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EXCEL - IDEA: XBRL DOCUMENT - LITHIA MOTORS INCFinancial_Report.xls

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from       to      

 

Commission file number: 001-14733

 


 

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

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company)     Smaller reporting company [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class A common stock without par value

 

23,778,453

Class B common stock without par value

 

2,562,231

(Class)

 

(Outstanding at May 1, 2015)

 

 

 

 

 
 

 

 

LITHIA MOTORS, INC.

FORM 10-Q

INDEX 

 

PART I - FINANCIAL INFORMATION

Page

       

Item 1.

Financial Statements

   
       
 

Consolidated Balance Sheets (Unaudited) – March 31, 2015 and December 31, 2014

  2
       
 

Consolidated Statements of Operations (Unaudited) – Three Months Ended March 31, 2015 and 2014

  3
       
 

Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, 2015 and 2014

  4
       
 

Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2015 and 2014

  5
       
 

Condensed Notes to Consolidated Financial Statements (Unaudited)

  6
       

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  18
       

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

  37
       

Item 4.

Controls and Procedures

  37
       

PART II - OTHER INFORMATION

   
       

Item 1A.

Risk Factors

  38
       

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  38
       

Item 6.

Exhibits

  39
       

Signatures

  40

 

 
1

 

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

   

March 31,

   

December 31,

 
   

2015

   

2014

 

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 21,023     $ 29,898  

Accounts receivable, net of allowance for doubtful accounts of $1,977 and $2,191

    290,638       295,379  

Inventories, net

    1,286,614       1,249,659  

Other current assets

    32,498       32,010  

Assets held for sale

    4,026       8,563  

Total Current Assets

    1,634,799       1,615,509  
                 

Property and equipment, net of accumulated depreciation of $123,816 and $117,679

    828,707       816,745  

Goodwill

    199,286       199,375  

Franchise value

    150,856       150,892  

Other non-current assets

    110,737       98,411  

Total Assets

  $ 2,924,385     $ 2,880,932  
                 

Liabilities and Stockholders' Equity

               

Current Liabilities:

               

Floor plan notes payable

  $ 42,139     $ 41,047  

Floor plan notes payable: non-trade

    1,113,428       1,137,632  

Current maturities of long-term debt

    40,543       31,912  

Trade payables

    76,517       70,853  

Accrued liabilities

    154,786       153,661  

Deferred income taxes

    3,140       2,603  

Liabilities related to assets held for sale

    2,688       4,892  

Total Current Liabilities

    1,433,241       1,442,600  
                 

Long-term debt, less current maturities

    621,890       609,066  

Deferred revenue

    56,849       54,403  

Deferred income taxes

    41,474       42,795  

Other long-term liabilities

    63,094       58,963  

Total Liabilities

    2,216,548       2,207,827  
                 

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 23,782 and 23,671

    272,625       276,058  

Class B common stock - no par value; authorized 25,000 shares; issued and outstanding 2,562 and 2,562

    319       319  

Additional paid-in capital

    31,364       29,775  

Accumulated other comprehensive loss

    (787 )     (926 )

Retained earnings

    404,316       367,879  

Total Stockholders' Equity

    707,837       673,105  

Total Liabilities and Stockholders' Equity

  $ 2,924,385     $ 2,880,932  

 

See accompanying condensed notes to consolidated financial statements.

 

 
2

 

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 

Revenues:

               

New vehicle

  $ 1,007,816     $ 579,522  

Used vehicle retail

    462,931       301,893  

Used vehicle wholesale

    62,208       42,693  

Finance and insurance

    64,604       39,631  

Service, body and parts

    173,475       104,617  

Fleet and other

    18,144       9,750  

Total revenues

    1,789,178       1,078,106  

Cost of sales:

               

New vehicle

    946,042       540,498  

Used vehicle retail

    403,489       261,097  

Used vehicle wholesale

    60,047       41,362  

Service, body and parts

    89,036       53,785  

Fleet and other

    17,189       9,303  

Total cost of sales

    1,515,803       906,045  

Gross profit

    273,375       172,061  

Asset impairments

    4,130       -  

Selling, general and administrative

    191,618       121,829  

Depreciation and amortization

    9,726       5,507  

Operating income

    67,901       44,725  

Floor plan interest expense

    (4,649 )     (2,984 )

Other interest expense

    (4,828 )     (1,974 )

Other (expense) income, net

    (368 )     937  

Income from continuing operations before income taxes

    58,056       40,704  

Income tax provision

    (17,403 )     (16,010 )

Income from continuing operations, net of income tax

    40,653       24,694  

Income from discontinued operations, net of income tax

    -       40  

Net income

  $ 40,653     $ 24,734  
                 

Basic income per share from continuing operations

  $ 1.55     $ 0.95  

Basic income per share from discontinued operations

    -       -  

Basic net income per share

  $ 1.55     $ 0.95  
                 

Shares used in basic per share calculations

    26,283       25,973  
                 

Diluted income per share from continuing operations

  $ 1.53     $ 0.94  

Diluted income per share from discontinued operations

    -       -  

Diluted net income per share

  $ 1.53     $ 0.94  
                 

Shares used in diluted per share calculations

    26,519       26,320  

 

See accompanying condensed notes to consolidated financial statements.

