10-Q 1 a2019q1form10-q.htm 1Q 2019 FORM 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 FORM 10-Q
 
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨
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 or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
800 Gessner, Suite 500
Houston, Texas 77024
(Address of principal executive offices) (Zip code)
 
(713) 647-5700
(Registrant’s telephone number, including area code)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Ticker symbol
 
Name of exchange on which registered
Common stock, par value $0.01 per share
 
GPI
 
New York Stock Exchange
As of April 30, 2019, the registrant had 18,518,069 shares of common stock, par value $0.01, outstanding.



TABLE OF CONTENTS
 

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
(In thousands, except per share amounts)
 
 
March 31, 2019
 
December 31, 2018
 
 
(Unaudited)
 
 
ASSETS
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
33,623

 
$
15,932

Contracts-in-transit and vehicle receivables, net
 
261,194

 
265,660

Accounts and notes receivable, net
 
185,311

 
193,981

Inventories, net
 
1,860,907

 
1,844,059

Prepaid expenses and other current assets
 
92,036

 
82,734

TOTAL CURRENT ASSETS
 
2,433,071

 
2,402,366

Property and equipment, net
 
1,370,743

 
1,347,835

Operating lease assets
 
214,776

 

Goodwill
 
965,882

 
963,925

Intangible franchise rights
 
260,465

 
259,630

Other assets
 
18,554

 
27,319

TOTAL ASSETS
 
$
5,263,491

 
$
5,001,075

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
 
 
 
 
Floorplan notes payable - credit facility and other
 
$
1,255,784

 
$
1,292,452

Offset account related to floorplan notes payable - credit facility
 
(72,728
)
 
(33,637
)
Floorplan notes payable - manufacturer affiliates
 
444,003

 
417,924

Offset account related to floorplan notes payable - manufacturer affiliates
 
(26,000
)
 
(100
)
Current maturities of long-term debt and short-term financing
 
96,359

 
92,967

Current operating lease liabilities
 
23,907

 

Accounts payable
 
507,348

 
419,350

Accrued expenses and other current liabilities
 
208,069

 
197,609

TOTAL CURRENT LIABILITIES
 
2,436,742

 
2,386,565

Long-term debt, net of current maturities
 
1,262,582

 
1,281,489

Operating lease liabilities, net of current portion
 
204,331

 

Deferred income taxes
 
136,219

 
134,683

Liabilities from interest rate risk management activities
 
2,430

 
1,696

Other liabilities
 
93,474

 
100,948

Commitments and Contingencies (Note 12)
 

 

STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $0.01 par value, 50,000 shares authorized; 25,522 and 25,494 issued, respectively
 
255

 
255

Additional paid-in capital
 
287,115

 
292,774

Retained earnings
 
1,422,576

 
1,394,817

Accumulated other comprehensive income (loss)
 
(138,749
)
 
(137,772
)
Treasury stock, at cost; 7,001 and 7,172 shares, respectively
 
(443,484
)
 
(454,380
)
TOTAL STOCKHOLDERS’ EQUITY
 
1,127,713

 
1,095,694

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
5,263,491

 
$
5,001,075


The accompanying notes are an integral part of these consolidated financial statements.
3


GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
REVENUES:
 
 
 
 
New vehicle retail sales
 
$
1,414,485

 
$
1,513,590

Used vehicle retail sales
 
819,203

 
780,570

Used vehicle wholesale sales
 
92,138

 
104,029

Parts and service sales
 
369,174

 
349,515

Finance, insurance and other, net
 
113,376

 
112,322

Total revenues
 
2,808,376

 
2,860,026

COST OF SALES:
 
 
 
 
New vehicle retail sales
 
1,343,094

 
1,438,163

Used vehicle retail sales
 
771,394

 
737,075

Used vehicle wholesale sales
 
91,687

 
102,374

Parts and service sales
 
170,698

 
162,651

Total cost of sales
 
2,376,873

 
2,440,263

GROSS PROFIT
 
431,503

 
419,763

Selling, general and administrative expenses
 
327,708

 
324,347

Depreciation and amortization expense
 
16,997

 
16,342

INCOME (LOSS) FROM OPERATIONS
 
86,798

 
79,074

OTHER INCOME (EXPENSE):
 
 
 
 
Floorplan interest expense
 
(15,703
)
 
(14,087
)
Other interest expense, net
 
(18,919
)
 
(18,820
)
INCOME (LOSS) BEFORE INCOME TAXES
 
52,176

 
46,167

Benefit (provision) for income taxes
 
(13,528
)
 
(10,353
)
NET INCOME (LOSS)
 
$
38,648

 
$
35,814

BASIC EARNINGS (LOSS) PER SHARE
 
$
2.09

 
$
1.70

Weighted average common shares outstanding
 
17,797

 
20,298

DILUTED EARNINGS (LOSS) PER SHARE
 
$
2.08

 
$
1.70

Weighted average common shares outstanding
 
17,849

 
20,307



The accompanying notes are an integral part of these consolidated financial statements.
4


GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
NET INCOME (LOSS)
 
$
38,648

 
35,814

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
 
3,607

 
7,871

Net unrealized gain (loss) on interest rate risk management activities, net of tax:
 
 
 
 
Unrealized gain (loss) arising during the period, net of tax benefit (provision) of $1,316 and ($2,492), respectively
 
(4,238
)
 
7,892

Reclassification adjustment for (gain) loss included in interest expense, net of tax (benefit) provision of $108 and ($478), respectively
 
(346
)
 
1,513

Unrealized gain (loss) on interest rate risk management activities, net of tax
 
(4,584
)
 
9,405

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
 
(977
)
 
17,276

COMPREHENSIVE INCOME (LOSS)
 
$
37,671

 
$
53,090



The accompanying notes are an integral part of these consolidated financial statements.
5


GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
(Unaudited)
(In thousands, except per share amounts)
 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
Treasury Stock
 
Total
 
 
Shares
 
Amount
 
 
 
 
 
BALANCE, December 31, 2018
 
25,494

 
$
255

 
$
292,774

 
$
1,394,817

 
$
(137,772
)
 
$
(454,380
)
 
$
1,095,694

Net income (loss)
 

 

 

 
38,648

 

 

 
38,648

Other comprehensive income (loss), net of taxes
 

 

 

 

 
(977
)
 

 
(977
)
Net issuance of treasury shares to employee stock compensation plans
 
28

 

 
(11,726
)
 

 

 
10,896

 
(830
)
Stock-based compensation
 

 

 
6,067

 

 

 

 
6,067

Dividends paid, net of estimated forfeitures relative to participating securities ($0.26)
 

 

 

 
(4,828
)
 

 

 
(4,828
)
ASC 842 cumulative adjustment
 

 

 

 
(6,061
)
 

 

 
(6,061
)
BALANCE, March 31, 2019
 
25,522

 
$
255

 
$
287,115

 
$
1,422,576

 
$
(138,749
)
 
$
(443,484
)
 
$
1,127,713

 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
Treasury Stock
 
Total
 
 
Shares
 
Amount
 
 
 
 
 
BALANCE, December 31, 2017
 
25,515

 
$
255

 
$
291,461

 
$
1,246,323

 
$
(123,226
)
 
$
(290,531
)
 
$
1,124,282

Net income (loss)
 

 

 

 
35,814

 

 

 
35,814

Other comprehensive income (loss), net of taxes
 

 

 

 

 
17,276

 

 
17,276

Purchases of treasury stock
 

 

 

 

 

 
(9,199
)
 
(9,199
)
Net issuance of treasury shares to employee stock compensation plans
 
12

 

 
(10,846
)
 

 

 
9,208

 
(1,638
)
Stock-based compensation
 

 

 
5,629

 

 

 

 
5,629

Dividends paid, net of estimated forfeitures relative to participating securities ($0.26)
 

 

 

 
(5,482
)
 

 

 
(5,482
)
ASC 606 cumulative adjustment
 

 

 

 
11,397

 

 

 
11,397

BALANCE, March 31, 2018
 
25,527

 
$
255

 
$
286,244

 
$
1,288,052

 
$
(105,950
)
 
$
(290,522
)
 
$
1,178,079



The accompanying notes are an integral part of these consolidated financial statements.
6


GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
38,648

 
$
35,814

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
16,997

 
16,342

Change in operating lease assets
 
7,624

 

