Item 1. Financial Statements
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
September 30, 2021 December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 296.9 $ 87.3
Contracts-in-transit and vehicle receivables, net 171.8 211.2
Accounts and notes receivable, net 180.6 200.0
Inventories 850.8 1,468.0
Prepaid expenses 24.5 19.4
Other current assets 46.2 18.4
TOTAL CURRENT ASSETS 1,570.8 2,004.2
Property and equipment, net of accumulated depreciation of $ 503.6 and $ 460.2 , respectively
1,644.5 1,608.2
Operating lease assets 218.0 209.9
Goodwill 1,034.5 997.1
Intangible franchise rights 237.1 232.8
Other long-term assets 52.7 37.2
TOTAL ASSETS $ 4,757.6 $ 5,089.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Floorplan notes payable — credit facility and other, net of offset account of $ 331.2 and $ 160.4 , respectively
$ 83.8 $ 767.6
Floorplan notes payable — manufacturer affiliates, net of offset account of $ 3.5 and $ 16.0 , respectively
234.2 327.5
Current maturities of long-term debt 57.6 56.7
Current operating lease liabilities 22.0 21.5
Accounts payable 381.7 442.6
Accrued expenses and other current liabilities 266.9 226.9
TOTAL CURRENT LIABILITIES 1,046.1 1,842.7
Long-term debt 1,276.3 1,294.7
Long-term operating lease liabilities 213.1 207.6
Deferred income taxes 159.2 141.0
Other long-term liabilities 144.4 153.8
Commitments and Contingencies (Note 11)
STOCKHOLDERS’ EQUITY:
Common stock, $ 0.01 par value, 50,000,000 shares authorized; 25,343,056 and 25,433,048 shares issued, respectively
0.3 0.3
Additional paid-in capital 320.2 308.3
Retained earnings 2,265.0 1,817.9
Accumulated other comprehensive income (loss) ( 166.1 ) ( 184.0 )
Treasury stock, at cost; 7,242,405 and 7,342,546 shares, respectively
( 500.8 ) ( 492.8 )
TOTAL STOCKHOLDERS’ EQUITY 1,918.6 1,449.6
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 4,757.6 $ 5,089.4
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
2
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
REVENUES:
New vehicle retail sales $ 1,576.2 $ 1,580.7 $ 4,974.9 $ 3,985.5
Used vehicle retail sales 1,248.3 867.2 3,342.7 2,287.4
Used vehicle wholesale sales 109.4 86.7 286.0 221.9
Parts and service sales 427.6 375.6 1,180.4 1,028.2
Finance, insurance and other, net 147.7 129.5 435.7 338.7
Total revenues 3,509.2 3,039.6 10,219.7 7,861.7
COST OF SALES:
New vehicle retail sales 1,408.5 1,481.5 4,542.9 3,759.7
Used vehicle retail sales 1,149.8 796.1 3,075.5 2,127.9
Used vehicle wholesale sales 101.8 80.7 265.3 212.9
Parts and service sales 195.9 169.4 530.9 473.9
Total cost of sales 2,856.0 2,527.7 8,414.5 6,574.4
GROSS PROFIT 653.2 512.0 1,805.1 1,287.2
Selling, general and administrative expenses 385.1 305.8 1,080.3 870.9
Depreciation and amortization expense 19.6 19.1 57.9 56.5
Asset impairments 1.7 — 1.7 23.8
INCOME FROM OPERATIONS 246.8 187.1 665.3 336.0
Floorplan interest expense 4.8 8.1 21.2 31.1
Other interest expense, net 13.2 14.6 40.7 49.0
Loss on extinguishment of debt 3.8 3.3 3.8 13.7
INCOME BEFORE INCOME TAXES 225.0 161.0 599.6 242.2
Provision for income taxes 52.9 34.6 134.6 55.8
NET INCOME $ 172.1 $ 126.4 $ 465.0 $ 186.4
BASIC EARNINGS PER SHARE $ 9.37 $ 6.86 $ 25.31 $ 10.11
Weighted average common shares outstanding 17.8 17.8 17.8 17.8
DILUTED EARNINGS PER SHARE $ 9.33 $ 6.83 $ 25.21 $ 10.08
Weighted average dilutive common shares outstanding 17.8 17.8 17.8 17.8
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
3
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
NET INCOME $ 172.1 $ 126.4 $ 465.0 $ 186.4
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment ( 11.5 ) 6.0 ( 6.7 ) ( 24.4 )
Net unrealized gain (loss) on interest rate risk management activities, net of tax:
Unrealized gain (loss) arising during the period, net of tax benefit (provision) of $ 0.2 , $ 0.6 , $( 4.9 ) and $ 12.6 , respectively
( 0.6 ) ( 1.8 ) 16.1 ( 40.4 )
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
— 0.1 — 0.1
Reclassification adjustment for loss included in interest expense, net of tax benefit of $ 0.6 , $ 0.8 , $ 1.9 and $ 1.7 , respectively
1.8 2.7 6.1 5.4
Reclassification related to de-designated interest rate swaps, net of tax benefit of $ — , $ — , $ 0.7 and $ — , respectively
— — 2.4 —
Unrealized gain (loss) on interest rate risk management activities, net of tax 1.3 1.0 24.5 ( 35.0 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX ( 10.2 ) 7.0 17.9 ( 59.3 )
COMPREHENSIVE INCOME $ 161.9 $ 133.4 $ 482.9 $ 127.0
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
4
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions, except share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, JUNE 30, 2021 25,357,677 $ 0.3 $ 313.6 $ 2,099.1 $ ( 155.9 ) $ ( 503.1 ) $ 1,754.0
Net income — — — 172.1 — — 172.1
Other comprehensive loss, net of taxes — — — — ( 10.2 ) — ( 10.2 )
Net issuance of treasury shares to stock compensation plans ( 14,621 ) — 0.8 — — 2.3 3.2
Stock-based compensation — — 5.7 — — — 5.7
Dividends declared ($ 0.34 per share)
— — — ( 6.3 ) — — ( 6.3 )
BALANCE, SEPTEMBER 30, 2021 25,343,056 $ 0.3 $ 320.2 $ 2,265.0 $ ( 166.1 ) $ ( 500.8 ) $ 1,918.6
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
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
Net income — — — 465.0 — — 465.0
Other comprehensive income, net of taxes — — — — 17.9 — 17.9
Purchases of treasury stock — — — — — ( 18.6 ) ( 18.6 )
Net issuance of treasury shares to stock compensation plans ( 89,992 ) — ( 7.1 ) — — 10.7 3.6
Stock-based compensation — — 19.0 — — — 19.0
Dividends declared ($ 0.98 per share)
— — — ( 17.9 ) — — ( 17.9 )
BALANCE, SEPTEMBER 30, 2021 25,343,056 $ 0.3 $ 320.2 $ 2,265.0 $ ( 166.1 ) $ ( 500.8 ) $ 1,918.6
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
5
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions, except share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, JUNE 30, 2020 25,439,581 $ 0.3 $ 300.0 $ 1,596.9 $ ( 213.3 ) $ ( 467.9 ) $ 1,215.9
Net income — — — 126.4 — — 126.4
Other comprehensive income, net of taxes — — — — 7.0 — 7.0
Net issuance of treasury shares to stock compensation plans 165 — ( 1.4 ) — — 3.6 2.2
Stock-based compensation — — 5.3 — — — 5.3
BALANCE, SEPTEMBER 30, 2020 25,439,746 $ 0.3 $ 304.0 $ 1,723.3 $ ( 206.3 ) $ ( 464.3 ) $ 1,356.9
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
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
Net income — — — 186.4 — — 186.4
Other comprehensive loss, net of taxes — — — — ( 59.3 ) — ( 59.3 )
Purchases of treasury stock — — — — — ( 48.9 ) ( 48.9 )
Net issuance of treasury shares to stock compensation plans ( 46,964 ) — ( 18.4 ) — — 20.0 1.6
Stock-based compensation — — 27.0 — — — 27.0
Dividends declared ($ 0.30 per share)
— — — ( 5.5 ) — — ( 5.5 )
BALANCE, SEPTEMBER 30, 2020 25,439,746 $ 0.3 $ 304.0 $ 1,723.3 $ ( 206.3 ) $ ( 464.3 ) $ 1,356.9
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
6
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended September 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 465.0 $ 186.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 57.9 56.5
Change in operating lease assets 18.1 18.1
Deferred income taxes 7.7 ( 2.8 )
Asset impairments 1.7 23.8
Stock-based compensation 19.0 27.0
Amortization of debt discount and issuance costs 1.8 2.6
Gain on disposition of assets ( 2.1 ) —
Loss on extinguishment of debt 3.8 13.7
Unrealized loss on derivative instruments 1.4 —
Other 2.0 1.9
Changes in assets and liabilities, net of acquisitions and dispositions:
Accounts payable and accrued expenses ( 21.6 ) ( 58.8 )
Accounts and notes receivable 19.2 25.2
Inventories 643.0 499.6
Contracts-in-transit and vehicle receivables 43.1 33.0
Prepaid expenses and other assets ( 10.0 ) 41.1
Floorplan notes payable — manufacturer affiliates
( 112.5 ) ( 137.9 )
Deferred revenues ( 1.1 ) ( 0.4 )
Operating lease liabilities ( 18.9 ) ( 16.3 )
Net cash provided by operating activities 1,117.5 712.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $ 5.3 and $ — , respectively
( 74.6 ) ( 1.3 )
Proceeds from disposition of franchises, property and equipment 19.8 1.3