 

 
3

 

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited) 

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 

Net income

  $ 40,653     $ 24,734  

Other comprehensive income, net of tax:

               

Gain on cash flow hedges, net of tax expense of $86 and $93, respectively

    139       149  

Comprehensive income

  $ 40,792     $ 24,883  

 

See accompanying condensed notes to consolidated financial statements.

 

 
4

 

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 

Cash flows from operating activities:

               

Net income

  $ 40,653     $ 24,734  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Asset impairments

    4,130       -  

Depreciation and amortization

    9,726       5,507  

Stock-based compensation

    2,727       1,538  

Loss on disposal of other assets

    8       20  

Gain on disposal of franchise

    (3,349 )     -  

Deferred income taxes

    3,863       1,866  

Excess tax benefit from share-based payment arrangements

    (4,733 )     (5,846 )

(Increase) decrease (net of acquisitions and dispositions):

               

Trade receivables, net

    7,569       (12,259 )

Inventories

    (39,460 )     (56,748 )

Other assets

    (2,078 )     (2,290 )

Increase (net of acquisitions and dispositions):

               

Floor plan notes payable

    1,092       1,675  

Trade payables

    6,799       1,774  

Accrued liabilities

    4,444       12,521  

Other long-term liabilities and deferred revenue

    6,838       5,121  

Net cash provided by (used in) operating activities

    38,229       (22,387 )
                 

Cash flows from investing activities:

               

Capital expenditures

    (24,917 )     (12,630 )

Proceeds from sales of assets

    103       27  

Cash paid for other investments

    (9,804 )     (3,530 )

Cash paid for acquisitions, net of cash acquired

    -       (31,689 )

Proceeds from sales of stores

    3,680       -  

Net cash used in investing activities

    (30,938 )     (47,822 )
                 

Cash flows from financing activities:

               

Borrowings (repayments), net on floor plan notes payable: non-trade

    (21,984 )     51,783  

Borrowings on lines of credit

    271,023       233,000  

Repayments on lines of credit

    (293,960 )     (209,725 )

Principal payments on long-term debt, scheduled

    (3,619 )     (1,890 )

Principal payments on long-term debt and capital leases, other

    (9,189 )     -  

Proceeds from issuance of long-term debt

    50,350       -  

Proceeds from issuance of common stock

    1,039       1,168  

Repurchase of common stock

    (10,343 )     (7,941 )

Excess tax benefit from share-based payment arrangements

    4,733       5,846  

Dividends paid

    (4,216 )     (3,378 )

Net cash (used in) provided by financing activities

    (16,166 )     68,863  
                 

Decrease in cash and cash equivalents

    (8,875 )     (1,346 )
                 

Cash and cash equivalents at beginning of period

    29,898       23,686  

Cash and cash equivalents at end of period

  $ 21,023     $ 22,340  
                 
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for interest

  $ 12,494     $ 5,102  

Cash paid during the period for income taxes, net

    6,542       3,706  
                 

Supplemental schedule of non-cash activities:

               

Debt issued in connection with acquisitions

  $ -     $ 3,161  

Floor plan debt paid in connection with store disposals

    2,208       -  

 

See accompanying condensed notes to consolidated financial statements.

 

 
5

 

 

LITHIA MOTORS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Interim Financial Statements

 

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of March 31, 2015 and for the three-month periods ended March 31, 2015 and 2014. 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 2014 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2014 is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2015. The interim condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our 2014 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.

 

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency and comparability between periods presented.

 

These reclassifications had no impact on previously reported net income. 

 

Note 2. Accounts Receivable

Accounts receivable consisted of the following (in thousands):

 

   

March 31,
2015

   

December 31,

2014

 

Contracts in transit

  $ 164,003     $ 162,785  

Trade receivables

    37,472       37,194  

Vehicle receivables

    31,941       34,876  

Manufacturer receivables

    51,717       56,008  

Auto loan receivables

    27,931       25,424  

Other receivables

    4,501       4,554  
      317,565       320,841  

Less: Allowances

    (2,996 )     (3,130 )

Less: Long-term portion of accounts receivable, net

    (23,931 )     (22,332 )

Total accounts receivable, net

  $ 290,638     $ 295,379  

 

Accounts receivable classifications include the following:

 

 

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 within five to ten days of selling a vehicle.

 

Trade receivables are comprised of amounts due from customers, lenders for the commissions earned on financing and third parties 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.

 

 

 
6

 

 

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 allowances are 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, net, was included as a component of other non-current assets in the Consolidated Balance Sheets.

