What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-03 · 212 added, 141 removed, 546 unchanged (39% of the section changed)

3 unchanged sentences

(In millions, except share data)

June 30, 2020

September 30, 2020

December 31, 2019

40 unchanged sentences

(In millions, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

New vehicle retail sales

29 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

NET INCOME (LOSS)

3 unchanged sentences

Unrealized gain (loss) arising during the period, net of tax benefit (provision) of $0.6, $1.7, $12.6 and $6.0, respectively

Reclassification adjustment for realized (gain) loss on interest rate swap termination included in SG&A, net of tax benefit (provision) of $— for all periods presented

Reclassification adjustment for (gain) loss included in interest expense, net of tax benefit (provision) of $0.8, $—, $1.7 and ($0.2), respectively

10 unchanged sentences

Treasury Stock

BALANCE, MARCH 31, 2020

BALANCE, JUNE 30, 2020

Net income (loss)

2 unchanged sentences

Stock-based compensation

BALANCE, JUNE 30, 2020

BALANCE, SEPTEMBER 30, 2020

Paid-in Capital

9 unchanged sentences

Dividends declared ($0.30 per share)

BALANCE, JUNE 30, 2020

BALANCE, SEPTEMBER 30, 2020

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

6 unchanged sentences

Treasury Stock

BALANCE, MARCH 31, 2019

BALANCE, JUNE 30, 2019

Net income (loss)

3 unchanged sentences

Dividends declared ($0.28 per share)

BALANCE, JUNE 30, 2019

BALANCE, SEPTEMBER 30, 2019

Paid-in Capital

9 unchanged sentences

ASC 842 cumulative adjustment

BALANCE, JUNE 30, 2019

BALANCE, SEPTEMBER 30, 2019

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(In millions)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

28 unchanged sentences

Repayments on credit facility — acquisition line

Debt issue costs

Debt issuance costs

Borrowings of senior notes

Repayments of senior notes

Borrowings on other debt

Principal payments on other debt

Borrowings on debt related to real estate

Principal payments on debt related to real estate

Repayments on other debt

Proceeds from employee stock purchase plan

Payment of tax withholding for stock-based awards

Payments of tax withholding for stock-based awards

Repurchases of common stock, amounts based on settlement date

18 unchanged sentences

and sells vehicle parts.

As of June 30, 2020 , the Company’s retail network consisted of 119 dealerships in the U.S., 50 dealerships in the U.K.

As of September 30, 2020 , the Company’s retail network consisted of 119 dealerships in the U.S., 50 dealerships in the U.K.

and 17 dealerships in Brazil.

1 unchanged sentence

and Brazilian Operations, and the U.K.

is led by a Managing Director, each reporting directly to the Company's Chief Executive Officer.

is led by an Operations Director, each reporting directly to the Company's Chief Executive Officer.

The President, U.S.

and Brazilian Operations, and the U.K.

Managing Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.

Operations Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.

The Company’s operating results are generally subject to seasonal variations, as well as changes in the economic environment.

7 unchanged sentences

The global spread of the COVID-19 pandemic continues to adversely impact the Company’s markets in the U.S., U.K.

While government mandated restrictions to contain and combat the virus, such as stay-at-home orders on individuals and operating restrictions on businesses, impacted the Company’s dealerships beginning in mid-March 2020, these measures have begun easing in the second quarter and most of the Company’s markets have shown signs of recovery.

However, despite signs of market recovery, the potential impact from the COVID-19 pandemic is difficult to predict, especially as cases rise in some of the Company’s markets.

As such, the extent to which the impact may negatively affect the Company’s future operating results or the duration of any potential business disruption is uncertain.

Any potential impact will depend on future developments and new information that may emerge regarding the severity and duration of the COVID-19 pandemic and the actions taken by authorities to contain it or treat its impact, all of which are beyond the Company’s control.

These potential impacts, while uncertain, could adversely affect the Company’s business, financial condition and results of operations and could also exacerbate the risks identified in the risk factors listed in this Form 10-Q.

Government mandated restrictions to contain and combat the virus, such as stay-at-home orders on individuals and operating restrictions on businesses, impacted the Company’s dealerships beginning in mid-March 2020.

However, these measures began easing in the second quarter and most of the Company’s markets have since shown signs of recovery.

Despite signs of market recovery, the potential impact from the COVID-19 pandemic is difficult to predict, especially as cases rise in certain markets and governments consider re-instituting lockdown measures and other restrictions.

On October 31, 2020, the U.K.

government announced a national lockdown of non-essential businesses, which includes the Company’s dealership vehicle showrooms, beginning November 5, 2020 through December 2, 2020, at which time the government will determine whether the lockdown restrictions are extended.

