What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-06 compared with 2020-11-04 · 184 added, 313 removed, 445 unchanged (53% of the section changed)

3 unchanged sentences

(In millions, except share data)

September 30, 2020

December 31, 2019

March 31, 2021 December 31, 2020

CURRENT ASSETS:

1 unchanged sentence

Contracts-in-transit and vehicle receivables, net 254.7 211.2

Accounts and notes receivables, net

Inventories, net

Accounts and notes receivable, net 208.0 200.0

Inventories 1,320.4 1,468.0

Prepaid expenses 25.8 19.4

2 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 475.2 and $ 460.2 , respectively

1,640.1 1,608.2

Operating lease assets 204.8 209.9

Goodwill 1,019.1 997.1

Intangible franchise rights 236.3 232.8

Other long-term assets 53.6 37.2

TOTAL ASSETS $ 5,065.1 $ 5,089.4

LIABILITIES AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Floorplan notes payable — credit facility and other, net of offset account of $ 231.9 and $ 160.4 , respectively

$ 616.4 $ 767.6

Floorplan notes payable — manufacturer affiliates, net of offset account of $ 12.9 and $ 16.0 , respectively

7 unchanged sentences

Deferred income taxes 158.0 141.0

Long-term interest rate swap liabilities

Other long-term liabilities 134.5 153.8

8 unchanged sentences

7,203,806 and 7,342,546 shares, respectively

( 487.3 ) ( 492.8 )

TOTAL STOCKHOLDERS’ EQUITY 1,576.6 1,449.6

4 unchanged sentences

(In millions, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

New vehicle retail sales $ 1,543.4 $ 1,342.2

10 unchanged sentences

Total cost of sales 2,519.4 2,274.3

GROSS PROFIT 490.7 416.5

Selling, general and administrative expenses 318.4 328.0

Depreciation and amortization expense 19.5 18.6

Asset impairments

INCOME (LOSS) FROM OPERATIONS 152.7 69.9

INTEREST EXPENSE:

Floorplan interest expense 7.6 12.9

Other interest expense, net 13.8 18.1

(Gain) loss on extinguishment of debt

INCOME (LOSS) BEFORE INCOME TAXES 131.4 38.9

9 unchanged sentences

(In millions)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

NET INCOME (LOSS) $ 101.9 $ 29.8

3 unchanged sentences

Unrealized gain (loss) arising during the period, net of tax benefit (provision) of $( 9.4 ) and $ 9.7 , 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

27.8 ( 31.6 )

Reclassification adjustment for (gain) loss included in interest expense, net of tax benefit (provision) of $ 0.7 and $ 0.2 , respectively

6 unchanged sentences

(In millions, except share data)

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

BALANCE, JUNE 30, 2020

Net income (loss)

Other comprehensive income (loss), net of taxes

Net issuance of treasury shares to stock compensation plans

Stock-based compensation

BALANCE, SEPTEMBER 30, 2020

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

Common Stock Additional

Paid-in Capital Retained Earnings Accumulated

Comprehensive Income (Loss) Treasury Stock Total

Shares Amount

BALANCE, DECEMBER 31, 2020 25,433,048 $ 0.3 $ 308.3 $ 1,817.9 $ ( 184.0 ) $ ( 492.8 ) $ 1,449.6

1 unchanged sentence

Other comprehensive income (loss), net of taxes — — — — 27.9 — 27.9

Purchases of treasury stock

Net issuance of treasury shares to stock compensation plans ( 65,312 ) — ( 9.0 ) — — 5.5 ( 3.5 )

1 unchanged sentence

Dividends declared ($ 0.31 per share)

BALANCE, SEPTEMBER 30, 2020

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share data)

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

BALANCE, JUNE 30, 2019

Net income (loss)

Other comprehensive income (loss), net of taxes

Net issuance of treasury shares to stock compensation plans

Stock-based compensation

Dividends declared ($0.28 per share)

BALANCE, SEPTEMBER 30, 2019

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

— — — ( 5.6 ) — — ( 5.6 )

