Item 1. Financial Statements
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
September 30, 2023 December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52.9 $ 47.9
Contracts-in-transit and vehicle receivables, net 299.7 278.5
Accounts and notes receivable, net 223.5 199.2
Inventories 1,722.3 1,356.6
Prepaid expenses 24.6 30.5
Other current assets 15.4 19.1
Current assets classified as held for sale 36.5 53.6
TOTAL CURRENT ASSETS 2,375.1 1,985.3
Property and equipment, net of accumulated depreciation of $ 579.5 and $ 554.4 , respectively
2,224.9 2,128.2
Operating lease assets 226.7 249.1
Goodwill 1,695.9 1,661.8
Intangible franchise rights 719.8 516.3
Other long-term assets 197.2 176.8
TOTAL ASSETS $ 7,439.6 $ 6,717.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Floorplan notes payable — credit facility and other, net of offset account of $ 191.7 and $ 140.2 , respectively
$ 889.0 $ 762.1
Floorplan notes payable — manufacturer affiliates, net of offset account of $ 19.0 and $ 13.4 , respectively
353.3 243.1
Current maturities of long-term debt 75.7 130.3
Current operating lease liabilities 21.4 21.8
Accounts payable 533.4 488.0
Accrued expenses and other current liabilities 301.8 271.5
Current liabilities classified as held for sale — 4.8
TOTAL CURRENT LIABILITIES 2,174.6 1,921.4
Long-term debt 2,042.5 1,952.2
Long-term operating lease liabilities 218.5 238.4
Deferred income taxes 254.9 238.1
Other long-term liabilities 137.7 129.8
Commitments and Contingencies (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock, $ 0.01 par value, 50,000,000 shares authorized; 25,149,866 and 25,232,620 shares issued, respectively
0.3 0.3
Additional paid-in capital 345.8 338.7
Retained earnings 3,547.2 3,073.6
Accumulated other comprehensive income 31.6 22.5
Treasury stock, at cost; 11,326,664 and 10,940,298 shares, respectively
( 1,313.5 ) ( 1,197.5 )
TOTAL STOCKHOLDERS’ EQUITY 2,611.4 2,237.5
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 7,439.6 $ 6,717.5
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,
2023 2022 2023 2022
REVENUES:
New vehicle retail sales $ 2,264.5 $ 1,883.3 $ 6,463.4 $ 5,479.8
Used vehicle retail sales 1,559.6 1,488.6 4,359.0 4,353.9
Used vehicle wholesale sales 114.7 89.6 339.2 278.9
Parts and service sales 566.9 515.6 1,677.3 1,491.1
Finance, insurance and other, net 199.4 186.3 554.8 549.5
Total revenues 4,705.1 4,163.4 13,393.7 12,153.1
COST OF SALES:
New vehicle retail sales 2,070.2 1,676.7 5,880.9 4,861.6
Used vehicle retail sales 1,478.2 1,412.6 4,122.2 4,100.6
Used vehicle wholesale sales 117.1 91.1 338.6 276.8
Parts and service sales 253.4 230.5 762.3 668.5
Total cost of sales 3,918.9 3,410.8 11,104.0 9,907.4
GROSS PROFIT 786.2 752.6 2,289.7 2,245.8
Selling, general and administrative expenses 496.7 450.9 1,439.4 1,329.6
Depreciation and amortization expense 23.1 21.8 68.6 65.9
Asset impairments 4.8 — 7.7 0.8
INCOME FROM OPERATIONS 261.6 279.9 773.9 849.4
Floorplan interest expense 16.5 6.5 44.7 17.7
Other interest expense, net 26.5 19.6 72.1 55.5
Other (income) expense, net ( 1.9 ) ( 3.4 ) 2.3 ( 3.4 )
INCOME BEFORE INCOME TAXES 220.5 257.2 654.8 779.6
Provision for income taxes 56.4 60.2 161.6 182.1
Net income from continuing operations 164.1 197.1 493.2 597.5
