Item 1. Financial Statements
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
June 30, 2022 December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26.3 $ 14.9
Contracts-in-transit and vehicle receivables, net 223.2 218.9
Accounts and notes receivable, net 182.6 177.9
Inventories 1,125.5 1,073.1
Prepaid expenses 22.0 30.6
Other current assets 20.6 50.4
Current assets classified as held for sale 76.2 100.3
TOTAL CURRENT ASSETS 1,676.3 1,666.2
Property and equipment, net of accumulated depreciation of $ 536.9 and $ 513.5 , respectively
1,998.4 1,957.8
Operating lease assets 241.6 267.8
Goodwill 1,596.6 1,420.2
Intangible franchise rights 474.6 392.3
Other long-term assets 115.2 45.0
TOTAL ASSETS $ 6,102.8 $ 5,749.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Floorplan notes payable — credit facility and other, net of offset account of $ 77.9 and $ 268.6 , respectively
$ 576.0 $ 295.0
Floorplan notes payable — manufacturer affiliates, net of offset account of $ 5.5 and $ 3.3 , respectively
204.9 236.0
Current maturities of long-term debt 119.3 220.4
Current operating lease liabilities 24.1 25.9
Accounts payable 437.8 457.8
Accrued expenses and other current liabilities 261.7 258.6
Current liabilities classified as held for sale 58.7 49.9
TOTAL CURRENT LIABILITIES 1,682.4 1,543.6
Long-term debt 1,851.0 1,815.3
Long-term operating lease liabilities 230.4 256.6
Deferred income taxes 212.0 180.9
Other long-term liabilities 122.5 127.7
Commitments and Contingencies (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock, $ 0.01 par value, 50,000,000 shares authorized; 25,258,744 and 25,336,054 shares issued, respectively
0.3 0.3
Additional paid-in capital 331.8 325.8
Retained earnings 2,732.5 2,345.9
Accumulated other comprehensive income (loss) ( 128.3 ) ( 156.2 )
Treasury stock, at cost; 9,416,720 and 8,160,228 shares, respectively
( 931.8 ) ( 690.4 )
TOTAL STOCKHOLDERS’ EQUITY 2,004.5 1,825.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,102.8 $ 5,749.4
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
REVENUES:
New vehicle retail sales $ 1,851.3 $ 1,805.5 $ 3,596.4 $ 3,314.7
Used vehicle retail sales 1,505.4 1,183.8 2,865.3 2,071.9
Used vehicle wholesale sales 95.8 93.7 189.3 172.0
Parts and service sales 502.6 382.9 975.5 735.7
Finance, insurance and other, net 190.2 159.6 363.2 285.3
Total revenues 4,145.4 3,625.6 7,989.7 6,579.6
COST OF SALES:
New vehicle retail sales 1,641.0 1,645.4 3,184.9 3,059.0
Used vehicle retail sales 1,415.9 1,075.6 2,688.0 1,905.3
Used vehicle wholesale sales 95.1 84.8 185.7 159.3
Parts and service sales 224.9 170.3 438.0 325.3
Total cost of sales 3,377.0 2,976.1 6,496.6 5,448.8
GROSS PROFIT 768.4 649.5 1,493.1 1,130.7
Selling, general and administrative expenses 460.2 368.6 878.6 680.0
Depreciation and amortization expense 23.0 18.4 44.2 37.6
Asset impairments 0.8 — 0.8 —
INCOME FROM OPERATIONS 284.5 262.5 569.5 413.2
Floorplan interest expense 5.9 8.6 11.2 16.1
Other interest expense, net 18.5 13.6 35.9 26.7
INCOME BEFORE INCOME TAXES 260.1 240.3 522.4 370.3
Provision for income taxes 60.8 51.5 122.0 80.6
Net income from continuing operations 199.3 188.8 400.4 289.7
Net (loss) income from discontinued operations ( 3.4 ) 2.2 ( 1.6 ) 3.2
NET INCOME $ 195.9 $ 191.0 $ 398.9 $ 292.9
BASIC EARNINGS PER SHARE:
Continuing operations $ 12.15 $ 10.28 $ 23.96 $ 15.76
Discontinued operations ( 0.21 ) 0.12 ( 0.09 ) 0.17
Total $ 11.94 $ 10.40 $ 23.87 $ 15.94
DILUTED EARNINGS PER SHARE:
Continuing operations $ 12.11 $ 10.23 $ 23.88 $ 15.70
Discontinued operations ( 0.20 ) 0.12 ( 0.09 ) 0.17
Total $ 11.90 $ 10.35 $ 23.79 $ 15.88
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 16.0 17.7 16.2 17.8
Diluted 16.0 17.8 16.3 17.8
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
NET INCOME $ 195.9 $ 191.0 $ 398.9 $ 292.9
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment ( 27.8 ) 7.2 ( 28.1 ) 4.9
Net unrealized gain (loss) on interest rate risk management activities, net of tax:
Unrealized gain (loss) arising during the period, net of tax (provision) benefit of $( 5.8 ), $ 3.4 , $( 16.3 ) and $( 5.1 ), respectively
19.0 ( 11.1 ) 53.0 16.7
Reclassification adjustment for loss included in interest expense, net of tax benefit of $ 0.4 , $ 0.6 , $ 0.9 and $ 1.3 , respectively
1.2 1.9 3.0 4.2
Reclassification related to de-designated interest rate swaps, net of tax benefit of $ — , $ 0.7 , $ — and $ 0.7 , respectively
— 2.4 — 2.4
Unrealized gain (loss) on interest rate risk management activities, net of tax 20.1 ( 6.9 ) 56.0 23.3
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX ( 7.7 ) 0.3 28.0 28.1
COMPREHENSIVE INCOME $ 188.2 $ 191.2 $ 426.8 $ 321.0