Purchases of property and equipment ( 88.4 ) ( 78.8 )
Other ( 20.4 ) —
Net cash used in investing activities ( 163.5 ) ( 78.8 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facility — floorplan line and other
5,796.1 7,590.5
Repayments on credit facility — floorplan line and other
( 6,479.2 ) ( 7,960.7 )
Borrowings on credit facility — acquisition line
67.3 284.0
Repayments on credit facility — acquisition line
( 59.9 ) ( 296.5 )
Debt issuance costs — ( 9.0 )
Borrowings of senior notes — 550.0
Repayments of senior notes — ( 857.9 )
Borrowings on other debt 110.0 252.9
Principal payments on other debt ( 143.7 ) ( 90.8 )
Proceeds from employee stock purchase plan 11.9 7.0
Payments of tax withholding for stock-based compensation ( 8.3 ) ( 5.5 )
Repurchases of common stock, amounts based on settlement date ( 18.6 ) ( 48.9 )
Dividends paid ( 17.9 ) ( 5.5 )
Net cash used in financing activities ( 742.2 ) ( 590.4 )
Effect of exchange rate changes on cash ( 2.1 ) ( 5.4 )
Net increase in cash and cash equivalents 209.7 38.1
CASH AND CASH EQUIVALENTS, beginning of period 87.3 28.1
CASH AND CASH EQUIVALENTS, end of period $ 296.9 $ 66.2
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
Business
Group 1 Automotive, Inc., a Delaware corporation, is a leading operator in the automotive retailing industry with business activities in 15 states in the U.S., 35 towns in the U.K. and three states in Brazil. Group 1 Automotive, Inc. and its subsidiaries are collectively referred to as the “Company” in these Notes to Condensed Consolidated Financial Statements. Through its dealerships, the Company sells new and used cars and light trucks; arranges related vehicle financing; sells service and insurance contracts; provides automotive maintenance and repair services; and sells vehicle parts.
As of September 30, 2021, the Company’s retail network consisted of 117 dealerships i n the U.S., 55 deale rships in the U.K. and 16 dealerships in Brazil. The U.S. and Brazil are led by the President, U.S. and Brazilian Operations, and the U.K. 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. 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. In the U.S., the Company generally experiences higher volumes of vehicle sales and service in the second and third quarters of each year. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. In the U.K., the first and third quarters tend to be stronger, driven by the vehicle license plate change months of March and September. 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 the COVID-19 pandemic, changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and changes in foreign currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in the Company’s revenues and operating income.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements and notes thereto, have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. 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 Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
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. All intercompany balances and transactions have been eliminated in consolidation.
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 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.
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.
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 and 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.
8
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. 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. 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
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . 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 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. Additionally, the Company’s derivative instruments are benchmarked to LIBOR. The Company will apply the relief described as its arrangements are modified and does not expect the adoption will have a material impact on the Company’s consolidated financial statements.
2 . REVENUES
The following tables present the Company’s revenues disaggregated by its geographical segments (in millions):
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
U.S. U.K. Brazil Total U.S. U.K. Brazil Total
New vehicle retail sales $ 1,208.5 $ 305.4 $ 62.3 $ 1,576.2 $ 3,958.9 $ 869.7 $ 146.3 $ 4,974.9
Used vehicle retail sales 902.3 328.0 18.0 1,248.3 2,481.7 820.5 40.5 3,342.7
Used vehicle wholesale sales 68.0 38.1 3.3 109.4 179.6 98.4 8.0 286.0
Total new and used vehicle sales 2,178.8 671.5 83.6 2,933.9 6,620.2 1,788.7 194.7 8,603.6
Parts and service sales (1)
353.1 63.4 11.1 427.6 982.0 170.2 28.2 1,180.4
Finance, insurance and other, net (2)
130.5 15.6 1.7 147.7 389.4 41.9 4.4 435.7
Total revenues $ 2,662.4 $ 750.4 $ 96.4 $ 3,509.2 $ 7,991.6 $ 2,000.7 $ 227.3 $ 10,219.7
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
U.S. U.K. Brazil Total U.S. U.K. Brazil Total
New vehicle retail sales $ 1,172.2 $ 376.6 $ 31.9 $ 1,580.7 $ 3,076.3 $ 800.1 $ 109.1 $ 3,985.5
Used vehicle retail sales 608.2 248.1 10.9 867.2 1,719.4 529.7 38.3 2,287.4
Used vehicle wholesale sales 44.8 39.5 2.4 86.7 122.1 90.6 9.2 221.9
Total new and used vehicle sales 1,825.2 664.2 45.2 2,534.6 4,917.8 1,420.4 156.6 6,494.8
Parts and service sales (1)
306.4 61.3 8.0 375.6 865.2 139.5 23.4 1,028.2
Finance, insurance and other, net (2)
113.0 15.4 1.1 129.5 300.2 35.1 3.4 338.7
Total revenues $ 2,244.6 $ 740.8 $ 54.3 $ 3,039.6 $ 6,083.3 $ 1,595.0 $ 183.4 $ 7,861.7
(1) The Company has elected 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.
(2) Includes variable consideration recognized of $ 5.1 million and $ 7.6 million during the three months ended September 30, 2021 and 2020, respectively, and $ 18.7 million and $ 16.9 million during the nine months ended September 30, 2021 and 2020, respectively, relating to performance obligations satisfied in previous periods on the Compa ny’s retrospective commission income contracts. Refer to Note 7. Receivables, Net and Contract Assets for the balance of the Company’s contract assets associated with revenues from the arrangement of financing and sale of service and insurance contracts.
9
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
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, 2021, the Company acquired two dealerships, representing two franchises, in the U.S. and seven dealerships, representing nine franchises, in the U.K. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $ 74.6 million, net of cash acquired. Goodwill associated with these acquisitions totaled $ 41.4 million.
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. Aggregate consideration paid was $ 1.3 million. Goodwill associated with this acquisition was not material.
On September 13, 2021, the Company entered into a Purchase Agreement (the “Purchase Agreement”) to purchase substantially all the assets, including real estate, of Prime Automotive Group (the “Seller”), headquartered in Westwood, Massachusetts (the “Prime Acquisition”). The Company expects to pay a purchase price of approximately $ 880 million, excluding repayment of sellers’ floorplan notes payable, subject to customary adjustments described in the Purchase Agreement (the “Purchase Price”) and appropriate reductions for any exercise of customary manufacturer rights of first refusal. The Purchase Price is expected to be financed through a combination of cash, available lines of credit and debt financing. The operating assets expected to be acquired include 30 dealerships, representing 43 franchises, and three collision centers in the Northeastern U.S. In connection with the execution of the Purchase Agreement, the Company made a deposit of $ 20.0 million into an escrow account. The deposit is recorded in Other Current Assets on the Condensed Consolidated Balance Sheets and reflected in Othe r within Cash Flows from Investing Activities on the Condensed Consolidated Statements of Cash Flows. The Prime Acquisition is expected to close in November 2021.
In October 2021, the Company acquired three dealerships representing six franchises in the U.S. for approximately $ 66.8 million, excluding repayment of sellers’ floorplan notes payable.
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 Statements of Operations.
During the nine months ended September 30, 2021, the Company recorded a net pre-tax gain totaling $ 1.8 million related to the disposition of two dealerships representing two franchises and one franchise within an existing dealership in the U.S. The dispositions reduced goodwill by $ 2.2 million. The Company also terminated one franchise representing one dealership in the U.K.
During the nine months ended September 30, 2020, the Company had no activity related to dispositions.
4. SEGMENT INFORMATION
The Company conducts business in three reportable segments: the U.S., the U.K. and Brazil. The Company defines its segments as those operations whose results the Company’s Chief Executive Officer, who is the chief operating decision maker, regularly reviews to analyze performance and allocate resources. Each segment is comprised of retail automotive franchises that sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts.