Net loss from discontinued operations ( 0.2 ) ( 1.3 ) ( 0.3 ) ( 2.9 )
NET INCOME $ 163.9 $ 195.7 $ 492.9 $ 594.6
BASIC EARNINGS PER SHARE:
Continuing operations $ 11.72 $ 12.61 $ 34.93 $ 36.55
Discontinued operations ( 0.02 ) ( 0.09 ) ( 0.02 ) ( 0.18 )
Total $ 11.70 $ 12.53 $ 34.91 $ 36.38
DILUTED EARNINGS PER SHARE:
Continuing operations $ 11.67 $ 12.57 $ 34.81 $ 36.43
Discontinued operations ( 0.02 ) ( 0.09 ) ( 0.02 ) ( 0.18 )
Total $ 11.65 $ 12.48 $ 34.79 $ 36.25
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 13.7 15.2 13.8 15.9
Diluted 13.7 15.2 13.8 15.9
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,
2023 2022 2023 2022
NET INCOME $ 163.9 $ 195.7 $ 492.9 $ 594.6
Other comprehensive income (loss), net of taxes:
Net foreign currency translation adjustments:
Unrealized foreign currency translation adjustments ( 17.5 ) ( 31.2 ) 3.5 ( 59.3 )
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 ( 17.5 ) 93.1 3.5 65.1
Net unrealized gain (loss) on interest rate risk management activities, net of tax:
Unrealized gain arising during the period, net of tax provision of $( 4.7 ), $( 9.8 ), $( 8.5 ) and $( 26.1 ), respectively
15.1 31.9 27.3 84.8
Reclassification adjustment for (gain) loss included in interest expense, net of tax (provision) benefit of $( 2.1 ), $( 0.4 ), $( 5.8 ) and $ 0.5 , respectively
( 6.7 ) ( 1.4 ) ( 18.6 ) 1.6
Reclassification related to de-designated interest rate swaps, net of tax provision of $ — , $ — , $( 1.0 ) and $ — , respectively
— — ( 3.1 ) —
Unrealized gain on interest rate risk management activities, net of tax
8.5 30.4 5.6 86.4
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
( 9.0 ) 123.5 9.1 151.5
COMPREHENSIVE INCOME $ 154.9 $ 319.3 $ 502.0 $ 746.1
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 data)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, JUNE 30, 2023 25,164,166 $ 0.3 $ 339.8 $ 3,389.7 $ 40.6 $ ( 1,251.5 ) $ 2,518.9
Net income — — — 163.9 — — 163.9
Other comprehensive loss, net of taxes — — — — ( 9.0 ) — ( 9.0 )
Purchases of treasury stock, including excise tax — — — — — ( 65.2 ) ( 65.2 )
Net issuance of treasury shares to stock compensation plans ( 14,300 ) — 1.0 — — 3.2 4.2
Stock-based compensation — — 5.0 — — — 5.0
Dividends declared ($ 0.45 per share)
— — — ( 6.4 ) — — ( 6.4 )
BALANCE, SEPTEMBER 30, 2023 25,149,866 $ 0.3 $ 345.8 $ 3,547.2 $ 31.6 $ ( 1,313.5 ) $ 2,611.4
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury Stock Total
Shares Amount
BALANCE, DECEMBER 31, 2022 25,232,620 $ 0.3 $ 338.7 $ 3,073.6 $ 22.5 $ ( 1,197.5 ) $ 2,237.5
Net income — — — 492.9 — — 492.9
Other comprehensive income, net of taxes — — — — 9.1 — 9.1
Purchases of treasury stock, including excise tax — — — — — ( 131.6 ) ( 131.6 )
Net issuance of treasury shares to stock compensation plans ( 82,754 ) — ( 8.4 ) — — 15.6 7.2
Stock-based compensation — — 15.5 — — — 15.5
Dividends declared ($ 1.35 per share)
— — — ( 19.2 ) — — ( 19.2 )
BALANCE, SEPTEMBER 30, 2023 25,149,866 $ 0.3 $ 345.8 $ 3,547.2 $ 31.6 $ ( 1,313.5 ) $ 2,611.4
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, 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 ( 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 ( 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 CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended September 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 492.9 $ 594.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 68.6 66.9