 

Note 3. Inventories

The components of inventories, net, consisted of the following (in thousands):

 

   

March 31,
2015

   

December 31,

2014

 

New vehicles

  $ 967,485     $ 958,876  

Used vehicles

    269,681       240,908  

Parts and accessories

    49,448       49,875  

Total inventories

  $ 1,286,614     $ 1,249,659  

 

Note 4. Goodwill and Franchise Value

The changes in the carrying amounts of goodwill and franchise value are as follows (in thousands):

 

   

Domestic

   

Import

   

Luxury

   

Consolidated

 

Balance as of December 31, 2013(1)

  $ 22,548     $ 16,797     $ 10,166     $ 49,511  

Additions through acquisitions

    68,463       62,804       18,597       149,864  

Balance as of December 31, 2014(1)

    91,011       79,601       28,763       199,375  

Reduction related to divestiture

    -       (89 )     -       (89 )

Balance as of March 31, 2015(1)

  $ 91,011     $ 79,512     $ 28,763     $ 199,286  

 

(1)

Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.

 

   

Franchise Value

 

Balance as of December 31, 2013

  $ 71,199  

Additions through acquisitions

    80,233  

Transfers to assets held for sale

    (540 )

Balance as of December 31, 2014

    150,892  

Reduction related to divestiture

    (36 )

Balance as of March 31, 2015

  $ 150,856  

 

 
7

 

 

Note 5. Stockholders’ Equity

 

Reclassification From Accumulated Other Comprehensive Loss

The reclassification from accumulated other comprehensive loss was as follows (in thousands):

 

   

Three Months Ended
March 31,

 

Affected Line Item in the Consolidated

   

2015

   

2014

 

Statements of Operations

Loss on cash flow hedges

  $ (125)     $ (134)  

Floor plan interest expense

Income taxes

    48       51  

Income tax provision

Loss on cash flow hedges, net

  $ (77)     $ (83)    

 

See Note 8 for more details regarding our derivative contracts.

 

Repurchases of Class A Common Stock

In August 2011, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our Class A common stock and, on July 20, 2012, our Board of Directors authorized the repurchase of 1,000,000 additional shares of our Class A common stock. Through March 31, 2015, we have repurchased 1,538,221 shares under this program at an average price of $32.68 per share. Of this amount, 38,445 shares were repurchased during the first quarter of 2015 at an average price of $90.87 per share for a total of $3.5 million. As of March 31, 2015, 1,461,779 shares remained available for repurchase pursuant to this program. The authority to repurchase does not have an expiration date.

 

In addition, during the first quarter of 2015, we repurchased 77,438 shares at an average price of $88.45, for a total of $6.8 million, related to tax withholdings associated with the vesting of restricted stock units. 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.

 

Dividends

Dividends paid on our Class A and Class B common stock were as follows:

 

Three Months Ended March 31,

 

Dividend

amount per

share

   

Total amount

of dividend

(in thousands)

 

2014

  $ 0.13     $ 3,378  

2015

    0.16       4,216  

 

See Note 14 for a discussion of a dividend related to our first quarter 2015 financial results.

 

Note 6. Deferred Compensation and Long-Term Incentive Plan

We offer a deferred compensation and long-term incentive plan (the “LTIP”) to provide certain employees the ability to accumulate assets for retirement on a tax-deferred basis. We may make discretionary contributions to the LTIP. Discretionary contributions vest over one to seven years depending on the employee’s age and position. Additionally, a participant may defer a portion of his or her compensation and receive the deferred amount upon certain events, including termination or retirement. The following is a summary related to our LTIP:

 

   

Three Months Ended

March 31,

 
   

2015

   

2014

 

Compensation expense

  $ 457     $ 700  

Discretionary contribution

  $ 2,096     $ 2,100  

Guaranteed annual return

    5.25 %     5.25 %

 

As of March 31, 2015 and December 31, 2014, the balance due to participants was $15.0 million and $14.2 million, respectively, and was included as a component of other long-term liabilities in the Consolidated Balance Sheets.

 

 

 
8

 

 

Note 7. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

 

 

Level 1 – quoted prices in active markets for identical securities;

 

Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and

 

Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

 

The inputs or methodology used for valuing financial assets and liabilities are not necessarily an indication of the risk associated with investing in them.

 

We use the income approach to determine the fair value of our interest rate swap using observable Level 2 market expectations at each measurement date and an income approach to convert estimated future cash flows to a single present value amount (discounted) assuming that participants are motivated, but not compelled, to transact. Level 2 inputs for the swap valuation are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs, including the cash rates for very short term borrowings, futures rates for up to two years and LIBOR swap rates beyond the derivative maturity, are used to predict future reset rates to discount those future cash flows to present value at the measurement date.

 

Inputs are collected from Bloomberg on the last market day of the period and used to determine the rate used to discount the future cash flows. The valuation of the interest rate swap also takes into consideration our own, as well as the counterparty’s, risk of non-performance under the contract. See Note 8 for more details regarding our derivative contracts.

 

We estimate the value of our equity-method investment that is recorded at fair value on a non-recurring basis based on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets. Because these valuations contain unobservable inputs, we classified the measurement of fair value of our equity-method investment as Level 3.

 

There were no changes to our valuation techniques during the three-month period ended March 31, 2015.

