increased demand, driving higher prices.

Used vehicle inventory levels remained healthy in 2021 through sourcing more direct purchases from vehicle owners.

While used vehicle wholesale same store units were down modestly, used vehicle wholesale same store sales revenues outperformed the prior year as a result of increased used vehicle pricing driven by higher demand.

Parts and service same store revenues outperformed the prior year as a result of an increase in our customer pay revenues, wholesale revenues and collision revenues;

partially offset by a decline in our warranty revenues.

We expect warranty revenues to increase as and when new vehicle production and deliveries from OEMs increase.

F&I same store revenues outperformed the prior year as a result of increased same store total retail unit sales, coupled with higher income per contract on finance and other insurance product offerings and higher penetration rates.

These increases were partially offset by an increase in our overall chargeback experience.

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.

during the year ended December 31, 2021, increased $603.5 million, or 40.6%, as compared to the same period in 2020.

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.

during the year ended December 31, 2021, increased $552.3 million, or 37.6%, as compared to the same period in 2020, driven by increases across all lines of service.

New vehicle retail same store gross profit increased 90.1% driven by a 73.1% increase in new vehicle retail same store gross profit per unit sold, coupled with a 9.8% increase in new vehicle retail same store unit sales.

The increase in new vehicle retail same store gross profit per unit sold reflects higher demand and inventory supply constraints as a result of the global semiconductor chip shortage.

Used vehicle retail same store gross profit increased 69.0%, driven by a 47.1% increase in used vehicle retail same store gross profit per unit sold, coupled with a 14.8% increase in used vehicle retail same store unit sales.

The increase in used vehicle retail same store gross profit per unit sold reflects a combination of higher market prices and strong demand.

Used vehicle wholesale same store gross profit increased as industry supply shortages drove up auction prices as reflected in the Manheim Index.

Parts and service same store gross profit increased 14.7%, primarily driven by the increase in our customer-pay business reflecting increased business activity.

F&I same store gross profit increased 24.1%, driven by increases in revenue discussed above.

Total same store gross margin increased 170 basis points, driven by higher new and used vehicle margins, reflecting vehicle 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.

during the year ended December 31, 2021, increased $287.9 million, or 30.4%, as compared to the same period in 2020.

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.

during the year ended December 31, 2021, increased $257.7 million, or 27.5%, as compared to the same period in 2020, primarily driven by increased variable commission payments as a result of improvements in sales volume and margins and an increase in other variable expenses associated with the rise in business activity.

Total same store SG&A as a percent of gross profit improved from 63.7% for the year ended December 31, 2020, to 59.1% for the same period of 2021, driven by productivity gains and higher vehicle margins.

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.

for the year ended December 31, 2021, included $2.8 million in disaster pay and insurance deductible expense associated with the February winter storm in Texas and Hurricane Ida, coupled with $12.9 million in acquisition costs, partially offset by $5.3 million in gains related to favorable legal settlements and $2.1 million in gains from dealership and real estate transactions.

Total same store SG&A expense in the U.S.

for the year ended December 31, 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.

Reported Operating Data — U.K.

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Used vehicle retail sales 72.5 42.1 30.4 72.1 % 4.5 61.4 %

Used vehicle wholesale sales 2.5 (2.7) 5.2 190.8 % — 191.2 %

Used vehicle wholesale sales 7.6 2.5 5.1 NM 0.6 NM

Total used 80.1 44.6 35.5 79.6 % 5.1 68.2 %

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Parts and service sales 59.7 % 56.4 % 3.3 %

F&I, net 100.0 % 100.0 % — %

Total gross margin 13.3 % 11.8 % 1.5 %

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Used vehicle retail sales $ 1,988 $ 1,448 $ 540 37.3 % $ 124 28.8 %

Used vehicle wholesale sales $ 157 $ (131) $ 288 220.1 % $ (1) 220.6 %

Used vehicle wholesale sales $ 516 $ 157 $ 359 NM $ 38 NM

Total used $ 1,565 $ 997 $ 569 57.1 % $ 99 47.1 %

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SG&A as % gross profit 69.0 % 77.1 % (8.1) %

NM — Not Meaningful

Same Store Operating Data — U.K.

