FORM 10-Q | |
LITHIA MOTORS, INC. | |||
(Exact name of registrant as specified in its charter) | |||
Oregon | 93-0572810 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
150 N. Bartlett Street, Medford, Oregon | 97501 | ||
(Address of principal executive offices) | (Zip Code) | ||
Registrant's telephone number, including area code: 541-776-6401 |
Class A common stock without par value | 23,945,392 | |
Class B common stock without par value | 1,000,000 | |
(Class) | Outstanding at April 27, 2018 |
PART I - FINANCIAL INFORMATION | Page | |
Item 1. | ||
Consolidated Balance Sheets (Unaudited) - March 31, 2018 and December 31, 2017 | ||
Consolidated Statements of Operations (Unaudited) – Three Months Ended March 31, 2018 and 2017 | ||
Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2018 and 2017 | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | ||
Item 2. | ||
Item 6. | ||
March 31, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 68,985 | $ | 57,253 | ||||
Accounts receivable, net of allowance for doubtful accounts of $6,260 and $7,386 | 479,638 | 521,938 | ||||||
Inventories, net | 2,365,924 | 2,132,744 | ||||||
Other current assets | 56,893 | 70,847 | ||||||
Total Current Assets | 2,971,440 | 2,782,782 | ||||||
Property and equipment, net of accumulated depreciation of $209,300 and $197,802 | 1,220,882 | 1,185,169 | ||||||
Goodwill | 256,283 | 256,320 | ||||||
Franchise value | 186,977 | 186,977 | ||||||
Other non-current assets | 451,401 | 271,818 | ||||||
Total Assets | $ | 5,086,983 | $ | 4,683,066 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities: | ||||||||
Floor plan notes payable | $ | 145,128 | $ | 116,774 | ||||
Floor plan notes payable: non-trade | 1,832,824 | 1,802,252 | ||||||
Current maturities of long-term debt | 168,876 | 18,876 | ||||||
Trade payables | 116,928 | 111,362 | ||||||
Accrued liabilities | 240,169 | 251,717 | ||||||
Total Current Liabilities | 2,503,925 | 2,300,981 | ||||||
Long-term debt, less current maturities | 1,181,230 | 1,028,476 | ||||||
Deferred revenue | 107,355 | 103,111 | ||||||
Deferred income taxes | 58,965 | 56,277 | ||||||
Other long-term liabilities | 108,403 | 111,003 | ||||||
Total Liabilities | 3,959,878 | 3,599,848 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock - no par value; authorized 15,000 shares; none outstanding | — | — | ||||||
Class A common stock - no par value; authorized 100,000 shares; issued and outstanding 23,985 and 23,968 | 143,017 | 149,123 | ||||||
Class B common stock - no par value; authorized 25,000 shares; issued and outstanding 1,000 and 1,000 | 124 | 124 | ||||||
Additional paid-in capital | 14,558 | 11,309 | ||||||
Retained earnings | 969,406 | 922,662 | ||||||
Total Stockholders' Equity | 1,127,105 | 1,083,218 | ||||||
Total Liabilities and Stockholders' Equity | $ | 5,086,983 | $ | 4,683,066 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenues: | ||||||||
New vehicle | $ | 1,454,725 | $ | 1,210,304 | ||||
Used vehicle retail | 715,574 | 602,223 | ||||||
Used vehicle wholesale | 75,955 | 71,503 | ||||||
Finance and insurance | 106,505 | 86,777 | ||||||
Service, body and parts | 285,697 | 232,574 | ||||||
Fleet and other | 21,223 | 32,720 | ||||||
Total revenues | 2,659,679 | 2,236,101 | ||||||
Cost of sales: | ||||||||
New vehicle | 1,367,778 | 1,140,186 | ||||||
Used vehicle retail | 641,963 | 533,440 | ||||||
Used vehicle wholesale | 75,029 | 69,986 | ||||||
Service, body and parts | 147,289 | 119,380 | ||||||
Fleet and other | 19,509 | 31,457 | ||||||
Total cost of sales | 2,251,568 | 1,894,449 | ||||||
Gross profit | 408,111 | 341,652 | ||||||
Selling, general and administrative | 297,494 | 242,772 | ||||||
Depreciation and amortization | 16,854 | 12,739 | ||||||
Operating income | 93,763 | 86,141 | ||||||
Floor plan interest expense | (13,534 | ) | (8,052 | ) | ||||
Other interest expense, net | (11,806 | ) | (6,671 | ) | ||||
Other income, net | 1,374 | 9,845 | ||||||
Income before income taxes | 69,797 | 81,263 | ||||||
Income tax provision | (17,736 | ) | (30,536 | ) | ||||
Net income | $ | 52,061 | $ | 50,727 | ||||
Basic net income per share | $ | 2.08 | $ | 2.01 | ||||
Shares used in basic per share calculations | 25,050 | 25,180 | ||||||
Diluted net income per share | $ | 2.07 | $ | 2.01 | ||||
Shares used in diluted per share calculations | 25,158 | 25,250 | ||||||
Cash dividends paid per Class A and Class B share | $ | 0.27 | $ | 0.25 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 52,061 | $ | 50,727 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 16,854 | 12,739 | ||||||
Stock-based compensation | 3,574 | 2,619 | ||||||
(Gain) loss on disposal of other assets | (44 | ) | 279 | |||||
Loss on disposal of franchise | 19 | — | ||||||
Deferred income taxes | 2,688 | (417 | ) | |||||
(Increase) decrease (net of acquisitions and dispositions): | ||||||||
Trade receivables, net | 42,628 | 76,123 | ||||||
Inventories | (98,862 | ) | (42,298 | ) | ||||
Other assets | 14,651 | (3,776 | ) | |||||
Increase (decrease) (net of acquisitions and dispositions): | ||||||||
Floor plan notes payable | 17,692 | 2,429 | ||||||
Trade payables | 6,933 | (7,617 | ) | |||||
Accrued liabilities | (13,574 | ) | 31,116 | |||||
Other long-term liabilities and deferred revenue | 4,253 | 4,750 | ||||||
Net cash provided by operating activities | 48,873 | 126,674 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (42,004 | ) | (16,039 | ) | ||||
Proceeds from sales of assets | 105 | 399 | ||||||
Cash paid for other investments | (7,599 | ) | (6,863 | ) | ||||
Cash paid for acquisitions, net of cash acquired | (324,367 | ) | — | |||||
Proceeds from sales of stores | 363 | — | ||||||
Net cash used in investing activities | (373,502 | ) | (22,503 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings (repayments) on floor plan notes payable, net: non-trade | 47,841 | (2,110 | ) | |||||
Borrowings on lines of credit | 893,966 | 231,000 | ||||||
Repayments on lines of credit | (586,728 | ) | (351,433 | ) | ||||
Principal payments on long-term debt and capital leases, scheduled | (4,715 | ) | (4,648 | ) | ||||
Principal payments on long-term debt and capital leases, other | — | (9,743 | ) | |||||
Proceeds from issuance of long-term debt | — | 27,878 | ||||||
Payments of debt issuance costs | (40 | ) | — | |||||
Proceeds from issuance of common stock | 1,841 | 1,523 | ||||||
Repurchase of common stock | (8,273 | ) | (9,188 | ) | ||||
Dividends paid | (6,759 | ) | (6,292 | ) | ||||
Acquisition contingent consideration | (772 | ) | — | |||||
Net cash provided by (used in) financing activities | 336,361 | (123,013 | ) | |||||
Increase (decrease) in cash and cash equivalents | 11,732 | (18,842 | ) | |||||
Cash and cash equivalents at beginning of period | 57,253 | 50,282 | ||||||
Cash and cash equivalents at end of period | $ | 68,985 | $ | 31,440 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 30,263 | $ | 17,261 | ||||
Cash paid during the period for income taxes, net | 1,156 | 8 | ||||||
Floor plan debt paid in connection with store disposals | 3,832 | — | ||||||
Supplemental schedule of non-cash activities: | ||||||||
Debt assumed in connection with acquisitions | $ | 10,661 | $ | — |
March 31, 2018 | December 31, 2017 | |||||||
Contracts in transit | $ | 260,287 | $ | 286,578 | ||||
Trade receivables | 50,705 | 45,895 | ||||||
Vehicle receivables | 47,781 | 60,022 | ||||||
Manufacturer receivables | 91,826 | 96,141 | ||||||
Auto loan receivables | 72,270 | 75,052 | ||||||
Other receivables | 4,195 | 14,634 | ||||||
527,064 | 578,322 | |||||||
Less: Allowance for doubtful accounts | (6,260 | ) | (7,386 | ) | ||||
Less: Long-term portion of accounts receivable, net | (41,166 | ) | (48,998 | ) | ||||
Total accounts receivable, net | $ | 479,638 | $ | 521,938 |
• | Contracts in transit are receivables from various lenders for the financing of vehicles that we have arranged on behalf of the customer and are typically received approximately ten days after selling a vehicle. |
• | Trade receivables are comprised of amounts due from customers for open charge accounts, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products. |
• | Vehicle receivables represent receivables for the portion of the vehicle sales price paid directly by the customer. |
• | Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives and warranty claims. |
• | Auto loan receivables include amounts due from customers related to retail sales of vehicles and certain finance and insurance products. |
March 31, 2018 | December 31, 2017 | |||||||
New vehicles | $ | 1,743,864 | $ | 1,553,751 | ||||
Used vehicles | 536,478 | 500,011 | ||||||
Parts and accessories | 85,582 | 78,982 | ||||||