Change in operating lease assets 19.1 22.6
Deferred income taxes 8.2 17.4
Asset impairments 7.7 7.1
Stock-based compensation 15.5 21.2
Amortization of debt discount and issuance costs 2.2 2.3
Gain on disposition of assets ( 20.1 ) ( 40.8 )
Unrealized gain on derivative instruments ( 4.9 ) —
Other ( 1.8 ) 1.3
Changes in assets and liabilities, net of acquisitions and dispositions:
Accounts payable and accrued expenses 79.3 51.0
Accounts and notes receivable ( 23.5 ) ( 7.3 )
Inventories ( 314.3 ) ( 156.6 )
Contracts-in-transit and vehicle receivables ( 20.6 ) ( 6.6 )
Prepaid expenses and other assets ( 7.2 ) 6.4
Floorplan notes payable — manufacturer affiliates
110.3 ( 23.9 )
Deferred revenues ( 0.6 ) ( 0.3 )
Operating lease liabilities ( 18.3 ) ( 21.9 )
Net cash provided by operating activities 392.5 533.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $ 64.9 and $ 7.7 , respectively
( 363.7 ) ( 424.2 )
Proceeds from disposition of franchises, property and equipment 153.9 132.6
Purchases of property and equipment ( 137.4 ) ( 93.3 )
Proceeds from sale of discontinued operations, net — 59.4
Other 1.3 ( 0.5 )
Net cash used in investing activities ( 345.8 ) ( 325.9 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facility — floorplan line and other
8,235.6 7,548.3
Repayments on credit facility — floorplan line and other
( 8,109.7 ) ( 7,294.2 )
Borrowings on credit facility — acquisition line
200.0 286.0
Repayments on credit facility — acquisition line
( 178.2 ) ( 411.3 )
Debt issuance costs ( 0.3 ) ( 4.6 )
Borrowings on other debt 136.4 296.0
Principal payments on other debt ( 183.2 ) ( 246.5 )
Proceeds from employee stock purchase plan 16.6 15.9
Payments of tax withholding for stock-based compensation ( 9.4 ) ( 9.1 )
Repurchases of common stock, amounts based on settlement date ( 130.5 ) ( 359.5 )
Dividends paid ( 19.0 ) ( 18.1 )
Other — ( 1.2 )
Net cash used in financing activities ( 41.7 ) ( 198.4 )
Effect of exchange rate changes on cash 0.1 ( 7.2 )
Net increase in cash and cash equivalents 5.1 1.9
CASH AND CASH EQUIVALENTS, beginning of period 47.9 18.7
CASH AND CASH EQUIVALENTS, end of period $ 52.9 $ 20.5
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 2022 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 July 1, 2022, the Company completed the disposal of 100 % of the issued and outstanding equity interests of the Company’s Brazilian operations (the “Brazil Disposal Group”). 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. Refer to Note 4. Discontinued Operations and Other Divestitures for additional information. Unless otherwise specified, disclosures in these Condensed Consolidated Financial Statements reflect continuing operations only.
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 including, but not limited to, inventory valuation adjustments, reserves for future chargebacks on finance, insurance and vehicle service contract fees, self-insured property and casualty insurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill and intangible franchise rights and reserves for potential litigation.