BALANCE, MARCH 31, 2021 25,367,736 $ 0.3 $ 305.7 $ 1,914.2 $ ( 156.2 ) $ ( 487.3 ) $ 1,576.6

Common Stock Additional

Paid-in Capital Retained Earnings Accumulated

Comprehensive Income (Loss) Treasury Stock Total

Shares Amount

BALANCE, DECEMBER 31, 2019 25,486,711 $ 0.3 $ 295.3 $ 1,542.4 $ ( 147.0 ) $ ( 435.3 ) $ 1,255.7

1 unchanged sentence

Other comprehensive income (loss), net of taxes — — — — ( 59.0 ) — ( 59.0 )

Purchases of treasury stock — — — — — ( 48.9 ) ( 48.9 )

Net issuance of treasury shares to stock compensation plans ( 38,436 ) — ( 12.7 ) — — 10.2 ( 2.5 )

1 unchanged sentence

Dividends declared ($ 0.30 per share)

ASC 842 cumulative adjustment

BALANCE, SEPTEMBER 30, 2019

— — — ( 5.5 ) — — ( 5.5 )

BALANCE, MARCH 31, 2020 25,448,275 $ 0.3 $ 287.8 $ 1,566.7 $ ( 206.0 ) $ ( 474.1 ) $ 1,174.6

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(In millions)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Deferred income taxes 5.9 ( 0.4 )

Asset impairments

Stock-based compensation 6.4 5.1

1 unchanged sentence

(Gain) loss on disposition of assets ( 1.1 ) —

(Gain) loss on extinguishment of debt

Other ( 0.5 ) 0.4

Changes in assets and liabilities, net of acquisitions and dispositions:

Accounts payable and accrued expenses 18.3 ( 98.1 )

Accounts and notes receivables

Accounts and notes receivable ( 8.4 ) 41.6

Inventories 149.3 ( 125.7 )

Contracts-in-transit and vehicle receivables ( 43.5 ) 135.2

11 unchanged sentences

Borrowings on credit facility — floorplan line and other

2,310.4 1,691.6

Repayments on credit facility — floorplan line and other

( 2,461.6 ) ( 1,665.6 )

Borrowings on credit facility — acquisition line

1 unchanged sentence

Debt issuance costs — ( 0.1 )

Borrowings of senior notes

Repayments of senior notes

Borrowings on other debt 40.1 46.2

Repayments on other debt

Principal payments on other debt ( 45.4 ) ( 33.7 )

Proceeds from employee stock purchase plan 3.5 2.5

15 unchanged sentences

and its subsidiaries are collectively referred to as the “Company” in these Notes to Condensed Consolidated Financial Statements.

The Company, through its regions, sells new and used cars and light trucks;

Through its dealerships, the Company sells new and used cars and light trucks;

arranges related vehicle financing;

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and sells vehicle parts.

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

As of March 31, 2021, the Company’s retail network consisted of 118 dealerships in the U.S., 49 dealerships in the U.K.

and 16 dealerships in Brazil.

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In Brazil, the first quarter is generally the weakest, driven by more consumer vacations and activities associated with Carnival, while the third and fourth quarters tend to be stronger.

Other factors unrelated to seasonality, such as changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and/or changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in the Company’s revenues and operating income.

COVID-19 Pandemic

On March 11, 2020, the WHO declared COVID-19 a pandemic, and subsequently, various countries declared the COVID-19 pandemic a national emergency.

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

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.

Other factors unrelated to seasonality, such as the COVID-19 pandemic, changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and/or changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in the Company’s revenues and operating income.

Basis of Presentation

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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.

The results of operations of all business combinations completed during the period are included from the effective dates of the closings of the acquisitions.

All intercompany balances and transactions have been eliminated in consolidation.

During the three months ended June 30, 2020, the Company recorded an out-of-period adjustment of $ 10.6 million resulting in an increase to Selling, general and administrative expenses and Additional paid-in capital to correct stock-based compensation for awards granted in prior years to retirement eligible employees not recognized timely due to the incorrect treatment of a non-substantive service condition.

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 period was not material based on a quantitative and qualitative evaluation.