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Used vehicle retail sales 68.0 41.7 26.2 62.8 % 4.3 52.6 %

Used vehicle wholesale sales 2.4 (2.5) 4.8 196.2 % — 196.6 %

Used vehicle wholesale sales 7.4 2.4 5.0 NM 0.6 NM

Total used 75.4 44.2 31.2 70.6 % 4.8 59.7 %

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Parts and service sales 60.0 % 56.9 % 3.1 %

F&I, net 100.0 % 100.0 % — %

Total gross margin 13.2 % 11.7 % 1.6 %

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Used vehicle retail sales $ 2,023 $ 1,454 $ 569 39.1 % $ 127 30.4 %

Used vehicle wholesale sales $ 159 $ (121) $ 280 231.0 % $ (1) 231.6 %

Used vehicle wholesale sales $ 539 $ 158 $ 381 NM $ 40 NM

Total used $ 1,590 $ 999 $ 591 59.2 % $ 102 49.0 %

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SG&A as % gross profit 67.5 % 77.4 % (9.8) %

Year Ended December 31, 2020 compared to 2019

NM — Not Meaningful

Region — Year Ended December 31, 2021 compared to 2020

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.

dealership operations have been impacted by the restrictions put in place by the national government in efforts to contain the COVID-19 pandemic.

operating results is on an as reported and same store basis.

The difference between as reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.

At the end of 2020, the U.K.

experienced a surge in COVID-19 cases, which led to a government-mandated closure of all non-essential businesses beginning January 4, 2021.

In mid-April 2021, the COVID-19 restrictions affecting our U.K.

dealership showrooms were lifted and our dealerships were able to reopen.

In the prior year, beginning March 21, 2020, the government mandated closure of all U.K.

businesses, which remained in effect through May 18, 2020, for service and June 1, 2020, for our showrooms.

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.

during the year ended December 31, 2021, increased $538.8 million, or 25.7%, as compared to the same period in 2020.

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.

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.

during the year ended December 31, 2021, increased $411.4 million, or 19.8%, as compared to the same period in 2020.

On a constant currency basis, total same store revenues increased 12.0%, driven by increases in used vehicle retail, F&I and parts and service, partially offset by a decline in new vehicle retail and used vehicle wholesale same store revenues.

New vehicle retail same store revenues, on a constant currency basis, underperformed compared to the prior year due to a decrease in new vehicle retail same store unit sales, which was partially offset by an increase in new vehicle retail same store average sales price per unit sold.

The decrease in new vehicle retail same store units sales primarily reflects supply constraints as OEMs struggled to produce new vehicles due to parts shortages, including the global semiconductor chip shortage.

At December 31, 2021, our U.K.

new vehicle inventory supply was 33 days, which was 69 days lower than December 31, 2020 days’ supply of 102.

The increase in the average new vehicle retail same store sales price was driven by both supply shortages and high vehicle demand, which was pent-up over the past years due to Brexit and the COVID-19 pandemic.

Used vehicle retail same store revenues, on a constant currency basis, outperformed compared to the prior year due to increased used vehicle retail same store unit sales, coupled with higher used vehicle retail same store average sales prices, benefited by strong consumer demand and the new vehicle inventory shortages.

Parts and service same store revenues, on a constant currency basis, outperformed the prior year, driven by increases in our customer-pay and wholesale businesses reflecting increased business activity with the reduction of COVID-19 restrictions in 2021.

F&I same store revenues, on a constant currency basis, outperformed the prior year, driven by higher income per contract and improved penetration rates on all of our product offerings, coupled with an increase in used vehicle retail same store unit sales.