The Company’s dealership service operations will remain open, however this mandate will adversely impact the Company’s U.K.

vehicle sales in the fourth quarter.

The extent to which the impact may negatively affect the Company’s business, financial condition and results of operations will depend on future developments and new information that may emerge regarding the severity and duration of the COVID-19 pandemic.

lockdown is extended for a significant period of time, or if additional lockdowns, other travel and business restrictions or additional restrictions are imposed in the Company’s other markets, the adverse impact on the Company’s business, results of operations and cash flows could be material.

The associated risks are further described in Part II, “Item 1A.

Risk Factors” of this Form 10-Q and the potential impacts could also exacerbate the risks identified in the risk factors listed in Part I, “Item 1A.

Risk Factors” from the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Basis of Presentation

4 unchanged sentences

Results for interim periods are not necessarily indicative of the results that can be expected for a full year and therefore should be read in conjunction with the Company’s audited Financial Statements and notes thereto included within the Company’s most recent Annual Report on Form 10-K.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The accompanying Condensed Consolidated Financial Statements reflect the consolidated accounts of the parent company, Group 1 Automotive, Inc., and its subsidiaries, all of which are wholly owned.

3 unchanged sentences

The impact to the three months ended June 30, 2020 was a decrease to net income of $ 9.7 million resulting in a decrease to diluted earnings per common share of $ 0.53 .

The effect of this adjustment on any previously reported periods was not material based on a quantitative and qualitative evaluation.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The effect of this adjustment on any previously reported period was not material based on a quantitative and qualitative evaluation.

Certain prior-period amounts have been reclassified to conform to current-period presentation.

1 unchanged sentence

This reclassification had no effect on any subtotal in the Condensed Consolidated Balance Sheets.

Certain disclosures are reported as zero balances, or may not compute, due to rounding.

Additionally, repayments and borrowings on the Company’s real estate related and other debt have been combined within the captions Repayments on other debt and Borrowings on other debt , respectively, in the Condensed Consolidated Statements of Cash Flows.

Finally, proceeds from purchases under the Company’s employee stock purchase plan and the tax withholdings related to stock-based awards have been separated within the captions Proceeds from employee stock purchase plan and Payments of tax withholding for stock-based awards , respectively, in the Condensed Consolidated Statements of Cash Flows.

The aforementioned reclassifications within the Condensed Consolidated Statements of Cash Flows had no effect on any subtotal in the statements.

Certain amounts in the Condensed Consolidated Financial Statements and the accompanying notes may not compute due to rounding.

All computations have been calculated using unrounded amounts for all periods presented.

These Condensed Consolidated Financial Statements reflect, in the opinion of management, all normal recurring adjustments necessary to fairly state, in all material respects, the Company’s financial position and results of operations for the periods presented.

3 unchanged sentences

These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period.

Management analyzes the Company’s estimates based on historical experience and other assumptions that are believed to be reasonable under the circumstances;

however, actual results could differ materially from such estimates.

Management analyzes the Company’s estimates based on historical experience and other assumptions that are believed to be reasonable under the circumstances, however actual results could differ materially from such estimates.

Significant estimates made in the accompanying Condensed Consolidated Financial Statements include, but are not limited to, inventory valuation adjustments, reserves for future chargebacks on finance, insurance and vehicle service contract fees, self-insured property and casualty insurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill and intangible franchise rights and reserves for potential litigation.

9 unchanged sentences

Additionally, the Company’s derivative instruments are benchmarked to LIBOR.

The Company is expecting to adopt the relief described as its arrangements are modified and does not expect the adoption will have an impact on the Company’s consolidated financial statements due to the relief provided.

The Company will apply the relief described as its arrangements are modified and does not expect the adoption will have an impact on the Company’s consolidated financial statements due to the relief provided.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The Company evaluates its intangible assets, consisting entirely of indefinite-lived franchise rights and goodwill, for impairment annually, or more frequently if events or circumstances indicate possible impairment.

5 unchanged sentences

The impairment charges were recognized within Asset impairments in the Company’s Condensed Consolidated Statements of Operations.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

No impairment charges were recorded during the three months ended September 30, 2020.

The following tables present the Company’s revenues disaggregated by revenue source and geographical segments (in millions):

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

New vehicle retail sales

5 unchanged sentences

Total revenues

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

New vehicle retail sales

6 unchanged sentences

(1) The Company has applied the optional exemption not to disclose revenues related to remaining performance obligations on its maintenance and repair services as the duration of these contracts is less than one year.

Revenues from these contracts is recognized upon completion of the services, which occurs over time.

(2) Includes variable consideration recognized of $ 5.4 million and $ 9.0 million during the three months ended June 30, 2020 and 2019 , respectively, and $ 9.3 million and $ 12.2 million during the six months ended June 30, 2020 and 2019 , respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts.

Revenues from these contracts are recognized upon completion of the services, which occurs over time.

(2) Includes variable consideration recognized of $ 7.6 million and $ 2.6 million during the three months ended September 30, 2020 and 2019 , respectively, and $ 16.9 million and $ 14.8 million during the nine months ended September 30, 2020 and 2019 , respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts.

See Note 7 “Receivables and Contract Assets, Net” for additional information on the Company’s contract assets associated with revenues from the arrangement of financing and sale of service and insurance contracts.

1 unchanged sentence

The Company accounts for business combinations under the acquisition method of accounting, under which the Company allocates the purchase price to the assets and liabilities assumed based on an estimate of fair value.

During the six months ended June 30, 2020 , the Company acquired a collision center in the U.S., which was integrated into an existing dealership.

During the six months ended June 30, 2019 , the Company opened one dealership representing one franchise in the U.S.

During the nine months ended September 30, 2020 , the Company acquired a collision center in the U.S., which was integrated into an existing dealership.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

During the nine months ended September 30, 2019 , the Company acquired two dealerships representing four franchises in the U.S.

and four dealerships representing five franchises in the U.K.

Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $ 97.0 million .

The Company also opened one dealership representing one franchise in the U.S.

and one dealership representing one franchise in the U.K.

During the six months ended June 30, 2020 , the Company did not dispose of any businesses.

During the six months ended June 30, 2019 , the Company disposed of three dealerships representing six franchises in the U.S., three dealerships representing four franchises in the U.K and one dealership representing one franchise in Brazil.

During the nine months ended September 30, 2020 , the Company did not dispose of any businesses.

During the nine months ended September 30, 2019 , the Company disposed of four dealerships representing seven franchises and terminated two franchises in the U.S., disposed of three dealerships representing four franchises in the U.K and disposed of one dealership representing one franchise in Brazil.

The Company recorded a net pre-tax gain totaling $ 5.0 million related to these dispositions.

The Company’s dispositions generally consist of dealership assets and related real estate.

Gains and losses on dispositions are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Gains and losses on dispositions are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

SEGMENT INFORMATION

As of June 30, 2020 , the Company had three reportable segments:

As of September 30, 2020 , the Company had three reportable segments:

the U.S., the U.K.

1 unchanged sentence

and Brazilian Operations, and the U.K.

segment is led by a Managing Director, each reporting directly to the Company's Chief Executive Officer, who is the Chief Operating Decision Maker.

segment is led by an Operations Director, each reporting directly to the Company's Chief Executive Officer, who is the Chief Operating Decision Maker.

The President, U.S.

and Brazilian Operations, and the U.K.

Managing Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.

Operations Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.

Each segment is comprised of retail automotive franchises that sell new and used cars and light trucks;

5 unchanged sentences

segment and therefore the corporate financial results are included within the U.S.

Reportable segment revenues and income (loss) before income taxes were as follows for the three and six months ended June 30, 2020 and 2019 (in millions):

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Reportable segment revenues and income (loss) before income taxes were as follows for the three and nine months ended September 30, 2020 and 2019 (in millions):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Total revenues

Income (loss) before income taxes (1)

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Total revenues

Income (loss) before income taxes (2)

(1) For the three months ended June 30, 2020 , income (loss) before income taxes includes the following:

segment, $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment and a $ 10.4 million loss on debt extinguishment;

segment, $ 12.8 million in asset impairments and $ 1.2 million in severance expense;

and in the Brazil segment, $ 11.1 million in asset impairments.

For the six months ended June 30, 2020 , income (loss) before income taxes includes the following:

segment, $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment and a $ 10.4 million loss on debt extinguishment;

(1) For the three months ended September 30, 2020 , income (loss) before income taxes includes a $ 3.3 million loss on debt extinguishment in the U.S.

For the nine months ended September 30, 2020 , income (loss) before income taxes includes the following:

segment, $ 13.7 million loss on debt extinguishment and $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment;

segment, $ 12.8 million in asset impairments and $ 1.2 million in severance expense;

and in the Brazil segment, $ 11.1 million in asset impairments and $ 0.9 million in severance expense.

(2) For the three months ended June 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 4.0 million in expenses related to Texas hail storm damages;

and in the Brazil segment, $ 0.5 million in asset impairment charges, $ 0.4 million gain on legal matters and $ 0.2 million net gain on disposition of real estate and dealership transactions.

For the six months ended June 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 6.0 million in expenses related to hail storm damages in Texas and Oklahoma, $ 5.2 million net gain on disposition of real estate and dealership transactions and $ 1.8 million net loss on legal matters;

and in the Brazil segment, $ 0.5 million in asset impairment charges, $ 0.2 million net gain on disposition of real estate and dealership transactions and $ 0.2 million net loss on legal matters.

