Item 1. Financial Statements
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
September 30, 2022 December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20.5 $ 14.9
Contracts-in-transit and vehicle receivables, net 222.2 218.9
Accounts and notes receivable, net 184.4 177.9
Inventories 1,185.6 1,073.1
Prepaid expenses 24.8 30.6
Other current assets 18.9 50.4
Current assets classified as held for sale 38.6 100.3
TOTAL CURRENT ASSETS 1,695.1 1,666.2
Property and equipment, net of accumulated depreciation of $ 534.4 and $ 513.5 , respectively
2,037.6 1,957.8
Operating lease assets 246.9 267.8
Goodwill 1,612.2 1,420.2
Intangible franchise rights 482.1 392.3
Other long-term assets 177.6 45.0
TOTAL ASSETS $ 6,251.5 $ 5,749.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Floorplan notes payable — credit facility and other, net of offset account of $ 206.1 and $ 268.6 , respectively
$ 542.0 $ 295.0
Floorplan notes payable — manufacturer affiliates, net of offset account of $ 12.4 and $ 3.3 , respectively
203.9 236.0
Current maturities of long-term debt 141.5 220.4
Current operating lease liabilities 22.8 25.9
Accounts payable 468.0 457.8
Accrued expenses and other current liabilities 263.7 258.6
Current liabilities classified as held for sale 5.2 49.9
TOTAL CURRENT LIABILITIES 1,647.1 1,543.6
Long-term debt 1,800.9 1,815.3
Long-term operating lease liabilities 236.5 256.6
Deferred income taxes 227.7 180.9
Other long-term liabilities 125.2 127.7
Commitments and Contingencies (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock, $ 0.01 par value, 50,000,000 shares authorized; 25,239,507 and 25,336,054 shares issued, respectively
0.3 0.3
Additional paid-in capital 336.8 325.8
Retained earnings 2,922.3 2,345.9
Accumulated other comprehensive income (loss) ( 4.7 ) ( 156.2 )
Treasury stock, at cost; 10,020,687 and 8,160,228 shares, respectively
( 1,040.5 ) ( 690.4 )
TOTAL STOCKHOLDERS’ EQUITY 2,214.1 1,825.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,251.5 $ 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
REVENUES:
New vehicle retail sales $ 1,883.3 $ 1,513.9 $ 5,479.8 $ 4,828.6
Used vehicle retail sales 1,488.6 1,230.4 4,353.9 3,302.3
Used vehicle wholesale sales 89.6 106.0 278.9 278.0
Parts and service sales 515.6 416.5 1,491.1 1,152.2
Finance, insurance and other, net 186.3 146.0 549.5 431.3
Total revenues 4,163.4 3,412.8 12,153.1 9,992.3
COST OF SALES:
New vehicle retail sales 1,676.7 1,352.4 4,861.6 4,411.4
Used vehicle retail sales 1,412.6 1,133.3 4,100.6 3,038.6
Used vehicle wholesale sales 91.1 98.7 276.8 257.9
Parts and service sales 230.5 189.7 668.5 515.0
Total cost of sales 3,410.8 2,774.1 9,907.4 8,222.9
GROSS PROFIT 752.6 638.7 2,245.8 1,769.5
Selling, general and administrative expenses 450.9 376.3 1,329.6 1,056.2
Depreciation and amortization expense 21.8 19.2 65.9 56.8
Asset impairments — 1.7 0.8 1.7
INCOME FROM OPERATIONS 279.9 241.5 849.4 654.7
Floorplan interest expense 6.5 4.3 17.7 20.5
Other interest expense, net 19.6 13.1 55.5 39.8
Other income ( 3.4 ) — ( 3.4 ) —
INCOME BEFORE INCOME TAXES 257.2 224.1 779.6 594.4
Provision for income taxes 60.2 51.6 182.1 132.2
Net income from continuing operations 197.1 172.5 597.5 462.2
Net (loss) income from discontinued operations ( 1.3 ) ( 0.4 ) ( 2.9 ) 2.8
NET INCOME $ 195.7 $ 172.1 $ 594.6 $ 465.0
BASIC EARNINGS PER SHARE:
Continuing operations $ 12.61 $ 9.40 $ 36.55 $ 25.16
Discontinued operations ( 0.09 ) ( 0.02 ) ( 0.18 ) 0.15
Total $ 12.53 $ 9.37 $ 36.38 $ 25.31
DILUTED EARNINGS PER SHARE:
Continuing operations $ 12.57 $ 9.35 $ 36.43 $ 25.05
