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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-13461
Group 1 Automotive, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 76-0506313 |
(State of other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
800 Gessner, | Suite 500 | | 77024 |
Houston, | TX | | (Zip code) |
(Address of principal executive offices) | | |
(713) 647-5700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
| | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Ticker symbol(s) | | Name of exchange on which registered |
Common stock, par value $0.01 per share | | GPI | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | |
Large accelerated filer | þ | | ¨ | Accelerated filer |
| | |
Non-accelerated filer | ¨ | | ☐ | Smaller reporting company |
| | | | |
| | | ☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if that registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of April 29, 2022, the registrant had 16,596,372 shares of common stock outstanding.
TABLE OF CONTENTS
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Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
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Item 6. | | |
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GLOSSARY OF DEFINITIONS
The following are abbreviations and definitions of terms used within this report: | | | | | | | | |
Terms | | Definitions |
| | |
ASU | | Accounting Standards Update |
Brexit | | Withdrawal of the U.K. from the European Union |
BRL | | Brazilian Real (R$) |
COVID-19 pandemic | | Coronavirus disease first emerging in December 2019 and resulting in the ongoing global pandemic in 2020 and 2021 |
EPS | | Earnings per share |
F&I | | Finance, insurance and other |
FASB | | Financial Accounting Standards Board |
FMCC | | Ford Motor Credit Company |
GBP | | British Pound Sterling (£) |
LIBOR | | London Interbank Offered Rate |
OEM | | Original equipment manufacturer |
PRU | | Per retail unit |
| | |
RSA | | Restricted stock award |
SEC | | Securities and Exchange Commission |
SG&A | | Selling, general and administrative |
SOFR | | Secured Overnight Financing Rate |
USD | | United States Dollar ($) |
U.K. | | United Kingdom |
U.S. | | United States of America |
U.S. GAAP | | Accounting principles generally accepted in the U.S. |
VSC | | Vehicle service contract |
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Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These forward-looking statements include, but are not limited to, statements concerning the Company’s strategy, future operation performance, future liquidity and availability of financing, capital allocation, the completion of future acquisitions and divestitures, business trends in the retail automotive industry and changes in regulations. When used in this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may” and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are based on the Company’s expectations and beliefs as of the date of this Form 10-Q concerning future developments and their potential effect on the Company. While management believes that these forward-looking statements are reasonable when and as made, there can be no assurance that future developments affecting the Company will be those that are anticipated. The Company’s forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the risks set forth in Item 1A. Risk Factors of this Form 10-Q.
For additional information regarding known material factors that could cause actual results to differ from projected results, refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as well as Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk of this Form 10-Q.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertake no responsibility and expressly disclaim any duty, to update any such statements, whether as a result of new information, new developments or otherwise, or to publicly release the result of any revision of the forward-looking statements after the date they are made, except to the extent required by law.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | | | |
ASSETS |
CURRENT ASSETS: | | | | |
Cash and cash equivalents | | $ | 16.6 | | | $ | 14.9 | |
