| BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES | BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 U.S., 33 towns in the U.K., and three 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 December 31, 2019 , the Company’s retail network consisted of 119 dealerships in the U.S, 50 dealerships in the U.K. and 17 dealerships in Brazil. The U.S. and Brazil are led by the President, U.S. and Brazilian Operations, and the U.K is led by a Managing Director, each reporting directly to the Company's Chief Executive Officer and responsible for the overall performance of their respective regions, as well as for overseeing field level management. Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and reflect the consolidated accounts of the parent company, Group 1 Automotive, Inc., and its subsidiaries, all of which are wholly owned. The results of operations of all business combinations completed during the period are included from the effective dates of the closings of the acquisitions. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior periods to conform with current period presentation with no effect on the Company’s previously reported consolidated financial position, results of operations or cash flows. Certain disclosures are reported as zero balances, or may not compute, due to rounding. Use of Estimates The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Management analyzes the Company’s estimates based on historical experience and other assumptions that are believed to be reasonable under the circumstances; however, actual results could differ materially from such estimates. The significant estimates made by management in the accompanying Consolidated Financial Statements relate to inventory valuation adjustments, reserves for future chargebacks on finance, insurance and vehicle service contract fees, self-insured property and casualty insurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill and intangible franchise rights, and reserves for potential litigation. Segment Reporting See discussion of the Company’s reportable segments in Note 19 “Segment Information.” Revenue Recognition See discussion of the Company’s revenue streams and accounting policies related to revenue recognition in Note 2 “Revenues.” Cash and Cash Equivalents Cash and cash equivalents include demand deposits and various other short-term investments with original maturities of three months or less at the date of purchase. Receivables Contracts-in-Transit and Vehicle Receivables Contracts-in-transit and vehicle receivables consist primarily of amounts due from financing institutions on retail finance contracts from vehicle sales, and also includes receivables related to vehicle wholesale sales. Accounts and Notes Receivable Accounts and notes receivable consist primarily of amounts due from manufacturers related to dealer incentives, and also includes receivables related to parts and service sales. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts based on the age of the receivable, the creditworthiness of the customer, and it’s historical experience with the customer. See Note 7 “Receivables, Net” for details of the Company’s receivable accounts and related allowance for doubtful accounts. Inventories New and used retail vehicles are initially valued in inventory at cost, which consists of the amount paid to acquire the inventory, plus the cost of reconditioning, cost of equipment added and transportation cost. All vehicles are carried at the lower of specific cost or net realizable value and are removed from inventory using the specific identification method in the Consolidated Balance Sheets. In determining the lower of specific cost or net realizable value of new and used vehicles, the Company considers historical loss experience and current market trends. Valuation risk is partially mitigated by the speed at which the Company turns this inventory. Impairments of inventory, net of insurance proceeds, related to catastrophic events are included in Selling, general and administrative expenses in the Consolidated Statements of Operations. During the year ended December 31, 2019, the Company recorded $16.0 million in impairment charges as a result of hail storms and flood damage from Tropical Storm Imelda. During the years ended December 31 2018 and 2017, impairments of inventory were $6.1 million and $5.0 million , respectively. The Company receives interest assistance from certain automobile manufacturers that is reflected as a vehicle purchase price discount. The Company also receives dealer rebates and incentive payments, typically on parts purchases from the automobile manufacturers and on new vehicle retail sales. The interest assistance and dealer incentives are reflected as a reduction to cost of sales in the Statements of Operations as the vehicles are sold. Interest assistance reduces inventory cost in the Consolidated Balance Sheets. Certain manufacturers offer rebates that result in purchase discounts once the incentives are met, providing the Company with volume incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time. Under the terms of the Company’s dealership franchise agreements, the respective manufacturers are able to perform warranty, incentive, and rebate audits and charge the Company back for unsupported or non-qualifying warranty repairs, rebates or incentives. Parts and accessories inventories are valued at lower of cost or net realizable value and determined on a first-in, first-out basis in the Consolidated Balance Sheets. The Company incurs shipping costs in connection with selling parts to customers which is included in Cost of Sales in the Consolidated Statements of Operations. Property and Equipment Property and equipment are recorded at cost and depreciation is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the estimated term of the lease or the estimated useful life of the asset. Property and equipment estimated useful lives are as follows: Estimated Useful Lives in Years Land — Buildings 25 to 50 Leasehold improvements Varies Machinery and dealership equipment 7 to 20 Office equipment, furniture and fixtures 3 to 20 Company vehicles 3 to 5 Expenditures for major additions or improvements, which improve or extend the useful lives of the assets are capitalized. Minor replacements, maintenance and repairs, which do not improve or extend the lives of the assets, are expensed as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations. The Company reviews long-lived assets that are held-for-use for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events). This review consists of comparing the carrying amount of the asset with its expected future undiscounted cash flows without non-floorplan interest costs. If the asset’s carrying amount is greater than such cash flow estimate, an impairment charge is recorded to write the asset down to its fair value. Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions. During the year ended December 31, 2019 , 2018 and 2017 , the Company recorded $1.8 million , $5.1 million and $0.2 million of impairment of property and equipment, respectively. See Note 9 “Property and Equipment, Net” for additional details. Business Combinations Business acquisitions are accounted for under the acquisition method of accounting. 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). The fair values of assets acquired and liabilities assumed in business combinations are estimated using various assumptions. The most significant assumptions, and those requiring the most judgment, involve the estimated fair values of property and equipment and intangible franchise rights. The Company generally utilizes third-party experts to determine the fair values of property and equipment purchased, including real estate, and utilizes its fair value model as discussed under “Intangible Franchise Rights” below, supplemented with assistance from third-party experts, to determine the fair value of intangible franchise rights acquired. See Note 3 “Acquisitions and Dispositions” for additional discussion of the Company’s business combinations. Goodwill Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. The Company is organized into three geographic regions, the U.S. region, the U.K. region and the Brazil region. The Company has determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment. Annually in the fourth quarter, based on the carrying values of the Company’s regions as of October 31, the Company performs an impairment assessment of its goodwill. An impairment analysis is done more frequently if certain events or circumstances arise that would indicate an adverse change in the fair value of the intangible asset has occurred (i.e., an impairment indicator). In evaluating goodwill for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that goodwill was impaired. If it is concluded based on the qualitative assessment that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company does not have to quantitatively determine the asset’s fair value. However if it is concluded that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative test comparing the fair value of the reporting unit to its carrying amount is required to measure the amount of impairment. When a quantitative test is performed, the Company estimates the fair value of the respective reporting units using a combination of the discounted cash flow, or income approach, and the market approach. Significant assumptions included in the model include changes in revenue growth rates, future gross margins, future SG&A expenses, and the WACC and terminal growth rates. For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit. Each of these assumptions requires the Company to use its knowledge of (1) the industry, (2) recent transactions and (3) reasonable performance expectations for its operations. The Company’s qualitative test includes a review of changes since the last quantitative test was performed in those assumptions having the most significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above. See Note 11 “Intangible Franchise Rights and Goodwill” for details of the Company’s intangibles, including results of its impairment testing. Intangible Franchise Rights The Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which are recorded at an individual dealership level. The Company expects these franchise agreements to continue for an indefinite period and, for agreements that do not have indefinite terms, the Company believes that renewal of these agreements can be obtained without substantial cost, based on the history with the manufacturer. As such, the franchise rights are considered indefinite-lived intangible assets and not amortized, as the Company believes that its franchise agreements will contribute to cash flows for an indefinite period. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as part of goodwill in the U.S. reporting unit and remain recorded in goodwill in the U.S. reporting unit at December 31, 2019 and 2018 in the Consolidated Balance Sheets. Since July 1, 2001, intangible franchise rights acquired in business combinations have been recorded as distinctly separate intangible assets. The Company evaluates franchise rights for impairment annually in the fourth quarter, based on the respective carrying values as of October 31, or more frequently if events or circumstances indicate possible impairment has occurred. In evaluating indefinite-lived intangible assets for impairment, an optional qualitative assessment may be initially performed to determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that the intangible asset was impaired. If it is concluded based on the qualitative assessment that it is not more likely than not that the fair value of the intangible asset is less than its carrying amount, the Company does not have to quantitatively determine the asset’s fair value. However if it is concluded that it is more likely than not that the fair value of the intangible asset is less than its carrying amount, a quantitative test comparing the fair value of the intangible asset to its carrying amount is required to measure the amount of impairment. When a quantitative test is performed, the Company estimates the fair value of the respective franchise right using a direct value method discounted cash flow model, or income approach, specifically the excess earnings method. Significant assumptions included in the model include changes in revenue growth rates, future gross margins, future SG&A expenses, and the WACC and terminal growth rates. The Company’s qualitative test includes a review of changes since the last quantitative test was performed in those assumptions having the most significant impact on the current year fair value, which are consistent with the significant assumptions identified in the quantitative test above. During the year ended December 31, 2019 , 2018 and 2017 , the Company recorded $19.0 million , $38.7 million and $19.3 million , respectively, of impairment of intangible franchise rights. See Note 11 “Intangible Franchise Rights and Goodwill” for details of the Company’s intangibles, including results of its impairment testing. Income Taxes Currently, the Company operates in 15 different states in the U.S., in the U.K. and in Brazil, each of which has unique tax rates and payment calculations. As the amount of income generated in each jurisdiction varies from period to period, the Company’s estimated effective tax rate can vary based on the proportion of taxable income generated in each jurisdiction. The Company follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes . Under this method, deferred income taxes are recorded based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. A valuation allowance reduces deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recognized deferred tax assets, net of valuation allowances, that it believes will be realized, based primarily on the assumption of future taxable income. As it relates to U.S. state net operating losses, as well as deferred tax assets primarily relating to net operating losses and goodwill for certain Brazil subsidiaries, a corresponding valuation allowance has been established to the extent that the Company has determined that net income attributable to certain jurisdictions may not be sufficient to realize the benefit. See Note 14 “Income Taxes” for additional details. Derivative Financial Instruments The Company holds derivative financial instruments consisting of interest rate swaps which are designated as cash flow hedges. See discussion of the Company’s accounting policies relating to its derivative financial instruments, including fair value measurements, in Note 6 “Financial Instruments and Fair Value Measurements.” Foreign Currency Translation The functional currency for the Company’s U.K. subsidiaries is GBP (£) and for the Brazil subsidiaries is BRL (R$). All assets and liabilities of foreign subsidiaries are translated into USD using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period. The gains and losses resulting from translation adjustments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity. Earnings Per Share See discussion of the Company’s earnings per share calculation in Note 5 “Earnings Per Share.” Advertising The Company expenses the costs of advertising as incurred. Advertising expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations and totaled $75.2 million for both years ended December 31, 2019 and 2018 , respectively and $74.1 million for the year ended 2017 . The Company receives advertising assistance from certain automobile manufacturers which the Company is required to spend on qualified advertising and which is subject to audit and chargeback by the manufacturer. The assistance is accounted for as a reduction to SG&A expenses as earned and amounted to $15.4 million , $14.8 million and $15.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. Business and Credit Risk Concentrations The Company owns and operates franchised automotive dealerships in the U.S., the U.K. and Brazil. Automotive dealerships operate pursuant to franchise agreements with vehicle manufacturers. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the operations of the dealership. The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management, marketing, production and distribution capabilities of the vehicle manufacturers or distributors of which the Company holds franchises. The Company purchases substantially all of its new vehicles from various manufacturers or distributors at the prevailing prices to all franchised dealers. The Company’s sales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the dealerships with an adequate supply of vehicles. The following table sets forth manufacturers with greater than 10% of the Company’s total new vehicle unit sales during the year ended December 31, 2019 : Manufacturer Percentage of New Vehicle Retail Units Sold Toyota/Lexus 24.7 % Volkswagen/Audi/Porsche/SEAT/SKODA 14.1 % BMW/MINI 12.0 % Honda/Acura 10.7 % Ford/Lincoln 10.4 % The Company receives reimbursement for rebates, incentives and other earned credits from manufacturers. As of December 31, 2019 , the Company was due $124.0 million from various manufacturers (see Note 7 “Receivables, Net” ). Statements of Cash Flows With respect to all new vehicle floorplan borrowings, the vehicle manufacturers draft the funds directly from the Company’s credit facilities 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 borrowed funds flow from the lender directly to the Company. 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. 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 12 “Floorplan Notes Payable” ) are presented within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. All borrowings from, and repayments to, the Company’s credit facilities (including the cash flows from or to manufacturer affiliated lenders participating in the Revolving Credit Facility) are presented within Cash Flows from Financing Activities. See Note 18 “Cash Flow Information” for additional details. Stock-Based Compensation See discussion of the Company’s share-based payment awards and related accounting policies in Note 4 “Stock-Based Compensation Plans.” Self-Insured Medical, Property and Casualty Reserves The Company purchases insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefits and other risks and maintains reserves for liabilities related to its self-insured portions. With the assistance of a third-party actuary, the Company estimates these reserves using historical claims experience adjusted for loss trending and loss development factors, which are compiled at least on an annual basis. In the interim, the Company reviews the estimates within the study and monitors actual experience for unusual variances. As of December 31, 2019 and 2018, the Company had accrued $24.4 million and $24.0 million for its estimated reserves related to self-insured liabilities, respectively. Recent Accounting Pronouncements Accounting for Leases In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), that amends the accounting guidance on leases. The standard establishes a 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 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 leases with an initial term of 12 months or less 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 leases, the Company elected to separate lease and non-lease components and have allocated the consideration between the lease and non-lease components based on the estimated fair value of the leased component. 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 $222.6 million of operating ROU assets and $236.7 million of operating lease liabilities as of January 1, 2019. The difference between ROU assets and lease liabilities is primarily due to the recognition of a $6.1 million cumulative-effect adjustment, net of deferred tax impact, to retained earnings as of January 1, 2019 resulting from the impairment of certain operating ROU assets upon the adoption of Topic 842. The remaining difference between the ROU assets and lease liabilities is primarily the result of prepaid rent. 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. During the year ended December 31, 2019 , the Company recognized a ROU asset impairment charge of $1.4 million . For further details, see Note 10 “Leases.” Credit Losses 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. Upon adoption of the standard on January 1, 2020, the Company expects that, based on current expectations, its allowance for credit losses will be less than $1.5 million , and will be calculated primarily based on a loss-rate method. Under the existing standard, the Company’s reserve is primarily based on an aging schedule and is within the range above. The ultimate impact upon adoption will depend on the characteristics of the Company’s portfolios, economic conditions and forecasts, and the finalized validation of models and methodologies, as well as other management judgments. |