Total inventories | $ | 2,365,924 | $ | 2,132,744 |
Domestic | Import | Luxury | Consolidated | |||||||||||||
Balance as of December 31, 2016 ¹ | $ | 114,839 | $ | 106,179 | $ | 38,381 | $ | 259,399 | ||||||||
Adjustments to purchase price allocations2 | (817 | ) | (1,006 | ) | (391 | ) | (2,214 | ) | ||||||||
Reductions through divestitures | — | (865 | ) | — | (865 | ) | ||||||||||
Balance as of December 31, 2017 ¹ | 114,022 | 104,308 | 37,990 | 256,320 | ||||||||||||
Additions through acquisitions 3 | — | — | — | — | ||||||||||||
Reductions through divestitures | — | (37 | ) | — | (37 | ) | ||||||||||
Balance as of March 31, 2018 ¹ | $ | 114,022 | $ | 104,271 | $ | 37,990 | $ | 256,283 |
Franchise Value | |||
Balance as of December 31, 2016 | $ | 184,268 | |
Additions through acquisitions | 495 | ||
Adjustments to purchase price allocations 1 | 2,214 | ||
Balance as of December 31, 2017 | 186,977 | ||
Additions through acquisitions 2 | — | ||
Balance as of March 31, 2018 | $ | 186,977 |
Repurchases Occurring in the Three Months Ended March 31, 2018 | Cumulative Repurchases as of March 31, 2018 | |||||||||||||
Shares | Average Price | Shares | Average Price | |||||||||||
2016 Share Repurchase Authorization | 50,000 | $ | 99.02 | 1,092,725 | $ | 84.55 |
March 31, 2018 | December 31, 2017 | |||||||
Carrying value | ||||||||
5.25% Senior Notes due 2025 | $ | 300,000 | $ | 300,000 | ||||
Real Estate Mortgages and Other Debt | 360,891 | 376,880 | ||||||
$ | 660,891 | $ | 676,880 | |||||
Fair value | ||||||||
5.25% Senior Notes due 2025 | $ | 300,750 | $ | 312,750 | ||||
Real Estate Mortgages and Other Debt | 364,468 | 385,337 | ||||||
$ | 665,218 | $ | 698,087 |
Three Months Ended March 31, | 2018 | 2017 | ||||||||||||||
(in thousands, except per share data) | Class A | Class B | Class A | Class B | ||||||||||||
Net income applicable to common stockholders - basic | $ | 49,983 | $ | 2,078 | $ | 47,826 | $ | 2,901 | ||||||||
Reallocation of distributed net income as a result of conversion of dilutive stock options | 1 | (1 | ) | 1 | (1 | ) | ||||||||||
Reallocation of distributed net income due to conversion of Class B to Class A common shares outstanding | 269 | — | 359 | — | ||||||||||||
Conversion of Class B common shares into Class A common shares | 1,801 | — | 2,534 | — | ||||||||||||
Effect of dilutive stock options on net income | 7 | (7 | ) | 7 | (7 | ) | ||||||||||
Net income applicable to common stockholders - diluted | $ | 52,061 | $ | 2,070 | $ | 50,727 | $ | 2,893 | ||||||||
Weighted average common shares outstanding – basic | 24,050 | 1,000 | 23,740 | 1,440 | ||||||||||||
Conversion of Class B common shares into Class A common shares | 1,000 | — | 1,440 | — | ||||||||||||
Effect of employee stock purchases and restricted stock units on weighted average common shares | 108 | — | 70 | — | ||||||||||||
Weighted average common shares outstanding – diluted | 25,158 | 1,000 | 25,250 | 1,440 | ||||||||||||
Net income per common share - basic | $ | 2.08 | $ | 2.08 | $ | 2.01 | $ | 2.01 | ||||||||
Net income per common share - diluted | $ | 2.07 | $ | 2.07 | $ | 2.01 | $ | 2.01 |
Three Months Ended March 31, | 2018 | 2017 | ||||||||||
Diluted EPS | Class A | Class B | Class A | Class B | ||||||||
Antidilutive Securities | ||||||||||||
Shares issuable pursuant to stock options not included since they were antidilutive | 26 | — | — | — |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenues: | ||||||||
Domestic | ||||||||
New vehicle | $ | 513,529 | $ | 485,257 | ||||
Used vehicle retail | 264,827 | 244,997 | ||||||
Used vehicle wholesale | 33,607 | 32,287 | ||||||
Finance and insurance | 40,001 | 36,209 | ||||||
Service, body and parts | 107,142 | 93,402 | ||||||
Fleet and other | 11,510 | 7,607 | ||||||
970,616 | 899,759 | |||||||
Import | ||||||||
New vehicle | 667,602 | 551,881 | ||||||
Used vehicle retail | 307,689 | 247,276 | ||||||
Used vehicle wholesale | 28,196 | 26,836 | ||||||
Finance and insurance | 51,696 | 40,573 | ||||||
Service, body and parts | 109,655 | 88,663 | ||||||
Fleet and other | 5,595 | 16,243 | ||||||
1,170,433 | 971,472 | |||||||
Luxury | ||||||||
New vehicle | 278,521 | 176,317 | ||||||
Used vehicle retail | 142,904 | 110,606 | ||||||
Used vehicle wholesale | 14,199 | 12,223 | ||||||
Finance and insurance | 12,251 | 7,995 | ||||||
Service, body and parts | 64,793 | 48,032 | ||||||
Fleet and other | 3,827 | 8,630 | ||||||
516,495 | 363,803 | |||||||
2,657,544 | 2,235,034 | |||||||
Corporate and other | 2,135 | 1,067 | ||||||
$ | 2,659,679 | $ | 2,236,101 | |||||
Segment income1: | ||||||||
Domestic | $ | 25,618 | $ | 25,442 | ||||
Import | 23,020 | 22,172 | ||||||
Luxury | 6,886 | 4,713 | ||||||
55,524 | 52,327 | |||||||
Corporate and other | 41,559 | 38,501 | ||||||
Depreciation and amortization | (16,854 | ) | (12,739 | ) | ||||
Other interest expense | (11,806 | ) | (6,671 | ) | ||||
Other income (expense), net | 1,374 | 9,845 | ||||||
Income before income taxes | $ | 69,797 | $ | 81,263 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Floor plan interest expense: | ||||||||
Domestic | $ | 11,612 | $ | 7,954 | ||||
Import | 9,429 | 5,873 | ||||||
Luxury | 5,133 | 3,076 | ||||||
26,174 | 16,903 | |||||||
Corporate and other | (12,640 | ) | (8,851 | ) | ||||
$ | 13,534 | $ | 8,052 |
March 31, 2018 | December 31, 2017 | |||||||
Total assets: | ||||||||
Domestic | $ | 1,406,219 | $ | 1,338,232 | ||||
Import | 1,231,503 | 1,137,934 | ||||||
Luxury | 696,761 | 641,118 | ||||||
Corporate and other | 1,752,500 | 1,565,782 | ||||||
$ | 5,086,983 | $ | 4,683,066 |
• | On January 15, 2018, Ray Laks Honda in Orchard Park, New York and Ray Laks Acura in Buffalo, New York. |
• | On February 26, 2018, Day Auto Group, a seven store platform based in Pennsylvania. |
• | On March 1, 2018, Prestige Auto Group, a six store platform based in New Jersey and New York. |
Revenue | $ | 84,629 | |
Net loss | $ | (142 | ) |
• | On May 1, 2017, we acquired Baierl Auto Group: an eight store platform based in Pennsylvania. |
• | On August 7, 2017, we acquired Downtown LA ("DTLA") Auto Group, a seven store platform based in California. |
• | On November 11, 2017, we acquired Albany CJD Fiat in Albany, New York. |
• | On November 15, 2017, we acquired Crater Lake Ford Lincoln and Crater Lake Mazda in Medford, Oregon. |
Consideration | ||||
Cash paid, net of cash acquired | $ | 324,367 |
Assets Acquired and Liabilities Assumed | ||||
Trade receivables, net | $ | 328 | ||
Inventories | 153,422 | |||
Property and equipment | 9,201 | |||
Other assets | 174,474 | |||
Floor plan notes payable | (10,661 | ) | ||
Other liabilities | (2,397 | ) | ||
324,367 | ||||
Goodwill | — | |||
$ | 324,367 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenue | $ | 2,822,370 | $ | 2,825,619 | ||||
Net income | 50,737 | 53,034 | ||||||
Basic net income per share | 2.03 | 2.11 | ||||||
Diluted net income per share | 2.02 | 2.10 |
• | A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and subject to accelerated recognition under the new standard. Accordingly, we recognized a $9.2 million asset associated with future estimated variable consideration and a net of tax increase to retained earnings of $6.5 million. We do not believe there will be a significant impact to future revenue recognized. |
• | The adoption of the new standard clarifies the determination and capitalization of direct costs incurred. As a result, we reassessed the method used to capitalize and amortize direct costs associated with the sale of lifetime lube, oil and filter contracts, which resulted in a $7.2 million reduction in prepaid commissions and a net of tax $5.1 million reduction to retained earnings. |
As Reported | Balances without the adoption of Topic 606 | |||||||||||
Impact on Consolidated Balance Sheets | March 31, 2018 | Adjustments | ||||||||||
Trade receivables | $ | 50,705 | $ | (3,631 | ) | $ | 47,074 | |||||
Other current assets | 56,893 | (1,835 | ) | 55,058 | ||||||||
Other non-current assets | 451,401 | 3,789 | 455,190 | |||||||||
Total Assets | 5,086,983 | (1,677 | ) | 5,085,306 | ||||||||
Deferred income taxes | 58,965 | (599 | ) | 58,366 | ||||||||
Total Liabilities | 3,959,878 | (599 | ) | 3,959,279 | ||||||||
Retained earnings | 969,406 | (1,078 | ) | 968,328 | ||||||||
Total Liabilities and Stockholders' Equity | 5,086,983 | (1,677 | ) | 5,085,306 |
• | Future market conditions, including anticipated national new car sales levels; |
• | Expected operating results, such as improved store performance; continued improvement of SG&A as a percentage of gross profit and all projections; |
• | Anticipated continued success of acquisitions; |
• | Anticipated ability to capture additional market share; |