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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, 2023 Nine Months Ended September 30, 2023
U.S. U.K. Total U.S. U.K. Total
New vehicle retail sales $ 1,920.2 $ 344.4 $ 2,264.5 $ 5,444.3 $ 1,019.1 $ 6,463.4
Used vehicle retail sales 1,223.5 336.1 1,559.6 3,393.5 965.6 4,359.0
Used vehicle wholesale sales 80.1 34.6 114.7 242.2 96.9 339.2
Total new and used vehicle sales 3,223.8 715.0 3,938.8 9,080.0 2,081.7 11,161.6
Parts and service sales (1)
494.4 72.5 566.9 1,459.4 217.9 1,677.3
Finance, insurance and other, net (2)
181.5 17.9 199.4 502.3 52.5 554.8
Total revenues $ 3,899.7 $ 805.5 $ 4,705.1 $ 11,041.7 $ 2,352.0 $ 13,393.7
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
(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 $ 7.2 million and $ 5.3 million during the three months ended September 30, 2023 and 2022, respectively, and $ 19.7 million and $ 22.2 million during the nine months ended September 30, 2023 and 2022, 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.
During the nine months ended September 30, 2023, the Company acquired one Chevrolet dealership, one Kia dealership and three Buick-GMC dealerships in the U.S. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, was $ 363.4 million. Goodwill associated with the acquisitions totaled $ 58.8 million. The accounting for the acquisition of the three Buick-GMC dealerships and one Kia dealership is considered to be preliminary and subject to change as the Company’s fair value assessments are finalized. The Company is continuing to analyze and assess relevant information related to the valuation of property, equipment and intangible assets. The Company will reflect any required fair value adjustments in subsequent periods.
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 associated with these acquisitions totaled $ 194.0 million.
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 Company previously recorded a $ 33.4 million payment for the purchase of an additional dealership as part of the acquisition of the Prime Automotive Group in 2021. As of September 30, 2023, the purchase of the additional dealership had not yet closed. The amount previously paid has been classified as goodwill on the Condensed Consolidated Balance Sheets. In October 2023, the Company closed on the acquisition of the dealership after settlement of legal action with the distributor which had opposed the acquisition. The previously recorded goodwill of $ 33.4 million will be allocated to the identifiable assets and liabilities of the acquired dealership in the period of acquisition.
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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 July 1, 2022, the Company closed on the disposition of the Brazil Disposal Group. The sale price of approximately BRL 510.0 million included a holdback amount of BRL 115.0 million, for general representations and warranties, 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.
As of September 30, 2023, the Company had a remaining receivable balance of $ 19.8 million associated with the Brazil Disposal Escrow recorded in Other long-term assets on the Condensed Consolidated Balance Sheet, of which $ 3.9 million is expected to be paid to settle the Company’s portion of accrued liabilities retained subsequent to the date of disposal.
Results of the Brazil Discontinued Operations were as follows (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
REVENUES:
New vehicle retail sales $ — $ — $ — $ 109.0
Used vehicle retail sales — — — 44.0
Used vehicle wholesale sales — — — 10.1
Parts and service sales — — — 23.8
Finance, insurance and other, net — — — 3.3
Total revenues — — — 190.2
COST OF SALES:
New vehicle retail sales — — — 98.5
Used vehicle retail sales — — — 41.2
Used vehicle wholesale sales — — — 10.0
Parts and service sales — — — 14.5
Total cost of sales — — — 164.2
GROSS PROFIT — — — 26.1
Selling, general and administrative expenses 0.7 ( 4.6 ) 1.6 14.8
Depreciation and amortization expense — — — 0.9
Asset impairments — 0.1 — 6.3
(LOSS) INCOME FROM OPERATIONS — DISCONTINUED OPERATIONS ( 0.7 ) 4.5 ( 1.6 ) 4.0
Floorplan interest expense — — — 1.4
Other interest income, net ( 0.7 ) ( 0.7 ) ( 2.0 ) ( 1.1 )
Other expenses — 1.5 — 1.5
(LOSS) INCOME BEFORE INCOME TAXES — DISCONTINUED OPERATIONS — 3.7 0.4 2.2
Provision for income taxes 0.2 5.0 0.7 5.1
NET LOSS — DISCONTINUED OPERATIONS $ ( 0.2 ) $ ( 1.3 ) $ ( 0.3 ) $ ( 2.9 )
Cash flows from operating and investing activities for the Brazil Discontinued Operations were immaterial for the nine months ended September 30, 2023. Cash flows from operating and investing activities for the Brazil Discontinued Operations in the prior period were as follows (in millions):
Nine Months Ended September 30, 2022
Net cash provided by operating activities — discontinued operations $ 26.6
Net cash provided by investing activities — discontinued operations
$ 59.1
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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, 2023 December 31, 2022
Prepaid expenses $ 0.9 $ —
Other current assets — 1.3
Other long-term assets 19.8 22.8
Total assets of discontinued operations $ 20.7 $ 24.1
Accrued expenses and other current liabilities $ 3.9 $ 7.8
Total liabilities of discontinued operations $ 3.9 $ 7.8
Other Divestitures
The Company’s divestitures generally consist of dealership assets and related real estate. Gains and losses on divestitures are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
During the nine months ended September 30, 2023, the Company recorded a net pre-tax gain totaling $ 18.1 million related to the disposition of nine dealerships in the U.S. The dispositions reduced goodwill by $ 44.7 million. The Company also terminated two franchises in the U.S.
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 in the U.S. The dispositions reduced goodwill by $ 36.9 million. The Company also terminated one dealership in the U.K.
Assets held for sale in the Condensed Consolidated Balance Sheets includes $ 8.3 million and $ 13.4 million of goodwill that has been reclassified to assets held for sale as of September 30, 2023 and December 31, 2022, respectively.
5. SEGMENT INFORMATION
As of September 30, 2023, the Company had two reportable segments: the U.S. and the U.K. The Company defines its reportable 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 reportable 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 (in millions):
Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
U.S. U.K. Total U.S. U.K. Total
Total revenues $ 3,899.7 $ 805.5 $ 4,705.1 $ 11,041.7 $ 2,352.0 $ 13,393.7
Income before income taxes $ 203.1 $ 17.4 $ 220.5 $ 591.6 $ 63.2 $ 654.8
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
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 (in millions, except share and per share data):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Weighted average basic common shares outstanding 13,661,059 15,189,333 13,765,791 15,886,739
Dilutive effect of stock-based awards and employee stock purchases 57,669 59,115 50,404 57,145
Weighted average dilutive common shares outstanding 13,718,728 15,248,448 13,816,194 15,943,883
Basic:
Net income $ 163.9 $ 195.7 $ 492.9 $ 594.6
Less: Earnings allocated to participating securities from continuing operations 4.0 5.5 12.3 16.8
Less: Loss allocated to participating securities to discontinued operations — — — ( 0.1 )
Net income available to basic common shares $ 159.9 $ 190.3 $ 480.6 $ 577.9
Basic earnings per common share $ 11.70 $ 12.53 $ 34.91 $ 36.38
Diluted:
Net income $ 163.9 $ 195.7 $ 492.9 $ 594.6
Less: Earnings allocated to participating securities from continuing operations 4.0 5.4 12.2 16.7
Less: Loss allocated to participating securities to discontinued operations — — — ( 0.1 )
Net income available to diluted common shares $ 159.9 $ 190.3 $ 480.6 $ 578.0
Diluted earnings per common share $ 11.65 $ 12.48 $ 34.79 $ 36.25
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 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, 2023 December 31, 2022
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
4.00 % Senior Notes
$ 750.0 $ 651.5 $ 750.0 $ 633.9
Real estate related 93.0 82.7 99.2 90.5
Total $ 843.0 $ 734.2 $ 849.2 $ 724.4
(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, 2023 December 31, 2022
Assets:
Other current assets $ 0.4 $ 0.1
Other long-term assets (1)
121.2 109.2
Total assets $ 121.6 $ 109.3
Liabilities:
Accrued expenses and other current liabilities $ — $ —
Other long-term liabilities — —
Total liabilities $ — $ —
(1) As of September 30, 2023, the balance included gross fair value of $ 4.9 million related to the de-designated swap as described below.
Interest Rate Swaps De-designated as Cash Flow Hedges
During the three months ended March 31, 2023 , the Company de-designated one mortgage interest rate swap due to the Company settling the underlying mortgages associated with the swap during the same period. As of September 30, 2023 , the de-designated swap had an aggregate notional value of $ 30.3 million that fixed its underlying one-month SOFR at an annual interest rate of 0.60 % and will mature on March 1, 2030. No interest rate swaps were de-designated by the Company during the three months ended September 30, 2023 .
The Company reclassified the entire previously deferred gain associated with the de-designated interest rate swap of $ 3.1 million , net of tax of $ 1.0 million , from AOCI into income as an adjustment to Other interest expense, net, as the remaining forecasted hedged transactions associated with the interest rate swap were probable of not occurring due to the settlement of the mortgages described above. Additionally, the Company recorded unrealized mark-to-mark et gains of $ 0.4 million and $ 0.8 million and realized gains of $ 0.4 million and $ 0.7 million a ssociated with the interest rate swap within Other interest expense, net, for the three and nine months ended September 30, 2023, respectively.
Interest Rate Swaps Designated as Cash Flow Hedges
Interest rate swaps designated as cash flow hedges and the related gains or losses are deferred in stockholders’ equity as a component of 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 or Other interest expense, net.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
As of September 30, 2023, the Company held 35 interest rate swaps designated as cash flow hedges with a total notional value of $ 866.2 million that fixed its underlying SOFR at a weighted average rate of 1.25 %. The Company also held two 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, 2023. 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, 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 completed the transition of interest rate swaps from LIBOR to SOFR during 2022.
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 2023 2022 2023 2022
Interest rate swaps $ 15.1 $ 31.9 $ 27.3 $ 84.8
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,
2023 2022 2023 2022
Floorplan interest expense $ 4.1 $ 0.7 $ 11.2 $ ( 1.4 )
Other interest expense, net $ 4.7 $ 1.2 $ 13.2 $ ( 0.7 )
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 $ 25.3 million .
8. RECEIVABLES, NET AND CONTRACT ASSETS
The Company’s receivables, net and contract assets consisted of the following (in millions):
September 30, 2023 December 31, 2022
Contracts-in-transit and vehicle receivables, net:
Contracts-in-transit $ 196.5 $ 188.2
Vehicle receivables 103.5 90.9
Total contracts-in-transit and vehicle receivables 300.0 279.0
Less: allowance for doubtful accounts 0.3 0.6
Total contracts-in-transit and vehicle receivables, net $ 299.7 $ 278.5
Accounts and notes receivable, net:
Manufacturer receivables $ 119.4 $ 94.6
Parts and service receivables 69.7 68.0
F&I receivables 28.7 30.0
Other 10.8 12.1
Total accounts and notes receivable 228.6 204.7
Less: allowance for doubtful accounts 5.1 5.5
Total accounts and notes receivable, net $ 223.5 $ 199.2
Within Other current assets and Other long-term assets:
Total contract assets (1)
$ 55.2 $ 47.9
(1) No allowance for doubtful accounts was recorded for contract assets as of September 30, 2023 or December 31, 2022.
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GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
9. DEBT
Long-term debt consisted of the following (in millions):
September 30, 2023 December 31, 2022
4.00 % Senior Notes due August 15, 2028
$ 750.0 $ 750.0
Acquisition Line 325.0 303.2
Other Debt:
Real estate related 769.8 796.9
Finance leases 273.7 220.4
Other 8.9 22.3
Total other debt 1,052.3 1,039.6
Total debt 2,127.3 2,092.7
Less: unamortized debt issuance costs 9.1 10.2
Less: current maturities 75.7 130.3
Total long-term debt $ 2,042.5 $ 1,952.2
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, 2023, borrowings under the Acquisition Line, a component of the Revolvin g Credit Facility (as defined in Note 10. Floorplan Notes Payable), totaled $ 325.0 million. The average interest rate on this facility was 6.27 % during the three months ended September 30, 2023.
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, 2023, borrowings outstanding under these facilities totaled $ 769.8 million, gross of debt issuance costs, comprised of $ 640.4 million in the U.S. and $ 129.4 million in the U.K., respectively.
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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, 2023 December 31, 2022
Revolving Credit Facility — floorplan notes payable $ 1,022.3 $ 833.5
Revolving Credit Facility — floorplan notes payable offset account ( 191.7 ) ( 140.2 )
Revolving Credit Facility — floorplan notes payable, net 830.6 693.3
Other non-manufacturer facilities 58.4 68.8
Floorplan notes payable — credit facility and other, net $ 889.0 $ 762.1
FMCC Facility $ 95.4 $ 55.1
FMCC Facility offset account ( 19.0 ) ( 13.4 )
FMCC Facility, net 76.4 41.8
Other manufacturer affiliate facilities 276.9 201.3
Floorplan notes payable — manufacturer affiliates, net $ 353.3 $ 243.1
Floorplan Notes Payable — Credit Facility
Revolving Credit Facility
In the U.S., the Company has a $ 2.0 billion revolving syndicated credit arrangement with 20 participating financial institutions that matures on March 9, 2027 (“Revolving Credit Facility”). The Company has the option to increase the availability to $ 2.4 billion, under certain conditions. The Revolving Credit Facility 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 September 30, 2023 and December 31, 2022.
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 6.54 % as of September 30, 2023, 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 with the Revolving Credit Facility, the Company had $ 4.1 million and $ 5.0 million of unamortized debt issuance costs as of September 30, 2023 and December 31, 2022, 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”). The FMCC Facility bears interest at the U.S. prime rate which was 8.50 % as of September 30, 2023.
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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, 2023, borrowings outstanding under these facilities totaled $ 276.9 million, comprised of $ 162.2 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 9 %, and $ 114.7 million in the U.K., with annual interest rates ranging from approximately 5 % to 9 %.
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 $ 0.3 million an d $ 0.4 million during the nine months ended September 30, 2023 and 2022, respectively.
Interest and Income Taxes Paid
Cash paid for interest, including the monthly settlement of the Company’s interest rate swaps, was $ 120.0 million and $ 73.8 million for the nine months ended September 30, 2023 and 2022, 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 $ 131.9 million and $ 155.9 million for the nine months ended September 30, 2023 and 2022, respectively.
12. COMMITMENTS AND CONTINGENCIES
From time to time, the Company or its 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, 2023, 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 $ 36.3 million as of September 30, 2023.
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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 AOCI were as follows (in millions):
Nine Months Ended September 30, 2023
Accumulated Income (Loss) On Foreign Currency Translation Accumulated Income (Loss) On Interest Rate Swaps Total
Balance, December 31, 2022 $ ( 61.1 ) $ 83.6 $ 22.5
Other comprehensive income (loss) before reclassifications:
Pre-tax 3.5 35.8 39.2
Tax effect — ( 8.5 ) ( 8.5 )
Amount reclassified from accumulated other comprehensive income (loss):
Floorplan interest expense (pre-tax) — ( 11.2 ) ( 11.2 )
Other interest expense, net (pre-tax) — ( 13.2 ) ( 13.2 )
Reclassification related to de-designated interest rate swaps (pre-tax) — ( 4.0 ) ( 4.0 )
Provision for income taxes — 6.8 6.8
Net current period other comprehensive income
3.5 5.6 9.1
Balance, September 30, 2023 $ ( 57.6 ) $ 89.3 $ 31.6
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 (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 )
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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.