 

Assets and Liabilities Measured at Fair Value

Following are the disclosures related to our assets and (liabilities) that are measured at fair value (in thousands):

 

Fair Value at March 31, 2015

 

Level 1

   

Level 2

   

Level 3

 

Measured on a recurring basis:

                       

Derivative contracts, net

  $ -     $ (1,488 )   $ -  
                         

Measured on a non-recurring basis:

                       

Equity-method investment

  $ -     $ -     $ 39,871  

 

 

 
9

 

 

Fair Value at December 31, 2014

 

Level 1

   

Level 2

   

Level 3

 

Measured on a recurring basis:

                       

Derivative contracts, net

  $ -     $ (1,750 )   $ -  
                         

Measured on a non-recurring basis:

                       

Equity-method investment

  $ -     $ -     $ 33,282  

 

Based on operating losses recognized by the equity-method investment, we determined that an impairment of our investment had occurred. Accordingly, we performed a fair value calculation for this investment and determined that a $4.1 million impairment was required to be recorded as asset impairments in our Consolidated Statements of Operations for the three months ended March 31, 2015. See Note 11.

 

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 and calculate the estimated fair value of our fixed rate debt using a discounted cash flow methodology. Using 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, 2015, this debt had maturity dates between July 2016 and October 2034. A summary of the aggregate carrying values and fair values of our long-term fixed interest rate debt is as follows (in thousands):

 

   

March 31,
201
5

   

December 31,

2014

 

Carrying value

  $ 312,790     $ 257,780  

Fair value

    312,097       270,781  

 

Note 8. Derivative Financial Instruments

From time to time, we enter into interest rate swaps to fix a portion of our interest expense. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure to fluctuations in the one-month LIBOR benchmark. That is, we do not engage in interest rate speculation using derivative instruments.

 

As of March 31, 2015, we had a $25 million interest rate swap outstanding with U.S. Bank Dealer Commercial Services. This interest rate swap matures on June 15, 2016 and has a fixed rate of 5.587% per annum. The variable rate on the interest rate swap is the one-month LIBOR rate. At March 31, 2015, the one-month LIBOR rate was 0.18% per annum, as reported in the Wall Street Journal.

 

Typically, we designate all interest rate swaps as cash flow hedges and, accordingly, we record the change in fair value for the effective portion of these interest rate swaps in comprehensive income rather than net income until the underlying hedged transaction affects net income. If a swap is no longer designated as a cash flow hedge and the forecasted transaction remains probable or reasonably possible of occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income as the forecasted transaction occurs. If the forecasted transaction is probable of not occurring, the gain or loss recorded in accumulated other comprehensive loss is recognized in income immediately. See Note 7.

 

The estimated amount that we expect to reclassify from accumulated other comprehensive loss to net income within the next twelve months is $1.1 million at March 31, 2015.

 

 

 
10

 

 

The fair value of our derivative instruments was included in our Consolidated Balance Sheets as follows (in thousands):

 

Balance Sheet Information

 

Fair Value of Liability Derivatives

 

Derivatives Designated as

Hedging Instruments

 

Location in Balance Sheet

 

March 31,

2015

 
             

Interest Rate Swap Contract

 

Accrued liabilities

  $ 1,194  
   

Other long-term liabilities

    294  
        $ 1,488  

 

Balance Sheet Information

 

Fair Value of Liability Derivatives

 

Derivatives Designated as

Hedging Instruments

 

Location in Balance Sheet

 

December 31,

2014

 
             

Interest Rate Swap Contract

 

Accrued liabilities

  $ 1,194  
   

Other long-term liabilities

    556  
        $ 1,750  

 

The effect of derivative instruments on our Consolidated Statements of Operations was as follows (in thousands):

 

Derivatives in Cash

Flow Hedging

Relationships

 

Amount of

gain

recognized in

Accumulated

OCI (effective

portion)

 

Location of

loss

reclassified

from

Accumulated

OCI into

Income

(effective

portion)

 

Amount of loss

reclassified

from

Accumulated

OCI into Income

(effective

portion)

 

Location of loss

recognized in

Income on

derivative

(ineffective

portion and

amount

excluded from

effectiveness

testing)

 

Amount of

loss

recognized in

Income on

derivative

(ineffective

portion and

amount

excluded from

effectiveness

testing)

 
                             

Three Months Ended

March 31, 2015

       

 

       

 

       

Interest Rate Swap Contracts

  $ 100  

Floor plan

interest expense

  $ (125 )

Floor plan

interest expense

  $ (177 )
                             

Three Months Ended

March 31, 2014

       

 

       

 

       

Interest Rate Swap Contracts

  $ 108  

Floor plan

interest expense

  $ (134 )

Floor plan

interest expense

  $ (171 )

 

See also Note 7.

