UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
OR
o		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: 001-31262

 

 

ASBURY AUTOMOTIVE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

(212) 885-2500

(Registrant’s telephone number, including area code)

 

 

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer  o                          Accelerated Filer  x                          Non-Accelerated Filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: The number of shares of common stock outstanding as of November 3, 2006, was 33,442,119 (net of 1,537,576 treasury shares).

ASBURY AUTOMOTIVE GROUP, INC.
INDEX

		PART I — Financial Information
Item 1.		Condensed Consolidated Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005	3
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2006 and 2005	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	5
		Notes to Condensed Consolidated Financial Statements	6
		Report of Independent Registered Public Accounting Firm	24
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.		Controls and Procedures	50
		PART II — Other Information
Item 6.		Exhibits	52
		Signatures	53
		Index to Exhibits	54

 

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)

		September 30, 2006			December 31, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	133,475		$	57,194
Contracts-in-transit		95,222			122,250
Accounts receivable (net of allowance of $690 and $1,216, respectively)		152,039			167,203
Inventories		715,458			709,791
Deferred income taxes		19,825			19,825
Prepaid and other current assets		59,698			57,419
Assets held for sale		12,451			51,498
Total current assets		1,188,168			1,185,180
PROPERTY AND EQUIPMENT, net		201,053			193,457
GOODWILL		449,785			457,405
OTHER LONG-TERM ASSETS		91,741			94,758
Total assets		$	1,930,747		$	1,930,800
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Floor plan notes payable—manufacturer affiliated		$	293,928		$	204,044
Floor plan notes payable—non-manufacturer affiliated		319,446			410,338
Current maturities of long-term debt		26,263			24,522
Accounts payable		64,610			72,432
Accrued liabilities		93,756			100,043
Liabilities associated with assets held for sale		—			26,847
Total current liabilities		798,003			838,226
LONG-TERM DEBT		456,283			472,427
DEFERRED INCOME TAXES		44,055			44,287
OTHER LONG-TERM LIABILITIES		30,090			28,094
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS’ EQUITY:
Preferred stock, $.01 par value per share, 10,000,000 shares authorized		—			—
Common stock, $.01 par value per share, 90,000,000 shares authorized, 34,921,981 and 34,435,252 shares issued, including shares held in treasury, respectively		349			344
Additional paid-in capital		427,535			417,055
Retained earnings		191,073			148,986
Treasury stock, at cost; 1,537,576 and 1,586,587 shares held, respectively		(14,567		)	(15,032		)
Accumulated other comprehensive loss		(2,074		)	(3,587		)
Total shareholders’ equity		602,316			547,766
Total liabilities and shareholders’ equity		$	1,930,747		$	1,930,800

 

See Notes to Condensed Consolidated Financial Statements.

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ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2006			2005			2006			2005
REVENUES:
New vehicle		$	913,194		$	891,491		$	2,652,347		$	2,535,068
Used vehicle		394,402			360,029			1,137,069			1,028,901
Parts, service and collision repair		171,652			165,126			513,576			474,798
Finance and insurance, net		41,198			40,133			120,042			114,687
Total revenues		1,520,446			1,456,779			4,423,034			4,153,454
COST OF SALES:
New vehicle		848,979			830,005			2,466,609			2,360,850
Used vehicle		357,864			327,670			1,032,966			937,903
Parts, service and collision repair		83,843			81,780			253,587			233,421
Total cost of sales		1,290,686			1,239,455			3,753,162			3,532,174
GROSS PROFIT		229,760			217,324			669,872			621,280
OPERATING EXPENSES:
Selling, general and administrative		174,996			168,395			512,360			486,947
Depreciation and amortization		5,076			4,930			15,164			14,390
Income from operations		49,688			43,999			142,348			119,943
OTHER INCOME (EXPENSE):
Floor plan interest expense		(10,311		)	(6,533		)	(30,712		)	(20,521		)
Other interest expense		(11,225		)	(10,314		)	(33,268		)	(30,183		)
Interest income		1,523			163			3,271			598
Loss on extinguishment of long-term debt, net		(914		)	—			(914		)	—
Other income, net		400			14			1,225			455
Total other expense, net		(20,527		)	(16,670		)	(60,398		)	(49,651		)
Income before income taxes		29,161			27,329			81,950			70,292
INCOME TAX EXPENSE		10,935			10,248			30,731			26,359
INCOME FROM CONTINUING OPERATIONS		18,226			17,081			51,219			43,933
DISCONTINUED OPERATIONS, net of tax		(1,047		)	(2,128		)	(2,483		)	(3,354		)
NET INCOME		$	17,179		$	14,953		$	48,736		$	40,579
EARNINGS PER COMMON SHARE:
Basic—
Continuing operations		$	0.55		$	0.52		$	1.55		$	1.35
Discontinued operations		(0.03		)	(0.06		)	(0.08		)	(0.11		)
Net income		$	0.52		$	0.46		$	1.47		$	1.24
Diluted—
Continuing operations		$	0.54		$	0.52		$	1.51		$	1.34
Discontinued operations		(0.03		)	(0.07		)	(0.07		)	(0.10		)
Net income		$	0.51		$	0.45		$	1.44		$	1.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		33,258			32,737			33,087			32,644
Diluted		33,841			33,032			33,853			32,847

 

See Notes to Condensed Consolidated Financial Statements.