Deferred income taxes
 
4,088

 
2,675

Stock-based compensation
 
6,080

 
5,642

Amortization of debt discount and issue costs
 
946

 
650

(Gain) loss on disposition of assets
 
(5,778
)
 
(516
)
Other
 
234

 
(6
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
Accounts payable and accrued expenses
 
101,618

 
65,200

Accounts and notes receivable
 
9,155

 
12,727

Inventories
 
(28,058
)
 
7,153

Contracts-in-transit and vehicle receivables
 
5,117

 
11,237

Prepaid expenses and other assets
 
(17,672
)
 
(12,548
)
Floorplan notes payable - manufacturer affiliates
 
(2,468
)
 
5,067

Deferred revenues
 
(178
)
 
(655
)
Operating lease liabilities
 
(8,414
)
 

Net cash provided by (used in) operating activities
 
127,939

 
148,782

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Cash paid for acquisitions, net of cash received
 

 
(71,499
)
Proceeds from disposition of franchises, property and equipment
 
35,125

 
2,940

Purchases of property and equipment, including real estate
 
(41,711
)
 
(47,948
)
Other
 
(200
)
 
140

Net cash provided by (used in) investing activities
 
(6,786
)
 
(116,367
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Borrowings on credit facility - floorplan line and other
 
1,631,544

 
1,656,192

Repayments on credit facility - floorplan line and other
 
(1,697,455
)
 
(1,702,447
)
Borrowings on credit facility - acquisition line
 
107,777

 
66,945

Repayments on credit facility - acquisition line
 
(111,466
)
 
(66,444
)
Borrowings on other debt
 
20,329

 
65,614

Principal payments on other debt
 
(26,693
)
 
(40,078
)
Borrowings on debt related to real estate, net of debt issue costs
 

 
46,835

Principal payments on debt related to real estate
 
(20,864
)
 
(37,819
)
Employee stock purchase plan purchases, net of employee tax withholdings
 
(830
)
 
(1,638
)
Repurchases of common stock, amounts based on settlement date
 

 
(9,199
)
Dividends paid
 
(4,841
)
 
(5,495
)
Net cash provided by (used in) financing activities
 
(102,499
)
 
(27,534
)
Effect of exchange rate changes on cash
 
(519
)
 
47

Net increase (decrease) in cash, cash equivalents and restricted cash
 
18,135

 
4,928

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period
 
18,720

 
29,631

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period
 
$
36,855

 
$
34,559

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Purchases of property and equipment, including real estate, accrued in accounts payable
 
$
5,094

 
$
6,066


The accompanying notes are an integral part of these consolidated financial statements.
7

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1INTERIM FINANCIAL INFORMATION
Business and Organization
Group 1 Automotive, Inc., a Delaware corporation, is a leading operator in the automotive retailing industry with business activities in 15 states in the United States of America (“U.S.”), 32 towns in the United Kingdom (“U.K.”) and four states in Brazil. Group 1 Automotive, Inc. and its subsidiaries are collectively referred to as the “Company” in these Notes to Consolidated Financial Statements. The Company, through its regions, sells new and used cars and light trucks; arranges related vehicle financing; sells service and insurance contracts; provides automotive maintenance and repair services; and sells vehicle parts.
As of March 31, 2019, the Company’s U.S. retail network consisted of 116 dealerships within the following states: Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina, and Texas. The President of U.S. Operations reports directly to the Company’s Chief Executive Officer and is responsible for the overall performance of the U.S. region, as well as for overseeing the market directors and dealership general managers. In addition, as of March 31, 2019, the Company had two international regions: (a) the U.K., which consisted of 47 dealerships and (b) Brazil, which consisted of 18 dealerships. The operations of the Company’s international regions are structured similar to the U.S. region.
The Company’s operating results are generally subject to seasonal variations, as well as changes in the economic environment. This seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. As a result, U.S. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters. For the U.K., the first and third quarters tend to be stronger, driven by the vehicle license plate change months of March and September. For Brazil, the Company expects higher volumes in the third and fourth calendar quarters. The first quarter in Brazil is generally the weakest, driven by more consumer vacations and activities associated with Carnival. Other factors unrelated to seasonality, such as changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and/or changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in the Company’s revenues and operating income. Due to seasonality and other factors, the results of operations for the interim period are not necessarily indicative of the results that will be realized for any other interim period or for the entire fiscal year.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements and footnotes thereto that include financial information as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and are unaudited. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included in the accompanying unaudited condensed Consolidated Financial Statements. All business acquisitions completed during the periods presented have been accounted by applying the acquisition method of accounting, and their results of operations are included from the effective dates of the closings of the acquisitions. The allocations of purchase price to the assets acquired and liabilities assumed are assigned and recorded based on estimates of fair value and are subject to change within the purchase price allocation period (generally one year from the respective acquisition date). All intercompany balances and transactions have been eliminated in consolidation.
For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”).
Business Segment Information
The Company has three reportable segments: the U.S., which includes the activities of the Company’s corporate office, the U.K. and Brazil. The reportable segments are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by its chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. See Note 16, “Segment Information”, for additional details regarding the Company’s reportable segments.

8

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Statements of Cash Flows
The Company utilizes various credit facilities to finance the purchase of its new and used vehicle inventory. With respect to all new vehicle floorplan borrowings, the manufacturers of the vehicles draft the Company’s credit facilities directly with no cash flow to or from the Company. With respect to borrowings for used vehicle financing in the U.S., the Company finances up to 85% of the value of the used vehicle inventory and the funds flow directly between the Company and the lender. In the U.K. and Brazil, the Company chooses which used vehicles to finance and the borrowings flow directly to the Company from the lender.
The Company categorizes the cash flows associated with borrowings and repayments on these various credit facilities as Operating or Financing Activities in its Consolidated Statements of Cash Flows. All borrowings from, and repayments to, lenders affiliated with the vehicle manufacturers (excluding the cash flows from or to manufacturer affiliated lenders participating in the Company’s syndicated lending group under the Revolving Credit Facility (as defined in Note 9, “Credit Facilities”) are presented within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. All borrowings from, and repayments to, the syndicated lending group under the Revolving Credit Facility (including the cash flows from or to manufacturer affiliated lenders participating in the facility), as well as borrowings from, and repayments to, the Company’s other credit facilities, are presented within Cash Flows from Financing Activities.
Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $21.9 million and $20.3 million for the three months ended March 31, 2019 and 2018, respectively. Cash paid for taxes, net of refunds, was $1.2 million for the three months ended March 31, 2019 and, during the three months ended March 31, 2018, the Company received a net tax refund of $0.4 million.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Consolidated Balance Sheets to the total of the same amounts shown in the Consolidated Statements of Cash Flows. See Note 11, “Fair Value Measurements”, for additional details regarding the Company’s restricted cash balances (in thousands).
 
 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
 
$
33,623

 
$
15,932

Restricted cash, included in Prepaid expenses and other current assets
 
3,232

 
2,788

Total cash, cash equivalents, and restricted cash
 
$
36,855

 
$
18,720


Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”), that amends the accounting guidance on leases. The standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company adopted this ASU and all subsequent amendments on January 1, 2019, using the optional transition method applied to leases existing at January 1, 2019, with no restatement of comparative periods. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting policies under Accounting Standards Codification (“ASC”) Topic 840, Leases (“ASC 840”). The Company elected the package of practical expedients available under the transition guidance within Topic 842, which among other things, permits the Company to carry forward its historical lease classification. The Company also elected other practical expedients under the transition guidance to (i) not record short-term leases on the balance sheet for all asset classes; (ii) not apply hindsight when determining its lease terms or assessing impairment of its ROU assets during transition; and (iii) combine and account for both lease and non-lease components as a single component for all asset classes, except dealership operating assets. For the Company’s dealership operating asset leases, the allocation of the consideration between the lease and non-lease components was based on the estimated fair value of the leased component as of the adoption date. The Company expenses short-term leases, defined as leases with an initial term of 12 months or less, on a straight-line basis over the lease term. Upon adoption of Topic 842, the Company recognized ROU assets and lease liabilities based on the present value of its remaining minimum rental payments for existing operating leases as of the adoption date, utilizing the Company’s applicable incremental borrowing rate also as of the adoption date. The adoption of Topic 842 resulted in the Company recognizing approximately $236.7 million of incremental operating ROU asset with corresponding lease liabilities as of January 1, 2019. Such incremental amounts exclude prepaid rent, favorable lease assets and net unfavorable lease liabilities that were reflected in the Company’s Consolidated Balance Sheets as of December 31, 2018. Additionally, the Company recognized a $6.1 million cumulative-effect adjustment, net of deferred tax impact, to retained earnings as of January 1, 2019. The adjustment to retained earnings resulted from the impairment of certain operating ROU assets subjected to impairment testing under existing accounting guidance for which indicators of impairment existed at the time of the adoption of T