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.

during the year ended December 31, 2021, increased $103.1 million, or 41.5%, as compared to the same period in 2020.

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.

during the year ended December 31, 2021, increased $86.9 million, or 35.9%, as compared to the same period in 2020.

On a constant currency basis, total same store gross profit increased 27.4% driven by improvements across all service lines.

New vehicle retail same store gross profit on a constant currency basis increased 46.4%, driven by a 64.1% increase in new vehicle retail same store average gross profit per unit sold, partially offset by a 10.8% decline in new vehicle retail same store unit sales.

The increase in new vehicle retail same store gross profit per unit sold reflects both increased demand and supply constraints related to the COVID-19 pandemic and the global semiconductor chip shortage.

Used vehicle retail same store gross profit, on a constant currency basis, improved 52.6% on a 30.4% increase in used vehicle retail same store average gross profit per unit sold, coupled with a 17.0% increase in used vehicle retail same store unit sales.

The increase in used vehicle retail same store average gross profit per unit sold reflects higher demand and new vehicle supply shortages.

Parts and service same store gross profit, on a constant currency basis, increased 12.8%, driven by the increases in our businesses discussed above.

F&I same store gross profit, on a constant currency basis, improved 10.0% as previously discussed.

Total same store gross margin in the U.K.

grew 160 basis points, driven by higher new and used vehicle margins due to increased demand and supply constraints and increased parts and service margins, reflecting improved customer-pay margins and higher internal work as a result of increased used vehicle sales volumes.

SG&A 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.

during the year ended December 31, 2021, increased $51.0 million, or 26.7%, as compared to the same period in 2020.

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.

during the year ended December 31, 2021, increased $34.9 million, or 18.6%, as compared to the same period in 2020.

On a constant currency basis, total same store SG&A expenses increased 11.2%, driven by increased business activity as COVID-19 restrictions were lifted early in the second quarter of 2021.

As a percentage of gross profit, total same store SG&A expenses improved from 77.4% for the year ended 2020 to 67.5% for the same period of 2021, driven by productivity gains and higher vehicle margins.

Total same store SG&A expenses in 2021 included $0.6 million in acquisition costs.

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.

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

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 %

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 %

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 %

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

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 %

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 %

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 %

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.

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.

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

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.

Consolidated Selected Comparisons — Year Ended December 31, 2021 compared to 2020

The following table (in millions) and discussion of our results of operations is on a consolidated basis, unless otherwise noted.

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Other interest expense, net $ 55.8 $ 61.9 $ (6.1) (9.8) %

(Gain) loss on extinguishment of debt $ 13.7 $ — $ 13.7 — %

(Benefit) provision for income taxes $ 83.8 $ 53.3 $ 30.6 57.4 %

Loss on extinguishment of debt $ — $ 13.7 $ (13.7) (100.0) %

Provision for income taxes $ 175.5 $ 84.2 $ 91.3 108.5 %

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.

Total depreciation and amortization expense for the year ended December 31, 2021, was higher compared to the same period in 2020, primarily attributable to acquired property and equipment in our U.S.

region, 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

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.

No goodwill impairments were recorded during the years ended December 31, 2021, and 2020.

No impairments of intangible franchise rights were recorded during year ended December 31, 2021.

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.

region and $9.7 million in the U.S.

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, 2021, we recorded property and equipment impairment charges of $1.7 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, 2020, we recorded property and equipment impairment charges of $4.2 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.

region and ROU asset impairment charges of $1.8 million in the U.K.

Intangible Franchise Rights and Goodwill, Note 10.

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Total floorplan interest expense during the year ended December 31, 2021, decreased $11.6 million, or 29.5%, as compared to the same period in 2020.

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.

Our floorplan interest expense fluctuates with changes in our borrowings outstanding and interest rates, which are based on LIBOR, SOFR, U.S.

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.