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

Specifically, the long-term liabilities associated with the Company’s interest rate swaps have been reclassified from the caption Other long-term liabilities to the caption Long-term interest rate swap liabilities in the Condensed Consolidated Balance Sheets.

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

Specifically, the long-term liabilities associated with the Company’s interest rate swaps have been combined into the caption Other long-term liabilities in the Condensed Consolidated Balance Sheets.

The reclassification within the Condensed Consolidated Balance Sheets had no effect on any subtotal in the statements.

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.

The reclassification 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.

1 unchanged sentence

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.

GROUP 1 AUTOMOTIVE, INC.

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

Use of Estimates

3 unchanged sentences

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.

Additionally, while the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, the Company has made accounting estimates based on the facts and circumstances available as of the reporting date.

The significant estimates made by management 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.

Recent Accounting Pronouncements

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The ASU provides optional expedients and exceptions for companies that have contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform.

The optional expedients and exceptions apply during the transition period and are intended to ease the financial reporting burdens mainly related to contract modification accounting, hedge accounting and lease accounting.

The transition period is effective as of March 12, 2020 and will apply through December 31, 2022.

The optional expedients and exceptions are intended to ease the financial reporting burdens mainly related to contract modification accounting, hedge accounting and lease accounting.

In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The guidance is effective for all entities as of March 12, 2020 and will apply through December 31, 2022.

LIBOR is used as an interest rate “benchmark” in the majority of the Company’s floorplan notes payable, as well as its mortgages, other debt and lease contracts.

1 unchanged sentence

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.

During the three months ended June 30, 2020, the Company recorded goodwill impairment charges of $ 10.7 million within the Brazil reporting unit and franchise rights impairment charges of $ 11.1 million within the U.K segment and $ 0.1 million within the Brazil segment.

Refer to Note 8 “Intangibles” for additional discussion of the Company’s interim impairment assessment.

The Company also reviews long-lived assets that are held-for-use, including the Company’s property and equipment and ROU assets, for impairment at the lowest level of identifiable cash flows whenever there are indicators that the carrying value of these assets may not be recoverable.

During the three months ended June 30, 2020, the Company recognized ROU asset impairment charges of $ 1.7 million relating to seven dealerships within the U.K.

segment and $ 0.2 million relating to one dealership within the Brazil segment.

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

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 September 30, 2020

Nine Months Ended September 30, 2020

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

Three Months Ended March 31, 2021

New vehicle retail sales $ 1,246.0 $ 263.2 $ 34.1 $ 1,543.4

3 unchanged sentences

Parts and service sales (1)

296.3 56.5 7.9 360.6

Finance, insurance and other, net (2)

115.1 10.6 1.4 127.0

Total revenues $ 2,404.3 $ 549.6 $ 56.1 $ 3,010.0

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

New vehicle retail sales $ 988.4 $ 296.3 $ 57.5 $ 1,342.2

3 unchanged sentences

Parts and service sales (1)

304.6 56.4 9.6 370.6

Finance, insurance and other, net (2)

97.4 13.3 1.7 112.5

Total revenues $ 2,007.6 $ 590.7 $ 92.5 $ 2,690.8

(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 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.

ACQUISITIONS AND DISPOSITIONS

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

(2) Includes variable consideration recogn ized of $ 6.0 million a nd $ 4.0 million during the three months ended March 31, 2021 and 2020, respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts.

Refer to Note 7.

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

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.

ACQUISITIONS AND DISPOSITIONS

During the three months ended March 31, 2021, the Company acquired two dealerships representing two franchises in the U.S.

Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $ 49.9 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 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.

During the three months ended March 31, 2020, the Company had no activity related to acquisitions.

During the three months ended March 31, 2021, the Company’s dispositions include one dealership representing one franchise and one franchise disposition within an existing dealership in the U.S.

The Company recorded a net pre-tax gain totaling $ 1.0 million related to these dispositions.

The Company also terminated one franchise representing one dealership in the U.K.

During the three months ended March 31, 2020, the Company had no activity related to dispositions.

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

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SEGMENT INFORMATION

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

the U.S., the U.K.