Contracts-in-transit and vehicle receivables, net | | 216.2 | | | 218.9 | |
Accounts and notes receivable, net | | 197.0 | | | 177.9 | |
Inventories | | 1,096.4 | | | 1,073.1 | |
| | | | |
Prepaid expenses | | 19.7 | | | 30.6 | |
Other current assets | | 19.9 | | | 50.4 | |
Current assets classified as held for sale | | 81.8 | | | 100.3 | |
TOTAL CURRENT ASSETS | | 1,647.5 | | | 1,666.2 | |
Property and equipment, net of accumulated depreciation of $529.9 and $513.5, respectively | | 1,994.5 | | | 1,957.8 | |
Operating lease assets | | 258.4 | | | 267.8 | |
Goodwill | | 1,588.1 | | | 1,420.2 | |
Intangible franchise rights | | 462.3 | | | 392.3 | |
Other long-term assets | | 88.8 | | | 45.0 | |
| | | | |
TOTAL ASSETS | | $ | 6,039.6 | | | $ | 5,749.4 | |
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | |
Floorplan notes payable — credit facility and other, net of offset account of $197.2 and $268.6, respectively | | $ | 460.3 | | | $ | 295.0 | |
Floorplan notes payable — manufacturer affiliates, net of offset account of $2.4 and $3.3, respectively | | 244.4 | | | 236.0 | |
Current maturities of long-term debt | | 85.9 | | | 220.4 | |
Current operating lease liabilities | | 24.9 | | | 25.9 | |
| | | | |
Accounts payable | | 439.5 | | | 457.8 | |
Accrued expenses and other current liabilities | | 289.4 | | | 258.6 | |
Current liabilities classified as held for sale | | 74.6 | | | 49.9 | |
TOTAL CURRENT LIABILITIES | | 1,618.9 | | | 1,543.6 | |
Long-term debt | | 1,902.9 | | | 1,815.3 | |
Long-term operating lease liabilities | | 247.7 | | | 256.6 | |
Deferred income taxes | | 201.5 | | | 180.9 | |
Other long-term liabilities | | 119.4 | | | 127.7 | |
Commitments and Contingencies (Note 12) | | | | |
STOCKHOLDERS’ EQUITY: | | | | |
| | | | |
Common stock, $0.01 par value, 50,000,000 shares authorized; 25,266,915 and 25,336,054 shares issued, respectively | | 0.3 | | | 0.3 | |
Additional paid-in capital | | 324.2 | | | 325.8 | |
Retained earnings | | 2,542.7 | | | 2,345.9 | |
Accumulated other comprehensive income (loss) | | (120.6) | | | (156.2) | |
Treasury stock, at cost; 8,666,078 and 8,160,228 shares, respectively | | (797.3) | | | (690.4) | |
TOTAL STOCKHOLDERS’ EQUITY | | 1,949.2 | | | 1,825.2 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 6,039.6 | | | $ | 5,749.4 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
3
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
REVENUES: | | | | | | | | |
New vehicle retail sales | | $ | 1,745.1 | | | $ | 1,509.2 | | | | | |
Used vehicle retail sales | | 1,359.9 | | | 888.1 | | | | | |
Used vehicle wholesale sales | | 93.5 | | | 78.2 | | | | | |
Parts and service sales | | 472.9 | | | 352.8 | | | | | |
Finance, insurance and other, net | | 173.0 | | | 125.6 | | | | | |
Total revenues | | 3,844.4 | | | 2,953.9 | | | | | |
COST OF SALES: | | | | | | | | |
New vehicle retail sales | | 1,543.9 | | | 1,413.6 | | | | | |
Used vehicle retail sales | | 1,272.0 | | | 829.6 | | | | | |
Used vehicle wholesale sales | | 90.6 | | | 74.5 | | | | | |
Parts and service sales | | 213.1 | | | 155.0 | | | | | |
Total cost of sales | | 3,119.7 | | | 2,472.7 | | | | | |
GROSS PROFIT | | 724.7 | | | 481.3 | | | | | |
Selling, general and administrative expenses | | 418.5 | | | 311.4 | | | | | |
Depreciation and amortization expense | | 21.2 | | | 19.2 | | | | | |
| | | | | | | | |
INCOME FROM OPERATIONS | | 285.0 | | | 150.7 | | | | | |
Floorplan interest expense | | 5.3 | | | 7.5 | | | | | |
Other interest expense, net | | 17.4 | | | 13.2 | | | | | |
| | | | | | | | |
| | | | | | | | |
INCOME BEFORE INCOME TAXES | | 262.3 | | | 130.0 | | | | | |
Provision for income taxes | | 61.2 | | | 29.1 | | | | | |
Net income from continuing operations | | 201.1 | | | 100.9 | | | | | |
Net income from discontinued operations | | 1.8 | | | 1.0 | | | | | |
NET INCOME | | $ | 202.9 | | | $ | 101.9 | | | | | |
BASIC EARNINGS PER SHARE: | | | | | | | | |
Continuing operations | | $ | 11.81 | | | $ | 5.49 | | | | | |
Discontinued operations | | 0.11 | | | 0.06 | | | | | |
Total | | $ | 11.92 | | | $ | 5.54 | | | | | |
DILUTED EARNINGS PER SHARE: | | | | | | | | |