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions, except share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, MARCH 31, 2022 25,266,915 $ 0.3 $ 324.2 $ 2,542.7 $ ( 120.6 ) $ ( 797.3 ) $ 1,949.2
Net income — — — 195.9 — — 195.9
Other comprehensive loss, net of taxes — — — — ( 7.7 ) — ( 7.7 )
Purchases of treasury stock — — — — — ( 138.9 ) ( 138.9 )
Net issuance of treasury shares to stock compensation plans ( 8,171 ) — 0.6 — — 4.4 5.0
Stock-based compensation — — 7.0 — — — 7.0
Dividends declared ($ 0.37 per share)
— — — ( 6.1 ) — — ( 6.1 )
BALANCE, JUNE 30, 2022 25,258,744 $ 0.3 $ 331.8 $ 2,732.5 $ ( 128.3 ) $ ( 931.8 ) $ 2,004.5
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, DECEMBER 31, 2021 25,336,054 $ 0.3 $ 325.8 $ 2,345.9 $ ( 156.2 ) $ ( 690.4 ) $ 1,825.2
Net income — — — 398.9 — — 398.9
Other comprehensive income, net of taxes — — — — 28.0 — 28.0
Purchases of treasury stock — — — — — ( 254.1 ) ( 254.1 )
Net issuance of treasury shares to stock compensation plans ( 77,310 ) — ( 9.0 ) — — 12.7 3.7
Stock-based compensation — — 15.0 — — — 15.0
Dividends declared ($ 0.73 per share)
— — — ( 12.2 ) — — ( 12.2 )
BALANCE, JUNE 30, 2022 25,258,744 $ 0.3 $ 331.8 $ 2,732.5 $ ( 128.3 ) $ ( 931.8 ) $ 2,004.5
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions, except share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, MARCH 31, 2021 25,367,736 $ 0.3 $ 305.7 $ 1,914.2 $ ( 156.2 ) $ ( 487.3 ) $ 1,576.6
Net income — — — 191.0 — — 191.0
Other comprehensive income, net of taxes — — — — 0.3 — 0.3
Purchases of treasury stock — — — — — ( 18.6 ) ( 18.6 )
Net issuance of treasury shares to stock compensation plans ( 10,059 ) — 1.1 — — 2.9 4.0
Stock-based compensation — — 6.8 — — — 6.8
Dividends declared ($ 0.33 per share)
— — — ( 6.0 ) — — ( 6.0 )
BALANCE, JUNE 30, 2021 25,357,677 $ 0.3 $ 313.6 $ 2,099.1 $ ( 155.9 ) $ ( 503.1 ) $ 1,754.0
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, DECEMBER 31, 2020 25,433,048 $ 0.3 $ 308.3 $ 1,817.9 $ ( 184.0 ) $ ( 492.8 ) $ 1,449.6
Net income — — — 292.9 — — 292.9
Other comprehensive income, net of taxes — — — — 28.1 — 28.1
Purchases of treasury stock — — — — — ( 18.6 ) ( 18.6 )
Net issuance of treasury shares to stock compensation plans ( 75,371 ) — ( 7.9 ) — — 8.4 0.5
Stock-based compensation — — 13.2 — — — 13.2
Dividends declared ($ 0.64 per share)
— — — ( 11.7 ) — — ( 11.7 )
BALANCE, JUNE 30, 2021 25,357,677 $ 0.3 $ 313.6 $ 2,099.1 $ ( 155.9 ) $ ( 503.1 ) $ 1,754.0
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Six Months Ended June 30,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 398.9 $ 292.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 45.1 38.3
Change in operating lease assets 15.6 11.8
Deferred income taxes 11.3 4.4
Asset impairments 7.1 —
Stock-based compensation 15.0 13.2
Amortization of debt discount and issuance costs 1.5 1.2
Gain on disposition of assets ( 24.6 ) ( 2.1 )
Unrealized loss on derivative instruments — 2.3
Other 2.5 0.3
Changes in assets and liabilities, net of acquisitions and dispositions:
Accounts payable and accrued expenses 10.1 28.9
Accounts and notes receivable ( 0.1 ) 3.7
Inventories ( 83.5 ) 444.4
Contracts-in-transit and vehicle receivables ( 7.2 ) ( 10.7 )
Prepaid expenses and other assets 10.8 ( 7.2 )
Floorplan notes payable — manufacturer affiliates
( 27.5 ) ( 56.6 )
Deferred revenues ( 0.1 ) ( 1.0 )
Operating lease liabilities ( 14.9 ) ( 11.8 )
Net cash provided by operating activities 360.2 752.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $ 2.4 and $ 5.3 , respectively
( 318.1 ) ( 49.9 )
Proceeds from disposition of franchises, property and equipment 96.2 19.8
Purchases of property and equipment ( 63.0 ) ( 63.8 )
Other ( 10.7 ) 0.1
Net cash used in investing activities ( 295.6 ) ( 93.8 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facility — floorplan line and other
5,307.0 4,207.3
Repayments on credit facility — floorplan line and other
( 5,022.9 ) ( 4,750.8 )
Borrowings on credit facility — acquisition line
268.0 60.4
Repayments on credit facility — acquisition line
( 346.3 ) ( 32.2 )
Debt issuance costs ( 4.0 ) —
Borrowings on other debt 223.2 89.9
Principal payments on other debt ( 206.3 ) ( 91.9 )
Proceeds from employee stock purchase plan 11.4 8.0
Payments of tax withholding for stock-based compensation ( 7.6 ) ( 7.5 )
Repurchases of common stock, amounts based on settlement date ( 254.1 ) ( 18.6 )
Dividends paid ( 12.1 ) ( 11.7 )
Net cash used in financing activities ( 43.9 ) ( 547.1 )
Effect of exchange rate changes on cash ( 2.7 ) 0.2
Net increase in cash and cash equivalents 18.0 111.4
CASH AND CASH EQUIVALENTS, beginning of period 18.7 87.3