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ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		For the Nine Months Ended September 30,
		2006			2005
CASH FLOW FROM OPERATING ACTIVITIES:
Net income		$	48,736		$	40,579
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization		15,164			14,390
Depreciation and amortization from discontinued operations		209			1,405
Share-based compensation		3,258			—
Amortization of deferred financing fees		1,759			1,606
Change in allowance for doubtful accounts		(526		)	(1,016		)
(Gain) loss on sale of discontinued operations, net		(2,076		)	416
Deferred income taxes		(1,221		)	—
Loss on extinguishment of long-term debt, net		914			—
Other adjustments		5,403			5,195
Changes in operating assets and liabilities, net of acquisitions and divestitures-
Contracts-in-transit		27,028			23,399
Accounts receivable		534			(6,438		)
Proceeds from the sale of accounts receivable		14,347			12,390
Inventories		11,413			132,676
Prepaid and other current assets		(25,334		)	(19,114		)
Floor plan notes payable—manufacturer affiliated		89,884			(175,442		)
Accounts payable and accrued liabilities		(4,800		)	2,381
Excess tax benefits from share-based payment arrangements		(1,723		)	—
Other long-term assets and liabilities		5,392			4,987
Net cash provided by operating activities		188,361			37,414
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures—internally financed		(22,814		)	(26,598		)
Capital expenditures—externally financed		(11,871		)	(24,355		)
Construction reimbursements associated with sale-leaseback agreements		3,383			4,127
Acquisitions		—			(24,621		)
Proceeds from the sale of assets		43,691			12,794
Other investing activities		(1,297		)	(707		)
Net cash provided by (used in) investing activities		11,092			(59,360		)
CASH FLOW FROM FINANCING ACTIVITIES:
Floor plan borrowings—non-manufacturer affiliated		1,838,366			2,454,384
Floor plan repayments—non-manufacturer affiliated		(1,946,033		)	(2,406,138		)
Proceeds from borrowings		987			23,266
Repayments of debt		(17,524		)	(49,748		)
Payments of debt issuance costs		—			(4,975		)
Net proceeds from share-based payment arrangements		5,958			3,062
Payments of dividends		(6,649		)	—
Excess tax benefits from share-based payment arrangements		1,723			—
Net cash (used in) provided by financing activities		(123,172		)	19,851
Net increase (decrease) in cash and cash equivalents		76,281			(2,095		)
CASH AND CASH EQUIVALENTS, beginning of period		57,194			28,093
CASH AND CASH EQUIVALENTS, end of period		$	133,475		$	25,998

 

See Note 13 for supplemental cash flow information

See Notes to Condensed Consolidated Financial Statements

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ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  DESCRIPTION OF BUSINESS

Asbury Automotive Group, Inc. is a national automotive retailer, operating 120 franchises (87 dealership locations) in 21 metropolitan markets within 10 states as of September 30, 2006. We offer an extensive range of automotive products and services, including new and used vehicles, vehicle maintenance, replacement parts, collision repair services, and financing, insurance and service contracts. We offer 33 domestic and foreign brands of new vehicles, including four heavy truck brands. We also operate 24 collision repair centers that serve our markets.

Our retail network is currently organized into four regions and includes ten dealership groups, each marketed under different local brands: (i) Florida (comprising our Coggin dealerships, operating primarily in Jacksonville and Orlando, and our Courtesy dealerships operating in Tampa), (ii) West (comprising our McDavid dealerships operating throughout Texas and our Spirit dealership operating in Los Angeles, California), (iii) Mid-Atlantic (comprising our Crown dealerships operating in North Carolina, South Carolina and Southern Virginia) and (iv) South (comprising our Nalley dealerships operating in Atlanta, Georgia, and our North Point dealerships operating in Little Rock, Arkansas). Our Plaza dealerships operating in St. Louis, Missouri, our Gray Daniels dealerships operating in Jackson, Mississippi and our Northern California Dealerships operating in Sacramento and Fresno, remain standalone operations.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and reflect the condensed consolidated accounts of Asbury Automotive Group, Inc. and our wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Accordingly, actual results could differ from these estimates. Estimates and assumptions are reviewed quarterly and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.  Refer to “Critical Accounting Estimates” in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our critical estimates. 

In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) considered necessary for a fair presentation of the unaudited interim condensed consolidated financial statements as of September 30, 2006, and for the three and nine months ended September 30, 2006 and 2005 have been included. The results of operations for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the full year. Our interim unaudited condensed consolidated financial statements should be read together with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2005.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” certain amounts reflected in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005, have been classified as Assets Held for Sale and Liabilities Associated with Assets Held for Sale for franchises, ancillary businesses and completed construction projects held for sale at each balance sheet date. In addition, the accompanying Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2005, have been reclassified to reflect the status of our discontinued operations as of September 30, 2006.

Revenue Recognition

Revenue from the sale of new and used vehicles is recognized upon delivery, passage of title, signing of the sales contract and approval of financing. Revenue from the sale of parts, service and collision repair is recognized upon delivery of parts to the customer or at the time vehicle service or repair work is completed. Manufacturer incentives and rebates, including manufacturer holdbacks, floor plan interest assistance and certain advertising assistance, are recognized as a reduction of new vehicle cost of sales when earned, generally at the time the related vehicles are sold.

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We receive commissions from third party lending and insurance institutions for arranging customer financing and for the sale of vehicle service contracts, credit life insurance and disability insurance to customers (collectively “F&I”).  We may be charged back (“chargebacks”) for F&I commissions in the event a contract is terminated. F&I commissions are recorded at the time the vehicles are sold and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. F&I commissions, net of estimated chargebacks, are included in Finance and insurance, net in the accompanying Condensed Consolidated Statements of Income.

Goodwill and Other Intangible Assets

Goodwill represents the excess cost of the businesses acquired over the fair market value of the identifiable net assets. We have determined that based on how we operate our business, allocate resources, and regularly review our financial data and operating results that we qualify as a single reporting unit for purposes of testing goodwill for impairment. We evaluate our operations and financial results in the aggregate by dealership.  The dealership general managers are responsible for customer facing activities, including inventory management, advertising and personnel decisions; and have the flexibility to respond to local market conditions while the corporate management team, with input from the regional management teams, is responsible for infrastructure and general strategy decisions.

The fair market value of our manufacturer franchise rights is determined at the acquisition date through discounting the projected cash flows specific to each franchise. We have determined that manufacturer franchise rights have an indefinite life as there are no legal, contractual, economic or other factors that limit their useful lives and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers’ brand names. Due to the fact that manufacturer franchise rights are specific to the location in which we acquire a dealership, we have determined that the dealership is the reporting unit for purposes of testing for impairment.

Share-Based Compensation

Effective January 2006, we adopted SFAS No. 123R “Share-Based Payment” under the modified prospective transition method and therefore we record share-based compensation expense under the fair value method on a straight-line basis over the vesting period. Accordingly, prior periods have not been restated. Prior to January 2006, including the three and nine months ended September 30, 2005, we recorded share-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” APB Opinion No. 25 required the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock.

Derivative Instruments and Hedging Activities

We utilize derivative financial instruments to manage our capital structure. The types of risks hedged are those relating to the variability of cash flows and changes in the fair value of our financial instruments caused by movements in interest rates. We document our risk management strategy and assess hedge effectiveness at the inception and during the term of each hedge. Derivatives are reported at fair value on the accompanying Condensed Consolidated Balance Sheets.

The changes in fair value of the effective portion of “cash flow” hedges are reported as a component of accumulated other comprehensive income (loss). Amounts in accumulated other comprehensive income (loss) are reclassified to interest expense to the extent the hedge becomes ineffective. The change in fair value of “fair value” hedges are recorded as a component of interest expense. Changes in the fair value of the associated hedged exposures are also recorded as a component of interest expense.

Measurements of hedge effectiveness are based on comparisons between the gains or losses of the actual interest rate swaps and the gains or losses of hypothetical interest rate swaps, which are designed to reflect the critical terms of the defined hedged exposures. Ineffective portions of these interest rate swaps are reported as a component of interest expense in the accompanying Condensed Consolidated Statements of Income. We recognized minor ineffectiveness during the nine months ended September 30, 2006 and September 30, 2005.

Statements of Cash Flows—

Borrowings and repayments of floor plan notes payable to a party unaffiliated with the manufacturer of a particular new vehicle, and all floor plan notes payable relating to pre-owned vehicles, are classified as financing activities on the accompanying Condensed Consolidated Statements of Cash Flows with borrowings reflected separately from repayments. The net change in floor plan notes payable to a party affiliated with the manufacturer of a particular new vehicle is classified as an operating activity on the accompanying Condensed Consolidated Statements of Cash Flows.

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The net change in service loaner vehicle obligations is reflected as an operating activity as a component of Prepaid and Other Current Assets in the accompanying Condensed Consolidated Statements of Cash Flows, as these borrowings and repayments are with lenders affiliated with the vehicle manufacturer from which we purchase the related vehicles.

Construction reimbursements in connection with sale-leaseback agreements for the construction of new dealership facilities or leasehold improvements to our existing dealership facilities are included in investing activities in the accompanying Condensed Consolidated Statements of Cash Flows.

Externally financed capital expenditures include all expenditures that we have financed during the reporting period or intend to finance in future reporting periods through sale-leaseback transactions or mortgage financing. Internally financed capital expenditures include all capital expenditures which were paid using available cash and for which we do not intend to seek external financing.

Tax benefits related to share-based awards that are fully vested prior to the adoption of SFAS No. 123R are included as cash inflows from financing activities and cash outflows from operating activities on the accompanying Condensed Consolidated Statements of Cash Flows.  Excess tax benefits related to share-based awards that are partially vested upon or granted after the adoption of SFAS No. 123R are also included as cash inflows from financing activities and cash outflows from operating activities on the accompanying Condensed Consolidated Statements of Cash Flows.

Net proceeds from share-based payment arrangements include payments from employees upon the exercise of stock options, net of payments of employee income taxes in connection with net share settlements of share-based awards.  Net share settlements of share-based awards result in (i) the issuance of shares of our common with a value equal to the employee’s intrinsic value and (ii) the payment of the income tax on behalf of the employee in lieu of issuing additional shares of common stock.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes.”  FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.”  FIN No. 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.  FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Earlier application is encouraged if the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption.  We are currently evaluating the impact of FIN No. 48 on our condensed consolidated financial statements and disclosures.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The provisions of SAB 108 are effective for the year ending December 31, 2006. The adoption of SAB 108 is not expected to have a material impact on our financial statements.

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 provides guidance for, among other things, the definition of fair value and the methods used to measure fair value. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 157 on our condensed consolidated financial statements and disclosures.

3.  SHARE-BASED COMPENSATION

We have established two share-based compensation plans (the “Plans”) under which we have granted non-qualified stock options, performance share units and restricted share units to our directors, officers and employees at fair market value on the date of the grant. Stock options generally vest ratably over three years from the date of grant and expire ten years from the date of grant.  Performance share units generally vest after two to three years from the date of grant and provide the holder the opportunity to receive additional shares of common stock if certain performance criteria are achieved.  The actual number of shares earned by a holder of performance share units may range from 0% to 180% of the target number of shares to be granted to such a holder, depending on the achievement of certain performance criteria over a defined period of timeare achieved.  Restricted share units vest ratably over two to three years from the date of grant and have voting and dividends rights prior to vesting.  We have granted a total of 4,310,954 non-qualified stock options and 175,500 performance share

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units to certain of our key employees and officers and 12,500 restricted share units to members of our board of directors.  As of September 30, 2006, there were 1,674,820 non-qualified stock options, 174,500 performance share units and 12,500 restricted share units outstanding.  In addition, there were approximately 2,225,000 share-based awards available for grant under our share-based compensation plans as of September 30, 2006.  We expect to continue to issue performance share units and restricted share units in lieu of non-qualified stock options.

Effective January 2006, we adopted SFAS No. 123R under the modified prospective transition method.  As a result we have recorded share-based compensation expense for the three and nine months ended September 30, 2006, under the fair value method.  Prior to January 2006, including the three and nine months ended September 30, 2005, we accounted for share-based awards under the intrinsic value method in accordance with APB Opinion No. 25 and therefore did not record any share-based compensation expense.  During the nine months ended September 30, 2006, the adoption of SFAS No. 123R resulted in incremental share-based compensation expense of $2.1 million (excluding $1.2 million associated with our decision to issue performance share units and restricted share units).  The incremental share-based compensation expense decreased income before income taxes by $2.1 million, net income by $1.3 million and basic and diluted earnings per common share by $0.04 per share.  Net cash provided by operating activities decreased and net cash used in financing activities decreased by $1.7 million related to excess tax benefits from share-based payment arrangements.

The fair value of each option award is estimated on the date of grant using the Black Scholes option valuation model.  The fair value of each performance share unit and restricted share unit is calculated using the closing market price of our common stock on the date of grant.  Expected volatilities are based on the historical volatility of our common stock.  We use historical data to estimate the rate of option exercises and employee turnover within the valuation model.  The expected term of options granted represents the period of time that the related options are expected to be outstanding.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

We recorded $1.0 million in compensation expense and an associated tax benefit of $0.4 million for the three months ended September 30, 2006; and $3.3 million in compensation expense and an associated tax benefit of $1.2 million for the nine months ended September 30, 2006.  We did not recognize any material share-based compensation expense during the nine months ended September 30, 2005.  As of September 30, 2006, there was $3.7 million of total unrecognized share-based compensation expense related to non-vested share-based awards granted under the Plans.  That cost is expected to be recognized over a weighted average period of 0.7 years.  The following table illustrates the effect on net income and net income per share had our share-based awards been recorded using the fair value method of SFAS No. 123R for the three and nine months ended September 30, 2005:

		For the Three Months Ended September 30,			For the Nine Months Ended September 30,
(In thousands, except per share data)		2005			2005
Net income		$	14,953		$	40,579
Adjustments to net income:
Share-based compensation expense included in net income, net of tax		—			1
Pro forma share-based compensation expense, net of tax		(669		)	(2,009		)
Pro forma net income		$	14,284		$	38,571
Net income per common share—basic (as reported)		$	0.46		$	1.24
Net income per common share—diluted (as reported)		$	0.45		$	1.24
Pro forma net income per common share—basic		$	0.44		$	1.18
Pro forma net income per common share—diluted		$	0.43		$	1.17

 

A summary of options outstanding and exercisable under the Plans as of September 30, 2006, and changes during the nine months then ended is presented below:

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		Stock Options		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value*
Options outstanding - December 31, 2005		2,941,262		$	15.35
Granted		—		—
Exercised		(1,224,229	)	$	16.38
Expired / Forfeited		(42,213	)	$	15.01
Options outstanding—September 30, 2006		1,674,820		$	14.61		4.3		$	10,032,172
Options exercisable—September 30, 2006		1,287,285		$	14.51		6.5		$	7,839,566

 

*                    Based on the closing price of our common stock on September 30, 2006

Cash received from option exercises for the nine months ended September 30, 2006 totaled $6.8 million.  The actual intrinsic value of options exercised during the nine months ended September 30, 2006 was $4.8 million. The actual tax benefit realized for the tax deductions from option exercises totaled $1.8 million for the nine months ended September 30, 2006.

A summary of performance share units and restricted share units as of September 30, 2006, and changes during the nine months then ended is presented below:

 

*                    Includes an estimate of 43,875 out of a maximum of 140,400 issuable upon attaining certain performance metrics

 

Each performance share unit provides an opportunity for the employee to receive a number of shares of our common stock based on our performance during a three year period as measured against objective performance goals as determined by the compensation committee of our board of directors. The actual number of shares earned may range from 0% to 180% of the target number of shares depending upon achievement of the performance goals. 

4.  INVENTORIES

Inventories consist of the following:

                                               

The lower of cost or market reserves for inventory totaled $5.2 million and $4.3 million as of September 30, 2006 and December 31, 2005, respectively. In addition to the inventories shown above, we had $18.9 million of inventory as of December 31, 2005 classified as Assets Held for Sale on the accompanying Condensed Consolidated Balance Sheet as they were associated with franchises held for sale.  There was no inventory classified as Assets Held for Sale as of September 30, 2006.

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5.  ACQUISITIONS

We did not acquire any franchises during the nine months ended September 30, 2006.  During the nine months ended September 30, 2005, we acquired three franchises (one dealership location) for an aggregate purchase price of $26.8 million, including $9.3 million of cash, $15.3 million of borrowings from our floor plan facilities, the exchange of two of our franchises valued at $1.5 million and $0.7 million of future payments.

The allocation of purchase price for acquisitions is as follows:

(In thousands)		For the Nine  Months Ended September 30, 2005
Inventories		$	17,156
Fixed assets		344
Other assets		1
Goodwill		6,400
Franchise rights		2,850
Total purchase price		$	26,751

 

6.  GOODWILL AND MANUFACTURER FRANCHISE RIGHTS

During the nine months ended September 30, 2006, we sold six franchises (five dealership locations) and one ancillary business resulting in the removal of approximately $7.6 million of Goodwill from our Condensed Consolidated Balance Sheets. There were no manufacturer franchise rights associated with these franchises at the time of sale as these franchises were purchased prior to the adoption of SFAS No. 142 “Goodwill and Other Intangibles.”  Manufacturer franchise rights totaled $41.8 million as of September 30, 2006 and December 31, 2005, and are included in Other Long-term Assets on the accompanying Condensed Consolidated Balance Sheets.

7.  ASSETS AND LIABILITIES HELD FOR SALE

Assets and liabilities classified as held for sale include (i) assets and liabilities associated with discontinued operations held for sale at each balance sheet date and (ii) costs of completed construction projects included in pending sale-leaseback transactions where an unaffiliated third party reimburses us during construction or will reimburse us upon completion of the transaction.

Assets associated with discontinued operations include real estate associated with former dealership locations in Texas as of September 30, 2006.  As of December 31, 2005, assets and liabilities associated with discontinued operations included two franchises (two dealership locations) in Oregon and two franchises (two dealership locations) in Southern California. During the nine months ended September 30, 2006, we sold the franchises that had been held for sale as of December 31, 2005, as well as two additional franchises (one dealership location) and one ancillary business in Florida for proceeds of $43.5 million, resulting in a net gain of $2.1 million. Assets associated with discontinued operations totaled $12.5 million and $39.6 million as of September 30, 2006 and December 31, 2005, respectively.  Liabilities associated with discontinued operations totaled $16.8 million as of December 31, 2005.  There were no liabilities associated with discontinued operations as of September 30, 2006.

Included in Assets Held for Sale as of December 31, 2005, were $11.9 million of costs associated with two completed projects included in pending sale-leaseback transactions.  As of December 31, 2005, Liabilities Associated with Assets Held for Sale included $10.0 million of reimbursements associated with the two completed construction projects. During the nine months ended September 30, 2006, we incurred $1.5 million of additional construction costs associated with the completion of these two sale-leaseback transactions resulting in (i) the sale of $13.4 million of assets; (ii) the receipt of the remaining $3.4 million of reimbursements and (iii) the commencement of long-term operating leases for the assets sold.

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A summary of assets and liabilities held for sale is as follows:

 

Included in Prepaid and Other Current Assets on the accompanying Condensed Consolidated Balance Sheets are costs associated with construction projects, which we intend to sell through sale-leaseback transactions but have not been completed and therefore are not available for sale. In connection with these construction projects, we have entered into sale-leaseback agreements whereby an unaffiliated third party purchased the land and is reimbursing us, or will reimburse us, for the cost of construction of dealership facilities being constructed on the land. We capitalize the cost of the construction during the construction period and record a corresponding liability equal to the amount of any reimbursed funds. Upon completion of the construction, we will execute the sale-leaseback transaction and remove the cost of construction and the related liability from our Condensed Consolidated Balance Sheets. The book value of assets associated with construction projects that have not been completed as of September 30, 2006 and December 31, 2005 totaled $11.1 million and $2.9 million, respectively. As of September 30, 2006 and December 31, 2005, there were no liabilities associated with these construction projects.

8.  LONG-TERM DEBT

Long-term debt consists of the following:

		As of
(In thousands)		September 30, 2006			December 31, 2005
9% Senior Subordinated Notes due 2012		$	250,000		$	250,000
8% Senior Subordinated Notes due 2014 ($185.0 million and $200.00 million face value, respectively, net of hedging activity of $8,229 and $8,028, respectively)		176,771			191,972
Mortgage notes payable		27,079			26,764
Loaner vehicle obligations		24,146			21,676
Capital lease obligations		3,691			4,548
Other notes payable		859			1,989
		482,546			496,949
Less—current portion		(26,263		)	(24,522		)
Long-term debt		$	456,283		$	472,427

 

In September 2006, we recognized a $0.9 million loss on the extinguishment of $15.0 million of our 8% Notes.  Included in the $0.9 million loss is a $0.7 million write-off of a portion of the unamortized value of our terminated fair value swap and a $0.4 million write-off of a portion of the unamortized debt issuance costs associated with the 8% Notes, offset by a $0.2 million market discount on the 8% Notes.  This transaction will reduce our other interest expense annually by $1.2 million.  Our board of directors has authorized us to repurchase up to an additional $25.0 million of our Senior Subordinated Notes, which we may do depending on market conditions.

In March 2006, we amended our Committed Credit Facility to include DaimlerChrysler Financial Services (“DCFS”) as a lender and extended its maturity to March 2009.  In addition, DCFS has agreed to provide a maximum of $120.0 million of floor plan financing outside of the Committed Credit Facility to finance inventory purchases at our Mercedes-Benz, Chrysler, Dodge and Jeep dealerships (“DaimlerChrysler Dealerships”). As a result of the execution of this amendment, floor plan borrowings from DCFS are now included in Floor Plan Notes Payable — Manufacturer Affiliated on our Condensed Consolidated Balance Sheets.  The DCFS floor plan facility has no stated termination date.  Borrowings will accrue interest based on LIBOR.  Further, we reduced our working capital borrowing capacity of our Committed Credit Facility from $150.0 million to $125.0 million and reduced the floor plan borrowing capacity of our Committed Credit Facility from $650.0 million to $425.0 million.

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9.  FLOOR PLAN NOTES PAYABLE

In connection with the amendment to our Committed Credit Facility in March 2006, we refinanced the floor plan notes payable at our DaimlerChrysler Dealerships through the repayment of $85.4 million of floor plan notes payable — non-manufacturer affiliated with borrowings from DCFS, a manufacturer affiliated lender. As a result, floor plan notes payable at our DaimlerChrysler Dealerships are included in Floor Plan Notes Payable — Manufacturer Affiliated on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2006.  Floor plan notes payable at our DaimlerChrysler Dealerships totaled $90.8 million and $95.4 million as of September 30, 2006 and December 31, 2005, respectively. In addition, during the nine months ended September 30, 2006, our Floor Plan Repayments — Non-manufacturer Affiliated and Floor Plan Notes Payable — Manufacturer Affiliated each increased by $85.4 million on the accompanying Condensed Consolidated Statements of Cash Flows.

As of September 30, 2006, we had $613.4 million of floor plan notes payable outstanding on the accompanying Condensed Consolidated Balance Sheets.  As of December 31, 2005, we had $631.2 million of floor plan notes payable outstanding, including $16.8 million classified as Liabilities Associated with Assets Held for Sale on the accompanying Condensed Consolidated Balance Sheets.

10.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

Three of our interest rate swap agreements terminated in March 2006, which resulted in a cash payment of $13.7 million, which equaled the fair market value of the swap agreements.  Included in Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheet as of September 30, 2006 was $3.6 million ($2.2 million, net of tax) of unrecognized amortization related to our two terminated cash flow swaps, which are being amortized through March 2014 as a component of Floor Plan Interest Expense on the accompanying Condensed Consolidated Statements of Income.  In addition, included as a reduction to our 8% Notes as of September 30, 2006 was $8.2 million of unrecognized amortization related to our terminated fair value swap, which is being amortized through March 2014 as a component of Other Interest Expense on the accompanying Condensed Consolidated Statements of Income.  The amortization of the termination costs of these three swap agreements will increase floor plan and other interest expense by $0.7 million and $0.9 million, respectively, during 2006.

We have an interest rate swap agreement with a notional principal amount of $14.3 million as of September 30, 2006, as a hedge against future cash flows that result from changes in the interest rate of our variable rate mortgage notes payable. Under the terms of the swap agreement, we are required to make payments at a fixed rate and receive a variable rate based on LIBOR. This swap agreement was designated and qualifies as a cash flow hedge of changes in the interest rate of our variable rate mortgage notes payable and will contain minor ineffectiveness. As of September 30, 2006 and December 31, 2005, the swap agreement had a fair value of $0.4 million and $0.3 million, respectively, which is included in Other Long-Term Assets on the accompanying Condensed Consolidated Balance Sheets.

11.  COMPREHENSIVE INCOME

The following table provides a reconciliation of net income to comprehensive income:

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands)		2006			2005			2006			2005
Net income		$	17,179		$	14,953		$	48,736		$	40,579
Other comprehensive income:
Change in fair value of cash flow swaps		(326		)	5,165			1,862			(114		)
Amortization of terminated cash flow swaps		239			—			557			—
Income tax expense (benefit) associated with cash flow swaps		33			(1,937		)	(906		)	43
Comprehensive income		$	17,125		$	18,181		$	50,249		$	40,508

 

12.  DISCONTINUED OPERATIONS

During the nine months ended September 30, 2006, we placed three franchises (one dealership location) and one ancillary business into discontinued operations and sold six franchises (five dealership locations) and one ancillary business for proceeds of $43.5 million, resulting in a net gain of $2.1 million.  As of September 30, 2006, one franchise was pending disposition.  The accompanying Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2005, have been reclassified to reflect the status of our discontinued operations as of September 30, 2006.  The following table provides further information regarding our discontinued operations as of September 30, 2006, and includes the results of businesses sold between January 1, 2005 and September 30, 2006, and businesses pending disposition as of

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September 30, 2006:

 

		For the Three Months Ended September 30, 2006									For the Three Months Ended September 30, 2005
(Dollars in thousands)		Sold			Pending Disposition			Total			Sold(a)			Pending Disposition(b)			Total
Franchises:
Mid-line Domestic		—			—			—			7			—			7
Mid-line Import		—			—			—			3			—			3
Value		—			—			—			2			—			2
Luxury		—			1			1			—			1			1
Total		—			1			1			12			1			13
Ancillary Businesses		1			—			1			2			—			2
Revenues		$	1,026		$	1,591		$	2,617		$	101,427		$	1,912		$	103,339
Cost of sales		82			1,377			1,459			86,588			1,700			88,288
Gross profit		944			214			1,158			14,839			212			15,051
Operating expenses		2,265			74			2,339			16,813			77			16,890
Income (loss) from operations		(1,321		)	140			(1,181		)	(1,974		)	135			(1,839		)
Other income (expense), net		85			(38		)	47			(1,113		)	(27		)	(1,140		)
Loss on disposition of discontinued operations, net		(541		)	—			(541		)	(426		)	—			(426		)
Income (loss) before income taxes		(1,777		)	102			(1,675		)	(3,513		)	108			(3,405		)
Income tax (expense) benefit		666			(38		)	628			1,317			(40		)	1,277
Discontinued operations, net of tax		$	(1,111	)	$	64		$	(1,047	)	$	(2,196	)	$	68		$	(2,128	)

 

(a)             Businesses were sold between July 1, 2005 and September 30, 2006.

(b)            Businesses were pending disposition as of September 30, 2006.

 

		For the Nine Months Ended September 30, 2006									For the Nine Months Ended September 30, 2005
(Dollars in thousands)		Sold			Pending Disposition			Total			Sold(a)			Pending Disposition(b)			Total
Franchises:
Mid-line Domestic		3			—			3			10			—			10
Mid-line Import		2			—			2			3			—			3
Value		1			—			1			2			—			2
Luxury		—			1			1			1			1			2
Total		6			1			7			16			1			17
Ancillary Businesses		1			—			1			2			—			2
Revenues		$	37,737		$	6,422		$	44,159		$	310,036		$	5,026		$	315,062
Cost of sales		28,926			5,703			34,629			260,811			4,437			265,248
Gross profit		8,811			719			9,530			49,225			589			49,814
Operating expenses		14,414			215			14,629			51,351			197			51,548
Income (loss) from operations		(5,603		)	504			(5,099		)	(2,126		)	392			(1,734		)
Other expense, net		(432		)	(127		)	(559		)	(3,143		)	(73		)	(3,216		)
Gain (loss) on disposition of discontinued operations, net		2,076			—			2,076			(416		)	—			(416		)
Income (loss) before income taxes		(3,959		)	377			(3,582		)	(5,685		)	319			(5,366		)
Income tax (expense) benefit		1,241			(142		)	1,099			2,132			(120		)	2,012
Discontinued operations, net of tax		$	(2,718	)	$	235		$	(2,483	)	$	(3,553	)	$	199		$	(3,354	)

 

(a)             Businesses were sold between January 1, 2005 and September 30, 2006.

(b)            Businesses were pending disposition as of September 30, 2006.

 

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13.  SUPPLEMENTAL CASH FLOW INFORMATION

 

During the nine months ended September 30, 2006 and 2005, we made interest payments, net of amounts capitalized, totaling $60.6 million and $51.3 million, respectively. During the nine months ended September 30, 2006 and 2005, we received $0.5 million and $3.7 million, respectively, of proceeds associated with our fair value swap that was entered into in connection with the issuance of our 8% Notes.

During the nine months ended September 30, 2006 and 2005, we made income tax payments totaling $18.5 million and $17.8 million, respectively.

During the nine months ended September 30, 2006 and 2005, we completed sale-leaseback transactions resulting in the sale of $13.4 million and $15.7 million of Assets Held for Sale and the removal of the corresponding liabilities from our Condensed Consolidated Balance Sheets, respectively.

14.  COMMITMENTS AND CONTINGENCIES

A significant portion of our vehicle business involves the sale of vehicles, parts or vehicles composed of parts that are manufactured outside the United States of America. As a result, our operations are subject to customary risks of importing merchandise, including fluctuations in the relative values of currencies, import duties, exchange controls, trade restrictions, work stoppages and general political and socio-economic conditions in foreign countries. The United States of America or the countries from which our products are imported may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duties or tariffs, which may affect our operations and our ability to purchase imported vehicles and/or parts at reasonable prices.

Manufacturers may direct us to implement costly capital improvements to dealerships as a condition upon entering into franchise agreements with them. Manufacturers also typically require that their franchises meet specific standards of appearance. These factors, either alone or in combination, could cause us to divert our financial resources to capital projects from uses that management believes may be of higher long-term value, such as acquisitions.

Substantially all of our facilities are subject to federal, state and local provisions regarding the discharge of materials into the environment. Compliance with these provisions has not had, nor do we expect such compliance to have, any material effect upon our capital expenditures, net earnings, financial condition, liquidity or competitive position. We believe that our current practices and procedures for the control and disposition of such materials comply with applicable federal, state and local requirements.

From time to time, we and our dealerships are named in claims involving the manufacture and sale or lease of motor vehicles, including but not limited to the charging of administrative fees, the operation of dealerships, contractual disputes and other matters arising in the ordinary course of our business. With respect to certain of these claims, the sellers of our acquired dealerships have indemnified us. We do not expect that any potential liability from these claims will materially affect our financial condition, liquidity, results of operations or financial statement disclosures.

Our dealerships hold dealer agreements with a number of vehicle manufacturers. In accordance with the individual dealer agreements, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a dealer agreement could have a negative impact on our operating results.

15.  SECONDARY OFFERING OF COMMON STOCK

In September 2006, Asbury Automotive Holdings L.L.C., an affiliate of Ripplewood Investments L.L.C, and our principal shareholder, completed a secondary offering of our common stock in which it sold approximately 8,555,700 of its shares at $18.50 per share.  Shares sold by Asbury Automotive Holdings L.L.C. were sold for the account of funds affiliated with Ripplewood Investments L.L.C. and Freeman Spogli & Co., Incorporated. We did not receive any net proceeds from the secondary offering.  The secondary offering resulted in the reduction of our principal shareholder’s ownership percentage from approximately 53% to approximately 27%.

 

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16.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Our 8% Notes and our Committed Credit Facility are guaranteed by all of our current subsidiaries, other than our current Toyota and Lexus dealership subsidiaries, and all of our future domestic restricted subsidiaries, other than our future Toyota and Lexus dealership facilities. The following tables set forth, on a condensed consolidating basis, our balance sheets, statements of income and statements of cash flows, for our guarantor and non-guarantor subsidiaries for all financial statement periods presented in our interim Condensed Consolidated financial statements.

Condensed Consolidating Balance Sheet
As of September 30, 2006
(In thousands)

		Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—		$	133,475		$	—		$	—		$	133,475
Inventories		—			666,586			48,872			—			715,458
Other current assets		—			287,552			39,232			—			326,784
Assets held for sale		—			12,451			—			—			12,451
Total current assets		—			1,100,064			88,104			—			1,188,168
Property and equipment, net		—			194,561			6,492			—			201,053
Goodwill		—			396,583			53,202			—			449,785
Other assets		—			91,468			273			—			91,741
Investment in subsidiaries		602,316			80,281			—			(682,597		)	—
Total assets		$	602,316		$	1,862,957		$	148,071		$	(682,597	)	$	1,930,747
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Floor plan notes payable — manufacturer affiliated		$	—		$	293,928		$	—		$	—		$	293,928
Floor plan notes payable — non–manufacturer affiliated		—			281,494			37,952			—			319,446
Other current liabilities		—			154,841			29,788			—			184,629
Total current liabilities		—			730,263			67,740			—			798,003
Long-term debt		—			456,233			50			—			456,283
Other liabilities		—			74,145			—			—			74,145
Shareholders’ equity		602,316			602,316			80,281			(682,597		)	602,316
Total liabilities and shareholders’ equity		$	602,316		$	1,862,957		$	148,071		$	(682,597	)	$	1,930,747

 

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Condensed Consolidating Balance Sheet
As of December 31, 2005
(In thousands)

		Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Condensed Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—		$	57,194		$	—		$	—		$	57,194
Inventories		—			658,820			50,971			—			709,791
Other current assets		—			334,403			32,294			—			366,697
Assets held for sale		—			51,498			—			—			51,498
Total current assets		—			1,101,915			83,265			—			1,185,180
Property and equipment, net		—			187,077			6,380			—			193,457
Goodwill		—			404,203			53,202			—			457,405
Other assets		—			94,470			288			—			94,758
Investment in subsidiaries		547,766			71,809			—			(619,575		)	—
Total assets		$	547,766		$	1,859,474		$	143,135		$	(619,575	)	$	1,930,800
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Floor plan notes payable - manufacturer affiliated		$	—		$	204,044		$	—		$	—		$	204,044
Floor plan notes payable - non-manufacturer affiliated		—			368,213			42,125			—			410,338
Other current liabilities		—			167,929			29,068			—			196,997
Liabilities associated with assets held for sale		—			26,847			—			—			26,847
Total current liabilities		—			767,033			71,193			—			838,226
Long-term debt		—			472,359			68			—			472,427
Other liabilities		—			72,316			65			—			72,381
Shareholders’ equity		547,766			547,766			71,809			(619,575		)	547,766
Total liabilities and shareholders’ equity		$	547,766		$	1,859,474		$	143,135		$	(619,575	)	$	1,930,800

 

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Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2006
(In thousands)

		Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues		$	—		$	1,334,581		$	188,949		$	(3,084	)	$	1,520,446
Cost of sales		—			1,132,980			160,790			(3,084		)	1,290,686
Gross profit		—			201,601			28,159			—			229,760
Operating expenses:
Selling, general and administrative		—			155,172			19,824			—			174,996
Depreciation and amortization		—			4,625			451			—			5,076
Income from operations		—			41,804			7,884			—			49,688
Other income (expense):
Floor plan interest expense		—			(9,601		)	(710		)	—			(10,311		)
Other interest expense		—			(9,518		)	(1,707		)	—			(11,225		)
Other income, net		—			927			82			—			1,009
Equity in earnings of subsidiaries		17,179			3,468			—			(20,647		)	—
Total other expense, net		17,179			(14,724		)	(2,335		)	(20,647		)	(20,527		)
Income before income taxes		17,179			27,080			5,549			(20,647		)	29,161
Income tax expense		—			8,854			2,081			—			10,935
Income from continuing operations		17,179			18,226			3,468			(20,647		)	18,226
Discontinued operations, net of tax		—			(1,047		)	—			—			(1,047		)
Net income		$	17,179		$	17,179		$	3,468		$	(20,647	)	$	17,179

 

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Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2005
(In thousands)

		Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues		$	—		$	1,281,715		$	175,938		$	(874	)	$	1,456,779
Cost of sales		—			1,089,961			150,368			(874		)	1,239,455
Gross profit		—			191,754			25,570			—			217,324
Operating expenses:
Selling, general and administrative		—			149,910			18,485			—			168,395
Depreciation and amortization		—			4,552			378			—			4,930
Income from operations		—			37,292			6,707			—			43,999
Other income (expense):
Floor plan interest expense		—			(6,099		)	(434		)	—			(6,533		)
Other interest expense		—			(8,921		)	(1,393		)	—			(10,314		)
Other income, net		—			174			3			—			177
Equity in earnings of subsidiaries		14,953			2,789			—			(17,742		)	—
Total other expense, net		14,953			(12,057		)	(1,824		)	(17,742		)	(16,670		)
Income before income taxes		14,953			25,235			4,883			(17,742		)	27,329
Income tax expense		—			8,417			1,831			—			10,248
Income from continuing operations		14,953			16,818			3,052			(17,742		)	17,081
Discontinued operations, net of tax		—			(1,865		)	(263		)	—			(2,128		)
Net income		$	14,953		$	14,953		$	2,789		$	(17,742	)	$	14,953

 

19

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Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2006
(In thousands)

		Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues		$	—		$	3,895,763		$	536,082		$	(8,811	)	$	4,423,034
Cost of sales