• | Anticipated ability to find accretive acquisitions; |
• | Anticipated additions of dealership locations to our portfolio in the future; |
• | Anticipated availability of liquidity from our unfinanced operating real estate; and |
• | Anticipated levels of capital expenditures in the future. |
• | Changing economic conditions, including changes in consumer demand, the availability of credit, fuel prices and interest rates; |
• | Natural disasters, adverse weather conditions, acts of God or other incidents; |
• | Increasing competition in our industry; |
• | Adverse conditions affecting one or more key manufacturers whose brands we sell; |
• | Availability of manufacturer incentives, warranty and other promotional programs; |
• | Manufacturers relationships and our ability to renew or enter into new franchise agreements on acceptable terms; |
• | Changes in laws and regulations; |
• | Breaches in our data security systems or in systems used by our vendor partners; and |
• | Our ability to acquire and successfully integrate additional stores |
Three Months Ended March 31, 2018 | Revenues | Percent of Total Revenues | Gross Profit | Gross Profit Margin | Percent of Total Gross Profit | ||||||||||||
New vehicle | $ | 1,454,725 | 54.7 | % | $ | 86,947 | 6.0 | % | 21.3 | % | |||||||
Used vehicle retail | 715,574 | 26.9 | 73,611 | 10.3 | 18.0 | ||||||||||||
Used vehicle wholesale | 75,955 | 2.9 | 926 | 1.2 | 0.2 | ||||||||||||
Finance and insurance 1 | 106,505 | 4.0 | 106,505 | 100.0 | 26.1 | ||||||||||||
Service, body and parts | 285,697 | 10.7 | 138,408 | 48.4 | 33.9 | ||||||||||||
Fleet and other | 21,223 | 0.8 | 1,714 | 8.1 | 0.5 | ||||||||||||
$ | 2,659,679 | 100.0 | % | $ | 408,111 | 15.3 | % | 100.0 | % |
Three Months Ended March 31, 2017 | Revenues | Percent of Total Revenues | Gross Profit | Gross Profit Margin | Percent of Total Gross Profit | ||||||||||||
New vehicle | $ | 1,210,304 | 54.1 | % | $ | 70,118 | 5.8 | % | 20.5 | % | |||||||
Used vehicle retail | 602,223 | 26.9 | 68,783 | 11.4 | 20.1 | ||||||||||||
Used vehicle wholesale | 71,503 | 3.2 | 1,517 | 2.1 | 0.4 | ||||||||||||
Finance and insurance 1 | 86,777 | 3.9 | 86,777 | 100.0 | 25.4 | ||||||||||||
Service, body and parts | 232,574 | 10.4 | 113,194 | 48.7 | 33.1 | ||||||||||||
Fleet and other | 32,720 | 1.5 | 1,263 | 3.9 | 0.5 | ||||||||||||
$ | 2,236,101 | 100.0 | % | $ | 341,652 | 15.3 | % | 100.0 | % |
Three Months Ended March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands, except per unit amounts) | 2018 | 2017 | |||||||||||||
Reported | |||||||||||||||
Revenue | $ | 1,454,725 | $ | 1,210,304 | $ | 244,421 | 20.2 | % | |||||||
Gross profit | $ | 86,947 | $ | 70,118 | $ | 16,829 | 24.0 | ||||||||
Gross margin | 6.0 | % | 5.8 | % | 20 | bp | 1 | ||||||||
Retail units sold | 41,497 | 35,616 | 5,881 | 16.5 | |||||||||||
Average selling price per retail unit | $ | 35,056 | $ | 33,982 | $ | 1,074 | 3.2 | ||||||||
Average gross profit per retail unit | $ | 2,095 | $ | 1,969 | $ | 126 | 6.4 | ||||||||
Same store | |||||||||||||||
Revenue | $ | 1,183,204 | $ | 1,201,912 | $ | (18,708 | ) | (1.6 | ) | ||||||
Gross profit | $ | 68,102 | $ | 69,091 | $ | (989 | ) | (1.4 | ) | ||||||
Gross margin | 5.8 | % | 5.7 | % | 10 | bp | |||||||||
Retail units sold | 33,886 | 35,415 | (1,529 | ) | (4.3 | ) | |||||||||
Average selling price per retail unit | $ | 34,917 | $ | 33,938 | $ | 979 | 2.9 | ||||||||
Average gross profit per retail unit | $ | 2,010 | $ | 1,951 | $ | 59 | 3.0 |
Three months ended March 31, 2018 compared to the same period of 2017 | National growth in the three months ended March 31, 2018 compared to the same period of 2017 ¹ | |||||
Domestic brand same store unit sales change | (6.0 | )% | 0.7 | % | ||
Import brand same store unit sales change | (4.5 | ) | 2.4 | |||
Luxury brand same store unit sales change | 2.2 | 7.9 | ||||
Overall | (4.3 | ) | 2.1 |
Three Months Ended March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands, except per unit amounts) | 2018 | 2017 | |||||||||||||
Reported | |||||||||||||||
Retail revenue | $ | 715,574 | $ | 602,223 | $ | 113,351 | 18.8 | % | |||||||
Retail gross profit | $ | 73,611 | $ | 68,783 | $ | 4,828 | 7.0 | ||||||||
Retail gross margin | 10.3 | % | 11.4 | % | (110 | )bp | |||||||||
Retail units sold | 36,114 | 30,783 | 5,331 | 17.3 | |||||||||||
Average selling price per retail unit | $ | 19,814 | $ | 19,563 | $ | 251 | 1.3 | ||||||||
Average gross profit per retail unit | $ | 2,038 | $ | 2,234 | $ | (196 | ) | (8.8 | ) | ||||||
Same store | |||||||||||||||
Retail revenue | $ | 622,389 | $ | 595,041 | $ | 27,348 | 4.6 | ||||||||
Retail gross profit | $ | 65,878 | $ | 68,260 | $ | (2,382 | ) | (3.5 | ) | ||||||
Retail gross margin | 10.6 | % | 11.5 | % | (90 | )bp | |||||||||
Retail units sold | 31,677 | 30,404 | 1,273 | 4.2 | |||||||||||
Average selling price per retail unit | $ | 19,648 | $ | 19,571 | $ | 77 | 0.4 | ||||||||
Average gross profit per retail unit | $ | 2,080 | $ | 2,245 | $ | (165 | ) | (7.3 | ) |
Three months ended March 31, 2018 compared to the same period of 2017 | |||
Manufacturer CPO vehicles | (6.3 | )% | |
Core vehicles | 12.7 | ||
Value autos | (1.5 | ) | |
Overall | 4.6 |
Three Months Ended March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands, except per unit amounts) | 2018 | 2017 | |||||||||||||
Reported | |||||||||||||||
Wholesale revenue | $ | 75,955 | $ | 71,503 | $ | 4,452 | 6.2 | % | |||||||
Wholesale gross profit | $ | 926 | $ | 1,517 | $ | (591 | ) | (39.0 | ) | ||||||
Wholesale gross margin | 1.2 | % | 2.1 | % | (90 | )bp | |||||||||
Wholesale units sold | 11,687 | 10,840 | 847 | 7.8 | |||||||||||
Average selling price per wholesale unit | $ | 6,499 | $ | 6,596 | $ | (97 | ) | (1.5 | ) | ||||||
Average gross profit per retail unit | $ | 79 | $ | 140 | $ | (61 | ) | (43.6 | ) |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands, except per unit amounts) | 2018 | 2017 | |||||||||||||
Reported | |||||||||||||||
Revenue | $ | 106,505 | $ | 86,777 | $ | 19,728 | 22.7 | % | |||||||
Average finance and insurance per retail unit | 1,372 | 1,307 | 65 | 5.0 | |||||||||||
Same store | |||||||||||||||
Revenue | $ | 90,509 | $ | 86,130 | $ | 4,379 | 5.1 | % | |||||||
Average finance and insurance per retail unit | 1,380 | 1,309 | 71 | 5.4 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Finance and insurance | 74 | % | 77 | % | ||
Service contracts | 47 | 47 | ||||
Lifetime lube, oil and filter contracts | 25 | 27 |
Three Months Ended March 31, | Increase (Decrease) | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Reported | |||||||||||||||
Customer pay | $ | 149,848 | $ | 122,620 | $ | 27,228 | 22.2 | % | |||||||
Warranty | 68,308 | 54,499 | 13,809 | 25.3 | |||||||||||
Wholesale parts | 45,609 | 36,702 | 8,907 | 24.3 | |||||||||||
Body shop | 21,932 | 18,753 | 3,179 | 17.0 | |||||||||||
Total service, body and parts | $ | 285,697 | $ | 232,574 | $ | 53,123 | 22.8 | % | |||||||
Service, body and parts gross profit | $ | 138,408 | $ | 113,194 | $ | 25,214 | 22.3 | % | |||||||
Service, body and parts gross margin | 48.4 | % | 48.7 | % | (30 | ) bp | |||||||||
Same store | |||||||||||||||
Customer pay | $ | 125,295 | $ | 121,085 | $ | 4,210 | 3.5 | % | |||||||
Warranty | 55,657 | 53,988 | 1,669 | 3.1 | |||||||||||
Wholesale parts | 36,668 | 36,263 | 405 | 1.1 | |||||||||||
Body shop | 18,332 | 18,226 | 106 | 0.6 | |||||||||||
Total service, body and parts | $ | 235,952 | $ | 229,562 | $ | 6,390 | 2.8 | % | |||||||
Service, body and parts gross profit | $ | 116,078 | $ | 111,724 | $ | 4,354 | 3.9 | % | |||||||
Service, body and parts gross margin | 49.2 | % | 48.7 | % | 50 | bp |
Three months ended March 31, 2018 compared to the same period of 2017 | |||
Domestic | 11.7 | % | |
Import | (3.7 | ) | |
Luxury | 2.8 |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Revenues: | |||||||||||||||
Domestic | $ | 970,616 | $ | 899,759 | $ | 70,857 | 7.9 | % | |||||||
Import | 1,170,433 | 971,472 | 198,961 | 20.5 | |||||||||||
Luxury | 516,495 | 363,803 | 152,692 | 42.0 | |||||||||||
2,657,544 | 2,235,034 | 422,510 | 18.9 | ||||||||||||
Corporate and other | 2,135 | 1,067 | 1,068 | NM | |||||||||||
$ | 2,659,679 | $ | 2,236,101 | $ | 423,578 | 18.9 | % |
Three Months Ended March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Segment income1: | |||||||||||||||
Domestic | $ | 25,618 | $ | 25,442 | $ | 176 | 0.7 | % | |||||||
Import | 23,020 | 22,172 | 848 | 3.8 | |||||||||||
Luxury | 6,886 | 4,713 | 2,173 | 46.1 | |||||||||||
55,524 | 52,327 | 3,197 | 6.1 | ||||||||||||
Corporate and other | 41,559 | 38,501 | 3,058 | 7.9 | |||||||||||
Depreciation and amortization | (16,854 | ) | (12,739 | ) | 4,115 | 32.3 | |||||||||