CASH AND CASH EQUIVALENTS, end of period $ 36.7 $ 198.7
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND CONSOLIDATION AND ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements and notes thereto, have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Results for interim periods are not necessarily indicative of the results that can be expected for a full year and therefore should be read in conjunction with the Company’s audited Financial Statements and notes thereto included within the Company’s 2021 Form 10-K. All intercompany balances and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Financial Statements reflect the consolidated accounts of the parent company, Group 1 Automotive, Inc., and its subsidiaries, all of which are wholly owned.
On November 12, 2021, the Company entered into a Share Purchase Agreement (the “Brazil Agreement”) with Original Holdings S.A. (“Buyer”). Pursuant to the terms and conditions set forth in the Brazil Agreement, Buyer agreed to 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”). On July 1, 2022, the Company completed 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: U.S. and U.K. Refer to Note 5 . Segment Information for additional information on the Company’s segments.
Unless otherwise specified, disclosures in these Condensed Consolidated Financial Statements reflect continuing operations only. Certain prior-period amounts, primarily related to the Brazil Discontinued Operations, have been reclassified in the Condensed Consolidated Financial Statements and accompanying notes to conform to current-period presentation. Refer to Note 4. Discontinued Operations and Other Divestitures for additional information.
Certain amounts in the Condensed Consolidated Financial Statements and the accompanying notes may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented. These Condensed Consolidated Financial Statements reflect, in the opinion of management, all normal recurring adjustments necessary to fairly state, in all material respects, the Company’s financial position and results of operations for the periods presented.
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Management analyzes the Company’s estimates based on historical experience and other assumptions that are believed to be reasonable under the circumstances; however, actual results could differ materially from such estimates. The significant estimates made by management in the accompanying Condensed Consolidated Financial Statements include, but not limited to, inventory valuation adjustments, reserves for future chargebacks on finance, insurance and VSC 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.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
2 . REVENUES
The following tables present the Company’s revenues disaggregated by its geographical segments (in millions):
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
U.S. U.K. Total U.S. U.K. Total
New vehicle retail sales $ 1,561.7 $ 289.5 $ 1,851.3 $ 2,994.9 $ 601.6 $ 3,596.4
Used vehicle retail sales 1,197.6 307.8 1,505.4 2,235.5 629.8 2,865.3
Used vehicle wholesale sales 59.1 36.7 95.8 116.4 72.9 189.3
Total new and used vehicle sales 2,818.5 634.0 3,452.5 5,346.7 1,304.3 6,651.0
Parts and service sales (1)
445.6 57.1 502.6 854.0 121.5 975.5
Finance, insurance and other, net (2)
173.1 17.1 190.2 327.9 35.4 363.2
Total revenues $ 3,437.2 $ 708.2 $ 4,145.4 $ 6,528.5 $ 1,461.2 $ 7,989.7
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
U.S. U.K. Total U.S. U.K. Total
New vehicle retail sales $ 1,504.4 $ 301.2 $ 1,805.5 $ 2,750.4 $ 564.3 $ 3,314.7
Used vehicle retail sales 882.9 300.9 1,183.8 1,579.4 492.5 2,071.9
Used vehicle wholesale sales 61.2 32.5 93.7 111.6 60.4 172.0
Total new and used vehicle sales 2,448.4 634.6 3,083.0 4,441.4 1,117.2 5,558.6
Parts and service sales (1)
332.6 50.3 382.9 628.9 106.8 735.7
Finance, insurance and other, net (2)
143.9 15.7 159.6 259.0 26.3 285.3
Total revenues $ 2,924.9 $ 700.7 $ 3,625.6 $ 5,329.3 $ 1,250.3 $ 6,579.6
(1) The Company has elected not to disclose revenues related to remaining performance obligations on its maintenance and repair services as the duration of these contracts is less than one year.
(2) Includes variable consideration recognized of $ 6.8 million and $ 7.7 million during the three months ended June 30, 2022 and 2021, respectively, and $ 16.9 million and $ 13.7 million during the six months ended June 30, 2022 and 2021, respectively, relating to performance obligations satisfied in previous periods on the Compa ny’s retrospective commission income contracts. 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.