9

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

opic 842. The Company’s accounting for its finance leases, previously termed as capital leases under ASC 840 remained substantially unchanged. The adoption of Topic 842 had no material impact on the Company’s consolidated statements of operations or consolidated statements of cash flows. For further details, see Note 13, “Leases”.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The amendments to cash flow and net investment hedge relationships should be applied using a modified retrospective approach while the presentation and disclosure requirements are applied prospectively, effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2017-12 during the first quarter of 2019. The adoption of this ASU did not impact its consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendment in this update replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. The standard will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for periods after December 15, 2018. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements, but does not expect the impact of the amendment, if any, in this ASU to be significant.     
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment in this update eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard should be applied prospectively and is effective for interim and annual periods beginning after December 15, 2019. Earlier application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the impact of the adoption of the ASU to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. The amendment will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Certain disclosures in this standard, are required to be applied on a retrospective basis and others on a prospective basis. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
2. REVENUE
The Company’s material revenue streams are the sale of new and used vehicles; arrangement of associated vehicle financing and the sale of service and other insurance contracts; the performance of vehicle maintenance and repair services (including collision restoration); and the sale of vehicle parts.

10

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
REVENUES:
 
 
 
 
New vehicle retail sales
 
$
1,414,485

 
$
1,513,590

Used vehicle retail sales
 
819,203

 
780,570

Used vehicle wholesale sales
 
92,138

 
104,029

Total new and used vehicle sales
 
2,325,826

 
2,398,189

 
 
 
 
 
Vehicle parts sales
 
86,661

 
85,196

Maintenance and repair sales
 
282,513

 
264,319

Total parts and service sales
 
369,174

 
349,515

 
 
 
 
 
Finance, insurance and other, net
 
113,376

 
112,322

Total revenues
 
$
2,808,376

 
$
2,860,026

The following tables present the Company’s revenues disaggregated by its geographical segments (in thousands):
 
 
Three Months Ended March 31, 2019
 
 
U.S.
 
U.K.
 
Brazil
 
Total
REVENUES:
 
 
 
 
 
 
 
 
New vehicle retail sales
 
$
1,031,742

 
$
318,571

 
$
64,172

 
$
1,414,485

Used vehicle retail sales
 
594,418

 
203,561

 
21,224

 
819,203

Used vehicle wholesale sales
 
42,827

 
45,261

 
4,050

 
92,138

Total new and used vehicle sales
 
1,668,987

 
567,393

 
89,446

 
2,325,826

 
 
 
 
 
 
 
 
 
Vehicle parts sales
 
74,478

 
10,602

 
1,581

 
86,661

Maintenance and repair sales
 
223,124

 
48,964

 
10,425

 
282,513

Total parts and service sales
 
297,602

 
59,566

 
12,006

 
369,174

 
 
 
 
 
 
 
 
 
Finance, insurance and other, net
 
96,193

 
15,199

 
1,984

 
113,376

Total revenues
 
$
2,062,782

 
$
642,158

 
$
103,436

 
$
2,808,376

 
 
Three Months Ended March 31, 2018
 
 
U.S.
 
U.K.
 
Brazil
 
Total
REVENUES:
 
 
 
 
 
 
 
 
New vehicle retail sales
 
$
1,089,953

 
$
354,404

 
$
69,233

 
$
1,513,590

Used vehicle retail sales
 
563,830

 
192,549

 
24,191

 
780,570

Used vehicle wholesale sales
 
54,002

 
46,185

 
3,842

 
104,029

Total new and used vehicle sales
 
1,707,785

 
593,138

 
97,266

 
2,398,189

 
 
 
 
 
 
 
 
 
Vehicle parts sales
 
74,355

 
9,515

 
1,326

 
85,196

Maintenance and repair sales
 
210,159

 
43,626

 
10,534

 
264,319

Total parts and service sales
 
284,514

 
53,141

 
11,860

 
349,515

 
 
 
 
 
 
 
 
 
Finance, insurance and other, net
 
96,187

 
14,263

 
1,872

 
112,322

Total revenues
 
$
2,088,486

 
$
660,542

 
$
110,998

 
$
2,860,026



11

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Contract assets associated with revenue from the arrangement of financing and sale of service and insurance contracts totaled $14.7 million and $14.6 million as of March 31, 2019 and December 31, 2018, respectively, and are reflected in Prepaid expenses and other current assets within the Consolidated Balance Sheets.
3ACQUISITIONS AND DISPOSITIONS
Acquisitions
During the three months ended March 31, 2019, the Company opened one dealership representing one awarded franchise in the U.S. and one dealership representing one awarded franchise in the U.K.
During the three months ended March 31, 2018, the Company acquired 5 dealerships, inclusive of 8 franchises, and opened one dealership for one awarded franchise in the U.K. Additionally, the Company acquired two dealerships in the U.S., inclusive of two franchises. Aggregate consideration paid for these dealerships totaled $76.6 million, including the associated real estate and goodwill. Also included in the consideration paid was $5.1 million of cash received in the acquisition of the dealerships. The purchase prices were allocated based upon the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates.
Dispositions
During the three months ended March 31, 2019, the Company disposed of three dealerships representing six franchises in the U.S., and one dealership representing one franchise in the U.K, and recorded a net pre-tax gain of $5.2 million.
During the three months ended March 31, 2018, the Company had no dispositions.
4. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES
All of the Company’s interest rate derivative instruments are designated as cash flow hedges. The related gains or losses on these interest rate derivative instruments are deferred in stockholders’ equity as a component of accumulated other comprehensive income (loss). These 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 these swap positions are recognized as “Floorplan interest expense or Other interest expense, net”, in the Company’s accompanying Consolidated Statements of Operations. To the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the items being hedged, that ineffective portion is immediately recognized in other income or expense. As of March 31, 2019, all of the Company’s derivative instruments that were in effect were determined to be effective. The Company had no gains or losses related to ineffectiveness or amounts excluded from effectiveness testing recognized in the Consolidated Statements of Operations for the three months ended March 31, 2019 or 2018, respectively.
The Company held 26 interest rate derivative instruments in effect as of March 31, 2019 of $902.4 million in notional value that fixed its underlying one-month London Interbank Offered Rate (“LIBOR”) at a weighted average rate of 2.3%. For the three months ended March 31, 2019 and 2018, the impact of the Company’s interest rate hedges in effect decreased floorplan interest expense by $0.3 million and increased floorplan interest expense by $1.7 million, respectively. Total floorplan interest expense, inclusive of the aforementioned impact of the Company’s interest rate hedges, was $15.7 million and $14.1 million for the three months ended March 31, 2019 and 2018, respectively.
In addition to the $902.4 million of swaps in effect as of March 31, 2019, the Company held two additional interest rate derivative instruments, both of which have forward start dates of December 2020. These two forward-starting swaps expire in December 2025 and December 2030. The aggregate notional value of these two forward-starting swaps was $125.0 million, and the weighted average interest rate was 1.8%. The combination of the interest rate derivative instruments currently in effect and these forward-starting derivative instruments is structured such that the notional value in effect at any given time through December 2030 does not exceed $902.4 million, which is less than the Company’s expectation for variable-rate debt outstanding during such period.
Assets and liabilities associated with interest rate derivative instruments as reflected in the accompanying balance sheets were as follows (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Assets from interest rate risk management activities:
 
 
 
 
Prepaid expenses and other current assets
 
$
189

 
$
444

Other assets
 
8,251

 
13,132

Total
 
$
8,440

 
$
13,576

 
 
 
 
 
Liabilities from interest rate risk management activities:
 
 
 
 
Accrued expenses and other current liabilities
 
$
254

 
$
115

Liabilities from interest rate risk management activities
 
2,430

 
1,696

Total
 
$
2,684

 
$
1,811


12

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Included in Accumulated other comprehensive income (loss) at March 31, 2019 and 2018, were accumulated unrealized gains, net of income taxes, totaling $4.4 million and $8.7 million, respectively, related to these interest rate derivative instruments.
The following table presents the impact during the current and comparative prior year periods for the Company’s interest rate derivative instruments on its Consolidated Statements of Operations and Consolidated Balance Sheets (in thousands):
 
 
Amount of Unrealized Income (Loss), Net of Tax, Recognized in Other Comprehensive Income (Loss)
 
 
Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship
 
2019
 
2018
Interest rate derivative instruments
 
$
(4,238
)
 
$
7,892

 
 
 
 
 
 
 
Amount of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
Location of Income (Loss) Reclassified from Other Comprehensive Income (Loss) into Statements of Operations
 
Three Months Ended March 31,
 
2019
 
2018
Floorplan interest expense, net
 
$
344

 
$
(1,737
)
Other interest expense, net
 
110

 
(254
)
The net amount of gain expected to be reclassified out of other comprehensive income (loss) into earnings as an offset to floorplan interest expense or other interest expense, net in the next twelve months is $2.4 million.
5. STOCK-BASED COMPENSATION PLANS
The Company provides stock-based compensation benefits to employees and non-employee directors pursuant to its 2014 Long Term Incentive Plan (the “Incentive Plan”), as well as to employees pursuant to its Employee Stock Purchase Plan, as amended and restated (the “Purchase Plan”, formerly named the Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan).
2014 Long Term Incentive Plan
The Incentive Plan provides for the grant of options (including options qualified as incentive stock options under the Internal Revenue Code of 1986, as amended (the “Code”) and options that are non-qualified), restricted stock, performance awards, bonus stock, and phantom stock to the Company’s employees, consultants, non-employee directors and officers. The Incentive Plan expires on May 21, 2024. The terms of the awards (including vesting schedules), are established by the Compensation Committee of the Company’s Board of Directors. As of March 31, 2019, there were 631,013 shares available for issuance under the Incentive Plan.
Restricted Stock and Restricted Stock Unit Awards
Under the Incentive Plan, the Company grants to non-employee directors and certain employees restricted stock awards or, at their election, restricted stock units (to non-employee directors only) at no cost to the recipient. Restricted stock awards qualify as participating securities because each award contains non-forfeitable rights to dividends. As such, the two-class method is required for the computation of earnings per share. See Note 6, “Earnings Per Share”, for further details. Restricted stock awards are considered outstanding at the date of grant but are subject to vesting periods upon issuance of up to five years. Since they convey no voting rights, restricted stock units are not considered outstanding when issued. In the event an employee or non-employee director terminates his or her employment or directorship with the Company prior to the lapse of the restrictions, the awards, in most cases, will be forfeited to the Company. When restricted stock vests, the Company settles utilizing new shares or treasury shares, if available. Restricted stock units settle in cash upon the termination of the grantees’ employment or directorship. Compensation expense for restricted stock awards is calculated based on the market price of the Company’s common stock at the date of grant and recognized over the requisite service period. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted annually based on the extent to which actual or expected forfeitures differ from the previous estimate.

13

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

A summary of the restricted stock awards as of March 31, 2019, along with the changes during the three months then ended, is as follows:
 
 
Awards
 
Weighted Average
Grant Date
Fair Value
Nonvested at December 31, 2018
 
681,800

 
$
71.60

Granted
 
202,831

 
60.84

Vested
 
(172,775
)
 
68.99

Forfeited
 
(2,000
)
 
75.97

Nonvested at March 31, 2019
 
709,856

 
$
69.17

Employee Stock Purchase Plan
The Purchase Plan authorizes the issuance of up to 4.5 million shares of common stock and provides that no options to purchase shares may be granted under the Purchase Plan after May 19, 2025. The Purchase Plan is available to all employees of the Company and its participating subsidiaries and is a qualified plan as defined by Section 423 of the Code. At the end of each fiscal quarter (the “Option Period”) during the term of the Purchase Plan, employees can acquire shares of common stock from the Company at 85% of the fair market value of the common stock on the first or the last day of the Option Period, whichever is lower. As of March 31, 2019, there were 945,882 shares available for issuance under the Purchase Plan. During the three months ended March 31, 2019 and 2018, the Company issued 45,229 and 36,270 shares, respectively, of common stock to employees participating in the Purchase Plan. With respect to shares issued under the Purchase Plan, the Company’s Board of Directors has authorized specific share repurchases to fund the shares issuable under the Purchase Plan.
The weighted average per share fair value of employee stock purchase rights issued pursuant to the Purchase Plan was $12.52 and $16.22 for the three months ended March 31, 2019 and 2018, respectively. The fair value of stock purchase rights is calculated using the grant date stock price, the value of the embedded call option and the value of the embedded put option.
Performance Awards
During the three months ended March 31, 2019 under the Incentive Plan, the Company granted 30,555 performance awards to certain employees at no cost to the recipient. The weighted average grant date fair value of these awards was $67.17 per share. The performance awards do not qualify as participating securities. The performance awards contain both performance and market conditions to be evaluated over a two-year performance period and are subject to vesting over a three-year service period. Based upon the performance criteria, up to 200% of the granted shares may be earned. Compensation expense for the awards with performance conditions is calculated based on the market price of the Company’s common stock at the date of grant and the forecasted achievement of such performance conditions and is recognized over the requisite service period. Compensation expense for the awards with market conditions is calculated based upon the fair value of the grant on the date of grant and is recognized over the requisite service period. All such awards remained unvested as of March 31, 2019.
Stock-Based Compensation
Total stock-based compensation cost was $6.1 million and $5.6 million for the three months ended March 31, 2019 and 2018, respectively. Cash received from Purchase Plan purchases was $2.1 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively.
6EARNINGS PER SHARE
The two-class method is utilized for the computation of the Company’s earnings per share (“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 or dividend equivalents. The Company’s restricted stock awards 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.

14

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the calculation of EPS for the three months ended March 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Weighted average basic common shares outstanding
 
17,797

 
20,298

Dilutive effect of stock awards and employee stock purchases, net of assumed repurchase of treasury stock
 
52

 
9

Weighted average dilutive common shares outstanding
 
17,849

 
20,307

Basic:
 
 
 
 
Net income (loss)
 
$
38,648

 
$
35,814

Less: Earnings (loss) allocated to participating securities
 
1,458

 
1,209

Net income (loss) available to basic common shares
 
$
37,190

 
$
34,605

Basic earnings (loss) per common share
 
$
2.09

 
$
1.70

Diluted:
 
 
 
 
Net income (loss)
 
$
38,648

 
$
35,814

Less: Earnings (loss) allocated to participating securities
 
1,455

 
1,208

Net income (loss) available to basic common shares
 
$
37,193

 
$
34,606

Diluted earnings (loss) per common share
 
$
2.08

 
$
1.70

7INCOME TAXES
The Company is subject to U.S. federal income taxes and income taxes in numerous U.S. states. In addition, the Company is subject to income tax in the U.K. and Brazil relative to its foreign subsidiaries. The Company’s effective income tax rate of 25.9% for the three months ended March 31, 2019, was higher than the U.S. federal statutory rate of 21.0%, primarily due to: (1) the taxes provided for in U.S. state jurisdictions; (2) valuation allowances provided for net operating losses and other deferred tax assets in certain U.S. states and in Brazil; (3) unrecognized tax benefits with respect to uncertain tax positions; and (4) tax deductions for restricted stock that were less than the related book expense, partially offset by income generated in the U.K., which is taxed at a 19.0% statutory rate.
For the three months ended March 31, 2019, the Company’s effective tax rate increased to 25.9% as compared to 22.4% for the three months ended March 31, 2018. This increase was primarily due to tax deductions for restricted stock that were less than the related book expense, additional valuation allowances provided for net operating losses in Brazil and the impact of New Jersey’s adoption of a unitary tax scheme. The Company recognizes the tax on Global Intangible Low-Taxed (“GILTI”), as a period expense in the period the tax is incurred. Under this policy, the Company has not provided deferred taxes related to temporary differences that, upon their reversal, will affect the amount of income subject to GILTI in the period. For the three months ended March 31, 2019 and 2018, the Company estimated it had no GILTI tax liability.
As of March 31, 2019, the Company’s unrecognized tax benefits totaled $1.7 million, including related interest and penalties. To the extent that any such tax benefits are recognized in the future, such recognition would reduce the tax liability in that period by approximately $1.4 million. Consistent with prior treatment of tax related assessments, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Based on the statutes of limitations in the applicable jurisdiction in which the Company operates, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2014, by U.K. tax authorities in years prior to 2014 and by Brazil tax authorities in years prior to 2013.

15

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts and notes receivable consisted of the following (in thousands): 
 
 
March 31, 2019
 
December 31, 2018
Amounts due from manufacturers
 
$
101,797

 
$
105,140

Parts and service receivables
 
54,267

 
51,922

Finance and insurance receivables
 
22,441

 
26,446

Other
 
9,880

 
13,673

Total accounts and notes receivable
 
188,385

 
197,181

Less: allowance for doubtful accounts
 
3,074

 
3,200

Accounts and notes receivable, net
 
$
185,311

 
$
193,981

Inventories consisted of the following (in thousands): 
 
 
March 31, 2019
 
December 31, 2018
New vehicles
 
$
1,303,397

 
$
1,278,863

Used vehicles
 
343,033

 
350,219

Rental vehicles
 
143,372

 
142,926

Parts, accessories and other
 
79,629

 
80,556

Total inventories
 
1,869,431

 
1,852,564

Less: lower of cost or net realizable value allowance
 
8,524

 
8,505

Inventories, net
 
$
1,860,907

 
$
1,844,059

New, used, and rental vehicles are valued at the lower of specific cost or net realizable value and are removed from inventory using the specific identification method. Parts and accessories are valued at lower of cost (determined on either a first-in, first-out or an average cost basis) or net realizable value.
Property and equipment consisted of the following (in thousands):
 
 
Estimated Useful Lives in Years
 
March 31, 2019
 
December 31, 2018
Land
 
 
$
499,272

 
$
487,618

Buildings
 
25 to 50
 
739,702

 
727,826

Leasehold improvements
 
Varies
 
186,382

 
189,248

Machinery and equipment
 
7 to 20
 
128,347

 
125,919

Furniture and fixtures
 
3 to 10
 
112,909

 
109,274

Company vehicles
 
3 to 5
 
14,871

 
12,333

Construction in progress
 
 
48,372

 
42,959

Total
 
 
 
1,729,855

 
1,695,177

Less: accumulated depreciation and amortization
 
 
 
359,112

 
347,342

Property and equipment, net
 
 
 
$
1,370,743

 
$
1,347,835

During the three months ended March 31, 2019, the Company incurred $23.4 million of capital expenditures for the construction of new or expanded facilities and the purchase of equipment and other fixed assets in the maintenance of the Company’s dealerships and facilities, excluding $9.2 million of capital expenditures accrued as of December 31, 2018. As of March 31, 2019, the Company had accrued $5.1 million of capital expenditures. Additionally, during the three months ended March 31, 2019, the Company purchased real estate (including land and buildings) associated with existing dealership operations totaling $14.1 million.
9CREDIT FACILITIES
In the U.S., the Company has a $1.8 billion revolving syndicated credit arrangement that matures on June 17, 2021 and is comprised of 24 financial institutions, including six manufacturer-affiliated finance companies (“Revolving Credit Facility”), consisting of two tranches. The Company also has a $300.0 million floorplan financing arrangement (“FMCC Facility”) with Ford Motor Credit Company (“FMCC”) for financing of new Ford vehicles in the U.S. and other floorplan financing arrangements with several other automobile manufacturers for financing of a portion of its U.S. rental vehicle inventory. In the

16

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

U.K., the Company has financing arrangements with BMW Financial Services NA, LLC (“BMWFS”), Volkswagen Finance, Toyota Motor Credit Corporation, FMCC and a third-party financial institution for financing of its new, used, and rental vehicles. In Brazil, the Company has financing arrangements for new, used, and rental vehicles with several financial institutions, most of which are manufacturer affiliated. 
Within the Company’s Consolidated Balance Sheets, Floorplan notes payable - credit facility and other primarily reflects amounts payable for the purchase of specific new, used, and rental vehicle inventory (with the exception of new and rental vehicle purchases financed through lenders affiliated with the respective manufacturer) whereby financing is provided by the Revolving Credit Facility. Floorplan notes payable - manufacturer affiliates reflects amounts related to the purchase of vehicles whereby financing is provided by the FMCC Facility, the financing of a portion of the Company’s rental vehicles in the U.S. (through lenders affiliated with the respective manufacturer), as well as the financing of new, used, and rental vehicles with manufacturer affiliates in both the U.K. and Brazil. Payments on the floorplan notes payable are generally due as the vehicles are sold. As a result, these obligations are reflected in the accompanying Consolidated Balance Sheets as current liabilities.
Revolving Credit Facility
The Revolving Credit Facility consists of two tranches, providing a maximum of $1.75 billion for U.S. vehicle inventory floorplan financing (“Floorplan Line”), as well as a maximum of $360.0 million and a minimum of $50.0 million for working capital and general corporate purposes, including acquisitions (“Acquisition Line”).
After considering the outstanding balance of $1.2 billion at March 31, 2019, the Company had $288.1 million of available floorplan borrowing capacity under the Floorplan Line. Included in the $288.1 million available borrowings under the Floorplan Line was $72.7 million of immediately available funds. The weighted average interest rate on the Floorplan Line was 3.7% as of March 31, 2019 and December 31, 2018, respectively, excluding the impact of the Company’s interest rate derivative instruments.
With regards to the Acquisition Line, there were $29.3 million of borrowings outstanding as of March 31, 2019 and $31.8 million of borrowings outstanding as of December 31, 2018, both of which consisted entirely of borrowings in British pound sterling. The interest rate on the Acquisition Line was 2.45% and 2.47% as of March 31, 2019 and December 31, 2018, respectively, representing the applicable rate for borrowings in British pound sterling. After considering $25.4 million of outstanding letters of credit and other factors included in the Company’s available borrowing base calculation, there was $305.1 million of available borrowing capacity under the Acquisition Line as of March 31, 2019. The amount of available borrowing capacity under the Acquisition Line is limited from time to time based upon certain debt covenants.
All of the U.S. dealership-owning subsidiaries are co-borrowers under the Revolving Credit Facility. The Company’s obligations under the Revolving Credit Facility are secured by essentially all of the Company’s U.S. personal property (other than equity interests in dealership-owning subsidiaries), including all motor vehicle inventory and proceeds from the disposition of dealership-owning subsidiaries, excluding inventory financed directly with manufacturer-affiliates and other third-party financing institutions. The Revolving Credit Facility contains a number of significant covenants that, among other things, restrict the Company’s ability to make disbursements outside of the ordinary course of business, dispose of assets, incur additional indebtedness, create liens on assets, make investments and engage in mergers or consolidations. The Company is also required to comply with specified financial tests and ratios defined in the Revolving Credit Facility, such as the fixed charge coverage and total adjusted leverage ratios. Further, the Revolving Credit Facility restricts the Company’s ability to make certain payments, such as dividends or other distributions of assets, properties, cash, rights, obligations or securities (“Restricted Payments”). The Restricted Payments cannot exceed the sum of $208.5 million plus (or minus if negative) (a) one-half of the aggregate consolidated net income for the period beginning on April 1, 2014 and ending on the date of determination and (b) the amount of net cash proceeds received from the sale of capital stock after June 2, 2014 and ending on the date of determination less (c) cash dividends and share repurchases after June 2, 2014 (“Credit Facility Restricted Payment Basket”). For purposes of the calculation of the Credit Facility Restricted Payment Basket, net income represents such amounts per the Consolidated Financial Statements adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation. As of March 31, 2019, the Credit Facility Restricted Payment Basket totaled $83.2 million.
The Company was in compliance with all applicable covenants and ratios under the Revolving Credit Facility as of March 31, 2019 and December 31, 2018.
Ford Motor Credit Company Facility
As of March 31, 2019, the Company had an outstanding balance of $154.2 million under the FMCC Facility with an available floorplan borrowing capacity of $145.8 million. Included in the $145.8 million of available borrowings under the FMCC Facility was $26.0 million of immediately available funds. This facility bears interest at a rate of Prime plus 150 basis

17

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

points minus certain incentives. The interest rate on the FMCC Facility was 7.00% before considering the applicable incentives as of March 31, 2019.
Other Credit Facilities
The Company has credit facilities with financial institutions in the U.K., most of which are affiliated with the manufacturers, for financing new, used, and rental vehicle inventories related to its U.K. operations. As of March 31, 2019, borrowings outstanding under these facilities totaled $161.7 million. Annual interest rates charged on borrowings outstanding under these facilities, after the grace period of zero to 30 days, ranged from 1.22% to 4.32%.
The Company has credit facilities with financial institutions in Brazil, most of which are affiliated with the manufacturers, for the financing of new, used, and rental vehicle inventories related to its Brazilian operations. As of March 31, 2019, borrowings outstanding under these facilities totaled $15.8 million. Annual interest rates charged on borrowings outstanding under these facilities, after the grace period of zero to 90 days, ranged from 10.81% to 15.12%.
Excluding rental vehicles financed through the Revolving Credit Facility, financing for U.S. rental vehicles is typically obtained directly from the automobile manufacturers. As of March 31, 2019, borrowings outstanding under these rental vehicle facilities totaled $117.6 million, with interest rates that vary up to 7.00%.
10LONG-TERM DEBT
The Company carries its long-term debt at face value, net of applicable discounts and capitalized debt issuance costs. Long-term debt consisted of the following (in thousands):
 
 
March 31, 2019
 
December 31, 2018
5.00% Senior Notes (aggregate principal of $550,000)
 
$
544,158

 
$
543,730

5.25% Senior Notes (aggregate principal of $300,000)
 
296,884

 
296,735

Acquisition Line
 
29,342

 
31,842

Real estate related and other long-term debt
 
422,396

 
445,248

Finance leases related to real estate(1)
 
47,339

 
48,612

Total debt
 
1,340,119

 
1,366,167

Less: current maturities of long-term debt
 
77,537

 
84,678

Long-term debt, net of current maturities
 
$
1,262,582

 
$
1,281,489

(1) Balances as of December 31, 2018 were unchanged under the optional transition method applied as part of the implementation of Topic 842. See Note 1, “Interim Financial Information” and Note 13, “Leases” for further information.
Short-Term Financing
The Company includes short-term financing loans within Current maturities of long-term debt and short-term financing, in the Company’s Consolidated Balance Sheets.
As of March 31, 2019 and December 31, 2018, the Company had a short-term financing arrangement in Brazil that totaled $0.2 million and $0.7 million, respectively. During the three months ended March 31, 2019, the Company made no additional borrowings and made repayments of $0.5 million on the short-term financing arrangement in Brazil.
As of March 31, 2019 and December 31, 2018, the Company had working capital loans with third-party financial institutions in the U.K. that totaled $13.0 million and $7.6 million, respectively. During the three months ended March 31, 2019, the Company had borrowings of $13.0 million and made principal payments of $7.6 million on these U.K. third-party loans.
Real Estate Related and Other Long-Term Debt
The mortgage loans in the U.S. consist of 57 term loans with an aggregate principal amount of $402.8 million (collectively, “U.S. Notes”), which are being repaid in monthly installments and will mature between April 2019 and November 2032. As of March 31, 2019 and December 31, 2018, aggregate borrowings outstanding under these notes totaled $326.9 million and $343.8 million, respectively, with $60.7 million and $67.9 million, respectively, classified as Current maturities of long-term debt and short-term financing in the accompanying Consolidated Balance Sheets. During the three months ended March 31, 2019, the Company made no additional borrowings and principal payments of $16.9 million associated with the U.S. Notes.

18

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company has entered into 18 separate term mortgage loans in the U.K. with other third-party financial institutions, which are secured by the Company’s U.K. properties. These mortgage loans (collectively, “U.K. Notes”) are denominated in British pound sterling and are being repaid in monthly installments that will mature by September 2034. As of March 31, 2019 and December 31, 2018, borrowings under the U.K. mortgage loans totaled $73.8 million and $73.8 million, respectively, with $7.8 million and $7.6 million, respectively, classified as Current maturities of long-term debt and short-term financing in the accompanying Consolidated Balance Sheets. During the three months ended March 31, 2019, the Company made no additional borrowings and made principal payments of $2.0 million, associated with the U.K. Notes. The Company has also entered into an unsecured loan agreement in the U.K. with a third-party financial institution that matures in March 2028. As of March 31, 2019 and December 31, 2018, borrowings under the agreement totaled $18.6 million and $18.5 million, respectively, with $2.0 million and $2.0 million, respectively, classified as Current maturities of long-term debt and short-term financing in the accompanying Consolidated Balance Sheets. During the three months ended March 31, 2019, the Company made no additional borrowings and made principal payments of $0.3 million associated with the unsecured loan agreement in the U.K.
The Company has a separate term mortgage loan in Brazil with a third-party financial institution (the “Brazil Note”). The Brazil Note is denominated in Brazilian real and is secured by one of the Company’s Brazilian properties, as well as a guarantee from the Company. The Brazil Note is being repaid in monthly installments that will mature by April 2025. As of March 31, 2019 and December 31, 2018, borrowings under the Brazil Note totaled $2.4 million and $2.5 million, respectively, with $0.4 million and $0.3 million, respectively, classified as Current maturities of long-term debt and short-term financing in the accompanying Consolidated Balance Sheets. During the three months ended March 31, 2019, the Company made no additional borrowings and made principal payments of $0.1 million associated with the Brazil Note.
The Company also has a working capital loan agreement with a third-party financial institution in Brazil. The principal balance on the loan is due by February 2020 with interest-only payments being made until the due date. As of March 31, 2019 and December 31, 2018, borrowings under the Brazilian third-party loan totaled $5.6 million and $5.7 million, respectively. During the three months ended March 31, 2019, the Company made no additional borrowings or principal payments.
Fair Value of Long-Term Debt
The Company’s outstanding 5.00% Senior Notes due 2022 (“5.00% Notes”) had a fair value of $556.0 million and $521.6 million as of March 31, 2019 and December 31, 2018, respectively. The Company’s outstanding 5.25% Senior Notes due 2023 (“5.25% Senior Notes”) had a fair value of $303.0 million and $286.5 million as of March 31, 2019 and December 31, 2018, respectively. The carrying value of the Company’s fixed interest rate borrowings included in Real estate related and other long-term debt totaled $74.3 million and $79.5 million as of March 31, 2019 and December 31, 2018, respectively. The fair value of such fixed interest rate borrowings was $73.8 million and $76.2 million as of March 31, 2019 and December 31, 2018, respectively.
The fair value estimates of the Company’s long-term debt are based on Level 2 inputs of the fair value hierarchy available as of March 31, 2019 and December 31, 2018. The Company determined the estimated fair value of its long-term debt using available market information and commonly accepted valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a material effect on estimated fair values. The carrying value of the Company’s variable rate debt approximates fair value due to the short-term nature of the interest rates.
11FAIR VALUE MEASUREMENTS
ASC 820 defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; requires disclosure of the extent to which fair value is used to measure financial and non-financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date; and establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:
Level 1 — unadjusted, quoted prices for identical assets or liabilities in active markets;
Level 2 — quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and
Level 3 — unobservable inputs based upon the reporting entity’s internally developed assumptions that market participants would use in pricing the asset or liability.

19

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s financial instruments consist primarily of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, investments in debt and equity securities, accounts payable, credit facilities, long-term debt, and interest rate derivative instruments. The fair values of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, and credit facilities approximate their carrying values due to the short-term nature of these instruments and/or the existence of variable interest rates. The Company evaluated its assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework of ASC 820 and identified demand obligations, interest rate derivative instruments, and investment balances in certain financial institutions as having met such criteria. See Note 10, “Long-Term Debt”, for details regarding the fair value of the Company’s long-term debt.
The Company periodically invests in unsecured, corporate demand obligations with manufacturer-affiliated finance companies, which bear interest at a variable rate and are redeemable on demand by the Company. Therefore, the Company has classified these demand obligations as Cash and cash equivalents in the accompanying 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.
In addition, the Company maintains an investment balance with certain of the financial institutions in Brazil that provide credit facilities for the financing of new, used, and rental vehicle inventories. The investment balances bear interest at a variable rate and are redeemable by the Company in the future under certain conditions. The Company has classified these investment balances as restricted cash within Prepaid expenses and other current assets within its 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.
The Company’s derivative financial instruments are recorded at fair market value. See Note 4, “Derivative Instruments and Risk Management Activities”, for further details regarding the Company’s derivative financial instruments.
Assets and liabilities recorded at fair value, within Level 2 of the hierarchy framework, in the accompanying balance sheets as of March 31, 2019 and December 31, 2018, respectively, were as follows (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Assets:
 
 
 
 
Investments
 
$
3,232

 
$
2,788

Demand obligations
 
13

 
13

Interest rate derivative financial instruments
 
8,440

 
13,576

Total
 
$
11,685

 
$
16,377

Liabilities:
 
 
 
 
Interest rate derivative financial instruments
 
$
2,684

 
$
1,811

Total
 
$
2,684

 
$
1,811

12COMMITMENTS 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. Due to the nature of the automotive retailing business, the Company may be involved in legal proceedings or suffer losses that could have a material adverse effect on the Company’s business. In the normal course of business, the Company is required to respond to customer, employee, and other third-party complaints. Amounts that have been accrued or paid related to the settlement of litigation are included in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations. In addition, the manufacturers of the vehicles that the Company sells and services have audit rights allowing them to review the validity of amounts claimed for incentive, rebate, or warranty-related items and charge the Company back for amounts determined to be invalid payments under the manufacturers’ programs, subject to the Company’s right to appeal any such decision. Amounts that have been accrued or paid related to the settlement of manufacturer chargebacks of recognized incentives and rebates are included in cost of sales in the Company’s Consolidated Statements of Operations, while such amounts for manufacturer chargebacks of recognized warranty-related items are included as a reduction of Revenues in the Company’s Consolidated Statements of Operations.
Legal Proceedings

20

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Currently, the Company is 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.
Other Matters
The Company, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by the Company’s subsidiaries of their respective dealership premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the lessor and other parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, the Company enters into agreements in connection with the sale of assets or businesses in which it agrees to indemnify the purchaser, or other parties, from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dealership dispositions, the Company’s subsidiaries sublet to the dealership purchaser the subsidiaries’ interests in any real property leases associated with such dealerships and continue to be primarily obligated on the lease. In these situations, the Company’s subsidiaries retain primary responsibility for the performance of certain obligations under such leases. To the extent that the Company remains primarily responsible under such leases, a quantification of such lease obligations is included in the Company’s Consolidated Balance Sheet as Operating Lease Liabilities as of March 31, 2019.
In certain instances, also in connection with dealership dispositions, the Company’s subsidiaries assign to the dealership purchaser the subsidiaries’ interests in any real property leases associated with such dealerships. The Company’s subsidiaries may retain secondary responsibility for the performance of certain obligations under such leases to the extent that the assignee does not perform, if such performance is required following the assignment of the lease. Additionally, the Company and its subsidiaries may remain subject to the terms of a guaranty made by the Company and its subsidiaries in connection with such leases. In these circumstances, the Company generally has indemnification rights against the assignee in the event of non-performance under these leases, as well as certain defenses. Although the Company has no reason to believe that it or its subsidiaries will be called upon to perform under any such assigned leases or subleases, the Company estimates that lessee rental payment obligations during the remaining terms of these leases were $43.4 million as of March 31, 2019. The Company and its subsidiaries also may be called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repair of the leased premises upon termination of the lease. However, potential environmental liabilities are generally known at the time of the sale of the dealership if not previously remediated. The Company does not have any known material environmental commitments or contingencies and presently has no reason to believe that it or its subsidiaries will be called on to so perform. Although not estimated to be material, the Company’s exposure under these leases is difficult to estimate and there can be no assurance that any performance of the Company or its subsidiaries required under these leases would not have a material adverse effect on the Company’s business, financial condition, or cash flows.
13. LEASES

The Company leases real estate, office equipment, and dealership operating assets under long-term lease agreements, and subleases certain real estate to third parties. The Company’s real estate leases in the U.S., U.K., and Brazil generally have initial terms of 15 years, 20 years and five years, respectively.
The Company uses an implicit rate to determine the present value of its lease payments when that rate is readily determinable from a leasing agreement; and when such a rate is not readily determinable, the Company uses its incremental borrowing rate based on information available as of the measurement date. For leases effective on or after January 1, 2019, the Company determines if an arrangement is a lease at inception and recognizes ROU assets and lease liabilities at commencement date based on the present value of lease payments over the lease term. And for such leases effective on or after January 1, 2019, the aggregate present value of the Company’s lease payments may include options to purchase the leased property or lease terms with options to renew or terminate the lease, when it is reasonably certain that the Company will exercise such an option. The exercise of lease renewals, terminations, or purchase options is generally at the Company’s discretion. The Company’s leases may also include rental payments adjusted periodically for inflation. Payments based on a change in an index or rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. Subsequent to the recognition of its ROU assets and lease liabilities, the Company recognizes lease expense related to its operating lease

21

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

payments on a straight-line basis over the lease term. None of the Company’s lease agreements contains material residual value guarantees or material restrictive covenants.
Effective January 1, 2019, operating leases are included in the Company’s Consolidated Balance Sheets as Operating lease assets, Current operating lease liabilities, and Operating lease liabilities, net of current portion. Finance leases are historically, and will continue to be, included within Property and equipment, net, Current maturities of long-term debt and short-term financing, and Long-term debt, net of current maturities in the Company’s Consolidated Balance Sheets.
The components of operating and finance leases included in the Company’s Consolidated Balance Sheet as of March 31, 2019 were as follows (in thousands):
 Leases
 
Balance Sheet Classification
 
March 31, 2019
Assets:
 
 
 
 
Operating
 
Operating lease assets
 
$
214,776

Finance
 
Property and equipment, net
 
41,634

Total
 
 
 
$
256,410

Liabilities:
 
 
 
 
Current
 
 
 
 
Operating
 
Current operating lease liabilities
 
$
23,907

Finance
 
Current maturities of long-term debt and short-term financing
 
6,025

Noncurrent
 
 
 
 
Operating
 
Operating lease liabilities, net of current portion
 
204,331

Finance
 
Long-term debt, net of current maturities
 
41,314

Total
 
 
 
$
275,577

Maturities of the Company’s lease liabilities as of March 31, 2019 were as follows (in thousands):
 
 
March 31, 2019
 
 
Operating Leases
 
Finance Leases
2019 (excluding the three months ended March 31, 2019)
 
$
26,054

 
$
7,771

2020
 
37,710

 
7,765

2021
 
34,646

 
7,758

2022
 
30,893

 
5,378

2023
 
27,869

 
5,637

Thereafter
 
164,742

 
40,416

Total lease payments
 
321,914


74,725

Less: Interest
 
(93,676
)
 
(27,386
)
Present value of lease liabilities
 
$
228,238


$
47,339

As of March 31, 2019, the Company’s weighted-average remaining lease terms for its operating and finance leases were approximately 11.6 years and 12.3 years, respectively. The weighted-average discount rates used to determine the Company’s operating and finance lease liabilities were 5.6% and 9.4%, respectively as of March 31, 2019.
The components of lease expense included in the Company’s Consolidated Statements of Operations for the three months ended March 31, 2019 are as follows (in thousands):

22

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 Lease Expense
 
Income Statement Classification
 
Three Months Ended March 31,
 
 
 
 
2019
Operating (1)
 
Selling, general and administrative expenses
 
$
10,950

Finance:
 
 
 
 
Amortization of lease assets
 
Depreciation and amortization expense
 
1,123

Interest on lease liabilities
 
Other interest expense, net
 
972

Sublease income (2)
 
Selling, general and administrative expenses

 
(320
)
Net lease expense
 
 
 
$
12,725

(1) Includes short-term lease and variable lease expenses, which are immaterial.
(2) Excludes rental income from owned properties of $0.1 million for the three months ended March 31, 2019, which is included in Finance, insurance and other, net.
Supplemental cash flow information related to leases for the three months ended March 31, 2019 are as follows (in thousands):
Other Information
 
Three Months Ended March 31,
 
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
  Operating cash flows from operating leases
 
$
11,664

  Operating cash flows from finance leases
 
972

  Financing cash flows from finance leases
 
969

Right-of-use assets obtained in exchange for lease obligations:
 
 
Operating leases
 
$
5,032

14. INTANGIBLE FRANCHISE RIGHTS AND GOODWILL
The following is a roll-forward of the Company’s intangible franchise rights and goodwill accounts by reportable segment (in thousands):
 
Intangible Franchise Rights
 
U.S.
 
U.K.
 
Brazil
 
Total
Balance, December 31, 2018
$
224,394

 
$
35,092

 
$
144

 
$
259,630

Currency translation

 
837

 
(2
)
 
835

Balance, March 31, 2019
$
224,394

 
$
35,929

 
$
142

 
$
260,465

 
Goodwill
 
U.S.
 
U.K.
 
Brazil
 
Total
Balance, December 31, 2018
$
861,628

 
$
87,587

 
$
14,710

 
$
963,925

Disposals and purchase price allocation adjustments
33

 

 

 
33

Currency translation

 
2,090

 
(166
)
 
1,924

Balance, March 31, 2019
$
861,661

 
$
89,677

 
$
14,544

 
$
965,882


23

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in the balances of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 were as follows (in thousands): 
 
 
Three Months Ended March 31, 2019
 
 
Accumulated income (loss) on foreign currency translation
 
Accumulated income (loss) on interest rate swaps
 
Total
Balance, December 31, 2018
 
$
(146,708
)
 
$
8,936

 
$
(137,772
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 

Pre-tax
 
3,607

 
(5,554
)
 
(1,947
)
Tax effect
 

 
1,316

 
1,316

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


Floorplan interest expense (pre-tax)
 

 
(344
)
 
(344
)
Other interest expense, net (pre-tax)
 

 
(110
)
 
(110
)
Tax effect
 

 
108

 
108

Net current period other comprehensive income (loss)
 
3,607

 
(4,584
)
 
(977
)
Balance, March 31, 2019
 
$
(143,101
)
 
$
4,352

 
$
(138,749
)
 
 
Three Months Ended March 31, 2018
 
 
Accumulated income (loss) on foreign currency translation
 
Accumulated income (loss) on interest rate swaps
 
Total
Balance, December 31, 2017
 
$
(122,552
)
 
$
(674
)
 
$
(123,226
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
Pre-tax
 
7,871

 
10,384

 
18,255

Tax effect
 

 
(2,492
)
 
(2,492
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
 
 
 
 
 
 
Floorplan interest expense (pre-tax)
 

 
1,737

 
1,737

Other interest expense, net (pre-tax)
 

 
254

 
254

Tax effect
 

 
(478
)
 
(478
)
Net current period other comprehensive income (loss)
 
7,871

 
9,405

 
17,276

Balance, March 31, 2018
 
$
(114,681
)
 
$
8,731

 
$
(105,950
)

24

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16SEGMENT INFORMATION
As of March 31, 2019, the Company had three reportable segments: (1) the U.S., (2) the U.K., and (3) Brazil. Each of the reportable segments is comprised of retail automotive franchises, which 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. The vast majority of the Company’s corporate activities are associated with the operations of the U.S. operating segment and, therefore, the corporate financial results are included within the U.S. reportable segment.
Reportable segment revenue, income (loss) before income taxes, benefit (provision) for income taxes and net income (loss) were as follows for the three months ended March 31, 2019 and 2018 (in thousands):
 
Three Months Ended March 31, 2019
 
U.S.
 
U.K.
 
Brazil
 
Total
Total revenues
$
2,062,782

 
$
642,158

 
$
103,436

 
$
2,808,376

Income (loss) before income taxes
46,367

 
6,244

 
(435
)
 
52,176

Benefit (provision) for income taxes
(12,413
)
 
(1,096
)
 
(19
)
 
(13,528
)
Net income (loss) (1)
33,954

 
5,148

 
(454
)
 
38,648

 
Three Months Ended March 31, 2018
 
U.S.
 
U.K.
 
Brazil
 
Total
Total revenues
$
2,088,486

 
$
660,542

 
$
110,998

 
$
2,860,026

Income (loss) before income taxes
40,510

 
5,737

 
(80
)
 
46,167

Benefit (provision) for income taxes
(9,357
)
 
(862
)
 
(134
)
 
(10,353
)
Net income (loss)
31,153

 
4,875

 
(214
)
 
35,814


(1) Includes the following, net of tax: gain of $3.8 million on real estate and dealership transactions in the U.S. segment; loss of $1.5 million due to catastrophic events in the U.S. segment; and loss of $1.9 million for legal claim settlements in the U.S. and Brazil segment for the three months ended March 31, 2019.

Reportable segment total assets as of March 31, 2019 and December 31, 2018, were as follows (in thousands):
 
As of March 31, 2019
 
U.S.
 
U.K.
 
Brazil
 
Total
Total assets
$
4,213,916

 
$
917,655

 
$
131,920

 
$
5,263,491

 
As of December 31, 2018
 
U.S.
 
U.K.
 
Brazil
 
Total
Total assets (1)
$
4,113,049

 
$
756,350

 
$
131,676

 
$
5,001,075

(1) Balances as of December 31, 2018 were unchanged under the optional transition method applied as part of the implementation of Topic 842. See Note 1, “Interim Financial Information” and Note 13, “Leases” for further information.


25

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables include condensed consolidating financial information as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018, for Group 1 Automotive, Inc.’s (as issuer of the 5.00% Notes) guarantor subsidiaries and non-guarantor subsidiaries (representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, statement of operations, and cash flows items that are not necessarily indicative of the financial position, results of operations, or cash flows of these entities had they operated on a stand-alone basis. In accordance with Rule 3-10 of Regulation S-X, condensed consolidated financial statements of non-guarantors are not required. The Company has no assets or operations independent of its subsidiaries. Obligations under the 5.00% Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by the Company’s current 100%-owned domestic subsidiaries and certain of the Company’s future domestic subsidiaries, with the exception of the Company’s “minor” subsidiaries (as defined by Rule 3-10 of Regulation S-X). There are no significant restrictions on the ability of the Company or subsidiary guarantors for the Company to obtain funds from its subsidiary guarantors by dividend or loan. None of the subsidiary guarantors’ assets represent restricted assets pursuant to SEC Rule 4-08(e)(3) of Regulation S-X.

26

GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2019
(Unaudited, in thousands)
 
Group 1 Automotive, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Total Company
ASSETS
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
10,245

 
$
23,378

 
$

 
$
33,623

Contracts-in-transit and vehicle receivables, net

 
183,894

 
77,300

 

 
261,194

Accounts and notes receivable, net

 
137,168

 
48,143

 

 
185,311

Intercompany accounts receivable
29,338

 
14,433

 

 
(43,771
)
 

Inventories, net

 
1,499,284

 
361,623

 

 
1,860,907

Prepaid expenses and other current assets
643

 
21,541

 
69,852

 

 
92,036

TOTAL CURRENT ASSETS
29,981

 
1,866,565

 
580,296

 
(43,771
)
 
2,433,071

Property and equipment, net

 
1,143,606

 
227,137

 

 
1,370,743

Operating lease assets

 
127,140


87,636



 
214,776

Goodwill

 
861,661

 
104,221

 

 
965,882

Intangible franchise rights

 
224,393

 
36,072

 

 
260,465

Investment in subsidiaries
3,192,888

 

 

 
(3,192,888
)
 

Other assets

 
10,363

 
8,191

 

 
18,554

TOTAL ASSETS
$
3,222,869

 
$
4,233,728

 
$
1,043,553

 
$
(3,236,659
)
 
$
5,263,491

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
Floorplan notes payable — credit facility and other
$

 
$
1,224,583

 
$
31,201

 
$

 
$
1,255,784

Offset account related to floorplan notes payable - credit facility

 
(72,728
)
 

 

 
(72,728
)
Floorplan notes payable — manufacturer affiliates

 
297,788

 
146,215

 

 
444,003

Offset account related to floorplan notes payable - manufacturer affiliates

 
(26,000
)
 

 

 
(26,000
)
Current maturities of long-term debt and short-term financing

 
66,542

 
29,817

 

 
96,359

Current operating lease liabilities

 
17,751

 
6,156

 

 
23,907

Accounts payable

 
218,615

 
288,733

 

 
507,348

Intercompany accounts payable
1,223,548

 

 
53,171

 
(1,276,719
)
 

Accrued expenses and other current liabilities


 
172,288

 
35,781

 

 
208,069

TOTAL CURRENT LIABILITIES
1,223,548

 
1,898,839

 
591,074

 
(1,276,719
)