The year over year decrease was primarily due to lower floorplan borrowings as a result of lower inventory levels and lower weighted average interest rates mainly due to a decline in LIBOR, partially offset by higher realized expense on our interest rate swaps, as well as a loss on interest rate swaps of $3.4 million resulting from the impact of the de-designation and termination of certain interest rate swaps due to the decline in inventory levels.

Refer to Note 7.

Financial Instruments and Fair Value Measurements within our Notes to Consolidated Financial Statements for additional discussion of interest rate swaps.

Other Interest Expense, Net

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Other interest expense, net consists of interest charges primarily on our 4.00% 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.

The year over year decrease was primarily attributable to lower interest rates achieved through debt refinancing activities in the prior year.

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.

We experienced no loss on the extinguishment of debt during the year ended December 31, 2021.

During the year ended December 31, 2020, we recognized a $13.7 million loss on the extinguishment of our 5.00% Senior Notes due June 2022 (the “5.00% Senior Notes”) and 5.25% Senior Notes due June 2023 (the “5.25% Senior Notes”).

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.

Provision for income taxes from continuing operations during the year ended December 31, 2021, increased $91.3 million, or 108.5%, as compared to the same period in 2020.

For the year ended December 31, 2021 and 2020 , we recorded a tax provision from continuing operations of $175.5 million and $84.2 million, respectively.

The year-over-year increase was primarily due to higher pre-tax book income.

The 2021 effective tax rate of 21.9% was lower than the 2020 effective tax rate of 22.1%, primarily as a result of decreased valuation allowances with respect to NOLs in certain U.S.

states and higher excess tax deductions for stock compensation.

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.

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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 13.

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.

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.

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.

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.

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.

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.

Floorplan Notes Payable in our Notes to Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings.

We anticipate we will generate sufficient cash flows from operations, coupled with cash on hand and available borrowing capacity under our credit facilities, to fund our working capital requirements, service our debt, and meet any other recurring operating expenditures.

Available Liquidity Resources

We had the following sources of liquidity available (in millions):

December 31, 2021

Cash and cash equivalents $ 14.9

Floorplan offset accounts 271.9

Available capacity under Acquisition Line 7.9

Total liquidity $ 294.8

We arrange our new and used vehicle inventory floorplan financing through lenders affiliated with our vehicle manufacturers and our Revolving Credit Facility (as defined in Note 13.

Floorplan Notes Payable in the Notes to Consolidated Financial Statements).

In accordance with GAAP, we report floorplan financed with lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) within Cash Flows from Operating Activities in the Consolidated Statements of Cash Flows.

We report floorplan financed with the Revolving Credit Facility (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K.

unaffiliated with our manufacturer partners, within Cash Flows from Financing Activities in the Consolidated Statements of Cash Flows.

Refer to Note 13.

Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional discussion of our Revolving Credit Facility.

However, 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.

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):

We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with GAAP.

In addition, floorplan financing associated with dealership acquisitions and dispositions are classified as investing activity on an adjusted basis to eliminate excess volatility in our operating cash flows prepared in accordance with GAAP.

The following table reconciles cash flows on a GAAP basis to the corresponding adjusted amounts (in millions):

Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash provided by (used in) operating activities $ 805.4 $ 370.9

Net cash provided by operating activities:

$ 1,259.6 $ 805.4

Change in Floorplan notes payable — credit facility and other, excluding floorplan offset and net acquisitions and dispositions (491.5) (313.7)

Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity (12.7) 12.0

Adjusted net cash provided by (used in) operating activities $ 503.7 $ 332.1

Adjusted net cash provided by operating activities $ 755.5 $ 503.7

CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash provided by (used in) investing activities $ (74.7) $ (291.6)

Net cash used in investing activities:

$ (1,251.7) $ (74.7)

Change in cash paid for acquisitions, associated with Floorplan notes payable 137.9 —

Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable (7.0) (8.6)

Adjusted net cash provided by (used in) investing activities $ (83.3) $ (285.9)

Adjusted net cash used in investing activities $ (1,120.8) $ (83.3)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net cash provided by (used in) financing activities $ (668.1) $ (67.0)

Net cash used in financing activities:

$ (74.0) $ (668.1)

Change in Floorplan notes payable, excluding floorplan offset 373.2 310.3

Adjusted net cash provided by (used in) financing activities $ 299.2 $ (357.8)

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.