Other interest expense | (11,806 | ) | (6,671 | ) | 5,135 | 77.0 | |||||||||
Other income (expense), net | 1,374 | 9,845 | (8,471 | ) | NM | ||||||||||
Income before income taxes | $ | 69,797 | $ | 81,263 | $ | (11,466 | ) | (14.1 | )% |
Three Months Ended March 31, | Increase | % Increase | ||||||||||
2018 | 2017 | |||||||||||
Retail new vehicle unit sales: | ||||||||||||
Domestic | 12,656 | 12,240 | 416 | 3.4 | % | |||||||
Import | 23,640 | 19,835 | 3,805 | 19.2 | ||||||||
Luxury | 5,338 | 3,616 | 1,722 | 47.6 | ||||||||
41,634 | 35,691 | 5,943 | 16.7 | |||||||||
Allocated to management | (137 | ) | (75 | ) | 62 | NM | ||||||
41,497 | 35,616 | 5,881 | 16.5 | % |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Revenue: | |||||||||||||||
New vehicle | $ | 513,529 | $ | 485,257 | $ | 28,272 | 5.8 | % | |||||||
Used vehicle retail | 264,827 | 244,997 | 19,830 | 8.1 | |||||||||||
Used vehicle wholesale | 33,607 | 32,287 | 1,320 | 4.1 | |||||||||||
Finance and insurance | 40,001 | 36,209 | 3,792 | 10.5 | |||||||||||
Service, body and parts | 107,142 | 93,402 | 13,740 | 14.7 | |||||||||||
Fleet and other | 11,510 | 7,607 | 3,903 | 51.3 | |||||||||||
$ | 970,616 | $ | 899,759 | $ | 70,857 | 7.9 | % | ||||||||
Segment income | $ | 25,618 | $ | 25,442 | $ | 176 | 0.7 | % | |||||||
Retail new vehicle unit sales | 12,656 | 12,240 | 416 | 3.4 | % |
Three Months Ended March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Revenue: | |||||||||||||||
New vehicle | $ | 667,602 | $ | 551,881 | $ | 115,721 | 21.0 | % | |||||||
Used vehicle retail | 307,689 | 247,276 | 60,413 | 24.4 | |||||||||||
Used vehicle wholesale | 28,196 | 26,836 | 1,360 | 5.1 | |||||||||||
Finance and insurance | 51,696 | 40,573 | 11,123 | 27.4 | |||||||||||
Service, body and parts | 109,655 | 88,663 | 20,992 | 23.7 | |||||||||||
Fleet and other | 5,595 | 16,243 | (10,648 | ) | (65.6 | ) | |||||||||
$ | 1,170,433 | $ | 971,472 | $ | 198,961 | 20.5 | % | ||||||||
Segment income | $ | 23,020 | $ | 22,172 | $ | 848 | 3.8 | % | |||||||
Retail new vehicle unit sales | 23,640 | 19,835 | 3,805 | 19.2 | % |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Revenue: | |||||||||||||||
New vehicle | $ | 278,521 | $ | 176,317 | $ | 102,204 | 58.0 | % | |||||||
Used vehicle retail | 142,904 | 110,606 | 32,298 | 29.2 | |||||||||||
Used vehicle wholesale | 14,199 | 12,223 | 1,976 | 16.2 | |||||||||||
Finance and insurance | 12,251 | 7,995 | 4,256 | 53.2 | |||||||||||
Service, body and parts | 64,793 | 48,032 | 16,761 | 34.9 | |||||||||||
Fleet and other | 3,827 | 8,630 | (4,803 | ) | (55.7 | ) | |||||||||
$ | 516,495 | $ | 363,803 | $ | 152,692 | 42.0 | % | ||||||||
Segment income | $ | 6,886 | $ | 4,713 | $ | 2,173 | 46.1 | % | |||||||
Retail new vehicle unit sales | 5,338 | 3,616 | 1,722 | 47.6 | % |
Three Months Ended March 31, | Increase | % Increase | ||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||
Revenue, net | $ | 2,135 | $ | 1,067 | $ | 1,068 | NM | |||||||
Segment income | $ | 41,559 | $ | 38,501 | $ | 3,058 | 7.9 |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Personnel | $ | 192,093 | $ | 163,672 | $ | 28,421 | 17.4 | % | |||||||
Advertising | 25,481 | 19,956 | 5,525 | 27.7 | |||||||||||
Rent | 11,117 | 7,221 | 3,896 | 54.0 | |||||||||||
Facility costs | 17,668 | 15,127 | 2,541 | 16.8 | |||||||||||
Other | 51,135 | 36,796 | 14,339 | 39.0 | |||||||||||
Total SG&A | $ | 297,494 | $ | 242,772 | $ | 54,722 | 22.5 | % |
Three Months Ended March 31, | Increase (Decrease) | ||||||||
As a % of gross profit | 2018 | 2017 | |||||||
Personnel | 47.1 | % | 47.9 | % | (80 | )bp | |||
Advertising | 6.2 | % | 5.8 | % | 40 | ||||
Rent | 2.7 | % | 2.1 | % | 60 | ||||
Facility costs | 4.3 | % | 4.4 | % | (10 | ) | |||
Other | 12.6 | % | 10.9 | % | 170 | ||||
Total SG&A | 72.9 | % | 71.1 | % | 180 | bp |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Depreciation and amortization | $ | 16,854 | $ | 12,739 | $ | 4,115 | 32.3 | % |
Three Months Ended March 31, | |||||
2018 | 2017 | ||||
Operating margin | 3.5 | % | 3.9 | % |
Three Months Ended March 31, | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Increase | % Increase | |||||||||||
Floor plan interest expense (new vehicles) | $ | 13,534 | $ | 8,052 | $ | 5,482 | 68.1 | % |
Three Months Ended March 31, | % | ||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Change | Change | |||||||||||
Floor plan interest expense (new vehicles) | $ | 13,534 | $ | 8,052 | $ | 5,482 | 68.1 | % | |||||||
Floor plan assistance (included as an offset to cost of sales) | (14,168 | ) | (11,788 | ) | (2,380 | ) | 20.2 | ||||||||
Net new vehicle carrying costs | $ | (634 | ) | $ | (3,736 | ) | $ | 3,102 | 83.0 | % |
Three Months Ended March 31, | Increase | % Increase | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Mortgage interest | $ | 4,907 | $ | 4,391 | $ | 516 | 11.8 | % | |||||||
Other interest | 7,102 | 2,363 | 4,739 | 200.6 | |||||||||||
Capitalized interest | (203 | ) | (83 | ) | 120 | 144.6 | |||||||||
Total other interest expense | $ | 11,806 | $ | 6,671 | 5,135 | 77.0 | % |
Three Months Ended March 31, | Decrease | % Decrease | ||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||
Other Income, net | $ | 1,374 | $ | 9,845 | $ | (8,471 | ) | NM |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Effective income tax rate | 25.4 | % | 37.6 | % |
Three Months Ended March 31, 2017 | ||||||||||||
(Dollars in thousands, except per share amounts) | As reported | OEM settlement | Adjusted | |||||||||
Other (expense) income, net | $ | 9,845 | $ | (9,111 | ) | $ | 734 | |||||
Income (loss) before income taxes | $ | 81,263 | $ | (9,111 | ) | $ | 72,152 | |||||
Income tax (provision) benefit | (30,536 | ) | 3,423 | (27,113 | ) | |||||||
Net income (loss) | $ | 50,727 | $ | (5,688 | ) | $ | 45,039 | |||||
Diluted net income (loss) per share | $ | 2.01 | $ | (0.23 | ) | $ | 1.78 | |||||
Diluted share count | 25,250 |
As of March 31, | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | |||||||||||||
Cash and cash equivalents | $ | 68,985 | $ | 31,440 | $ | 37,545 | 119.4 | % | |||||||
Available credit on the credit facilities | 64,798 | 254,739 | (189,941 | ) | (74.6 | ) | |||||||||
Total current available funds | 133,783 | 286,179 | (152,396 | ) | (53.3 | ) | |||||||||
Estimated funds from unfinanced real estate | 260,199 | 163,745 | 96,454 | 58.9 | |||||||||||
Total estimated available funds | $ | 393,982 | $ | 449,924 | $ | (55,942 | ) | (12.4 | )% |
Three Months Ended March 31, | Increase (Decrease) | |||||||||||
(Dollars in thousands) | 2018 | 2017 | in Cash Flow | |||||||||
Net cash provided by operating activities | $ | 48,873 | $ | 126,674 | $ | (77,801 | ) | |||||
Net cash used in investing activities | (373,502 | ) | (22,503 | ) | (350,999 | ) | ||||||
Net cash provided by (used in) financing activities | 336,361 | (123,013 | ) | 459,374 |
Three Months Ended March 31, | Increase (Decrease) | |||||||||||
(Dollars in thousands) | 2018 | 2017 | in Cash Flow | |||||||||
Net cash provided by operating activities – as reported | $ | 48,873 | $ | 126,674 | $ | (77,801 | ) | |||||
Add: Net borrowings on floor plan notes payable, non-trade | 47,841 | (2,110 | ) | 49,951 | ||||||||
Add: Borrowings on unsecured revolver to increase new vehicle floor plan capacity1 | 150,000 | — | 150,000 | |||||||||
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory | (117,073 | ) | — | (117,073 | ) | |||||||
Net cash provided by operating activities – adjusted | $ | 129,641 | $ | 124,564 | $ | 5,077 |
Three Months Ended March 31, | Increase (Decrease) | |||||||||||
(Dollars in thousands) | 2018 | 2017 | in Cash Flow | |||||||||
Capital expenditures | $ | (42,004 | ) | $ | (16,039 | ) | $ | (25,965 | ) | |||
Cash paid for acquisitions, net of cash acquired | (324,367 | ) | — | (324,367 | ) | |||||||
Cash paid for other investments | (7,599 | ) | (6,863 | ) | (736 | ) | ||||||
Proceeds from sales of stores | 363 | — | 363 |
Three Months Ended March 31, | ||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||
Post-acquisition capital improvements | $ | 17,082 | $ | 3,795 | ||||
Facilities for open points | 1,824 | 76 | ||||||
Purchases of previously leased facilities | — | 10 | ||||||
Existing facility improvements | 11,009 | 4,550 | ||||||
Maintenance | 12,089 | 7,608 | ||||||
Total capital expenditures | $ | 42,004 | $ | 16,039 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Number of stores acquired | 15 | — | ||||||
(Dollars in thousands) | ||||||||
Cash paid for acquisitions, net of cash acquired | $ | 324,367 | $ | — | ||||
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory | (117,073 | ) | — | |||||
Cash paid for acquisitions, net of cash acquired – adjusted | $ | 207,294 | $ | — |
Three Months Ended March 31, | Increase (Decrease) | |||||||||||
(Dollars in thousands) | 2018 | 2017 | in Cash Flow | |||||||||
Cash provided by (used in) financing activities, as reported | $ | 336,361 | $ | (123,013 | ) | $ | 459,374 | |||||
Less: Borrowings on unsecured revolver to increase new vehicle floor plan capacity1 | (150,000 | ) | — | (150,000 | ) | |||||||
Adjust: Repayments (borrowings) on floor plan notes payable: non-trade | (47,841 | ) | 2,110 | (49,951 | ) | |||||||
Cash provided by (used in) financing activities – adjusted | $ | 138,520 | $ | (120,903 | ) | $ | 259,423 |
Three Months Ended March 31, | Increase (Decrease) | |||||||||||
(Dollars in thousands) | 2018 | 2017 | in Cash Flow | |||||||||
Net (repayments) borrowings on lines of credit | $ | 307,238 | $ | (120,433 | ) | $ | 427,671 | |||||
Principal payments on long-term debt and capital leases, unscheduled | — | (9,743 | ) | 9,743 | ||||||||
Proceeds from issuance of long-term debt | — | 27,878 | (27,878 | ) | ||||||||
Repurchases of common stock | (8,273 | ) | (9,188 | ) | 915 | |||||||
Dividends paid | (6,759 | ) | (6,292 | ) | (467 | ) |
Dividend paid: | Dividend amount per share | Total amount of dividend (in thousands) | ||||||
March 2018 | $ | 0.27 | $ | 6,759 |
As of March 31, 2018 | ||||||||||
(Dollars in thousands) | Outstanding | Remaining Available | ||||||||
Floor plan note payable: non-trade | $ | 1,832,824 | $ | — | 1 | |||||
Floor plan notes payable | 145,128 | — | ||||||||
Used vehicle inventory financing facility | 50,000 | — | 2 | |||||||
Revolving lines of credit | 529,028 | 64,798 | 2, 3 | |||||||
Real estate mortgages | 465,422 | — | ||||||||
5.25% Senior Subordinated Notes due 2025 | 300,000 | — | ||||||||
Other debt | 12,344 | — | ||||||||
Total debt outstanding | 3,334,746 | 64,798 | ||||||||
Less: unamortized debt issuance costs | (6,688 | ) | — | |||||||
Total debt | $ | 3,328,058 | $ | 64,798 |
Debt Covenant Ratio | Requirement | As of March 31, 2018 | ||
Current ratio | Not less than 1.10 to 1 | 1.21 to 1 | ||
Fixed charge coverage ratio | Not less than 1.20 to 1 | 2.41 to 1 | ||
Leverage ratio | Not more than 5.00 to 1 | 3.58 to 1 |
Total number of shares purchased 2 | Average price paid per share | Total number of shares purchased as part of publicly announced plans 1 | Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands) 1 | |||||||||||
January | 20,811 | $ | 113.04 | — | $ | 162,559 | ||||||||
February | 8,573 | 111.06 | — | 162,559 | ||||||||||
March | 50,161 | 99.04 | 50,000 | 157,607 | ||||||||||
79,545 | $ | 104.00 | 50,000 | $ | 157,607 |
3.1 | Restated Articles of Incorporation of Lithia Motors, Inc., as amended May 13, 1999 (incorporated by reference to exhibit 3.1 to our Form 10-K for the year ended December 31, 1999). |
2017 Amended and Restated Bylaws of Lithia Motors, Inc. (incorporated by reference to exhibit 3.1 to Form 8-K dated April 28, 2017 and filed with Securities and Exchange Commission on May 3, 2017). | |
Indenture, dated as of July 24, 2017, among Lithia Motors, Inc., the Guarantors and the Trustee (incorporated by reference to exhibit 4.1 to Form 8-K dated July 24, 2017 and filed with the Securities and Exchange Commission on July 24, 2017). | |
Form of 5.250% Senior Notes due 2025 (included as part of Exhibit 4.1)(incorporated by reference to exhibit 4.1 to Form 8-K dated July 24, 2017 and filed with the Securities and Exchange Commission on July 24, 2017). | |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | |
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. | |
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. | |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
Date: April 27, 2018 | LITHIA MOTORS, INC. |
By: /s/ John F. North III | |
John F. North III | |
Senior Vice President and Chief Financial Officer | |
(Duly Authorized Officer and Principal Financial and | |
Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
1. | I have reviewed this quarterly report on Form 10-Q of Lithia Motors, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
Document And Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 27, 2018 |
|
Document Information [Line Items] | ||
Entity Registrant Name | LITHIA MOTORS INC | |
Entity Central Index Key | 0001023128 | |
Trading Symbol | lad | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | Yes | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Class A common stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 23,945,392 | |
Class B common stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 1,000,000 |
Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Allowance for doubtful accounts | $ 6,260 | $ 7,386 |
Accumulated depreciation | $ 209,300 | $ 197,802 |
Preferred stock, par value (in dollars per share) | $ 0 | $ 0 |
Preferred stock, shares authorized (in shares) | 15,000,000 | 15,000,000 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Class A common stock | ||
Common stock A and B, par value (in dollars per share) | $ 0 | $ 0 |
Common stock A and B, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock A and B, shares issued (in shares) | 23,985,000 | 23,968,000 |
Common stock A and B, shares outstanding (in shares) | 23,985,000 | 23,968,000 |
Class B common stock | ||
Common stock A and B, par value (in dollars per share) | $ 0 | $ 0 |
Common stock A and B, shares authorized (in shares) | 25,000,000 | 25,000,000 |
Common stock A and B, shares issued (in shares) | 1,000,000 | 1,000,000 |
Common stock A and B, shares outstanding (in shares) | 1,000,000 | 1,000,000 |
Interim Financial Statements |
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Mar. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Interim Financial Statements | Interim Financial Statements Basis of Presentation These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2018 and for the three-months ended March 31, 2018 and 2017. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2017 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2017 is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2018. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2017 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting standards update ("ASU") 2014-09, "Revenue from Contracts with Customers," which amends the accounting guidance related to revenues. We adopted this standard utilizing a cumulative effect transition method effective January 2018. Except for the changes below, we have consistently applied the accounting policies to all periods presented in these consolidated financial statements. See also Notes 2 and 12. Reclassifications Certain immaterial reclassifications of amounts previously reported have been made to the accompanying condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented. |
Revenue Recognition |
3 Months Ended |
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Mar. 31, 2018 | |
Disaggregation of Revenue [Abstract] | |
Revenue Recognition | Revenue Recognition The following describes our major product lines, which represent the disaggregation of our revenues to transactions that are similar in nature, amount, timing, uncertainties and economic factors. New Retail Vehicle and Used Retail Vehicle Sales Revenue from the retail sale of a vehicle is recognized at a point in time, as all performance obligations are satisfied when a contract is signed by the customer, financing has been arranged or collectibility is probable and the control of the vehicle is transferred to the customer. The transaction price for a retail vehicle sale is specified in the contract with the customer and includes all cash and non-cash consideration. In a retail vehicle sale, customers often trade in their current vehicle. The trade-in is measured at its stand-alone selling price in the contract, utilizing various third-party pricing sources. There are no other non-cash forms of consideration related to retail sales. All vehicle rebates are applied to the vehicle purchase price at the time of the sale, and are therefore incorporated into the price of the contract at the time of the exchange. We do not allow the return of new or used vehicles, except where mandated by state law. Service, Body and Parts Sales Revenue from service, body and parts sales is recognized upon the transfer of control of the parts or service to the customer. We allow for customer returns on sales of our parts inventory up to 30 days after the sale. Most parts returns generally occur within one to two weeks from the time of sale and are not significant. We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were $131.9 million and $126.1 million as of March 31, 2018 and December 31, 2017, respectively; and we recognized $5.7 million of revenue in the three months ended March 31, 2018, related to our opening contract liability balance. Finance and Insurance Sales Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. As a part of the vehicle sale, we seek to arrange financing for customers and sell a variety of add-ons, such as extended warranty service contracts. These products are inherently attached to the governing vehicle and performance of the obligation cannot be performed without the underlying sale of the vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract under the new standard. We recognized a $9.2 million asset associated with future estimated variable consideration on January 1, 2018 related to contracts sold on or before December 31, 2017. Our contract asset balance was $9.2 million as of March 31, 2018 and is included in trade receivables and other non-current assets. |