10
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Selected reportable segment data is as follows for the three and nine months ended September 30, 2021 and 2020 (in millions):
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
U.S. U.K. Brazil Total U.S. U.K. Brazil Total
Total revenues $ 2,662.4 $ 750.4 $ 96.4 $ 3,509.2 $ 7,991.6 $ 2,000.7 $ 227.3 $ 10,219.7
Income before income taxes (1)
$ 195.5 $ 28.7 $ 0.9 $ 225.0 $ 532.1 $ 62.3 $ 5.2 $ 599.6
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
U.S. U.K. Brazil Total U.S. U.K. Brazil Total
Total revenues $ 2,244.6 $ 740.8 $ 54.3 $ 3,039.6 $ 6,083.3 $ 1,595.0 $ 183.4 $ 7,861.7
Income (loss) before income taxes (2)
$ 132.9 $ 27.1 $ 1.0 $ 161.0 $ 249.8 $ 4.7 $ ( 12.4 ) $ 242.2
(1) For the three months ended September 30, 2021, income before income taxes includes the following: in the U.S. segment, $ 3.8 million in acquisition costs, a $ 3.7 million gain from favorable legal settlements, $ 1.7 million in asset impairments, a $ 0.9 million non-cash gain associated with certain interest rate swaps and $ 0.6 million in expenses related to Hurricane Ida; in the U.K. segment, $ 0.6 million in acquisition costs; and in the Brazil segment, a $ 3.8 million loss on debt extinguishment. For the nine months ended September 30, 2021, income before income taxes includes the following: in the U.S. segment, a $ 4.7 million gain from favorable legal settlements, $ 3.8 million in acquisition costs, $ 2.8 million in expenses related to a winter storm and Hurricane Ida, $ 1.7 million in asset impairments, a $ 1.7 million net gain on dealership and real estate transactions and a $ 1.4 million non-cash loss associated with certain interest rate swaps; in the U.K. segment, a $ 0.6 million net loss on dealership and real estate transactions and $ 0.6 million in acquisitions costs; and in the Brazil segment, a $ 3.8 million loss on debt extinguishment.
(2) 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. segment. For the nine months ended September 30, 2020, income (loss) before income taxes includes the following: in the U.S. segment, a $ 13.7 million lo ss on debt extinguishment an d $ 10.6 million i n stock-based compensation expense related to an out-of-period adjustment; in the U.K. 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.
5. EARNINGS 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 that are paid in cash. The Company’s RSAs are participating securities. Income allocated to these participating securities is excluded from net earnings available to common shares, as shown in the table below. Basic EPS is computed by dividing net income available to basic common shares by the weighted average number of basic common shares outstanding during the period. 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, 2021 and 2020 (in millions, except share and per share data):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Weighted average basic common shares outstanding 17,753,957 17,776,888 17,753,042 17,770,619
Dilutive effect of stock-based compensation and employee stock purchases 82,298 58,661 76,940 47,919
Weighted average dilutive common shares outstanding 17,836,255 17,835,549 17,829,982 17,818,538
Basic:
Net income $ 172.1 $ 126.4 $ 465.0 $ 186.4
Less: Earnings allocated to participating securities 5.7 4.6 15.7 6.7
Net income available to basic common shares $ 166.4 $ 121.9 $ 449.4 $ 179.7
Basic earnings per common share $ 9.37 $ 6.86 $ 25.31 $ 10.11
Diluted:
Net income $ 172.1 $ 126.4 $ 465.0 $ 186.4
Less: Earnings allocated to participating securities 5.7 4.5 15.6 6.7
Net income available to diluted common shares $ 166.4 $ 121.9 $ 449.4 $ 179.7
Diluted earnings per common share $ 9.33 $ 6.83 $ 25.21 $ 10.08
11
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the most advantageous market in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
• Level 1 — Quoted prices for identical assets or liabilities in active markets.
• Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• 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 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.
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, 2021 and December 31, 2020, the carrying value of these instruments was $ 271.6 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. Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.
Fixed Rate Long-Term Debt
The Company estimates the fair value of its $ 550.0 million 4.00 % Senior Notes due August 2028 (“ 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 8. 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, 2021 December 31, 2020
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
4.00 % Senior Notes
$ 550.0 $ 563.0 $ 550.0 $ 567.0
Real estate related 79.3 72.0 84.3 77.0
Total $ 629.3 $ 635.0 $ 634.3 $ 644.0
(1) Carrying value excludes unamortized debt issuance costs.
12
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Derivative Financial Instruments
The Company holds interest rate swaps to hedge against variability of interest payments indexed to LIBOR. The Company’s interest rate swaps are measured at fair value utilizing a one-month LIBOR forward yield curve matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. The fair value of the interest rate swaps also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated using the spread between the one-month LIBOR yield curve and the relevant interest rate according to rating agencies. The inputs to the fair value measurements reflect Level 2 of the hierarchy framework.
Assets and liabilities associated with the Company’s interest rate swaps, as reflected gross in the Condensed Consolidated Balance Sheets, were as follows (in millions):
September 30, 2021 December 31, 2020
Assets:
Other current assets $ — $ 1.9
Other long-term assets 11.5 0.3
Total assets $ 11.5 $ 2.3
Liabilities:
Accrued expenses and other current liabilities (1)
$ 1.1 $ 4.2
Other long-term liabilities 22.1 40.6
Total liabilities $ 23.2 $ 44.8
(1) As of September 30, 2021, the entire balance consisted of the gross fair value of the de-designated swaps as described below.
Interest Rate Swaps De-designated as Cash Flow Hedges
All interest rate swaps had previously been designated as cash flow hedges. During the three months ended June 30, 2021, the Company de-designated five interest rate swaps, with aggregate notional value of $ 250.0 million and a weighted average interest rate of 1.76 % that will mature on December 31, 2021, due to the continued decline in the net floorplan liability balance as a result of decreased vehicle inventory levels. The realized and unrealized gains or losses on the de-designated swaps for each period after de-designation are recognized within income as Floorplan interest expense in the Company’s Condensed Consolidated Statements of Operations. No interest rate swaps were de-designated by the Company during the three months ended September 30, 2021.
The Company reclassified the entire previously deferred loss associated with the de-designated interest rate swaps of $ 2.4 million, net of tax of $ 0.7 million, from Accumulated other comprehensive income (loss) into income as an adjustment to Floorplan interest expense, as the remaining forecasted hedged transactions associated with these interest rate swaps were probable of not occurring due to the reduced inventory levels described above. Additionally, the Company recorded unrealized mark-to-market gains of $ 1.0 million and $ 2.0 million and realized losses of $ 1.1 million and $ 2.1 million associated with these interest rate swaps within Floorplan interest expense for the three months and nine months ended September 30, 2021, respectively.
13
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Interest Rate Swaps Designated as Cash Flow Hedges
Interest rate swaps designated as cash flow hedges and the related gains or losses are deferred in stockholders’ equity as a component of Accumulated other comprehensive income (loss) in the Company’s Condensed Consolidated Balance Sheets. The deferred gains or losses are recognized in income in the period in which the related items being hedged are recognized in expense. 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. Gains or losses for periods where future forecasted hedged transactions are deemed probable of not occurring are reclassified from Accumulated other comprehensive income (loss) into income as Floorplan interest expense . Amounts reclassified related to the portion of forecasted transactions deemed probable of not occurring were immaterial for the three and nine months ended September 30, 2021.
As of September 30, 2021, the Company held 33 interest rate swaps designated as cash flow hedges with a total notional value of $ 686.1 million that fixed the underlying one-month LIBOR at a weighted average rate of 1.37 %. The Company also held 8 additional interest rate swaps designated as cash flow hedges with forward start dates beginning in December 2021, that had an aggregate notional value of $ 425.0 million and a weighted average interest rate of 1.20 % as of September 30, 2021. The maturity dates of the Company’s designated interest rate swaps with forward start dates range between January 2025 and December 2031.
The following tables present the impact of the Company’s interest rate swaps designated as cash flow hedges (in millions):
Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)
Three Months Ended September 30, Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship 2021 2020 2021 2020
Interest rate swaps $ ( 0.6 ) $ ( 1.8 ) $ 16.1 $ ( 40.4 )
Amount of Loss Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Statement of Operations Classification Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Floorplan interest expense $ ( 1.4 ) $ ( 2.6 ) $ ( 5.0 ) $ ( 5.3 )
Other interest expense, net $ ( 1.0 ) $ ( 1.0 ) $ ( 2.9 ) $ ( 1.8 )
The 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 $ 10.6 million.
