What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-03 compared with 2020-05-08 · 178 added, 126 removed, 509 unchanged (37% of the section changed)

3 unchanged sentences

(In millions, except share data)

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

Contracts-in-transit and vehicle receivables, net

Accounts and notes receivable, net

Accounts and notes receivables, net

Inventories, net

31 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying Notes to Condensed Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

1 unchanged sentence

(In millions, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

New vehicle retail sales

12 unchanged sentences

Depreciation and amortization expense

Asset impairments

INCOME (LOSS) FROM OPERATIONS

INTEREST EXPENSE:

Floorplan interest expense

Other interest expense, net

(Gain) loss on extinguishment of debt

INCOME (LOSS) BEFORE INCOME TAXES

5 unchanged sentences

Weighted average dilutive common shares outstanding

See accompanying Notes to Condensed Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

1 unchanged sentence

(In millions)

Three Months Ended March 31,

Three Months Ended

Six Months Ended

NET INCOME (LOSS)

7 unchanged sentences

COMPREHENSIVE INCOME (LOSS)

See accompanying Notes to Condensed Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

5 unchanged sentences

Treasury Stock

BALANCE, MARCH 31, 2020

Net income (loss)

Other comprehensive income (loss), net of taxes

Net issuance of treasury shares to stock compensation plans

Stock-based compensation

BALANCE, JUNE 30, 2020

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

BALANCE, DECEMBER 31, 2019

5 unchanged sentences

Dividends declared ($0.30 per share)

BALANCE, JUNE 30, 2020

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share data)

Paid-in Capital

Retained Earnings

Comprehensive Income (Loss)

Treasury Stock

BALANCE, MARCH 31, 2019

Net income (loss)

Other comprehensive income (loss), net of taxes

Net issuance of treasury shares to stock compensation plans

Stock-based compensation

Dividends declared ($0.26 per share)

BALANCE, JUNE 30, 2019

Paid-in Capital

9 unchanged sentences

ASC 842 cumulative adjustment

BALANCE, March 31, 2019

See accompanying Notes to Condensed Consolidated Financial Statements

BALANCE, JUNE 30, 2019

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

1 unchanged sentence

(In millions)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Deferred income taxes

Asset impairments

Stock-based compensation

1 unchanged sentence

(Gain) loss on disposition of assets

(Gain) loss on extinguishment of debt

Changes in assets and liabilities, net of acquisitions and dispositions:

Accounts payable and accrued expenses

Accounts and notes receivable

Accounts and notes receivables

Contracts-in-transit and vehicle receivables

5 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisitions, net of cash received

Proceeds from disposition of franchises, property and equipment

7 unchanged sentences

Debt issue costs

Repayments of senior notes

Borrowings on other debt

11 unchanged sentences

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

See accompanying Notes to Condensed Consolidated Financial Statements

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

GROUP 1 AUTOMOTIVE, INC.

10 unchanged sentences

and sells vehicle parts.

As of March 31, 2020 , the Company’s retail network consisted of 119 dealerships in the U.S., 50 dealerships in the U.K.

As of June 30, 2020 , the Company’s retail network consisted of 119 dealerships in the U.S., 50 dealerships in the U.K.

and 17 dealerships in Brazil.

12 unchanged sentences

COVID-19 Pandemic

Since emerging in December 2019, the COVID-19 pandemic has spread globally, including to all of the Company’s markets in the U.S., U.K.

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

On March 11, 2020, the WHO declared COVID-19 a pandemic, and subsequently, various countries including the U.S., U.K.

and Brazil declared the COVID-19 pandemic a national emergency.

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

Beginning in mid-March, these measures have either completely shut down or significantly reduced operating capacity of all of the Company’s dealerships in the U.S., the U.K.

The length of the stay-at-home orders, travel restrictions and other restrictions on operating businesses and resulting economic impacts are uncertain.

To date, these measures have significantly reduced the Company’s new and used vehicle sales volumes, parts and service revenues and F&I revenues, as well as impacted the Company’s vehicle and parts supply chain.