Accounts Receivable and Contract Assets |
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Accounts Receivable, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable and Contract Assets | Accounts Receivable and Contract Assets Accounts receivable consisted of the following (in thousands):
Accounts receivable classifications include the following:
Interest income on auto loan receivables is recognized based on the contractual terms of each loan and is accrued until repayment, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest income when recognized on the loans. All other receivables are recorded at invoice and do not bear interest until they are 60 days past due. The allowance for doubtful accounts is estimated based on our historical write-off experience and is reviewed monthly. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance after all appropriate means of collection have been exhausted and the potential for recovery is considered remote. The annual activity for charges and subsequent recoveries is immaterial. The long-term portion of accounts receivable was included as a component of other non-current assets in the Consolidated Balance Sheets. |
Inventories |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories The components of inventories, net, consisted of the following (in thousands):
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Goodwill and Franchise Value |
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Goodwill and Franchise Value | Goodwill and Franchise Value The changes in the carrying amounts of goodwill are as follows (in thousands):
1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008. 2 Our purchase price allocation for the acquisition of the Carbone Auto Group was finalized in the third quarter of 2017. As a result, we reclassified $2.2 million of value from goodwill to franchise value. 3 Our purchase price allocation is preliminary for the acquisitions of the Baierl Auto Group, Downtown LA Auto Group, Albany CJD Fiat, Crater Lake Ford Lincoln, Crater Lake Mazda, Ray Laks Honda, Ray Laks Acura, Day Auto Group, and Prestige Auto Group and the associated goodwill has not been allocated to each of our segments. See also Note 10. The changes in the carrying amounts of franchise value are as follows (in thousands):
1 Our purchase price allocation for the acquisition of the Carbone Auto Group was finalized in the third quarter of 2017, resulting in a reclassification of $2.2 million from goodwill to franchise value. 2 Our purchase price allocation is preliminary for the acquisitions of the Baierl Auto Group, Downtown LA Auto Group, Albany CJD Fiat, Crater Lake Ford Lincoln, Crater Lake Mazda, Ray Laks Honda, Ray Laks Acura, Day Auto Group, and Prestige Auto Group and have not been included in the above franchise value additions. See also Note 10. |
Stockholders' Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Stockholders’ Equity Repurchases of Class A Common Stock Repurchases of our Class A Common Stock occurred under a repurchase authorization granted by our Board of Directors and related to shares withheld as part of the vesting of restricted stock units ("RSUs"). In February 2016, our Board of Directors authorized the repurchase of up to $250 million of our Class A common stock. Share repurchases under this authorization were as follows:
As of March 31, 2018, we had $157.6 million available for repurchases pursuant to our 2016 share repurchase authorization. In addition, during the first three months of 2018, we repurchased 29,545 shares at an average price of $112.43 per share, for a total of $3.3 million, related to tax withholdings associated with the vesting of RSUs. The repurchase of shares related to tax withholdings associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements Fair Value Disclosures for Financial Assets and Liabilities We determined the carrying value of cash equivalents, accounts receivable, trade payables, accrued liabilities and short-term borrowings approximate their fair values because of the nature of their terms and current market rates of these instruments. We believe the carrying value of our variable rate debt approximates fair value. We have fixed rate debt primarily consisting of amounts outstanding under our senior notes and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices for the identical liability (Level 1) and calculated the estimated fair value of the fixed rate real estate mortgages using a discounted cash flow methodology with estimated current interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and summed to compute the fair value of the debt. As of March 31, 2018, our real estate mortgages and other debt, which includes capital leases, had maturity dates between January 12, 2019 and December 31, 2050. There were no changes to our valuation techniques during the three-month period ended March 31, 2018. A summary of the aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows (in thousands):
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Net Income Per Share of Class A and Class B Common Stock |
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Net Income Per Share of Class A and Class B Common Stock | Net Income Per Share of Class A and Class B Common Stock We compute net income per share of Class A and Class B common stock using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding common shares underlying equity awards that are unvested or subject to forfeiture. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the common shares issuable upon the net exercise of stock options and unvested RSUs and is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares. Except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock are identical. Under our Articles of Incorporation, the Class A and Class B common stock share equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation that would adversely alter the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Following is a reconciliation of net income and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):
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Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segments | Segments While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into three reportable segments based on their economic similarities: Domestic, Import and Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Chrysler, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Honda, Toyota, Subaru, Nissan and Volkswagen. Our Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, as well as automotive finance and insurance products. Corporate and other revenue and income includes the results of operations of our stand-alone body shops offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and elimination adjustments. Additionally, certain internal corporate expense allocations increase segment income for Corporate and other while decreasing segment income for the other reportable segments. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions. We define our chief operating decision maker (“CODM”) to be certain members of our executive management group. Historical and forecasted operational performance are evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results, except for the internal allocation within Corporate and other discussed above. Our CODM measures the performance of each operating segment based on several metrics, including earnings from operations, and uses these results, in part, to evaluate the performance of, and to allocate resources to, each of the operating segments. Certain financial information on a segment basis is as follows (in thousands):
1Segment income for each of the segments is defined as income before income taxes, depreciation and amortization, other interest expense and other income (expense), net.
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Acquisitions |
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Acquisitions | Acquisitions In the first three months of 2018, we completed the following acquisitions:
Revenue and net loss contributed by the 2018 acquisitions subsequent to the date of acquisition were as follows (in thousands):
In 2017, we completed the following acquisitions:
All acquisitions were accounted for as business combinations under the acquisition method of accounting. The results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of acquisition. The following tables summarize the consideration paid for the 2018 acquisitions and the amount of identified assets acquired and liabilities assumed as of the acquisition date (in thousands):
The purchase price allocations for the Baierl Auto Group, Downtown LA Auto Group, Albany CJD Fiat, Crater Lake Ford Lincoln, Crater Lake Mazda, Ray Laks Honda, Ray Laks Acura, Day Auto Group, and Prestige Auto Group acquisitions are preliminary and we have not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects. We recorded the purchase price allocations based upon information that is currently available. Unallocated items are recorded as a component of other non-current assets in the Consolidated Balance Sheets.
In the three-month period ended March 31, 2018, we recorded $0.9 million in acquisition related expenses as a component of selling, general and administrative expense. We did not have any material acquisition expenses for the same period in 2017. The following unaudited proforma summary presents consolidated information as if all acquisitions in the three-month periods ended March 31, 2018 and 2017 had occurred on January 1, 2017 (in thousands, except per share amounts):
These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property and equipment; accounting for inventory on a specific identification method; and recognition of interest expense for real estate financing related to stores where we purchased the facility. No nonrecurring proforma adjustments directly attributable to the acquisitions are included in the reported proforma revenues and earnings. |
Recent Accounting Pronouncements |
3 Months Ended |
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Mar. 31, 2018 | |
Accounting Changes and Error Corrections [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We have both real estate leases and equipment leases that will be impacted by the new guidance. We continue to evaluate the effect this pronouncement will have on our consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the updated standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows. |
Change in Accounting Policies |
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Accounting Changes and Error Corrections [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accounting Policies | Changes in Accounting Policies In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which amends the accounting guidance related to revenues. This amendment replaced most of the existing revenue recognition guidance. The new standard, as amended in July 2015, is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The standard permits the use of either the retrospective or cumulative effect transition method. We adopted this standard utilizing a cumulative effect transition method effective January 2018. While the adoption of the new standard did not have a significant effect on earnings or on the timing of our most significant types of transactions, we made the following changes to our revenue policies:
These changes had an immaterial effect on our Consolidated Statements of Operations and the following impact on our Consolidated Balance Sheets (in thousands):
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Subsequent Events |
3 Months Ended |
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Mar. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events Repurchase of Class A Common Stock Since March 31, 2018, we repurchased 40,000 shares at a weighted average price of $96.78 per share and, as of April 27, 2018, under our existing share repurchase authorization, $153.7 million remained available for share repurchases. Acquisition of Stores On April 3, 2018, we acquired the inventory, real estate, equipment and intangible assets of Broadway Ford in Idaho Falls, Idaho. We paid cash of approximately $26.1 million for this store. On April 23, 2018, we acquired the inventory, equipment and intangible assets of Buhler Ford in Eatontown, New Jersey. We paid cash of approximately $12.5 million for this store. Common Stock Dividend On April 23, 2018, our Board of Directors approved a dividend of $0.29 per share on our Class A and Class B common stock related to our first quarter 2018 financial results. The dividend will total approximately $7.2 million and will be paid on May 25, 2018 to shareholders of record on May 11, 2018. |
Interim Financial Statements (Policies) |
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Mar. 31, 2018 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Basis of Presentation | Basis of Presentation These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2018 and for the three-months ended March 31, 2018 and 2017. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2017 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2017 is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2018. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2017 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. |
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Reclassifications | Reclassifications Certain immaterial reclassifications of amounts previously reported have been made to the accompanying condensed Consolidated Financial Statements to maintain consistency and comparability between periods presented. |
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Revenue Recognition | Revenue Recognition The following describes our major product lines, which represent the disaggregation of our revenues to transactions that are similar in nature, amount, timing, uncertainties and economic factors. New Retail Vehicle and Used Retail Vehicle Sales Revenue from the retail sale of a vehicle is recognized at a point in time, as all performance obligations are satisfied when a contract is signed by the customer, financing has been arranged or collectibility is probable and the control of the vehicle is transferred to the customer. The transaction price for a retail vehicle sale is specified in the contract with the customer and includes all cash and non-cash consideration. In a retail vehicle sale, customers often trade in their current vehicle. The trade-in is measured at its stand-alone selling price in the contract, utilizing various third-party pricing sources. There are no other non-cash forms of consideration related to retail sales. All vehicle rebates are applied to the vehicle purchase price at the time of the sale, and are therefore incorporated into the price of the contract at the time of the exchange. We do not allow the return of new or used vehicles, except where mandated by state law. Service, Body and Parts Sales Revenue from service, body and parts sales is recognized upon the transfer of control of the parts or service to the customer. We allow for customer returns on sales of our parts inventory up to 30 days after the sale. Most parts returns generally occur within one to two weeks from the time of sale and are not significant. We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were $131.9 million and $126.1 million as of March 31, 2018 and December 31, 2017, respectively; and we recognized $5.7 million of revenue in the three months ended March 31, 2018, related to our opening contract liability balance. Finance and Insurance Sales Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. As a part of the vehicle sale, we seek to arrange financing for customers and sell a variety of add-ons, such as extended warranty service contracts. These products are inherently attached to the governing vehicle and performance of the obligation cannot be performed without the underlying sale of the vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract under the new standard. We recognized a $9.2 million asset associated with future estimated variable consideration on January 1, 2018 related to contracts sold on or before December 31, 2017. Our contract asset balance was $9.2 million as of March 31, 2018 and is included in trade receivables and other non-current assets. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. We have both real estate leases and equipment leases that will be impacted by the new guidance. We continue to evaluate the effect this pronouncement will have on our consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the updated standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which amends the accounting guidance related to revenues. This amendment replaced most of the existing revenue recognition guidance. The new standard, as amended in July 2015, is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The standard permits the use of either the retrospective or cumulative effect transition method. We adopted this standard utilizing a cumulative effect transition method effective January 2018. While the adoption of the new standard did not have a significant effect on earnings or on the timing of our most significant types of transactions, we made the following changes to our revenue policies:
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Accounts Receivable and Contract Assets (Tables) |
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Accounts Receivable, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Receivable | Accounts receivable consisted of the following (in thousands):
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Inventories (Tables) |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories | The components of inventories, net, consisted of the following (in thousands):
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Goodwill and Franchise Value (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Goodwill | The changes in the carrying amounts of goodwill are as follows (in thousands):
1 Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008. 2 Our purchase price allocation for the acquisition of the Carbone Auto Group was finalized in the third quarter of 2017. As a result, we reclassified $2.2 million of value from goodwill to franchise value. 3 Our purchase price allocation is preliminary for the acquisitions of the Baierl Auto Group, Downtown LA Auto Group, Albany CJD Fiat, Crater Lake Ford Lincoln, Crater Lake Mazda, Ray Laks Honda, Ray Laks Acura, Day Auto Group, and Prestige Auto Group and the associated goodwill has not been allocated to each of our segments. See also Note 10. |
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Schedule of Franchise Value | The changes in the carrying amounts of franchise value are as follows (in thousands):
1 Our purchase price allocation for the acquisition of the Carbone Auto Group was finalized in the third quarter of 2017, resulting in a reclassification of $2.2 million from goodwill to franchise value. 2 Our purchase price allocation is preliminary for the acquisitions of the Baierl Auto Group, Downtown LA Auto Group, Albany CJD Fiat, Crater Lake Ford Lincoln, Crater Lake Mazda, Ray Laks Honda, Ray Laks Acura, Day Auto Group, and Prestige Auto Group and have not been included in the above franchise value additions. See also Note 10. |
Stockholders' Equity (Tables) |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Repurchased and Retired | Share repurchases under this authorization were as follows:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Aggregate Carrying Values and Fair Values of Long-term Fixed Interest Rate Debt | A summary of the aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows (in thousands):
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Net Income Per Share of Class A and Class B Common Stock (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | Following is a reconciliation of net income and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):
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Segments (Tables) |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Certain Information on a Segment Basis | Certain financial information on a segment basis is as follows (in thousands):
1Segment income for each of the segments is defined as income before income taxes, depreciation and amortization, other interest expense and other income (expense), net.