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.

Sources and Uses of Liquidity from Operating Activities — Year Ended December 31, 2021 compared to 2020

For the year ended December 31, 2021, net cash provided by operating activities increased by $454.2 million, as compared to the same period in 2020.

On an adjusted basis for the same period, adjusted net cash provided by operating activities increased by $251.8 million.

The increase on an adjusted basis was primarily driven by (i) a $265.6 million increase in total net income;

(ii) a $113.7 million decrease in inventory levels;

(iii) a $94.0 million increase in accounts payable and accrued expenses;

(iii) partially offset by a $161.0 million increase in adjusted net floorplan repayments and a $59.0 million increase in prepaid expenses and other assets.

Sources and Uses of Liquidity from Investing Activities — Year Ended December 31, 2021 compared to 2020

For the year ended December 31, 2021, net cash used in investing activities increased by $1.2 billion, as compared to the same period in 2020.

On an adjusted basis for the same period, adjusted net cash used in investing activities increased by $1.0 billion, primarily due to an increase in acquisition activities and purchases of property and equipment in 2021.

Refer to Note 3.

Acquisitions in the Notes to Consolidated Financial Statements for more information of acquisitions.

Capital Expenditures

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We forecast our capital expenditures for 2022 will be approximately $134.0 million, excluding expenditures related to real estate purchases and future acquisitions, which could generally be funded from excess cash.

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.

Sources and Uses of Liquidity from Financing Activities — Year Ended December 31, 2021 compared to 2020

For the year ended December 31, 2021, net cash used in financing activities decreased by $594.2 million, as compared to the same period in 2020.

On an adjusted basis for the same period, adjusted net cash provided by financing activities increased by $657.0 million.

The increase on an adjusted basis is primarily driven by net borrowings of debt in 2021 of $629.8 million compared to net repayments of debt in 2020 of $195.4 million;

partially offset by an increase in share repurchases of $130.4 million in 2021, compared to 2020, and $30.0 million higher net repayment of our Floorplan lines (representing the net cash activity in our floorplan offset account).

Credit Facilities, Debt Instruments and Other Financing Arrangements

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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.

(2) The outstanding balance of $341.1 million is related to outstanding letters of credit of $12.6 million and $328.5 million in borrowings.

The borrowings outstanding under the Acquisition Line included $282.0 million of USD 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 in accordance with the Revolving Credit Facility.

The available borrowings may be limited from time to time, based on certain debt covenants.

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credit facilities.

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.

We have other credit facilities in the U.S.

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.

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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.

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.

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Fixed charge coverage ratio > 1.20 6.10

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.

Based on our position as of December 31, 2021, and our outlook as discussed within Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations to this Form 10-K, we believe we have sufficient liquidity and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with our debt covenants.

Refer to Note 13.

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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.

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.

As of January 1, 2021, we had $168.7 million available under our share repurchase program.

From January 1, 2021, to November 17, 2021, we utilized $84.8 million of the then-available authorized share repurchase program.

On November 17, 2021, our Board of Directors increased the authorization to repurchase shares of our common stock by $116.1 million to $200.0 million.

From November 18, 2021, to December 31, 2021, we utilized $125.7 million of the available share repurchase program, leaving $74.3 million available under our current authorization to repurchase shares of our common stock.

During 2021, 1,103,417 shares were repurchased at an average price of $190.82 per share, for a total of $210.6 million.

During 2021, our Board of Directors approved quarterly cash dividends per share on all shares of our common stock totaling $ 1.33 per share, which resulted in $23.2 million paid to common shareholders and $0.7 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.

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