Discontinued operations ( 0.09 ) ( 0.02 ) ( 0.18 ) 0.15
Total $ 12.48 $ 9.33 $ 36.25 $ 25.21
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 15.2 17.8 15.9 17.8
Diluted 15.2 17.8 15.9 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
NET INCOME $ 195.7 $ 172.1 $ 594.6 $ 465.0
Other comprehensive income (loss), net of taxes:
Net foreign currency translation adjustments:
Unrealized foreign currency translation adjustments ( 31.2 ) ( 11.5 ) ( 59.3 ) ( 6.7 )
Reclassification of cumulative foreign currency translation adjustments associated with the Brazil Disposal 122.8 — 122.8 —
Reclassification of other cumulative foreign currency translation adjustments 1.5 — 1.5 —
Foreign currency translation adjustments, net of reclassifications 93.1 ( 11.5 ) 65.1 ( 6.7 )
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 $( 9.8 ), $ 0.2 , $( 26.1 ) and $( 4.9 ), respectively
31.9 ( 0.6 ) 84.8 16.1
Reclassification adjustment for (gain) loss included in interest expense, net of tax (provision) benefit of $( 0.4 ), $ 0.6 , $ 0.5 and $ 1.9 , respectively
( 1.4 ) 1.8 1.6 6.1
Reclassification related to de-designated interest rate swaps, net of tax benefit of $ — , $ — , $ — and $ 0.7 , respectively
— — — 2.4
Unrealized gain on interest rate risk management activities, net of tax 30.4 1.3 86.4 24.5
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX 123.5 ( 10.2 ) 151.5 17.9
COMPREHENSIVE INCOME $ 319.3 $ 161.9 $ 746.1 $ 482.9
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 and per share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, JUNE 30, 2022 25,258,744 $ 0.3 $ 331.8 $ 2,732.5 $ ( 128.3 ) $ ( 931.8 ) $ 2,004.5
Net income — — — 195.7 — — 195.7
Other comprehensive income, net of taxes — — — — 123.5 — 123.5
Purchases of treasury stock — — — — — ( 105.4 ) ( 105.4 )
Net issuance of treasury shares to stock compensation plans and other ( 19,237 ) — ( 1.2 ) — — ( 3.3 ) ( 4.5 )
Stock-based compensation — — 6.2 — — — 6.2
Dividends declared ($ 0.38 per share)
— — — ( 6.0 ) — — ( 6.0 )
BALANCE, SEPTEMBER 30, 2022 25,239,507 $ 0.3 $ 336.8 $ 2,922.3 $ ( 4.7 ) $ ( 1,040.5 ) $ 2,214.1
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 — — — 594.6 — — 594.6
Other comprehensive income, net of taxes — — — — 151.5 — 151.5
Purchases of treasury stock — — — — — ( 359.5 ) ( 359.5 )
Net issuance of treasury shares to stock compensation plans and other ( 96,547 ) — ( 10.2 ) — — 9.4 ( 0.8 )
Stock-based compensation — — 21.2 — — — 21.2
Dividends declared ($ 1.11 per share)
— — — ( 18.2 ) — — ( 18.2 )
BALANCE, SEPTEMBER 30, 2022 25,239,507 $ 0.3 $ 336.8 $ 2,922.3 $ ( 4.7 ) $ ( 1,040.5 ) $ 2,214.1
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 and per share data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, JUNE 30, 2021 25,357,677 $ 0.3 $ 313.6 $ 2,099.1 $ ( 155.9 ) $ ( 503.1 ) $ 1,754.0
Net income — — — 172.1 — — 172.1
Other comprehensive loss, net of taxes — — — — ( 10.2 ) — ( 10.2 )
Net issuance of treasury shares to stock compensation plans ( 14,621 ) — 0.8 — — 2.3 3.2
Stock-based compensation — — 5.7 — — — 5.7
Dividends declared ($ 0.34 per share)
— — — ( 6.3 ) — — ( 6.3 )
BALANCE, SEPTEMBER 30, 2021 25,343,056 $ 0.3 $ 320.2 $ 2,265.0 $ ( 166.1 ) $ ( 500.8 ) $ 1,918.6
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, DECEMBER 31, 2020 25,433,048 $ 0.3 $ 308.3 $ 1,817.9 $ ( 184.0 ) $ ( 492.8 ) $ 1,449.6
Net income — — — 465.0 — — 465.0
Other comprehensive income, net of taxes — — — — 17.9 — 17.9
Purchases of treasury stock — — — — — ( 18.6 ) ( 18.6 )
Net issuance of treasury shares to stock compensation plans ( 89,992 ) — ( 7.1 ) — — 10.7 3.6
Stock-based compensation — — 19.0 — — — 19.0
Dividends declared ($ 0.98 per share)
— — — ( 17.9 ) — — ( 17.9 )
BALANCE, SEPTEMBER 30, 2021 25,343,056 $ 0.3 $ 320.2 $ 2,265.0 $ ( 166.1 ) $ ( 500.8 ) $ 1,918.6
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
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GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended September 30,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 594.6 $ 465.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 66.9 57.9
Change in operating lease assets 22.6 18.1
Deferred income taxes 17.4 7.7
Asset impairments 7.1 1.7
Stock-based compensation 21.2 19.0
Amortization of debt discount and issuance costs 2.3 1.8
Gain on disposition of assets ( 40.8 ) ( 2.1 )
Loss on extinguishment of debt — 3.8
Unrealized loss on derivative instruments — 1.4
Other 1.3 2.0
Changes in assets and liabilities, net of acquisitions and dispositions:
Accounts payable and accrued expenses 51.0 ( 21.6 )
Accounts and notes receivable ( 7.3 ) 19.2
Inventories ( 156.6 ) 643.0
Contracts-in-transit and vehicle receivables ( 6.6 ) 43.1
Prepaid expenses and other assets 6.4 ( 10.0 )
Floorplan notes payable — manufacturer affiliates
( 23.9 ) ( 112.5 )
Deferred revenues ( 0.3 ) ( 1.1 )
Operating lease liabilities ( 21.9 ) ( 18.9 )
Net cash provided by operating activities 533.4 1,117.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $ 7.7 and $ 5.3 , respectively
( 424.2 ) ( 74.6 )
Proceeds from disposition of franchises, property and equipment 132.6 19.8
Purchases of property and equipment ( 93.3 ) ( 88.4 )
Proceeds from sale of discontinued operations, net 59.4 —
Other ( 0.5 ) ( 20.4 )
Net cash used in investing activities ( 325.9 ) ( 163.5 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facility — floorplan line and other
7,548.3 5,796.1
Repayments on credit facility — floorplan line and other
( 7,294.2 ) ( 6,479.2 )
Borrowings on credit facility — acquisition line
286.0 67.3
Repayments on credit facility — acquisition line
( 411.3 ) ( 59.9 )
Debt issuance costs ( 4.6 ) —
Borrowings on other debt 296.0 110.0
Principal payments on other debt ( 246.5 ) ( 143.7 )
Proceeds from employee stock purchase plan 15.9 11.9
Payments of tax withholding for stock-based compensation ( 9.1 ) ( 8.3 )
Repurchases of common stock, amounts based on settlement date ( 359.5 ) ( 18.6 )
Dividends paid ( 18.1 ) ( 17.9 )
Other ( 1.2 ) —
Net cash used in financing activities ( 198.4 ) ( 742.2 )
Effect of exchange rate changes on cash ( 7.2 ) ( 2.1 )
Net increase in cash and cash equivalents 1.9 209.7
CASH AND CASH EQUIVALENTS, beginning of period 18.7 87.3
CASH AND CASH EQUIVALENTS, end of period $ 20.5 $ 296.9
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. (the “Company”), 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 September 30, 2022 Nine Months Ended September 30, 2022
U.S. U.K. Total U.S. U.K. Total
New vehicle retail sales $ 1,586.9 $ 296.4 $ 1,883.3 $ 4,581.8 $ 898.0 $ 5,479.8
Used vehicle retail sales 1,212.1 276.5 1,488.6 3,447.6 906.3 4,353.9
Used vehicle wholesale sales 61.3 28.3 89.6 177.6 101.2 278.9
Total new and used vehicle sales 2,860.3 601.2 3,461.5 8,207.0 1,905.5 10,112.5
Parts and service sales (1)
453.8 61.8 515.6 1,307.7 183.4 1,491.1
Finance, insurance and other, net (2)
170.2 16.1 186.3 498.1 51.4 549.5
Total revenues $ 3,484.3 $ 679.1 $ 4,163.4 $ 10,012.8 $ 2,140.3 $ 12,153.1
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
U.S. U.K. Total U.S. U.K. Total
New vehicle retail sales $ 1,208.5 $ 305.4 $ 1,513.9 $ 3,958.9 $ 869.7 $ 4,828.6
Used vehicle retail sales 902.3 328.0 1,230.4 2,481.7 820.5 3,302.3
Used vehicle wholesale sales 68.0 38.1 106.0 179.6 98.4 278.0
Total new and used vehicle sales 2,178.8 671.5 2,850.3 6,620.2 1,788.7 8,408.9
Parts and service sales (1)
353.1 63.4 416.5 982.0 170.2 1,152.2
Finance, insurance and other, net (2)
130.5 15.6 146.0 389.4 41.9 431.3
Total revenues $ 2,662.4 $ 750.4 $ 3,412.8 $ 7,991.6 $ 2,000.7 $ 9,992.3
(1) The Company has elected not to disclose revenues related to remaining performance obligations on its maintenance and repair services as the duration of these contracts is less than one year.
(2) Includes variable consideration recognized of $ 5.3 million and $ 5.1 million during the three months ended September 30, 2022 and 2021, respectively, and $ 22.2 million and $ 18.7 million during the nine months ended September 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 established in 2021,were appropriate and no material adjustments were recorded to these fair values in the nine months ended September 30, 2022. 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 September 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 266.8
Intangible franchise rights 135.3
Operating lease assets 58.3
Other assets (1)
62.2
Total assets acquired 659.3
Operating lease liabilities 56.6
Other liabilities (2)
38.3
Total liabilities assumed 94.9
Total identifiable net assets 564.4
Goodwill $ 403.2
(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 nine months ended September 30, 2022, of $ 448.0 million and $ 1.3 billion, respectively, and net income attributable to Prime for the three and nine months ended September 30, 2022 of $ 34.2 million and $ 89.0 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 nine months ended September 30, 2022, the Company acquired five dealerships and a collision center in the U.S. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, was $ 393.0 million, net of cash acquired. Goodwill and franchise rights intangibles associated with these acquisitions totaled $ 194.0 million and $ 93.4 million, respectively .
During the nine months ended September 30, 2022, the Company acquired a dealership and related collision center in the U.K. C onsideration paid, which was accounted for as a business combination, was $ 32.8 million, net of cash acquired. Goodwill associated with the acquisition totaled $ 9.2 million. The accounting for the U.K. acquisition is considered to be preliminary, as the acquisition was announced on September 6, 2022. The Company is continuing to analyze and assess relevant information related to the valuation of property, equipment and intangible assets. Due to the recent timing of the U.K. acquisition, the related 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 with the SEC.
During the nine months ended September 30, 2021 , the Company acquired two dealerships in the U.S. and seven dealerships in the U.K. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, was $ 74.6 million, net of cash acquired. Goodwill associated with these acquisitions totaled $ 41.4 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 approximately BRL 510.0 million included a holdback amount as of the Brazil Disposition Date (as defined herein), for general representations and warranties, of BRL 115.0 million, to be held in escrow for a period of five years from the close of the transaction (the “Brazil Disposal Escrow”). At the conclusion of the five-year period, the remaining funds held in the Brazil Disposal Escrow will be released to the Company. This amount has been included in the proceeds received.
On July 1, 2022 (“Brazil Disposition Date”), the Company closed on the Brazil Disposal. During the fourth quarter of 2021, the Company recognized a net loss of $ 77.5 million on the Brazil Disposal. During the three and nine months ended September 30, 2022, the Company recognized additional net losses of $ 3.7 million and $ 10.0 million on the disposal of the Brazil Disposal Group.
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, the Company included the currency translation adjustments recorded in AOCI as a loss of $ 122.8 million attributable to the Brazil Disposal Group. The loss on sale indicated an impairment of assets, however, the loss was entirely the result of the reclassification of the translation adjustment from AOCI . Prior to the Brazil Disposition Date, the Company recorded a valuation allowance against the assets held for sale for the Brazil Disposal to reflect the expected loss not attributable to a particular asset within the Brazil Disposal Group. On and following the Brazil Disposition Date, the Company reclassified into earnings the currency translation loss attributable to the Brazil Disposal Group. The currency translation loss was offset by the reversal of the previously recorded valuation allowance.
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. 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.
During the three months ended September 30, 2022, the Company received additional proceeds for final working capital adjustments related to the Brazil Disposal of $ 4.1 million. The resulting gain was recognized within Discontinued Operations and included within the net loss recorded during the three months ended September 30, 2022, as described above.
Additionally, during the three months ended September 30, 2022, the Buyer, with approval by the Company, entered into a tax settlement associated with the Brazil Disposal with the Brazilian tax authority for BRL 23.0 million or approximately $ 4.5 million. The settlement was accrued within Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet and recorded as Provision for income taxes within Discontinued Operations and included within the net loss recorded during the three months ended September 30, 2022, as described above. The settlement will be paid out of the existing Brazil Disposal Escrow balance within one year.
As of September 30, 2022, the Company had a remaining receivable balance of $ 21.8 million associated with the Brazil Disposal Escrow recorded in Other long-term assets on the Condensed Consolidated Balance Sheet, of which $ 7.5 million is expected to be paid to settle the Company’s portion of accrued liabilities retained subsequent to the Brazil Disposition Date, including the tax settlement described above.
The following table summarizes the fair value of the proceeds received from the disposition and net carrying value of the assets disposed as of September 30, 2022 (in millions):
Fair value of proceeds from disposition $ 92.5
Net assets disposed 48.8
Gain before currency translation adjustments 43.7
Amount of currency translation loss recorded in AOCI ( 122.8 )
Incremental costs to sell 8.4
Net loss on the Brazil Disposal $ ( 87.5 )
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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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
REVENUES:
New vehicle retail sales $ — $ 62.3 $ 109.0 $ 146.3
Used vehicle retail sales — 18.0 44.0 40.5
Used vehicle wholesale sales — 3.3 10.1 8.0
Parts and service sales — 11.1 23.8 28.2
Finance, insurance and other, net — 1.7 3.3 4.4
Total revenues — 96.4 190.2 227.3
COST OF SALES:
New vehicle retail sales — 56.1 98.5 131.5
Used vehicle retail sales — 16.4 41.2 36.9
Used vehicle wholesale sales — 3.1 10.0 7.4
Parts and service sales — 6.2 14.5 15.9
Total cost of sales — 81.9 164.2 191.6
GROSS PROFIT — 14.5 26.1 35.7
Selling, general and administrative expenses ( 4.6 ) 8.8 14.8 24.0
Depreciation and amortization expense — 0.4 0.9 1.1
Asset impairments 0.1 — 6.3 —
INCOME FROM OPERATIONS — DISCONTINUED OPERATIONS 4.5 5.3 4.0 10.6
Floorplan interest expense — 0.4 1.4 0.7
Other interest (income) expense, net ( 0.7 ) 0.1 ( 1.1 ) 0.8
Loss on extinguishment of debt — 3.8 — 3.8
Other expenses 1.5 — 1.5 —
INCOME BEFORE INCOME TAXES — DISCONTINUED OPERATIONS 3.7 0.9 2.2 5.2
Provision for income taxes 5.0 1.3 5.1 2.4
NET (LOSS) INCOME — DISCONTINUED OPERATIONS $ ( 1.3 ) $ ( 0.4 ) $ ( 2.9 ) $ 2.8
The following table presents cash flows from operating and investing activities for the Brazil Discontinued Operations (in millions):
Nine Months Ended September 30,
2022 2021
Net cash provided by operating activities — discontinued operations $ 26.6 $ 8.1
Net cash provided by (used in) investing activities — discontinued operations $ 59.1 $ ( 1.4 )
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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):
September 30, 2022 December 31, 2021
Cash and cash equivalents $ — $ 3.7
Contracts-in-transit and vehicle receivables, net — 2.3
Accounts and notes receivable, net — 11.8
Inventories — 37.2
Prepaid expenses — 1.9
Other current assets 1.3 —
Current assets of discontinued operations 1.3 56.9
Property and equipment, net — 22.3
Operating lease assets — 2.4
Other long-term assets 21.8 7.8
Non-current assets of discontinued operations 21.8 32.5
Total assets, before valuation allowance 23.2 89.5
Valuation allowance — ( 76.4 )
Total assets, net of valuation allowance $ 23.2 $ 13.0
Floorplan notes payable — credit facility and other $ — $ 3.3
Floorplan notes payable — manufacturer affiliates — 20.1
Current operating lease liabilities — 2.5
Accounts payable — 13.7
Accrued expenses and other current liabilities 7.5 8.7
Current liabilities of discontinued operations $ 7.5 $ 48.3
Assets and Liabilities Held for Sale
Assets and liabilities classified as held for sale consisted of the following (in millions):
September 30, 2022 December 31, 2021
Current assets classified as held for sale
Brazil Discontinued Operations $ — $ 13.0
Prime Acquisition (1)
7.4 52.3
Other (2)
31.2 34.9
Total current assets classified as held for sale $ 38.6 $ 100.3
Current liabilities classified as held for sale
Brazil Discontinued Operations $ — $ 48.3
Prime Acquisition (1)
1.2 1.6
Other 4.0 —
Total current liabilities classified as held for sale $ 5.2 $ 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 $ 11.3 million and $ 9.9 million of goodwill reclassified to assets held for sale as of September 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 nine months ended September 30, 2022, the Company recorded a net pre-tax gain totaling $ 31.3 million related to the disposition of five dealerships representing five franchises in the U.S. The dispositions reduced goodwill by $ 36.9 million. The Company also terminated one franchise representing one dealership in the U.K.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
During the nine months ended September 30, 2021, the Company recorded a net pre-tax gain totaling $ 1.8 million related to the disposition of two dealerships representing two franchises and one franchise within an existing dealership in the U.S. The dispositions reduced goodwill by $ 2.2 million. The Company also terminated one franchise representing one dealership in the U.K.
5. SEGMENT INFORMATION
As of September 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 nine months ended September 30, 2022 and 2021 (in millions):
Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
U.S. U.K. Total U.S. U.K. Total
Total revenues $ 3,484.3 $ 679.1 $ 4,163.4 $ 10,012.8 $ 2,140.3 $ 12,153.1
Income before income taxes $ 231.5 $ 25.7 $ 257.2 $ 703.8 $ 75.9 $ 779.6
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
U.S. U.K. Total U.S. U.K. Total
Total revenues $ 2,662.4 $ 750.4 $ 3,412.8 $ 7,991.6 $ 2,000.7 $ 9,992.3
Income before income taxes $ 195.5 $ 28.7 $ 224.1 $ 532.1 $ 62.3 $ 594.4
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 nine months ended September 30, 2022 and 2021 (in millions, except share and per share data):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Weighted average basic common shares outstanding 15,189,333 17,753,957 15,886,739 17,753,042
Dilutive effect of stock-based awards and employee stock purchases 59,115 82,298 57,145 76,940
Weighted average dilutive common shares outstanding 15,248,448 17,836,255 15,943,883 17,829,982
Basic:
Net income $ 195.7 $ 172.1 $ 594.6 $ 465.0
Less: Earnings allocated to participating securities from continued operations 5.5 5.7 16.8 15.6
Less: (Loss) earnings allocated to participating securities from discontinued operations — — ( 0.1 ) 0.1
Net income available to basic common shares $ 190.3 $ 166.4 $ 577.9 $ 449.4
Basic earnings per common share $ 12.53 $ 9.37 $ 36.38 $ 25.31
Diluted:
Net income $ 195.7 $ 172.1 $ 594.6 $ 465.0
Less: Earnings allocated to participating securities from continued operations 5.4 5.7 16.7 15.5
Less: (Loss) earnings allocated to participating securities from discontinued operations — — ( 0.1 ) 0.1
Net income available to diluted common shares $ 190.3 $ 166.4 $ 578.0 $ 449.4
Diluted earnings per common share $ 12.48 $ 9.33 $ 36.25 $ 25.21
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):
September 30, 2022 December 31, 2021
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
4.00 % Senior Notes
$ 750.0 $ 603.5 $ 750.0 $ 748.4
Real estate related 101.2 90.8 81.3 78.7
Total $ 851.2 $ 694.3 $ 831.3 $ 827.1
(1) Carrying value excludes unamortized debt issuance costs.
Derivative Financial Instruments
The Company holds 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):
September 30, 2022 December 31, 2021
Assets:
Other current assets $ 0.2 $ —
Other long-term assets 115.4 13.8
Total assets $ 115.6 $ 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 September 30, 2022, the Company held 41 interest rate swaps designated as cash flow hedges with a total notional value of $ 949.1 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 September 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 September 30, 2021, the Company held 33 interest rate swaps designated as cash flow hedges with a total notional value of $ 686.1 million that fixed the underlying one-month LIBOR at a weighted average rate of 1.37 % . The Company transitioned from the use of LIBOR to SOFR subsequent to September 30, 2021.
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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 September 30, Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship 2022 2021 2022 2021
Interest rate swaps $ 31.9 $ ( 0.6 ) $ 84.8 $ 16.1
Amount Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Statement of Operations Classification Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Floorplan interest expense $ 0.7 $ ( 1.4 ) $ ( 1.4 ) $ ( 5.0 )
Other interest expense, net $ 1.2 $ ( 1.0 ) $ ( 0.7 ) $ ( 2.9 )
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 $ 24.0 million .
8. RECEIVABLES, NET AND CONTRACT ASSETS
The Company’s receivables, net and contract assets consisted of the following (in millions):
September 30, 2022 December 31, 2021
Contracts-in-transit and vehicle receivables, net:
Contracts-in-transit $ 132.7 $ 143.8
Vehicle receivables 90.2 75.6
Total contracts-in-transit and vehicle receivables 222.9 219.4
Less: allowance for doubtful accounts 0.7 0.5
Total contracts-in-transit and vehicle receivables, net $ 222.2 $ 218.9
Accounts and notes receivable, net:
Manufacturer receivables $ 86.4 $ 76.9
Parts and service receivables 65.8 58.6
F&I receivables 27.6 29.8
Other 10.6 17.0
Total accounts and notes receivable 190.3 182.2
Less: allowance for doubtful accounts 5.9 4.3
Total accounts and notes receivable, net $ 184.4 $ 177.9
Within Other current assets and Other long-term assets:
Total contract assets (1)
$ 44.7 $ 37.5
(1) No allowance for doubtful accounts was recorded for contract assets as of September 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):
September 30, 2022 December 31, 2021
4.00 % Senior Notes due August 15, 2028
$ 750.0 $ 750.0
Acquisition Line 200.0 329.3
Other Debt:
Real estate related 807.7 627.7
Finance leases 174.5 172.7
Other 20.9 166.9
Total other debt 1,003.0 967.4
Total debt 1,953.0 2,046.7
Less: unamortized debt issuance costs 10.7 11.0
Less: current maturities 141.5 220.4
Total long-term debt $ 1,800.9 $ 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 September 30, 2022, borrowings under the Acquisition Line, a component of the Revolvin g Credit Facility (as defined in Note 10. Floorplan Notes Payable), totaled $ 200.0 million. The average interest rate on this facility was 2.90 % during the three months ended September 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 September 30, 2022, borrowings outstanding under these facilities totaled $ 807.7 million, gross of debt issuance costs, comprised of $ 718.7 million in the U.S. and $ 89.0 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, and is reflected within Other, under Other Debt in the table above, and reflected within current maturities. 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):
September 30, 2022 December 31, 2021
Revolving Credit Facility — floorplan notes payable $ 702.3 $ 511.7
Revolving Credit Facility — floorplan notes payable offset account ( 206.1 ) ( 268.6 )
Revolving Credit Facility — floorplan notes payable, net 496.2 243.1
Other non-manufacturer facilities 45.8 51.9
Floorplan notes payable — credit facility and other, net $ 542.0 $ 295.0
FMCC Facility $ 31.4 $ 22.8
FMCC Facility offset account ( 12.4 ) ( 3.3 )
FMCC Facility, net 19.0 19.5
Other manufacturer affiliate facilities 184.9 216.5
Floorplan notes payable — manufacturer affiliates, net $ 203.9 $ 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”). On August 18, 2022, the company entered into a first amendment on the twelfth amended 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 currently consists of two tranches: (i ) a $ 1.2 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) an $ 800.0 million maximum capacit y 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 and $ 50.0 million minimum capacity tranche. The Company had $ 12.2 million in letters of credit outstanding as of both September 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 4.25 % as of September 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 amendment to the Revolving Credit Facility described above, the Company incurred $ 3.7 million in additional debt issuance costs. The Company had $ 5.3 million and $ 2.6 million of related unamortized debt issuance costs as of September 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 U.S. prime rate which was 6.25 % as of September 30, 2022.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Other M anufacturer 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 September 30, 2022, borrowings outstanding under these facilities totaled $ 184.9 million, comprised of $ 104.4 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 7 %, and $ 80.5 million in the U.K., with annual interest rates ranging from approximately 2 % to 6 %.
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 $ 0.4 million an d $ 2.1 million during the nine months ended September 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 $ 73.8 million and $ 59.9 million for the nine months ended September 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 $ 155.9 million and $ 100.7 million for the nine months ended September 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, vehicle related incidents 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 September 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
In connection with dealership dispositions 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 $ 38.0 million as of September 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 $ 2.9 million as of September 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):
Nine Months Ended September 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 ( 59.3 ) 110.9 51.6
Tax effect — ( 26.1 ) ( 26.1 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 1.4 1.4
Other interest expense, net (pre-tax) — 0.7 0.7
Cumulative foreign currency translation adjustments associated with the Brazil Disposal 122.8 — 122.8
Other cumulative foreign currency translation adjustments 1.5 — 1.5
Benefit for income taxes — ( 0.5 ) ( 0.5 )
Net current period other comprehensive income 65.1 86.4 151.5
Balance, September 30, 2022 $ ( 93.1 ) $ 88.4 $ ( 4.7 )
Nine Months Ended September 30, 2021
Accumulated Income (Loss) On Foreign Currency Translation Accumulated Income (Loss) On Interest Rate Swaps Total
Balance, December 31, 2020 $ ( 151.6 ) $ ( 32.5 ) $ ( 184.0 )
Other comprehensive income (loss) before reclassifications:
Pre-tax ( 6.7 ) 21.0 14.4
Tax effect — ( 4.9 ) ( 4.9 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — 5.0 5.0
Other interest expense (pre-tax) — 2.9 2.9
Reclassification related to de-designated interest rate swaps (pre-tax) — 3.1 3.1
Benefit for income taxes — ( 2.6 ) ( 2.6 )
Net current period other comprehensive (loss) income ( 6.7 ) 24.5 17.9
Balance, September 30, 2021 $ ( 158.2 ) $ ( 7.9 ) $ ( 166.1 )
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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.