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Reconciliation of Assets from Segment to Consolidated |
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Acquisitions (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue and Operating Income from Acquisitions | Revenue and net loss contributed by the 2018 acquisitions subsequent to the date of acquisition were as follows (in thousands):
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Summary of Acquisitions | The following tables summarize the consideration paid for the 2018 acquisitions and the amount of identified assets acquired and liabilities assumed as of the acquisition date (in thousands):
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Assets Acquired and Liabilities Assumed |
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Pro Forma Summary of All Acquisitions | The following unaudited proforma summary presents consolidated information as if all acquisitions in the three-month periods ended March 31, 2018 and 2017 had occurred on January 1, 2017 (in thousands, except per share amounts):
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Change in Accounting Policies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Changes and Error Corrections [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of New Accounting Pronouncements and Changes in Accounting Principles | These changes had an immaterial effect on our Consolidated Statements of Operations and the following impact on our Consolidated Balance Sheets (in thousands):
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Revenue Recognition (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Jan. 01, 2018 |
Dec. 31, 2017 |
|
Disaggregation of Revenue [Abstract] | |||
Contract liability | $ 131.9 | $ 126.1 | |
Contract liability, revenue recognized | 5.7 | ||
Contract asset | $ 9.2 | $ 9.2 |
Inventories (Components of Inventories, net) (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventory [Line Items] | ||
Inventories, net | $ 2,365,924 | $ 2,132,744 |
New vehicles | ||
Inventory [Line Items] | ||
Inventories, net | 1,743,864 | 1,553,751 |
Used vehicles | ||
Inventory [Line Items] | ||
Inventories, net | 536,478 | 500,011 |
Parts and accessories | ||
Inventory [Line Items] | ||
Inventories, net | $ 85,582 | $ 78,982 |
Goodwill and Franchise Value (Schedule of Franchise Value) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Indefinite-lived Intangible Assets [Roll Forward] | |||
Balance | $ 186,977 | $ 184,268 | |
Additions through acquisitions | 0 | 495 | |
Adjustments to purchase price allocations | $ 2,200 | 2,214 | |
Balance | $ 186,977 | $ 186,977 |
Stockholders' Equity (Narrative) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Feb. 29, 2016 |
|
Equity, Class of Treasury Stock [Line Items] | ||
Repurchase related to stock award tax withholdings (in shares) | 29,545 | |
Class A common stock | ||
Equity, Class of Treasury Stock [Line Items] | ||
Authorized repurchase amount | $ 250,000,000 | |
Class A common stock | Restricted stock units (RSUs) | ||
Equity, Class of Treasury Stock [Line Items] | ||
Average purchase price per share (in dollars per share) | $ 112.43 | |
Repurchase related to stock award tax withholdings | $ 3,300,000 | |
2016 Share Repurchase Authorization | Class A common stock | ||
Equity, Class of Treasury Stock [Line Items] | ||
Remaining authorized repurchase amount | $ 157,600,000 |
Stockholders' Equity (Schedule of Stock Repurchased and Retired) (Details) - Class A common stock - $ / shares |
3 Months Ended | 26 Months Ended |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2018 |
|
Equity, Class of Treasury Stock [Line Items] | ||
Shares repurchased pursuant to repurchase authorizations (in shares) | 50,000 | 1,092,725 |
Average purchase price (in dollars per share) | $ 99.02 | $ 84.55 |
Segments (Narrative) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2018
segment
| |
Segment Reporting [Abstract] | |
Number of reportable segments | 3 |
Segments (Reconciliation of Assets from Segment to Consolidated) (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Segment Reporting Information [Line Items] | ||
Total Assets | $ 5,086,983 | $ 4,683,066 |
Operating segments | Domestic | ||
Segment Reporting Information [Line Items] | ||
Total Assets | 1,406,219 | 1,338,232 |
Operating segments | Import | ||
Segment Reporting Information [Line Items] | ||
Total Assets | 1,231,503 | 1,137,934 |
Operating segments | Luxury | ||
Segment Reporting Information [Line Items] | ||
Total Assets | 696,761 | 641,118 |
Corporate and other | ||
Segment Reporting Information [Line Items] | ||
Total Assets | $ 1,752,500 | $ 1,565,782 |
Acquisitions (Narrative) (Details) $ in Millions |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 31, 2018
USD ($)
|
Mar. 01, 2018
store
|
Feb. 26, 2018
store
|
Aug. 07, 2017
store
|
May 01, 2017
store
|
|
Business Acquisition [Line Items] | |||||
Acquisition expense recognized | $ | $ 0.9 | ||||
Day Auto Group | |||||
Business Acquisition [Line Items] | |||||
Number of stores acquired | 7 | ||||
Prestige Auto Group | |||||
Business Acquisition [Line Items] | |||||
Number of stores acquired | 6 | ||||
Baierl Auto Group | |||||
Business Acquisition [Line Items] | |||||
Number of stores acquired | 8 | ||||
Downtown LA Auto Group | |||||
Business Acquisition [Line Items] | |||||
Number of stores acquired | 7 |
Acquisitions (Revenue and Operating Income from Acquisitions) (Details) - 2018 Acquisitions $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Business Acquisition [Line Items] | |
Revenue | $ 84,629 |
Net loss | $ (142) |
Acquisitions (Summary of Acquisitions) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Business Acquisition [Line Items] | ||
Cash paid, net of cash acquired | $ 324,367 | $ 0 |
2018 Acquisitions | ||
Business Acquisition [Line Items] | ||
Cash paid, net of cash acquired | $ 324,367 |
Acquisitions (Assets Acquired and Liabilities Assumed) (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 256,283 | $ 256,320 | $ 259,399 |
2017 and 2018 Acquisitions | |||
Business Acquisition [Line Items] | |||
Trade receivables, net | 328 | ||
Inventories | 153,422 | ||
Property and equipment | 9,201 | ||
Other assets | 174,474 | ||
Floor plan notes payable | (10,661) | ||
Other liabilities | (2,397) | ||
Assets acquired and liabilities assumed | 324,367 | ||
Goodwill | 0 | ||
Assets acquired and liabilities assumed, net | $ 324,367 |
Acquisitions (Pro Forma Summary of All Acquisitions) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Business Combinations [Abstract] | ||
Revenue | $ 2,822,370 | $ 2,825,619 |
Net income | $ 50,737 | $ 53,034 |
Basic net income per share (in dollars per share) | $ 2.03 | $ 2.11 |
Diluted net income per share (in dollars per share) | $ 2.02 | $ 2.10 |
Change in Accounting Policies - Narrative (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Jan. 01, 2018 |
Dec. 31, 2017 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Asset associated with future estimated variable consideration | $ 9,200 | $ 9,200 | |
Increase (decrease) in retained earnings | $ 969,406 | $ 922,662 | |
Accounting Standards Update, 2014-09, Future Estimated Variable Consideration | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Asset associated with future estimated variable consideration | 9,200 | ||
Increase (decrease) in retained earnings | 6,500 | ||
Accounting Standards Update, 2014-09, Determination And Capitalization Of Direct Costs Incurred | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Increase (decrease) in retained earnings | (5,100) | ||
Prepaid commissions | $ 7,200 |
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