(2) For the three months ended September 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 11.9 million in expenses related to flood damage from Tropical Storm Imelda in Texas, $ 3.2 million in asset impairments and $ 0.8 million net loss on disposition of real estate and dealership transactions;

and in the U.K.

segment, $ 7.0 million in asset impairment charges and $ 0.5 million net loss on disposition of real estate and dealership transactions.

For the nine months ended September 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 17.8 million in expenses related to flood damage from Tropical Storm Imelda and hail storm damages primarily in Texas, $ 4.4 million net gain on disposition of real estate and dealership transactions, $ 3.2 million in asset impairments and $ 1.8 million net loss on legal matters;

segment, $ 7.0 million in asset impairments and $ 0.5 million net loss on disposition of real estate and dealership transactions;

and in the Brazil segment, $ 0.5 million in asset impairments, $ 0.2 million net gain on disposition of real estate and dealership transactions and $ 0.2 million net loss on legal matters.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

EARNINGS PER SHARE

5 unchanged sentences

Diluted EPS is computed by dividing net income available to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The following table sets forth the calculation of EPS for the three and six months ended June 30, 2020 and 2019 (in millions, except share data):

Three Months Ended June 30,

Six Months Ended June 30,

The following table sets forth the calculation of EPS for the three and nine months ended September 30, 2020 and 2019 (in millions, except share and per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average basic common shares outstanding

18 unchanged sentences

Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivables, Accounts Payable, Variable Rate Long-Term Debt and Floorplan Notes Payable

The fair values of these financial instruments approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates.

The fair values of these financial instruments approximate their carrying values due to the short-term nature of the instruments and/or the existence of variable interest rates.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The Company periodically invests in demand notes with a manufacturer-affiliated finance company that bear interest at a variable rate determined by the manufacturer and represent unsecured, unsubordinated and unguaranteed debt obligations of the manufacturer.

The instruments are redeemable on demand by the Company and therefore the Company has classified these instruments as Cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets.

As of September 30, 2020 , the carrying value of these instruments was $ 30.2 million .

The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices, that are observable or that can be corroborated by observable data by correlation.

Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Fixed Rate Long-Term Debt

1 unchanged sentence

See Note 9 “Debt” for further discussion of the Company’s long-term debt arrangements.

On August 17, 2020, the Company issued $ 550.0 million in aggregate principal of 4.00 % Senior Notes due August 2028 (“ 4.00 % Senior Notes”).

Refer to Note 9 “Debt” for further discussion of the issuance.

The Company estimates the fair value of its 4.00 % Senior Notes using quoted prices for the identical liability (Level 1) and estimates the fair value of its fixed-rate mortgage facilities using a present value technique based on current market interest rates for similar types of financial instruments (Level 2).

The carrying value and fair value of the Company’s 4.00 % Senior Notes and fixed rate mortgages were as follows (in millions):

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Real estate related

(1) Carrying value includes unamortized discount and excludes debt issuance costs .

(1) Carrying value excludes unamortized debt issuance costs.

On April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023.

Refer to Note 9 “Debt” for further discussion of the redemption.

On September 2, 2020, the Company fully redeemed $ 550.0 million in aggregate principal amount of its outstanding 5.00 % Senior Notes due June 2022.

Refer to Note 9 “Debt” for further discussion of the redemption.

Derivative Financial Instruments

3 unchanged sentences

Monthly contractual settlements of the positions are recognized as Floorplan interest expense or Other interest expense, net, in the Company’s Condensed Consolidated Statements of Operations.

The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 .

As of June 30, 2020 , the Company held 37 interest rate swaps in effect with a total notional value of $ 904.4 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.73 % .

The Company also held 12 additional interest rate swaps with forward start dates beginning July 2020 that had an aggregate notional value of $ 608.5 million and a weighted average interest rate of 1.57 % as of June 30, 2020 .

The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 .

As of September 30, 2020 , the Company held 39 interest rate swaps in effect with a total notional value of $ 929.4 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.69 % .

The Company also held 12 additional interest rate swaps with forward start dates beginning December 2020 that had an aggregate notional value of $ 700.0 million and a weighted average interest rate of 1.47 % as of September 30, 2020 .

The maturity dates of the Company’s interest rate swaps range between December 2020 and December 2031.