 

Note 9. Assets Held for Sale and Discontinued Operations

 

Assets Held for Sale

We classify an asset group as held for sale if the location has been sold, we have ceased operations at that location or the store meets the criteria required by U.S. generally accepted accounting standards as follows:

 

 

our management team, possessing the necessary authority, commits to a plan to sell the store;

 

the store is available for immediate sale in its present condition;

 

an active program to locate buyers and other actions that are required to sell the store are initiated;

 

a market for the store exists and we believe its sale is likely within one year;

 

active marketing of the store commences at a price that is reasonable in relation to the estimated fair market value; and

 

our management team believes it is unlikely changes will be made to the plan or the plan to dispose of the store will be withdrawn.

 

 

 
11

 

 

As of December 31, 2014, we had two Import stores classified as held for sale. During the three months ended March 31, 2015, we completed the sale of one Import store, which was previously classified as held for sale, and recognized a gain of $3.3 million as a component of selling, general and administrative on our Consolidated Statements of Operations.

 

As of March 31, 2015, we had one Import store classified as held for sale. Assets held for sale included the following (in thousands):

 

   

March 31,

2015

   

December 31,

2014

 

Inventories

  $ 3,379     $ 6,284  

Property, plant and equipment

    107       1,739  

Intangible assets

    540       540  
    $ 4,026     $ 8,563  

 

Liabilities related to assets held for sale included the following (in thousands):

 

   

March 31,

2015

   

December 31,

2014

 

Floor plan notes payable

  $ 2,688     $ 4,892  

 

Discontinued Operations

In the third quarter of 2014, we early-adopted guidance that redefined discontinued operations. As a result, we determined that individual stores which met the criteria for held for sale after our adoption date would no longer qualify for classification as discontinued operations. We had previously reclassified a store’s operations to discontinued operations in our Consolidated Statements of Operations, on a comparable basis for all periods presented, provided we did not expect to have any significant continuing involvement in the store’s operations after its disposal.

 

Certain financial information related to discontinued operations was as follows (in thousands):

 

   

Three Months Ended

March 31,

 
   

2015

   

2014

 

Revenue

  $ -     $ 8,650  
                 

Pre-tax income from discontinued operations

  $ -     $ 65  

Income tax expense

    -       (25 )

Income from discontinued operations, net of income tax expense

  $ -     $ 40  

 

Note 10. 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 unvested common shares subject to repurchase or cancellation. 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 incremental common shares issuable upon the exercise of stock options and unvested restricted shares subject to repurchase or cancellation. The dilutive effect of outstanding stock options and other grants 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.

 

 

 
12

 

 

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 Restated Articles of Incorporation, the Class A and Class B common stock must 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 the income from continuing operations and weighted average shares used for our basic earnings per share (“EPS”) and diluted EPS (in thousands, except per share amounts):

 

Three Months Ended March 31,

 

2015

   

2014

 

Basic EPS from Continuing Operations

 

Class A

   

Class B

   

Class A

   

Class B

 

Numerator:

                               

Income from continuing operations applicable to common stockholders

  $ 36,690     $ 3,963     $ 22,258     $ 2,436  

Distributed income applicable to common stockholders

    (3,805 )     (411 )     (3,045 )     (333 )

Basic undistributed income from continuing operations applicable to common stockholders

  $ 32,885     $ 3,552     $ 19,213     $ 2,103  
                                 

Denominator:

                               

Weighted average number of shares outstanding used to calculate basic income per share

    23,721       2,562       23,411       2,562  
                                 

Basic income per share from continuing operations applicable to common stockholders

  $ 1.55     $ 1.55     $ 0.95     $ 0.95  

Basic distributed income per share from continuing operations applicable to common stockholders

    (0.16 )     (0.16 )     (0.13 )     (0.13 )

Basic undistributed income per share from continuing operations applicable to common stockholders

  $ 1.39     $ 1.39     $ 0.82     $ 0.82  

 

 

 
13

 

 

 

Three Months Ended March 31,

 

2015

   

2014

 

Diluted EPS from Continuing Operations

 

Class A

   

Class B

   

Class A

   

Class B

 

Numerator:

                               

Distributed income applicable to common stockholders

  $ 3,805     $ 411     $ 3,045     $ 333  

Reallocation of distributed income as a result of conversion of dilutive stock options

    4       (4 )     4       (4 )

Reallocation of distributed income due to conversion of Class B to Class A common shares outstanding

    407       -       329       -  

Diluted distributed income applicable to common stockholders

  $ 4,216     $ 407     $ 3,378     $ 329  

Undistributed income from continuing operations applicable to common stockholders

  $ 32,885     $ 3,552     $ 19,213     $ 2,103  

Reallocation of undistributed income as a result of conversion of dilutive stock options

    32       (32 )     28       (28 )

Reallocation of undistributed income due to conversion of Class B to Class A

    3,520       -       2,075       -  

Diluted undistributed income from continuing operations applicable to common stockholders

  $ 36,437     $ 3,520     $ 21,316     $ 2,075  
                                 

Denominator:

                               

Weighted average number of shares outstanding used to calculate basic income per share from continuing operations

    23,721       2,562       23,411       2,562  

Weighted average number of shares from stock options

    236       -       347       -  

Conversion of Class B to Class A common shares outstanding

    2,562       -       2,562       -  

Weighted average number of shares outstanding used to calculate diluted income per share from continuing operations