Continuing operations | | $ | 11.78 | | | $ | 5.47 | | | | | |
Discontinued operations | | 0.11 | | | 0.06 | | | | | |
Total | | $ | 11.88 | | | $ | 5.52 | | | | | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | |
Basic | | 16.5 | | | 17.8 | | | | | |
Diluted | | 16.6 | | | 17.8 | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
4
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
NET INCOME | | $ | 202.9 | | | $ | 101.9 | | | | | |
Other comprehensive income (loss), net of taxes: | | | | | | | | |
Foreign currency translation adjustment | | (0.2) | | | (2.3) | | | | | |
Net unrealized gain (loss) on interest rate risk management activities, net of tax: | | | | | | | | |
Unrealized gain arising during the period, net of tax provision of $(10.5) and $(9.4), respectively | | 34.0 | | | 27.8 | | | | | |
| | | | | | | | |
Reclassification adjustment for loss included in interest expense, net of tax benefit of $0.6 and $0.7, respectively | | 1.9 | | | 2.4 | | | | | |
| | | | | | | | |
Unrealized gain on interest rate risk management activities, net of tax | | 35.9 | | | 30.2 | | | | | |
OTHER COMPREHENSIVE INCOME, NET OF TAX | | 35.7 | | | 27.9 | | | | | |
COMPREHENSIVE INCOME | | $ | 238.6 | | | $ | 129.8 | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
5
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, DECEMBER 31, 2021 | | 25,336,054 | | | $ | 0.3 | | | $ | 325.8 | | | $ | 2,345.9 | | | $ | (156.2) | | | $ | (690.4) | | | $ | 1,825.2 | |
Net income | | — | | | — | | | — | | | 202.9 | | | — | | | — | | | 202.9 | |
Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 35.7 | | | — | | | 35.7 | |
| | | | | | | | | | | | | | |
Purchases of treasury stock | | — | | | — | | | — | | | — | | | — | | | (115.2) | | | (115.2) | |
Net issuance of treasury shares to stock compensation plans | | (69,139) | | | — | | | (9.6) | | | — | | | — | | | 8.3 | | | (1.3) | |
Stock-based compensation | | — | | | — | | | 8.0 | | | — | | | — | | | — | | | 8.0 | |
Dividends declared ($0.36 per share) | | — | | | — | | | — | | | (6.2) | | | — | | | — | | | (6.2) | |
| | | | | | | | | | | | | | |
BALANCE, MARCH 31, 2022 | | 25,266,915 | | | $ | 0.3 | | | $ | 324.2 | | | $ | 2,542.7 | | | $ | (120.6) | | | $ | (797.3) | | | $ | 1,949.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | — | | | — | | | — | | | 101.9 | | | — | | | — | | | 101.9 | |
Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 27.9 | | | — | | | 27.9 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Net issuance of treasury shares to stock compensation plans | | (65,312) | | | — | | | (9.0) | | | — | | | — | | | 5.5 | | | (3.5) | |
Stock-based compensation | | — | | | — | | | 6.4 | | | — | | | — | | | — | | | 6.4 | |
Dividends declared ($0.31 per share) | | — | | | — | | | — | | | (5.6) | | | — | | | — | | | (5.6) | |
| | | | | | | | | | | | | | |
BALANCE, MARCH 31, 2021 | | 25,367,736 | | | $ | 0.3 | | | $ | 305.7 | | | $ | 1,914.2 | | | $ | (156.2) | | | $ | (487.3) | | | $ | 1,576.6 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
6
GROUP 1 AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions) | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net income | | $ | 202.9 | | | $ | 101.9 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 21.7 | | | 19.5 | |
Change in operating lease assets | | 7.8 | | | 5.9 | |
Deferred income taxes | | 7.2 | | | 5.9 | |
| | | | |
Stock-based compensation | | 8.0 | | | 6.4 | |
Amortization of debt discount and issuance costs | | 0.8 | | | 0.6 | |
Gain on disposition of assets | | (21.4) | | | (1.1) | |
| | | | |
| | | | |
Other | | 0.1 | | | (0.5) | |
Changes in assets and liabilities, net of acquisitions and dispositions: | | | | |
Accounts payable and accrued expenses | | 24.0 | | | 18.3 | |
Accounts and notes receivable | | (10.5) | | | (8.4) | |
Inventories | | (26.8) | | | 149.3 | |
Contracts-in-transit and vehicle receivables | | (0.4) | | | (43.5) | |
Prepaid expenses and other assets | | 10.1 | | | (7.9) | |
Floorplan notes payable — manufacturer affiliates | | 11.4 | | | (0.5) | |
Deferred revenues | | (0.1) | | | (0.1) | |
Operating lease liabilities | | (8.1) | | | (6.6) | |
Net cash provided by operating activities | | 226.8 | | | 239.3 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Cash paid for acquisitions, net, including repayment of sellers’ floorplan notes payable of $1.9 and $5.3, respectively | | (247.7) | | | (49.9) | |
Proceeds from disposition of franchises, property and equipment | | 79.5 | | | 10.4 | |
Purchases of property and equipment | | (33.9) | | | (37.3) | |
| | | | |
Other | | (2.4) | | | — | |
Net cash used in investing activities | | (204.5) | | | (76.7) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Borrowings on credit facility — floorplan line and other | | 2,996.4 | | | 2,310.4 | |
Repayments on credit facility — floorplan line and other | | (2,831.4) | | | (2,461.6) | |
Borrowings on credit facility — acquisition line | | 148.0 | | | — | |
Repayments on credit facility — acquisition line | | (176.3) | | | — | |
Debt issuance costs | | (3.7) | | | — | |
| | | | |
| | | | |
Borrowings on other debt | | 171.1 | | | 40.1 | |
Principal payments on other debt | | (191.1) | | | (45.4) | |
Proceeds from employee stock purchase plan | | 5.8 | | | 3.5 | |
Payments of tax withholding for stock-based compensation | | (7.1) | | | (7.0) | |
| | | | |
Repurchases of common stock, amounts based on settlement date | | (115.2) | | | — | |
| | | | |
Dividends paid | | (6.1) | | | (5.6) | |
| | | | |
Net cash used in financing activities | | (9.7) | | | (165.6) | |
Effect of exchange rate changes on cash | | 0.4 | | | (1.3) | |
Net increase (decrease) in cash and cash equivalents | | 13.1 | | | (4.3) | |
CASH AND CASH EQUIVALENTS, beginning of period | | 18.7 | | | 87.3 | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 31.8 | | | $ | 82.9 | |
| | | | |
| | | | |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
7
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND CONSOLIDATION AND ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements and notes thereto, have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Results for interim periods are not necessarily indicative of the results that can be expected for a full year and therefore should be read in conjunction with the Company’s audited Financial Statements and notes thereto included within the Company’s 2021 Form 10-K. All intercompany balances and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Financial Statements reflect the consolidated accounts of the parent company, Group 1 Automotive, Inc., and its subsidiaries, all of which are wholly owned.
On November 12, 2021, the Company entered into a Share Purchase Agreement (the “Brazil Agreement”) with Original Holdings S.A. (“Buyer”). Pursuant to the terms and conditions set forth in the Brazil Agreement, Buyer will acquire 100% of the issued and outstanding equity interests of the Company’s Brazilian operations (the “Brazil Disposal Group”) for approximately BRL 510.0 million in cash (the “Brazil Disposal”). The Brazil Disposal is expected to close before the end of the second quarter of 2022. 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 on the Brazil Discontinued Operations.
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.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”). Topic 848 provides optional expedients and exceptions for companies that have contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. The optional expedients and exceptions are intended to ease the financial reporting burdens mainly related to contract modification accounting, hedge accounting and lease accounting. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 and will apply through December 31, 2022. LIBOR is used as an interest rate “benchmark” for certain of the Company’s mortgages, other debt and lease contracts. Additionally, certain of the Company’s derivative instruments are benchmarked to LIBOR. The Company applied the relief described for the modification of its Revolving Credit Facility (as defined in Note 10. Floorplan Notes Payable) to SOFR in 2021. The Company will continue to apply the relief as its arrangements are modified and does not expect the adoption will have a material impact on the Company’s condensed consolidated financial statements.
2. REVENUES
The following tables present the Company’s revenues disaggregated by its geographical segments (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | | |
| | U.S. | | U.K. | | | | Total | | | | | | | | | |
New vehicle retail sales | | $ | 1,433.1 | | | $ | 312.0 | | | | | $ | 1,745.1 | | | | | | | | | | |
Used vehicle retail sales | | 1,037.9 | | | 322.0 | | | | | 1,359.9 | | | | | | | | | | |
Used vehicle wholesale sales | | 57.2 | | | 36.3 | | | | | 93.5 | | | | | | | | | | |
Total new and used vehicle sales | | 2,528.2 | | | 670.3 | | | | | 3,198.5 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Parts and service sales (1) | | 408.4 | | | 64.5 | | | | | 472.9 | | | | | | | | | | |
Finance, insurance and other, net (2) | | 154.7 | | | 18.3 | | | | | 173.0 | | | | | | | | | | |
Total revenues | | $ | 3,091.3 | | | $ | 753.0 | | | | | $ | 3,844.4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | | |
| | U.S. | | U.K. | | | | Total | | | | | | | | | |
New vehicle retail sales | | $ | 1,246.0 | | | $ | 263.2 | | | | | $ | 1,509.2 | | | | | | | | | | |
Used vehicle retail sales | | 696.5 | | | 191.6 | | | | | 888.1 | | | | | | | | | | |
Used vehicle wholesale sales | | 50.4 | | | 27.8 | | | | | 78.2 | | | | | | | | | | |
Total new and used vehicle sales | | 1,993.0 | | | 482.6 | | | | | 2,475.6 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Parts and service sales (1) | | 296.3 | | | 56.5 | | | | | 352.8 | | | | | | | | | | |
Finance, insurance and other, net (2) | | 115.1 | | | 10.6 | | | | | 125.6 | | | | | | | | | | |
Total revenues | | $ | 2,404.3 | | | $ | 549.6 | | | | | $ | 2,953.9 | | | | | | | | | | |
(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 $10.1 million and $6.0 million during the three months ended March 31, 2022 and 2021, respectively, relating to performance obligations satisfied in previous periods on the Company’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 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.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The Company analyzed and assessed all available information related to property and equipment and property lease contracts, determining the preliminary fair values were appropriate and no material adjustments were recorded. The Company previously recorded a $33.4 million deposit for the purchase of an additional dealership as part of the Prime Acquisition, which had not closed as of December 31, 2021. As of March 31, 2022, the Company is still waiting for distributor approval to obtain ownership of the additional dealership. Pursuant to 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.
The following table summarizes the consideration paid and aggregate amounts of assets acquired and liabilities assumed (in millions):
| | | | | | | | |
Total consideration | | $ | 967.6 | |
Identifiable assets acquired and liabilities assumed | | |
Inventories | | $ | 136.7 | |
Property and equipment | | 267.4 | |
Intangible franchise rights | | 135.3 | |
Operating lease assets | | 58.3 | |
Other assets (1) | | 63.1 | |
Total assets acquired | | 660.8 | |
Operating lease liabilities | | 56.6 | |
Other liabilities (2) | | 38.3 | |
Total liabilities assumed | | 94.9 | |
Total identifiable net assets | | 565.9 | |
| | |
Goodwill | | $ | 401.7 | |
(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 (in millions) | | |
Inventories | | $ | 10.4 | |
Property and equipment | | 28.1 | |
Operating lease assets | | 1.7 | |
Goodwill | | 15.1 | |
Total other assets classified as held for sale | | $ | 55.3 | |
Prime liabilities classified as held for sale (in millions) | | |
Operating lease liabilities | | $ | 1.7 | |
The Company’s Condensed Consolidated Statement of Operations included revenues and net income attributable to Prime for the three months ended March 31, 2022, of $414.1 million and $27.5 million, respectively.
Other Acquisitions
During the three months ended March 31, 2022, the Company acquired one Toyota dealership in the U.S. Total consideration paid for this dealership, which was accounted for as a business combination, was $250.4 million, consisting of cash paid of $247.7 million and a payable of $2.7 million. Goodwill and franchise rights intangibles associated with this acquisition totaled $136.0 million and $70.5 million, respectively.
During the three months ended March 31, 2021, the Company acquired two Toyota dealerships in the U.S. Aggregate consideration paid for these dealerships, which were accounted for as business combinations, totaled $49.9 million. Goodwill associated with these acquisitions totaled $22.6 million.
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 the Brazil Disposal. The Brazil Disposal is expected to close before the end of the second quarter of 2022. The sale price of BRL 510.0 million includes a holdback amount, for general representations and warranties, of BRL 115.0 million or approximately $24.2 million, to be held in escrow for a period of five years from the close of the transaction. At the conclusion of the five-year period, the remaining funds held in escrow would be released to the Company. This amount has been included in the estimated proceeds.
During the fourth quarter of 2021, the Company recognized a net loss of $77.5 million on the Brazil Disposal. During the three months ended March 31, 2022, the Company did not recognize any additional net loss on the disposal of the Brazil Disposal Group. The following table summarizes the estimated fair value of proceeds expected and net carrying value of the assets disposed as of March 31, 2022 (in millions):
| | | | | | | | | |
Estimated fair value of proceeds from disposition | | $ | 106.0 | | |
Estimated net assets disposed | | 51.2 | | |
Estimated gain before currency translation adjustments | | 54.8 | | |
Estimated amount of currency translation loss recorded in AOCI | | (118.3) | | |
Estimated incremental costs to sell | | 14.0 | | |
Net loss on disposal of the Brazil Disposal Group | | $ | (77.5) | | |
Upon sale of a foreign entity, amounts recorded within Accumulated Other Comprehensive Income (loss) (“AOCI”) on the Condensed Consolidated Balance Sheets, are required to be reclassified into earnings on the date of disposition. For purposes of determining the net gain or loss on the Brazil Disposal Group, the Company included the non-cash currency translation adjustment recorded in AOCI of a loss of $118.3 million attributable to the Brazil Disposal Group. The loss on sale indicates an impairment of assets, however, the loss was entirely the result of the reclassification of the non-cash currency translation adjustment from AOCI. For the three months ended March 31, 2022, the Company has presented a valuation allowance against assets held for sale of the Brazil Disposal Group to reflect the expected loss not attributable to a particular asset within the Brazil Disposal Group. In addition, the purchase price is denominated in BRL, which is subject to foreign currency exchange risk. In order to partially mitigate this risk, the Company entered into a foreign currency derivative for the conversion of BRL to USD in the form of a costless collar which protects the Company from significant downside exposure on $70.0 million of the expected purchase consideration. Any gains or losses associated with the foreign currency derivative are presented as estimated incremental costs to sell in the table above and are fully offset by corresponding foreign currency impacts to the estimated fair value of proceeds from the disposition.
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 March 31, | | |
| | 2022 | | 2021 | | | | |
REVENUES: | | | | | | | | |
New vehicle retail sales | | $ | 48.6 | | | $ | 34.1 | | | | | |
Used vehicle retail sales | | 22.2 | | | 10.7 | | | | | |
Used vehicle wholesale sales | | 5.3 | | | 2.0 | | | | | |
Parts and service sales | | 10.7 | | | 7.9 | | | | | |
Finance, insurance and other, net | | 1.5 | | | 1.4 | | | | | |
Total revenues | | 88.3 | | | 56.1 | | | | | |
COST OF SALES: | | | | | | | | |
New vehicle retail sales | | 43.8 | | | 30.8 | | | | | |
Used vehicle retail sales | | 20.6 | | | 9.6 | | | | | |
Used vehicle wholesale sales | | 5.3 | | | 1.8 | | | | | |
Parts and service sales | | 6.3 | | | 4.5 | | | | | |
Total cost of sales | | 76.1 | | | 46.7 | | | | | |
GROSS PROFIT | | 12.3 | | | 9.4 | | | | | |
Selling, general and administrative expenses | | 8.7 | | | 7.1 | | | | | |
Depreciation and amortization expense | | 0.4 | | | 0.3 | | | | | |
| | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS | | 3.1 | | | 2.1 | | | | | |
| | | | | | | | |
Floorplan interest expense | | 0.7 | | | — | | | | | |
Other interest (income) expense, net | | (0.1) | | | 0.6 | | | | | |
| | | | | | | | |
INCOME BEFORE INCOME TAXES — DISCONTINUED OPERATIONS | | 2.5 | | | 1.4 | | | | | |
Provision for income taxes | | 0.7 | | | 0.4 | | | | | |
NET INCOME — DISCONTINUED OPERATIONS | | $ | 1.8 | | | $ | 1.0 | | | | | |
The following table presents cash flows from operating and investing activities for the Brazil Discontinued Operations (in millions):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
Net cash provided by (used in) operating activities — discontinued operations | | $ | 11.8 | | | $ | (6.6) | |
Net cash used in investing activities — discontinued operations | | $ | (0.3) | | | $ | (0.5) | |
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):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | | $ | 15.2 | | | $ | 3.7 | |
Contracts-in-transit and vehicle receivables, net | | 5.7 | | | 2.3 | |
Accounts and notes receivable, net | | 11.6 | | | 11.8 | |
Inventories | | 37.0 | | | 37.2 | |
Prepaid expenses | | 2.3 | | | 1.9 | |
| | | | |
Assets of Brazil Discontinued Operations — current | | 71.8 | | | 56.9 | |
Property and equipment, net | | 26.0 | | | 22.3 | |
Operating lease assets | | 2.5 | | | 2.4 | |
| | | | |
| | | | |
Other long-term assets | | 9.6 | | | 7.8 | |
Assets of Brazil Discontinued Operations — non-current (1) | | 38.1 | | | 32.5 | |
Total assets, before valuation allowance | | 109.9 | | | 89.5 | |
Valuation allowance | | (63.5) | | | (76.4) | |
Total assets, net of valuation allowance (1) | | $ | 46.3 | | | $ | 13.0 | |
| | | | |
Floorplan notes payable — credit facility and other | | $ | 1.7 | | | $ | 3.3 | |
Floorplan notes payable — manufacturer affiliates | | 23.0 | | | 20.1 | |
| | | | |
Current operating lease liabilities | | 2.6 | | | 2.5 | |
Accounts payable | | 22.6 | | | 13.7 | |
Accrued expenses and other current liabilities | | 22.5 | | | 8.7 | |
Liabilities of Brazil Discontinued Operations — current | | $ | 72.5 | | | $ | 48.3 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(1) The assets of the Brazil Discontinued Operations are classified in current assets in the Condensed Consolidated Balance Sheet as of March 31, 2022 and December 31, 2021, as the Brazil Disposal is expected to close before the end of the second quarter of 2022.
Assets and Liabilities Held for Sale
Assets and liabilities classified as held for sale consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Current assets classified as held for sale | | | | |
Brazil Discontinued Operations | | $ | 46.3 | | | $ | 13.0 | |
Prime Acquisition (1) | | 26.6 | | | 52.3 | |
Other (2) | | 8.8 | | | 34.9 | |
Total current assets classified as held for sale | | $ | 81.8 | | | $ | 100.3 | |
| | | | |
| | | | |
| | | | |
Current liabilities classified as held for sale | | | | |
Brazil Discontinued Operations | | $ | 72.5 | | | $ | 48.3 | |
Prime Acquisition (1) | | 1.5 | | | 1.6 | |
Other | | 0.7 | | | — | |
Total current liabilities classified as held for sale | | $ | 74.6 | | | $ | 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 $7.5 million and $9.9 million of goodwill reclassified to assets held for sale as of March 31, 2022 and December 31, 2021.
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 three months ended March 31, 2022, the Company recorded a net pre-tax gain totaling $18.7 million related to the disposition of two dealerships representing two franchises in the U.S. The dispositions reduced goodwill by $17.0 million.
During the three months ended March 31, 2021, the Company recorded a net pre-tax gain totaling $1.0 million related to the disposition of one dealership representing one franchise and one franchise within an existing dealership in the U.S. The Company also terminated one franchise representing one dealership in the U.K.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
5. SEGMENT INFORMATION
As of March 31, 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 months ended March 31, 2022 and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | | |
| U.S. | | U.K. | | | | Total | | | | | | | | | |
Total revenues | $ | 3,091.3 | | | $ | 753.0 | | | | | $ | 3,844.4 | | | | | | | | | | |
Income before income taxes (1) | $ | 230.6 | | | $ | 31.7 | | | | | $ | 262.3 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 | | | |
| U.S. | | U.K. | | | | Total | | | | | | | | | |
Total revenues | $ | 2,404.3 | | | $ | 549.6 | | | | | $ | 2,953.9 | | | | | | | | | | |
Income before income taxes | $ | 121.6 | | | $ | 8.4 | | | | | $ | 130.0 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) For the three months ended March 31, 2022, income before income taxes includes net gains of $18.7 million and $2.7 million on dealership and real estate dispositions in the U.S. and U.K. segments, respectively. Refer to Note 4. Discontinued Operations and Other Divestitures for additional information.
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.
The following table sets forth the calculation of EPS on total net income for the three months ended March 31, 2022 and 2021 (in millions, except share and per share data): | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Weighted average basic common shares outstanding | | 16,529,351 | | | 17,757,693 | | | | | |
Dilutive effect of stock-based awards and employee stock purchases | | 56,264 | | | 66,396 | | | | | |
Weighted average dilutive common shares outstanding | | 16,585,614 | | | 17,824,088 | | | | | |
Basic: | | | | | | | | |
Net income | | $ | 202.9 | | | $ | 101.9 | | | | | |
Less: Earnings allocated to participating securities from continued operations | | 5.8 | | | 3.4 | | | | | |
Less: Earnings allocated to participating securities from discontinued operations | | 0.1 | | | — | | | | | |
Net income available to basic common shares | | $ | 197.0 | | | $ | 98.5 | | | | | |
Basic earnings per common share | | $ | 11.92 | | | $ | 5.54 | | | | | |
Diluted: | | | | | | | | |
Net income | | $ | 202.9 | | | $ | 101.9 | | | | | |
Less: Earnings allocated to participating securities from continued operations | | 5.8 | | | 3.4 | | | | | |
Less: Earnings allocated to participating securities from discontinued operations | | 0.1 | | | — | | | | | |
Net income available to diluted common shares | | $ | 197.1 | | | $ | 98.5 | | | | | |
Diluted earnings per common share | | $ | 11.88 | | | $ | 5.52 | | | | | |
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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.
The carrying value and fair value of the Company’s 4.00% Senior Notes and fixed rate mortgages were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying Value (1) | | Fair Value | | Carrying Value (1) | | Fair Value |
4.00% Senior Notes | | $ | 750.0 | | | $ | 698.2 | | | $ | 750.0 | | | $ | 748.4 | |
Real estate related | | 105.7 | | | 99.6 | | | 81.3 | | | 78.7 | |
Total | | $ | 855.7 | | | $ | 797.8 | | | $ | 831.3 | | | $ | 827.1 | |
(1) Carrying value excludes unamortized debt issuance costs.
Derivative Financial Instruments
The Company holds the majority of its interest rate swaps to hedge against variability of interest payments indexed to LIBOR and SOFR. The Company’s interest rate swaps are measured at fair value utilizing a one-month LIBOR or SOFR forward yield curve matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. The fair value of the interest rate swaps also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated using the spread between the one-month LIBOR or SOFR yield curve and the relevant interest rate according to rating agencies. The inputs to the fair value measurements reflect Level 2 of the hierarchy framework.
GROUP 1 AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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): | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Assets: | | | | |
Other current assets | | $ | — | | | $ | — | |
Other long-term assets | | 49.5 | | | 13.8 | |
Total assets | | $ | 49.6 | | | $ | 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
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