5 unchanged sentences

The inputs to the fair value measurements reflect Level 2 inputs.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Assets and liabilities associated with the Company’s interest rate swaps as reflected in the Condensed Consolidated Balance Sheets were as follows (in millions):

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Total liabilities

Included in Accumulated other comprehensive income (loss) as of June 30, 2020 and 2019 , were unrealized gains (losses), net of tax, totaling ($ 40.1 ) million and $( 5.4 ) million , respectively, related to the Company’s interest rate swaps.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The following tables present the impact of the Company’s interest rate swaps (in millions):

Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)

Six Months Ended June 30,

Nine Months Ended September 30,

Derivatives in Cash Flow Hedging Relationship

2 unchanged sentences

Location of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations

Six Months Ended June 30,

Nine Months Ended September 30,

Floorplan interest expense

1 unchanged sentence

The net amount of loss expected to be reclassified out of Accumulated other comprehensive income (loss) into earnings as an offset to Floorplan interest expense or Other interest expense, net in the next twelve months is $ 1.8 million .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

RECEIVABLES AND CONTRACT ASSETS, NET

The Company’s financial assets measured at amortized cost and the associated allowance for doubtful accounts consisted of the following (in millions):

June 30, 2020

September 30, 2020

December 31, 2019

14 unchanged sentences

Total contract assets, net (1), (2)

(1) The allowance for doubtful accounts as of June 30, 2020 is calculated under the current expected credit loss (“CECL”) model described below, which was introduced under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

(1) The allowance for doubtful accounts as of September 30, 2020 is calculated under the current expected credit loss (“CECL”) model described below, which was introduced under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”) , that became effective for the Company on January 1, 2020.

The adoption of ASC 326 did not materially change the calculation of the allowance for doubtful accounts.

(2) No allowance for doubtful accounts was recorded for Contract assets, net as of June 30, 2020 or December 31, 2019.

No past due balances existed as of either date, and there were no expected credit losses as of June 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

(2) No allowance for doubtful accounts was recorded for Contract assets, net as of September 30, 2020 or December 31, 2019.

No past due balances existed as of either date, and there were no expected credit losses as of September 30, 2020 .

The CECL model applies to financial assets measured at amortized cost, as shown in the table above, and requires the Company to reflect expected credit losses over the remaining contractual term of the asset.

2 unchanged sentences

However, the Company will apply adjustments for asset-specific factors and current economic conditions as needed at each reporting date.

The Company recorded an adjustment of approximately $ 0.4 million for expected credit losses as of September 30, 2020 as a result of adverse economic conditions arising from the COVID-19 pandemic impacting certain customers in the U.S.

The adjustment primarily impacted receivables that were not past due and thus were not subject to estimated credit losses under the aging method.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The Company evaluates its intangible assets, consisting entirely of goodwill and indefinite-lived franchise rights, for impairment annually, or more frequently if events or circumstances indicate possible impairment.

1 unchanged sentence

While the U.S.

began to show signs of recovery in the second quarter of 2020, the Company’s showrooms in Brazil did not fully reopen until May 2020 and operated at reduced hours.

Despite operations resuming in Brazil, the impact of the virus continues to worsen and has not yet reached its predicted peak in some of the Company’s Brazilian markets.

began to show signs of recovery in the second quarter of 2020, the Company’s showrooms in Brazil did not fully reopen until May 2020 and then operated at reduced hours.

Despite operations resuming in Brazil, the impact of the virus continued to worsen in the second quarter and had not yet reached its peak in some of the Company’s Brazilian markets in the second quarter.

The slower than expected recovery from the COVID-19 pandemic in Brazil during the second quarter of 2020 constituted a triggering event indicating that goodwill may be impaired.

Therefore the Company performed a quantitative goodwill impairment test for the Brazil reporting unit as of June 30, 2020 and as a result, the Company recorded a goodwill impairment charge of $ 10.7 million within the Brazil reporting unit.

The following is a roll-forward of the Company’s goodwill accounts by reportable segment (in millions):

No impairment charges were recorded to goodwill during the three months ended September 30, 2020.

The following is a roll-forward of the Company’s goodwill accounts by reporting unit (in millions):

Balance, December 31, 2019 (1)

1 unchanged sentence

Currency translation

Balance, June 30, 2020

(1) Net of accumulated impairments of $ 108.6 million .

Balance, September 30, 2020

(1) Net of accumulated impairments of $ 97.8 million , comprised of $ 40.6 million in the U.S.

reporting unit and $ 57.2 million in the Brazil reporting unit.

The impact of the COVID-19 pandemic on the economy and unemployment during the second quarter of 2020 adversely impacted the Company’s operating results in the U.S., U.K.

3 unchanged sentences

dealerships and one Brazil dealership were below their respective carrying values.

This resulted in franchise rights impairment charges of $ 11.1 million in the U.K segment and $ 0.1 million in the Brazil segment.

In estimating the fair value required for the goodwill and intangible franchise impairment tests, the Company used a discounted cash flow model, or income approach, specifically the excess earnings method.

This resulted in franchise rights impairment charges of $ 11.1 million in the U.K.

segment and $ 0.1 million in the Brazil segment.

There was no remaining intangible franchise rights balance in the Brazil segment following the impairment charges recorded in the second quarter of 2020.

No impairment charges were recorded to intangible franchise rights during the three months ended September 30, 2020, reflecting the improving business results in the U.S.

In estimating the fair value required for the goodwill and intangible franchise rights impairment tests, the Company used a discounted cash flow model, or income approach, specifically the excess earnings method.

Significant inputs to the model included changes in revenue growth rates, future gross margins, future SG&A expenses, terminal growth rates and the WACC, which were unobservable inputs, or Level 3 in the fair value hierarchy.

The impairment charges were recognized within Asset impairments in the Company's Consolidated Statements of Operations.

The impairment charges were recognized within Asset impairments in the Company's Condensed Consolidated Statements of Operations.

Despite the Company’s improved results in the third quarter of 2020, COVID-19 cases in certain markets in the U.S., and more pervasively throughout the U.K., have continued to rise in the fourth quarter of 2020.

On October 31, 2020, the U.K.

The Company’s dealership service operations will remain open, however this mandate will adversely impact the Company’s U.K.

vehicle sales in the fourth quarter.

Due to the temporary nature of the U.K.

lockdown in the fourth quarter, no impairment indicators of goodwill or intangible franchise rights were identified subsequent to September 30, 2020 through the date of issuance of this Form 10-Q.

However if the COVID-19 pandemic and any lockdowns or other restrictions to contain the pandemic continue long-term, the Company may be required to record additional impairment charges in the future.

GROUP 1 AUTOMOTIVE, INC.

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Long-term debt consisted of the following (in millions):

June 30, 2020

September 30, 2020

December 31, 2019

5.00% Senior Notes due June 1, 2022

4.00% Senior Notes due August 15, 2028

5.00% Senior Notes redeemed September 2, 2020

5.25% Senior Notes redeemed April 2, 2020

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Finance leases

unamortized discount on 5.00% and 5.25% Notes (1)

Total other debt

unamortized discount

unamortized debt issuance costs

current maturities

Long-term debt

(1) The Company’s 5.25 % Senior Notes were fully redeemed on April 2, 2020.

See 5.25 % Senior Notes Redemption and Debt Refinancing for further discussion.

Total long-term debt

Acquisition Line

The proceeds of the Acquisition Line are used for working capital, general corporate and acquisition purposes.

As of June 30, 2020 , borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as described in Note 10 , “Floorplan Notes Payable” ), totaled $ 136.6 million .

The average interest rate on this facility was 1.60 % during the three months ended June 30, 2020 .

As of September 30, 2020 , borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as described in Note 10 , “Floorplan Notes Payable” ), totaled $ 57.9 million .

The average interest rate on this facility was 1.30 % during the three months ended September 30, 2020 .

Real Estate Related

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and Brazil that are paid in monthly installments.

As of June 30, 2020 , borrowings outstanding under these facilities totaled $ 620.6 million , gross of debt issuance costs, comprised of $ 531.0 million in the U.S., $ 77.7 million in the U.K.

As of September 30, 2020 , borrowings outstanding under these facilities totaled $ 628.1 million , gross of debt issuance costs, comprised of $ 526.6 million in the U.S., $ 90.2 million in the U.K.

and $ 11.3 million in Brazil.

5.25 % Senior Notes Redemption and Debt Refinancing

On April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023, at a premium of 102.625 % .

The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $ 307.9 million .

The Company recognized a loss on extinguishment of $ 10.4 million which included write offs of unamortized discount in the amount of $ 1.9 million and unamortized premium in the amount of $ 0.6 million .

Additionally, the Company paid accrued interest of $ 4.6 million .

4.00% Senior Notes Issuance

On August 17, 2020, the Company issued the following notes, at par:

Principal Amount

(in millions)

Maturity Date

Effective Interest Rate (1)

Interest Payment Dates

4.00% Senior Notes

August 15, 2028

February 15 th , August 15 th

(1) The effective interest rate is after the impact of associated debt issuance costs

The Company, at its option, may redeem some or all of the notes at the redemption prices (expressed as percentages of principal amount of the notes) set forth below, plus accrued and unpaid interest.

Redemption Period

Redemption Price

August 15, 2023

August 15, 2024

August 15, 2025

August 15, 2026 and thereafter

The 4.00 % Senior Notes are unsecured obligations and rank equal in right of payment to all of the Company’s existing and future senior unsecured debt and senior in right of payment to all of the Company’s future subordinated debt.

The 4.00 % Senior Notes are guaranteed by substantially all of the Company’s U.S.

subsidiaries.

subsidiary guarantees rank equally in the right of payment to all of the Company’s U.S.

subsidiary guarantor’s existing and future senior unsecured debt.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The Company may be required to purchase the 4.00 % Senior Notes if it sells certain assets or triggers the change in control provisions defined in the senior notes indenture.