    26,519       2,562       26,320       2,562  
                                 

Diluted income per share from continuing operations applicable to common stockholders

  $ 1.53     $ 1.53     $ 0.94     $ 0.94  

Diluted distributed income per share from continuing operations applicable to common stockholders

    (0.16 )     (0.16 )     (0.13 )     (0.13 )

Diluted undistributed income per share from continuing operations applicable to common stockholders

  $ 1.37     $ 1.37     $ 0.81     $ 0.81  

 

 

Three Months Ended March 31,

 

2015

   

2014

 

Diluted EPS

 

Class A

   

Class B

   

Class A

   

Class B

 

Antidilutive Securities

                               

Shares issuable pursuant to stock options not included since they were antidilutive

    15       -       16       -  

 

Note 11. Equity-Method Investment

In October 2014, we acquired a 99.9% membership interest in a limited liability company managed by U.S. Bancorp Community Development Corporation. We made an additional equity contribution to the entity in January 2015. This investment generates new markets tax credits under the New Markets Tax Credit Program (“NMTC Program”). The NMTC Program was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities.

 

 

 
14

 

 

While U.S. Bancorp Community Development Corporation exercises management control over the limited liability company, due to the economic interest we hold in the entity, we determined our ownership portion of the entity was appropriately accounted for using the equity method. We are obligated to make $49.8 million of equity contributions to the entity over a two-year period ending October 2016, $9.8 million of which had been contributed as of March 31, 2015.

 

The following amounts related to this equity-method investment were recorded in our Consolidated Balance Sheets (in thousands):

 

   

March 31,

2015

   

December 31,

2014

 

Carrying value, recorded as a component of other non-current assets

  $ 39,871     $ 33,282  

Present value of obligation associated with future equity contributions, recorded as a component of accrued liabilities and other long-term liabilities

    39,076       32,177  

 

The following amounts related to this equity-method investment were recorded in our Consolidated Statements of Operations (in thousands):

 

   

Three Months Ended

March 31,

 
   

2015

   

2014

 

Asset impairments to write investment down to fair value

  $ 4,130     $ -  

Our portion of the partnership’s operating losses

    1,732       -  

Non-cash interest expense related to the amortization of the discounted fair value of future equity contributions

    211       -  

Tax benefits and credits generated

    7,250       -  

 

Note 12. Segments

While we have determined that each individual store is an operating segment, we have aggregated our operating segments 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-Benz and Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance and insurance products.

 

Corporate and other is comprised of our stand-alone collision center; unallocated corporate overhead expenses, such as corporate personnel costs, certain interest expense and depreciation expense, and retrospective commissions for certain finance and insurance transactions that we arrange under agreements with third parties.

 

We define our chief operating decision maker (“CODM”) to be certain members of our executive management group. Historical and forecasted operational performance is 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. Management measures the performance of each operating segment based on several metrics, including earnings from operations. Management uses these results, in part, to evaluate the performance of, and to allocate resources to, each of the operating segments.

 

 

 
15

 

 

Certain financial information on a segment basis is as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 

Revenues:

               

Domestic

  $ 691,404     $ 568,930  

Import

    758,638       351,061  

Luxury

    336,922       158,611  
      1,786,964       1,078,602  

Corporate and other

    2,214       (496 )
    $ 1,789,178     $ 1,078,106  
                 

Segment income*:

               

Domestic

  $ 27,129     $ 22,421  

Import

    16,100       9,265  

Luxury

    5,899       2,185  
      49,128       33,871  

Corporate and other

    8,928       6,833  

Income from continuing operations before income taxes

  $ 58,056     $ 40,704  
                 

*Segment income is defined as operating income less floor plan interest expense.

 
                 

Floor plan interest expense:

               

Domestic

  $ 4,736     $ 4,058  

Import

    3,698       1,808  

Luxury

    2,062       1,129  
      10,496       6,995  

Corporate and other

    (5,847 )     (4,011 )
    $ 4,649     $ 2,984  

 

   

March 31,

2015

   

December 31,

2014

 

Total assets:

               

Domestic

  $ 869,313     $ 831,574  

Import

    707,736       696,162  

Luxury

    399,373       405,222  

Corporate and other

    947,963       947,974  
    $ 2,924,385     $ 2,880,932  

 

Note 13. Recent Accounting Pronouncements

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. This amendment will replace most of the existing revenue recognition guidance when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this amendment will have on our consolidated financial statements and related disclosures and believe the financial impact will not differ significantly from our current revenue recognition practices. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

 

 

 
16

 

 

In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718).” ASU 2014-12 addresses accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 indicates that, in such situations, the performance target should be treated as a performance condition and, accordingly, the performance target should not be reflected in estimating the grant-date fair value of the award. Instead, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

 

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” ASU 2015-02 amends guidance regarding the consolidation of certain legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We do not expect the adoption of ASU 2015-02 to have any effect on our financial position, results of operations or cash flows.