As of March 31, 2021 and 2020, the Company had three reportable segments:

the U.S., U.K.

and Brazil segments are led by the President, U.S.

and Brazilian Operations, and the U.K.

segment is led by an Operations 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 CODM.

The President, U.S.

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

Each region engages in business activities and their respective operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the region and to assess performance.

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

arrange related vehicle financing;

sell service insurance contracts;

sell service and insurance contracts;

provide automotive maintenance and repair services;

and sell vehicle parts.

The vast majority of the Company’s corporate activities are associated with the operations of the U.S.

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 nine months ended September 30, 2020 and 2019 (in millions):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Selected reportable segment data is as follows for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended March 31, 2021

Total revenues $ 2,404.3 $ 549.6 $ 56.1 $ 3,010.0

Income (loss) before income taxes (1)

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

$ 121.6 $ 8.4 $ 1.4 $ 131.4

Three Months Ended March 31, 2020

Total revenues $ 2,007.6 $ 590.7 $ 92.5 $ 2,690.8

Income (loss) before income taxes (2)

(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 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;

$ 42.2 $ ( 2.7 ) $ ( 0.6 ) $ 38.9

(1) Fo r the three months ended March 31, 2021, income (loss) before income taxes includes the following:

segment, $ 2.2 million in expenses related to a winter storm, $ 1.0 million net gain on legal matters and $ 0.9 million net gain on dealership and real estate 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.

segment, $ 0.6 million net loss on dealership and real estate transactions.

(2) For the three months ended March 31, 2020, income (loss) before income taxes includes a $ 0.9 million severance expense in the Brazil segment.

GROUP 1 AUTOMOTIVE, INC.

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

EARNINGS PER SHARE

EARNINGS (LOSS) PER SHARE

The two-class method is utilized for the computation of the Company’s EPS.

The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends.

The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends that are paid in cash.

The Company’s RSAs are participating securities.

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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.

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,

The following table sets forth the calculation of EPS for the three months ended March 31, 2021 and 2020 (in millions, except share and per share data):

Three Months Ended March 31,

Weighted average basic common shares outstanding 17,757,693 17,763,451

Dilutive effect of stock-based awards and employee stock purchases 66,396 44,810

Weighted average dilutive common shares

Weighted average dilutive common shares outstanding 17,824,088 17,808,261

Net income (loss) $ 101.9 $ 29.8

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• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivable, 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 the instruments and/or the existence of variable interest rates.

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

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 .

As of March 31, 2021 and December 31, 2020, the carrying value of these instruments was $ 59.9 million and $ 60.0 million, respectively.

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.

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The Company’s fixed rate long-term debt primarily consists of amounts outstanding under its senior unsecured notes and certain mortgage facilities.

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.

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

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).

Refer to Note 9.

Debt for further discussion of the Company’s long-term debt arrangements.

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

September 30, 2020

December 31, 2019

Carrying Value (1)

March 31, 2021 December 31, 2020

Carrying Value (1)

Fair Value Carrying Value (1)

4.00 % Senior Notes

$ 550.0 $ 545.6 $ 550.0 $ 567.0

Real estate related 82.6 74.2 84.3 77.0

Total $ 632.6 $ 619.7 $ 634.3 $ 644.0

(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

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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 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.

The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020.

As of March 31, 2021, the Company held 38 interest rate swaps in effect with a total notional value of $ 943.0 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.48 %.

The Company also held 8 additional interest rate swaps with forward start dates beginning December 2021, that had an aggregate notional value of $ 425.0 million and a weighted average interest rate of 1.20 % as of March 31, 2021.

The maturity dates of the Company’s interest rate swaps with forward start dates range between January 2025 and December 2031.

The Company’s interest rate swaps are measured at fair value utilizing the option-pricing Black-Scholes present value technique.