The 4.00 % Senior Notes contain customary restrictions on the Company, including the ability to pay dividends, incur additional indebtedness, create liens, sell or otherwise dispose of assets and repurchase shares of outstanding common stock.

Such restrictions are similar to those contained in the Company's 5.25 % and 5.00 % Senior Notes that were redeemed in the current year, as described further below.

5.00 % Senior Notes Redemption

On September 2, 2020, the Company fully redeemed $ 550.0 million in aggregate principal amount of its outstanding 5.00 % Senior Notes due June 2022, at par value.

The Company recognized a loss on extinguishment of $ 3.3 million which included write offs of unamortized discount in the amount of $ 2.6 million and unamortized debt issuance costs in the amount of $ 0.7 million .

Additionally, the Company paid accrued interest of $ 6.9 million up to the date of redemption.

5.25 % Senior Notes Redemption

On April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023, at a premium of 102.625 % .

The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $ 307.9 million .

The Company recognized a loss on extinguishment of $ 10.4 million which included write offs of unamortized discount in the amount of $ 1.9 million and unamortized debt issuance costs in the amount of $ 0.6 million .

Additionally, the Company paid accrued interest of $ 4.6 million up to the date of redemption.

FLOORPLAN NOTES PAYABLE

The Company’s floorplan notes payable consisted of the following (in millions):

June 30, 2020

September 30, 2020

December 31, 2019

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The Acquisition Line includes a $ 100 million sub-limit for letters of credit.

As of June 30, 2020 and December 31, 2019 , the Company had $ 18.6 million and $ 23.6 million , respectively, in outstanding letters of credit.

The Floorplan Line bears interest at rates equal to the LIBOR plus 110 basis points for new vehicle inventory and LIBOR plus 140 basis points for used vehicle inventory.

The weighted average interest rate on the Floorplan Line was 1.21 % as of June 30, 2020 , excluding the impact of the Company’s interest rate derivative instruments.

As of September 30, 2020 and December 31, 2019 , the Company had $ 17.8 million and $ 23.6 million , respectively, in outstanding letters of credit.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The Floorplan Line bears interest at rates equal to LIBOR plus 110 basis points for new vehicle inventory and LIBOR plus 140 basis points for used vehicle inventory.

The weighted average interest rate on the Floorplan Line was 1.22 % as of September 30, 2020 , excluding the impact of the Company’s interest rate derivative instruments.

The Acquisition Line bears interest at LIBOR or a LIBOR equivalent plus 100 to 200 basis points, depending on the Company’s total adjusted leverage ratio, on borrowings in U.S.

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The Acquisition Line requires a commitment fee ranging from 0.15 % to 0.40 % per annum, depending on the Company’s total adjusted leverage ratio, based on a minimum commitment of $ 50.0 million less outstanding borrowings.

In conjunction with the Revolving Credit Facility, the Company has $ 4.1 million of related unamortized debt issuance costs as of June 30, 2020 , which are included in Prepaid expenses and Other long-term assets in the Company’s Condensed Consolidated Balance Sheets and amortized over the term of the facility.

In conjunction with the Revolving Credit Facility, the Company has $ 3.9 million of related unamortized debt issuance costs as of September 30, 2020 , which are included in Prepaid expenses and Other long-term assets in the Company’s Condensed Consolidated Balance Sheets and amortized over the term of the facility.

Offset Accounts

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Prime rate or a Prime floor of 4.00 % , plus 150 basis points minus certain incentives.

The interest rate on the FMCC Facility was 5.50 % before considering the applicable incentives as of June 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The interest rate on the FMCC Facility was 5.50 % before considering the applicable incentives as of September 30, 2020 .

Other Manufacturer Facilities

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and Brazil with financial institutions affiliated with manufacturers for financing of new, used and rental vehicle inventories.

As of June 30, 2020 , borrowings outstanding under these facilities totaled $ 228.7 million , comprised of $ 97.7 million in the U.S., with annual interest rates ranging from less than 2 % to approximately 6 % , $ 122.2 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 % , and $ 8.9 million in Brazil, with annual interest rates ranging from approximately 2 % to 10 % .

As of September 30, 2020 , borrowings outstanding under these facilities totaled $ 200.1 million , comprised of $ 91.5 million in the U.S., with annual interest rates ranging from less than 1% to approximately 6 % , $ 102.2 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 % , and $ 6.4 million in Brazil, with annual interest rates ranging from approximately 2 % to 10 % .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

CASH FLOW INFORMATION

Cash, Cash Equivalents and Restricted Cash

The cash flows presented within the Company’s Condensed Consolidated Statements of Cash Flows reflect cash and cash equivalents of $ 72.7 million as of June 30, 2020 , and cash and cash equivalents of $ 23.8 million and restricted cash of $ 4.3 million included in Other long-term assets as of December 31, 2019 .

The cash flows presented within the Company’s Condensed Consolidated Statements of Cash Flows reflect cash and cash equivalents of $ 66.2 million as of September 30, 2020 , and cash and cash equivalents of $ 23.8 million and restricted cash of $ 4.3 million included in Other long-term assets as of December 31, 2019 .

Non-cash Activities

The accrual for capital expenditures decreased $ 2.7 million and decreased $ 3.5 million for the six months ended June 30, 2020 and June 30, 2019 , respectively.

The accrual for capital expenditures decreased $ 1.0 million and $ 3.6 million for the nine months ended September 30, 2020 and 2019 , respectively.

The following table presents ROU assets obtained in exchange for lease obligations (in millions):

Six Months Ended June 30,

Nine Months Ended September 30,

ROU assets obtained in exchange for lease obligations:

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Interest and Income Taxes Paid

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 57.0 million and $ 64.4 million for the six months ended June 30, 2020 and 2019 , respectively.

Cash received for income taxes, net of tax payments, was $ 6.8 million for the six months ended June 30, 2020 .

Cash paid for income taxes, net of refunds, was $ 19.4 million for the six months ended June 30, 2019 .

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 77.7 million and $ 83.1 million for the nine months ended September 30, 2020 and 2019 , respectively.

Cash paid for income taxes, net of refunds, was $ 26.2 million and $ 34.8 million for the nine months ended September 30, 2020 and 2019 , respectively.

COMMITMENTS AND CONTINGENCIES

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Legal Proceedings

As of June 30, 2020 , the Company was not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows, including class action lawsuits.

As of September 30, 2020 , the Company was not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows, including class action lawsuits.

However, the results of current or future matters cannot be predicted with certainty and an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Other Matters

The Company has sold a number of dealerships to third parties and as a condition to certain of those dispositions, remains liable for the remaining lease payments of such dealerships in the event of non-payment by the purchaser.

Although the Company has no reason to believe that it will be called upon to perform under any such assigned leases, the Company estimates that lessee remaining rental obligations were $ 37.3 million as of June 30, 2020 .

From time to time, the Company sells its dealerships to third parties.

In those instances where the Company did not own the real estate and was a tenant, it assigned the lease to the purchaser but remained liable as a guarantor for the remaining lease payments in the event of non-payment by the purchaser.

In certain instances, the Company obtains collateral support for the rental obligations that the Company remains obligated for upon sale of a dealership to a lessee.

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 6.1 million as of June 30, 2020 .

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 5.7 million as of September 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in the balances of each component of Accumulated other comprehensive income (loss) were as follows (in millions):

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Accumulated income (loss) on foreign currency translation

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Other interest expense, net (pre-tax)

Realized (gain) loss on interest rate swap termination (pre-tax)

Provision (benefit) for income taxes

Net current period other comprehensive income (loss)

Balance, June 30, 2020

Six Months Ended June 30, 2019

Balance, September 30, 2020

Nine Months Ended September 30, 2019

Accumulated income (loss) on foreign currency translation

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Other comprehensive income (loss) before reclassifications:

Amount reclassified from accumulated other comprehensive income (loss) to

Amount reclassified from accumulated other comprehensive income (loss):

Floorplan interest expense (pre-tax)

Other interest expense (pre-tax)

Realized (gain) loss on interest rate swap termination (pre-tax)

Provision (benefit) for income taxes

Net current period other comprehensive income (loss)

Balance, June 30, 2019

Balance, September 30, 2019

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

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• our ability to maintain or improve our margins;

• our ability to accomplish and sustain SG&A expense decreases;

• operating cash flows and availability of capital;

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• changes in sales volumes and availability of credit for customer financing in new and used vehicles and sales volumes in the parts and service markets;

• business trends in the retail automotive industry, including the level of manufacturer incentives, new and used vehicle retail sales volume, customer demand, interest rates and changes in industry-wide inventory levels;

• business trends in the retail automotive industry, including the level of manufacturer incentives, new and used vehicle retail sales volume and pricing, customer demand, interest rates and changes in industry-wide inventory levels;

• manufacturer quality issues, including the recall of vehicles and any related negative impact on vehicle sales and brand reputation;

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• requirements imposed on us by our manufacturers may require dispositions, limit our acquisitions or require increases in the level of capital expenditures related to our dealership facilities;

• our existing and/or new dealership operations may not perform at expected levels or achieve expected improvements;

• our existing and/or new dealership operations may not perform at our or manufacturer expected levels or achieve expected improvements;

• our failure to achieve expected future cost savings or future costs may be higher than we expect;

21 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements