What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-23 compared with 2021-02-24 · 630 added, 612 removed, 1169 unchanged (52% of the section changed)

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Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021, at the reasonable assurance level.

In light of the COVID-19 pandemic, a significant portion of our back office employees remain working remotely due to social distancing requirements or other restrictions.

Established business continuity plans were activated in order to mitigate the impact to our control environment, operating procedures, data and internal controls.

The design of our processes and controls allow for remote execution with accessibility to secure data.

Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud.

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Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2020, there were no changes in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the three months ended December 31, 2021, there were no changes in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as otherwise described below.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act).

Our internal control over financial reporting is a process designed by management, under the supervision of our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP, and includes those policies and procedures that:

(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors;

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Consolidated Financial Statements.

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In making this assessment, management used the 2013 framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework .

As permitted by guidelines established by the Securities and Exchange Commission for newly acquired businesses, we excluded several of our recently acquired businesses in 2021, comprised of 38 dealerships and four collision centers (the “Excluded Acquisitions”), from the scope of our annual report on internal controls over financial reporting for the year ended December 31, 2021.

The Excluded Acquisitions comprised approximately $887.0 million of our consolidated total assets as of December 31, 2021, and $395.3 million of our consolidated revenues for the year then ended.

We are in the process of integrating these businesses into our overall internal controls over financial reporting and plan to include them in our scope for the year ended December 31, 2022.

Based on our evaluation under the framework in Internal Control — Integrated Framework , our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective.

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This report, dated February 23, 2022, appears on the following page.

Other Information

Report of Independent Registered Public Accounting Firm

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes, and our report dated February 24, 2021, expressed an unqualified opinion on those financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 23, 2022, expressed an unqualified opinion on those financial statements.

As described in Management's Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at 38 dealerships and four collision centers (the “Excluded Acquisitions”).

These Excluded Acquisitions constitute $887.0 million of consolidated total assets as of December 31, 2021, and $395.3 million of consolidated revenues for the year then ended.

Accordingly, our audit did not include the internal control over financial reporting at the Excluded Acquisitions.

Basis for Opinion

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February 23, 2022

Other Information

Directors, Executive Officers and Corporate Governance

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Frank Grese Jr.

68 Senior Vice President of Human Resources, Training, and Operations Support 16 46

70 Senior Vice President of Training, Operations Support and Employee Communications 17 47

DeLongchamps 61 Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs 17.5 39

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Frank Grese Jr.

was appointed Senior Vice President of Human Resources, Training and Operations Support effective February 1, 2016.

was appointed Senior Vice President of Training, Operations Support and Employee Communications effective January 1, 2022.

From February 1, 2016 through December 31, 2021, he served as Senior Vice President of Human Resources, Training and Operations Support.

Prior to that appointment, Mr.

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Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.

Form 10-K Summary

EXHIBIT INDEX

Number Description

— Purchase Agreement, dated as of September 12, 2021, by and among Group 1 Automotive, Inc., GPB Portfolio Automotive, LLC, Capstone Automotive Group, LLC, Capstone Automotive Group II, LLC, Automile Parent Holdings, LLC, Automile TY Holdings, LLC and Prime Real Estate Holdings, LLC (incorporated by reference to Exhibit 2.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No.

001-13461) for the quarter ended September 30, 2021)

— Share Purchase Agreement, dated November 12, 2021, by and between Group 1 Automotive, Inc., Buyer and UAB as intervening party (English translation) (incorporated by reference to Exhibit 2.1 of Group 1 Automotive Inc.’s Current Report on Form 8-K (File No.

001-13461) filed November 15, 2021)

— Amended and Restated Certificate of Incorporation of Group 1 Automotive, Inc.

9 unchanged sentences

001-13461) filed June 2, 2014)

— Form of 5.000% Senior Notes due 2022 (included as Exhibit A to Exhibit 4.1)

— Registration Rights Agreement, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and J.P.

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001-13461) filed December 9, 2015)

— Form of 5.250% Senior Notes due 2023 (incorporated by reference to Exhibit 4.1, Exhibit A of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed December 9, 2015)

— Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

— Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.8 to Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No.

001-13461) for the year ended December 31, 2020)

— Indenture, dated as of August 17, 2020, by and among Group 1 Automotive, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

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001-13461) for the quarter ended March 31, 2013)

— Group 1 Automotive, Inc.

Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.28 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No.

001-13461) for the year ended December 31, 2007)

— First Amendment to Group 1 Automotive, Inc.

Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No.

001-13461) for the year ended December 31, 2008)

Number Description

— Second Amendment to Group 1 Automotive, Inc.

Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No.

001-13461) for the quarter ended June 30, 2009)

— Third Amendment to Group 1 Automotive, Inc.

Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed November 15, 2010)

— Fourth Amendment to Group 1 Automotive, Inc.

Deferred Compensation Plan, as Amended and Restated, signed August 15, 2018 (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No.

001-13461) for the quarter ended September 30, 2018)

— Purchase Agreement, dated October 6, 2021, by and among Group 1 Automotive, Inc., BofA Securities, Inc., as representative of the Initial Purchasers listed in Schedule 1 thereto, and the guarantors listed in Schedule 2 thereto (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed October 7, 2021)

— Group 1 Automotive, Inc.

1 unchanged sentence

001-13461) for the quarter ended September 30, 2020)

Number Description

— Group 1 Automotive, Inc.

3 unchanged sentences

001-13461) for the quarter ended September 30, 2020)

— Form of Phantom Stock Agreement for Employees (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed March 16, 2005)

— Form of Restricted Stock Agreement with Qualified Retirement Provisions (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No.

001-13461) for the quarter ended June 30, 2021)

— Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

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001-13461) filed May 22, 2018)

Number Description

— Non-Compete Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc.

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001-13461) for the quarter ended June 30, 2020)

— Employment Agreement dated January 1, 2009 between Group 1 Automotive, Inc.

Rickel (incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed March 17, 2009)

— Incentive Compensation and Non-Compete Agreement dated June 2, 2006 between Group 1 Automotive, Inc.

Rickel (incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No.

001-13461) filed June 7, 2006)

— Transition and Separation Agreement, effective June 1, 2020, between Group 1 Automotive, Inc.

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001-13461) filed December 1, 2006)

Number Description

— Offer Letter, dated June 1, 2020, between Group 1 Automotive, Inc.

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— Group 1 Automotive, Inc.

Aircraft Usage Policy

Aircraft Usage Policy (incorporated by reference to Exhibit 10.49 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No.

001-13461) for the year ended December 31, 2020)

— Commitment Letter, dated as of September 12, 2021, by and among Group 1 Automotive, Inc.

and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 of Group 1 Automotive Inc.’s Quarterly Report on Form 10-Q (File No.

001-13461) for the quarter ended September 30, 2021)

— Third Amendment to Eleventh Amended and Restated Revolving Credit Agreement dated as of December 30, 2021 among Group 1 Automotive, Inc., the Subsidiary Borrowers listed therein, the Lenders listed therein and U.S.

Bank National Association, N.A., as Administrative Agent

— Group 1 Automotive, Inc.

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** Furnished herewith

# The exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.

+ Exhibits marked with a (+) exclude certain immaterial schedules and exhibits pursuant to the provisions of Regulation S-K, Item 601(a)(5).

A copy of any of the omitted schedules and exhibits will be furnished to the Securities and Exchange Commission upon request.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 23, 2022.

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Lincoln da Cunha Pereira Filho

/s/ Steven P.

Stanbrook Director

/s/ Steven C.

Mizell Director

/s/ Steven Stanbrook Director

Steven Stanbrook

/s/ Charles L.

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders’ Equity

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Group 1 Automotive, Inc.

and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc.

and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report date d February 23, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

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Critical Audit Matter Description

The Company's financial statements include indefinite-lived intangible assets related to rights under franchise agreements with manufacturers.

These intangible assets have an indefinite useful life and are measured for impairment on an annual basis, or more frequently if events or circumstances indicate possible impairment.

The carrying value of these intangible assets is $232.8 million as of December 31, 2020.

The Company’s annual impairment assessment for these intangible assets is performed in the fourth quarter, or more frequently if events or circumstances indicate possible impairment.

During the fourth quarter 2021, the Company completed an acquisition of 28 dealerships for a total purchase price of $934.2 million (“the acquisition”).

The acquisition was accounted for as a business combination.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including indefinite-lived intangible assets of $135.3 million, related to rights under franchise agreements with manufacturers.

The fair value of acquired intangible franchise rights is estimated using the income approach .

As of December 31, 2021, the Company’s intangible franchise rights for these and prior acquisitions had an aggregate carrying value of $392.3 million.

The Company’s annual impairment assessment for intangible franchise rights is performed in the fourth quarter, or more frequently if events or circumstances indicate possible impairment.

In evaluating intangible franchise rights for impairment, a qualitative assessment is initially performed to determine whether it is more-likely-than-not that an impairment exists.

If it is concluded that it is more-likely-than-not that an impairment exists, a quantitative test is performed.

The fair value is estimated using the discounted cash flow, or income approach.

We identified intangible franchise rights as a critical audit matter because of the significant estimates and assumptions management makes related to forecasts of revenue growth rates, future gross margins, future selling, general and administrative expenses, weighted average cost of capital, and terminal growth rates.

The Company’s impairment analyses performed in fiscal year 2021 resulted in no impairment.

We identified the fair value of acquired intangible franchise rights for the acquisition, as well as the fair value estimates used in the impairment analyses as a critical audit matter because of the significant estimates and assumptions management makes related to forecasts of revenue growth rates, future EBITDA margins, weighted average cost of capital, and terminal growth rates.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions.

The Company's impairment analyses performed in fiscal year 2020 resulted in an impairment charge of $20.8 million for certain franchise agreements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of revenue growth rates, future gross margins, future selling, general and administrative expenses, weighted average cost of capital, and terminal growth rates included the following, among others:

• We tested the effectiveness of internal controls over the intangible franchise rights asset impairment analysis, including those over the inputs, assumptions, and calculations.

• We evaluated the reasonableness of management’s forecasts of revenue growth rates, future gross margins, and future selling, general and administrative expenses by comparing the forecasts to:

◦ Historical revenue, gross margins, and selling, general and administrative expenses.

Our audit procedures for the acquisition and the impairment analyses related to the forecasts of revenue growth rates, future EBITDA margins, weighted average cost of capital and terminal growth rates included the following, among others:

• We tested the effectiveness of internal controls over the intangible franchise rights fair value estimates, including those over the inputs, assumptions, and calculations.

• We evaluated the reasonableness of management’s forecasts of revenue growth rates and future EBITDA margins by comparing the forecasts to:

◦ The Company’s historical revenue and EBITDA margins.

◦ Internal communications to management and the Board of Directors.

◦ Analyst and industry reports for the Company and certain of its peer companies.

◦ Current industry, market and economic trends.

• We performed a sensitivity analysis of certain assumptions such as revenue growth rates, future EBITDA margins, weighted average cost of capital, and terminal growth rates to evaluate the potential change in the fair value resulting from changes in underlying assumptions.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the weighted average cost of capital and terminal growth rates by:

◦ Testing the source information underlying the determination of the weighted average cost of capital and terminal growth rates, and testing the mathematical accuracy of the calculations.

◦ Developing a range of independent estimates and comparing those to the weighted average cost of capital and terminal growth rates selected by management.

◦ Testing the source information underlying the determination of the terminal growth rates and testing the mathematical accuracy of the calculations.

◦ Developing a range of independent estimates and comparing those to the weighted average cost of capital selected by management.

/s/ Deloitte & Touche LLP

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Group 1 Automotive, Inc.

and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S.

We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows of Group 1 Automotive, Inc.

(the Company) for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2019, in conformity with U.S.

generally accepted accounting principles.

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These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

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Houston, Texas

February 13, 2020

February 13, 2020 (except for Note 1, Note 4 and Note 20, as to which the date is February 23, 2022)

GROUP 1 AUTOMOTIVE, INC.

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Contracts-in-transit and vehicle receivables, net 218.9 210.6

Accounts and notes receivable, net 200.0 225.1

Accounts and notes receivables, net 177.9 192.2

Inventories 1,073.1 1,446.4

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Other current assets 50.4 16.1

Current assets classified as held for sale 100.3 54.7

TOTAL CURRENT ASSETS 1,666.2 2,004.2

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Other long-term assets 45.0 28.7

Long-term assets classified as held for sale — 35.2

TOTAL ASSETS $ 5,749.4 $ 5,089.4

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Accrued expenses and other current liabilities 258.6 217.9

Current liabilities classified as held for sale 49.9 31.3

TOTAL CURRENT LIABILITIES 1,543.6 1,842.7

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Deferred income taxes 180.9 141.0

Long-term interest rate swap liabilities 40.6 4.4

Other long-term liabilities 127.7 153.8

Long-term liabilities classified as held for sale — 15.7

Commitments and Contingencies (Note 17)

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Asset impairments 1.7 26.7 21.7

INCOME (LOSS) FROM OPERATIONS 486.1 363.7 341.1

INCOME FROM OPERATIONS 884.4 495.7 358.3

INTEREST EXPENSE:

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Other interest expense, net 55.8 61.9 74.8

(Gain) loss on extinguishment of debt 13.7 — —

INCOME (LOSS) BEFORE INCOME TAXES 370.3 227.3 205.4

(Benefit) provision for income taxes 83.8 53.3 47.6

NET INCOME (LOSS) $ 286.5 $ 174.0 $ 157.8

BASIC EARNINGS (LOSS) PER SHARE $ 15.55 $ 9.35 $ 7.83

Loss on extinguishment of debt — 13.7 —

INCOME BEFORE INCOME TAXES 800.9 380.8 222.7

Provision for income taxes 175.5 84.2 53.7

Net income from continuing operations 625.4 296.7 169.0

Net (loss) income from discontinued operations ( 73.3 ) ( 10.2 ) 5.0

NET INCOME $ 552.1 $ 286.5 $ 174.0

BASIC EARNINGS PER SHARE:

Continuing operations $ 34.23 $ 16.11 $ 9.08

Discontinued operations ( 4.01 ) ( 0.55 ) 0.27

Total $ 30.22 $ 15.55 $ 9.35

DILUTED EARNINGS PER SHARE:

Continuing operations $ 34.11 $ 16.06 $ 9.07

Discontinued operations ( 4.00 ) ( 0.55 ) 0.27

Total $ 30.11 $ 15.51 $ 9.34

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

DILUTED EARNINGS (LOSS) PER SHARE $ 15.51 $ 9.34 $ 7.83

Weighted average dilutive common shares outstanding 17.8 17.9 19.5

Basic 17.7 17.8 17.9

Diluted 17.7 17.8 17.9

The accompanying notes are an integral part of these consolidated financial statements.

GROUP 1 AUTOMOTIVE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

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2021 2020 2019

NET INCOME (LOSS) $ 286.5 $ 174.0 $ 157.8

NET INCOME $ 552.1 $ 286.5 $ 174.0

Other comprehensive income (loss), net of taxes:

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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 $ 11.4 , $ 4.1 and ($ 2.1 ), r espectively

( 36.7 ) ( 13.3 ) 6.5

Reclassification adjustment for realized (gain) loss on interest rate swap termination included in SG&A, net of tax benefit (provision) of $—, $— and $( 0.2 ), r espectively

Unrealized gain (loss) arising during the period, net of tax (provision) benefit of ($ 6.9 ), $ 11.4 and $ 4.1 , r espectively

22.6 ( 36.7 ) ( 13.3 )

Reclassification adjustment for (gain) loss included in interest expense, net of tax benefit (provision) of $ 2.6 , $ 0.1 and $ 1.2 , respectively

Reclassification adjustment for realized loss on interest rate swap termination included in SG&A, net of tax of $ — , $ — and $ — , r espectively

Reclassification adjustment for loss included in interest expense, net of tax benefit of $ 1.8 , $ 2.6 and $ 0.1 , respectively

Reclassification related to de-designated interest rate swaps, net of tax benefit of $ 1.9 , $ — and $ — , respectively

Unrealized gain (loss) on interest rate risk management activities, net of tax 34.5 ( 28.4 ) ( 13.0 )

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX 27.8 ( 37.1 ) ( 9.2 )

COMPREHENSIVE INCOME (LOSS) $ 249.4 $ 164.8 $ 143.4

COMPREHENSIVE INCOME $ 579.9 $ 249.4 $ 164.8

The accompanying notes are an integral part of these consolidated financial statements.

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BALANCE, DECEMBER 31, 2018 25,494,328 $ 0.3 $ 292.8 $ 1,394.8 $ ( 137.8 ) $ ( 454.4 ) $ 1,095.7

Net income (loss) — — — 157.8 — — 157.8

Other comprehensive income (loss), net of taxes — — — — ( 14.4 ) — ( 14.4 )

Tax effects reclassified from accumulated other comprehensive income — — — 0.2 ( 0.2 ) — —

Net income — — — 174.0 — — 174.0

Other comprehensive loss, net of taxes — — — — ( 9.2 ) — ( 9.2 )

Purchases of treasury stock — — — — — ( 1.4 ) ( 1.4 )

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

Net income (loss) — — — 174.0 — — 174.0

Other comprehensive income (loss), net of taxes — — — — ( 9.2 ) — ( 9.2 )

Net income — — — 286.5 — — 286.5

Other comprehensive loss, net of taxes — — — — ( 37.1 ) — ( 37.1 )

Purchases of treasury stock — — — — — ( 80.2 ) ( 80.2 )

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— — — ( 11.0 ) — — ( 11.0 )

ASC 842 cumulative adjustment — — — ( 6.1 ) — — ( 6.1 )

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

Net income (loss) — — — 286.5 — — 286.5

Other comprehensive income (loss), net of taxes — — — — ( 37.1 ) — ( 37.1 )

Net income — — — 552.1 — — 552.1

Other comprehensive income, net of taxes — — — — 27.8 — 27.8

Purchases of treasury stock — — — — — ( 210.6 ) ( 210.6 )

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 286.5 $ 174.0 $ 157.8

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

Net income $ 552.1 $ 286.5 $ 174.0

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

Depreciation and amortization 78.9 75.8 71.6

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Amortization of debt discount and issue costs 2.5 3.2 4.0

(Gain) loss on disposition of assets ( 5.8 ) ( 5.9 ) ( 26.8 )

(Gain) loss on extinguishment of debt 13.7 — —

Gain on disposition of assets ( 6.0 ) ( 5.8 ) ( 5.9 )

Loss on extinguishment of debt 3.8 13.7 —

Other 2.6 2.2 1.1

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Operating lease liabilities ( 25.9 ) ( 22.3 ) ( 28.3 )

Net cash provided by (used in) operating activities 805.4 370.9 270.0

Net cash provided by operating activities 1,259.6 805.4 370.9

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisitions, net of cash received ( 1.3 ) ( 143.2 ) ( 135.3 )

Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $ 65.2 , $ — and $ 25.2 , respectively

( 1,099.6 ) ( 1.3 ) ( 143.2 )

Proceeds from disposition of franchises, property and equipment 24.8 29.8 43.4

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Other ( 33.3 ) — —

Net cash provided by (used in) investing activities ( 74.7 ) ( 291.6 ) ( 168.0 )

Net cash used in investing activities ( 1,251.7 ) ( 74.7 ) ( 291.6 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Payments of tax withholding for stock-based awards ( 13.0 ) ( 6.2 ) ( 4.4 )

Proceeds from termination of mortgage swap — — 0.9

Repurchases of common stock, amounts based on settlement date ( 210.6 ) ( 80.2 ) ( 1.4 )

Dividends paid ( 23.9 ) ( 11.0 ) ( 20.3 )

Net cash provided by (used in) financing activities ( 668.1 ) ( 67.0 ) ( 109.5 )

Net cash used in financing activities ( 74.0 ) ( 668.1 ) ( 67.0 )

Effect of exchange rate changes on cash ( 2.5 ) ( 3.4 ) ( 2.9 )

Net increase (decrease) in cash, cash equivalents and restricted cash 59.2 9.3 ( 10.9 )

Net (decrease) increase in cash and cash equivalents ( 68.6 ) 59.2 9.3

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period 87.3 28.1 18.7

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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., 33 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 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 December 31, 2020, the Company’s retail network consisted of 117 dealerships in the U.S, 50 dealerships in the U.K.

and 17 dealerships in Brazil.

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.

COVID-19 Pandemic

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.

and Brazil, significantly impacting the Company’s operating results starting in mid-March 2020.

There have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 across the world, including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

Beginning in mid-March 2020, these measures significantly reduced the operating capacity of all of the Company’s dealerships in the U.S., U.K.

Beginning in December 2020 and January 2021, vaccines deemed highly effective started rolling out to the general population in the U.S., U.K.

The rollout of the vaccine is expected to help control the spread of the virus.

However, the timeline and effectiveness of vaccinating the critical mass of the population in our markets are uncertain.

As such, the extent to which the impact of the COVID-19 pandemic 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.

If the current U.K.

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 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 Item 1A.

Risk Factors of this Form 10-K.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S.

BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying Consolidated Financial Statements and notes thereto, have been prepared in accordance with U.S.

GAAP and 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.

During the year ended December 31, 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 year ended December 31, 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 Consolidated Balance Sheets.

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

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 Consolidated Statements of Cash Flows.

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

Group 1 Automotive, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On November 12, 2021, the Company entered into a Share Purchase Agreement (the “Brazil Agreement”) with Original Holdings S.A.

Pursuant to the terms and conditions set forth in the Agreement, Buyer will acquire 100 % of the issued and outstanding equity interests of the Company’s Brazilian operations (the “Brazil Disposal Group”) for approximately BRL 510.0 million in cash (the “Brazil Disposal”).

The Brazil Disposal Group met the criteria to be reported as held for sale and discontinued operations.

Therefore, the related assets, liabilities and operating results of the Brazil Disposal Group are reported as discontinued operations (the “Brazil Discontinued Operations”) for all periods presented.

The Brazil Disposal Group was previously included in the Brazil segment.

Effective as of the fourth quarter of 2021, the Company is aligned into two reportable segments:

Refer to Note 20.

Segment Information for additional information on the Company’s segments.

Unless otherwise specified, disclosures in these Consolidated Financial Statements reflect continuing operations only.

Certain prior-period amounts, primarily related to the Brazil Discontinued Operations, have been reclassified in the Consolidated Financial Statements and accompanying notes to conform to current-period presentation.

Refer to Note 4.

Discontinued Operations and Other Divestitures for additional information on the Brazil Discontinued Operations.

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

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These 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.

The impact to the year ended December 31, 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.

There has continued to be widespread impact from the COVID-19 pandemic.

Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions.

On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply, all of which impact the Company’s business either directly or indirectly.

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.

The preparation of the Company’s financial statements in conformity with 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 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 .

Segment Reporting

See discussion of the Company’s reportable segments in Note 19.

Segment Information.

The significant estimates and assumptions affect, among other things, certain amounts in the accompanying Consolidated Financial Statements including, but 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.

Revenue Recognition

Refer to the discussion of the Company’s revenue streams and accounting policies related to revenue recognition in Note 2.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

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Receivables, Net and Contract Assets for further discussion of the Company’s receivable accounts and related accounting policies.

New and used retail vehicles are initially valued in inventory at cost, which consists of the amount paid to acquire the inventory, plus the cost of reconditioning, cost of equipment added and transportation cost.

All vehicles are carried at the lower of specific cost or net realizable value and are removed from inventory using the specific identification method in the Consolidated Balance Sheets.

New and used retail vehicles are carried at the lower of specific cost or net realizable value.

Specific cost consists of the amount paid to acquire the vehicle, plus the cost of reconditioning, equipment addition and transportation.

In determining the lower of specific cost or net realizable value of new and used vehicles, the Company considers historical loss experience and current market trends.

Parts and accessories inventories are valued at lower of cost or net realizable value and determined on a first-in, first-out basis in the Consolidated Balance Sheets.

Parts and accessories inventories are valued at lower of cost or net realizable value and determined on a first-in, first-out basis.

The Company incurs shipping costs in connection with selling parts to customers which is included in Cost of Sales in the Consolidated Statements of Operations.

Impairments of inventory, net of insurance proceeds, related to catastrophic events are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

During the year ended December 31, 2020, the Company recorded $ 0.9 million of impairment charges as a result of hail storms and flood damage from Hurricane Sally and Hurricane Zeta.

During the years ended December 31, 2019 and 2018, impairments of inventory were $ 16.1 million and $ 6.1 million, respectively.

Certain manufacturers offer rebates that result in purchase discounts once the incentives are met, providing the Company with volume incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time.

Certain manufacturers offer vehicle rebates, in the form of purchase discounts, once applicable incentive targets are met.

Incentive targets typically consist of volume incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time.

The Company also receives dealer rebates and incentive payments on parts purchases from the automobile manufacturers on new vehicle retail sales.

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Inventories for further discussion of the Company’s inventory accounts.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment, Net

Property and equipment are recorded at cost and depreciation is provided using the straight-line method over the estimated useful lives of the assets.