 

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30).” ASU 2015-03 amends guidance in order to simplify the presentation of debt issuance costs. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted for financial statements that have not been previously issued. We do not expect the adoption of ASU 2015-03 to have any effect on our financial position, results of operations or cash flows.

 

Note 14. Subsequent Events

 

Common Stock Dividend

On April 20, 2015, our Board of Directors approved a dividend of $0.20 per share on our Class A and Class B common stock related to our first quarter 2015 financial results. The dividend will total approximately $5.3 million and will be paid on May 29, 2015 to shareholders of record on May 15, 2015.

 

 

 
17

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements and Risk Factors

Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project”, “outlook,” “target”, “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:

 

Future market conditions, including the availability of consumer credit;

 

Expected operating results, such as improved store performance, our expectation that SG&A as a percentage of gross profit will be in the lower 70% range in 2015 and targeting incremental throughput in a range of 45% to 50%;

 

Anticipated ability to remain in compliance with the financial and restrictive covenants in our credit facility and other debt agreements;

 

Anticipated availability of liquidity from our unfinanced operating real estate;

 

Anticipated levels of capital expenditures in the future; and

 

Our strategies for customer retention, growth, market position, financial results and risk management.

 

The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in Part II - Other Information, Item 1A in this Form 10-Q and in the Risk Factors section of our 2014 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.

 

Overview

We are a leading operator of automotive franchises and a retailer of new and used vehicles and related services. As of May 1, 2015, we offered 30 brands of new vehicles and all brands of used vehicles in 130 stores in the United States and online at Lithia.com and DCHauto.com. We sell new and used cars and replacement parts; provide vehicle maintenance, warranty, paint and repair services; arrange related financing; and sell service contracts, vehicle protection products and credit insurance.

 

Our dealerships are located across the United States. We seek domestic, import and luxury franchises in cities ranging from mid-sized regional markets to metropolitan markets. We evaluate all brands for expansion opportunities provided the market is large enough to support adequate new vehicle sales to justify the required capital investment.

 

Our mission statement is: “Driven by our employees and preferred by our customers, Lithia is the leading automotive retailer in each of our markets.” We offer customers personal, convenient, flexible personalized service combined with the large company advantages of selection, competitive pricing, broad access to financing, and warranties. We strive for diversification in our products, services, brands and geographic locations to insulate us from market risk and to maintain profitability. We have developed a centralized support structure to reduce store level administrative functions. This allows store personnel to focus on providing a positive customer experience. With our management information systems and centrally-performed administrative functions in Medford, Oregon, and regional accounting processing centers, we seek to gain economies of scale from our dealership network.

 

 

 
18

 

 

Results of Continuing Operations

For the three months ended March 31, 2015 and 2014, we reported income from continuing operations, net of tax, of $40.7 million, or $1.53 per diluted share, and $24.7 million, or $0.94 per diluted share, respectively.

 

Discontinued Operations

In the third quarter of 2014, we early-adopted guidance that redefined discontinued operations. As a result, we determined that individual stores that met the criteria for held for sale after our adoption date would no longer qualify for classification as discontinued operations. We had previously reclassified a store’s operations to discontinued operations in our Consolidated Statements of Operations, on a comparable basis for all periods presented, provided we did not expect to have any significant continuing involvement in the store’s operations after its disposal.

 

We realized income from discontinued operations, net of tax, for the three months ended March 31, 2014 of $40,000. See Note 9 of the Condensed Notes to Consolidated Financial Statements for additional information.

 

Key Revenue and Gross Profit Metrics

Key performance metrics for revenue and gross profit were as follows (dollars in thousands):

 

Three months ended
March 31, 201
5

 

Revenues

   

Percent of

Total

Revenues

   

Gross

Profit

   

Gross

Profit

Margin

   

Percent of

Total

Gross Profit

 

New vehicle

  $ 1,007,816       56.3 %   $ 61,774       6.1 %     22.6 %

Used vehicle retail

    462,931       25.9       59,442       12.8       21.7  

Used vehicle wholesale

    62,208       3.5       2,161       3.5       0.8  

Finance and insurance(1)

    64,604       3.6       64,604       100.0       23.6  

Service, body and parts

    173,475       9.7       84,439       48.7       30.9  

Fleet and other

    18,144       1.0       955       5.3       0.4  
    $ 1,789,178       100.0 %   $ 273,375       15.3 %     100.0 %

 

Three months ended
March 31, 201
4

 

Revenues

   

Percent of

Total

Revenues

   

Gross

Profit

   

Gross

Profit

Margin

   

Percent of

Total

Gross Profit

 

New vehicle

  $ 579,522       53.8 %   $ 39,024       6.7 %     22.7 %

Used vehicle retail

    301,893       28.0       40,796       13.5       23.7  

Used vehicle wholesale

    42,693       4.0       1,331       3.1       0.8  

Finance and insurance(1)

    39,631       3.7       39,631       100.0       23.0  

Service, body and parts

    104,617       9.7       50,832       48.6       29.5  

Fleet and other

    9,750       0.8       447       4.6       0.3  
    $ 1,078,106       100.0 %   $ 172,061       16.0 %     100.0 %

 

 

(1)

Commissions reported net of anticipated cancellations.