14
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
7. RECEIVABLES, NET AND CONTRACT ASSETS
The Company’s receivables, net and contract assets consisted of the following (in millions):
September 30, 2021 December 31, 2020
Contracts-in-transit and vehicle receivables, net:
Contracts-in-transit $ 100.4 $ 147.1
Vehicle receivables 72.0 64.5
Total contracts-in-transit and vehicle receivables 172.4 211.5
Less: allowance for doubtful accounts 0.6 0.3
Total contracts-in-transit and vehicle receivables, net $ 171.8 $ 211.2
Accounts and notes receivable, net:
Manufacturer receivables $ 81.3 $ 108.7
Parts and service receivables 64.4 53.2
F&I receivables 23.9 27.4
Other 15.0 13.8
Total accounts and notes receivable 184.5 203.1
Less: allowance for doubtful accounts 3.9 3.2
Total accounts and notes receivable, net $ 180.6 $ 200.0
Within Other current assets and Other long-term assets:
Total contract assets (1)
$ 40.0 $ 35.3
(1) No allowance for doubtful accounts was recorded for contract assets as of September 30, 2021 or December 31, 2020.
8. DEBT
Debt consisted of the following (in millions):
September 30, 2021 December 31, 2020
4.00 % Senior Notes due August 15, 2028
$ 550.0 $ 550.0
Acquisition Line 53.8 47.8
Other Debt:
Real estate related 598.1 619.8
Finance leases 126.6 124.8
Other 13.9 20.0
Total other debt 738.6 764.6
Total debt 1,342.4 1,362.4
Less: unamortized debt issuance costs 8.5 11.0
Less: current maturities 57.6 56.7
Total long-term debt $ 1,276.3 $ 1,294.7
Acquisition Line
The proceeds of the Acquisition Line (as defined in Note 9. Floorplan Notes Payable) are used for working capital, general corporate and acquisition purposes. As of September 30, 2021, borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as defined in Note 9. Floorplan Notes Payable), totaled $ 53.8 million. The average interest rate on this facility was 1.05 % during the three months ended September 30, 2021.
Real Estate Related
The Company has mortgage loans in the U.S. and the U.K. that are paid in installments. As of September 30, 2021, borrowings outstanding under these facilities totaled $ 598.1 million, gross of debt issuance costs, comprised of $ 505.2 million in the U.S. and $ 92.8 million in the U.K.
15
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
New 4.00 % Senior Notes
On October 21, 2021, the Company issued an additional $ 200.0 million aggregate principal amount of its 4.00 % Senior Notes due 2028 (the “New Notes”) for net proceeds of approximately $ 199.7 million. The New Notes will have identical terms as the initial 4.00 % Senior Notes issued on August 17, 2020, and will be treated as a single class of securities.
Bridge Facility
In connection with entering into the Purchase Agreement, the Company entered into a commitment letter, dated September 12, 2021 (the “Commitment Letter”), with Wells Fargo Bank, National Association (“Wells Fargo”), pursuant to which, among other things, Wells Fargo has committed to provide a portion of the debt financing for the Prime Acquisition, consisting of a $ 250.0 million unsecured bridge loan (the “Bridge Facility”), on the terms and subject to the conditions set forth in the Commitment Letter. Although Wells Fargo has committed to fund up to $ 250.0 million under the Bridge Facility, the Company anticipates utilizing only a portion of such commitment to finance the Prime Acquisition. The Bridge Facility is subject to mandatory prepayment at 100 % of the outstanding principal amount thereof with the net proceeds from the issuance of any debt securities of the Company and upon other specified events. The obligation of Wells Fargo to provide this debt financing is subject to a number of customary conditions, including, without limitation, execution and delivery of certain definitive documentation.
9. FLOORPLAN NOTES PAYABLE
The Company’s floorplan notes payable consisted of the following (in millions):
September 30, 2021 December 31, 2020
Revolving Credit Facility — floorplan notes payable $ 372.0 $ 901.6
Revolving Credit Facility — floorplan notes payable offset account ( 331.2 ) ( 160.4 )
Revolving Credit Facility — floorplan notes payable, net 40.9 741.2
Other non-manufacturer facilities 42.9 26.4
Floorplan notes payable — credit facility and other, net $ 83.8 $ 767.6
FMCC Facility $ 29.6 $ 111.2
FMCC Facility offset account ( 3.5 ) ( 16.0 )
FMCC Facility, net 26.1 95.2
Other manufacturer affiliate facilities 208.1 232.3
Floorplan notes payable — manufacturer affiliates, net $ 234.2 $ 327.5
Floorplan Notes Payable — Credit Facility
Revolving Credit Facility
In the U.S., the Company has a $ 1.75 billion revolving syndicated credit arrangement with 22 participating financial institutions that matures on June 27, 2024 (“Revolving Credit Facility”). The Revolving Credit Facility consists of two tranches: (i) a $ 1.70 billion maximum capacity tranche for U.S. 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 ; 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 on the Condensed Consolidated Balance Sheets — refer to Note 8. 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 $ 100.0 million sub-limit for letters of credit. As of September 30, 2021 and December 31, 2020, the Company had $ 12.6 million and $ 17.8 million, respectively, in outstanding letters of credit.
16
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The U.S. 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 1.17 % as of September 30, 2021, excluding the impact of the Company’s interest rate swap 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. The U.S. 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 had $ 2.8 million and $ 3.6 million of related unamortized debt issuance costs as of September 30, 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
FMCC Facility
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, 2021.
Other Manufacturer Facilities
The Company has other credit facilities in the U.S., the U.K. and Brazil with financial institutions affiliated with manufacturers for financing of new, used and rental vehicle inventories. As of September 30, 2021, borrowings outstanding under these facilities totaled $ 208.1 million, comprised of $ 77.6 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 5 %, $ 114.5 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 %, and $ 16.0 million in Brazil, with annual interest rates ranging from approximately 6 % to 12 %.
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.
10. CASH FLOW INFORMATION
Non-Cash Activities
The accrual for capital expenditures increased $ 2.1 million an d decreased $ 1.0 million during the nine months ended September 30, 2021 and 2020, respectively.
Interest and Income Taxes Paid
Cash paid for interest, including the monthly settlement of the Company’s interest rate swaps, was $ 61.5 million and $ 77.7 million for the nine months ended September 30, 2021 and 2020, respectively. Refer to Note 6. Financial Instruments and Fair Value Measurements for further discussion of the Company’s interest rate swaps.
Cash paid for income taxes, net of refunds, was $ 102.6 million and $ 26.2 million for the nine months ended September 30, 2021 and 2020, respectively.
11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, claims involving the manufacturers of automobiles, contractual disputes and other matters arising in the ordinary course of business. The Company may be involved in legal proceedings or suffer losses that could have a material adverse effect on the Company’s results of operations, financial condition or cash flows. In the normal course of business, the Company is required to respond to customer, employee and other third-party complaints. In addition, the manufacturers of the vehicles that the Company sells and services have audit rights allowing them to review the validity of amounts claimed for incentive, rebate or warranty-related items and charge the Company back for amounts determined to be invalid payments under the manufacturers’ programs, subject to the Company’s right to appeal any such decision.
17
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Legal Proceedings
As of September 30, 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. However, the results of current or future matters cannot be predicted with certainty; 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.
Other Matters
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. 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 $ 25.4 million as of September 30, 2021. 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 $ 4.3 million as of September 30, 2021.
18
Table of Contents
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
12. 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, 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 ( 6.7 ) 21.0 14.4
Tax effect — ( 4.9 ) ( 4.9 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 5.0 5.0
Other interest expense, net (pre-tax) — 2.9 2.9
Reclassification related to de-designated interest rate swaps (pre-tax) — 3.1 3.1
Benefit for income taxes — ( 2.6 ) ( 2.6 )
Net current period other comprehensive income (loss) ( 6.7 ) 24.5 17.9
Balance, September 30, 2021 $ ( 158.2 ) $ ( 7.9 ) $ ( 166.1 )
Nine Months Ended September 30, 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 ( 24.4 ) ( 51.3 ) ( 75.6 )
Tax effect — 10.9 10.9
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 5.3 5.3
Other interest expense (pre-tax) — 1.7 1.7
Realized loss on interest rate swap termination (pre-tax) — 0.1 0.1
Benefit for income taxes — ( 1.7 ) ( 1.7 )
Net current period other comprehensive loss ( 24.4 ) ( 35.0 ) ( 59.3 )
Balance, September 30, 2020 $ ( 167.2 ) $ ( 39.1 ) $ ( 206.3 )
19
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.