During the three months ended March 31, 2020, the Company incurred certain incremental charges as a result of the COVID-19 pandemic, which included one-time employee termination benefits associated with severance of $ 0.9 million recorded in Selling, general and administrative expenses, additional used vehicle inventory reserves of $ 4.8 million as a result of the adjustment to lower of specific cost or net realizable value and additional allowance for doubtful accounts reserves of $ 0.4 million as further described in Note 7 “Receivables and Contract Assets, Net.” The Company also performed an interim impairment assessment of goodwill and intangible franchise rights and concluded that it was not more-likely-than-not that the Company’s goodwill and intangible franchise rights were impaired as of March 31, 2020.

Refer to Note 8 “Intangibles” for additional discussion of the Company’s interim impairment assessment.

The anticipated effects of the COVID-19 pandemic should not materially impact the Company’s estimated effective tax rate for the full-year of 2020.

As the potential impact from the COVID-19 pandemic is difficult to predict, the extent to which it may negatively affect the Company’s future operating results or the duration of any potential business disruption is uncertain.

On March 11, 2020, the WHO declared COVID-19 a pandemic, and subsequently, various countries declared the COVID-19 pandemic a national emergency.

The global spread of the COVID-19 pandemic continues to adversely impact the Company’s markets in the U.S., U.K.

While government mandated restrictions to contain and combat the virus, such as stay-at-home orders on individuals and operating restrictions on businesses, impacted the Company’s dealerships beginning in mid-March 2020, these measures have begun easing in the second quarter and most of the Company’s markets have shown signs of recovery.

However, despite signs of market recovery, the potential impact from the COVID-19 pandemic is difficult to predict, especially as cases rise in some of the Company’s markets.

As such, the extent to which the impact may negatively affect the Company’s future operating results or the duration of any potential business disruption is uncertain.

Any potential impact will depend on future developments and new information that may emerge regarding the severity and duration of the COVID-19 pandemic and the actions taken by authorities to contain it or treat its impact, all of which are beyond the Company’s control.

These potential impacts, while uncertain, could adversely affect the Company’s business, financial condition and results of operations and could also exacerbate the risks identified in the risk factors listed in this Form 10-Q.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Basis of Presentation

7 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

During the three months ended June 30, 2020 , the Company recorded an out-of-period adjustment of $ 10.6 million resulting in an increase to Selling, general and administrative expenses and Additional paid-in capital to correct stock-based compensation for awards granted in prior years to retirement eligible employees not recognized timely due to the incorrect treatment of a non-substantive service condition.

The impact to the three months ended June 30, 2020 was a decrease to net income of $ 9.7 million resulting in a decrease to diluted earnings per common share of $ 0.53 .

The effect of this adjustment on any previously reported periods was not material based on a quantitative and qualitative evaluation.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Certain prior-period amounts have been reclassified to conform to current-period presentation.

20 unchanged sentences

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

The Company is expecting to adopt the relief described as its arrangements are modified.

The Company is expecting to adopt the relief described as its arrangements are modified and does not expect the adoption will have an impact on the Company’s consolidated financial statements due to the relief provided.

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

During the three months ended June 30, 2020 the Company recorded goodwill impairment charges of $ 10.7 million within the Brazil reporting unit and franchise rights impairment charges of $ 11.1 million within the U.K segment and $ 0.1 million within the Brazil segment.

Refer to Note 8 “Intangibles” for additional discussion of the Company’s interim impairment assessment.

The Company also reviews long-lived assets that are held-for-use, including the Company’s property and equipment and ROU assets, for impairment at the lowest level of identifiable cash flows whenever there are indicators that the carrying value of these assets may not be recoverable.

During the three months ended June 30, 2020 , the Company recognized ROU asset impairment charges of $ 1.7 million relating to seven dealerships within the U.K.

segment and $ 0.2 million relating to one dealership within the Brazil segment.

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

GROUP 1 AUTOMOTIVE, INC.

1 unchanged sentence

The following tables present the Company’s revenues disaggregated by revenue source and geographical segments (in millions):

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

New vehicle retail sales

5 unchanged sentences

Total revenues

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

New vehicle retail sales

7 unchanged sentences

Revenues from these contracts is recognized upon completion of the services, which occurs over time.

(2) Includes variable consideration recognized of $ 4.0 million and $ 3.2 million during the three months ended March 31, 2020 and 2019 , respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts.

