ACQUISITIONS AND DIVESTITURES

6 Months Ended

Jun. 30, 2022

Business Combinations and Discontinued Operations and Disposal Groups [Abstract]

Results of acquired businesses, which are primarily dealerships, are included in our accompanying Condensed Consolidated Statements of Income commencing on the date of acquisition. Our acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Upon the completion of purchase accounting, the fair value of our manufacturer franchise rights are determined as of the acquisition date, by discounting the projected cash flows specific to each franchise. Included in this analysis are market participant assumptions related to the cash flows directly attributable to the franchise rights, including year-over-year and terminal growth rates, working capital requirements, weighted average cost of capital, future gross margins, and future selling, general, and administrative expenses.

LHM Acquisition

On December 17, 2021, we completed the acquisition of the equity interests of, and the real property related to the businesses of the Larry H. Miller Dealerships and the Total Care Auto, Powered by Landcar business. The acquisition diversifies Asbury's geographic mix, with entry into six Western states; Arizona, Utah, New Mexico, Idaho, California and Washington, and adds to the Company’s growing Colorado presence.

As a result of the LHM Acquisition, we acquired 54 new vehicle dealerships, seven used vehicle stores, 11 collision centers, a used vehicle wholesale business, the real property related thereto, and the entities comprising the TCA Business for a total purchase price of approximately $3.48 billion. The preliminary purchase price was paid in cash.

The sources of the preliminary purchase consideration are as follows:


	(In millions)
Cash, net of cash acquired	$	195.0
Common stock offering	666.9
Senior notes	1,578.5
Real estate facility	513.0
New vehicle floor plan facility	183.5
Used vehicle floor plan facility	51.0
Payable to sellers	6.0
Preliminary purchase price, net of cash acquired	$	3,193.9

Under the acquisition method of accounting, the tangible and intangible assets acquired and liabilities assumed are recorded at their estimated fair value based on information currently available. The following table summarizes the amounts recorded based on preliminary estimates of fair value:


	(In millions)
Summary of Assets Acquired and Liabilities Assumed
Assets
Cash and cash equivalents	$	287.4
Investments	133.5
Contracts-in-transit, net	99.5
Accounts receivable, net	110.0
Inventories, net	282.1
Other current assets	25.4
Total current assets	937.9
Property and equipment, net	792.6
Goodwill	1,642.2
Intangible franchise rights	870.0
Operating lease right-of-use assets	34.1
Deferred income taxes	136.5
Other long-term assets	5.6
Total assets acquired	4,418.9

Liabilities
Accounts payable and accrued liabilities	234.0
Operating lease liabilities	34.1
Deferred revenue	644.3
Other long-term liabilities	25.2
Total liabilities assumed	937.6
Net assets acquired	$	3,481.3

The preliminary acquisition accounting is based upon the Company’s estimates of fair value. The estimated fair values of the assets acquired and liabilities assumed and the related preliminary acquisition accounting are based on management’s estimates and assumptions, as well as other information compiled by management, including the books and records of Larry H. Miller. Our estimates and assumptions are subject to change during the measurement period, not to exceed one year from the acquisition date. The areas of acquisition accounting that are not yet finalized primarily relate to the following significant items: (i) finalizing the review and valuation of land, land improvements, buildings and non-real property and equipment (including the models, key assumptions, estimates and inputs used) and assignment of remaining useful lives associated with the

depreciable assets, (ii) finalizing the review and valuation of manufacturer franchise rights (including key assumptions, inputs and estimates), (iii) finalizing the review of the actuarial inputs to the value of business added intangible asset for TCA, (iv) finalizing the valuation of certain in-place contracts or contractual relationships (including but not limited to leases), including determining the appropriate amortization period, (v) finalizing our review of certain assets acquired and liabilities assumed, (vi) finalizing the evaluation and valuation of certain legal matters and/or other loss contingencies, including those that we may not yet be aware of but meet the requirement to qualify as a pre-acquisition contingency, and (vii) finalizing our estimate of the impact of acquisition accounting on deferred income taxes or liabilities. As the initial acquisition accounting is based on our preliminary assessments, actual values may differ (possibly materially) from our current estimates when final information becomes available. Additionally, the total consideration transferred is subject to certain post-close adjustments. We believe that the information gathered to date provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed. We will continue to evaluate these items until they are satisfactorily resolved and adjust our acquisition accounting accordingly, within the allowable measurement period.

The Company's Condensed Consolidated Statements of Income included revenue attributable to LHM Acquisition for the six months ended June 30, 2022 of $2.82 billion.

Other Acquisitions and Divestitures

There were no acquisitions during the six months ended June 30, 2022 and 2021.

During the six months ended June 30, 2022, we sold one franchise (one dealership location) in St. Louis, Missouri, three franchises (three dealership locations) and one collision center in Denver, Colorado, two franchises (two dealership locations) in Spokane, Washington and one franchise (one dealership location) in Albuquerque, New Mexico. The Company recorded a pre-tax gain totaling $4.4 million during the six months ended June 30, 2022, which is presented in our accompanying Condensed Consolidated Statements of Income as (Gain) loss on dealership divestitures, net. The gain or loss on dealership divestitures related to the six dealerships divested in the Denver, Colorado, Spokane, Washington and Albuquerque, New Mexico markets is preliminary, pending final purchase accounting entries in connection with the Larry H. Miller acquisition. None of the divested businesses would be considered significant subsidiaries as defined in Rule 1-02(w) of Regulation S-X.

We did not divest any dealerships during the six months ended June 30, 2021; however, we did release $1.0 million of purchase price holdbacks related to a prior year acquisition.