Property and equipment, recorded at cost, is depreciated using the straight-line method over the estimated useful lives of the assets to estimated salvage values.

Leasehold improvements are capitalized and amortized over the lesser of the estimated term of the lease or the estimated useful life of the asset.

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Expenditures for major additions or improvements, which improve or extend the useful lives of the assets are capitalized.

Minor replacements, maintenance and repairs, which do not improve or extend the lives of the assets, are expensed as incurred.

Minor replacements and routine maintenance and repairs, which do not improve or extend the lives of the assets, are expensed as incurred.

Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations.

The Company reviews property and equipment for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events).

The Company performs an impairment analysis on long-lived assets used in operations when events or circumstances indicate that the carrying value of such assets may not be recoverable.

This review consists of comparing the carrying amount of the asset group with its expected future undiscounted cash flows.

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If the asset group’s carrying amount exceeds its future undiscounted cash flows, an impairment charge is measured as the amount by which its carrying amount exceeds its fair value.

The fair value of property is typically based on a third appraisal which requires adjustments to market-based valuation inputs to reflect the different characteristics between the property being measured and comparable properties, which are considered level 3 inputs within the fair value hierarchy described further in Note 6.

Financial Instruments and Fair Value Measurements.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded $ 4.2 million, $ 1.8 million and $ 5.1 million of impairment of property and equipment, respectively.

Refer to Note 10.

Property and Equipment, Net for further discussion .

The fair value of property is typically based on a third-party appraisal which requires adjustments to market-based valuation inputs to reflect the different characteristics between the property being measured and comparable properties, which are considered level 3 inputs within the fair value hierarchy described further in Note 7.

Financial Instruments and Fair Value Measurements.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Business Combinations

Business acquisitions are accounted for under the acquisition method of accounting.

The allocations of purchase price to the assets acquired and liabilities assumed are assigned and recorded based on estimates of fair value as of the acquisition date, and are subject to change within the one year purchase price allocation period.

Business acquisitions are accounted for under the acquisition method of accounting, whereby the Company measures and recognizes the fair value of assets acquired and liabilities assumed at the date of acquisition.

The operating results of entities acquired are included in the accompanying Consolidated Statements of Operations from the date of acquisition.

For material acquisitions, the Company typically utilizes third-party experts to determine the fair values of property acquired.

The fair values of assets acquired and liabilities assumed in business combinations are estimated using various assumptions.

The most significant assumptions, and those requiring the most judgment, involve the estimated fair values of property and intangible franchise rights.

The Company typically utilizes third-party experts to determine the fair values of property acquired.

The Company utilizes the fair value model as discussed under the “Intangible Franchise Rights” section of this footnote to determine the fair value of intangible franchise rights acquired, supplemented with assistance from third-party experts as needed.

If the initial accounting for a business combination has not been concluded by the end of the reporting period in which the acquisition occurs, an estimate will be recorded and disclosure of those open areas will be provided.

The Company will record any material adjustments to the initial estimates based on new information obtained that would have existed as of the date of the acquisition within a year of the acquisition date.

On November 17, 2021, the Company completed the acquisition of Prime Automotive Group (“Prime”), including 27 dealerships, certain real estate and three collision centers in the Northeastern U.S.

On November 18, 2021, the Company completed the purchase of a 28th Prime dealership (together, with the previously identified acquisitions, collectively referred to as the “Prime Acquisition”).

The aggregate consideration for the Prime Acquisition was approximately $ 934.2 million.

Refer to Note 3.

Acquisitions and Dispositions for further discussion of the Company’s business combinations.

Acquisitions for further discussion of the Company’s business combinations.

Goodwill and Intangible Franchise Rights

Goodwill represents the excess, at the date of acquisition, of the purchase price of an acquired business over the fair value of the net tangible and intangible assets acquired.

The Company is organized into three geographic regions, the U.S.

region, the U.K.

region and the Brazil region.

The Company is organized into two geographic regions, the U.S.

region and the U.K.

The Company has determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment.

The Company’s only recognized identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which are recorded at the dealership level.

The franchise agreements consist of terms that are definite as well as terms that do not expire.

For the terms that are definite, the Company believes that these agreements can be renewed without substantial cost based on the history with the manufacturer.

As such, none of the Company’s franchise rights are amortized as the Company believes that its franchise arrangements will contribute to cash flows for an indefinite period of time.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company evaluates goodwill and intangible franchise rights for impairment annually in the fourth quarter as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred.

In evaluating goodwill and intangibles for impairment, an optional qualitative assessment may be initially performed to determine whether it is more- likely-than-not (i.e., a likelihood of greater than 50%) that an impairment exists.

If it is concluded that it is more-likely-than-not that an impairment exists, a quantitative test is required to measure the amount of impairment which, for goodwill, consists of comparing the fair value of the reporting unit to its carrying amount and, for intangibles, consists of comparing the fair value of the intangible asset to its carrying amount.

When a quantitative impairment test is performed, the Company estimates fair value of goodwill using a combination of the discounted cash flow, or income approach, and the market approach.

The Company weights the income approach and market approach 80 % and 20 %, respectively, in the fair value model.

For intangible franchise rights, the fair value of the respective franchise right is estimated using a discounted cash flow, or income approach.

The income approach measures fair value by discounting expected future cash flows at a WACC that proportionately weights the cost of debt and equity.

Significant assumptions in the model include revenue growth rates, future gross margins, future SG&A expenses, the WACC and terminal growth rates.

The Company applies a five year projection period which aligns with the Company’s strategic plan.

Key considerations in the assumed growth rates include industry SAAR projections, macroeconomic conditions including consumer confidence levels, unemployment rates and gross domestic product growth, and internal measures such as historical financial performance, cost control and planned capital expenditures.

The revenue growth rates assume a significant increase in 2021 as the business recovers from the pandemic and limited increases in the next four years corresponding with the industry SAAR projections plus a return to more normal vehicle gross margins as inventories recover.

Beyond the five forecasted years, the terminal value is determined using a perpetuity growth rate based on long-term inflation projections for each reporting unit.

Significant inputs to the WACC include the risk free rate, an adjustment for stock market risk, an adjustment for company size risk and country risk adjustments for U.K.

In 2020, the WACC applied in the impairment tests for the U.S., the U.K.

and Brazil was 11 %, 13 % and 16 %, respectively.

For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit.

Each of the significant assumptions to the fair value model are considered level 3 inputs within the fair value hierarchy described further in Note 6.

Financial Instruments and Fair Value Measurements.

Developing these assumptions requires applying management’s knowledge of the industry, recent transactions and reasonable performance expectations for its operations.

The qualitative test includes a review of changes, since the last quantitative test was performed, in those assumptions having the most significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above.

During the year ended December 31, 2020, the Company recorded goodwill impairment charges of $ 10.7 million within the Brazil reporting unit.

No impairments were recorded during the years ended December 31, 2019 and 2018.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded $ 20.8 million, $ 19.0 million and $ 38.7 million, re spectively, of impairment of intangible franchise rights.

In addition to goodwill, the Company recognizes, at the dealership level, separately identifiable intangible assets for rights under franchise agreements with manufacturers.

Most of the Company’s franchise agreements continue indefinitely.

The Company believes that these agreements can be renewed without substantial cost based on the history with the manufacturer.

As such, the Company’s intangible assets for rights under franchise agreements are considered non-amortizing indefinite lived intangible assets, expected to contribute to cash flows of the Company for an indefinite period of time.

The Company evaluates goodwill and intangible franchise rights for impairment annually as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred.

No goodwill impairments were recorded during the years ended December 31, 2021 , 2020 and 2019.

No impairments of intangible franchise rights were recorded during year ended December 31, 2021.

During the years ended December 31, 2020 and 2019, the Company recorded impairment of $ 20.7 million and $ 19.0 million , re spectively, of intangible franchise rights.

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

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Intangible Franchise Rights and Goodwill for further discussion of the Company’s goodwill and intangibles, including results of its impairment testing.

The Company is subject to income taxes at the federal level and in 15 states in the U.S., as well as in the U.K.

and Brazil, each of which has unique tax rates and payment calculations.

The Company is subject to income taxes at the federal level and in 17 states in the U.S., as well as in the U.K., each of which has unique tax rates and payment calculations.

As the amount of income generated in each jurisdiction varies from period to period, the Company’s estimated effective tax rate can vary based on the proportion of taxable income generated in each jurisdiction.

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As it relates to U.S.

state net operating losses, as well as deferred tax assets primarily relating to net operating losses and goodwill for certain Brazil subsidiaries, a corresponding valuation allowance has been established to the extent that the Company has determined that net income attributable to certain jurisdictions may not be sufficient to realize the benefit.

state NOLs, a corresponding valuation allowance has been established to the extent that the Company has determined that net income attributable to certain jurisdictions may not be sufficient to realize the benefit.

Refer to Note 15.

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Financial Instruments and Fair Value Measurements.

Foreign Currency Translation

The functional currency for the Company’s U.K.

subsidiaries is GBP and for the Brazil subsidiaries is BRL.

All assets and liabilities of foreign subsidiaries are translated into USD using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period.

The gains and losses resulting from translation adjustments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity.

Earnings Per Share

Refer to the discussion of the Company’s earnings per share calculation in Note 5.

Earnings Per Share.

The Company expenses the costs of advertising as incurred.

Advertising expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations and totaled $ 49.9 million for the year ended December 31, 2020, and $ 75.2 million for both years ended December 31, 2019 and 2018, respectively.

Advertising expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations and totaled $ 65.8 million, $ 49.0 million and $ 74.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company receives advertising assistance from certain automobile manufacturers, which the Company is required to spend on qualified advertising and which is subject to audit and chargeback by the manufacturer.

The assistance is accounted for as a reduction to SG&A expenses as earned and amounted to $ 13.0 million, $ 15.4 million and $ 14.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Business and Credit Risk Concentrations

The Company owns and operates franchised automotive dealerships in the U.S., U.K.

Automotive dealerships operate pursuant to franchise agreements with vehicle manufacturers.

Franchise agreements generally provide the manufacturers or distributors with considerable influence over the operations of the dealership.

The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management, marketing, production and distribution capabilities of the vehicle manufacturers or distributors of which the Company holds franchises.

The Company purchases substantially all of its new vehicles from various manufacturers or distributors at the prevailing prices to all franchised dealers.

The Company’s sales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the dealerships with an adequate supply of vehicles.

The following table sets forth sales of manufacturers that comprised 10% or greater of the Company’s total new vehicle unit sales during the year ended December 31, 2020:

Manufacturer Percentage of New Vehicle Retail Units Sold

Toyota/Lexus 23.9 %

Volkswagen/Audi/Porsche/SEAT/SKODA 14.9 %

BMW/MINI 11.4 %

Ford/Lincoln 10.5 %

Concentrations of credit risk related to the Company’s customer base is primarily limited to financial institutions, vehicle manufacturers and other large institutions that have a national presence.

The remaining customer base is mostly comprised of a large number of local customers widely dispersed across the various markets and regions in which the Company operates, and therefore does not result in concentration of credit risk.

Refer to Note 7.

Receivables, Net and Contract Assets for further discussion of the Company’s receivables.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The assistance is accounted for as a reduction to SG&A expenses as earned and amounted t o $ 14.9 million , $ 13.0 million and $ 15.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Statements of Cash Flows

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With respect to borrowings for used vehicle financing in the U.S., the Company finances up to 85 % of the value of the used vehicle inventory and the borrowed funds flow from the lender directly to the Company.

and Brazil, the Company chooses which used vehicles to finance and the borrowings flow directly to the Company from the lender.

In the U.K., the Company chooses which used vehicles to finance and the borrowings flow directly to the Company from the lender.

Excluding the cash flows from or to manufacturer affiliated lenders participating in the Company’s syndicated lending group under the Revolving Credit Facility as defined in Note 13.

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All borrowings from, and repayments to, the Company’s credit facilities (including the cash flows from or to manufacturer affiliated lenders participating in the Revolving Credit Facility) are presented within Cash Flows from Financing Activities.

Refer to Note 18.

Cash Flow Information for further discussion.

Stock-Based Compensation

Refer to the discussion of the Company’s share-based payment awards and related accounting policies in Note 4.

Stock-Based Compensation Plans.

Self-Insured Medical, Property and Casualty Reserves

The Company purchases insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefits and other risks and maintains reserves for liabilities related to its self-insured portions.

With the assistance of a third-party actuary, the Company estimates these reserves using historical claims experience adjusted for loss trending and loss development factors, which are compiled at least on an annual basis.

In the interim, the Company monitors actual experience for unusual variances that would impact the estimates.

As of December 31, 2020 and 2019, the Company reserved $ 24.0 million and $ 24.4 million re lated to self-insured liabilities, respectively.

Refer to the discussion of the Company’s leases and related accounting policies in Note 11.

The Company reviews ROU assets for impairment at the lowest level of identifiable cash flows whenever evidence exists that the carrying value of an asset may not be recoverable (i.e., triggering events).

This review consists of comparing the carrying amount of the asset group with its expected future undiscounted cash flows.

Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions.

If the asset group’s carrying amount exceeds its future undiscounted cash flows, an impairment charge is measured as the amount by which its carrying amount exceeds its fair value.

The fair value of the ROU asset is calculated based on the discounted market rent over the remaining lease period.

The market rent reflects current lease rates on comparable properties and requires adjustments to reflect the different characteristics between the property being measured and the comparable property, which are considered level 3 inputs within the fair value hierarchy described further in Note 6.

Financial Instruments and Fair Value Measurements.

During the years ended December 31, 2020 and 2019, the Company recorded $ 2.0 million and $ 1.4 million , re spectively, of impairment of ROU assets.

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

Refer to Note 10.

Leases for further discussion of lease impairments .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency Translation

The functional currency for the Company’s U.K.

subsidiaries is GBP.

All assets and liabilities of foreign subsidiaries are translated into USD using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period.

The gains and losses resulting from translation adjustments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity.

Recent Accounting Pronouncements

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The Company adopted this ASU on January 1, 2020.

Refer to the discussion of the adoption in Note 7.

Receivables, Net and Contract Assets.

Reference Rate Reform

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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.

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 an impact on the Company’s consolidated financial statements due to the relief provided.

The Company’s material revenue streams are the sale of new and used vehicles;

the sale of vehicle parts;

the performance of maintenance and repair services;

and the arrangement of vehicle financing and the sale of service and other insurance contracts.

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 mortgages, other debt and lease contracts.

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

The Company applied the relief described for the modification of its Revolving Credit Facility to SOFR as further described in Note 13.

Floorplan Notes Payable.

The Company will continue to apply the relief as its arrangements are modified and does not expect the adoption will have a material impact on the Company’s consolidated financial statements .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company derives its revenues primarily from the sale of new and used vehicles;

sale of vehicle parts;

performance of maintenance and repair services;

and arrangement of vehicle financing and sale of service and other insurance contracts.

Revenue recognition for each of these streams is discussed below.

With respect to the cost of freight and shipping from the Company’s dealerships to its customers, the Company’s policy is to recognize such cost within cost of sales in the Consolidated Statements of Operations.

Also, with respect to taxes imposed by governmental authorities on new and used vehicle sales transactions that are collected by the Company and remitted on behalf of its customers to the government, the Company’s policy is to exclude such taxes from revenues.

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018.

The Company recognized an after-tax cumulative-effect adjustment to retained earnings of $ 4.8 million for maintenance and repair services and $ 6.6 million for the arrangement of associated vehicle financing and the sale of service and insurance contracts as of the date of adoption.

Taxes collected from customers and remitted to governmental authorities are reported on a net basis in the Company’s Consolidated Financial Statements, thus excluded from revenues.

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

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Total revenues $ 8,503.4 $ 2,096.8 $ 10,600.2

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended December 31, 2019

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Refer to Arrangement of Vehicle Financing and the Sale of Service and Other Insurance Contracts section within this Note for further discussion of these arrangements.

Refer to Note 8.

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.

New and Used Retail Vehicle Sales

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In some cases, the Company uses a third-party transport company to facilitate delivery of used vehicles to the customer.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The transaction price for new and used vehicle sales is the stand-alone sales price of each individual vehicle and is generally settled within 30 days of the satisfaction of the performance obligation.

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The transaction price for maintenance and repair services is the total of the labor and, if applicable, vehicle parts used in the performance of the service, as well as the margin above cost charged to the customer.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Arrangement of Vehicle Financing and the Sale of Service and Other Insurance Contracts

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A reserve for future amounts estimated to be charged back, representing variable consideration, is recorded as a reduction to Finance, insurance and other, net in the Consolidated Statements of Operations.

The reserve is estimated based on the Company’s historical charge back results and the termination provisions of the applicable contracts, and was $ 47.1 million a nd $ 49.7 million at December 31, 2020 and 2019, respectively.

The reserve is estimated based on the Company’s historical charge back results and the termination provisions of the applicable contracts, and was $ 58.3 million and $ 47.1 million at December 31, 2021 and 2020, respectively.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Retrospective Commissions and Associated Contract Assets

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Contract Assets, December 31, 2021

ACQUISITIONS AND DISPOSITIONS

As described in Note 1.

Business and Summary of Significant Accounting Policies, 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.

Prime Acquisition

In November 2021, the Company completed the Prime Acquisition, for aggregate consideration of approximately $ 934.2 million.

The purchase price was financed through a combination of cash, available lines of credit and debt financing.

The accounting for the Prime Acquisition is considered to be preliminary.

The Company is continuing to analyze and assess relevant information related to certain property and equipment and property lease contracts.

Due to the recent timing and complexity of the Acquisition, these amounts are provisional and subject to change as the Company’s fair value assessments are finalized.

The Company will reflect any such adjustments in subsequent filings.

The results of the Prime Acquisition are included in the U.S.

The goodwil l is deductible for i ncome tax purposes.

The following table summarizes the consideration paid and aggregate amounts of the assets acquired and liabilities assumed as of the acquisition date (in millions):

Total consideration $ 934.2

Identifiable assets acquired and liabilities assumed

Inventories $ 136.7

Property and equipment 267.4

Intangible franchise rights 135.3

Operating lease assets 58.3

Other assets (1)

Total assets acquired 660.8

Operating lease liabilities 56.6

Other liabilities (2)

Total liabilities assumed 94.9

Total identifiable net assets 565.9

Goodwill $ 368.3

(1) Other assets acquired in connection with the Prime Acquisition include $ 55.3 million of assets classified as held for sale as of the acquisition date.

See the table below for additional details.

(2) Other liabilities assumed in connection with the Prime Acquisition include $ 1.7 million of liabilities classified as held for sale as of the acquisition date.

See the table below for additional details.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prime assets classified as held for sale (in millions)

Inventories $ 10.4

Property and equipment 28.1

Operating lease assets 1.7

Goodwill 15.1

Total other assets classified as held for sale $ 55.3

Prime liabilities classified as held for sale (in millions)

Operating lease liabilities $ 1.7

The Company recorded $ 12.9 million of acquisition related costs during the year ended December 31, 2021.

These costs are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

The Company’s Consolidated Statements of Operations included revenues and net income attributable to Prime from the acquisition date through December 31, 2021, of $ 199.9 million and $ 14.3 million, res pectively.

The following unaudited pro forma financial information presents consolidated information of the Company as if the Prime Acquisition had occurred January 1, 2020 (in millions):

Years Ended December 31,

Revenues $ 15,243.5 $ 12,469.8

Net income $ 594.7 $ 290.0

Pro forma data may not be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be a projection of future results.

Other Acquisitions

During the year ended December 31, 2021, the Company also acquired five dealerships, representing eight 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 $ 166.8 million, net of cash acquired.

Goodwill associated with these acquisitions totaled $ 70.1 million.

During the year ended December 31, 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.

During the year ended December 31, 2019, the Company acquired four dealerships representing six franchises in the U.S.

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

Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $ 143.2 million.

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

and two dealerships representing three franchises in the U.K.

During the year ended December 31, 2018, the Company acquired four dealerships representing four franchises in the U.S., five dealerships representing eight franchises in the U.K.

and one dealership representing one franchise in Brazil.

Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $ 140.4 million, including $ 5.1 million of cash received.

The Company also opened one dealership representing one franchise in the U.S., added one franchise and opened one additional dealership representing one franchise in the U.K., and opened one dealership representing one franchise in Brazil.

Goodwill associated with this acquisition was not material.

DISCONTINUED OPERATIONS AND OTHER DIVESTITURES

Brazil Discontinued Operations

On November 12, 2021, the Company entered into the Brazil Disposal.

The Brazil Disposal is expected to close before the end of the second quarter of 2022.

The sale price of BRL 510.0 million includes a holdback amount, for general representations and warranties, of BRL 115.0 million or approximately $ 20.7 million, to be held in escrow for a period of five years from the close of the transaction.

At the conclusion of the five-year period, the remaining funds held in escrow would be released to the Company.

This amount has been included in the estimated proceeds.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the estimated fair value of proceeds expected and net carrying value of the assets disposed (in millions):

Estimated fair value of proceeds from disposition $ 91.6

Estimated net assets disposed 42.3

Estimated gain before currency translation adjustments 49.2

Estimated amount of currency translation loss recorded in AOCI ( 125.7 )

Estimated incremental costs to sell 1.1

Net loss on disposal of the Brazil Discontinued Operations $ ( 77.5 )

Upon sale of a foreign entity, amounts recorded within Accumulated Other Comprehensive Income (“AOCI”) on the Consolidated Balance Sheets, are required to be reclassified into earnings on the date of disposition.

For purposes of determining the net gain or loss on the Brazil Disposal Group, the Company included the non-cash currency translation adjustment recorded in AOCI of a loss of $ 125.7 million attributable to the Brazil Disposal Group.

The loss on sale indicates impairment of assets to be necessary, however, the loss was entirely the result of the non-cash amount reclassified from AOCI.

The Company has presented in 2021, a valuation allowance against assets held for sale of the Brazil Disposal Group to reflect the expected loss not attributable to a particular asset within the Brazil Disposal Group.

In addition, the purchase price is denominated in BRL, which is subject to foreign currency exchange risk.

In order to partially mitigate this risk, the Company entered into a foreign currency derivative for the conversion of BRL to USD in the form of a costless collar which protects the Company from significant downside exposure on $ 70.0 million of the expected purchase consideration.

The assets, liabilities and operating results of the Brazil Disposal Group are reported as discontinued operations for all periods presented as the disposition reflects a strategic shift by the Company.

The Company classified assets and liabilities of the Brazil Disposal Group as held for sale in the Consolidated Balance Sheets at the lower of its carrying amount or fair value less costs to sell.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Results of the Brazil Discontinued Operations were as follows (in millions):

Years Ended December 31,

2021 2020 2019

New vehicle retail sales $ 205.6 $ 152.4 $ 286.8

Used vehicle retail sales 58.1 50.0 85.4

Used vehicle wholesale sales 11.3 12.3 18.3

Parts and service sales 38.7 31.9 47.6

Finance, insurance and other, net 6.1 5.0 7.6

Total revenues 319.8 251.6 445.9

COST OF SALES:

New vehicle retail sales 184.9 141.3 269.1

Used vehicle retail sales 53.1 46.3 79.5

Used vehicle wholesale sales 10.5 11.5 17.1

Parts and service sales 22.0 17.7 26.6

Total cost of sales 270.6 216.7 392.3

GROSS PROFIT 49.2 34.8 53.5

Selling, general and administrative expenses 34.3 31.1 46.0

Depreciation and amortization expense 1.5 2.3 1.6

Asset impairments 77.5 11.1 0.5

(LOSS) INCOME FROM DISCONTINUED OPERATIONS ( 64.1 ) ( 9.6 ) 5.4

INTEREST EXPENSE:

Floorplan interest expense 1.1 0.3 0.7

Other interest expense, net 0.9 0.7 0.1

Loss on extinguishment of debt 3.8 — —

(LOSS) INCOME BEFORE INCOME TAXES — DISCONTINUED OPERATIONS ( 69.9 ) ( 10.5 ) 4.6

Provision (benefit) for income taxes 3.4 ( 0.3 ) ( 0.4 )

NET (LOSS) INCOME — DISCONTINUED OPERATIONS $ ( 73.3 ) $ ( 10.2 ) $ 5.0

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents cash flows from operating and investing activities for the Brazil Discontinued Operations (in millions):

Years Ended December 31,

2021 2020 2019

Net cash provided by operating activities — discontinued operations $ 5.2 $ 13.1 $ 6.9

Net cash used in investing activities — discontinued operations $ ( 1.5 ) $ ( 6.8 ) $ ( 3.0 )

Assets and liabilities of the Brazil Discontinued Operations were as follows (in millions):

As of December 31,

Cash and cash equivalents $ 3.7 $ 18.3

Contracts-in-transit and vehicle receivables, net 2.3 0.6

Accounts and notes receivable, net 11.8 7.8

Inventories 37.2 21.5

Prepaid expenses 1.9 4.0

Assets of discontinued operations — current 56.9 52.3

Property and equipment, net 22.3 23.9

Operating lease assets 2.4 2.8

Other long-term assets 7.8 8.5

Assets of discontinued operations — non-current (1)

Total assets, before valuation allowance 89.5 87.5

Valuation allowance ( 76.4 ) —

Total assets, net of valuation allowance (1)

$ 13.0 $ 87.5

Floorplan notes payable — credit facility and other $ 3.3 $ 1.1

Floorplan notes payable — manufacturer affiliates 20.1 6.7

Current maturities of long-term debt — 0.7

Current operating lease liabilities 2.5 1.6

Accounts payable 13.7 12.2

Accrued expenses and other current liabilities 8.7 9.0

Liabilities of discontinued operations — current 48.3 31.3

Long-term debt — 14.1

Long-term operating lease liabilities — 1.5

Liabilities of discontinued operations — non-current (1)

Total liabilities (1)

$ 48.3 $ 47.0

(1) The assets and liabilities of the Brazil Discontinued Operations are classified in current assets and liabilities, respectively, in the Consolidated Balance Sheet as of December 31, 2021, as the Brazil Disposal is expected to close before the end of the second quarter of 2022.

The assets and liabilities of the Brazil Discontinued Operations are classified in their respective current or long-term classifications in the Consolidated Balance Sheet as of December 31, 2020, in accordance with the nature and underlying classification of such assets and liabilities, as the Brazil Disposal did not occur within one-year of that date.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and Liabilities Held for Sale

Assets and liabilities classified as held for sale consisted of the following (in millions):

As of December 31,

Current assets classified as held for sale

Brazil Discontinued Operations $ 13.0 $ 52.3

Prime Acquisition (1)

Total current assets classified as held for sale $ 100.3 $ 54.7

Long-term assets classified as held for sale

Brazil Discontinued Operations $ — $ 35.2

Total long-term assets classified as held for sale $ — $ 35.2

Current liabilities classified as held for sale

Brazil Discontinued Operations $ 48.3 $ 31.3

Prime Acquisition (1)

Total current liabilities classified as held for sale $ 49.9 $ 31.3

Long-term liabilities classified as held for sale

Brazil Discontinued Operations $ — $ 15.7

Total long-term liabilities classified as held for sale $ — $ 15.7

(1) For additional details on current assets and current liabilities classified as held for sale in connection with the Prime Acquisition, refer to Note 3.

Acquisitions.

(2) Includes $ 9.9 million of goodwill reclassified to assets held for sale as of December 31, 2021.

Other Divestitures

During the year ended December 31, 2021, the Company recorded a net pre-tax gain totaling $ 4.4 million related to the disposition of three dealerships representing three franchises and one franchise within an existing dealership in the U.S.

The dispositions reduced goodwill by $ 4.0 million.

The Company terminated one franchise within an existing dealership in the U.S.

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

During the year ended December 31, 2020 , the Company’s dispositions included two dealerships representing three franchises in the U.S.

The Company recorded a net pre-tax gain totaling $ 3.1 million related to these dispositions.

During the year ended December 31, 2019, the Company’s dispositions included four dealerships representing seven franchises and two terminated franchises in the U.S., three dealerships representing four terminated franchises in the U.K.

and one dealership representing one franchise in Brazil.

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

During the year ended December 31, 2018, the Company’s dispositions included two dealerships representing three franchises and one terminated franchise in the U.S.

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

During the year ended December 31, 2019, the Company’s dispositions included four dealerships, representing seven franchises, and two terminated franchises in the U.S.;

and three dealerships representing four terminated franchises in the U.K.

The Company recorded a net pre-tax gain totaling $ 4.8 million related to these dispositions.

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STOCK-BASED COMPENSATION PLANS

Under the Company’s 2014 Long Term Incentive Plan (the “Incentive Plan”), the Company currently grants RSAs, RSUs (also referred to as “Phantom Stock”) and performance awards to Company employees and non-employee directors.

Under the Company’s 2014 Long Term Incentive Plan (the “Incentive Plan”), the Company currently grants RSAs, RSUs (also referred to as “Phantom Stock”) and performance share units (“PSUs”) to Company employees and non-employee directors.

The aggregate maximum number of shares that may be issued or transferred under the Incentive Plan is 2.2 million.

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As of December 31, 2021, there were 1.5 million shares available for issuance under the Incentive Plan.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock Awards

21 unchanged sentences

As of December 31, 2021, there was $ 22.6 million of total unrecognized compensation cost related to RSAs which is expected to be recognized over a weighted-average period of 3.1 years.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock Units

Under the Incentive Plan, the Company grants to non-employee directors, at their election, RSUs, at no cost to the recipient.

The Company grants to non-employee directors, at their election, RSUs, at no cost to the recipient.

RSUs are vested 100 % at the time of grant, and settled on the date of the directors “separation of service”, as such term is defined in IRS code §1.409A-1(h), and generally includes departure due to either death, disability, or retirement.

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Prior to January 1, 2019, RSUs settled in shares of the Company’s common stock.

Effective January 1, 2019, RSUs will settle in a lump sum cash payment equal to the average of the Company’s high and low stock price on the separation of service date (no stock is issued) and constitute liability instruments, which require remeasurements to fair value each reporting period.

Effective January 1, 2019, RSUs will settle in a cash payment equal to the average of the Company’s high and low stock price on the separation of service date and constitute liability instruments, which require remeasurements to fair value each reporting period.

The changes in fair value as a result of the changes in the Company’s stock price is recognized in Selling, general and administrative expenses in the Consolidated Statements of Operations.

The following table summarizes cash-settled RSU activity and related information for 2020:

Awards Weighted Average

Unsettled at January 1, 2020

10,689 $ 53.33

Granted 5,982 $ 100.26

Unsettled at December 31, 2020

16,671 $ 130.30

As of December 31, 2021, the total liability for unsettled cash-settled RSUs, recorded at fair value, was $ 4.4 million.

Performance Awards

Under the Incentive Plan, the Company grants to certain employees shares of the Company’s common stock in the form of performance awards.

The performance awards contain both performance and market conditions to be evaluated over a two -year performance period and are subject to vesting over a three -year service period.

Based on the performance criteria, up to 200 % of the granted shares may be earned.

The performance awards do not qualify as participating securities.

Compensation expense for the awards with performance conditions is calculated based on the market price of the Company’s common stock at the date of grant and the forecasted achievement of such performance conditions and is recognized over the requisite service period.

Compensation expense for the awards with market conditions is calculated based upon the fair value of the award on the date of grant and is recognized over the requisite service period.

All performance awards remained unvested as of December 31, 2020.

The following table summarizes performance awards activity and related information for 2020:

Awards Weighted Average

Nonvested at January 1, 2020

30,555 $ 65.83

Granted 20,992 $ 103.29

Forfeited ( 6,444 ) $ 80.62

Nonvested at December 31, 2020

45,103 $ 81.15

As of December 31, 2020, there was $ 1.0 million of total unrecognized compensation cost related to performance awards which is expected to be recognized over a weighted-average period of 1.6 years.

Performance Share Units

The Company grants PSUs to certain key employees.

During the years ended December 31, 2021 and 2020, the Company granted 14,104 and 20,992 , PSUs respectively.

The fair value of each PSU granted is based on the Company’s stock price on the date of grant.

The PSUs are evaluated over a two-year performance period based on actual performance targets achieved, as well as the market-based return of the Company’s common stock relative to that of their peer group and subject to vesting over a three-year service period, which at the end of year three, will convert into shares of the Company’s common stock.

The weighted average grant-date fair value per performance share unit granted during the years ended December 31, 2021 and 2020 was $ 145.40 and $ 103.29 , respectively.

GROUP 1 AUTOMOTIVE, INC.

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Stock-based compensation related to equity-settled awards was $ 28.3 million, $ 32.3 million and $ 18.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Stock-based compensation related to cash-settled awards was $ 1.1 million for both the years ended December 31, 2020 and 2019.

The Company did not grant cash-settled awards prior to January 1, 2019, and therefore did not incur any such expense for the year ended December 31, 2018.

Stock-based compensation related to cash-settled awards were $ 2.2 million, $ 1.1 million and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019.

Tax benefits related to total stock-based compensation were $ 4.3 million, $ 5.0 million and $ 3.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

EARNINGS (LOSS) PER SHARE

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.

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the calculation of EPS for the years ended December 31, 2020, 2019 and 2018 (in millions, except share and per share data):

The following table sets forth the calculation of EPS on total net income for the years ended December 31, 2021, 2020 and 2019 (in millions, except share and per share data):

Years Ended December 31,

3 unchanged sentences

Weighted average dilutive common shares outstanding 17,722,212 17,806,578 17,936,075

Net income (loss) $ 286.5 $ 174.0 $ 157.8

Earnings (loss) allocated to participating securities 10.3 6.4 5.4

Net income (loss) available to basic common shares $ 276.2 $ 167.6 $ 152.4

Basic earnings (loss) per common share $ 15.55 $ 9.35 $ 7.83

Net income (loss) $ 286.5 $ 174.0 $ 157.8

Earnings (loss) allocated to participating securities 10.3 6.4 5.4

Net income (loss) available to diluted common shares $ 276.2 $ 167.6 $ 152.4

Diluted earnings (loss) per common share $ 15.51 $ 9.34 $ 7.83

Net income $ 552.1 $ 286.5 $ 174.0

Earnings allocated to participating securities from continuing operations 21.1 10.7 6.3

(Loss) earnings allocated to participating securities from discontinued operations ( 2.5 ) ( 0.4 ) 0.2

Net income available to basic common shares $ 533.5 $ 276.2 $ 167.6

Basic earnings per common share $ 30.22 $ 15.55 $ 9.35

Net income $ 552.1 $ 286.5 $ 174.0

Earnings allocated to participating securities from continuing operations 21.0 10.6 6.2

(Loss) earnings allocated to participating securities from discontinued operations ( 2.5 ) ( 0.4 ) 0.2

Net income available to diluted common shares $ 533.6 $ 276.2 $ 167.6

Diluted earnings per common share $ 30.11 $ 15.51 $ 9.34

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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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 these 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 a variable rate determined by the manufacturer and represent unsecured, unsubordinated and unguaranteed debt obligations of the manufacturer.

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

As of December 31, 2020, the carrying value of these instruments was $ 60.0 million, and there was no material carrying value as of December 31, 2019.

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 Consolidated Balance Sheets.

As of December 31, 2021 and 2020, the carrying value of these instruments was $ 0.6 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.

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Fixed Rate Long-Term Debt

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

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”).

The Company estimates the fair value of its $ 750.0 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 14.

Debt for further discussion of the issuance.

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

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):

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4.00 % Senior Notes

$ 750.0 $ 748.4 $ 550.0 $ 567.0

Real estate related 81.3 78.7 84.3 77.0

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(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 13.

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 13.

Debt for further discussion of the redemption.

Asset Impairments

When an asset impairment is required, the Company impairs any carrying value of the asset in excess of the estimated fair value of the asset, which includes goodwill, intangible franchise rights, property and equipment and ROU assets.

On October 21, 2021, the Company issued an additional $ 200.0 million aggregate principal amount of its 4.00 % Senior Notes due 2028.

Refer to Note 14.

Business and Summary of Significant Accounting Policies for further discussion of the significant inputs to the respective fair value models and their levels within the fair value hierarchy.

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

Derivative Financial Instruments

The Company holds interest rate swaps to hedge against variability of interest payments indexed to LIBOR.

The interest rate swaps are 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) .

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 Consolidated Statements of Operations.

The Company had no gains or losses related to ineffectiveness recognized in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018.

As of December 31, 2020, the Company held 36 interest rate swaps in effect with a total notional value of $ 798.7 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.4 %.

The Company also held 10 interest rate swaps with forward start dates beginning January 2021, that had an aggregate notional value of $ 575.0 million with a weighted average interest rate of 1.4 % as of December 31, 2020.

The maturity dates of the Company’s interest rate swaps range between August 2021 and December 2031.

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

This technique utilizes a one-month LIBOR forward yield curve matched to the identical maturity term of the instrument being measured.

The Company holds the majority of its interest rate swaps to hedge against variability of interest payments indexed to LIBOR and SOFR.

The Company’s interest rate swaps are measured at fair value utilizing a one-month LIBOR or SOFR 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 inputs.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

The credit risk is calculated using the spread between the one-month LIBOR or SOFR 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 Consolidated Balance Sheets, were as follows (in millions):

Other current assets $ — $ 1.9

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Total liabilities $ 11.2 $ 44.8

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

Interest Rate Swaps De-designated as Cash Flow Hedges

All interest rate swaps had previously been designated as cash flow hedges.

During the year ended December 31, 2021, the Company de-designated eight interest rate swaps, with aggregate notional value of $ 425.0 million and a weighted average interest rate of 1.7 %, due to the continued decline in the net floorplan liability balance as a result of decreased vehicle inventory levels.

Of the eight swaps de-designated during the year, five expired and three were terminated as of December 31, 2021.

The realized and unrealized gains or losses on the de-designated swaps for each period after de-designation were recognized within income as Floorplan interest expense in the Company’s Condensed Consolidated Statements of Operations.

The Company reclassified the entire previously deferred loss associated with the de-designated interest rate swaps of $ 6.1 million, net of tax of $ 1.9 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 reduced inventory levels described above.

The Company recorded mark-to-market gains of $ 3.1 million and realized losses of $ 6.5 million associated with these interest rates swaps within Floorplan interest expense for the year ended December 31, 2021.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (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 year ended December 31, 2021.

As of December 31, 2021, the Company held 37 interest rate swaps designated as cash flow hedges with a total notional value of $ 774.0 million that fixed its underlying one-month LIBOR or SOFR at a weighted average rate of 1.3 %.

The Company also held 4 interest rate swaps designated as cash flow hedges with forward start dates beginning January 2022, that had an aggregate notional value of $ 200.0 million and a weighted average interest rate of 1.2 % as of December 31, 2021.

The maturity dates of the Company’s designated interest rate swaps dates range between January 2024 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)

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Interest rate swaps $ 22.6 $ ( 36.7 ) $ ( 13.3 )

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

Income Statement Classification Years Ended December 31,

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

Statement of Operations Classification Years Ended December 31,

2021 2020 2019

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Other interest expense, net $ ( 4.1 ) $ ( 2.9 ) $ 0.1

The net amount of loss expected to be reclassified out of Accumulated other comprehensive income (loss) into earnings as an offset to Floorplan interest expense or Other interest expense, net in the next twelve months is $ 2.3 million.

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 $ 7.9 million.

RECEIVABLES, NET AND CONTRACT ASSETS

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Contracts-in-transit and vehicle receivables consist primarily of amounts due from financing institutions on retail finance contracts from vehicle sales, and also includes receivables related to vehicle wholesale sales.

Accounts and Notes Receivable

Accounts and Notes Receivables

Accounts and notes receivable consist primarily of amounts due from manufacturers related to dealer incentives, and also includes receivables related to parts and service sales.

The Company maintains an allowance for doubtful accounts that is calculated under the current expected credit loss (“CECL”) model.

The CECL model applies to financial assets measured at amortized cost, as shown in the following table, 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.

GROUP 1 AUTOMOTIVE, INC.

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$ 37.5 $ 35.3

(1) The allowance for doubtful accounts as of December 31, 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.

(1) See further discussion of the Company’s Contract Assets balance at Note 2.

No allowance for doubtful accounts was recorded as of December 31, 2020 or December 31, 2019.

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.

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

There were no adjustments for expected losses as of December 31, 2020.

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

The Company’s inventories consisted of the following (in millions):

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As described in Note 1.

Business and Summary of Significant Accounting Policies, inventories are valued at lower of cost or net realizable value.

Basis of Presentation, Consolidation and Summary of Accounting Policies, inventories are valued at lower of cost or net realizable value.

The lower of specific cost or net realizable value adjustments reduced total inventory cost by $ 4.1 million a nd $ 8.7 m illion at December 31, 2021 and 2020, respectively.

Interest assistance reduced inventory costs by $ 1.3 million a nd $ 7.4 million at December 31, 2021 and 2020, respectively, and reduced cost of sal es by $ 54.2 million, $ 47.3 million and $ 49.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Impairments of inventory, net of insurance proceeds, related to catastrophic events are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

During the years ended December 31, 2021, 2020 and 2019, the Company recorded $ 0.1 million, $ 0.9 million and $ 16.1 million of impairment charges, respectively.

Refer to Note 1.

Basis of Presentation, Consolidation and Summary of Accounting Policies for further discussion of the Company’s accounting policies for inventories.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest assistance reduced inventory costs by $ 7.4 million a nd $ 10.7 million at December 31, 2020 and 2019, respectively, and reduced cost of sales by $ 47.3 million, $ 49.1 million and $ 47.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Refer to Note 1.

Business and Summary of Significant Accounting Policies for further discussion of the Company’s accounting policies for inventories.

PROPERTY AND EQUIPMENT, NET

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For the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 1.7 million, $ 4.2 million and $ 1.3 millio n, respectively, in asset impairment charges related to property and equipment in the Company’s U.S.

For the year ended December 31, 2019, the Company recognized $ 0.5 million in asset impairment charges related to property and equipment in the Company’s Brazil segment.

Property and equipment impairment charges are reflected in Asset impairments in the Consolidated Statements of Operations.

Depreciation and amortization expense totaled $ 77.4 million, $ 73.5 million and $ 70.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company capitalized $ 1.1 million, $ 1.3 million and $ 1.3 million of interest on construction projects for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company capitalized $ 1.0 million, $ 1.1 million and $ 1.3 million of i nterest on construction projects for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company leases real estate, office equipment and dealership operating assets under long-term lease agreements and subleases certain real estate to third parties.

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) (“Topic 842”) and all subsequent amendments using the optional transition method applied to leases existing at January 1, 2019.

Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting policies under ASC Topic 840, Leases (“ASC 840”).

Upon adoption of Topic 842, the Company recognized ROU assets and lease liabilities based on the present value of its remaining minimum rental payments for existing operating leases as of the adoption date, utilizing the Company’s applicable incremental borrowing rate also as of the adoption date.

The adoption of Topic 842 resulted in the Company recognizing $ 222.6 million of operating ROU assets and $ 236.7 million of operating lease liabilities as of January 1, 2019.

The difference between ROU assets and lease liabilities was primarily due to the recognition of a $ 6.1 million cumulative-effect adjustment, net of deferred tax impact, to retained earnings as of January 1, 2019 resulting from the impairment of certain operating ROU assets upon the adoption of Topic 842.

The remaining difference between the ROU assets and lease liabilities is primarily the result of prepaid rent.

The Company’s accounting for its finance leases, previously termed capital leases under ASC 840, remained substantially unchanged.

The adoption of Topic 842 had no material net impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognizes ROU assets and lease liabilities at commencement based on the present value of lease payments over the lease term.

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The Company has elected not to record leases with an initial term of 12 months or less on the balance sheet for all asset classes.

The Company performs interim reviews of its ROU assets for impairment when evidence exists that the carrying value of an asset may not be recoverable.

During the year ended December 31, 2020, the Company recognized ROU asset impairment charges of $ 1.8 million within the U.K.

segment and $ 0.2 million within the Brazil segment.

During the year ended December 31, 2019, the Company recognized $ 1.4 million within the U.K.

All of the aforementioned impairment charges were related to operating leases and were recognized within Asset impairments in the Company's Consolidated Statements of Operations.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

This review consists of comparing the carrying amount of the asset group with its expected future undiscounted cash flows.

Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions.

If the asset group’s carrying amount exceeds its future undiscounted cash flows, an impairment charge is measured as the amount by which its carrying amount exceeds its fair value.

The fair value of the ROU asset is calculated based on the discounted market rent over the remaining lease period.

Financial Instruments and Fair Value Measurements.

No impairments of ROU assets were recorded during the year ended December 31, 2021.

D uring the years ended December 31, 2020 and 2019, the Company recorded $ 1.8 million and $ 1.4 million, respectively, of impairments of ROU assets, all related to the U.K.

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

Additional information regarding the Company’s operating and finance leases is as follows (in millions, except for lease term and discount rate information):

46 unchanged sentences

Finance leases, modifications and remeasurements $ ( 4.5 ) $ 31.8

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

INTANGIBLE FRANCHISE RIGHTS AND GOODWILL

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

The Company evaluates its intangible assets, including goodwill, for impairment annually, or more frequently if events or circumstances indicate possible impairment.

Refer to Note 1.

Business and Summary of Significant Accounting Policies for further discussion of the Company’s accounting policies relating to impairment testing, including the fair value models and significant inputs and assumptions to the models.

As described in Note 1.

Business and Summary of Significant Accounting Policies, 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.

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 May 31, 2020 and as a result, the Company recorded a goodwill impairment charge of $ 10.7 million within the Brazil reporting unit.

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

The impact of the COVID-19 pandemic on the economy and unemployment during the second quarter of 2020 also adversely impacted 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 May 31, 2020.

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

and Brazil were below their respective carrying values, which 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.

The Company performed its annual impairment assessment of the carrying value of its goodwill and intangible franchise rights as of October 31, 2020.

For the goodwill test, the Company elected to perform a qualitative assessment of each of its reporting units and determined that it was not more-likely-than-not that the fair value of the reporting unit was less than its respective carrying amount.

Thus, no additional goodwill impairment was recorded for the year ended December 31, 2020.

For the intangible franchise rights test, the Company elected to perform a qualitative assessment to determine whether it was more-likely-than-not that the carrying value of the franchise rights were more than their respective fair values.

Basis of Presentation, Consolidation and Summary of Accounting Policies for further discussion of the Company’s accounting policies relating to impairment testing.

For the October 31, 2021, annual goodwill impairment assessment, the Company elected to perform a qualitative assessment and determined that it was not more-likely-than-not that the fair values of the Company’s reporting units were less than their carrying values.

The qualitative assessment included a review of changes, since the last quantitative assessment was performed, in those assumptions having the most significant impact on the current year fair value.

When a quantitative impairment assessment is performed, the Company estimates fair value of goodwill using a combination of the discoun ted cash flow, or income approach, and the market approach.

The Company weights the income approach and market approach 80 % and 20 %, respe ctively, in the fair value model.

For intangible franchise rights, the fair value of the respective franchise right is estimated using a discounted cash flow, or income approach.

The income approach measures fair value by discounting expected future cash flows at a WACC that proportionately weights the cost of debt and equity.

Significant assumptions in the model include revenue growth rates, future EBITDA margins, the WACC and terminal growth rates.

The Company applies a five-year projection period which aligns with the Company’s strategic plan.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Beyond the five forecasted years, the terminal value is determined using a perpetuity growth rate based on long-term inflation projections for each reporting unit.

Significant inputs to the WACC include the risk-free rate, an adjustment for stock market risk, an adjustment for company size risk and country risk adjustments for the U.K.

For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit.

Each of the significant assumptions to the fair value model are considered level 3 inputs within the fair value hierarchy described further in Note 7.

Financial Instruments and Fair Value Measurements.

Developing these assumptions requires applying management’s knowledge of the industry, recent transactions and reasonable performance expectations for its operations.

For the October 31, 2021 annual intangible franchise rights assessment, the Company elected to perform a qualitative assessment.

Based on the results of the qualitative assessment, certain dealerships required a quantitative test based on their actual results through October 31, 2021, and an update of the annual budget in the fourth quarter of 2021.

This resulted in additional franchise rights impairment charges of $ 9.7 million in the U.S.

segment during the fourth quarter of 2020.

During the year ended December 31, 2019, the Company recorded $ 13.4 million in the U.S.

To perform the intangible franchise rights quantitative assessment, the Company estimated the fair values of the respective franchise rights using a discounted cash flow, or income approach, following the income approach as described for goodwill.

However, this resulted in no franchise rights impairment charges for the year ended December 31, 2021.

No impairment was recorded for intangible franchise rights during the year ended December 31, 2021.

During the year ended December 31, 2020, the Company recorded impairment charges of $ 9.7 million in the U.S.

segment and $ 11.1 million in the U.K.

segment of impairments on intangible franchise rights.

During the year ended December 31, 2018, the company recorded $ 38.3 million in the U.S.

segment on intangible franchise rights.

During the year ended December 31, 2019, the Company recorded impairment charges of $ 13.4 million in the U.S.

segment and $ 5.6 million in the U.K.

segment of impairments on intangible franchise rights.

During the year ended December 31, 2020, no additional intangible franchise rights were purchased or acquired through business combinations.

During the year ended December 31, 2019, the Company recorded additional indefinite-lived intangible franchise rights acquired through business combinations of $ 12.1 million in the U.S segment.

segment on intangible franchise rights.

During the year ended December 31, 2021, the Company recorded additional indefinite-lived intangible franchise rights acquired through business combinations of $ 161.2 million in the U.S.

segment and $ 1.2 million in the U.K.

Duri ng the year ended December 31, 2020, no additional intangible franchise rights were acquired through business combinations.

Refer to Note 3.

Acquisitions and Dispositions for further discussion of the Company’s acquisitions.

The following table presents the Company’s intangible franchise rights balances by reportable segment as of December 31, 2020 and 2019 (in millions):

Acquisitions for further discussion of the Company’s acquisitions.

The following table presents the Company’s intangible franchise rights balances by segment as of December 31, 2021 and 2020 (in millions):

Intangible Franchise Rights

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Balance, December 31, 2021 $ 372.0 $ 20.4 $ 392.3

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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Disposals ( 4.1 ) — ( 4.1 )

Impairments — — ( 10.7 ) ( 10.7 )

Reclassified to assets held for sale ( 25.0 ) — ( 25.0 )

Currency translation — ( 1.3 ) ( 1.3 )

Balance, December 31, 2021

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

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

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.

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.

Regional lockdowns occurred in late December and on January 4, 2021, the U.K.

government announced another national lockdown of non-essential businesses beginning immediately, and are not expected to be lifted until April 2021 at the earliest.

The lockdown impacts the Company’s new and used vehicle sales as showrooms are required to close, but has a lesser impact on the Company’s service operations which are allowed to remain open.

Due to the temporary nature of the U.K.

lockdown announced in January 2021, no impairment indicators of goodwill or intangible franchise rights were identified subsequent to December 31, 2020 and through the date of issuance of this Form 10-K.

$ 1,307.3 $ 112.9 $ 1,420.2

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

reporting unit.

GROUP 1 AUTOMOTIVE, INC.

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vehicle inventory floorplan financing (“U.S.

Floorplan Line”) which had 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 13.

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.

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As of December 31, 2021 and 2020, the Company had $ 12.6 million and $ 17.8 million, respectively, 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.

On December 30, 2021, the Revolving Credit Facility was amended to replace LIBOR with SOFR.

Floorplan Line bears interest at rates equal to SOFR plus 121 basis points for new vehicle inventory and SOFR plus 151 basis points for used vehicle inventory.

The weighted average interest rate on the U.S.

Floorplan line was 1.20 % as December 31, 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 USD, Euros or GBP.

Floorplan line was 1.18 % as of December 31, 2021, excluding the impact of the Company’s interest rate swap derivative instruments.

The Acquisition Line bears interest at SOFR or a SOFR 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.

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

In conjunction with the Revolving Credit Facility, the Company has $ 3.6 million and $ 4.7 million of related unamortized debt issuance costs as of December 31, 2020 and 2019, respectively, which are included in Prepaid expenses and Other long-term assets in the Company’s Consolidated Balance Sheets and amortized over the term of the facility.

In conjunction with the Revolving Credit Facility, the Company had $ 2.6 million and $ 3.6 million of related unamortized debt issuance costs as of December 31, 2021 and 2020, respectively, which are included in Prepaid expenses and Other long-term assets in the Company’s Consolidated Balance Sheets and amortized over the term of the facility.

Under the Revolving Credit Facility, dividends are permitted to the extent that no event of default exists, and the Company is in compliance with the financial covenants contained therein.

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After giving effect to the applicable restrictions on share repurchases and certain other transactions under the debt agreements, the Company was limited to $ 279.2 million of such restrictions as of December 31, 2021.

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 Consolidated Balance Sheets.

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

GROUP 1 AUTOMOTIVE, INC.

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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.

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Other Manufacturer Facilities

The Company has other credit facilities in the U.S., U.K.

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

As of December 31, 2020, borrowings outstanding under these facilities totaled $ 232.3 million, comprised of $ 94.4 million in the U.S., with annual interest rates ranging from approximately 1 % to 6 %, $ 131.2 million in the U.K., with annual interest rates ranging from less than 1 % to approximately 4 %, and $ 6.7 million in Brazil with annual interest rates ranging from approximately 2 % to 10 %.

The Company has other credit facilities in the U.S.

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

As of December 31, 2021, borrowings outstanding under these facilities totaled $ 216.5 million, comprised of $ 91.5 million in the U.S., with annual interest rates ranging from approximately 1 % to 5 %, and $ 125.0 million in the U.K., with annual interest rates ranging from less than 1 % to approximately 4 %.

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 Consolidated Balance Sheets.

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

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

4.00 % Senior Notes due August 15, 2028

5.00 % Senior Notes aggregate principal redeemed September 2, 2020

5.25 % Senior Notes aggregate principal redeemed April 2, 2020

$ 750.0 $ 550.0

Acquisition Line 329.3 47.8

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Total debt 2,046.7 1,346.1

unamortized discount — 5.6

unamortized debt issuance costs 11.0 9.5

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Total $ 2,046.7

4.00% Senior Notes

The Company has the following Senior Notes outstanding as of December 31, 2020:

Description Principal Amount

(in millions) Maturity Date Effective Interest Rate (1)

Interest Payment Dates

4.00 % Senior Notes

$ 550.0 August 15, 2028 4.21 % February 15 th , August 15 th

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

Additional 4.00 % Senior Notes Issuance

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.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company, at its option, may redeem some or all of the Senior 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 102.000 %

August 15, 2024 101.333 %

August 15, 2025 100.667 %

August 15, 2026 and thereafter 100.000 %

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.

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 5.00 % and 5.25 % 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 extinguishmen t of $ 3.3 million whi ch 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.

Acquisition Line

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Real Estate Related

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

and Brazil that are paid in installments.

As of December 31, 2020, borrowings outstanding under these facilities totaled $ 619.8 million, gross of debt issuance costs, comprised of $ 514.9 million in the U.S., $ 92.9 million in the U.K.

and $ 12.0 million in Brazil.

The Company has mortgage loans in the U.S.

that are paid in installments.

As of December 31, 2021, borrowings outstanding under these facilities totaled $ 627.7 million, gross of debt issuance costs, comprised of $ 537.5 million in the U.S.

and $ 90.3 million in the U.K.

The Company’s mortgage loans are secured by real property owned by the Company.

The carrying values of the related collateralized real estate as of December 31, 2021 and 2020 was $ 983.1 million and $ 893.6 million, respectively.

The Brazilian mortgages are additionally secured by a guarantee from the Company.

Finance Leases

Refer to Note 10.Leases for further information regarding the Company’s finance leases.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Refer to Note 11.

Leases for further information regarding the Company’s finance leases.

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 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.

Once drawn upon, 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.

As of December 31, 2021, borrowings outstanding under the Bridge Facility totaled $ 140.0 million, and the average interest rate was 2.65 %.

The aggregate principal will be due on the 364-day anniversary of the closing date of the Prime Acquisition (the “Maturity Date”).

Due to the short-term nature of the Bridge Facility, it has been reported within Current maturities of long-term debt on the Consolidated Balance Sheets.

The Company is subject to U.S.

1 unchanged sentence

In addition, the Company is subject to income tax in the U.K.

and Brazil relative to its foreign subsidiaries.

Income (loss) before income taxes by geographic area was as follows (in millions):

relative to its foreign subsidiaries.

Income before income taxes by geographic area was as follows (in millions):

Years Ended December 31,

2 unchanged sentences

Foreign 79.2 14.2 ( 5.3 )

Total income (loss) before income taxes $ 370.3 $ 227.3 $ 205.4

Federal, state and foreign income tax (benefits) provisions were as follows (in millions):

Total income before income taxes $ 800.9 $ 380.8 $ 222.7

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Federal, state and foreign income tax provisions from continuing operations were as follows (in millions):

Years Ended December 31,

6 unchanged sentences

Deferred ( 1.8 ) ( 4.1 ) ( 3.3 )

(Benefit) provision for income taxes $ 83.8 $ 53.3 $ 47.6

Provision for income taxes $ 175.5 $ 84.2 $ 53.7

Actual income tax expense differed from income tax expense computed by applying the applicable U.S.

federal statutory corporate tax rate of 21.0 % to income before income taxes, as follows (in millions):

federal statutory corporate tax rate of 21.0 % to income before income taxes from continuing operations, as follows (in millions):

Years Ended December 31,

5 unchanged sentences

Foreign income tax rate differential ( 1.0 ) — 0.3

Change in enacted tax rate — U.K.

Tax Credits ( 0.8 ) ( 0.3 ) ( 1.1 )

Changes in valuation allowances ( 2.9 ) ( 0.7 ) 0.3

Tax Act — Enactment date effect

Stock-based compensation ( 2.2 ) ( 0.8 ) —

1 unchanged sentence

Other 0.9 0.6 1.6

(Benefit) provision for income taxes $ 83.8 $ 53.3 $ 47.6

For the year ended December 31, 2020, the Company recorded a tax provision of $ 83.8 million .

Provision for income taxes $ 175.5 $ 84.2 $ 53.7

For the year ended December 31, 2021, the Company recorded a tax provision of $ 175.5 million from continuing operations.

The Company recognizes the tax on global intangible low-taxed income (“GILTI”) as a period expense in the period the tax is incurred.

Under this policy, the Company has not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

For the year ended December 31, 2020, the Company estimated it has no GILTI tax liability.

For the year ended December 31, 2021, the Company estimated $ 0.3 million of GILTI tax liability.

The Company’s 2021 effective income tax rate was more than the U.S.

federal statutory rate of 21.0%, due primarily to:

federal statutory rate of 21.0% from continued operations, due primarily to:

the taxes provided for in U.S.

state jurisdictions;

and (2) increased valuation allowances provided for goodwill in Brazil;

partially offset by:

(1) Brazil losses benefited at a higher tax rate than the U.S.

rate, and (2) excess tax deductions for stock based compensation.

(1) foreign income taxed at a different tax rate than the U.S.

statutory rate, (2) reduced valuation allowances provided for NOLs in certain U.S.

states, and (3) excess tax deductions for stock based compensation.

As a result of these items recorded in 2021 compared to the 2020 items discussed below, the effective tax rate for the year ended December 31, 2021 decreased to 21.9 %, as compared to 22.1 % for the year ended December 31, 2020.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company's 2020 effective income tax rate was more than the U.S.

2 unchanged sentences

state jurisdictions;

and (2) valuation allowances provided for net operating losses a nd other deferred tax assets in certain U.S.

states, partially offset by:

(1) reduced valuation allowances provided for net operating losses in Brazil;

and (2) tax credits.

As a result of these items recorded in 2019 compared to the 2018 items discussed below, the effective tax rate for the year ended December 31, 2019 increas ed to 23.4 %, as compared to 23.2 % fo r the year ended December 31, 2018.

partially offset by:

(1) reduced valuation allowances provided for NOLs in certain U.S.

states, and (2) excess tax deductions for stock-based compensation.

As a result of these items recorded in 2020, compared to the 2019 items discussed below, the effective tax rate for the year ended December 31, 2020, decreas ed to 22.1 %, as compared to 24.1 % fo r the year ended December 31, 2019.

The Company's 2019 effective income tax rate was more than the U.S.

federal statutory rate of 21.0%, due primarily to:

federal statutor y rate of 21.0%, due primarily to:

(1) the taxes provided for in U.S.

state jurisdictions;

and (2) valuation allowances provided for net operating losses and other deferred tax assets in certain U.S.

states and in Brazil, partially offset by:

(1) income generated in the U.K., which is taxed at a 19.0% statutory rate;

(2) employment tax credits;

and (3) the enactment date adjustments from the Tax Act.

As a result of these items recorded in 2018 compared to the 2017 items discussed below, the effective tax rate for the year ended December 31, 2018 was 23.2 %.

and (2) increases in uncertain tax benefits , partially offset by tax credits.

As a result of these items recorded in 2019, the effective tax rate for the year ended December 31, 2019, was 24.1 % .

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income tax provisions resulted from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes.

3 unchanged sentences

Interest rate swaps — 10.0

state net operating loss (“NOL”) carryforwards 34.5 38.2

Foreign NOL carryforwards 28.9 37.6

state NOL carryforwards 30.8 34.5

Operating lease liabilities 79.5 55.8

Goodwill and intangible franchise rights 2.6 —

Other 2.8 2.2

5 unchanged sentences

Depreciation expense 99.4 71.1

Interest rate swaps 0.6 —

Operating lease ROU assets 63.5 44.0

Other 1.7 2.0

Deferred tax liabilities 317.4 259.1

Net deferred tax liability $ 175.0 $ 137.1

The classification of the Company’s net deferred tax liability within the Consolidated Balance Sheets is as follows (in millions):

The classification of the continued operations of the Company’s net deferred tax liability within the Consolidated Balance Sheets is as follows (in millions):

Deferred tax asset, included in Other long-term assets

2 unchanged sentences

As of December 31, 2021, the Company had state pre-tax NOL carryforwards in the U.S.

of $ 564.8 million that will expire between 2020 and 2039, and foreign pre-tax NOL carryforwards of $ 85.1 million that may be carried forward indefinitely.

of $ 500.6 million that will expire between 2022 and 2041, and U.K.

pre-tax NOL carryforwards of $ 9.9 million that may be carried forward indefinitely.

To the extent that the Company expects that net income will not be sufficient to realize these NOLs in certain jurisdictions, a valuation allowance has been established.

The Company believes it is more-likely-than-not that its deferred tax assets, net of valuation allowances provided, will be realized, based primarily on its expectation of future taxable income, considering future reversals of existing taxable temporary differences.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2020, the Company had two controlled foreign corporations that own its foreign operations (the “Foreign Subsidiaries”).

As of December 31, 2021, the continued operations of the Company had one controlled foreign corporation that owns its foreign operations in the U.K.

(the “Foreign Subsidiary”).

The Company has not provided for U.S.

deferred taxes on the outside basis differences of its Foreign Subsidiaries, as the Company has taken the position that its investment in the Foreign Subsidiaries will be permanently reinvested outside the U.S.

The book basis for one of the Company’s Foreign Subsidiaries that consists of the Company’s U.K.

operations exceeded the tax basis by approximately $ 13.1 million , as of December 31, 2020.

deferred taxes on the outside basis differences of its Foreign Subsidiary, as the Company has taken the position that its investment in the Foreign Subsidiary will be permanently reinvested outside the U.S.

The book basis for the Company’s Foreign Subsidiary exceeded the tax basis by approximate ly $ 26.3 million, as of December 31, 2021.

If a taxable event resulting in the recognition of these outside basis differences occurred, the resulting tax would not be material.

Based on the statutes of limitations in the applicable jurisdiction in which the Company operates, the Company is generally no longer subject to examinations by U.S.

tax authorities in years prior to 2016, by U.K.

tax authorities in years prior to 2016 and by Brazil tax authorities in years prior to 2015.

tax authorities in years prior to 2017 and by U.K.

tax authorities in years prior to 2018.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the Company’s unrecognized tax benefits is as follows (in millions):

10 unchanged sentences

Consistent with prior practice, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense in the Consolidated Statements of Operations.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

EMPLOYEE SAVINGS PLANS

16 unchanged sentences

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 CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Matters

4 unchanged sentences

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 4.3 million as of December 31, 2021.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

7 unchanged sentences

( 6.7 ) 29.5 22.8

— ( 6.9 ) ( 6.9 )

Amounts reclassified from accumulated other comprehensive income (loss):

1 unchanged sentence

Other interest expense, net (pre-tax)

Realized (gain) loss on interest rate swap termination (pre-tax) — 0.1 0.1

Provision (benefit) for income taxes

— ( 2.6 ) ( 2.6 )

Net current period other comprehensive income (loss)

( 8.7 ) ( 28.4 ) ( 37.1 )

Reclassification related to de-designated interest rate swaps (pre-tax) — 7.9 7.9

Benefit for income taxes — ( 3.7 ) ( 3.7 )

Net current period other comprehensive (loss) income ( 6.7 ) 34.5 27.8

Balance, December 31, 2021

10 unchanged sentences

Other interest expense (pre-tax) — 2.8 2.8

Provision (benefit) for income taxes

— ( 0.1 ) ( 0.1 )

Net current period other comprehensive income (loss) 3.9 ( 13.0 ) ( 9.2 )

Realized loss on interest rate swap termination (pre-tax) — 0.1 0.1

Benefit for income taxes — ( 2.6 ) ( 2.6 )

Net current period other comprehensive loss ( 8.7 ) ( 28.4 ) ( 37.1 )

Balance, December 31, 2020

12 unchanged sentences

Other interest expense (pre-tax) — ( 0.2 ) ( 0.2 )

Realized (gain) loss on interest rate swap termination (pre-tax) — ( 0.7 ) ( 0.7 )

Provision (benefit) for income taxes

— ( 1.2 ) ( 1.2 )

Benefit for income taxes — ( 0.1 ) ( 0.1 )

Net current period other comprehensive income (loss) 3.9 ( 13.0 ) ( 9.2 )

Tax effects reclassified from accumulated other comprehensive income (loss) — ( 0.2 ) ( 0.2 )

Balance, December 31, 2019

$ ( 142.9 ) $ ( 4.1 ) $ ( 147.0 )

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CASH FLOW INFORMATION

Cash, Cash Equivalents and Restricted Cash

The cash flows presented within the Consolidated Statements of Cash Flows reflect cash and cash equivalents of $ 87.3 million as of December 31, 2020, and cash and cash equivalents of $ 23.8 million and restricted cash of $ 4.3 million included in Other long-term assets in the Consolidated Balance Sheets as of December 31, 2019.

Non-cash Activities

The accrual for capital expenditures decreased $ 1.7 million and $ 4.1 million from year-end for the years ended December 31, 2020 and 2019, respectively.

Additionally, the Company obtained ROU assets in exchange for lease obligations during the years ended December 31, 2020 and 2019.

Refer to Note 10.

Leases for further discussion on lease liabilities.

The accrual for capital expenditures increased $ 2.9 million, decreased $ 1.7 million and $ 4.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Interest and Income Taxes Paid

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 92.5 million , $ 125.3 million and $ 128.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash paid for income taxes, net of refunds, was $ 64.0 million , $ 48.3 million and $ 40.8 million fo r the years ended December 31, 2020, 2019 and 2018, respectively.

Cash paid for interest, including the monthly settlement of the Company’s interest rate swaps, was $ 72.8 million , $ 91.3 million and $ 124.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Refer to Note 7.

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 $ 163.0 million , $ 63.2 million and $ 47.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

SEGMENT INFORMATION

As of December 31, 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 CODM.

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.

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.

As of December 31, 2021, the Company had two reportable segments:

The Company defines its segments as those operations whose results the Company’s Chief Executive Officer, who is the CODM, 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;

3 unchanged sentences

and sell vehicle parts.

Selected reportable segment data is as follows (in millions):

Selected reportable segment data for continuing operations as follows (in millions):

Year Ended December 31, 2021

7 unchanged sentences

Other interest expense, net $ 48.5 $ 7.3 $ 55.8

Income (loss) before income taxes (2)

Income before income taxes (2)

$ 721.8 $ 79.2 $ 800.9

14 unchanged sentences

Other interest expense, net $ 55.0 $ 6.9 $ 61.9

Income (loss) before income taxes (5)

Income before income taxes (5)

$ 366.6 $ 14.2 $ 380.8

19 unchanged sentences

Total capital expenditures $ 134.5 $ 51.6 $ 186.1

(1) SG&A expenses for the year ended December 31, 2020 includes the following:

segment, $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment, $ 3.1 million net gain on disposition of real estate and dealership transactions and $ 2.7 million net gain on legal matters;

segment, $ 2.2 million net gain on disposition of real estate and dealership transactions and $ 1.2 million in severance expense;

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

(2) Income (loss) before taxes for the year ended December 31, 2020 includes the SG&A expenses described in note 1 above and additionally includes the following:

segment, $ 13.8 million in asset impairments and $ 13.7 million loss on debt extinguishment;

segment, $ 12.8 million in asset impairments;

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

(1) SG&A expenses for the year ended December 31, 2021 includes $ 12.9 million in acquisition costs in the U.S.

(2) Income before income taxes for the year ended December 31, 2021 includes the SG&A expenses described in note 1 above.

(3) Non-real estate related capital expenditures exclude the net decrease (increase) in the accrual for capital expenditures from year-end of $( 2.9 ) million , $ 1.7 million and $ 4.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(4) SG&A expenses for the year ended December 31, 2019 includes the following:

segment, $ 17.8 million in expenses related to flood damage from Tropical Storm Imelda and hail storm damages primarily in Texas.

(5) Income (loss) before taxes for the year ended December 31, 2019 includes the SG&A expenses described in note 4 above and additionally includes the following:

segment, $ 14.7 million in asset impairments;

(4) SG&A expenses for the year ended December 31, 2020 includes $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment in the U.S.

(5) Income before income taxes for the year ended December 31, 2020 includes the SG&A expenses described in note 4 above and additionally includes the following:

segment, $ 13.8 million in asset impairments and a $ 13.7 million loss on debt extinguishment;

segment $ 12.8 million in asset impairments.

and in the Brazil segment, $ 0.5 million in asset impairments.

(6) SG&A expenses for the year ended December 31, 2019 includes the following:

segment, $ 25.2 million net gain on disposition of real estate and dealership transactions and $ 6.4 million of expenses related to catastrophic events mainly as a result of hail storms.

(7) Income (loss) before taxes for the year ended December 31, 2018 includes the SG&A expenses described in note 6 above and additionally includes the following:

segment, $ 43.4 million in asset impairments;

segment, $ 0.5 million in asset impairments.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

segment, $ 17.8 million in expenses related to flood damage from Tropical Storm Imelda and hailstorm damages primarily in Texas.

(7) Income (loss) before income taxes for the year ended December 31, 2019 includes the SG&A expenses described in note 6 above and additionally includes $ 14.7 million in asset impairments in the U.S.

December 31, 2021

Property and equipment, net $ 1,649.9 $ 308.0 $ 1,957.8

Operating lease assets $ 117.4 $ 89.6 $ 2.8 $ 209.9

Total assets $ 4,773.1 $ 963.3 $ 5,736.4

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2020

Property and equipment, net $ 1,303.1 $ 281.3 $ 1,584.4

Operating lease assets $ 114.8 $ 100.1 $ 5.2 $ 220.1

Total assets $ 3,946.2 $ 1,116.8 $ 5,062.9

1 unchanged sentence

Intangible Franchise Rights and Goodwill for further discussion of the Company’s intangible franchise rights and goodwill by segment.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth the Company’s unaudited quarterly financial data (in millions, except per share amounts) incorporating the impact of the discontinued operation described in Note 4.

Discontinued Operations and Other Divestitures:

First Second Third Fourth

Years Ended December 31,

Total revenues $ 2,953.9 $ 3,625.6 $ 3,412.8 $ 3,489.6

Gross profit $ 481.3 $ 649.5 $ 638.7 $ 671.2

Net income from continuing operations $ 100.9 $ 188.8 $ 172.5 $ 163.2

Net income (loss) from discontinued operations (1)

1.0 2.2 ( 0.4 ) ( 76.1 )

Net income $ 101.9 $ 191.0 $ 172.1 $ 87.1

Basic Earnings Per Share (2) :

Continuing operations $ 5.49 $ 10.28 $ 9.40 $ 9.08

Discontinued operations 0.06 0.12 ( 0.02 ) ( 4.23 )

Total $ 5.54 $ 10.40 $ 9.37 $ 4.85

Diluted Earnings Per Share (2) :

Continuing operations $ 5.47 $ 10.23 $ 9.35 $ 9.06

Discontinued operations 0.06 0.12 ( 0.02 ) ( 4.23 )

Total $ 5.52 $ 10.35 $ 9.33 $ 4.84

Total revenues $ 2,598.2 $ 2,094.6 $ 2,985.4 $ 2,922.0

Gross profit $ 405.8 $ 353.9 $ 503.3 $ 471.1

Net income from continuing operations $ 30.5 $ 41.6 $ 125.7 $ 98.8

Net (loss) income from discontinued operations ( 0.7 ) ( 11.5 ) 0.7 1.3

Net income $ 29.8 $ 30.2 $ 126.4 $ 100.1

Basic Earnings Per Share (2) :

Continuing operations $ 1.66 $ 2.26 $ 6.82 $ 5.38

Discontinued operations ( 0.04 ) ( 0.62 ) 0.04 0.07

Total $ 1.62 $ 1.64 $ 6.86 $ 5.45

Diluted Earnings Per Share (2) :

Continuing operations $ 1.65 $ 2.25 $ 6.80 $ 5.36

Discontinued operations ( 0.04 ) ( 0.62 ) 0.04 0.07

Total $ 1.61 $ 1.63 $ 6.83 $ 5.43

(1) During the fourth quarter of 2021, the Company recorded $ 77.5 million in asset impairments related to the Brazil Discontinued Operations.

(2) The sum of quarterly basic and diluted earnings per share from continuing and discontinued operations may not equal full year amounts as reported in the Consolidated Statements of Operations due to the calculation of weighted average common share equivalents on a quarterly basis.

Form 10-K Summary

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-K

Item 9A. Controls and Procedures