 

Same Store Operating Data

In 2014, we completed the acquisition of 36 stores. As a result, we experienced significant growth in the first three months ended March 31, 2015 compared to the same period in 2014. We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow our existing locations. As a result, same store measures have been integrated into the discussion below.

 

 

 
19

 

 

Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in February 2014 would be included in same store operating data beginning in March 2015, after its first full complete comparable month of operation. The first quarter operating results for the same store comparisons would include results for that store in only the period of March for both comparable periods.

 

New Vehicle Revenue and Gross Profit

   

Three Months Ended

March 31,

   

Increase

   

% Increase

 

(Dollars in thousands, except per unit amounts)

 

2015

   

2014

   

(Decrease)

   

(Decrease)

 

Reported

                               

Revenue

  $ 1,007,816     $ 579,522     $ 428,294       73.9 %

Gross profit

  $ 61,774     $ 39,024     $ 22,750       58.3  

Gross margin

    6.1 %     6.7 %  

(60)

bp         
                                 

Retail units sold

    30,623       17,274       13,349       77.3  

Average selling price per retail unit

  $ 32,910     $ 33,549     $ (639 )     (1.9 )

Average gross profit per retail unit

  $ 2,017     $ 2,259     $ (242 )     (10.7 )
                                 

Same store

                               

Revenue

  $ 639,501     $ 574,540     $ 64,961       11.3 %

Gross profit

  $ 40,245     $ 38,638     $ 1,607       4.2  

Gross margin

    6.3 %     6.7 %  

(40)

bp         
                                 

Retail units sold

    18,567       17,109       1,458       8.5  

Average selling price per retail unit

  $ 34,443     $ 33,581     $ 862       2.6  

Average gross profit per retail unit

  $ 2,168     $ 2,258     $ (90 )     (4.0 )

 

(1) A basis point is equal to 1/100th of one percent.

 

New vehicle sales increased 73.9% for the three-month period ended March 31, 2015 compared to the same period of 2014, primarily driven by the acquisition of the DCH Auto Group in the fourth quarter of 2014. On a same store basis, new vehicle sales increased 11.3%, primarily due to unit volume growth of 8.5% in the three-month period ended March 31, 2015 compared to the same period in 2014. Same store unit sales increased in all reportable segments in the first quarter of 2015 compared to the first quarter of 2014 as follows:

 

   

First quarter

2015

compared to

first quarter

2014

   

National growth

in first quarter

2015 compared

to first quarter

2014

 

Domestic

    6.8 %     4.4 %

Import

    9.8       6.0  

Luxury

    12.0       10.7  

Overall

    8.5 %     5.6 %

 

Our unit volume growth rate for the current quarter was higher than the national average in all reportable segments. We continue to focus on increasing our share of overall new vehicle sales within our markets.

 

New vehicle gross profit increased 58.3% for the three-month period ended March 31, 2015 compared to the same period of 2014, primarily driven by the acquisition of the DCH Auto Group in the fourth quarter of 2014. On a same store basis, new vehicle gross profit increased 4.2% for the three-month period ended March 31, 2015 compared to the same period of 2014. These increases were due to a greater number of vehicles sold, slightly offset by lower gross profit per unit and gross margins.

 

 

 
20

 

 

With our volume-based strategy, on a same store basis, the average gross profit per new retail unit decreased $90, or 4.0%, in the three-month period ended March 31, 2015 compared to the same period of 2014. We believe our volume-based strategy creates additional used vehicle trade-in opportunities, finance and insurance sales and future service work, which will generate incremental business in future periods that will more than offset the lower new vehicle gross profit per unit that has occurred with the pursuit of a volume-based strategy.

 

Used Vehicle Retail Revenue and Gross Profit

   

Three Months Ended

March 31,

   

Increase

   

% Increase

 

(Dollars in thousands, except per unit amounts)

 

2015

   

2014

   

(Decrease)

   

(Decrease)

 

Reported

                               

Retail revenue

  $ 462,931     $ 301,893     $ 161,038       53.3 %

Retail gross profit

  $ 59,442     $ 40,796     $ 18,646       45.7  

Retail gross margin

    12.8 %     13.5 %  

(70)

bp         
                                 

Retail units sold

    24,204       16,316       7,888       48.3  

Average selling price per retail unit

  $ 19,126     $ 18,503     $ 623       3.4  

Average gross profit per retail unit

  $ 2,456     $ 2,500     $ (44 )     (1.8 )
                                 

Same store

                               

Retail revenue

  $ 333,300     $ 300,115     $ 33,185       11.1 %

Retail gross profit

  $ 44,847     $ 40,583     $ 4,264       10.5  

Retail gross margin

    13.5 %     13.5 %  

-

bp         
                                 

Retail units sold

    17,237       16,204       1,033       6.4  

Average selling price per retail unit

  $