3. ACQUISITIONS
The Company accounts for business combinations under the acquisition method of accounting, under which the Company allocates the purchase price to the assets acquired and liabilities assumed based on an estimate of fair value.
Prime Acquisition
In November 2021, the Company completed the acquisition of the Prime Automotive Group (“Prime”), including 28 dealerships, certain real estate and three collision centers in the Northeastern U.S. (collectively referred to as the “Prime Acquisition”), for aggregate consideration of $ 934.2 million.
The Company analyzed and assessed all available information related to property and equipment and property lease contracts, determining the preliminary fair values were appropriate and no material adjustments were recorded. The Company previously recorded a $ 33.4 million deposit for the purchase of an additional dealership as part of the Prime Acquisition, which had not closed as of December 31, 2021. As of June 30, 2022, the Company is still waiting for distributor approval to obtain ownership of the additional dealership. Pursuant to the purchase agreement with the seller, the seller initiated legal action against the distributor to compel the approval of the sale of the dealership. In March 2022, upon the contractual release of funds from escrow to the seller related to the dealership, the deposit was recognized as additional consideration paid and reflected as additional goodwill, resulting in total consideration associated with the Prime Acquisition of $ 967.6 million. If such legal action is resolved within the 12-month measurement period following the acquisition date, the Company will make an adjustment to reflect the fair value of the acquisition of this dealership. The results of the Prime Acquisition are included in the U.S. segment. The goodwill is deductible for income tax purposes.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following table summarizes the consideration paid and aggregate amounts of assets acquired and liabilities assumed (in millions):
Total consideration $ 967.6
Identifiable assets acquired and liabilities assumed
Inventories 136.7
Property and equipment 267.1
Intangible franchise rights 135.3
Operating lease assets 58.3
Other assets (1)
62.2
Total assets acquired 659.6
Operating lease liabilities 56.6
Other liabilities (2)
38.3
Total liabilities assumed 94.9
Total identifiable net assets 564.7
Goodwill $ 402.9
(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.
Prime assets classified as held for sale as of the acquisition date (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 as of the acquisition date (in millions)
Operating lease liabilities $ 1.7
The Company’s Condensed Consolidated Statement of Operations included revenues attributable to Prime for the three and six months ended June 30, 2022, of $ 456.9 million and $ 871.0 million, respectively, and net income attributable to Prime for the three and six months ended June 30, 2022 of $ 27.2 million and $ 54.8 million, respectively. These revenue and net income amounts attributable to Prime include amounts up to the date of disposal, from certain stores which have been disposed of since the date of the Prime Acquisition.
Other Acquisitions
During the six months ended June 30, 2022, the Company acquired two Toyota dealerships in the U.S. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, was $ 319.0 million, consisting of cash paid of $ 318.2 million and a payable of $ 0.8 million. Goodwill and franchise rights intangibles associated with these acquisitions totaled $ 171.6 million and $ 84.3 million, respectively.
During the six months ended June 30, 2021, the Company acquired two Toyota dealerships in the U.S. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, was $ 49.9 million. Goodwill associated with these acquisitions totaled $ 22.6 million.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
4. DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
Brazil Discontinued Operations
On November 12, 2021, the Company entered into an agreement to effect the Brazil Disposal. The sale price of BRL 510.0 million includes a holdback amount, for general representations and warranties, of BRL 115.0 million or approximately $ 22.1 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. The Brazil Disposal closed on July 1, 2022.
During the fourth quarter of 2021, the Company recognized a net loss of $ 77.5 million on the Brazil Disposal. During the three and six months ended June 30, 2022, the Company recognized an additional net loss of $ 6.3 million on the disposal of the Brazil Disposal Group.
The following table summarizes the estimated fair value of the proceeds received from the disposition and net carrying value of the assets disposed as of June 30, 2022 (in millions):
Estimated fair value of proceeds from disposition $ 96.2
Estimated net assets disposed 48.8
Estimated gain before currency translation adjustments 47.4
Estimated amount of currency translation loss recorded in AOCI ( 122.8 )
Estimated incremental costs to sell 8.4
Net loss on the Brazil Disposal $ ( 83.8 )
Upon sale of a foreign entity, amounts recorded within Accumulated Other Comprehensive Income (loss) (“AOCI”) on the Condensed 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 $ 122.8 million attributable to the Brazil Disposal Group. The loss on sale indicates an impairment of assets, however, the loss was entirely the result of the reclassification of the non-cash currency translation adjustment from AOCI . For the six months ended June 30, 2022, the Company has presented a valuation allowance against the 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 of the Brazil Disposal 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. Any gains or losses associated with the foreign currency derivative are presented as estimated incremental costs to sell in the table above and are fully offset by corresponding foreign currency impacts to the estimated fair value of proceeds from the disposition. On June 30, 2022, the Company settled the foreign currency derivative for a loss of $ 8.4 million.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Results of the Brazil Discontinued Operations were as follows (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
REVENUES:
New vehicle retail sales $ 60.4 $ 49.8 $ 109.0 $ 83.9
Used vehicle retail sales 21.8 11.8 44.0 22.5
Used vehicle wholesale sales 4.8 2.6 10.1 4.6
Parts and service sales 13.1 9.2 23.8 17.1
Finance, insurance and other, net 1.8 1.4 3.3 2.8
Total revenues 101.9 74.8 190.2 130.9
COST OF SALES:
New vehicle retail sales 54.7 44.6 98.5 75.4
Used vehicle retail sales 20.6 10.9 41.2 20.4
Used vehicle wholesale sales 4.7 2.4 10.0 4.3
Parts and service sales 8.1 5.2 14.5 9.7
Total cost of sales 88.1 63.0 164.2 109.7
GROSS PROFIT 13.8 11.8 26.1 21.2
Selling, general and administrative expenses 10.6 8.1 19.3 15.2
Depreciation and amortization expense 0.5 0.4 0.9 0.7
Asset impairments 6.3 — 6.3 —
(LOSS) INCOME FROM OPERATIONS — DISCONTINUED ( 3.6 ) 3.3 ( 0.5 ) 5.3
Floorplan interest expense 0.7 0.2 1.4 0.2
Other interest (income) expense, net ( 0.3 ) 0.1 ( 0.4 ) 0.8
(LOSS) INCOME BEFORE INCOME TAXES — DISCONTINUED OPERATIONS ( 4.0 ) 3.0 ( 1.5 ) 4.3
(Benefit) provision for income taxes ( 0.6 ) 0.8 0.1 1.1
NET (LOSS) INCOME — DISCONTINUED OPERATIONS $ ( 3.4 ) $ 2.2 $ ( 1.6 ) $ 3.2
The following table presents cash flows from operating and investing activities for the Brazil Discontinued Operations (in millions):
Six Months Ended June 30,
2022 2021
Net cash provided by operating activities — discontinued operations $ 26.3 $ 9.2
Net cash used in investing activities — discontinued operations $ ( 8.7 ) $ ( 1.2 )
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Assets and liabilities of the Brazil Discontinued Operations were as follows (in millions):
June 30, 2022 December 31, 2021
Cash and cash equivalents $ 10.4 $ 3.7
Contracts-in-transit and vehicle receivables, net 5.0 2.3
Accounts and notes receivable, net 10.0 11.8
Inventories 32.4 37.2
Prepaid expenses 1.4 1.9
Current assets of discontinued operations 59.2 56.9
Property and equipment, net 23.3 22.3
Operating lease assets 2.1 2.4
Other long-term assets 8.8 7.8
Non-current assets of discontinued operations (1)
34.2 32.5
Total assets, before valuation allowance 93.4 89.5
Valuation allowance ( 75.4 ) ( 76.4 )
Total assets, net of valuation allowance (1)
$ 18.0 $ 13.0
Floorplan notes payable — credit facility and other $ 0.8 $ 3.3
Floorplan notes payable — manufacturer affiliates 13.7 20.1
Current operating lease liabilities 2.1 2.5
Accounts payable 19.5 13.7
Accrued expenses and other current liabilities 7.6 8.7
Current liabilities of discontinued operations $ 43.8 $ 48.3
(1) The assets of the Brazil Discontinued Operations are classified as current assets in the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively, as the Brazil Disposal was expected to close in less than twelve months.
Assets and Liabilities Held for Sale
Assets and liabilities classified as held for sale consisted of the following (in millions):
June 30, 2022 December 31, 2021
Current assets classified as held for sale
Brazil Discontinued Operations $ 18.0 $ 13.0
Prime Acquisition (1)
29.7 52.3
Other (2)
28.5 34.9
Total current assets classified as held for sale $ 76.2 $ 100.3
Current liabilities classified as held for sale
Brazil Discontinued Operations $ 43.8 $ 48.3
Prime Acquisition (1)
1.3 1.6
Other 13.6 —
Total current liabilities classified as held for sale $ 58.7 $ 49.9
(1) For additional details on current assets and current liabilities classified as held for sale in connection with the Prime Acquisition as of the acquisition date, refer to Note 3. Acquisitions.
(2) Includes $ 19.3 million and $ 9.9 million of goodwill reclassified to assets held for sale as of June 30, 2022 and December 31, 2021, respectively.
Other Divestitures
The Company’s dispositions generally consist of dealership assets and related real estate. Gains and losses on dispositions are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
During the six months ended June 30, 2022, the Company recorded a net pre-tax gain totaling $ 24.1 million related to the disposition of four dealerships representing four franchises in the U.S. The dispositions reduced goodwill by $ 24.1 million.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
During the six months ended June 30, 2021, the Company recorded a net pre-tax gain totaling $ 1.8 million related to the disposition of two dealerships representing two franchises and one franchise within an existing dealership in the U.S. The dispositions reduced goodwill by $ 2.2 million. The Company also terminated one franchise representing one dealership in the U.K.
5. SEGMENT INFORMATION
As of June 30, 2022, the Company had two reportable segments: the U.S. and the U.K. The Company defines its segments as those operations whose results the Company’s Chief Executive Officer, who is the chief operating decision maker, regularly reviews to analyze performance and allocate resources. Each segment is comprised of retail automotive franchises that sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts.
Selected reportable segment data is as follows for the three and six months ended June 30, 2022 and 2021 (in millions):
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
U.S. U.K. Total U.S. U.K. Total
Total revenues $ 3,437.2 $ 708.2 $ 4,145.4 $ 6,528.5 $ 1,461.2 $ 7,989.7
Income before income taxes $ 241.7 $ 18.4 $ 260.1 $ 472.3 $ 50.1 $ 522.4
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
U.S. U.K. Total U.S. U.K. Total
Total revenues $ 2,924.9 $ 700.7 $ 3,625.6 $ 5,329.3 $ 1,250.3 $ 6,579.6
Income before income taxes $ 215.1 $ 25.2 $ 240.3 $ 336.6 $ 33.6 $ 370.3
6. EARNINGS PER SHARE
The two-class method is utilized for the computation of the Company’s EPS. The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends that are paid in cash. The Company’s RSAs are participating securities. Income allocated to these participating securities is excluded from net earnings available to common shares, as shown in the table below. Basic EPS is computed by dividing net income available to basic common shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net income available to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following table sets forth the calculation of EPS on total net income for the three and six months ended June 30, 2022 and 2021 (in millions, except share and per share data):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Weighted average basic common shares outstanding 15,956,258 17,747,518 16,241,221 17,752,577
Dilutive effect of stock-based awards and employee stock purchases 56,024 81,952 56,143 74,217
Weighted average dilutive common shares outstanding 16,012,282 17,829,470 16,297,364 17,826,794
Basic:
Net income $ 195.9 $ 191.0 $ 398.9 $ 292.9
Less: Earnings allocated to participating securities from continued operations 5.5 6.4 11.3 9.8
Less: (Loss) earnings allocated to participating securities from discontinued operations ( 0.1 ) 0.1 — 0.1
Net income available to basic common shares $ 190.6 $ 184.5 $ 387.6 $ 283.0
Basic earnings per common share $ 11.94 $ 10.40 $ 23.87 $ 15.94
Diluted:
Net income $ 195.9 $ 191.0 $ 398.9 $ 292.9
Less: Earnings allocated to participating securities from continued operations 5.4 6.3 11.3 9.8
Less: (Loss) earnings allocated to participating securities from discontinued operations ( 0.1 ) 0.1 — 0.1
Net income available to diluted common shares $ 190.6 $ 184.5 $ 387.6 $ 283.0
Diluted earnings per common share $ 11.90 $ 10.35 $ 23.79 $ 15.88
7. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the most advantageous market in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
• Level 1 — Quoted prices for identical assets or liabilities in active markets.
• Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivable, Accounts Payable, Variable Rate Long-Term Debt and Floorplan Notes Payable
The fair values of these financial instruments approximate their carrying values due to the short-term nature of the instruments and/or the existence of variable interest rates.
Fixed Rate Long-Term Debt
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 9. Debt for further discussion of the Company’s long-term debt arrangements.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The carrying value and fair value of the Company’s 4.00 % Senior Notes and fixed rate mortgages were as follows (in millions):
June 30, 2022 December 31, 2021
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
4.00 % Senior Notes
$ 750.0 $ 638.3 $ 750.0 $ 748.4
Real estate related 103.3 96.1 81.3 78.7
Total $ 853.3 $ 734.4 $ 831.3 $ 827.1
(1) Carrying value excludes unamortized debt issuance costs.
Derivative Financial Instruments
The Company holds its interest rate swaps to hedge against variability of interest payments indexed to SOFR. The Company’s interest rate swaps are measured at fair value utilizing a 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 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 Condensed Consolidated Balance Sheets, were as follows (in millions):
June 30, 2022 December 31, 2021
Assets:
Other current assets $ 0.1 $ —
Other long-term assets 75.7 13.8
Total assets $ 75.8 $ 13.8
Liabilities:
Accrued expenses and other current liabilities $ — $ 0.1
Other long-term liabilities — 11.1
Total liabilities $ — $ 11.2
Interest rate swaps designated as cash flow hedges and the related gains or losses are deferred in stockholders’ equity as a component of AOCI 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 AOCI into income as Floorplan interest expense .
As of June 30, 2022, the Company held 41 interest rate swaps designated as cash flow hedges with a total notional value of $ 955.8 million that fixed its underlying SOFR at a weighted average rate of 1.23 % . The Company also held 2 additional interest rate swaps designated as cash flow hedges with forward start dates beginning in December 2023, that had an aggregate notional value of $ 100.0 million and a weighted average interest rate of 0.94 % as of June 30, 2022 . The maturity dates of the Company’s designated interest rate swaps with forward start dates range between December 2027 and December 2028.
As of June 30, 2021, the Company held 34 interest rate swaps designated as cash flow hedges with a total notional value of $ 700.4 million that fixed the underlying one-month LIBOR at a weighted average rate of 1.38 %.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following tables present the impact of the Company’s interest rate swaps designated as cash flow hedges (in millions):
Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)
Three Months Ended June 30, Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationship 2022 2021 2022 2021
Interest rate swaps $ 19.0 $ ( 11.1 ) $ 53.0 $ 16.7
Amount of Loss Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Statement of Operations Classification Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Floorplan interest expense $ ( 0.9 ) $ ( 1.4 ) $ ( 2.1 ) $ ( 3.7 )
Other interest expense, net $ ( 0.7 ) $ ( 1.0 ) $ ( 1.8 ) $ ( 1.9 )
The amount of gain expected to be reclassified out of AOCI into earnings as an offset to Floorplan interest expense or Other interest expense, net in the next twelve months is $ 15.0 million .
8. RECEIVABLES, NET AND CONTRACT ASSETS
The Company’s receivables, net and contract assets consisted of the following (in millions):
June 30, 2022 December 31, 2021
Contracts-in-transit and vehicle receivables, net:
Contracts-in-transit $ 138.3 $ 143.8
Vehicle receivables 85.6 75.6
Total contracts-in-transit and vehicle receivables 223.9 219.4
Less: allowance for doubtful accounts 0.7 0.5
Total contracts-in-transit and vehicle receivables, net $ 223.2 $ 218.9
Accounts and notes receivable, net:
Manufacturer receivables $ 79.5 $ 76.9
Parts and service receivables 65.4 58.6
F&I receivables 29.8 29.8
Other 13.4 17.0
Total accounts and notes receivable 188.1 182.2
Less: allowance for doubtful accounts 5.5 4.3
Total accounts and notes receivable, net $ 182.6 $ 177.9
Within Other current assets and Other long-term assets:
Total contract assets (1)
$ 43.7 $ 37.5
(1) No allowance for doubtful accounts was recorded for contract assets as of June 30, 2022 or December 31, 2021.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
9. DEBT
Debt consisted of the following (in millions):
June 30, 2022 December 31, 2021
4.00 % Senior Notes due August 15, 2028
$ 750.0 $ 750.0
Acquisition Line 248.2 329.3
Other Debt:
Real estate related 792.4 627.7
Finance leases 179.4 172.7
Other 11.2 166.9
Total other debt 983.0 967.4
Total debt 1,981.3 2,046.7
Less: unamortized debt issuance costs 10.9 11.0
Less: current maturities 119.3 220.4
Total long-term debt $ 1,851.0 $ 1,815.3
Acquisition Line
The proceeds of the Acquisition Line (as defined in Note 10. Floorplan Notes Payable) are used for working capital, general corporate and acquisition purposes. As of June 30, 2022, borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as defined in Note 10. Floorplan Notes Payable), totaled $ 248.2 million . The average interest rate on this facility was 1.75 % during the three months ended June 30, 2022.
Real Estate Related
The Company has mortgage loans in the U.S. and the U.K. that are paid in installments. As of June 30, 2022, borrowings ou tstanding under these facilities totaled $ 792.4 million, gross of debt issuance costs, comprised of $ 692.1 million in the U.S. and $ 100.3 million in the U.K.
Bridge Facility
In connection with the Prime Acquisition, the Company entered into a commitment letter with Wells Fargo Bank (“Bridge Facility”) to provide a portion of the debt financing. As of December 31, 2021, borrowings outstanding under the Bridge Facility totaled $ 140.0 million. During the three months ended March 31, 2022, the Company paid off the total outstanding borrowings under the Bridge Facility of $ 140.0 million.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
10. FLOORPLAN NOTES PAYABLE
The Company’s floorplan notes payable consisted of the following (in millions):
June 30, 2022 December 31, 2021
Revolving Credit Facility — floorplan notes payable $ 607.9 $ 511.7
Revolving Credit Facility — floorplan notes payable offset account ( 77.9 ) ( 268.6 )
Revolving Credit Facility — floorplan notes payable, net 529.9 243.1
Other non-manufacturer facilities 46.1 51.9
Floorplan notes payable — credit facility and other, net $ 576.0 $ 295.0
FMCC Facility $ 25.1 $ 22.8
FMCC Facility offset account ( 5.5 ) ( 3.3 )
FMCC Facility, net 19.6 19.5
Other manufacturer affiliate facilities 185.3 216.5
Floorplan notes payable — manufacturer affiliates, net $ 204.9 $ 236.0
Floorplan Notes Payable — Credit Facility
Revolving Credit Facility
On March 9, 2022, in the U.S., the Company entered into an amended revolving syndicated credit arrangement with 21 participating financial institutions that matures on March 9, 2027 (“Revolving Credit Facility”). In addition to extending the term, the amendment increases the availability to $ 2.0 billion, with the ability to increase to $ 2.4 billion, as further described below. The Revolving Credit Facility consists of two tranches: (i) a $ 1.5 billion maximum capacity tranche for U.S. vehicle inventory floorplan financing (“U.S. Floorplan Line”) which the outstanding balance, net of offset account discussed below, is reported in Floorplan notes payable — credit facility and other, net ; and (ii) a $ 500.0 million maximum capacity and $ 50.0 million minimum capacity tranche (“Acquisition Line”), which is not due until maturity of the Revolving Credit Facility and is therefore classified in Long-term debt on the Condensed Consolidated Balance Sheets — refer to Note 9. Debt for additional discussion. The capacity under these two tranches can be re-designated within the overall $ 2.0 billion commitment. Th e Acquisition Line includes a $ 100.0 million sub-limit for letters of credit. The Company had $ 12.6 million in letters of credit outstanding as of both June 30, 2022 and December 31, 2021.
The U.S. Floorplan Line bears interest at rates equal to SOFR plus 120 basis points for new vehicle inventory and SOFR plus 150 basis points for used vehicle inventory. The weighted average interest rate on the U.S. Floorplan Line was 2.81 % as of June 30, 2022, excluding the impact of the Company’s interest rate swap derivative instruments. The Acquisition Line bears interest at SOFR or a SOFR equivalent plus 110 to 210 basis points , depending on the Company’s total adjusted leverage ratio, on borrowings in USD, Euros or GBP. The U.S. Floorplan Line requires a commitment fee of 0.15 % per annum on the unused portion. Amounts borrowed by the Company under the U.S. Floorplan Line for specific vehicle inventory are to be repaid upon the sale of the vehicle financed and in no case is a borrowing for a vehicle to remain outstanding for greater than one year. The Acquisition Line requires a commitment fee ranging fr om 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 wit h the amended Revolving Credit Facility described above, the Company incurred $ 3.4 million in additional debt issuance costs. The Company had $ 5.3 million and $ 2.6 million of related unamortized debt issuance costs as of June 30, 2022 and December 31, 2021, respectively, which are included in Prepaid expenses and Other long-term assets in the Company’s Condensed Consolidated Balance Sheets and amortized over the term of the facility.
Floorplan Notes Payable — Manufacturer Affiliates
FMCC Facility
The Company has a $ 300.0 million floorplan arrangement with FMCC for financing of new Ford vehicles in the U.S. (the “FMCC Facility”). This facility bears interest at the higher of the actual U.S. Prime rate or a Prime floor of 4.00 % , plus 150 basis points minus certain incentives. The interest rate on the FMCC Facility was 4.75 % before considering the applicable incentives as of June 30, 2022.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Other Manufacturer Facilities
The Company has other credit facilities in the U.S. and the U.K. with financial institutions affiliated with manufacturers for financing of new, used and rental vehicle inventories. As of June 30, 2022, borrowings outstanding under these facilities totaled $ 185.3 million , comprised of $ 100.0 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 5 % , and $ 85.3 million in the U.K., with annual interest rates ranging from approximately 2 % to 5 % .
Offset Accounts
Offset accounts consist of immediately available cash used to pay down the U.S. Floorplan Line and FMCC Facility, and therefore offset the respective outstanding balances in the Company’s Condensed Consolidated Balance Sheets. The offset accounts are the Company’s primary options for the short-term investment of excess cash.
11. CASH FLOW INFORMATION
Non-Cash Activities
The accrual for capital expenditures increased $ 0.1 million an d $ 1.4 million during the six months ended June 30, 2022 and 2021, respectively.
Interest and Income Taxes Paid
Cash paid for interest, including the monthly settlement of the Company’s interest rate swaps, was $ 42.8 million and $ 37.6 million for the six months ended June 30, 2022 and 2021, 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 $ 99.2 million and $ 52.7 million for the six months ended June 30, 2022 and 2021, respectively.
12. COMMITMENTS AND CONTINGENCIES
From time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, claims involving the manufacturers of automobiles, contractual disputes and other matters arising in the ordinary course of business. The Company may be involved in legal proceedings or suffer losses that could have a material adverse effect on the Company’s results of operations, financial condition or cash flows. In the normal course of business, the Company is required to respond to customer, employee and other third-party complaints. In addition, the manufacturers of the vehicles that the Company sells and services have audit rights allowing them to review the validity of amounts claimed for incentive, rebate or warranty-related items and charge the Company back for amounts determined to be invalid payments under the manufacturers’ programs, subject to the Company’s right to appeal any such decision.
Legal Proceedings
As of June 30, 2022, the Company was not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of current or future matters cannot be predicted with certainty; an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
Other Matters
From time to time, the Company sells its dealerships to third parties. In those instances where the Company did not own the real estate and was a tenant, it assigned the lease to the purchaser but remained liable as a guarantor for the remaining lease payments in the event of non-payment by the purchaser. Although the Company has no reason to believe that it will be called upon to perform under any such assigned leases, the Company estimates that lessee remaining rental obligations were $ 22.4 million as of June 30, 2022. In certain instances, the Company obtains collateral support for the rental obligations that the Company remains obligated for upon sale of a dealership to a lessee. Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 3.3 million as of June 30, 2022.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in the balances of each component of Accumulated other comprehensive income (loss) were as follows (in millions):
Six Months Ended June 30, 2022
Accumulated Income (Loss) On Foreign Currency Translation Accumulated Income (Loss) On Interest Rate Swaps Total
Balance, December 31, 2021 $ ( 158.2 ) $ 2.0 $ ( 156.2 )
Other comprehensive income (loss) before reclassifications:
Pre-tax ( 28.1 ) 69.3 41.2
Tax effect — ( 16.3 ) ( 16.3 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 2.1 2.1
Other interest expense, net (pre-tax) — 1.8 1.8
Benefit for income taxes — ( 0.9 ) ( 0.9 )
Net current period other comprehensive (loss) income ( 28.1 ) 56.0 28.0
Balance, June 30, 2022 $ ( 186.3 ) $ 58.0 $ ( 128.3 )
Six Months Ended June 30, 2021
Accumulated Income (Loss) On Foreign Currency Translation Accumulated Income (Loss) On Interest Rate Swaps Total
Balance, December 31, 2020 $ ( 151.6 ) $ ( 32.5 ) $ ( 184.0 )
Other comprehensive income (loss) before reclassifications:
Pre-tax 4.9 21.8 26.6
Tax effect — ( 5.1 ) ( 5.1 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 3.7 3.7
Other interest expense (pre-tax) — 1.9 1.9
Reclassification related to de-designated interest rate swaps (pre-tax) — 3.1 3.1
Benefit for income taxes — ( 2.0 ) ( 2.0 )
Net current period other comprehensive income 4.9 23.3 28.1
Balance, June 30, 2021 $ ( 146.7 ) $ ( 9.2 ) $ ( 155.9 )
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.