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

September 30, 2020

December 31, 2019

March 31, 2021 December 31, 2020

Other current assets $ — $ 1.9

Other long-term assets 18.1 0.3

Total assets $ 18.1 $ 2.3

Accrued expenses and other current liabilities $ 3.2 $ 4.2

Long-term interest rate swap liabilities

Other long-term liabilities 17.9 40.6

Total liabilities $ 21.1 $ 44.8

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

Nine Months Ended September 30,

Three Months Ended March 31,

Derivatives in Cash Flow Hedging Relationship 2021 2020

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

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

Nine Months Ended September 30,

Income Statement Classification Three Months Ended March 31,

Floorplan interest expense $ ( 2.2 ) $ ( 0.6 )

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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):

September 30, 2020

December 31, 2019

RECEIVABLES, NET AND CONTRACT ASSETS

The Company’s receivables, net and contract assets consisted of the following (in millions):

March 31, 2021 December 31, 2020

Contracts-in-transit and vehicle receivables, net:

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Total contracts-in-transit and vehicle receivables, net $ 254.7 $ 211.2

Accounts and notes receivables, net:

Accounts and notes receivable, net:

Manufacturer receivables $ 110.1 $ 108.7

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F&I receivables 28.3 27.4

Total accounts and notes receivables

Other 9.9 13.8

Total accounts and notes receivable 210.3 203.1

allowance for doubtful accounts 2.3 3.2

Total accounts and notes receivables, net

Total accounts and notes receivable, net $ 208.0 $ 200.0

Within Other current assets and Other long-term assets:

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

(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 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.

As the large majority of the Company’s receivables settle within 30 days, the forecast period under the CECL model is a relatively short horizon.

The Company uses an aging method to estimate allowances for doubtful accounts under the CECL model as the Company has determined that the aging method adequately reflects expected credit losses, as corroborated by historical loss-rates.

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.

As described in Note 1 “Interim Financial Information,” since emerging in December 2019, the COVID-19 pandemic has spread globally, including to all of the Company’s markets in the U.S., U.K.

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 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.

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

Total contract assets (1)

$ 36.0 $ 35.3

(1) Refer to Note 2.

Revenues for further discussion of the Company’s contract asset balance.

No allowance for doubtful accounts was recorded for Contract assets as of March 31, 2021 or December 31, 2020.

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

Balance, December 31, 2020 (1)

$ 901.7 $ 95.4 $ — $ 997.1

Additions and adjustments 22.6 — — 22.6

Disposals ( 1.4 ) — — ( 1.4 )

Currency translation — 0.8 — 0.8

Balance, September 30, 2020

Balance, March 31, 2021 (1)

$ 922.9 $ 96.2 $ — $ 1,019.1

(1) Net of accumulated impairments of $ 108.5 million, comprised of $ 40.6 million in the U.S.

reporting unit and $ 67.9 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.

and Brazil, as well as the Company’s long-term outlook projections compared to the projections in first quarter of 2020.

As a result, it was concluded that it was more-likely-than-not that the intangible franchise rights of some dealerships were impaired, requiring a quantitative test as of June 30, 2020.

As a result of the quantitative impairment test, the Company determined that the fair value of the franchise rights on six U.K.

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.

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 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):

September 30, 2020

December 31, 2019

March 31, 2021 December 31, 2020

4.00 % Senior Notes due August 15, 2028

5.00% Senior Notes redeemed September 2, 2020

5.25% Senior Notes redeemed April 2, 2020

$ 550.0 $ 550.0

Acquisition Line 48.2 47.8

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Finance leases 123.8 124.8

Other 26.1 20.0

Total other debt 759.3 764.6

unamortized discount

Total debt 1,357.5 1,362.4

unamortized debt issuance costs 10.5 11.0

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Acquisition Line

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

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 .

The proceeds of the Acquisition Line (as defined in Note 10.

Floorplan Notes Payable) are used for working capital, general corporate and acquisition purposes.

As of March 31, 2021, borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as defined in Note 10.

Floorplan Notes Payable), totaled $ 48.2 million.

The average interest rate on this facility was 1.16 % during the three months ended March 31, 2021.

Real Estate Related

The Company has mortgage loans in the U.S., U.K.

and Brazil that are paid in monthly installments.

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 Brazil that are paid in installments.

As of March 31, 2021, borrowings outstanding under these facilities totaled $ 609.4 million, gross of debt issuance costs, comprised of $ 507.4 million in the U.S., $ 91.0 million in the U.K.

and $ 11.1 million in Brazil.

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):

September 30, 2020

December 31, 2019

March 31, 2021 December 31, 2020

Revolving credit facility — floorplan notes payable $ 808.5 $ 901.6

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(i) a $ 1.70 billion maximum capacity tranche for U.S.

vehicle inventory floorplan financing (“Floorplan Line”) which the outstanding balance, net of offset account discussed below, is reported in Floorplan notes payable - credit facility and other, net ;

and (ii) a $ 349.0 million maximum capacity and $ 50.0 million minimum capacity tranche (“Acquisition Line”), which is not due until maturity of the Revolving Credit Facility and is therefore classified in Long-term debt - see Note 9 “Debt” for additional discussion.

vehicle inventory floorplan financing (“U.S.

Floorplan Line”) which the outstanding balance, net of offset account discussed below, is reported in Floorplan notes payable — credit facility and other, net ;

Debt for additional discussion.

The capacity under these two tranches can be re-designated within the overall $ 1.75 billion commitment, subject to the aforementioned limits.

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

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.

dollars, Euros or British pound sterling.

The Floorplan Line requires a commitment fee of 0.15 % per annum on the unused portion.

Amounts borrowed by the Company under the Floorplan Line for specific vehicle inventory are to be repaid upon the sale of the vehicle financed and in no case is a borrowing for a vehicle to remain outstanding for greater than one year.

As of March 31, 2021 and December 31, 2020, the Company had $ 17.8 million in outstanding letters of credit.

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 U.S.

Floorplan Line was 1.18 % as of March 31, 2021, 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 USD, Euros or GBP.

Floorplan Line requires a commitment fee of 0.15 % per annum on the unused portion.

Amounts borrowed by the Company under the U.S.

Floorplan Line for specific vehicle inventory are to be repaid upon the sale of the vehicle financed and in no case is a borrowing for a vehicle to remain outstanding for greater than one year.

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 $ 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

Offset accounts consist of immediately available cash used to pay down the Floorplan Line and FMCC Facility, and therefore offset the respective outstanding balances in the Company’s Condensed Consolidated Balance Sheets.

The offset accounts are the Company’s primary options for the short-term investment of excess cash.

In conjunction with the Revolving Credit Facility, the Company had $ 3.3 million and $ 3.6 million of related unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively, 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.

Floorplan Notes Payable — Manufacturer Affiliates

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The Company has a $ 300.0 million floorplan arrangement with FMCC for financing of new Ford vehicles in the U.S.

(the “FMCC Facility”).

This facility bears interest at the higher of the actual U.S.

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 September 30, 2020 .

The interest rate on the FMCC Facility was 5.50 % before considering the applicable incentives as of March 31, 2021.

GROUP 1 AUTOMOTIVE, INC.

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

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 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)

As of March 31, 2021, borrowings outstanding under these facilities totaled $ 258.1 million, comprised of $ 97.0 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 6 %, $ 156.8 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 %, and $ 4.3 million in Brazil, with annual interest rates ranging from approximately 2 % to 10 %.

Offset Accounts

Offset accounts consist of immediately available cash used to pay down the U.S.

Floorplan Line and FMCC Facility, and therefore offset the respective outstanding balances in the Company’s Condensed Consolidated Balance Sheets.

The offset accounts are the Company’s primary options for the short-term investment of excess cash.

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 $ 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 .

Cash and Cash Equivalents

The cash flows presented within the Company’s Condensed Consolidated Statements of Cash Flows reflect cash and cash equivalents of $ 82.9 million and $ 87.3 million as of March 31, 2021 and December 31, 2020, respectively.

Non-Cash Activities

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 accrual for capital expenditures increased $ 2.4 million and $ 0.7 million from fiscal year-end for the three months ended March 31, 2021 and 2020, respectively.

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

Nine Months Ended September 30,

Three Months Ended March 31,

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 $ 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.

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 25.3 million and $ 19.9 million for the three months ended March 31, 2021 and 2020, respectively.

Cash paid for income taxes, net of refunds, was $ 1.0 million for the three months ended March 31, 2021.

The Company received a net tax refund of $ 6.2 million for the three months ended March 31, 2020.

COMMITMENTS AND CONTINGENCIES

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Legal Proceedings

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.

As of March 31, 2021, 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

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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.

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 $ 29.7 million as of September 30, 2020 .

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 $ 5.7 million as of September 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

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

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 4.7 million as of March 31, 2021.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Nine Months Ended September 30, 2020

Accumulated income (loss) on foreign currency translation

Accumulated income (loss) on interest rate swaps

Three Months Ended March 31, 2021

Accumulated income (loss) on foreign currency translation Accumulated income (loss) on interest rate swaps Total

Balance, December 31, 2020 $ ( 151.6 ) $ ( 32.5 ) $ ( 184.0 )

Other comprehensive income (loss) before reclassifications:

Pre-tax ( 2.3 ) 37.2 34.9

Tax effect — ( 9.4 ) ( 9.4 )

Amount reclassified from accumulated other comprehensive income (loss):

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Other interest expense, net (pre-tax) — 0.9 0.9

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

Provision (benefit) for income taxes — ( 0.7 ) ( 0.7 )

Net current period other comprehensive income (loss) ( 2.3 ) 30.2 27.9

Balance, September 30, 2020

Nine Months Ended September 30, 2019

Accumulated income (loss) on foreign currency translation

Accumulated income (loss) on interest rate swaps

Balance, March 31, 2021 $ ( 153.9 ) $ ( 2.3 ) $ ( 156.2 )

Three Months Ended March 31, 2020

Accumulated income (loss) on foreign currency translation Accumulated income (loss) on interest rate swaps Total

Balance, December 31, 2019 $ ( 142.9 ) $ ( 4.1 ) $ ( 147.0 )

Other comprehensive income (loss) before reclassifications:

Pre-tax ( 27.9 ) ( 41.3 ) ( 69.2 )

Tax effect — 9.7 9.7

Amount reclassified from accumulated other comprehensive income (loss):

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Other interest expense (pre-tax) — 0.1 0.1

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

Provision (benefit) for income taxes — ( 0.2 ) ( 0.2 )

Net current period other comprehensive income (loss) ( 27.9 ) ( 31.1 ) ( 59.0 )

Balance, September 30, 2019

Balance, March 31, 2020 $ ( 170.8 ) $ ( 35.2 ) $ ( 206.0 )

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

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Forward-looking statements may appear throughout this report including, but not limited to, the following sections:

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk.” This information includes statements regarding our strategy, plans, goals or current expectations with respect to, among other things:

Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk.

This information includes statements regarding our strategy, plans, goals or current expectations with respect to, among other things:

• our future operating performance;

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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 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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Known material factors that could cause actual results to differ from those in the forward-looking statements include:

• adverse developments in the global economy as well as the public health crisis related to the COVID-19 pandemic and the resulting impact on the demand for new and used vehicles and related parts and services;

• adverse developments in the global economy as well as the public health crisis related to the COVID-19 pandemic and the resulting impact on the demand for and supply of new and used vehicles and related parts and services;

• uncertainty regarding the length of time it will take for the U.S.

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federal, U.S.

or Brazil tax regulations and unexpected litigation or adverse legislation, including changes in U.S.

or Brazil tax rates and regulations and unexpected litigation or adverse legislation, including changes in U.S.

state franchise laws, may impose additional costs on us or otherwise adversely affect us;

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

• our ability to realize attractive margins or volumes for our vehicle sales or services;

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

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• the inability to adjust our cost structure and inventory levels to offset any reduction in the demand for our products and services;

• loss of our key personnel;

• our loss of key personnel;

• availability of trained workforce;

• our losses may not be fully covered by insurance or may only be fully covered with a significant increase to our insurance costs;

• our inability to obtain inventory of new and used vehicles and parts, including imported inventory, at the cost, or in the volume, we expect;

• our inability to obtain inventory of new and used vehicles and parts, including imported inventory, at the cost, or in the volume, we expect due to supply chain disruptions or other factors;

• advancements in vehicle technology and changes in vehicle ownership models/consumer preferences.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see Part I, “Item 1A.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see Item 1A.

Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and this Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk.

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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