(2) Includes variable consideration recognized of $ 5.4 million and $ 9.0 million during the three months ended June 30, 2020 and 2019 , respectively, and $ 9.3 million and $ 12.2 million during the six months ended June 30, 2020 and 2019 , respectively, relating to performance obligations satisfied in previous periods on the Company’s retrospective commission income contracts.

See Note 7 “Receivables and Contract Assets, Net” for additional information on the Company’s contract assets associated with revenues from the arrangement of financing and sale of service and insurance contracts.

1 unchanged sentence

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.

During the three months ended March 31, 2020 , the Company had no activity related to acquisitions.

During the three months ended March 31, 2019 , the Company opened one dealership representing one franchise in the U.S.

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

During the three months ended March 31, 2020 , the Company had no activity related to dispositions.

During the three months ended March 31, 2019 , the Company’s dispositions included three dealerships representing six franchises in the U.S.

During the six months ended June 30, 2020 , the Company acquired a collision center in the U.S., which was integrated into an existing dealership.

During the six months ended June 30, 2019 , the Company opened one dealership representing one franchise in the U.S.

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

During the six months ended June 30, 2020 , the Company did not dispose of any businesses.

During the six months ended June 30, 2019 , the Company disposed of three dealerships representing six franchises in the U.S., three dealerships representing four franchises in the U.K and one dealership representing one franchise in Brazil.

The Company recorded a net pre-tax gain totaling $ 5.4 million related to these dispositions.

4 unchanged sentences

SEGMENT INFORMATION

As of March 31, 2020 , the Company had three reportable segments:

As of June 30, 2020 , the Company had three reportable segments:

the U.S., the U.K.

5 unchanged sentences

Managing Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.

Each of the segments is comprised of retail automotive franchises that sell new and used cars and light trucks;

Each segment is comprised of retail automotive franchises that sell new and used cars and light trucks;

arrange related vehicle financing;

4 unchanged sentences

segment and therefore the corporate financial results are included within the U.S.

Reportable segment revenues and income (loss) before income taxes were as follows for the three months ended March 31, 2020 and 2019 (in millions):

Three Months Ended March 31, 2020

Reportable segment revenues and income (loss) before income taxes were as follows for the three and six months ended June 30, 2020 and 2019 (in millions):

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Total revenues

Income (loss) before income taxes (1)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Total revenues

Income (loss) before income taxes (2)

(1) Income (loss) before income taxes for the three months ended March 31, 2020 includes a $ 0.9 million severance expense in the Brazil segment as further described in Note 1 “Interim Financial Information.”

(2) Income (loss) before income taxes for the three months ended March 31, 2019 includes a $ 5.2 million net gain on disposition of real estate and dealership transactions in the U.S.

segment, a $ 2.4 million loss on legal matters in the U.S.

and Brazil segments and $ 2.0 million in expense related to Oklahoma hail storm damages in the U.S.

(1) For the three months ended June 30, 2020 , income (loss) before income taxes includes the following:

segment, $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment and a $ 10.4 million loss on debt extinguishment;

segment, $ 12.8 million in asset impairments and $ 1.2 million in severance expense;

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

For the six months ended June 30, 2020 , income (loss) before income taxes includes the following:

segment, $ 10.6 million in stock-based compensation expense related to an out-of-period adjustment and a $ 10.4 million loss on debt extinguishment;

segment, $ 12.8 million in asset impairments and $ 1.2 million in severance expense;

and in the Brazil segment, $ 11.1 million in asset impairments and $ 0.9 million in severance expense.

(2) For the three months ended June 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 4.0 million in expenses related to Texas hail storm damages;

and in the Brazil segment, $ 0.5 million in asset impairment charges, $ 0.4 million gain on legal matters and $ 0.2 million net gain on disposition of real estate and dealership transactions.

For the six months ended June 30, 2019 , income (loss) before income taxes includes the following:

segment, $ 6.0 million in expenses related to hail storm damages in Texas and Oklahoma, $ 5.2 million net gain on disposition of real estate and dealership transactions and $ 1.8 million net loss on legal matters;

and in the Brazil segment, $ 0.5 million in asset impairment charges, $ 0.2 million net gain on disposition of real estate and dealership transactions and $ 0.2 million net loss on legal matters.

EARNINGS PER SHARE

7 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The following table sets forth the calculation of EPS for the three months ended March 31, 2020 and 2019 (in millions, except share data):

Three Months Ended March 31,

The following table sets forth the calculation of EPS for the three and six months ended June 30, 2020 and 2019 (in millions, except share data):

Three Months Ended June 30,

Six Months Ended June 30,

Weighted average basic common shares outstanding

17 unchanged sentences

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

Cash and Cash Equivalents, Contracts-In-Transit and Vehicle Receivables, Accounts and Notes Receivables, Accounts Payable, Variable Rate Long-Term Debt and Floorplan Notes Payable

The fair values of these financial instruments approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates.

The Company periodically invests in demand notes with a manufacturer-affiliated finance company that bear interest at a variable rate determined by the manufacturer and represent unsecured, unsubordinated and unguaranteed debt obligations of the manufacturer.

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

The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices, that are observable or that can be corroborated by observable data by correlation.

Accordingly, the Company has classified these instruments within Level 2 of the hierarchy framework.

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

Fixed Rate Long-Term Debt

2 unchanged sentences

The Company estimates the fair value of its 5.00 % 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).

GROUP 1 AUTOMOTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)– (Continued)

The carrying value and fair value of the Company’s 5.00 % Senior Notes and fixed rate mortgages were as follows (in millions):

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

(1) Carrying value includes unamortized discount and excludes debt issuance costs .

As described in Note 9 “Debt,” on April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023, at a premium of 102.625 % .

The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $ 307.9 million .

The redemption price approximated the fair value of the 5.25 % Senior Notes as of March 31, 2020.

On April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023.

Refer to Note 9 “Debt” for further discussion of the redemption.

Derivative financial instruments

3 unchanged sentences

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 .

The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 .

As of March 31, 2020 , the Company held 29 interest rate swaps in effect with a total notional value of $ 786.2 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.91 % .

The Company also held 13 additional interest rate swaps with forward start dates beginning April 2020 that had an aggregate notional value of $ 580.8 million and a weighted average interest rate of 1.60 % as of March 31, 2020 .

The Company had no gains or losses related to ineffectiveness recognized in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 .

As of June 30, 2020 , the Company held 37 interest rate swaps in effect with a total notional value of $ 904.4 million that fixed its underlying one-month LIBOR at a weighted average rate of 1.73 % .

The Company also held 12 additional interest rate swaps with forward start dates beginning July 2020 that had an aggregate notional value of $ 608.5 million and a weighted average interest rate of 1.57 % as of June 30, 2020 .

The maturity dates of the Company’s interest rate swaps range between December 2020 and December 2030.

3 unchanged sentences

The fair value of the interest rate swaps also considers the credit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position.

The credit risk is calculated using the spread between the one-month LIBOR yield curve and the relevant interest rate according to Standard and Poor’s.

The credit risk is calculated using the spread between the one-month LIBOR yield curve and the relevant interest rate according to rating agencies.

The inputs to the fair value measurements reflect Level 2 inputs.

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

March 31, 2020

June 30, 2020

December 31, 2019

Assets from interest rate risk management activities:

Other long-term assets

Liabilities from interest rate risk management activities:

Accrued expenses and other current liabilities

Long-term interest rate swap liabilities

Total long-term liabilities from interest rate risk management activities

Included in Accumulated other comprehensive income (loss) as of March 31, 2020 and 2019 , were unrealized gains (losses), net of tax, totaling ($ 35.2 ) million and $ 4.4 million , respectively, related to the Company’s interest rate swaps.

Total liabilities

Included in Accumulated other comprehensive income (loss) as of June 30, 2020 and 2019 , were unrealized gains (losses), net of tax, totaling ($ 40.1 ) million and $( 5.4 ) million , respectively, related to the Company’s interest rate swaps.

GROUP 1 AUTOMOTIVE, INC.

2 unchanged sentences

Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)

Three Months Ended March 31,

Six Months Ended June 30,

Derivatives in Cash Flow Hedging Relationship

2 unchanged sentences

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

Three Months Ended March 31,

Floorplan interest expense, net

Six Months Ended June 30,

Floorplan interest expense

Other interest expense, net

2 unchanged sentences

The Company’s financial assets measured at amortized cost and the associated allowance for doubtful accounts consisted of the following (in millions):

March 31, 2020

June 30, 2020

December 31, 2019

14 unchanged sentences

Total contract assets, net (1), (2)

(1) The allowance for doubtful accounts as of March 31, 2020 is calculated under the current expected credit loss (“CECL”) model described below, which was introduced under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

(1) The allowance for doubtful accounts as of June 30, 2020 is calculated under the current expected credit loss (“CECL”) model described below, which was introduced under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”) , that became effective for the Company on January 1, 2020.

The adoption of ASC 326 did not materially change the calculation of the allowance for doubtful accounts.

(2) No allowance for doubtful accounts was recorded for Contract assets, net as of March 31, 2020 or December 31, 2019.

No past due balances existed as of either date, and there were no expected credit losses as of March 31, 2020.

(2) No allowance for doubtful accounts was recorded for Contract assets, net as of June 30, 2020 or December 31, 2019.

No past due balances existed as of either date, and there were no expected credit losses as of June 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

4 unchanged sentences

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

The Company recorded an adjustment of approximately $ 0.4 million for expected credit losses as of March 31, 2020 as a result of adverse economic conditions in the U.S.

arising from the COVID-19 pandemic.

The adjustment primarily impacted receivables that were not past due and thus were not subject to estimated credit losses under the aging method.

The Company performs interim reviews of its intangible assets when evidence exists that the carrying value may not be recoverable.

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

As described in Note 1 “Interim Financial Information,” since emerging in December 2019, the COVID-19 pandemic has spread globally, including to all of the Company’s markets in the U.S., U.K.

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

Measures taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of the COVID-19 pandemic have either completely shut down or significantly reduced operating capacity of all of the Company’s dealerships in the U.S., the U.K.

The length of the stay-at-home orders, travel restrictions and other restrictions on operating businesses is uncertain.

During the three months ended March 31, 2020, the Company performed an interim impairment assessment of goodwill and intangible franchise rights to determine if events or changes in circumstances, including the impact of the COVID-19 pandemic, indicated that it was more-likely-than-not that the assets were impaired.

This included an initial qualitative assessment of factors potentially indicating a more-likely-than-not impairment.

Based on the results of the assessment, it was concluded that it was not more-likely-than-not that the Company’s goodwill and intangible franchise rights were impaired as of March 31, 2020, mainly due to the belief that the impact from the COVID-19 pandemic on the Company’s business is temporary in nature.

If the Company’s assumptions around the temporary nature of the impact or strength of recovery change in future periods, this could result in a more-likely-than-not impairment.

While the U.S.

began to show signs of recovery in the second quarter of 2020, the Company’s showrooms in Brazil did not fully reopen until May 2020 and operated at reduced hours.

Despite operations resuming in Brazil, the impact of the virus continues to worsen and has not yet reached its predicted peak in some of the Company’s Brazilian markets.

The slower than expected recovery from the COVID-19 pandemic in Brazil during the second quarter of 2020 constituted a triggering event indicating that goodwill may be impaired.

Therefore the Company performed a quantitative goodwill impairment test for the Brazil reporting unit as of June 30, 2020 and as a result, the Company recorded a goodwill impairment charge of $ 10.7 million within the Brazil reporting unit.

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

Balance, December 31, 2019 (1)

Additions and adjustments

Currency translation

Balance, June 30, 2020

(1) Net of accumulated impairments of $ 108.6 million .

The impact of the COVID-19 pandemic on the economy and unemployment during the second quarter of 2020 adversely impacted the Company’s operating results in the U.S., U.K.

and Brazil, as well as the Company’s long-term outlook projections compared to the projections in first quarter of 2020.

As a result, it was concluded that it was more-likely-than-not that the intangible franchise rights of some dealerships were impaired, requiring a quantitative test as of June 30, 2020.

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

dealerships and one Brazil dealership were below their respective carrying values.

This resulted in franchise rights impairment charges of $ 11.1 million in the U.K segment and $ 0.1 million in the Brazil segment.

In estimating the fair value required for the goodwill and intangible franchise impairment tests, the Company used a discounted cash flow model, or income approach, specifically the excess earnings method.

Significant inputs to the model included changes in revenue growth rates, future gross margins, future SG&A expenses, terminal growth rates and the WACC, which were unobservable inputs, or Level 3 in the fair value hierarchy.

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

GROUP 1 AUTOMOTIVE, INC.

1 unchanged sentence

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

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Long-term debt

(1) The Company’s 5.25 % Senior Notes were fully redeemed on April 2, 2020 and therefore the debt balance of $ 297.5 million , net of unamortized discount and debt issuance costs, was included in current maturities as of March 31, 2020.

See Subsequent 5.25% Senior Notes Redemption and Debt Refinancing for further discussion.

(1) The Company’s 5.25 % Senior Notes were fully redeemed on April 2, 2020.

See 5.25 % Senior Notes Redemption and Debt Refinancing for further discussion.

Acquisition Line

The proceeds of the Acquisition Line are used for working capital, general corporate and acquisition purposes.

As of March 31, 2020 , borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as described in Note 10 , “Floorplan Notes Payable” ), totaled $ 68.1 million .

The average interest rate on this facility was 1.85 % during the three months ended March 31, 2020 , representing the applicable rate for borrowings in GBP.

As of June 30, 2020 , borrowings under the Acquisition Line, a component of the Revolving Credit Facility (as described in Note 10 , “Floorplan Notes Payable” ), totaled $ 136.6 million .

The average interest rate on this facility was 1.60 % during the three months ended June 30, 2020 .

Real Estate Related

1 unchanged sentence

and Brazil that are paid in monthly installments.

As of March 31, 2020 , borrowings outstanding under these facilities totaled $ 455.9 million , gross of debt issuance costs, comprised of $ 366.0 million in the U.S., $ 78.9 million in the U.K.

As of June 30, 2020 , borrowings outstanding under these facilities totaled $ 620.6 million , gross of debt issuance costs, comprised of $ 531.0 million in the U.S., $ 77.7 million in the U.K.

and $ 11.9 million in Brazil.

Subsequent 5.25 % Senior Notes Redemption and Debt Refinancing

5.25 % Senior Notes Redemption and Debt Refinancing

On April 2, 2020, the Company fully redeemed $ 300.0 million in aggregate principal amount of its outstanding 5.25 % Senior Notes due June 2023, at a premium of 102.625 % .

The total redemption price, consisting of the principal amount of the notes redeemed plus associated premium, amounted to $ 307.9 million .

The Company recognized a loss on redemption of $ 10.4 million which included write offs of unamortized discount in the amount of $ 1.9 million and unamortized premium in the amount of $ 0.6 million .

The Company recognized a loss on extinguishment of $ 10.4 million which included write offs of unamortized discount in the amount of $ 1.9 million and unamortized premium in the amount of $ 0.6 million .

Additionally, the Company paid accrued interest of $ 4.6 million .

The redemption was funded through a combination of Acquisition Line borrowings, mortgage borrowings and excess cash.

Additional mortgage debt will be funded during the second quarter of 2020 to provide supplemental liquidity.

From April 1, 2020 through the date of this filing, the Company entered into additional mortgage loans in the U.S.

totaling approximately $ 130 million .

GROUP 1 AUTOMOTIVE, INC.

2 unchanged sentences

The Company’s floorplan notes payable consisted of the following (in millions):

March 31, 2020

June 30, 2020

December 31, 2019

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The Acquisition Line includes a $ 100 million sub-limit for letters of credit.

As of March 31, 2020 and December 31, 2019 , the Company had $ 20.6 million and $ 23.6 million , respectively, in outstanding letters of credit.

As of June 30, 2020 and December 31, 2019 , the Company had $ 18.6 million and $ 23.6 million , respectively, in outstanding letters of credit.

The Floorplan Line bears interest at rates equal to the LIBOR plus 110 basis points for new vehicle inventory and LIBOR plus 140 basis points for used vehicle inventory.

The weighted average interest rate on the Floorplan Line was 1.76 % as of March 31, 2020 , excluding the impact of the Company’s interest rate derivative instruments.

The weighted average interest rate on the Floorplan Line was 1.21 % as of June 30, 2020 , excluding the impact of the Company’s interest rate derivative instruments.

The Acquisition Line bears interest at LIBOR or a LIBOR equivalent plus 100 to 200 basis points, depending on the Company’s total adjusted leverage ratio, on borrowings in U.S.

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

In conjunction with the Revolving Credit Facility, the Company has $ 4.5 million of related unamortized debt issuance costs as of March 31, 2020 , 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.

In conjunction with the Revolving Credit Facility, the Company has $ 4.1 million of related unamortized debt issuance costs as of June 30, 2020 , 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.

Offset accounts

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The Company has a $ 300.0 million floorplan arrangement with FMCC for financing of new Ford vehicles in the U.S.

This facility bears interest at a rate of Prime plus 150 basis points minus certain incentives.

The interest rate on the FMCC Facility was 4.75 % before considering the applicable incentives as of March 31, 2020 .

This facility bears interest at the higher of the actual U.S.

Prime rate or a Prime Floor of 4.00%, plus 150 basis points minus certain incentives.

The interest rate on the FMCC Facility was 5.50 % before considering the applicable incentives as of June 30, 2020 .

GROUP 1 AUTOMOTIVE, INC.

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

As of March 31, 2020 , borrowings outstanding under these facilities totaled $ 249.5 million , comprised of $ 109.6 million in the U.S., with annual interest rates ranging from less than 1 % to approximately 5 % , $ 126.0 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 % , and $ 13.9 million in Brazil, with annual interest rates ranging from approximately 4 % to 14 % .

As of June 30, 2020 , borrowings outstanding under these facilities totaled $ 228.7 million , comprised of $ 97.7 million in the U.S., with annual interest rates ranging from less than 2 % to approximately 6 % , $ 122.2 million in the U.K., with annual interest rates ranging from approximately 1 % to 4 % , and $ 8.9 million in Brazil, with annual interest rates ranging from approximately 2 % to 10 % .

CASH FLOW INFORMATION

Cash, Cash Equivalents and Restricted Cash

The total amounts presented on the Company’s Condensed Consolidated Statements of Cash Flows include cash, cash equivalents and restricted cash.

As of March 31, 2020, the Company had cash and cash equivalents of $ 19.2 million and as of December 31, 2019 , the Company had cash and cash equivalents of $ 23.8 million and restricted cash of $ 4.3 million included in Other long-term assets .

The cash flows presented within the Company’s Condensed Consolidated Statements of Cash Flows reflect cash and cash equivalents of $ 72.7 million as of June 30, 2020 , and cash and cash equivalents of $ 23.8 million and restricted cash of $ 4.3 million included in Other long-term assets as of December 31, 2019 .

Non-cash Activities

The Company had a net increase of $ 0.7 million and a net decrease of $ 4.1 million in the accrual for capital expenditures for the three months ended March 31, 2020 and 2019 , respectively.

The accrual for capital expenditures decreased $ 2.7 million and decreased $ 3.5 million for the six months ended June 30, 2020 and June 30, 2019 , respectively.

The following table presents ROU assets obtained in exchange for lease obligations (in millions):

Three Months Ended March 31,

Six Months Ended June 30,

ROU assets obtained in exchange for lease obligations:

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Interest and Income Taxes Paid

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 19.9 million and $ 21.9 million for the three months ended March 31, 2020 and 2019 , respectively.

The Company received a net tax refund of $ 6.2 million for the three months ended March 31, 2020 .

Cash paid for income taxes, net of refunds, was $ 1.2 million for the three months ended March 31, 2019 .

Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $ 57.0 million and $ 64.4 million for the six months ended June 30, 2020 and 2019 , respectively.

Cash received for income taxes, net of tax payments, was $ 6.8 million for the six months ended June 30, 2020 .

Cash paid for income taxes, net of refunds, was $ 19.4 million for the six months ended June 30, 2019 .

COMMITMENTS AND CONTINGENCIES

From time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, as well as claims involving the manufacturers of automobiles, contractual disputes and other matters arising in the ordinary course of business.

From time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class action claims, purported class action claims, claims involving the manufacturers of automobiles, contractual disputes and other matters arising in the ordinary course of business.

The Company may be involved in legal proceedings or suffer losses that could have a material adverse effect on the Company’s business.

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Legal Proceedings

As of March 31, 2020 , 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, including class action lawsuits.

As of June 30, 2020 , 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, including class action lawsuits.

However, the results of current or future matters cannot be predicted with certainty and an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

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The Company has sold a number of dealerships to third parties and as a condition to certain of those dispositions, remains liable for the remaining lease payments of such dealerships in the event of non-payment by the purchaser.

Although the Company has no reason to believe that it will be called upon to perform under any such assigned leases, the Company estimates that lessee remaining rental obligations were $ 38.5 million as of March 31, 2020 .

In certain instances, the Company obtains collateral support for the rental obligations that the Company remains obligated upon sale of a dealership to a lessee.

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 6.1 million as of March 31, 2020 .

In certain instances, the Company obtains collateral support for the rental obligations that the Company remains obligated for upon sale of a dealership to a lessee.

Total associated letters of credit issued on behalf of the lessee where the Company is the beneficiary was $ 6.1 million as of June 30, 2020 .

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in the balances of each component of Accumulated other comprehensive income (loss) were as follows (in millions):

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Accumulated income (loss) on foreign currency translation

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Other comprehensive income (loss) before reclassifications:

Amounts reclassified from accumulated other comprehensive income (loss):

Amount reclassified from accumulated other comprehensive income (loss):

Floorplan interest expense (pre-tax)

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Net current period other comprehensive income (loss)

Balance, March 31, 2020

Three Months Ended March 31, 2019

Balance, June 30, 2020

Six Months Ended June 30, 2019

Accumulated income (loss) on foreign currency translation

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Other comprehensive income (loss) before reclassifications:

Amounts reclassified from accumulated other comprehensive income (loss) to:

Amount reclassified from accumulated other comprehensive income (loss) to

Floorplan interest expense (pre-tax)

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Net current period other comprehensive income (loss)

Balance, March 31, 2019

Balance, June 30, 2019

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

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• uncertainty regarding the length of time it will take for the U.S.

and the rest of the world to slow the spread of the COVID-19 pandemic to the point where applicable authorities are comfortable easing current restrictions on various commercial and economic activities;

• uncertainty regarding the timing, pace and extent of an economic recovery in the U.S.

and the rest of the world to slow the spread of the COVID-19 pandemic, the actions to be taken by governments to contain and combat the pandemic and the timing, pace and extent of an economic recovery in the U.S.

and elsewhere, which in turn will likely affect demand for our vehicles, parts and services;

• uncertainty regarding the future actions of foreign oil producers such as Saudi Arabia and Russia and the effect such actions could have on oil prices which have a significant impact on the local economies where many of our dealerships operate in the U.S.;

• future deterioration in the economic environment, including consumer confidence, consumer preferences, interest rates, the prices of oil and gasoline, the level of manufacturer incentives, the implementation of international and domestic trade tariffs and the availability of consumer credit may affect the demand for new and used vehicles, replacement parts, maintenance and repair services, and F&I products;

• adverse domestic and international developments such as war, terrorism, political conflicts or other hostilities may adversely affect the demand for our products and services;

• adverse domestic and international developments such as war, terrorism, political conflicts, social protests or other hostilities may adversely affect the demand for our products and services;

• uncertainty of the potential impact of Brexit on the overall U.K.

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state franchise laws, may impose additional costs on us or otherwise adversely affect us;

• a concentration of risk associated with our principal automobile manufacturers, especially Toyota, Nissan, Honda, BMW, Ford, Daimler, General Motors, Chrysler, Hyundai and Volkswagen, because of financial distress, bankruptcy, natural disasters or pandemics, such as the COVID-19 pandemic, that disrupt production, or other reasons, may not continue to produce or make available to us vehicles that are in high demand by our customers or provide financing, insurance, advertising or other assistance to us;

• a concentration of risk associated with our principal automobile manufacturers, especially Toyota, Nissan, Honda, BMW, Ford, Daimler, General Motors, Chrysler, Hyundai, Volkswagen and Jaguar-Land Rover, because of financial distress, bankruptcy, natural disasters or pandemics, such as the COVID-19 pandemic, that disrupt production, or other reasons, may not continue to produce or make available to us vehicles that are in high demand by our customers or provide financing, insurance, advertising or other assistance to us;

• restructuring by one or more of our principal manufacturers, up to and including bankruptcy, may cause us to suffer financial loss in the form of uncollectible receivables, devalued inventory or loss of franchises;

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements