Group 1 Automotive
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KGROUP 1 AUTOMOTIVE INC - GPIFiled: February 17, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 1-13461Group 1 Automotive, Inc.(Exact name of registrant as specified in its charter)Delaware 76-0506313(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 800 Gessner, Suite 500Houston, Texas 77024(Address of principal executiveoffices, including zip code) (713) 647-5700(Registrant’s telephonenumber, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of exchange on which registeredCommon stock, par value $0.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þIndicate 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 preceding12 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 past90 days. Yes þ No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). Yes þ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filerþ ¨Accelerated filer Non-accelerated filer¨(Do not check if a smaller reporting company)¨Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ No þThe aggregate market value of common stock held by non-affiliates of the registrant was approximately $2.1 billion based on the reported last sale price of common stock onJune 30, 2015, which was the last business day of the registrant’s most recently completed second quarter.As of February 12, 2016, there were 23,420,863 shares of our common stock, par value $0.01 per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2016 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within120 days of December 31, 2015, are incorporated by reference into Part III of this Form 10-K.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS1PART I2Item 1.Business2Item 1A.Risk Factors20Item 1B.Unresolved Staff Comments31Item 2.Properties32Item 3.Legal Proceedings33Item 4.Mine Safety Disclosures33 PART II34Item 5.Market for Registrant Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities34Item 6.Selected Financial Data37Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations39Item 7A.Quantitative and Qualitative Disclosures About Market Risk76Item 8.Financial Statements and Supplementary Data77Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure77Item 9A.Controls and Procedures77Item 9B.Other Information78 PART III80Item 10.Directors, Executive Officers and Corporate Governance80Item 11.Executive Compensation81Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters81Item 13.Certain Relationships and Related Transactions, and Director Independence81Item 14.Principal Accounting Fees and Services81 PART IV82Item 15.Exhibits, Financial Statement Schedules82SIGNATURES83iSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K (“Form 10-K”) includes certain “forward-looking statements” within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This informationincludes statements regarding our plans, goals or current expectations with respect to, among other things:•our future operating performance;•our ability to maintain or improve our margins;•operating cash flows and availability of capital;•the completion of future acquisitions;•the future revenues of acquired dealerships;•future stock repurchases, refinancing of debt, and dividends;•future capital expenditures;•changes in sales volumes and availability of credit for customer financing in new and used vehicles and sales volumes in the parts and servicemarkets;•business trends in the retail automotive industry, including the level of manufacturer incentives, new and used vehicle retail sales volume, customerdemand, interest rates and changes in industry-wide inventory levels; and•availability of financing for inventory, working capital, real estate and capital expenditures.Although we believe that the expectations reflected in these forward-looking statements are reasonable when and as made, we cannot assure you thatthese expectations will prove to be correct. When used in this Form 10-K, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may” andsimilar expressions, as they relate to our company and management, are intended to identify forward-looking statements, which are generally not historical innature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us.While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developmentsaffecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecastsfor our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks anduncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience andour present expectations or projections. Known material factors that could cause our actual results to differ from those in the forward-looking statements arethose described in Part I, “Item 1A. Risk Factors.”Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake noresponsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.1Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART I Item 1. BusinessGeneralGroup 1 Automotive, Inc., a Delaware corporation organized in 1995, is a leading operator in the automotive retail industry. As of December 31, 2015,we owned and operated 199 franchises, representing 32 brands of automobiles, at 152 dealership locations and 35 collision centers worldwide. We own 151franchises at 116 dealership locations and 28 collision service centers in the United States of America (“U.S.”), 25 franchises at 17 dealership locations andsix collision centers in the United Kingdom (“U.K.”) and 23 franchises at 19 dealership locations and one collision center in Brazil. Through our dealerships,we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repairservices; and sell vehicle parts. Our operations are primarily located in major metropolitan areas in Alabama, California, Florida, Georgia, Kansas, Louisiana,Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, Oklahoma, South Carolina, and Texas in the U.S., in 15 towns in the U.K., and in keymetropolitan markets in the states of Sao Paulo, Parana and Mato Grosso do Sul in Brazil.As of December 31, 2015, our U.S. retail network consisted of the following two regions (with the number of dealerships they comprised): (a) the East(39 dealerships in Alabama, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, and South Carolina) and (b) theWest (77 dealerships in California, Kansas, Louisiana, Oklahoma, and Texas). Each U.S. region is managed by a regional vice president who reports directlyto our Chief Executive Officer and is responsible for the overall performance of their region. The financial matters of each U.S. region are managed by aregional chief financial officer who reports directly to our Chief Financial Officer. In addition, as of December 31, 2015, we had two international regions,one of which consisted of the 17 dealerships in the U.K. and the other of which consisted of the 19 dealerships in Brazil. Our international regions are alsomanaged locally with direct reporting responsibilities to our corporate management team.As discussed in more detail in Note 2 of our Consolidated Financial Statements, “Summary of Significant Accounting Policies and Estimates,” all ofour operating subsidiaries are aligned into one of four operating segments. Our financial information, including our revenues from external customers, ameasure of profit or loss, and total assets, is included in our Consolidated Financial Statements and related notes beginning on page F-1.Business StrategyOur business strategy is to leverage what we believe to be one of our key strengths — the talent of our people to: (a) sell new and used cars and lighttrucks; (b) arrange related vehicle financing, service and insurance contracts; (c) provide automotive maintenance and repair services; and (d) sell vehicleparts via an expanding network of franchised dealerships located primarily in growing regions of the U.S., the U.K. and Brazil. We believe that we havedeveloped a distinguished management team with substantial industry expertise. With our management structure and level of executive talent, we plan tocontinue empowering the operators of our dealerships to make appropriate decisions to grow their respective dealership operations and to control fixed andvariable costs. We believe this approach allows us to provide the best possible service to our customers, as well as attract and retain talented employees.We continue to primarily focus on the performance of our existing dealerships to achieve growth, capture market share, and maximize the investmentreturn to our stockholders. For 2016, we will primarily focus on five key areas as we continue to become a best-in-class automotive retailer. These areas are:•sustained growth of our higher margin parts and service business;•capture of additional new and used vehicle retail market share;•promotion of the customer experience and customer satisfaction;•improvement of operating efficiencies through further development of our operating model that promotes commonality of processes, systems andtraining and further leveraging of our cost base; and•enhancement of our current dealership portfolio by strategic acquisitions and improving or disposing of underperforming dealerships in the U.S.,the U.K. and Brazil.Our focus on growth in our parts and service operations continues to hinge on targeted marketing efforts, strategic selling and operational efficiencies,as well as capital investments designed to support our growth targets. In our new and used retail vehicle operations, our efforts are centered on the efficientand effective use of technology and advertising to enhance our sales efforts. We intend to make resource investments that are focused on the customerexperience and customer satisfaction in all areas of our business. We made significant changes in our operating model during the last five years, which weredesigned to2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.reduce variable and fixed expenses, appropriately leverage our scale and generate operating efficiencies. As our business grows in 2016 and beyond, weintend to manage our costs carefully and to look for opportunities to improve our operating efficiencies. We continue to look for opportunities to improveour processes and disseminate best practices. We believe that our management structure supports more rapid decision making and facilitates an efficient andeffective roll-out of new processes. We continue our efforts to fully leverage our scale, reduce costs, enhance internal controls, and enable further growth and,as such, we are taking steps to standardize key operating processes. We are constantly evaluating opportunities to improve the profitability of ourdealerships.In 2015, we completed three dealership acquisitions in the U.S., which had an aggregate of $340.0 million in expected annualized revenues estimatedat the time of acquisition. We believe that substantial opportunities for growth through acquisitions remain in our industry. An absolute acquisition targethas not been established for 2016, but we expect to acquire dealerships that provide attractive returns on investment. We believe that as of December 31,2015, we have sufficient financial resources to support additional acquisitions. We plan to focus our growth in geographically diverse areas with positiveeconomic outlooks over the longer-term. Further, we intend to critically evaluate our return on invested capital in our current dealership portfolio fordisposition opportunities. In 2015, we disposed of two dealerships and one franchise in the U.S. and terminated two franchises in Brazil, with aggregateannual revenues of approximately $115.0 million. For more information on our acquisitions and dispositions, including those occurring in 2015, see“Acquisition and Divestiture Program” below.3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Dealership OperationsOur operations are located in geographically diverse markets that extend domestically across 14 states and internationally in the U.K. and Brazil. Bysegment, our revenues from external customers for the years ended December 31, 2015, 2014, and 2013 were $8,894.0 million, $8,175.2 million, and$7,353.3 million from our U.S. operations, respectively, and $1,220.2 million, $987.3 million, and $810.8 million from our U.K. operations, respectively. Forthe years ended December 31, 2015, 2014, and 2013, our revenues from external customers from our Brazil operations were $518.3 million, $775.4 million,and $754.5 million, respectively. Net income by segment for the years ended December 31, 2015, 2014, and 2013 were $142.4 million, $97.2 million, and$105.3 million from our U.S. operations, respectively, and $15.2 million, $14.3 million, and $10.1 million from our U.K. operations, respectively. In ourBrazil operations, we realized a net loss of $63.6 million, $18.5 million, and $1.4 million for the years ended December 31, 2015, 2014, and 2013,respectively. As of December 31, 2015, 2014, and 2013, our aggregate long-lived assets other than goodwill and intangible assets and financial instrumentsin our U.S. operations were $925.6 million, $849.2 million, and $726.6 million, respectively, and in our U.K. operations were $107.6 million, $100.7 million,and $65.9 million, respectively. As of December 31, 2015, 2014, and 2013 our long-lived assets other than goodwill and intangible assets and financialinstruments in our Brazil operations were $16.2 million, $22.1 million, and $16.4 million, respectively. For a discussion of the risks associated with ouroperations in the U.K. and Brazil, please see Part I, “Item 1A. Risk Factors.” The following table sets forth the regions and geographic markets in which weoperate, the percentage of new vehicle retail units sold in each region in 2015 and the number of dealerships and franchises in each region: Region Geographic Market Percentage of Our NewVehicle Retail Units SoldDuring the Year EndedDecember 31, 2015 As of December 31, 2015Number ofDealerships Number ofFranchisesEast Massachusetts 6.0% 7 7 Georgia 4.5 7 10 New Jersey 2.3 5 5 Florida 2.1 4 4 New Hampshire 2.0 3 3 Louisiana 1.6 3 4 Mississippi 1.5 3 3 South Carolina 1.4 3 3 Alabama 0.8 2 2 Maryland 0.5 2 2 22.7 39 43West Texas 38.7 50 68 California 9.7 9 14 Oklahoma 7.6 13 20 Kansas 2.1 4 4 Louisiana 0.7 1 2 58.8 77 108International United Kingdom 10.7 17 25 Brazil 7.8 19 23Total 100.0% 152 199Each of our local operations has a management structure designed to promote and reward entrepreneurial spirit and the achievement of team goals. Thegeneral manager of each dealership, with assistance from the managers of new vehicle sales, used vehicle sales, parts, service, and finance and insurance, isultimately responsible for the operation, personnel and financial performance of the dealership. Our dealerships are operated as distinct profit centers, and ourgeneral managers have a reasonable degree of empowerment within our organization. In the U.S., each general manager reports to one of our market directorsor one of two regional vice presidents. Our U.S. regional vice presidents report directly to our Chief Executive Officer and are responsible for the overallperformance of their regions, as well as for overseeing the market directors and dealership general managers that report to them. Our U.K. and Braziloperations are structured similarly, with a regional vice president reporting directly to our Chief Executive Officer.4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.New Vehicle Retail SalesIn 2015, we sold or leased 174,614 new vehicles in retail transactions at our dealerships, representing 32 brands. Our retail sales of new vehiclesaccounted for 19.9% of our gross profit in 2015. In addition to the profit related to the transactions, a typical new vehicle retail sale or lease may create thefollowing additional profit opportunities for our dealerships:•manufacturer dealer incentives;•the resale of any used vehicle trade-in purchased by the dealership;•the sale of third-party finance, vehicle service and insurance contracts in connection with the retail sale;•the sale of accessories or after-market products; and•the service and repair of the vehicle both during and after the warranty period.5Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We consider brand diversity to be one of our strengths. The following table sets forth new vehicle sales revenue by brand and the number of new vehicleretail units sold in the year ended, and the number of franchises we owned, as of December 31, 2015: New VehicleRevenues New VehicleUnit Sales % of TotalUnits Sold Franchises Ownedas ofDecember 31, 2015 (In thousands) Toyota (1) $1,069,544 38,260 21.9 16BMW 816,123 16,062 9.2 24Ford 673,262 19,680 11.3 16Mercedes-Benz 418,787 7,021 4.0 8Honda 392,017 15,964 9.1 12Nissan 366,186 14,570 8.3 12Lexus 351,563 7,528 4.3 3Chevrolet 342,801 8,818 5.1 6Audi 340,430 8,299 4.8 8Hyundai 158,942 6,454 3.7 6Acura 119,252 3,055 1.7 4Jeep 116,208 3,474 2.0 6MINI 112,453 4,221 2.4 15GMC 108,202 2,368 1.4 5Volkswagen 91,861 3,718 2.1 7RAM 90,265 2,125 1.2 6Kia 86,138 3,592 2.1 4Cadillac 68,398 1,278 0.7 2Dodge 57,754 1,808 1.0 6Subaru 47,511 1,747 1.0 2Land Rover 46,142 623 0.4 2Buick 30,233 843 0.5 5Sprinter 19,077 284 0.2 6Chrysler 18,505 555 0.3 6Scion (1) 14,334 665 0.4 N/APeugeot 11,773 653 0.4 2Mazda 10,345 414 0.2 1Lincoln 9,399 203 0.1 3Porsche 7,257 89 0.1 1smart 2,525 161 0.1 2Volvo 2,021 51 0.0 1Jaguar 1,928 26 0.0 2Renault (2) 70 5 0.0 —Total $6,001,306 174,614 100.0 199 (1)The Scion brand is not considered a separate franchise, but rather is governed by our Toyota franchise agreements. We sell the Scion brand at our Toyota franchised locations.(2)Renault franchises were disposed of in 2014..6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our diversity by manufacturer, based on new vehicle unit sales for the years ended December 31, 2015, 2014, and 2013, is set forth below: For the Year Ended December 31, 2015 % ofTotal 2014 % ofTotal 2013 % ofTotalToyota 46,157 26.4% 44,621 26.7% 41,419 26.6%BMW 20,283 11.6 19,125 11.5 17,277 11.1Ford 19,882 11.4 18,161 10.9 18,081 11.6Honda 19,019 10.9 18,776 11.3 19,219 12.3Nissan 14,570 8.3 15,664 9.4 15,845 10.2General Motors 13,307 7.6 10,691 6.4 7,520 4.8Volkswagen 12,106 6.9 10,243 6.1 9,802 6.3Hyundai 10,046 5.8 9,151 5.5 7,234 4.6FCA US (formerly Chrysler) 7,962 4.6 7,268 4.4 6,173 4.0Daimler (1) 7,466 4.3 7,442 4.5 7,011 4.5Other 3,816 2.2 5,754 3.3 6,285 4.0Total 174,614 100.0% 166,896 100.0% 155,866 100.0%(1)Daimler includes Mercedes-Benz, smart and Sprinter brands.Our new vehicle unit sales mix was affected by our acquisitions and dispositions during 2015, 2014 and 2013.Some new vehicles we sell are purchased by customers under lease or lease-type financing arrangements with third-party lenders. New vehicle leasesgenerally have shorter terms, bringing the customer back to the vehicle market, and our dealerships specifically, sooner than if the vehicle purchase was debtfinanced. In addition, leasing provides our dealerships with a steady supply of late-model, off-lease vehicles to be sold as used vehicles. Generally, leasedvehicles remain under factory warranty, allowing the dealerships to provide repair services for the contract term. However, the penetration of finance andinsurance product sales on leases tends to be less than in other financing arrangements (such as debt financed vehicles). We typically do not guaranteeresidual values on lease transactions. Lease vehicle unit sales represented 16.5%, 15.1% and 16.8% of our total new vehicle retail unit sales for the yearsended December 31, 2015, 2014 and 2013, respectively.Used Vehicle Sales, Retail and WholesaleWe sell used vehicles at each of our franchised dealerships. In 2015, we sold or leased 124,153 used vehicles at our dealerships, and sold 57,226 usedvehicles in wholesale markets. Our retail sales of used vehicles accounted for 11.7% of our gross profit in 2015. Used vehicles sold at retail typically generatehigher gross margins on a percentage basis than new vehicles primarily because of their relatively limited comparability, which is dependent on a vehicle’sage, mileage and condition, among other things.Valuations of used vehicles vary based on supply and demand factors, the level of new vehicle incentives, and the availability of retail financing andgeneral economic conditions. Profit from the sale of used vehicles depends primarily on a dealership’s ability to obtain a high-quality supply of usedvehicles at reasonable prices and to effectively manage that inventory. Our new vehicle operations provide our used vehicle operations with a large supply ofgenerally high-quality trade-ins and off-lease vehicles, and are the best source of high-quality used vehicles. Our dealerships supplement their used vehicleinventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers. We continue to extensively utilize acommon used vehicle management software tool in all of our U.S. dealerships with the goal to enhance the management of used vehicle inventory, focusingon the more profitable retail used vehicle business and reducing our wholesale used vehicle business. This internet-based software tool is an integral part ofour used vehicle process, enabling our managers to make used vehicle inventory decisions based on real time market valuation data. It also allows us toleverage our size and local market presence by expanding the pool from which used vehicles can be sold within a given market or region within the U.S.,effectively broadening the demand for our used vehicle inventory. In addition, this software supports increased oversight of our assets in inventory, allowingus to better control our exposure to used vehicles, the values of which typically decline over time.In addition to active management of the quality and age of our used vehicle inventory, we are focused on increasing the total lifecycle profitability ofour used vehicle operations by participating in manufacturer certification programs where available. Manufacturer certified pre-owned (“CPO”) vehicles offercustomers in the U.S. and U.K. the opportunity to purchase a used vehicle that has passed a rigorous array of manufacturer-defined tests, and as a result, comewith a manufacturer’s extended service warranty and potentially other benefits. With the extended service warranty, the sale of CPO vehicles tends to7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.generate better service loyalty for the selling dealership. CPO vehicles typically cost more to recondition, but sell at a premium compared to other usedvehicles and are available only from franchised new vehicle dealerships. In some cases, CPO vehicles are eligible for manufacturer support, such assubsidized finance rates and extension of the manufacturer warranty. Our CPO vehicle sales in the U.S. and U.K. represented 26.4% of total U.S and U.K. usedretail sales in 2015. CPO vehicles are not yet available in Brazil.Parts and Service SalesWe sell replacement parts and provide maintenance and repair services at each of our franchised dealerships and provide collision restoration servicesat the 35 collision centers that we operate. Our parts and service business accounted for 41.9% of our gross profit in 2015. We perform both warranty and non-warranty service work at our dealerships, primarily for the vehicle brand(s) sold at a particular location. Warranty, customer pay, collision and wholesaleaccounted for 20.4%, 44.5%, 14.0% and 21.1%, respectively, of the revenues from our parts and service business in 2015. Our parts and service departmentsalso perform used vehicle reconditioning and new vehicle enhancement services for which they realize a profit. However, the revenue for that internal work iseliminated from our parts and service revenue in the consolidation of our financial statements.The automotive repair industry is highly fragmented, with a significant number of independent maintenance and repair facilities in addition to those ofthe franchised dealerships. We believe, however, that the increasing complexity of new vehicles, especially in the area of electronics, has made it difficult formany independent repair shops to retain the expertise necessary to perform major or technical repairs. We have made investments in obtaining, training, andretaining qualified technicians to work in our service and repair facilities and in state of the art diagnostic and repair equipment to be utilized by thesetechnicians. Additionally, manufacturers only permit warranty and recall work to be performed at franchised dealerships. Currently, a trend exists in theautomobile industry towards longer new vehicle warranty periods and more diligence with manufacturer recalls. As a result, we believe that over time anincreasing percentage of all repair work will be performed at franchised dealerships that have the sophisticated equipment and skilled personnel necessary toperform repairs and warranty work on today’s complex vehicles.Our strategy to capture an increasing share of the parts and service work performed by franchised dealerships and enhance profitability includes thefollowing elements:•Focus on Customer Relationships; Emphasize Preventative Maintenance. Our dealerships seek to retain purchasers of new and used vehicle ascustomers of our parts and service departments. To accomplish this goal, we use computer systems that track the vehicle owners’ maintenancerecords and provide advance notice to them when their vehicles are due for periodic service. Our use of computer-based customer relationshipmanagement tools increases the reach and effectiveness of our marketing efforts, allowing us to target our promotional offerings to areas in whichservice capacity is under-utilized or profit margins are greatest. We continue to train our service personnel to establish relationships with theirservice clients to promote a long-term business relationship. And, we are focused on enhancing access to our service facilities by providingpatrons with readily-accessible means to schedule service appointments. We believe our parts and service activities are an integral part of thecustomer service experience, allowing us to maintain ongoing relationships with our dealerships’ clients thereby deepening customer loyalty tothe dealership as a whole.•Sell Vehicle Service Contracts in Conjunction with Vehicle Sales. Our finance and insurance sales departments attempt to connect new and usedvehicle customers with vehicle service contracts, and thereby secure repeat customer business for our parts and service departments.•Efficient Management of Parts Inventory. Our dealerships’ parts departments support their sales and service departments, selling factory-approved parts for the vehicle makes and models sold by a particular dealership. Parts are either used in repairs made in the service department,sold at retail to customers, or sold at wholesale to independent repair shops and other franchised dealerships. Our dealerships also frequently shareparts with each other. Our dealerships employ parts managers who oversee parts inventories and sales. Software programs are used to monitor partsinventory, maximize sales, avoid obsolete and unused parts, and take advantage of manufacturer return procedures.•Expansion of Collision Center Operations. We plan to continue to grow our collision center operations. Expansion in this segment of the businessis not restricted by franchise agreements or manufacturer relationships. We believe that our concentration of dealership operations in certain of themarkets in which we operate significantly enhances the profit model.Finance and Insurance SalesRevenues from our finance and insurance operations consist primarily of fees for arranging financing, and vehicle service and insurance contracts inconnection with the retail purchase of a new or used vehicle. Our finance and insurance business8Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.accounted for 26.6% of our gross profit in 2015. We offer a wide variety of third-party finance, vehicle service and insurance products in a convenient mannerand at competitive prices. To increase transparency to our customers, we offer all of our products on menus that display pricing and other information,allowing customers to choose the products that suit their needs.Financing. We arrange third-party purchase and lease financing for our customers. In return, we receive a fee from the third-party finance companyupon completion of the financing. These third-party finance companies include manufacturers’ captive finance subsidiaries, selected commercial banks and avariety of other third-parties, including credit unions and regional auto finance companies. Generally, we do not retain substantial credit risk after a customerhas received financing, though we do retain limited credit risk in some circumstances. The fees we receive from the third-party finance companies are subjectto chargeback, or repayment, to the finance company, if a customer defaults or prepays the retail installment contract, typically during some limited timeperiod at the beginning of the contract term. We have negotiated incentive programs with some finance companies pursuant to which we receive additionalfees upon reaching a certain volume of business.Extended Warranty, Vehicle Service and Insurance Products. We offer our customers a variety of vehicle warranty and extended protection productsin connection with purchases of new and used vehicles, including:•extended warranties;•maintenance, or vehicle service, products and programs;•guaranteed asset protection insurance, which covers the shortfall between a customer’s contract balance and insurance payoff in the event of atotal vehicle loss; and•lease “wear and tear” insurance.The products our dealerships offer are generally underwritten and administered by independent third parties, including the vehicle manufacturers’captive finance subsidiaries. Under our arrangements with the providers of these products, we either sell these products on a straight commission basis, or wesell the product, recognize commission and participate in future underwriting profit, if any, pursuant to a retrospective commission arrangement. Thesecommissions may be subject to chargeback, in full or in part, if the contract is terminated prior to its scheduled maturity.New and Used Vehicle Inventory FinancingOur dealerships finance their inventory purchases through the floorplan portion of our revolving credit facility and three separate floorplan creditfacility arrangements with manufacturers that we represent, BMW, Volkswagen, and Ford, in addition to credit facilities we have with financial institutions inBrazil. Our revolving syndicated credit facility matures in June 2018 and provides a total borrowing capacity of $1.7 billion, (the “Revolving CreditFacility”). We utilize our Floorplan Line (as defined below) to finance up to 80% of the value of our used vehicle inventory in the U.S., and up to 100% ofthe value of all new vehicle inventory in the U.S., other than new vehicles purchased from Ford. We can expand the Revolving Credit Facility to itsmaximum commitment of $1.95 billion, subject to participating lender approval. The Revolving Credit Facility consists of two tranches: a maximum of $1.6billion for vehicle inventory financing (“Floorplan Line”), as well as a maximum of $320.0 million and a minimum of $100.0 million for working capital andgeneral corporate purposes, including acquisitions (“Acquisition Line”). The capacity under these two tranches can be re-designated within the overall $1.7billion commitment, subject to the aforementioned limits. However, the amount of available borrowing capacity under the Acquisition Line may be limitedfrom time to time based upon the available borrowing base calculation within the debt covenants under the Revolving Credit Facility.We have a floorplan arrangement with Ford Motor Credit Company (“FMCC”) that provides $300.0 million of floorplan financing capacity (“FMCCFacility”). We use the funds available under this arrangement to exclusively finance our U.S. inventories of new Ford vehicles sold by the lender’smanufacturer affiliate. The FMCC Facility is an evergreen arrangement that may be canceled with 30 days notice by either party. Should the FMCC Facilityno longer be available to us for financing of our new U.S. Ford inventory, we could utilize the available capacity under our Floorplan Line to finance our newFord vehicle inventory.We also finance certain rental vehicles in the U.S. through separate arrangements with the respective automobile manufacturers. In addition, we utilizecredit facilities with BMW Financial Services, Volkswagen Finance, and FMCC for the financing of new, used, and rental vehicle inventories associated withour U.K. operations.In addition, we have 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 our Brazil operations. These facilities may be canceled with notice by either party and bear interest at abenchmark rate, plus a surcharge that varies based upon the type of vehicle being financed.9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Acquisition and Divestiture ProgramWe pursue an acquisition and divestiture program focused on the following objectives:•enhancing brand and geographic diversity with a primary focus on import and luxury brands;•creating economies of scale;•delivering an attractive return on investment; and•eliminating underperforming dealerships.Since our inception, we have grown our business primarily through acquisitions. Over the five-year period from January 1, 2011 through December 31,2015, we:•purchased 87 franchises with expected annual revenues, estimated at the time of acquisition, of $3.7 billion;•disposed of or terminated 32 franchises with annual revenues of approximately $1.0 billion; and•were granted five new franchises by vehicle manufacturers with expected annual revenues, estimated at the time of grant, of $118.0 million.Acquisition Strategy. We seek to acquire large, profitable, well-established dealerships and franchises that are leaders in their markets to:•expand into geographic areas we currently do not serve;•expand our brand, product, and service offerings in our existing markets;•capitalize on economies of scale in our existing markets; and/or•increase operating efficiency and cost savings in areas such as used vehicle sourcing, advertising, purchasing, data processing, personnelutilization, and the cost of floorplan financing.We typically pursue dealerships with superior operational management, whom we seek to retain. By retaining existing personnel who have experienceand in-depth knowledge of their local market, we believe that we can mitigate the risks involved with employing and training new and untested personnel. Inaddition, our acquisition strategy targets the purchase of the related real estate to provide maximum operating flexibility.We focus on the acquisition of dealerships or groups of dealerships that we believe offer opportunities for higher returns, and particularly on brandswhich provide growth opportunities for our parts and service operations and strengthen our operations in geographic regions in which we currently operatewith attractive long-term economic prospects.Recent Acquisitions. In 2015, we acquired three dealerships, representing five franchises, in the U.S. with expected annualized revenues, estimated atthe time of acquisition, of $340.0 million.Divestiture Strategy. We continually review the investments in our dealership portfolio for disposition opportunities, based upon a number of criteria,including:•the rate of return on our capital investment over a period of time;•location of the dealership in relation to existing markets and our ability to leverage our cost structure;•potential future capital investment requirements;•the brand; and•existing real estate obligations, coupled with our ability to exit those obligations or identify an alternate use.While it is our desire to only acquire profitable, well-established dealerships, at times we have been requested, in connection with the acquisition of aparticular dealership group, to acquire dealerships that do not fit our acquisition strategy. We acquire such dealerships with the understanding that we mayneed to divest some or all of them at some future time. The costs associated with such potential divestitures are included in our analysis of whether we acquireall dealerships in the same acquisition. Additionally, we may acquire a dealership whose profitability is marginal, but which we believe can be increasedthrough various factors, such as: (a) change in management, (b) increase or improvement in facility operations, (c) relocation of facility based ondemographic changes, (d) reduction in costs, and/or (e) sales training. If, after a period of time, a dealership’s profitability does not positively respond, we willseek to sell the dealership to a third party, or, in a rare case, surrender the franchise back to the manufacturer. In conjunction with the disposition of certain ofour dealerships, we may also dispose of the associated real estate. Management constantly monitors the performance of all of our dealerships, and routinelyassesses the need for divestiture. In connection with divestitures, we are sometimes required to incur additional charges associated with10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.lease terminations or the impairment of long-lived assets. We continue to rationalize our dealership portfolio and focus on increasing the overall profitabilityof our operations.Recent Dispositions. During 2015, we disposed of two dealerships and one franchise in the U.S. and terminated two franchises in Brazil withannualized revenues of approximately $115.0 million.CompetitionWe operate in a highly competitive industry. In each of our markets, consumers have a number of choices in deciding where to purchase a new or usedvehicle and how the purchase will be financed. Consumers also have options for the purchase of related parts and accessories, as well as the service and repairof vehicles.In the U.S., according to The National Automobile Dealers Association, there were approximately 16,396 franchised automobile dealerships as ofJanuary 1, 2015, which was down from 17,665 as of January 1, 2014.In the U.K., according to the National Franchised Dealers Association, there were approximately 4,127 franchised dealerships as of January 1, 2015,which was down from 4,377 as of January 1, 2014.In Brazil, according to The National Association of Automobile Manufacturers, there were approximately 4,364 franchised automobile dealerships as ofJanuary 1, 2014, which was up from 4,249 as of January 1, 2013.Our competitive success depends, in part, on national and regional automobile-buying trends, local and regional economic factors, and other regionalcompetitive pressures. Conditions and competitive pressures affecting the markets in which we operate, or in any new markets we enter, could adverselyaffect us, although the retail automobile industry as a whole might not be affected. Some of our competitors may have greater financial, marketing andpersonnel resources, and lower overhead and sales costs than we do. We cannot guarantee that our operating performance and our acquisition or dispositionstrategies will be more effective than the strategies of our competitors.New and Used Vehicles. We believe the principal competitive factors in the automotive retailing business are location, suitability of the facility, on-site management, the acceptance of a franchise to the market in which it is located, service, price, and selection. In the new vehicle market, our dealershipscompete with other franchised dealerships in their market areas, as well as auto brokers, leasing companies, and internet companies that provide referrals to, orbroker vehicle sales with, other dealerships or customers. We are subject to competition from dealers that sell the same brands of new vehicles that we sell andfrom dealers that sell other brands of new vehicles that we do not sell in a particular market. Our new vehicle dealer competitors also have franchiseagreements with the various vehicle manufacturers and, as such, generally have access to new vehicles on the same terms as we do. We do not have any costadvantage in purchasing new vehicles from vehicle manufacturers, and our franchise agreements do not grant us the exclusive right to sell a manufacturer’sproduct within a given geographic area.In the used vehicle market, our dealerships compete both in their local market and nationally, including over the internet, with other franchised dealers,large multi-location used vehicle retailers, local independent used vehicle dealers, automobile rental agencies, and private parties for the supply and resale ofused vehicles.Parts, Service and Collision. We believe the principal competitive factors in the parts and service business are the quality of customer service, the useof factory-approved replacement parts, familiarity with a manufacturer’s brands and models, convenience, access to technology required for certain repairsand services (e.g., software patches, diagnostic equipment, etc.), location, price, the competence of technicians, and the availability of training programs toenhance such expertise. In the parts and service market, our dealerships compete with other franchised dealers to perform warranty repairs and sell factoryreplacement parts. Our dealerships also compete with other automobile dealers, franchised and independent service center chains, and independent repairshops for non-warranty repair and maintenance business. In addition, our dealerships sell replacement and aftermarket parts both locally and nationally overthe internet in competition with franchised and independent retail and wholesale parts outlets. A number of regional or national chains offer selected partsand services at prices that may be lower than ours. Our collision centers compete with other large, multi-location companies, as well as local, independent,collision service operations.Finance and Insurance. We face competition in arranging financing for our customers’ vehicle purchases from a broad range of financial institutions.We believe the principal competitive factors in the finance and insurance business are convenience, interest rates, product availability, product knowledgeand flexibility in contract length. Many financial institutions now offer finance and insurance products over the internet, which may reduce our profits fromthe sale of these products. We may be charged back for unearned financing, insurance contracts or vehicle service contract fees in the event of earlytermination of the contracts by customers.Acquisitions. We compete with other national dealer groups and individual investors for acquisitions. Increased competition, especially for certainluxury and import brands, may raise the cost of acquisitions. We cannot guarantee that there11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.will be sufficient opportunities to complete desired acquisitions, nor are we able to guarantee that we will be able to complete acquisitions on termsacceptable to us.Financing Arrangements and IndebtednessAs of December 31, 2015, our outstanding indebtedness, coupled with lease and other obligations totaled $3,637.2 million, including the following:•$1,150.8 million under the Floorplan Line of our Revolving Credit Facility;•$318.2 million of future commitments under various operating leases;•$541.3 million in carrying value of 5.00% senior notes due 2022 (“5.00% Notes”);•$296.3 million in carrying value of 5.25% senior notes due 2023 (“5.25% Notes”);•$241.8 million of term loans, entered into independently with three of our manufacturer-affiliated finance partners, Toyota Motor CreditCorporation (“TMCC”), BMW Financial Services NA, LLC (“BMWFS”), and FMCC, as well as other third-party financial institutions, primarilyto finance the purchase of real estate;•$171.3 million under our FMCC Facility;•$196.4 million under floorplan notes payable to various manufacturer affiliates and third-party financial institutions for foreign and rentalvehicles;•$54.7 million under our real estate credit facility (“Real Estate Credit Facility”);•$51.9 million of capital lease obligations related to real estate, as well as $35.6 million of estimated interest;•$72.6 million of various other debt and other capital lease obligations;•$45.8 million of estimated future net obligations from interest rate risk management activities; as of December 31, 2015, the estimated fair valueof such obligations was $31.2 million;•$374.4 million of estimated interest payments on floorplan notes payable and other long-term debt obligations;•$41.9 million of letters of credit, to collateralize certain obligations, issued under the Acquisition Line; and•$44.2 million of other short and long-term purchase commitments.As of December 31, 2015, we had the following amounts available for additional borrowings under our various credit facilities:•$229.2 million under the Floorplan Line of our Revolving Credit Facility, including $110.8 million of immediately available funds;•$278.2 million under the Acquisition Line of our Revolving Credit Facility, which is limited based upon a borrowing base calculation withincertain debt covenants under the Revolving Credit Facility; and•$128.7 million under our FMCC Facility, including $25.5 million of immediately available funds.In addition, the indentures relating to our other debt instruments allow us to incur additional indebtedness and enter into additional operating leases,subject to certain conditions.For additional information regarding our financing arrangements and indebtedness, please read Part II, “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations - Liquidity and Capital Resources.”Stock Repurchase ProgramFrom time to time, our Board of Directors gives authorization to repurchase shares of our common stock, subject to the restrictions of various debtagreements and our judgment. We are limited under the terms of the Revolving Credit Facility, Real Estate Credit Facility, 5.00% Senior Notes and 5.25%Senior Notes in our ability to, among other things, repurchase shares of our outstanding common stock and make payments of cash dividends to ourstockholders. As of December 31, 2015, the most stringent of the restricted payment baskets was under our Revolving Credit Facility and Real Estate CreditFacility (the “Restricted Payment Basket”), limiting us to $144.7 million in restricted payments. The Restricted Payment Basket will increase in the futureperiods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash assetimpairment charges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount offuture payments for cash dividends and share repurchases.12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As of December 31, 2014, $99.4 million of share repurchases remained available, under the then-current authorization. In November 2015, a newauthorization of $100.0 million was approved by the Board of Directors, replacing the prior authorization that had $23.8 million remaining. During 2015, werepurchased 1,176,908 shares at an average price of $82.82 per share, for a total of $97.5 million, leaving $78.2 million available for future repurchases underthe Board of Director’s November 2015 authorization. In February 2016, the Board of Directors approved a new authorization of $150.0 million, replacingthe authorization remaining at that time. Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations,financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions and other factors.DividendsDuring 2015, our Board of Directors approved four quarterly cash dividends. The first two dividends were approved and paid at $0.20 per share, thethird was increased to $0.21 per share and the fourth one was increased to $0.22 per share for a total of $0.83 per share, or $19.9 million, for the year endingDecember 31, 2015. The payment of dividends in the future is subject to the discretion of our Board of Directors, after considering our results of operations,financial condition, cash flows, capital requirements, outlook for our business, general business conditions, the political and legislative environments, andother factors. As noted above, we are also limited in our ability to make cash dividend payments to our stockholders under the terms of several of our debtfinancing arrangements, the most restrictive of which is the Restricted Payment Basket.Relationships and Agreements with our ManufacturersEach of our U.S. dealerships operates under one or more franchise agreements with vehicle manufacturers (or authorized distributors). The franchiseagreements grant the franchised automobile dealership a non-exclusive right to sell the manufacturer’s or distributor’s brand of vehicles and offer relatedparts and service within a specified market area. These franchise agreements grant our dealerships the right to use the manufacturer’s or distributor’strademarks in connection with their operations, and impose numerous operational requirements and restrictions relating to, among other things:•inventory levels;•working capital levels;•the sales process;•minimum sales performance requirements;•customer satisfaction standards;•marketing and branding;•facility standards and signage;•personnel;•changes in management;•change in control; and•monthly financial reporting.Our dealerships’ franchise agreements are for various terms, ranging from one year to indefinite. Each of our franchise agreements may be terminated ornot renewed by the manufacturer for a variety of reasons, including unapproved changes of ownership or management and performance deficiencies in suchareas as sales volume, sales effectiveness, and customer satisfaction. In most cases, manufacturers have renewed the franchises upon expiration so long as thedealership is in compliance with the terms of the agreement. From time to time, certain manufacturers may assert sales and customer satisfaction performancedeficiencies under the terms of our framework and franchise agreements. We work with these manufacturers to address any performance issues.In general, the U.S. jurisdictions in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of anyfranchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It generally is difficult for amanufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. Though unsuccessful to date, manufacturers’lobbying efforts may lead to the repeal or revision of dealer laws. If dealer laws are repealed in the U.S. states in which we operate, manufacturers may be ableto terminate our franchises without providing advance notice, an opportunity to cure or showing of good cause. Without the protection of dealer laws, it mayalso be more difficult for our dealers to renew their franchise agreements upon expiration. Further, U.S. federal law, including any federal bankruptcy law,may preempt U.S. state law and allow manufacturers greater freedom to terminate or not renew franchises.13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The U.K. generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specificprotections. However, similar protections may be available as a matter of general U.K. contractual law. In addition, our U.K. dealerships are subject toEuropean Union (“EU”) and U.K. antitrust rules prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs andmaintenance across the EU. For example, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additionalfacilities throughout the EU, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and easerestrictions on cross supplies (including on transfers of dealerships) between existing authorized dealers within the EU. However, certain restrictions ondealerships may be permissible provided the conditions set out in the relevant EU Block Exemption Regulations are met.The sale of vehicles in Brazil is regulated by federal law, commonly referred to in Brazil as the Ferrari Law. Such law sets forth the terms and conditionsof distribution agreements executed among manufacturers and dealerships, specifically with regard to the distribution of cars, trucks, buses, tractors,motorbikes and similar vehicles. In addition, the Ferrari Law establishes the geographical area of a dealership, termination of distribution agreements andtheir consequences, among other things. Any contractual provision that conflicts with the Ferrari Law is considered void in Brazil. The distributionagreements contemplate the commercialization of vehicles and components fabricated by the manufacturer, the rendering of technical assistance relating tosuch products and the usage by the dealerships of the manufacturers’ brand. According to the Ferrari Law, distribution agreements may be executed for eithera determined or an undetermined term. In the case of a distribution agreement executed for a determined term, its initial term may not be less than 5 years. Atthe end of this initial 5 years term, such distribution agreement will be automatically converted into an undetermined term distribution agreement, unless anyof the parties thereto expressly waives such right with a 180 days prior notice. In the case of an early termination of a distribution agreement other than as aresult of a persistent breach or force majeure, the Ferrari law entitles the non-breaching party to, among other things, certain termination payments. The U.S. economic recession, that began in 2008, caused domestic manufacturers to critically evaluate their respective dealer networks and terminatecertain brands, and, as a result, the respective franchises. For example, General Motors chose to discontinue the Pontiac brand and, as a result, both of ourPontiac franchises were terminated. In addition, Ford chose to discontinue the Mercury brand and, as a result, all four of our Mercury franchises wereterminated. Subject to similar future economic factors and material changes to the regulations discussed above, we generally expect our franchise agreementsto survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantialcost or modification.Our dealership service departments perform vehicle repairs and service for customers under manufacturer warranties. We are reimbursed for the repairsand service directly from the manufacturer. Some manufacturers offer rebates to new vehicle customers that we are required, under specific program rules, toadequately document, support, and typically are responsible for collecting. In addition, some manufacturers provide us with incentives to order and/or sellcertain models and/or volumes of inventory over designated periods of time. Under the terms of our dealership franchise agreements, the respectivemanufacturers are able to perform warranty, incentive, and rebate audits and charge us back for unsupported or non-qualifying warranty repairs, rebates orincentives.In addition to the individual dealership franchise agreements discussed above, we have entered into framework agreements in the U.S. with most majorvehicle manufacturers and distributors. These agreements impose a number of restrictions on our operations, including our ability to make acquisitions andobtain financing, and on our management. These agreements also impose change of control provisions related to the ownership of our common stock. For adiscussion of these restrictions and the risks related to our relationships with vehicle manufacturers, please read “Item 1A. Risk Factors.”14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table sets forth the percentage of our new vehicle retail unit sales attributable to our top five manufacturers in terms of percent of newvehicle retail units sold: ManufacturerPercentage of NewVehicle RetailUnits Sold duringthe Year EndedDecember 31, 2015Toyota26.5%BMW11.6%Ford11.4%Honda10.9%Nissan8.4%15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Governmental RegulationsAutomotive and Other Laws and RegulationsWe operate in a highly regulated industry. A number of U.S. state and federal laws and regulations affect our business and the business of ourmanufacturers. In every U.S. state in which we operate, we must obtain various licenses in order to operate our businesses, including dealer, sales and finance,and insurance licenses issued by state regulatory authorities. Numerous laws and regulations govern our conduct of business, including those relating to oursales, operations, financing, insurance, advertising and employment practices. These laws and regulations include franchise laws and regulations, consumerprotection laws, and other extensive laws and regulations applicable to new and used motor vehicle dealers, as well as a variety of other laws and regulations.These laws also include U.S. federal and U.S. state wage-hour, anti-discrimination and other employment practices laws.Our financing activities with customers are subject to U.S. federal truth-in-lending, consumer leasing, and equal credit opportunity laws andregulations, as well as state and local motor vehicle finance laws, installment finance laws, usury laws, and other installment sales laws and regulations. SomeU.S. states regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or alleged violations of law may beasserted against us, or our dealerships, by individuals or governmental entities and may expose us to significant damages or other penalties, includingrevocation or suspension of our licenses to conduct dealership operations and fines.Our U.S. operations are subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety Standards promulgated by theUnited States Department of Transportation and the rules and regulations of various state motor vehicle regulatory agencies. The imported automobiles wepurchase in the U.S. are subject to United States customs duties, and in the ordinary course of our business we may, from time to time, be subject to claims forduties, penalties, liquidated damages or other charges.Our U.S. operations are subject to consumer protection laws known as Lemon Laws. These laws typically require a manufacturer or dealer to replace anew vehicle or accept it for a full refund within one year after initial purchase if the vehicle does not conform to the manufacturer’s express warranties and thedealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. U.S. federal laws require various written disclosures tobe provided on new vehicles, including mileage and pricing information. We are aware that several U.S. states are considering enacting consumer “bill-of-rights” statutes to provide further protection to the consumer which could affect our profitability in such states.The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau (the “CFPB”) with broadregulatory powers. Although automotive dealers are generally excluded from the CFPB’s regulatory authority, we are required to comply with regulationsapplicable to privacy notices, and the CFPB has announced its intention to regulate automotive financing activities through its regulation of automotivefinance companies and other financial institutions that service the automotive industry. The CFPB has issued regulatory guidance instructing financialinstitutions to monitor dealer loans for potential discrimination resulting from the system used to compensate dealers for assisting in the customer financingtransaction. The CFPB has instructed lenders that, if discrimination is found, the lender would be required to change dealer compensation practices. Inaddition, the CFPB has announced its intention to regulate the sale of other finance and insurance products. If the result of either of these initiatives is tosubstantially restrict our ability to generate revenue from arranging financing for our customers for the purchase of vehicles and associated products andservices, it could have a material adverse effect on our business and results of operations.Environmental and Occupational Health and Safety Laws and RegulationsOur operations involve the use, handling and storage for recycling and/or disposal of materials such as motor oil and filters, transmission fluids,antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. We contract for recycling and/or dispose ofused fluids, filters and other waste materials generated by our operations. Consequently, our business is subject to a complex variety of stringent laws andregulations governing management and disposal of materials and wastes, protection of the environment and occupational health and safety. These laws andregulations affect many aspects of our operations, such as requiring the acquisition of permits or other governmental approvals to conduct regulatedactivities, restricting the manner in which we handle, recycle and dispose of our wastes, incurring capital and operating expenditures to construct, maintainand upgrade pollution control and containment equipment and facilities, imposing specific health and safety criteria addressing worker protection, andimposing substantial liabilities for pollution caused by our operations or attributable to former operations. Failure to comply with these laws and regulationsmay result in the assessment of sanctions, including administrative, civil and criminal penalties, imposition of investigatory, remedial and corrective actionobligations, delays in permitting or in the performance of projects, and issuance of injunctions delaying, restricting or prohibiting some or all of ouroperations in affected areas. We may not be able to recover some or any of these costs from insurance.16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Most of our dealerships utilize above-ground storage tanks, primarily for storing and dispensing petroleum-based products, and above-ground lifts usedto raise vehicles. To a lesser extent, our dealerships use underground storage tanks and in-ground lifts. Storage tanks in the U.S. are subject to testing,containment, upgrading and removal requirements under the Resource Conservation and Recovery Act, or RCRA, and its state law counterparts. Similarly,below ground lifts may contain fluid reservoirs that may leak. RCRA imposes requirements relating to the handling and disposal of hazardous and non-hazardous wastes and requires us to comply with stringent and costly requirements in connection with our storage and recycling or disposal of the variousused fluids, paints, batteries, tires, and fuels generated by our operations. Clean-up or other remedial action may be necessary in the event of leaks or otherunauthorized discharges from storage tanks or other equipment operated by us. In addition, water quality protection programs under the Federal WaterPollution Control Act (commonly known as the Clean Water Act) and comparable U.S. state and local programs govern certain wastewater and storm waterdischarges from our operations, which discharges may require permitting. Similarly, certain sources of air emissions from our operations including, forexample, paint booths, may be subject to permitting, monitoring and reporting requirements, pursuant to the federal Clean Air Act and related state and locallaws. Certain health and safety standards imposed under the Federal Occupational Safety and Health Act or otherwise promulgated by the OccupationalSafety and Health administration of the United States Department of Labor and related state agencies are also applicable to protection of the health and safetyof our employees.We generally conduct environmental studies on dealerships to be acquired regardless of whether we are leasing or acquiring in fee the underlying realproperty, and as necessary, implement environmental management practices or remedial or corrective actions to reduce the risk of noncompliance withenvironmental laws and regulations. Nevertheless, we currently own or lease, and in connection with our acquisition program anticipate in the future owningor leasing, properties that in some instances have been used for auto retailing and servicing for many years. Laws regarding the prevention of pollution orremediation of environmental contamination generally apply regardless of whether we lease or purchase the land and facilities. Although we, or ourpredecessors, may have utilized operating and disposal practices that were standard in the industry at the time, a risk exists that petroleum products andwastes such as new and used motor oil, transmission fluids, antifreeze, lubricants, solvents and motor fuels could have been spilled or released on or under theproperties owned or leased by us or on or under other locations where such materials were taken for recycling or disposal. Further, we believe that structuresfound on some of these properties may contain asbestos-containing materials, although in an undisturbed condition that does not require removal or othercorrective action under applicable regulations. In addition, many of these properties have been operated by third parties whose use, handling and disposal ofsuch petroleum products or wastes were not under our control. These properties and the materials transported and disposed from, or released on, them may besubject to the U.S. federal Comprehensive Environmental Response, Compensation, and Liability Act (also known as the Superfund law), RCRA andanalogous U.S. state laws, pursuant to which we could be required to remove or remediate previously disposed wastes or property contamination or to performremedial activities to prevent future contamination.The trend in environmental regulation is to often place more restrictions and limitations on activities that may affect the environment. Consequently,any changes in environmental laws and regulations or re-interpretations of enforcement policies that result in more stringent and costly vehicular pollutioncontrol equipment or waste handling, storage, transport, disposal or remediation requirements, or delays or restrictions in permitting or performance ofprojects could have a material adverse effect on our business, results of operations and financial position. For example, U.S vehicle manufacturers are subjectto regulations adopted by the U.S. Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration that establishgreenhouse gas (“GHG”) and corporate average fuel economy (“CAFÉ”) standards applicable to light-duty vehicles through model year 2025, with thesestandards imposing more stringent requirements through model year 2025. Whereas the CAFÉ standards are designed to improve vehicle fuel economy, theGHG standards are based on determinations made by the U.S. EPA, that emissions of carbon dioxide and certain other gases, comprising GHGs, present anendangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’satmosphere and other climatic changes. Moreover, climate-change legislation and regulatory changes have been made or are being considered at state andfederal levels and, on an international level, the United States is one of almost 200 nations that agreed in December 2015 to an international climate changeagreement in Paris, France that calls for countries to set their own GHG emissions targets and be transparent about the measures each country will use toachieve its GHG emissions targets. Although it is not possible at this time to predict how or when the United States might impose restrictions on GHGs as aresult of the international agreement made in Paris, the adoption of any laws or regulations requiring significant increases in fuel economy requirements ornew federal or state restrictions on emissions of GHGs on vehicles and automotive fuels in the United States could adversely affect prices of and demand forthe vehicles we sell.Insurance and BondingOur operations expose us to the risk of various liabilities, including:•claims by employees, customers or other third parties for personal injury or property damage resulting from our operations; and17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•fines and civil and criminal penalties resulting from alleged violations of federal and state laws or regulatory requirements.The automotive retailing business is also subject to substantial risk of real and personal property loss as a result of the significant concentration of realand personal property values at dealership locations. Under self-insurance programs, we retain various levels of aggregate loss limits, per claim deductiblesand claims handling expenses, including property and casualty, automobile physical damage, and employee medical benefits. In certain cases, we insurecosts in excess of our retained risk under various contracts with third-party insurance carriers. Actuarial estimates for the portion of claims not covered byinsurance are based on historical claims experience, adjusted for current trends and changes in claims-handling procedures. Risk retention levels may changein the future as a result of changes in the insurance market or other factors affecting the economics of our insurance programs. Although we believe ourinsurance coverage is adequate, we cannot assure that we will not be exposed to uninsured or underinsured losses that could have a material adverse effect onour business, results of operations and financial condition.We make provisions for retained losses and deductibles by reflecting charges to expense based upon periodic evaluations of the estimated ultimateliabilities on reported and unreported claims. The insurance companies that underwrite our insurance require that we secure certain of our obligations for self-insured exposures with collateral. Our collateral requirements are set by the insurance companies and, to date, have been satisfied by posting surety bonds,letters of credit and/or cash deposits. Our collateral requirements may change from time to time based on, among other things, our total insured exposure andthe related self-insured retention assumed under the policies. We are subject to potential premium cost fluctuations with the annual renewal of theseprograms.EmployeesWe believe our relationship with our employees is favorable. As of December 31, 2015, we employed 12,886 (full-time, part-time and temporary)people, of whom:•1,697 were employed in managerial positions;•2,902 were employed in non-managerial vehicle sales department positions;•6,231 were employed in non-managerial parts and service department positions; and•2,056 were employed in administrative support positions.In Brazil, all employees are represented by a local union.Because of our dependence on vehicle manufacturers, we may be affected by labor strikes, work slowdowns and walkouts at vehicle manufacturingfacilities and/or their suppliers. Additionally, labor strikes, work slowdowns and walkouts at businesses participating in the distribution of manufacturers’products may also affect us.For further discussion, please read “Item 1A. Risk Factors.”SeasonalityWe generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year in the U.S., in the first andthird quarters in the U.K. and during the third and fourth quarters in Brazil. This seasonality is generally attributable to consumer buying trends and thetiming of manufacturer new vehicle model introductions. The first quarter is generally the weakest in Brazil, driven by heavy consumer vacations andactivities associated with Carnival. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. Forthe U.K., the first and third calendar quarters tend to be stronger, driven by plate change months of March and September. As a result, our consolidatedrevenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters. Other factors unrelated toseasonality, such as changes in economic condition, inventory availability, manufacturer incentive programs or shifts in governmental taxes or regulationsmay exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income.For further discussion, please read “Item 1A. Risk Factors.”Internet Website and Availability of Public FilingsOur internet address is www.group1auto.com. We make the following information available free of charge on our internet website:•Annual Report on Form 10-K;•Quarterly Reports on Form 10-Q;•Current Reports on Form 8-K;18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•Amendments to the reports filed or furnished electronically with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act;•Our Corporate Governance Guidelines;•The charters for our Audit, Compensation, Finance/Risk Management and Nominating/Governance Committees;•Our Code of Conduct for Directors, Officers and Employees; and•Our Code of Ethics for our Chief Executive Officer, Chief Financial Officer and Controller.We make our filings with the Securities and Exchange Commission (“SEC”) available on our website as soon as reasonably practicable after weelectronically file such material with, or furnish such material to, the SEC. The SEC also maintains an internet website at http://sec.gov that contains reports,proxy and information statements, and other information regarding our company that we file and furnish electronically with the SEC. The above informationis available in print to anyone who requests it free of charge. In addition, the public may read and copy any materials we file with the SEC at the SEC’s PublicReference Room at 100 F. Street, N.E., Washington, DC 20549 and may obtain information on the operation of the Public Reference Room by calling theSEC at 1-800-SEC-0330.19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1A. Risk FactorsDemand for and pricing of our products and services is subject to economic conditions and other factors, which have had and, in the future, could have amaterial adverse effect on our business and results of operations.The automotive retail industry, and especially new vehicle unit sales, is influenced by general economic conditions, particularly consumer confidence,the level of personal discretionary spending, interest rates, fuel prices, supply conditions, unemployment rates and credit availability. During economicdownturns, such as the recession experienced in 2008 and much of 2009, retail new vehicle sales typically experience periods of decline characterized byoversupply and weak demand. In addition, periods of economic uncertainty, as well as volatility in consumer preference around fuel-efficient vehicles inresponse to volatile fuel prices, and concern about manufacturer viability, may adversely impact future consumer spending and result in a difficult businessenvironment. Any tightening of the credit markets and credit conditions may decrease the availability of automotive loans and leases and adversely impactour new and used vehicle sales and margins. In particular, if sub-prime finance companies apply higher credit standards or if there is another decline in theoverall availability of credit in the sub-prime lending market, the ability of consumers to purchase vehicles could be limited, which could have a materialadverse effect on our business and results of operations.Volatile fuel prices may also continue to affect consumer preferences in connection with the purchase of our vehicles. Rising fuel prices may makeconsumers less likely to purchase larger, more expensive vehicles, such as sports utility vehicles or luxury automobiles, and more likely to purchase smaller,less expensive and more fuel efficient vehicles; conversely, lower fuel prices could have the opposite effect. Sudden changes in customer preferences makemaintenance of an optimal mix of large and small vehicle inventory a challenge. Further increases or sharp declines in fuel prices could have a materialadverse effect on our business and results of operations.In addition, local economic, competitive and other conditions affect the performance of our dealerships. Our results of operations depend substantiallyon general economic conditions and spending habits in those regions of the U.S. where we maintain most of our operations. Since a large concentration of ournew vehicle sales are in the states of Texas and Oklahoma (46.3%) for the year ended December 31, 2015 which are dependent upon the oil and gas industry,the recent substantial decline in commodity prices has had and could continue to have an adverse effect on our business and results of operations in thoseregions.We are subject to a concentration of risk in the event of financial distress, merger, sale or bankruptcy, including potential liquidation, of, or otheradverse economic impacts on, certain major vehicle manufacturers.Toyota, Nissan, Honda, Ford, BMW, Volkswagen, Hyundai, Daimler, FCA US (formerly Chrysler) and General Motors dealerships representedapproximately 97.8% of our total new vehicle retail units sold in 2015. In particular, sales of Toyota/Scion/Lexus new vehicles represented 26.4% of our newvehicle unit sales in 2015. The success of our dealerships is dependent on vehicle manufacturers in several key respects. First, we rely exclusively on thevarious vehicle manufacturers for our new vehicle inventory. Our ability to sell new vehicles is dependent on a vehicle manufacturer’s ability to produce andallocate to our dealerships an attractive, high quality, and desirable product mix at the right time in order to satisfy customer demand. Second, manufacturersgenerally support their franchisees by providing direct financial assistance in various areas, including, among others, incentives, floorplan assistance andadvertising assistance. A discontinuation or change in our manufacturers’ warranty and incentive programs could adversely affect our business. Third,manufacturers provide product warranties and, in some cases, service contracts to customers. Our dealerships perform warranty and service contract work forvehicles under manufacturer product warranties and service contracts and bill the manufacturer directly as opposed to invoicing the customer. In addition, werely on manufacturers to varying extents for original equipment manufactured replacement parts, training, product brochures and point of sale materials, andother items for our dealerships.Vehicle manufacturers may be adversely impacted by economic downturns or recessions, significant declines in the sales of their new vehicles,increases in interest rates, adverse fluctuations in currency exchange rates, declines in their credit ratings, reductions in access to capital or credit, laborstrikes or similar disruptions (including within their major suppliers), supply shortages, or rising raw material costs, rising employee benefit costs, adversepublicity that may reduce consumer demand for their products (including due to bankruptcy), product defects, litigation, poor product mix or unappealingvehicle design, governmental laws and regulations, natural disasters, or other adverse events. These and other risks could materially adversely affect anymanufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a material adverse effect on ourbusiness, results of operations and financial condition.We are dependent on our relationships with manufacturers and if we are unable to enter into new franchise agreements in connection with dealershipacquisitions or maintain or renew our existing franchise agreements on favorable terms, our operations may be significantly impaired.We are dependent on our relationships with manufacturers, which exercise a great degree of influence over our operations through the franchiseagreements. For example, delays in obtaining, or failing to obtain, manufacturer approvals20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.for dealership acquisitions could adversely affect our acquisition program. In determining whether to approve an acquisition, manufacturers may considermany factors, including the moral character and business experience of the dealership principals and the financial condition, ownership structure, CustomerSatisfaction Index (“CSI “) scores, sales efficiency, and other performance measures of our other dealerships. Also, our manufacturers attempt to measurecustomers’ satisfaction with automobile dealerships through systems generally known as CSI, which may be modified or replaced at the manufacturer’sdiscretion. Manufacturers may use these performance indicators, as well as sales performance numbers, as conditions for certain payments and as factors inevaluating applications for additional acquisitions. In unusual cases where performance indicators, such as the ones described above, are not met to thesatisfaction of the manufacturer, certain manufacturers may either limit our ability to acquire additional dealerships or require the disposal of existingdealerships or both. From time to time, we have not met all of the manufacturers’ requirements to make acquisitions and have received requests to dispose ofcertain of our dealerships. In the event one or more of our manufacturers sought to prohibit future acquisitions, or imposed requirements to dispose of one ormore of our dealerships, our acquisition and growth strategy could be adversely affected.A manufacturer may also limit the number of its dealerships that we may own or the number that we may own in a particular geographic area. Forexample, in the U.S. we may acquire only six primary Lexus dealerships or six outlets nationally. As of December 31, 2015, we owned three primary Lexusdealerships. Also, under the manufacturer’s interpretation of existing guidelines, as of December 31, 2015, we owned the maximum number of Toyotadealerships permitted in the Gulf States region, which is comprised of Texas, Oklahoma, Louisiana, Mississippi and Arkansas, and in the Boston region,which is comprised of Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.In addition, each of our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including any unapprovedchanges of ownership or management, sales and customer satisfaction performance deficiencies and other material breaches of the franchise agreements.Manufacturers may also have a right of first refusal if we seek to sell dealerships. We cannot guarantee all of our franchise agreements will be renewed or thatthe terms of the renewals will be as favorable to us as our current agreements. In addition, we cannot guarantee that our manufacturers will not attempt toterminate our franchise agreements if they perceive that performance deficiencies exist. If such an instance occurs, although we are generally protected byautomotive dealership franchise laws requiring “good cause” be shown for such termination, we cannot guarantee that the termination of the franchise willnot be successful. Actions taken by manufacturers to exploit their bargaining position in negotiating the terms of renewals of franchise agreements could alsohave a material adverse effect on our results of operations. Further, the terms of certain of our real estate-related indebtedness require the repayment of allamounts outstanding in the event that the associated franchise is terminated. Our results of operations may be materially and adversely affected to the extentthat our franchise rights become compromised or our operations restricted due to the terms of our franchise agreements or if we lose substantial franchises.Finally, our franchise agreements do not give us the exclusive right to sell a manufacturer’s product within a given geographic area. Subject to statelaws that are generally designed to protect dealers, a manufacturer may grant another dealer a franchise to start a new dealership near one of our locations, oran existing dealership may move its dealership to a location that would more directly compete against us. The location of new dealerships near our existingdealerships could have a material and adverse effect on our operations and reduce the profitability of our existing dealerships.Our inability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenuesand earnings.Growth in our revenues and earnings partially depends on our ability to acquire new dealerships and successfully integrate those dealerships into ourexisting operations. We cannot guarantee that we will be able to identify and acquire dealerships in the future. In addition, we cannot guarantee that anyacquisitions will be successful or on terms and conditions consistent with past acquisitions. Restrictions by our manufacturers, as well as covenants containedin our debt instruments, may directly or indirectly limit our ability to acquire additional dealerships. In addition, increased competition for acquisitions maydevelop, which could result in fewer acquisition opportunities available to us and/or higher acquisition prices. And, some of our competitors may havegreater financial resources than us.We will continue to need substantial capital in order to acquire additional automobile dealerships. We currently intend to finance future acquisitionsby using cash generated from operations, borrowings under our acquisition lines, proceeds from debt and/or equity offerings and/or issuing shares of ourcommon stock as partial consideration for acquired dealerships. If potential acquisition candidates are unwilling to accept our common stock, we will relysolely on available cash or proceeds from debt or equity financings, which could adversely affect our acquisition program. Access to funding through thedebt or equity capital markets could become challenging in the future. Also, in the future, the cost of obtaining money from the credit markets could increaseif lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt at maturity on terms similar tocurrent debt or at all, and reduce or, in some cases, cease to provide funding to borrowers. Accordingly, our ability to complete acquisitions could beadversely affected if the price of our common stock is depressed or if our access to capital is limited.21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In addition, managing and integrating additional dealerships into our existing mix of dealerships may result in substantial costs, diversion of ourmanagement’s attention, delays, or other operational or financial problems. Acquisitions involve a number of special risks, including, among other things:•incurring significantly higher capital expenditures and operating expenses;•failing to integrate the operations and personnel of the acquired dealerships;•entering new markets with which we are not familiar;•incurring undiscovered liabilities at acquired dealerships, in the case of stock acquisitions;•disrupting our ongoing business;•failing to retain key personnel of the acquired dealerships;•impairing relationships with employees, manufacturers and customers; and•incorrectly valuing acquired entities.These risks could have a material adverse effect on our business, results of operations and financial condition. Although we conduct what we believe tobe a prudent level of investigation regarding the operating condition of the businesses we purchase, in light of the circumstances of each transaction, anunavoidable level of risk remains regarding the actual operating condition of these businesses.We are subject to substantial regulations, which may adversely affect our business and results of operations.A number of state and federal laws and regulations applicable to automotive companies affect our business. We are also subject to laws and regulationsrelating to business corporations generally. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil, orcriminal penalties, the imposition of investigatory remedial obligations or the issuance of injunctions limiting or prohibiting our operations. In everyjurisdiction in which we operate, we must obtain various licenses in order to operate our businesses, including dealer, sales, finance and insurance-relatedlicenses issued by government authorities. These laws also regulate our conduct of business, including our advertising, operating, financing, employmentand sales practices. Other laws and regulations include U.S. state franchise laws and regulations, anti-trust laws and other extensive laws and regulationsapplicable to new and used motor vehicle dealers, as well as U.S. federal and state wage-hour, anti-discrimination and other employment practices laws.Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of U.S. franchise laws. If U.S. franchise laws are repealed inthe states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or showing ofgood cause. Without the protection of U.S. franchise laws, it may also be more difficult for us to renew our franchise agreements upon expiration. Further, U.S.federal law, including any federal bankruptcy law, may preempt U.S. state law and allow manufacturers greater freedom to terminate or not renew franchises.Furthermore, some states have initiated consumer “bill of rights” statutes which involve increases in our costs associated with the sale of vehicles, ordecreases in some of our profit centers.A substantial amount of our business is related to the real estate we own or lease to conduct our various automotive operations. Often times, the successof such automotive operations is dependent upon our ability to locate, purchase and lease real estate on favorable terms. We are highly dependent upon theavailability of real estate in each of our numerous automotive markets. Additionally, real estate we are interested in acquiring will be subject to localmunicipal laws of county, township, parish and other local municipalities that often times will govern what type of real estate we can purchase for our variousautomotive operations. Local ordinances, deed restrictions, zoning and other land use restrictions may prohibit the type of business permitted on a givenleased or purchased property which can added to the challenge of locating appropriate real estate. The costs and length of time associated with changing thepermitted use of a leased or purchased property may affect our ability to enter a market or expand our operations in an existing market. Our inability to locate,and lease or purchase additional suitable properties to meet the needs of our various automotive operations in multiple markets would adversely affect ourbusiness, results of operations and financial conditions.Our financing activities with customers are subject to federal truth-in-lending, consumer leasing and equal credit opportunity laws and regulations, aswell as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations. Somestates regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or alleged violations of law may be assertedagainst us or our dealerships by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation orsuspension of our licenses to conduct dealership operations and fines.Our operations are also subject to the National Traffic and Motor Vehicle Safety Act, the Magnusson-Moss Warranty Act, Federal Motor Vehicle SafetyStandards promulgated by the United States Department of Transportation and various state motor vehicle regulatory agencies. The imported automobiles wepurchase are subject to U.S. customs duties and, in the22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ordinary course of our business, we may, from time to time, be subject to claims for duties, penalties, liquidated damages, or other charges.Our operations are subject to consumer protection laws known as Lemon Laws. These laws typically require a manufacturer or dealer to replace a newvehicle or accept it for a full refund within one year after initial purchase if the vehicle does not conform to the manufacturer’s express warranties and thedealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. Federal laws require various written disclosures to beprovided on new vehicles, including mileage and pricing information.In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law (the “Dodd-Frank Act”) and established theConsumer Financial Protection Bureau (the “CFPB”) with broad regulatory powers. Although automotive dealers are generally excluded from the CFPB’sregulatory authority, we are required to comply with regulations applicable to privacy notices, and the CFPB has announced its intention to regulateautomotive financing activities through its regulation of automotive finance companies and other financial institutions that service the automotive industry.The CFPB has issued regulatory guidance instructing financial institutions to monitor dealer loans for potential discrimination resulting from the systemused to compensate dealers for assisting in the customer financing transaction. The CFPB has instructed lenders that, if discrimination is found, the lenderwould be required to change dealer compensation practices. If this initiative substantially restricts our ability to generate revenue from arranging financingfor our customers for the purchase of vehicles, the result could have an adverse effect on our business and results of operations.Our U.K. finance operations also arrange for the sale of various contracts for products and services in connection with the sale of new and usedvehicles. Those activities in the U.K. are regulated by the Financial Conduct Authority (FCA). The FCA is an independent watchdog that regulates financialservices of our dealerships. The FCA was created in the wake of the financial crisis as a result of passage of the Financial Services Act of 2012 (the “FSAAct”). The FSA Act sets out a system for regulating financial services in order to protect and improve the U.K.’s economy. Its purpose was to make suremarkets work well by confirming that financial services maintain and ensure the integrity of the markets, regulate financial services firms so that they giveconsumers a fair deal and ensure the financial services market is competitive.In addition, the Dodd-Frank Act established federal oversight and regulation of derivative markets and entities, such as us, that participate in thosemarkets. The Dodd-Frank Act requires the CFTC and the SEC to promulgate rules and regulations implementing the Dodd-Frank Act. Although the CFTC hasfinalized certain regulations, others remain to be finalized or implemented and it is not possible at this time to predict when this will be accomplished.Pursuant to the Dodd-Frank Act, the CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and exchangetrading. To the extent we engage in such transactions that are or become subject to such rules in the future, we will be required to comply or to take steps toqualify for an exemption to such requirements. In addition, the Dodd-Frank Act, the CFTC and banking regulators established margin rules for unclearedswaps. Although we believe that we qualify for the end-user exceptions to the mandatory clearing and margin requirements with respect to swaps entered tohedge our commercial risks, the application of such requirements to other market participants, such as swap dealers, may change the cost and availability ofthe swaps that we use for hedging. If any of our swaps do not qualify for the commercial end-user exception, clearing our transactions or posting of initial orvariation margin could impact our liquidity and reduce cash available for capital expenditures, therefore reducing our ability to execute hedges to reduce riskand protect cash flows. In addition, the European Union and other non U.S. jurisdictions are implementing regulations with respect to the derivatives market.To the extent we transact with counterparties in foreign jurisdictions, we may become subject to such regulations. At this time, the impact of such regulationsis not clear.The full impact of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are implementedand the market for derivative contracts has adjusted. The Dodd-Frank Act and any new regulations could significantly increase the cost of derivativecontracts, materially alter the terms of derivative contracts, reduce our ability to monetize or restructure our existing derivative contracts. If we reduce our useof derivatives as a result of the Dodd-Frank Act and regulations, our results of operations may become more volatile and our cash flows may be lesspredictable, which could adversely affect our ability to plan for and fund capital expenditures. Any of these consequences could have material adverse effecton our financial condition, results of operations and cash available for distributions to our shareholders.The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, has and may continue to increase our annual employee health carecosts that we fund. We cannot predict the extent of the effect that this statute, or any future state or federal healthcare legislation or regulation, will have onus. However, any additional expansion in government’s role in the U.S. healthcare industry could result in significant long-term costs to us, which could inturn adversely affect our business, results of operations and financial condition.Possible penalties for violation of any of these laws or regulations include revocation or suspension of our licenses and/or civil or criminal fines andpenalties. In addition, many laws may give customers a private cause of action. Violation of23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.these laws, the cost of compliance with these laws, or changes in these laws could have a material adverse effect on our business and results of operations.Our operations are subject to environmental laws and regulations that may expose us to significant costs and liabilities.In the course of our operations, we generate, handle, store and recycle or dispose of various used products and wastes. These business activities aresubject to stringent federal, regional, state and local laws and regulations governing the release of materials into the environment or otherwise relating toenvironmental protection. These laws and regulations may impose numerous obligations upon our operations including the acquisition of permits to conductregulated activities, the imposition of restrictions on where or how to manage or dispose of used products and wastes, the incurrence of capital expendituresto limit or prevent releases of such material, and the imposition of substantial liabilities for pollution resulting from our operations. Failure to comply withthese laws, regulations, and permits may result in the assessment of sanctions, including administrative, civil, and criminal penalties, the imposition ofinvestigatory remedial and corrective action obligations, and delays in permitting or in the performance of projects the issuance of injunctions limiting orpreventing some or all of our operations in affected areas.There is a risk of incurring significant environmental costs and liabilities in the operations of our automotive dealerships due to our handling ofregulated used products and wastes, because of releases arising in the course of our operations, especially from storage tanks and in-ground lifts, and due tocontamination arising from historical operations and waste disposal practices, including by predecessor operators or owners over whom we had no control orsupervision. We could be subject to joint and several, strict liability for the removal or remediation of previously released materials or propertycontamination regardless of whether we were responsible for the release or contamination or if the operations were in compliance with all applicable laws atthe time those actions were taken.The trend in environmental regulation is to often place more restrictions and limitations on activities that may affect the environment, and thus anychanges in environmental laws and regulations that result in more stringent and costly pollution control equipment or waste containment, management ordisposal requirements could have a material adverse effect on our business, results of operation and financial condition. For instance, vehicle manufacturersare currently subject to federal rules requiring greenhouse gas (“GHG”) reduction and CAFE standards for light-duty vehicles through model year 2021.Under these rules, most manufacturers are required to modify their vehicle platforms and powertrains to achieve a fleet-wide average fuel efficiencyequivalent of 44.7 miles per gallon by model year 2021. In 2017, the EPA and NHTSA will conduct mid-term reviews to determine the technological progressand economic implications for meeting the proposed 2025 standards for fleet average fuel economy performance of 54.5 miles per gallon. Similarly, theserules impose fleet-wide average carbon dioxide emission tailpipe compliance levels of 243 grams per mile on model 2017 vehicles and 163 grams per mileon model year 2025 vehicles. These increased fuel efficiency and carbon dioxide, or GHG, reduction requirements are expected to increase the cost of newvehicles over time, which could potentially result in a reduction in new vehicle sales. Whereas the CAFE standards are designed to improve vehicle fueleconomy, the GHG standards are based on determinations made by the EPA that emissions of GHGs present an endangerment to public health and theenvironment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’s atmosphere and other climatic changes.Congress and numerous states have from time to time considered and — in the case of some states, adopted — legislation to restrict greenhouse gases. Theselaws generally take the form of cap and trade programs, requiring large sources of greenhouse gas emissions to purchase allowances or take steps to reduceemissions to comply with the cap. On an international level, the United States is one of almost 200 nations that agreed in December 2015 to an internationalclimate change agreement in Paris, France that calls for countries to set their own GHG emissions targets and be transparent about the measures each countrywill use to achieve its GHG emissions targets. Although it is not possible at this time to predict how or when the United States might impose restrictions onGHGs as a result of the international agreement made in Paris, the adoption of any laws or regulations requiring significant increases in fuel economyrequirements or new federal or state restrictions on emissions of GHGs from our operations or on vehicles and automotive fuels in the United States couldadversely affect prices of and demand for the vehicles we sell which could adversely affect our revenues and earnings. Please see “Item 1. Business —Governmental Regulations — Environmental and Occupational Health and Safety Laws and Regulations” for more information.If we lose key personnel or are unable to attract additional qualified personnel, our business could be adversely affected because we rely on the industryknowledge and relationships of our key personnel.We believe our success depends to a significant extent upon the efforts and abilities of our executive officers, senior management and key employees,including our regional vice presidents. The unexpected or unanticipated loss of the services of one or more members of our senior management team couldhave an adverse effect on our business and impair the efficiency and productivity of our operations. We do not have key man insurance for any of ourexecutive officers or key personnel. In addition, the market for qualified employees in the industry and in the regions in which we operate, particularly forgeneral managers and sales and service personnel, is highly competitive and may subject us to increased labor costs during periods of low unemployment.We do not have employment agreements with most of our dealership general managers24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and other key dealership personnel. Accordingly, the loss of any of our key employees or the failure to attract qualified managers could have an adverseeffect on our business and may impact the ability of our dealerships to conduct their operations in accordance with our national standards.Substantial competition in automotive sales and services may materially and adversely affect our results of operations due to our need to lower prices tosustain sales.The automotive retail industry is highly competitive. Depending on the geographic market, we compete with:•franchised automotive dealerships in our markets that sell the same or similar makes of new and used vehicles that we offer, occasionally at lowerprices than we do;•other national or regional affiliated groups of franchised dealerships and/or of used vehicle dealerships;•private market buyers and sellers of used vehicles;•internet-based vehicle brokers that sell vehicles obtained from franchised dealers directly to consumers;•auto parts retailers;•local, regional and national collision centers;•service center chain stores; and•independent service and repair shops.We do not have any cost advantage in purchasing new vehicles from vehicle manufacturers and typically rely on advertising, merchandising, salesexpertise, service reputation and dealership location in order to sell new vehicles. Our franchise agreements do not grant us the exclusive right to sell amanufacturer’s product within a given geographic area. If competing dealerships expand their market share or are awarded additional franchises bymanufacturers that supply our dealerships, it could have a material and adverse effect on our business and results of operations.In addition to competition for vehicle sales, our dealerships compete with franchised dealerships to perform warranty repairs and with other automotivedealers, franchised and independent service center chains and independent garages for non-warranty repair and routine maintenance business. Our partsoperations compete with other automotive dealers, service stores and auto parts retailers. We believe the principal competitive factors in the parts and servicebusiness are the quality of customer service, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, convenience,access to technology required for certain repairs and services, location, price, the competence of technicians and the availability of training programs toenhance such expertise. A number of regional or national chains offer selected parts and services at prices that may be lower than our dealerships’ prices. Wealso compete with a broad range of financial institutions in arranging financing for our customers’ vehicle purchases.The internet has also become a significant part of the advertising and sales process in our industry. Customers are using the internet as part of the salesprocess to compare pricing for cars and related finance and insurance services, which may reduce gross profit margins for new and used cars and profits forrelated finance and insurance services. Some retailers offer vehicles for sale over internet websites without the benefit of having a dealership franchise,although they must currently source their vehicles from a franchised dealer. One or more companies are currently manufacturing electric vehicles for salesolely through the internet without using the traditional dealer-network, and circumventing the state franchise laws of several states in the United States. Ifthose companies are successful in selling their vehicles without the requirements of establishing a dealer-network, they may be able to have a competitiveadvantage over the traditional dealers, which could adversely affect our sales in those states. If internet new vehicle sales are allowed to be conducted withoutthe involvement of franchised dealers, or if dealerships are able to effectively use the internet to sell outside of their markets, our business could be materiallyadversely affected. Our business would also be materially adversely affected to the extent that internet companies acquire dealerships or align themselveswith our competitors’ dealerships.Please see “Item 1. Business — Competition” for more discussion of competition in our industry.A data security breach with regard to personally identifiable information (“PII”) about our customers or employees could negatively affect operationsand result in high costs.The protection of customer, employee, and our data is critical to our business. The regulatory environment surrounding information security andprivacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements across business units. In addition, customershave a high expectation that we will adequately protect their PII from cyber-attack or other security breaches. A significant breach of customer, employee, orour data could attract a substantial amount of media attention, damage our customer relationships and reputation and result in lost sales, fines, or lawsuits.25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In the ordinary course of business, we and our business affiliates receive significant PII about our customers in order to complete the sale or service of avehicle and related products. We also receive PII from our employees. Numerous state and federal regulations, as well as payment card industry and othervendor standards, govern the collection and maintenance of PII from consumers and other individuals. Although many companies across many industries areaffected by malicious efforts to obtain access to PII, news reports suggest that the automotive dealership industry is a particular target of identity thieves.Moreover, there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data, scams, ormisappropriation of data by employees, vendors or unaffiliated third parties. Despite the security measures we have in place and any additional measures wemay implement or adopt in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches,computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, or other events. Alleged or actual datasecurity breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claimsor consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have amaterial adverse effect on our business, results of operations or financial condition.Our business is sensitive to manufacturer recalls, and the effects such recalls have on the reputation of our manufacturers.Our business is highly dependent on consumer demand and brand preferences of our manufacturer’s products. Manufacturer recall campaigns are acommon occurrence that have accelerated in frequency and scope over the last several years. Manufacturer recall campaigns could adversely affect our newand used vehicle sales or customer residual trade-in valuations, could cause us to temporarily remove vehicles from our inventory, could force us to incurincreased costs and could expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse effect onour business, sales and results of operations.The impairment of our goodwill, our indefinite-lived intangibles and our other long-lived assets has had, and could in the future have, a materialadverse effect on our results of operations.We assess goodwill and other indefinite-lived intangibles for impairment on an annual basis, or more frequently when events or circumstances indicatethat an impairment may have occurred. We assess the carrying value of our long-lived assets when events or circumstances indicate that an impairment mayhave occurred.Based on the organization and management of our business, we determined that each of our regions represents a reporting unit for the purpose ofassessing goodwill for impairment. In evaluating goodwill, we compare the carrying value of our long-lived assets to their respective fair values. Todetermine the fair value of our reporting units we use a combination of the discounted cash flow and market approaches. In addition, we evaluate the carryingvalue of our indefinite-lived, intangible franchise rights at a dealership level using a discounted cash flow based approach. Both these analyses are basedupon a series of assumptions. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — CriticalAccounting Policies and Accounting Estimates — Goodwill” and “Intangible Franchise Rights” for additional information regarding the assumptions thatunderlie our analysis.Performance issues at individual dealerships, as well as broader economic and retail automotive industry trends can result in changes to theassumptions in our fair value estimates. In addition, until the full effect of our business practices, scale leverage and other cost savings initiatives can berealized, the carrying value of goodwill and other intangibles associated with an acquisition are generally more subject to impairment in the yearsimmediately following the acquisition. For example, the decline in the Brazilian economy and retail auto industry since our acquisition of the Brazildealerships in March 2013 has adversely impacted the results of the impairment tests performed in the fourth quarter of 2015. As a result of our fourth quarterimpairment analysis, we determined that there have been material changes to the assumptions underlying the amount of goodwill and intangible assetsassociated with our Brazilian dealerships, and we wrote down the value of those assets, which resulted in a material non-cash impairment charge.We are required to evaluate the carrying value of our long-lived assets at the lowest level of identifiable cash flows. To test the carrying value of assetsto be sold, we generally use independent, third-party appraisals or pending transactions as an estimate of fair value. In the event of an adverse change in thereal estate market, the resulting decline in our estimated fair value could result in a material non-cash impairment charge to the associated long-lived assets.Changes in interest rates could adversely impact our results of operations.Borrowings under our credit facilities and various other notes payable bear interest based on a floating rate. Therefore, our interest expense wouldincrease with any rise in interest rates. We have entered into derivative transactions to convert a portion of our variable-rate debt to fixed rates to partiallymitigate this risk. A rise in interest rates may also have the effect of depressing demand in the interest rate sensitive aspects of our business, particularly newand used vehicle sales, because many of our customers finance their vehicle purchases. As a result, a rise in interest rates may have the effect of26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.simultaneously increasing our costs and reducing our revenues. In addition, we receive credit assistance from certain automobile manufacturers, which isreflected as a reduction in cost of sales on our statements of operations. Please see Part II, “Item 7A. Quantitative and Qualitative Disclosures about MarketRisk” for a discussion regarding our interest rate sensitivity.Natural disasters and adverse weather events can disrupt our business.Our dealerships are concentrated in states and regions in the U.S., U.K. and Brazil in which actual or threatened natural disasters and severe weatherevents (such as hurricanes, earthquakes, snow storms, flooding, and hail storms) have in the past, and may in the future, disrupt our dealership operations. Adisruption in our operations may adversely impact our business, results of operations, financial condition and cash flows. In addition to business interruption,the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property at dealership locations.Although we have, subject to certain limitations and exclusions, substantial insurance, including business interruption insurance, we may be exposed touninsured or underinsured losses that could have a material adverse effect on our business, results of operations and financial condition.Our insurance does not fully cover all of our operational risks, and changes in the cost of insurance or the availability of insurance could materiallyincrease our insurance costs or result in a decrease in our insurance coverage.The operation of automobile dealerships is subject to compliance with a wide range of laws and regulations and is subject to a broad variety of risks. Whilewe have insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, workers’ compensation insurance,employee dishonesty coverage, employment practices liability insurance, pollution coverage and errors and omissions insurance in connection with vehiclesales and financing activities, we are self-insured for a portion of our potential liabilities. We purchase insurance policies for worker’s compensation, liability,auto physical damage, property, pollution, employee medical benefits and other risks consisting of large deductibles and/or self-insured retentions.In certain instances, our insurance may not fully cover an insured loss depending on the magnitude and nature of the claim. Additionally, changes in thecost of insurance or the availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or could causeus to reduce our insurance coverage and increase the portion of our risks that we self-insure.Our indebtedness and the associated covenants could materially adversely affect our ability to obtain additional financing, including for acquisitionsand capital expenditures, limit our flexibility to manage our business, prevent us from fulfilling our financial obligations and restrict our use of capital.Our indebtedness could impact us, in the following ways:•our ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes may be impaired inthe future;•a portion of our current cash flow from operations must be dedicated to the payment of principal on our indebtedness, thereby reducing the fundsavailable to us for our operations and other corporate purposes;•some of our borrowings are and will continue to be at variable rates of interest, which exposes us to the risk of increasing interest rates; and•we may be more leveraged than some of our competitors, which may place us at a relative competitive disadvantage and make us more vulnerableto changing market conditions and regulations.Our debt instruments contain numerous covenants that limit our discretion with respect to business matters, including mergers or acquisitions, payingdividends, repurchasing our common stock, international investments, incurring additional debt or disposing of assets. A breach of any of these covenantscould result in a default under the applicable agreement or indenture. In addition, a default under one agreement or indenture could result in a default andacceleration of our repayment obligations under the other agreements or indentures under the cross default provisions in those agreements or indentures. If adefault or cross default were to occur, we may be required to renegotiate the terms of our indebtedness, which would likely be on less favorable terms than ourcurrent terms and cause us to incur additional fees to process. Alternatively, we may not be able to pay our debts or borrow sufficient funds to refinance them.As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order tocomply with the covenants in these agreements and indentures.We are subject to risks associated with our non-U.S. operations that could have a material adverse effect on our business, results of operations andfinancial condition.Over the past several years, we have significantly increased our operations outside the U.S. Expanding our operations in the U.K. and Brazil areimportant elements of our growth strategy. Operations outside of the U.S. are subject to various27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.risks which may not be present or as significant for operations within U.S. markets, and our exposure to these risks increases as we expand. Governmentactions, both in terms of policy-setting as well as actions directly affecting our operations, and economic uncertainty in some geographic regions in which weoperate, such as emerging markets, could result in the disruption of markets and negatively affect our results of operations and cash flows in those areas.Risks inherent in our international operations include, but are not limited to:•exposure to local economic conditions;•wage inflation in emerging markets;•social plans that prohibit or increase the cost of certain restructuring actions;•increases in working capital requirements related to long supply chains or regional terms of business;•currency exchange controls;•exposure to currency exchange rate fluctuations;•variations in protection of legal rights;•import or export licensing requirements;•the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;•restrictions on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, embargoes and other laws andregulations creating tax inefficiencies and prohibitions or restrictions on acquisitions or joint ventures;•increased risk of corruption;•changes in laws and regulations, including the laws and policies of the U.S. affecting trade and foreign investment;•more expansive legal rights of foreign labor unions;•the potential for nationalization of enterprises;•exposure to local public health concerns and the resultant impact on economic and political conditions;•transparency issues in general and, more specifically, the U.S. Foreign Corrupt Practices Act of 1974, as amended (the “FCPA”), the U.K. BriberyAct, and other anti-corruption compliance laws and issues;•unsettled social and political conditions, in general, and possible terrorist attacks, drug cartel related violence or acts of war, civil unrest,expansion of hostilities and other political risks; and•lack of franchise protection, which creates greater competition.The likelihood of these occurrences and their potential effect on us vary from country to country and are unpredictable. These and other factors mayhave a material adverse effect on our international operations and, therefore, on our business, results of operations and financial condition, which maybecome more pronounced as we expand our international presence.Our Consolidated Financial Statements reflect that our results of operations and financial position are reported in local currency and are converted intoU.S. dollars at the applicable currency rate. Fluctuations in such currency rates may have a material effect on our results of operations or financial position asreported in U.S. dollars. See Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Exchange Rates” foradditional information on foreign currency exchange rate sensitivity.We may be exposed to liabilities under the FCPA and similar anti-corruption laws, and any determination that we violated such laws could have amaterial adverse effect on our business.We are subject to the FCPA and similar anti-bribery and anti-corruption laws that generally prohibit companies and their personnel and intermediariesfrom offering, authorizing, or making improper payments to government officials for the purpose of obtaining or retaining business, or securing someimproper advantage in business or engaging in conduct involving money-laundering. We do business and may do additional business in the future incountries and regions where strict compliance with anti-bribery laws may not be customary. Our personnel and intermediaries may face, directly or indirectly,corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries in which weoperate or may operate in the future. As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of our employees orintermediaries, even if such parties are not always28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.subject to our control or are not themselves subject to the FCPA or other anti-bribery laws to which we may be subject. Existing compliance safeguards andany future improvements may not prevent all such conduct, and it is possible that our employees and intermediaries may engage in conduct for which wemight be investigated by U.S. and other authorities, and held responsible. Violations of the FCPA and other anti-bribery and other anticorruption laws (eitherdue to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Evenallegations of such violations could disrupt our business and result in a material adverse effect on our business and operations.Our growth in emerging markets, such as Brazil, is subject to special risks that could have a material adverse effect on our operations.In February 2013, we acquired UAB Motors Participações S.A. (“UAB Motors”), which allowed us to enter the Brazilian market. At the time we enteredthe Brazilian market, it was an emerging growth market. Since then, Brazil has experienced a significant economic downturn and is in the midst of arecession. Currently, Brazil is experiencing financial instability with significant currency fluctuations. There is no assurance that our future growth strategiesin Brazil will be successful or that Brazil will return to a growth market in the immediate foreseeable future. If the Brazil financial recovery is longer thanexpected, it could have a material adverse effect on our business, results of operations and financial condition. See “We are subject to risks associated withour non-U.S. operations that could have a material adverse effect on our business, results of operations and financial condition.” Further, our growth inemerging markets by acquisition of existing dealerships, such as our acquisition of UAB Motors, is subject to additional risk as discussed under “Our abilityto acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues and earnings”above.Certain restrictions relating to our management and ownership of our common stock could deter prospective acquirers from acquiring control of us andadversely affect our ability to engage in equity offerings.As a condition to granting their consent to our previous acquisitions and our initial public offering, some of our manufacturers have imposed otherrestrictions on us. These restrictions prohibit, among other things:•the removal of a non-employee director from office only for cause;•any one person or entity, who in the opinion of the manufacturer is unqualified to own its franchised dealership or has interests incompatible withthe manufacturer, from acquiring more than a specified percentage of our common stock (ranging from 20% to 50% depending on the particularmanufacturer’s restrictions) and this trigger level can fall to as low as 5% if another vehicle manufacturer is the entity acquiring the ownershipinterest or voting rights;•certain material changes in our business or extraordinary corporate transactions such as a merger or sale of a material amount of our assets;•the removal of a dealership general manager without the consent of the manufacturer; and•a change in control of our Board of Directors or a change in management.Our manufacturers may also impose additional similar restrictions on us in the future. Actions by our stockholders or prospective stockholders, whichwould violate any of the above restrictions, are generally outside our control. If we are unable to comply with or renegotiate these restrictions, we may beforced to terminate or sell one or more franchises, which could have a material adverse effect on our business. These restrictions may prevent or deterprospective acquirers from acquiring control of us and, therefore, may adversely impact the value of our common stock. These restrictions also may impedeour ability to acquire dealership groups, to raise required capital or to issue our stock as consideration for future acquisitions.Our certificate of incorporation, bylaws and franchise agreements contain provisions that make a takeover of us difficult.Our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if such change of control wouldbe beneficial to our stockholders. These include provisions:•allowing only the Board of Directors to set the number of non-employee directors;•requiring super-majority or class voting to affect certain amendments to our certificate of incorporation and bylaws;•limiting the persons who may call special stockholders’ meetings;•limiting stockholder action by written consent; and29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon atstockholders’ meetings.In addition, our certificate of incorporation authorizes us to issue “blank check” preferred stock, the designation, number, voting powers, preferences,and rights of which may be fixed or altered from time to time by our Board of Directors. Accordingly, the Board of Directors has the authority, withoutstockholder approval, to issue preferred stock with rights that could materially adversely affect the voting power or other rights of the common stockholdersor the market value of the common stock and prevent a change of our control.Finally, certain of our franchise agreements prohibit the acquisition of more than a specified percentage of our common stock without the consent ofthe relevant manufacturer. These terms of our franchise agreements could also make it more difficult for a third party to acquire control of us.30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1B. Unresolved Staff Comments None.31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 2. PropertiesWe presently lease our corporate headquarters, which is located at 800 Gessner, Suite 500, Houston, Texas. In addition, as of December 31, 2015, wehad 199 franchises situated in 152 dealership locations throughout the U.S., U.K. and Brazil. As of December 31, 2015, we leased 81 of these dealershiplocations and owned the remainder. We have one location in Massachusetts, one location in Alabama, one location in California and one in Brazil where welease the land, but own the building facilities. These locations are included in the leased column of the table below. DealershipsRegion Geographic Location Owned LeasedEast Georgia 7 — Massachusetts 5 2 New Jersey 4 1 Louisiana 1 2 Mississippi 3 — Florida 3 1 South Carolina 3 — Maryland 2 — Alabama 1 1 New Hampshire 1 2 30 9West Texas 18 32 Kansas 4 — Oklahoma 2 11 California 3 6 Louisiana 1 — 28 49International United Kingdom 13 4 Brazil — 19Total 71 81We use a number of facilities to conduct our dealership operations. Each of our dealerships may include facilities for (1) new and used vehicle sales,(2) vehicle service operations, (3) retail and wholesale parts operations, (4) collision restoration service operations, (5) storage and (6) general office use. Priorto 2005, we tried to structure our operations so as to avoid the ownership of real property. In connection with our dealership acquisitions, we generally soughtto lease, rather than acquire, the facilities on which the acquired dealerships were located. We generally entered into lease agreements with respect to suchfacilities that have 30-year total terms, consisting of 15-year initial terms and three five-year option periods, at our option. However, since 2005, we havestrategically increased the number of purchased properties. As a result, we own 46.7% of our dealership properties as of December 31, 2015, an increase from46.0% as of December 31, 2014. See Note 18 to our Consolidated Financial Statements, “Operating Leases.”Since 2005, Group 1 Realty, Inc., one of our wholly-owned subsidiaries, has typically acquired the property in connection with our U.S. dealershipacquisitions and relocations and acts as the landlord for those dealership operations. For the year ended December 31, 2015, we acquired $33.0 million of realestate, of which $8.5 million was purchased in conjunction with our dealership acquisitions. With these acquisitions, the capitalized value of the real estateused in operations that we own was $797.3 million as of December 31, 2015. Of this capitalized value, $611.5 million was mortgaged through our Real EstateCredit Facility or another real estate related borrowing arrangement. The related mortgage indebtedness outstanding as of December 31, 2015 was $353.6million.We do not believe that any single facility is material to our operations and, if necessary, we would obtain a replacement facility.32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 3. Legal ProceedingsFrom time to time, our 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 manufacturer of automobiles, contractual disputes and other matters arising in the ordinarycourse of business. Due to the nature of the automotive retailing business, we may be involved in legal proceedings or suffer losses that could have a materialadverse effect on our business. In the normal course of business, we are required to respond to customer, employee and other third-party complaints. Amountsthat have been accrued or paid related to the settlement of litigation are included in Selling, General and Administrative expenses (“SG&A”) in ourConsolidated Statements of Operations. In addition, the manufacturers of the vehicles that we sell and service have audit rights allowing them to review thevalidity of amounts claimed for incentive, rebate or warranty-related items and charge us back for amounts determined to be invalid payments under themanufacturers’ programs, subject to our right to appeal any such decision. Amounts that have been accrued or paid related to the settlement of manufacturerchargebacks of recognized incentives and rebates are included in cost of sales in our Consolidated Statements of Operations, while such amounts formanufacturer chargebacks of recognized warranty-related items are included as a reduction of revenues in our Consolidated Statements of Operations.We are not party to any legal proceedings, including class action lawsuits that, individually or in the aggregate, are reasonably expected to have amaterial adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certaintyand an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations or financial condition. Item 4. Mine Safety DisclosuresNot Applicable.33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIItem 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is listed on the New York Stock Exchange under the symbol “GPI.” There were 47 holders of record of our common stock as ofFebruary 12, 2016. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held of record bybanks, brokers, and other financial institutions.The following table presents the quarterly high and low sales prices for our common stock, as reported on the New York Stock Exchange CompositeTape under the symbol “GPI” and dividends paid per common share for 2014 and 2015: High Low DividendsDeclared2014: First Quarter $71.26 $59.37 $0.17Second Quarter 84.59 60.31 0.17Third Quarter 87.38 71.50 0.17Fourth Quarter 93.23 65.49 0.192015: First Quarter $90.67 $74.45 $0.20Second Quarter 92.69 77.79 0.20Third Quarter 97.34 81.10 0.21Fourth Quarter 89.64 73.83 0.22We expect comparable cash dividends to be paid in the future. However, payment of dividends in the future is subject to the discretion of our Board ofDirectors after considering our results of operations, financial condition, cash flows, capital requirements, outlook for our business, general businessconditions, the political and legislative environments and other factors.Further, we are limited under the terms of the Revolving Credit Facility, Real Estate Credit Facility, 5.00% Senior Notes and 5.25% Senior Notes in ourability to make cash dividend payments to our stockholders and to repurchase shares of our outstanding common stock. The most restrictive is the RestrictedPayment Basket under our Revolving Credit Facility and Real Estate Credit Facility. As of December 31, 2015, the Restricted Payment Basket totaled $144.7million. The Restricted Payment Basket will increase in the future periods by 50.0% of our future cumulative net income, adjusted to exclude the Company’sforeign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation, plus the net proceeds receivedfrom the sale of our capital stock, and decrease by the amount of future payments for cash dividends and share repurchases.34Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Performance GraphThe following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such informationbe incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent that we specifically incorporate it byreference into such filing.The graph compares the performance of our common stock to the S&P 500 Index and to an industry peer group for our last five fiscal years. Themembers of the peer group are Asbury Automotive Group, Inc., AutoNation, Inc., Lithia Motors, Inc., Penske Automotive Group, Inc. and Sonic Automotive,Inc. The source for the information contained in this table is Zack’s Investment Research, Inc.The returns of each member of the peer group are weighted according to each member’s stock market capitalization as of the beginning of each periodmeasured. The graph assumes that the value of the investment in our common stock, the S&P 500 Index and the peer group was $100 on the last trading dayof December 2010, and that all dividends were reinvested. Performance data for Group 1 Automotive, Inc., the S&P 500 Index and for the peer group isprovided as of the last trading day of each of our last five fiscal years.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNSAMONG GROUP 1 AUTOMOTIVE, INC., S&P 500 INDEX AND A PEER GROUPTOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDSMeasurement Date Group 1Automotive, Inc. S&P 500 Peer GroupDecember 2010 $100.00 $100.00 $100.00December 2011 125.46 102.11 125.06December 2012 151.76 118.45 160.11December 2013 175.59 156.82 228.29December 2014 223.56 178.28 271.44December 2015 190.71 180.75 262.9035Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Recent Sales of Unregistered SecuritiesNone.Purchases of Equity Securities by the IssuerThe following table provides information about purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Actduring the three months ended December 31, 2015:Period Total Number ofShares Purchased Average PricePaid per Share Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms (1) (In thousands, excludingcommissions)October 1 - October 31, 2015 2,900 $85.12 2,900 $28,065November 1 - November 30, 2015 323,964 $80.58 323,964 $78,176December 1 - December 31, 2015 — $— — $78,176Total 326,864 $80.62 326,864 (1) From time to time, our Board of Directors gives authorization to repurchase shares of our common stock, subject to the restrictions of various debtagreements and our judgment. During the three months ended December 31, 2015, 326,864 shares were repurchased for a total cost of $26.4 million. InNovember 2015, the Board of Directors approved a new authorization of $100.0 million, replacing the prior authorization that had $23.8 million remaining.The shares may be repurchased from time to time in open market or privately negotiated transactions, depending on market conditions, at our discretion, andfunded by cash from operations. Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations, financialcondition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions and other factors.36Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 6. Selected Financial DataThe following selected historical financial data as of December 31, 2015, 2014, 2013, 2012, and 2011, and for the five years in the period endedDecember 31, 2015, have been derived from our audited Consolidated Financial Statements. This selected financial data should be read in conjunction with“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and relatednotes included elsewhere in this Form 10-K.We have accounted for all of our dealership acquisitions using the purchase method of accounting. As a result, we do not include in our financialstatements the results of operations of these dealerships prior to the date we acquired them, which may impact the comparability of the financial informationpresented. Also, as a result of the effects of our acquisitions, dispositions, and other potential factors in the future, the historical financial informationdescribed in the selected financial data is not necessarily indicative of our results of operations and financial position in the future or the results of operationsand financial position that would have resulted had such transactions occurred at the beginning of the periods presented in the selected financial data. Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts) Income Statement Data: Revenues $10,632,505 $9,937,889 $8,918,581 $7,476,100 $6,079,765Cost of sales 9,098,533 8,489,951 7,626,035 6,358,848 5,119,165Gross profit 1,533,972 1,447,938 1,292,546 1,117,252 960,600Selling, general and administrative expenses 1,120,833 1,061,964 976,856 848,446 735,229Depreciation and amortization expense 47,239 42,344 35,826 31,534 27,063Asset impairments 87,562 41,520 6,542 7,276 4,805Income from operations 278,338 302,110 273,322 229,996 193,503Other income and (expense): Floorplan interest expense (39,264) (41,614) (41,667) (31,796) (27,687)Other interest expense, net (56,903) (49,693) (38,971) (37,465) (33,722)Loss on extinguishment of long-termdebt — (46,403) — — —Other expense, net — — (789) — —Income from continuing operationsbefore income taxes 182,171 164,400 191,895 160,735 132,094Provision for income taxes (88,172) (71,396) (77,903) (60,526) (49,700)Net income $93,999 $93,004 $113,992 $100,209 $82,394 Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts) Earnings per common share: Basic: Net income $3.91 $3.82 $4.72 $4.39 $3.50Diluted: Net income $3.90 $3.60 $4.32 $4.19 $3.47Dividends per share $0.83 $0.70 $0.65 $0.59 $0.48Weighted average common sharesoutstanding: Basic 23,148 23,380 23,096 21,620 22,157Diluted 23,152 24,885 25,314 22,688 22,40937Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 2015 2014 2013 2012 2011 (Dollars in thousands) Balance Sheet Data: Working capital $163,485 $113,020 $102,762 $170,603 $130,637Inventories 1,737,751 1,556,705 1,542,318 1,194,288 867,470Total assets 4,414,929 4,141,492 3,819,478 3,023,015 2,476,343Floorplan notes payable — credit facilityand other (1) 1,154,960 1,103,630 1,086,906 856,698 609,738Floorplan notes payable — manufactureraffiliates (2) 363,571 285,156 346,572 211,965 155,980Real Estate Credit Facility, includingcurrent portion 54,663 58,003 67,719 56,677 41,003Long-term debt, including current portion(3) 1,200,996 1,023,464 631,359 521,010 456,261Temporary Equity (4) — — 29,094 32,505 —Stockholders’ equity $918,252 $978,010 $1,035,175 $860,284 $807,100Long-term debt to capitalization (5) 58% 53% 40% 39% 38%(1) Includes immediately available funds of $110.8 million, $39.6 million, $56.2 million, $112.3 million, and $109.2 million, respectively, that we temporarily invest as an offset tothe gross outstanding borrowings, as well as $4.1 million, $5.5 million, and $18.1 million as of December 31, 2015, 2014, and 2013, respectively, of floorplan borrowings undercredit facilities with financial institutions in Brazil.(2) Includes immediately available funds of $25.5 million and $22.5 million as of December 31, 2015 and 2014, respectively, that we temporarily invest as an offset to the grossoutstanding borrowings.(3) Includes the 5.00% Notes and 5.25% Notes, Acquisition Line, and other long-term debt and excludes short-term financing.(4) Redeemable equity portion of the 3.00% Notes reclassified from additional paid in capital.(5) Includes temporary equity as a component of capitalization.38Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion in conjunction with Part I, including the matters set forth in “Item 1A. Risk Factors,” and our ConsolidatedFinancial Statements and notes thereto included elsewhere in this Form 10-K.OverviewWe are a leading operator in the automotive retail industry. Through our dealerships, we sell new and used cars and light trucks; arrange related vehiclefinancing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our operations are aligned intofour geographic regions: the East and West Regions in the U.S., the U.K. Region, and the Brazil Region. Our U.S. regional vice presidents report directly toour Chief Executive Officer and are responsible for the overall performance of their regions, as well as for overseeing the dealership operations managementthat report to them. Further, the East and West Regions of the U.S. are economically similar in that they deliver the same products and services to a commoncustomer group, their customers are generally individuals, they follow the same procedures and methods in managing their operations, and they operate insimilar regulatory environments. As a result, we aggregate the East and West Regions of the U.S. into one reportable segment. The operations of ourinternational regions are structured similarly to the U.S. regions, each with a regional vice president reporting directly to our Chief Executive Officer. Assuch, our three reportable segments are the U.S., which includes the activities of our corporate office, the U.K. and Brazil.As of December 31, 2015, we owned and operated 199 franchises, representing 32 brands of automobiles, at 152 dealership locations and 35 collisioncenters worldwide. We own 151 franchises at 116 dealerships and 28 collision centers in the U.S., 25 franchises at 17 dealerships and six collision centers inthe U.K., and 23 franchises at 19 dealerships and one collision center in Brazil. Our operations are primarily located in major metropolitan areas in Alabama,California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, Oklahoma, South Carolina and Texas inthe U.S., in 15 towns of the U.K. and in key metropolitan markets in the states of Sao Paulo, Parana and Mato Grosso do Sul in Brazil.We typically seek to acquire large, profitable, well-established and well-managed dealerships that are leaders in their respective market areas. FromJanuary 1, 2011 through December 31, 2015, we have purchased 87 franchises with expected annual revenues, estimated at the time of acquisition, of$3.7 billion and been granted five new franchises by our manufacturer partners, with expected annual revenues, estimated at the time of acquisition, of$118.0 million. In 2015 alone, we acquired three dealerships in the U.S. These acquisitions have expected annual revenues, estimated at the time ofacquisition, of $340.0 million. We make disposition decisions based principally on the rate of return on our capital investment, the location of the dealership,our ability to leverage our cost structure, the brand, future capital investments required and existing real estate obligations. From January 1, 2011 throughDecember 31, 2015, we disposed of or terminated 32 franchises with annual revenues of approximately $1.0 billion. Specifically, during 2015, we disposedof two dealerships and one franchise in the U.S. and terminated two franchises in Brazil, with annual revenues of approximately $115.0 million. In thefollowing discussion and analysis, we report certain performance measures of our newly acquired and disposed dealerships separately from those of ourexisting dealerships.We account for our dealership acquisitions using the purchase method of accounting. As a result, we do not include in our financial statements theresults of operations of these dealerships prior to the date we acquired them, which may impact the comparability of the financial information presented. Also,as a result of the effects of our acquisitions, dispositions, and other potential factors in the future, our historical financial information is not necessarilyindicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had suchtransactions occurred at the beginning of the periods presented.Our operating results reflect the combined performance of each of our interrelated business activities, which include the sale of new vehicles, usedvehicles, finance and insurance products, and parts, as well as maintenance, repair and collision restoration services. Historically, each of these activities hasbeen directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, discretionary spendinglevels, availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices, and interest rates. For example, during periodsof sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift theirpurchases to used vehicles. Some consumers may even delay their purchasing decisions altogether, electing instead to continue to maintain and repair theirexisting vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other productsand services, such as used vehicles and parts, as well as maintenance, repair and collision restoration services. In addition, our ability to expediently adjustour cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such volume changes.In the U.S., we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year. This seasonalityis 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 to39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.inclement weather. As a result, our U.S. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and thirdquarters. For the U.K., the first and third calendar quarters tend to be stronger, driven by the vehicle license plate change months of March and September. ForBrazil, we expect higher volumes in the third and fourth calendar quarters. The first quarter is generally the weakest, driven by heavy consumer vacations andactivities associated with Carnival. Other factors unrelated to seasonality, such as changes in economic condition, manufacturer incentive programs andchanges in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in our reported revenues and operating income.According to U.S. industry experts, the annual new light vehicle unit sales for 2015 increased 953 thousand units, or 5.8%, to 17.4 million units,compared to 16.5 million units in 2014. Automotive sales in the U.K. increased 6.3% to 2.6 million during 2015 as compared to the same period a year ago.The Brazilian economy represents the seventh largest economy in the world and until recently has been one of the fastest growing. However, the Brazilianeconomy is in recession and is facing many challenges. New vehicle registrations in Brazil declined 25.6% during 2015 as compared to the same period ayear ago to 2.5 million.On a consolidated basis for the year ended December 31, 2015, our total revenues increased 7.0% from 2014 to $10.6 billion and gross profit improved5.9% to $1.5 billion. For the years ended December 31, 2014 and 2013, total revenues were $9.9 billion and $8.9 billion, respectively. For the years endedDecember 31, 2014 and 2013, gross profits were $1.4 billion and $1.3 billion, respectively. We generated net income of $94.0 million, or $3.90 per dilutedcommon share for the year ended December 31, 2015, compared to $93.0 million, or $3.60 per diluted share for the year ended December 31, 2014 and$114.0 million, or $4.32 per diluted share for the year ended December 31, 2013. In addition to the matters described above, the following factors impactedour financial condition and results of operations in 2015, 2014, and 2013:Year Ended December 31, 2015:•Asset Impairments: As a result of our determination that the fair value of goodwill in our Brazil reporting units did not exceed its carrying value,we recorded a $55.4 million pretax non-cash asset impairment charge. In addition, as a result of our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value, we recognized a $30.1 million pretax non-cash impairment charge, of which $18.1 million related to intangible franchise rights in our two U.S. reporting units and $12.0 million related tointangible franchise rights in our Brazil reporting unit. Also, we recognized $2.1 million in pre-tax non-cash asset impairment charges associatedwith non-operating real estate holdings and other long-lived assets of our existing dealership facilities. In total, we recognized $87.6 million inpretax non-cash impairment charges.•Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expensestotaling $1.6 million were recognized as SG&A expenses as a result of snow storms and flooding during the year.•Real Estate and Dealership Disposition Transactions: We disposed of two U.S. dealerships and terminated one U.S. dealership franchise. We alsoterminated two franchises in Brazil. As a result, we recognized a pre-tax net gain on sale of dealerships and real estate transactions of $8.2 million,as a reduction of SG&A expenses. In addition, we disposed of real estate during the year and received cash proceeds of $3.3 million, recognizing anet gain of $0.2 million.Year Ended December 31, 2014:•Extinguishment of Long-Term Debt: We extinguished our 2.25% Convertible Senior Notes due 2036 (“2.25% Notes”) and 3.00% ConvertibleSenior Notes due 2020 (“3.00% Notes”) and recognized an aggregate loss for 2014 of $46.4 million.•Asset Impairments: Primarily related to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of ourfranchises did not exceed their carrying value and an impairment charge was required, we recorded a $31.0 million pretax non-cash impairmentcharge. We also recognized a total of $10.5 million in pre-tax non-cash asset impairment charges related to impairment of various real estateholdings and other long-lived assets.•Non-Cash Interest Expense: Our 2014 results were negatively impacted by $7.2 million of non-cash interest expense relative to the amortizationof the discount associated with our 2.25% Notes and 3.00% Notes representing the impact of the accounting for convertible debt as required byFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt (“ASC 470”).•Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expensestotaling $2.8 million were recognized as SG&A expense as a result of snow storms, windstorms, and hail damage during the year.40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•Real Estate and Dealership Disposition Transactions: Positively impacting our 2014 results was a pre-tax net gain on sale of dealerships of $13.3million.•Foreign Deductible Goodwill: We recognized a $3.4 million tax benefit in 2014, as a result of a restructuring in Brazil that created tax deductiblegoodwill.Year Ended December 31, 2013:•Asset Impairments: We determined that the fair value of indefinite-lived intangible franchise rights related to four of our franchises did not exceedtheir carrying value and an impairment charge was required. Accordingly, we recorded a $5.4 million pretax non-cash impairment charge duringthe fourth quarter of 2013. We also recognized a total of $1.1 million in pretax non-cash asset impairment charges related to impairment of variouslong-lived assets.•Non-Cash Interest Expense: Our 2013 results were negatively impacted by $10.8 million of non-cash interest expense relative to the amortizationof the discount associated with our 2.25% Notes and 3.00% Notes representing the impact of the accounting for convertible debt as required byFASB ASC 470.•Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expensestotaling $12.2 million were recognized as SG&A expense as a result of snow storms, windstorms, and hail damage.•Acquisition Costs: Primarily due to our acquisition of UAB Motors in February 2013, we incurred a total of $6.2 million in acquisition costs.•Net Gain on Real Estate and Dealership Disposition Transactions: Positively impacting our 2013 results was a pre-tax net gain on sale ofdealerships of $10.4 million.Key Performance IndicatorsThe following table highlights certain of the key performance indicators we use to manage our business:Consolidated Statistical Data For the Year Ended December 31, 2015 2014 2013Unit Sales Retail Sales New Vehicle 174,614 166,896 155,866Used Vehicle 124,153 109,873 98,813Total Retail Sales 298,767 276,769 254,679Wholesale Sales 57,226 54,602 50,736Total Vehicle Sales 355,993 331,371 305,415Gross Margin New Vehicle Retail Sales 5.1% 5.4% 5.5%Total Used Vehicle Sales 5.8% 6.5% 6.8%Parts and Service Sales 54.1% 52.8% 52.5%Total Gross Margin 14.4% 14.6% 14.5%SG&A as a % of Gross Profit 73.1% 73.3% 75.6%Operating Margin 2.6% 3.0% 3.1%Pretax Margin 1.7% 1.7% 2.2%Finance and Insurance Revenues per Retail Unit Sold $1,368 $1,324 $1,223The following discussion briefly highlights certain of the results and trends occurring within our business. Throughout the following discussion,references may be made to Same Store results and variances which are discussed in more detail in the “Results of Operations” section that follows.Our results are impacted by changes in exchange rates relating to our U.K. and Brazil segments. As exchange rates fluctuate, our results of operations asreported in U.S. dollars fluctuate. For example, if the British pound sterling were to weaken against the U.S. dollar, our U.K. results of operations wouldtranslate into less U.S. dollar reported results. During the twelve months ended December 31, 2015, the British pound sterling weakened against the U.S.dollar as the average exchange rate decreased 7.7% compared to the same period in 2014. The Brazilian real also weakened against the U.S. dollar as the a41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.verage exchange rate declined 41.6% as compared to the same period in 2014. For the twelve months ended December 31, 2014, the British poundstrengthened against the U.S. dollar as the average rate increased 5.1%, as compared to the same period in 2013. The Brazilian real weakened against the U.S.dollar as the average rate declined 8.5% as compared to the same period in 2013.2015 compared to 2014Our consolidated revenues from new vehicle retail sales increased 4.5% for the twelve months ended December 31, 2015, as compared to the sameperiod in 2014. This growth was primarily a result of better industry conditions in both the U.S. and the U.K., dealership acquisition activity, and thecontinued execution of key initiatives by our operating team. U.S. industry sales rose 5.8% to a record 17.4 million units for the year ended 2015 ascompared to 16.5 million units in 2014. In the U.K., industry sales also set a record with registrations increasing 6.3% to 2.6 million units as compared to thesame period in 2014. In the U.S. and U.K., our new vehicle retail unit sales rose 5.1% and 27.3%, for the year ended December 31, 2015, respectively, from2014 levels. Our new vehicle unit sales growth in the U.S. and U.K. was partially offset by a 19.2% decline in Brazil for the year ended December 31, 2015 ascompared to the same period in 2014. The decline reflects overall weaker industry unit sales and dealership dispositions. In Brazil, industry sales declined forthe year ended December 31, 2015 by 25.6% as compared to the same period in 2014 to 2.5 million units. This decline was primarily due to decreasedconsumer confidence, higher interest rates and the expiration of the government sponsored auto purchase tax incentive at the end of 2014. Consolidated newvehicle retail gross margin declined 30 basis points to 5.1% for the twelve months ended December 31, 2015, as compared to the same period in 2014,primarily reflecting the competitive selling environments in most of the U.S. and U.K. markets in which we operate.Our used vehicle results are directly affected by economic conditions, the level of manufacturer incentives on new vehicles and new vehicle financing,the number and quality of trade-ins and lease turn-ins, the availability of consumer credit, and our ability to effectively manage the level and quality of ouroverall used vehicle inventory. The improving industry conditions in the U.S. and U.K. that have benefited new vehicle sales also supported used vehicledemand. As a result, our revenues from used vehicle retail sales increased 13.5% for the twelve months ended December 31, 2015, as compared to the sameperiod in 2014. We generated increases of 14.6% and 24.1% in the U.S. and U.K., respectively. These increases were partially offset by a 29.7% decline inBrazil, as the result of weaker exchange rates in 2015. On a local currency basis, Brazil's used vehicle retail revenues were relatively flat for the year endedDecember 31, 2015, compared to the same period in 2014. Used vehicle retail gross profit increased for the twelve months ended December 31, 2015,primarily as a result of growth in used vehicle retail unit sales of 13.0%, reflecting increases of 12.1% and 30.7% in the U.S. and U.K., respectively. Theseimprovements in used vehicle retail unit sales were partially offset by a decline in used vehicle retail gross profit per retail unit ("PRU") of 8.4% for the twelvemonths ended December 31, 2015, reflecting declines of 6.3%, 16.3% and 44.4% in the U.S., U.K. and Brazil, respectively, as compared to the same period in2014.Our parts and service sales increased 5.4% for the twelve months ended December 31, 2015, as compared to the same period in 2014. This growth wasdriven by increases in all aspects of our business: warranty parts and service, wholesale parts, customer-pay parts and service, and collision restoration.Generally, this is due to the execution of key management initiatives, dealership acquisition activity, an increase in the number of units being recalled bymanufacturers (which can only be repaired by franchised dealerships), and an increase in the number of the late-model vehicles in operation (which tend tomore consistently return to the dealership for warranty, maintenance and repair services). Specifically, during 2015, our warranty parts and service revenueswere bolstered from high volume recall campaigns by a number of manufacturers in each of our regions, including BMW, Toyota, Honda, Acura, Ford, andFCA US (formerly Chrysler). Additionally, as manufacturer paid maintenance programs continue to expand in the U.S., our parts and service business shiftsfrom customer-pay to warranty. The increase in our collision sales was the result of enhanced operational processes, the addition of technicians to addoperating capacity and the expansion of our relationships with insurance providers. The increase in our customer-pay and parts wholesales revenues wasdriven by the U.S. primarily as a result of the execution of management initiatives and dealership acquisition activity. Our parts and service gross marginincreased 130 basis points for the twelve months ended December 31, 2015, as compared to the same periods in 2014 driven primarily by improvements inthe U.S. parts and service gross margin of 120 basis points for the twelve month period of 2015, as compared to 2014. These increases in U.S. gross marginwere primarily due to improved profitability in our customer-pay and wholesale parts and service business, as well as higher volume of internal work betweenthe parts and service departments of our dealerships and the new and used vehicle departments, which were generated by improved new and used retailvehicle sales volumes.For the twelve months ended December 31, 2015 as compared to the same period a year ago, our consolidated finance and insurance revenues increased11.5% due to a 7.9% increase in retail unit sales and a 3.3% increase in finance and insurance revenues PRU primarily driven by improvements in the U.S.and U.K. In the U.S., finance and insurance revenues increased 12.2% reflecting an 8.0% increase in new and used retail unit sales and a 3.9% increase infinance and insurance revenues PRU driven by increases in income per contract and penetration rates. In the U.K., our finance and insurance revenuesimproved 27.0% explained by a 28.7% increase in new and used retail sales volume. These increases were partially offset by a 36.2% d42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ecline in our finance and insurance revenues in Brazil driven by a 16.5% decrease in new and used retail unit sales and a 23.5% decline in finance andinsurance revenues PRU. The decline in the Brazilian finance and insurance revenues PRU is more than explained by the change in exchange rates betweenperiods as the finance and insurance revenues PRU increased 8.5% on a local currency basis.Our total consolidated gross margin decreased 20 basis points for the twelve months ended December 31, 2015 to 14.4%, as compared to the sameperiod in 2014. Improvements in the parts and service, as well as finance and insurance sectors of our business were more than offset by declines in new andused retail vehicle margins.Our consolidated SG&A expenses increased in absolute dollars for the twelve months ended December 31, 2015, as compared to the same period in2014, primarily as a result of dealership acquisitions, as well as higher vehicle sales volumes. For the twelve months ended December 31, 2015, ourconsolidated SG&A expenses as a percentage of gross profit fell 20 basis points to 73.1%, as compared to the same period in 2014, primarily reflecting theleverage of our cost structure with the improved gross profit, as well as a reduction in charges for catastrophic events and severance costs.The combination of all of these factors, including non-cash asset impairments of $87.6 million for the twelve months ended December 31, 2015,resulted in an operating margin of 2.6%, which is a 40 basis-point decline, as compared to the same period in 2014.For the twelve months ended December 31, 2015, floorplan interest expense decreased 5.6%, as compared to the same period in 2014. This decline wasprimarily driven by Brazil, as a result of improvements in floorplan and cash management processes and the change in exchange rates between periods. Withrespect to other interest expense, there was a net increase of 14.5% for the twelve months ended December 31, 2015, as compared to the same period in 2014,was primarily attributable to interest incurred on our 5.00% Notes offerings. The vast majority of the proceeds from the 5.00% Notes offerings were used toextinguish our 2.25% Notes and our 3.00% Notes during the second and third quarters of 2014. In addition, other net interest expense increased for the yearended December 31, 2015, as compared to 2014, due to additional mortgage borrowings associated with recent dealership acquisitions and purchases ofexisting leased properties. Further contributing to the increase in other interest expense, net, was the interest related to our 5.25% Note offering that wasexecuted in December 2015 to fund the pay off of outstanding borrowings on the Company’s acquisition line of credit, to payoff certain mortgages, tocontribute to the Company’s floorplan offset accounts and for general corporate purposes.2014 compared to 2013Our consolidated revenues from new vehicle retail sales increased 9.9% for the twelve months ended December 31, 2014, as compared to the sameperiod in 2013. This growth was primarily a result of better industry conditions in the both the U.S. and U.K., dealership acquisition activity, and theexecution of initiatives by our operating team. U.S. industry sales were 16.5 million units for the year ended 2014 as compared to 15.6 million units for thesame period in 2013. Our new vehicle revenue growth in the U.S. and U.K. was partially offset by weakening economic conditions in Brazil due to decreasedconsumer confidence, disruptions from the 2014 FIFA World Cup activities and the effect of unfavorable changes in foreign exchange rates in 2014 relativeto 2013. Consolidated new vehicle retail gross margin declined 10 basis points to 5.4% for the year ended December 31, 2014, reflecting the competitiveselling environment in the U.S., as well as the weaker Brazilian economy.Our used vehicle results are directly affected by economic conditions, the level of manufacturer incentives on new vehicles and new vehicle financing,the number and quality of trade-ins and lease turn-ins, the availability of consumer credit, and our ability to effectively manage the level and quality of ouroverall used vehicle inventory. Our revenues from used vehicle retail sales increased 14.0% for the twelve months ended December 31, 2014, as compared tothe same period in 2013. The improving economic environment in the U.S. that benefited new vehicle sales also supported improved used vehicle demand.Used vehicle retail gross profit increased, primarily reflecting growth in used vehicle retail unit sales of 11.2%, as compared to 2013. Partially offsetting theseimprovements was a decline in used vehicle retail gross margin of 40 basis points for year ended December 31, 2014, as compared to the same period in 2013.Used vehicle margins are generally lower in our U.K. and Brazil segments, therefore, the decline in consolidated used vehicle gross margin partially relates tothe mix shift effect, as a result of a larger contribution from our foreign segments. Further, the U.S. market softened during the second half of 2014 as a resultof strong new vehicle selling environment that shifted some customers from used to new vehicles.Our parts and service sales increased 11.4%, for the year ended December 31, 2014, as compared to the same period in 2013. This growth was driven byincreases in all aspects of our business: wholesale parts, collision, warranty parts and service, and customer-pay parts and service. Generally, this is due to anincrease in the number of the late-model vehicles in operation, dealership acquisition activity, and the execution of management initiatives. Specifically, theimprovement in our collision sales was the result of enhanced operational processes, the addition of technicians to add operating capacity and the expansionof our relationships with insurance providers. Our warranty revenues were bolstered from high volume recall campaigns in the U.S. by original equipmentmanufacturers (“OEMs”), including General Motors, BMW, Toyota and Ford. Our parts and service gross margin increased 30 basis points for the twelvemonths ended December 31, 2014, as compared to the same period in 2013, with improving U.S. and Brazilian margins more than offsetting the decline in theU.K.43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our consolidated finance and insurance revenues PRU sold increased $101 for the twelve months ended December 31, 2014, as compared to the sameperiod in 2013, primarily as a result of increased income per contract and penetration rates from most of our major U.S. product offerings. Finance andinsurance PRU also improved in both the U.K. and Brazil segments for the year ended 2014 by $131 and $95, respectively, as compared to 2013, resultingfrom enhancements to selling processes and strategic training efforts.Our total gross margin increased ten basis points for the year ended December 31, 2014, as compared to the same period in 2013, as improvements in theparts and service, as well as finance and insurance sectors of our business were partially offset by new and used vehicle retail performance.Our consolidated SG&A expenses increased in absolute dollars for the twelve months ended December 31, 2014, as compared to 2013, primarily as aresult of dealership acquisitions, as well as the correlation to vehicle sales volumes. However, SG&A expenses as a percentage of gross profit decreased by230 basis points to 73.3% for the twelve months ended 2014 as compared to the same period in 2013, reflecting leverage of our cost structure realized withthe improved revenue and gross profit, the impact of a decline in charges for catastrophic events and business acquisition costs incurred in 2013 that did notreoccur in 2014, as well as gains on real estate and dealership transactions in 2014.For the twelve months ended December 31, 2014, floorplan interest expense decreased 0.1%, as compared to 2013. This decline primarily represents thefull year effect of a decline in our floorplan borrowing rate in the U.S. of 25 basis points that was effective on June 20, 2013 with the amendment to ourRevolving Credit Facility. Substantially offsetting this decline was an increase of $138.9 million in our weighted average floorplan borrowings outstandingas U.S. floorplan borrowings rose to support dealership acquisitions and higher sales rates. The increase in our weighted average floorplan borrowing in theU.S. was partially offset by a decline in our Brazil segment as a result of our decision to refinance a portion of our floorplan borrowings with a working capitalline of credit that reduced the overall interest rate that we are charged and redistributed the borrowings and associated interest charges to other long-term debtand interest expense categories. Other interest expense, net increased 27.5% for the year ended December 31, 2014, primarily reflecting the impact of the5.00% Notes offering. The vast majority of the proceeds from the 5.00% Notes offering were used to extinguish our 2.25% Notes and our 3.00% Notes. Inaddition, other interest expense increased in our Brazil segment as discussed above.The combination of all of these factors, including $41.5 million of non-cash asset impairments, resulted in an operating margin of 3.0% for the twelvemonths ended December 31, 2014, which reflects a 10 basis-point decrease from 2013.44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Recent Accounting PronouncementsRefer to Note 2 of our Consolidated Financial Statements, “Summary of Significant Accounting Polices and Estimates,” for a discussion of those mostrecent pronouncements that impact us.Critical Accounting Policies and Accounting EstimatesThe preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) principlesrequires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, thedisclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period.We analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances.However, actual results could differ from such estimates. The following is a discussion of our critical accounting estimates and policies.We have identified below what we believe to be the most pervasive accounting policies and estimates that are of particular importance to the portrayalof our financial position, results of operations and cash flows. See Note 2 to our Consolidated Financial Statements, “Summary of Significant AccountingPolicies and Estimates,” for further discussion of all our significant accounting policies and estimates.Revenue Recognition. Revenues from vehicle sales, parts sales, and vehicle service are recognized upon completion of the sale or service and deliveryto the customer. Conditions to completing a sale include having an agreement with the customer, including pricing, and having a reasonable expectation thatthe sales price will be collected. We include revenues from our collision center operations in parts and services sales.We record the profit we receive for arranging vehicle fleet transactions net in other finance and insurance revenues. Since all sales of new vehicles mustoccur through franchised new vehicle dealerships, the dealerships effectively act as agents for the automobile manufacturers in completing sales of vehiclesto fleet customers. As these customers typically order the vehicles, we have no significant general inventory risk. Additionally, fleet customers generallyreceive special purchase incentives from the automobile manufacturers and we receive only a nominal fee for facilitating the transactions. Taxes collectedfrom customers and remitted to governmental agencies are not included in total revenues.We arrange financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged tocustomers and wholesale financing rates set by the financing institution. In addition, we receive fees from the sale of insurance and vehicle service contractsto customers. Further, through agreements with certain vehicle service contract administrators, we earn volume incentive rebates and interest income onreserves, as well as participate in the underwriting profits of the products. We may be charged back for unearned financing, insurance contract or vehicleservice contract fees in the event of early termination of the contracts by customers. Revenues from these fees are recorded at the time of the sale of thevehicles and a reserve for future amounts which might be charged back is established based on our historical chargeback results and the terminationprovisions of the applicable contracts. While chargeback results vary depending on the type of contract sold, a 10% increase in the historical chargebackresults used in determining estimates of future amounts which might be charged back would have increased the reserve at December 31, 2015 by $3.3million.Inventories. New, used and demonstrator vehicle inventories are carried at the lower of specific cost or market and are removed from inventory using thespecific identification method in the Consolidated Balance Sheets. Parts and accessories inventories are valued at lower of cost (determined on a first-in, first-out basis) or market in the Consolidated Balance Sheets. Vehicle inventory cost consists of the amount paid to acquire the inventory, plus the cost ofreconditioning, cost of equipment added and transportation cost. Additionally, we receive interest assistance from some of our automobile manufacturers.This assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on our Consolidated Balance Sheetsand as a reduction to cost of sales in our Statements of Operations as the vehicles are sold. At December 31, 2015 and 2014, inventory cost had been reducedby $10.3 million and $8.8 million, respectively, for interest assistance received from manufacturers. New vehicle cost of sales was reduced by $50.5 million,$45.1 million, and $38.5 million for interest assistance received related to vehicles sold for the years ended December 31, 2015, 2014, and 2013,respectively. The assistance over the past three years has ranged from approximately 87.3% of our quarterly floorplan interest expense in the first quarter of2013 to 139.9% for the third quarter of 2015.As the market value of inventory typically declines over time, we establish new and used vehicle reserves based on our historical loss experience andconsiderations of current market trends. These reserves are charged to cost of sales and reduce the carrying value of inventory on hand. Used vehicles arecomplex to value as there is no standardized source for determining exact values and each vehicle and each market in which we operate is unique. As a result,the value of each used vehicle taken at trade-in, or purchased at auction, is determined based on industry data, primarily accessed via our used vehiclemanagement software and the industry expertise of the responsible used vehicle manager. Valuation risk is partially mitigated, by the speed at which we turnthis inventory. At December 31, 2015, our used vehicle days’ supply was 33 days.45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We incur shipping costs in connection with selling the parts to customers. The cost of shipping these parts is included in cost of sales on theConsolidated Statements of Operations.Goodwill. Each of our four regions represents a reporting unit for the purpose of assessing goodwill for impairment. Goodwill represents the excess, atthe date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. Annually in thefourth quarter, based on the carrying values of our regions as of October 31st, we perform a fair value and potential impairment assessment of goodwill. Animpairment analysis is done more frequently if certain events or circumstances arise that would indicate a change in the fair value of the non-financial assethas occurred (i.e., an impairment indicator).In evaluating goodwill for impairment, we compare the carrying value of the net assets of each reporting unit to its respective fair value, which iscalculated by using unobservable inputs based upon our internally developed assumptions. This represents the first step of the impairment test. If the fairvalue of a reporting unit is less than the carrying value of its net assets, we must proceed to step two of the impairment test. Step two involves allocating thecalculated fair value of the reporting unit to all of the tangible and identifiable intangible assets of the reporting unit, as if the calculated fair value was thepurchase price in a business combination. Then we compare the value of the implied goodwill resulting from this second step to the carrying value of thegoodwill in the reporting unit. To the extent the carrying value of the goodwill exceeds its implied fair value under step two of the impairment test, a non-cash impairment charge equal to the difference is recorded.We use a combination of the discounted cash flow, or income approach (80% weighted), and the market approach (20% weighted) to determine the fairvalue of our reporting units. Included in the discounted cash flow are assumptions regarding revenue growth rates, future gross margins, future SG&Aexpenses and an estimated weighted average cost of capital (“WACC”). We also must estimate residual values at the end of the forecast period and futurecapital expenditure requirements. Specifically, with regards to the valuation assumptions utilized in the income approach for the U.S. (which represents ourlargest two reporting units) as of October 31, 2015, we based our analysis on an estimate of industry sales of 17.8 million units in 2016, increasing 1.0% peryear in 2017 and 2018. For the market approach, we utilize recent market multiples of guideline companies for both revenue and pretax net income. Each ofthese assumptions requires us to use our knowledge of (1) the industry, (2) recent transactions and (3) reasonable performance expectations for our operations.If any one of the above assumptions change or fails to materialize, the resulting decline in the estimated fair value could result in a material non-cashimpairment charge to the goodwill associated with our reporting unit(s).Intangible Franchise Rights. Our only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements withmanufacturers, which are recorded at an individual dealership level. We expect these franchise agreements to continue for an indefinite period and, foragreements that do not have indefinite terms, we believe that renewal of these agreements can be obtained without substantial cost, based on the history withthe manufacturer. As such, we believe that our franchise agreements will contribute to cash flows for an indefinite period and, therefore, the carrying amountsof the franchise rights are not amortized. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as part ofgoodwill and remain as part of goodwill at December 31, 2015 and 2014 in the accompanying Consolidated Balance Sheets. Since July 1, 2001, intangiblefranchise rights acquired in business combinations have been recorded as distinctly separate intangible assets.We evaluate these franchise rights for impairment annually in the fourth quarter, based on the carrying values of our individual dealerships as ofOctober 31st, or more frequently if events or circumstances indicate possible impairment has occurred. In performing our impairment assessments, we test thecarrying value of each individual franchise right that was recorded by using a direct value method discounted cash flow model, or income approach,specifically the excess earnings method. Included in this analysis are assumptions, at a dealership level, regarding the cash flows directly attributable to thefranchise rights, revenue growth rates, future gross margins and future SG&A expenses. Using an estimated WACC, estimated residual values at the end of theforecast period and estimated future capital expenditure requirements, we calculate the fair value of each dealership’s franchise rights.If any one of the above assumptions change or fails to materialize, the resulting decline in the intangible franchise rights’ estimated fair value couldresult in a non-cash impairment charge to the intangible franchise right associated with the applicable dealership. See Note 15 to our Consolidated FinancialStatements, “Asset Impairments,” and Note 16 to our Consolidated Financial Statements, “Intangible Franchise Rights and Goodwill,” for additional detailsregarding our intangible franchise rights.Income Taxes. Currently, we operate in 14 different states in the U.S., in the U.K., and in Brazil, each of which has unique tax rates and paymentcalculations. As the amount of income generated in each jurisdiction varies from period to period, our estimated effective tax rate can vary based on theproportion of taxable income generated in each jurisdiction. We follow 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 andliabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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. Eachtax position must satisfy a threshold of more-likely-than-not and a measurement attribute for some or all of the benefits of that position to be recognized in acompany’s financial statements. See Note 7 to our Consolidated Financial Statements, “Income Taxes,” for additional information.We have recognized deferred tax assets, net of valuation allowances, that we believe will be realized, based primarily on the assumption of futuretaxable income. As it relates to net operating losses, a corresponding valuation allowance has been established to the extent that we have determined that netincome attributable to certain jurisdictions will not be sufficient to realize the benefit.Fair Value of Assets Acquired and Liabilities Assumed. The fair values of assets acquired and liabilities assumed in business combinations areestimated using various assumptions. The most significant assumptions, and those requiring the most judgment, involve the estimated fair values of propertyand equipment and intangible franchise rights, with the remaining amounts attributable to goodwill, if any. We utilize third-party experts to determine thefair values of property and equipment purchased, including real estate and our fair value model as discussed under “Intangible Franchise Rights” above todetermine the fair value of intangible franchise rights acquired.Derivative Financial Instruments. One of our primary market risk exposures is increasing interest rates. Interest rate derivatives, designated as cash flowhedges, are used to adjust interest rate exposures when appropriate based on market conditions.We follow the requirements of guidance primarily codified within ASC 815, Derivatives and Hedging (“ASC 815”) pertaining to the accounting forderivatives and hedging activities. ASC 815 requires us to recognize all cash flow hedges on our Consolidated Balance Sheet at fair value. The related gainsor losses on these interest rate derivatives are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. These deferred gainsand losses are recognized in interest expense in the period in which the related items being hedged are recognized in interest expense. However, to the extentthat 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 isimmediately recognized in other income or expense. Monthly contractual settlements of these swap positions are recognized as floorplan or other interestexpense in the accompanying Consolidated Statements of Operations. All of our interest rate hedges were designated as cash flow hedges and were deemed tobe effective at December 31, 2015, 2014, and 2013.We measure the carrying value of our interest rate derivative instruments utilizing an income approach valuation technique, converting future amountsof cash flows to a single present value in order to obtain a transfer exit price within the bid and ask spread that is most representative of the fair value of ourderivative instruments. In measuring fair value, we utilize the option-pricing Black-Scholes present value technique for all of our derivative instruments. Thisoption-pricing technique utilizes a one-month London Interbank Offered Rate (“LIBOR”) forward yield curve, obtained from an independent external serviceprovider, matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the income approach valuation techniqueincorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. Our fair value estimate ofthe interest rate derivative instruments also considers the credit risk of our instruments in a liability position or the counterparty for the instruments in anasset position. The credit risk is calculated by using the spread between the one-month LIBOR yield curve and the relevant average 10 and 20-year retail rateaccording to Standard and Poor’s. We have determined the valuation measurement inputs of these derivative instruments to maximize the use of observableinputs that market participants would use in pricing similar or identical instruments and market data obtained from independent sources, which is readilyobservable or can be corroborated by observable market data for substantially the full term of the derivative instrument. Accordingly, we have classified thederivatives within Level 2 of the ASC 820 hierarchy framework in Note 13 to our Consolidated Financial Statements, “Fair Value Measurements.” Wevalidate the outputs of our valuation technique by comparison to valuations from the respective counterparties.Self-Insured Medical, Property and Casualty Reserves. We purchase insurance policies for worker’s compensation, liability, auto physical damage,property, pollution, employee medical benefits and other risks, consisting of large deductibles and/or self-insured retentions.At least annually, we engage a third-party actuary to conduct a study of the exposures under the self-insured portion of our worker’s compensation andgeneral liability insurance programs for all open policy years. In the interim, we review the estimates within the study and monitor actual experience forunusual variances. The appropriate adjustments are made to the accrual, based upon these procedures. Actuarial estimates for the portion of claims notcovered by insurance are based on historical claims experience adjusted for loss trending and loss development factors. Changes in the frequency or severityof claims from historical levels could influence our reserve for claims and our financial position, results of operations and cash flows. A 10% increase in theactuarially determined estimate of aggregate future losses would have increased the reserve for these losses at December 31, 2015, by $2.1 million.47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our auto physical damage insurance coverage is limited and contains two layers of coverage. The first layer is composed of a $10.0 million peroccurrence company deductible with an annual maximum aggregate deductible of $30.0 million with no maximum payout. The secondary policy providesfor an additional $10.0 million, maximum, in annual loss coverage after we have either incurred $20.0 million in company-paid deductibles related to hailloss, or incurred $5.0 million in company-paid deductibles related to any weather event other than hail.For policy years ended prior to October 31, 2005, our workers’ compensation and general liability insurance coverage included aggregate retention(stop loss) limits in addition to a per claim deductible limit (“Stop Loss Plans”). Due to historical experience in both claims frequency and severity, thelikelihood of breaching the aggregate retention limits described above was deemed remote, and as such, we elected not to purchase this stop loss coverage forthe policy year beginning November 1, 2005 and for each subsequent year (“No Stop Loss Plans”). Our exposure per claim under the No Stop Loss Plans islimited to $1.0 million per occurrence, with unlimited exposure on the number of claims up to $1.0 million that may be incurred. As of December 31, 2015,we have accrued $0.3 million and $20.3 million for our Stop Loss and No Stop Loss plans, respectively. Our maximum potential exposure under worker’scompensation and general liability insurance Stop Loss Plans totaled $34.9 million at December 31, 2015, before consideration of amounts previously paidor accruals recorded related to our loss projections. After consideration of the amounts paid or accrued, the remaining potential loss exposure under the StopLoss Plans totaled $13.9 million at December 31, 2015.Variable Interest Entity. In 2013, we entered into arrangements to provide a fixed-interest-rate working capital loan and various administrative servicesto a related-party entity that owns and operates retail automotive dealerships for a variable fee, both of which constitute variable interests in the entity. Ourexposure to loss as a result of our involvement in the entity includes the balance outstanding under the loan arrangement. We hold an 8% equity ownershipinterest in the entity. We have determined that the entity meets the criteria of a variable interest entity (“VIE”). The terms of the loan and services agreementsprovide us with the right to control the activities of the VIE that most significantly impact the VIE’s economic performance, the obligation to absorbpotentially significant losses of the VIE and the right to receive potentially significant benefits from the VIE. Accordingly, we qualify as the VIE’s primarybeneficiary and consolidated 100% of the assets and liabilities of the VIE as of December 31, 2015 and 2014, as well as 100% of the results of operations forthe years ended December 31, 2015, 2014 and 2013.48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Results of OperationsThe “Same Store” amounts presented below include the results of dealerships for the identical months in each period presented in the comparison,commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was ownedby us. For example, for a dealership acquired in June 2014, the results from this dealership will appear in our Same Store comparison beginning in 2015 forthe period July 2015 through December 2015, when comparing to July 2014 through December 2014 results. Depending on the periods being compared, thedealerships included in Same Store will vary. For this reason, the 2014 Same Store results that are compared to 2015 differ from those used in the comparisonto 2013. Same Store results also include the activities of our corporate headquarters.The following table summarizes our combined Same Store results for the year ended December 31, 2015 as compared to 2014 and for the year endedDecember 31, 2014 compared to 2013.Total Same Store Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Revenues New vehicle retail $5,616,700 1.6% $5,530,067 $5,237,021 4.3% $5,022,142Used vehicle retail 2,453,406 8.9% 2,253,681 2,113,710 7.1% 1,973,062Used vehicle wholesale 351,649 (3.0)% 362,498 347,341 8.8% 319,285Parts and service 1,118,994 3.7% 1,078,936 1,032,102 6.3% 970,841Finance, insurance and other 387,230 7.8% 359,356 339,921 12.1% 303,111Total revenues $9,927,979 3.6% $9,584,538 $9,070,095 5.6% $8,588,441Cost of Sales New vehicle retail $5,334,257 2.0% $5,230,371 $4,955,323 4.5% $4,741,862Used vehicle retail 2,285,372 9.7% 2,083,660 1,956,353 7.7% 1,816,496Used vehicle wholesale 352,800 (2.0)% 360,005 344,358 8.2% 318,407Parts and service 514,346 1.3% 507,689 487,856 5.6% 462,018Total cost of sales 8,486,775 3.7% 8,181,725 7,743,890 5.5% 7,338,783Gross profit $1,441,204 2.7% $1,402,813 $1,326,205 6.1% $1,249,658Selling, general and administrative expenses $1,058,157 3.1% $1,026,125 $977,375 3.5% $943,897Depreciation and amortization expenses $44,673 9.9% $40,651 $38,577 9.8% $35,125Floorplan interest expense $37,223 (8.4)% $40,617 $37,869 (6.6)% $40,554Gross margin New vehicle retail 5.0% 5.4% 5.4% 5.6%Used vehicle 5.9% 6.6% 6.5% 6.9%Parts and service 54.0% 52.9% 52.7% 52.4%Total gross margin 14.5% 14.6% 14.6% 14.6%SG&A as a % of gross profit 73.4% 73.1% 73.7% 75.5%Operating margin 2.5% 3.2% 3.0% 3.1%Finance and insurance revenues per retail unitsold $1,371 2.2% $1,342 $1,352 9.3% $1,237The discussion that follows provides explanations for the variances noted above. In addition, each table presents by primary income statement line itemcomparative financial and non-financial data of our Same Store locations, those locations acquired or disposed of (“Transactions”) during the periods, andthe consolidated company for the years ended December 31, 2015, 2014, and 2013. 49Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our results are impacted by changes in exchange rates relating to our U.K. and Brazil segments. As exchange rates fluctuate, our results of operations asreported in U.S. dollars fluctuate. For example, if the British pound sterling were to weaken against the U.S. dollar, our U.K. results of operations wouldtranslate into less U.S. dollar reported results. The British pound sterling weakened against the U.S. dollar as the average exchange rate during the twelvemonths ended December 31, 2015 decreased 7.7% compared to the same period in 2014. The Brazilian real weakened against the U.S. dollar, as well. Theaverage exchange rate during the twelve months ended December 31, 2015 declined 41.6% as compared to the same period in 2014. For the twelve monthsended December 31, 2014, the British pound strengthened against the U.S. dollar as the average rate increased 5.1%, as compared to the same period in 2013.The Brazilian real weakened against the U.S. dollar as the average rate during the twelve months ended December 31, 2014 declined 8.5% as compared to thesame period in 2013.50Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.New Vehicle Retail Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Retail Unit Sales Same Stores U.S. 135,994 3.6% 131,249 124,274 4.3% 119,202U.K. 15,974 10.8% 14,412 13,996 2.2% 13,699Brazil 13,460 (11.3)% 15,180 13,847 (16.6)% 16,594Total Same Stores 165,428 2.9% 160,841 152,117 1.8% 149,495Transactions 9,186 6,055 14,779 6,371Total 174,614 4.6% 166,896 166,896 7.1% 155,866Retail Sales Revenues Same Stores U.S. $4,722,491 4.9% $4,501,913 $4,276,808 6.2% $4,027,539U.K. 534,117 5.1% 508,345 500,004 13.2% 441,537Brazil 360,092 (30.7)% 519,809 460,209 (16.8)% 553,066Total Same Stores 5,616,700 1.6% 5,530,067 5,237,021 4.3% 5,022,142Transactions 384,606 211,552 504,598 202,779Total $6,001,306 4.5% $5,741,619 $5,741,619 9.9% $5,224,921Gross Profit Same Stores U.S. $224,561 (3.6)% $232,997 $218,544 3.3% $211,545U.K. 33,967 0.4% 33,820 33,516 17.9% 28,424Brazil 23,915 (27.3)% 32,879 29,638 (26.5)% 40,311Total Same Stores 282,443 (5.8)% 299,696 281,698 0.5% 280,280Transactions 23,034 11,521 29,519 9,595Total $305,477 (1.8)% $311,217 $311,217 7.4% $289,875Gross Profit per Retail Unit Sold Same Stores U.S. $1,651 (7.0)% $1,775 $1,759 (0.9)% $1,775U.K. $2,126 (9.4)% $2,347 $2,395 15.4% $2,075Brazil $1,777 (18.0)% $2,166 $2,140 (11.9)% $2,429Total Same Stores $1,707 (8.4)% $1,863 $1,852 (1.2)% $1,875Transactions $2,508 $1,903 $1,997 $1,506Total $1,749 (6.2)% $1,865 $1,865 0.3% $1,860Gross Margin Same Stores U.S. 4.8% 5.2% 5.1% 5.3%U.K. 6.4% 6.7% 6.7% 6.4%Brazil 6.6% 6.3% 6.4% 7.3%Total Same Stores 5.0% 5.4% 5.4% 5.6%Transactions 6.0% 5.4% 5.9% 4.7%Total 5.1% 5.4% 5.4% 5.5%51Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table sets forth our Same Store retail unit sales volume and the percentage changes from year to year by manufacturer:Same Store New Vehicle Unit Sales For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Toyota/Scion/Lexus 46,157 3.4% 44,621 42,539 5.0% 40,529Ford/Lincoln 19,797 9.2 18,132 16,275 (9.1) 17,907Honda/Acura 19,019 6.4 17,870 17,136 (2.3) 17,538BMW/MINI 17,556 (0.6) 17,664 17,285 5.0 16,461Nissan 14,570 (7.0) 15,664 15,217 2.6 14,830Chevrolet/GMC/Buick/Cadillac 11,155 6.3 10,496 8,119 8.6 7,479Volkswagen/Audi/Porsche 9,990 1.1 9,886 10,217 5.0 9,729Hyundai/Kia 9,473 5.1 9,012 7,585 10.0 6,895Chrysler/Dodge/Jeep/RAM 7,962 9.5 7,268 7,268 17.7 6,173Mercedes-Benz/smart/Sprinter 6,195 (5.3) 6,541 6,536 0.1 6,529Other 3,554 (3.6) 3,687 3,940 (27.4) 5,425Total 165,428 2.9% 160,841 152,117 1.8% 149,495In total, our Same Store new vehicle retail unit sales improved in many of our major brands highlighted by a 9.2% improvement in Ford/Lincoln, a 3.4%increase in Toyota/Lexus and a 6.4% increase in Honda/Acura, as well as a 9.5% increase in Chrysler/Dodge/Jeep/Ram, a 6.3% increase inChevrolet/GMC/Buick/Cadillac, and a 5.1% increase in Hyundai/Kia. These improvements were primarily driven by our Same Store U.S. operations thatgrew new vehicle retail unit sales by 3.6% for the year ended December 31, 2015, led by increases of 4.7% in Toyota/Scion/Lexus, 5.3% in Ford/Lincoln,9.5% in Chrysler/Dodge/Jeep/RAM, 6.3% in Chevrolet/GMC/Buick/Cadillac, 4.3% in Honda/Acura and a 5.1% in Hyundai/Kia, as compared to the sameperiod in 2014. The focus that we have placed on capturing market share by improving our dealership sales processes, as well as the increase in overall U.S.industry sales, which increased to a record 17.4 million units for the year ended December 31, 2015 from 16.5 million units in 2014, were the primarycontributing factors in our U.S. new vehicle unit sales growth. We also generated improvements in our Same Store new vehicle unit sales in the U.K. of 10.8%for 2015 driven by increases of 26.9% in Ford, 8.0% in BMW/MINI, and a 4.0% in Audi as compared to 2014. These increases were primarily due toenhanced sales processes, as well as an increase in overall U.K. industry sales. In the U.K., industry sales experienced a record year with registrationssurpassing 2.6 million units, an increase of 6.3% as compared to the same period in 2014. The increases in Same Store new vehicle retail units in the U.S. andU.K. were partially offset by an 11.3% decline in Brazil for the year ended December 31, 2015 as compared to the same period in 2014. While new vehicleretail units sales declined year over year, our results in Brazil outperformed the market as a result of our strong brand mix and operating team. In Brazil,industry sales declined for the twelve months ended December 31, 2015 by 25.6% to 2.5 million units as compared to the same period in 2014. This declinewas primarily due to decreased consumer confidence, higher interest rates, the expiration of the government sponsored auto purchase tax incentive at the endof 2014 and a deepening economic recession.Our total Same Store revenues from new vehicle retail sales increased 1.6% for the period ending December 31, 2015, as compared to the same periodin 2014. This increase was driven by the 3.6% increase in new vehicle retail unit sales in the U.S. highlighted above, coupled with a 1.2% increase in our U.S.Same Store average retail sales price to $34,726. The increase in our U.S. Same Store average retail sales price for the period ending December 31, 2015 waspartially a result of a mix shift in sales from cars to trucks. U.S. new vehicle retail truck sales represented 51.4% of total Same Store new vehicle retail unitssold, as compared to 48.2% for the same period last year. The increase in total Same Store new vehicle retail revenues was also attributable to the U.K., whereSame Store new vehicle revenues increased by 5.1%. This increase was the result of a 10.8% increase in new vehicle retail unit sales highlighted above,partially offset by a 5.2% decline in the average new vehicle retail sales price. The decline in the average sales price was driven by the change in exchangerates between periods. On a local currency basis, our U.K. Same Store average new vehicle retail sales price improved 2.3%. Partially offsetting these increasesin the U.S. and U.K. was a 30.7% decline in Brazil Same Store new vehicle retail revenues. This decline was due to an 11.3% decrease in new vehicle retailunits sales, coupled with a decline of 21.9% in the average new vehicle retail sales price. The decline in the average new vehicle retail sales price was drivenby the change in the exchange rate between periods. On a local currency basis, our Brazil Same Store average new vehicle retail sales price improved 9.9%.The level of retail sales, as well as our own ability to retain or grow market share during any future period, is difficult to predict.52Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our total Same Store new vehicle gross profit decreased 5.8% for the period ending December 31, 2015, as compared to the same period in 2014. In theU.S., Same Store new vehicle gross profit declined 3.6%, explained by a 7.0% decline in gross profit PRU to $1,651. Strong competition among U.S.dealerships for new vehicle sales, particularly car-centric, volume import brands, continued during 2015 and caused downward margin pressure. Same Storenew vehicle gross profit in the U.K. increased 0.4%, as the increase in new vehicle sales volume was substantially offset by a decline in gross profit PRU of9.4% to $2,126. The decline in the U.K. gross profit PRU is partially explained by the change in exchange rate between periods, as on a local currency basisSame Store new vehicle gross profit PRU declined by 2.2%. This local currency decline is primarily the result of a change in our sales mix. In addition, in theU.S. and U.K., Same Store new vehicle gross profit PRU declined in our BMW and Daimler (including Mercedes-Benz) brands, as inventory and days’ supplylevels grew as compared to the same period last year resulting from increased inventory allocation from our manufacturer partners. In Brazil, Same Store newvehicle gross profit declined 27.3% and new vehicle gross profit PRU declined 18.0%. The decrease in gross profit and gross profit PRU in Brazil can beexplained by the change in the exchange rate between periods. On a local currency basis, Same Store new vehicle gross profit and new vehicle gross profitPRU increased 1.9% and 14.9%, respectively, primarily from our Honda and Nissan brands. As a result, our total Same Store new vehicle gross margin for theyear ended December 31, 2015 as compared to the same period in 2014 declined 40 basis points from 5.4% to 5.0%.Our total Same Store revenues from new vehicle retail sales increased 4.3% for the year ended December 31, 2014, as compared to the same period in2013, primarily explained by a 4.3% and 2.2% increase in new vehicle retail unit sales in the U.S. and U.K., respectively. Coupled with this growth in SameStore new vehicle retail units, we experienced increases in Same Store average retail sales price of 1.9% and 10.8% for the U.S. and U.K., respectively. Thegrowth in our U.S. Same Store average retail sales price was highlighted by increases in our Toyota, BMW, FCA US (formerly Chrysler), Daimler (includingMercedes Benz) and General Motors brands. The increase Same Store new vehicle retail revenues in the U.K. was driven by our Audi brand where weexperienced a 17.5% increase in Same Store new vehicle retail units sales coupled with a 7.4% increase in new vehicle average sales price. In addition, wegenerated Same Store new vehicle retail revenue improvement in our BMW brand in the U.K. where we realized increases of 13.6% in Same Store new vehicleretail unit sales and 12.7% increase in average retail sales price. These increases more than offset the decline relating to our Ford brand volumes in the U.K.that decreased as a result of a strategic decision to stop high-volume, low margin new vehicle sales during 2014. Our Brazil segment experienced a decline inSame Store retail unit sales of 16.6%, while our average sales price remained flat for the twelve months ended December 31, 2014 as compared to the sameperiod last year.Our total Same Store new vehicle gross profit increased 0.5% for the year ended December 31, 2014, as compared to the same period in 2013. U.S. SameStore new vehicle gross profit rose 3.3%, on the growth in new vehicle retail unit sales which was partially offset by a 0.9% decline in gross profit PRU. SameStore gross profit in the U.K. grew 17.9%, as a result of a 15.4% improvement in gross profit PRU coupled with an improvement in new vehicle retail unitsales. Brazil’s Same Store new vehicle gross profit declined 26.5%, driven by a 16.6% decrease in unit sales and the negative impact of the devaluation in theBrazilian real to the U.S. dollar. As a result, our total Same Store new vehicle gross margin for the year ended December 31, 2014 declined 20 basis points to5.4%, as compared to the same period in 2013.Most manufacturers offer interest assistance to offset floorplan interest charges incurred in connection with inventory purchases. This assistance variesby manufacturer, but generally provides for a defined amount, adjusted periodically for changes in market interest rates, regardless of our actual floorplaninterest rate or the length of time for which the inventory is financed. We record these incentives as a reduction of new vehicle cost of sales as the vehicles aresold, impacting the gross profit and gross margin detailed above. The total assistance recognized in cost of sales during the period ending December 31,2015, 2014, and 2013 was $50.5 million, $45.1 million, and $38.5 million, respectively. The amount of interest assistance we recognize in a given period isprimarily a function of: (a) the mix of units being sold, as U.S. domestic brands tend to provide more assistance, (b) the specific terms of the respectivemanufacturers' interest assistance programs and market interest rates, (c) the average wholesale price of inventory sold, and (d) our rate of inventory turnover.Over the past three years, manufacturers' interest assistance as a percentage of our total consolidated floorplan interest expense has ranged from 87.3% in thefirst quarter of 2013 to 139.9% in the third quarter of 2015. In the U.S., manufacturer's interest assistance was 136.4% of floorplan interest expense in thefourth quarter of 2015.We increased our new vehicle inventory levels by $125.3 million, or 11.0%, from $1,137.5 million as of December 31, 2014 to $1,262.8 million as ofDecember 31, 2015. This increase was primarily in response to an improved selling environment in both the U.S. and U.K. and the acquisition of additionaldealerships. In addition, our supply of luxury brand units, such as Mercedes-Benz and BMW, has increased, primarily in the fourth quarter of 2015, as ourOEM partners have redirected additional supply to the U.S. and U.K to offset weakness in other global markets. Our consolidated days' supply of new vehicleinventory was 67 days as of December 31, 2015, which is up from 63 days on December 31, 2014.53Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Used Vehicle Retail Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Retail Unit Sales Same Stores U.S. 100,176 9.4% 91,606 85,266 3.7% 82,235U.K. 12,083 14.1% 10,588 9,902 8.7% 9,109Brazil 4,844 1.0% 4,798 4,135 (3.1)% 4,266Total Same Stores 117,103 9.5% 106,992 99,303 3.9% 95,610Transactions 7,050 2,881 10,570 3,203Total 124,153 13.0% 109,873 109,873 11.2% 98,813Retail Sales Revenues Same Stores U.S. $2,075,497 11.3% $1,864,698 $1,752,151 5.4% $1,662,671U.K. 295,667 6.3% 278,116 266,183 20.1% 221,590Brazil 82,242 (25.8)% 110,867 95,376 7.4% 88,801Total Same Stores 2,453,406 8.9% 2,253,681 2,113,710 7.1% 1,973,062Transactions 185,563 71,187 211,158 66,366Total $2,638,969 13.5% $2,324,868 $2,324,868 14.0% $2,039,428Gross Profit Same Stores U.S. $149,006 1.4% $147,001 $136,065 (1.3)% $137,811U.K. 15,546 (6.6)% 16,648 15,883 9.9% 14,446Brazil 3,482 (45.4)% 6,372 5,409 25.5% 4,309Total Same Stores 168,034 (1.2)% 170,021 157,357 0.5% 156,566Transactions 11,436 3,501 16,165 4,313Total $179,470 3.4% $173,522 $173,522 7.9% $160,879Gross Profit per Retail Unit Sold Same Stores U.S. $1,487 (7.4)% $1,605 $1,596 (4.8)% $1,676U.K. $1,287 (18.1)% $1,572 $1,604 1.1% $1,586Brazil $719 (45.9)% $1,328 $1,308 29.5% $1,010Total Same Stores $1,435 (9.7)% $1,589 $1,585 (3.2)% $1,638Transactions $1,622 33.5% $1,215 $1,529 13.5% $1,347Total $1,446 (8.4)% $1,579 $1,579 (3.0)% $1,628Gross Margin Same Stores U.S. 7.2% 7.9% 7.8% 8.3%U.K. 5.3% 6.0% 6.0% 6.5%Brazil 4.2% 5.7% 5.7% 4.9%Total Same Stores 6.8% 7.5% 7.4% 7.9%Transactions 6.2% 4.9% 7.7% 6.5%Total 6.8% 7.5% 7.5% 7.9%54Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Used Vehicle Wholesale Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Wholesale Unit Sales Same Stores U.S. 42,065 (0.1)% 42,120 40,036 4.9% 38,163U.K. 9,379 8.8% 8,618 8,181 5.8% 7,735Brazil 1,552 (22.5)% 2,002 1,904 (31.4)% 2,775Total Same Stores 52,996 0.5% 52,740 50,121 3.0% 48,673Transactions 4,230 1,862 4,481 2,063Total 57,226 4.8% 54,602 54,602 7.6% 50,736Wholesale Sales Revenues Same Stores U.S. $266,864 (0.3)% $267,799 $255,504 13.7% $224,686U.K. 77,846 (2.6)% 79,891 77,993 18.0% 66,077Brazil 6,939 (53.1)% 14,808 13,844 (51.5)% 28,522Total Same Stores 351,649 (3.0)% 362,498 347,341 8.8% 319,285Transactions 45,602 16,645 31,802 12,900Total $397,251 4.8% $379,143 $379,143 14.1% $332,185Gross Profit Same Stores U.S. $(1,016) (157.2)% $1,777 $2,331 647.1% $312U.K. (632) (55.7)% (406) (446) 47.9% (856)Brazil 497 (55.7)% 1,122 1,098 (22.8)% 1,422Total Same Stores (1,151) (146.2)% 2,493 2,983 239.7% 878Transactions (769) (174) (664) (1,073)Total $(1,920) (182.8)% $2,319 $2,319 1,289.2% $(195)Gross Profit per Wholesale Unit Sold Same Stores U.S. $(24) (157.1)% $42 $58 625.0% $8U.K. $(67) (42.6)% $(47) $(55) 50.5% $(111)Brazil $320 (42.9)% $560 $577 12.7% $512Total Same Stores $(22) (146.8)% $47 $60 233.3% $18Transactions $(182) (95.7)% $(93) $(148) 71.5% $(520)Total $(34) (181.0)% $42 $42 1,150.0% $(4)Gross Margin Same Stores U.S. (0.4)% 0.7 % 0.9 % 0.1 %U.K. (0.8)% (0.5)% (0.6)% (1.3)%Brazil 7.2 % 7.6 % 7.9 % 5.0 %Total Same Stores (0.3)% 0.7 % 0.9 % 0.3 %Transactions (1.7)% (1.0)% (2.1)% (8.3)%Total (0.5)% 0.6 % 0.6 % (0.1)%55Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Total Used Vehicle Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Used Vehicle Unit Sales Same Stores U.S. 142,241 6.4% 133,726 125,302 4.1% 120,398U.K. 21,462 11.7% 19,206 18,083 7.4% 16,844Brazil 6,396 (5.9)% 6,800 6,039 (14.2)% 7,041Total Same Stores 170,099 6.5% 159,732 149,424 3.6% 144,283Transactions 11,280 4,743 15,051 5,266Total 181,379 10.3% 164,475 164,475 10.0% 149,549Sales Revenues Same Stores U.S. $2,342,361 9.8% $2,132,497 $2,007,655 6.4% $1,887,357U.K. 373,513 4.3% 358,007 344,176 19.6% 287,667Brazil 89,181 (29.0)% 125,675 109,220 (6.9)% 117,323Total Same Stores 2,805,055 7.2% 2,616,179 2,461,051 7.4% 2,292,347Transactions 231,165 87,832 242,960 79,266Total $3,036,220 12.3% $2,704,011 $2,704,011 14.0% $2,371,613Gross Profit Same Stores U.S. $147,990 (0.5)% $148,778 $138,396 0.2% $138,123U.K. 14,914 (8.2)% 16,242 15,437 13.6% 13,590Brazil 3,979 (46.9)% 7,494 6,507 13.5% 5,731Total Same Stores 166,883 (3.3)% 172,514 160,340 1.8% 157,444Transactions 10,667 3,327 15,501 3,240Total $177,550 1.0% $175,841 $175,841 9.4% $160,684Gross Profit per Used Vehicle Unit Sold Same Stores U.S. $1,040 (6.6)% $1,113 $1,104 (3.7)% $1,147U.K. $695 (17.8)% $846 $854 5.8% $807Brazil $622 (43.6)% $1,102 $1,077 32.3% $814Total Same Stores $981 (9.2)% $1,080 $1,073 (1.6)% $1,091Transactions $946 35.0% $701 $1,030 67.5% $615Total $979 (8.4)% $1,069 $1,069 (0.5)% $1,074Gross Margin Same Stores U.S. 6.3% 7.0% 6.9% 7.3%U.K. 4.0% 4.5% 4.5% 4.7%Brazil 4.5% 6.0% 6.0% 4.9%Total Same Stores 5.9% 6.6% 6.5% 6.9%Transactions 4.6% 3.8% 6.4% 4.1%Total 5.8% 6.5% 6.5% 6.8%56Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In addition to factors such as general economic conditions and consumer confidence, our used vehicle business is affected by the level of manufacturerincentives on new vehicles and new vehicle financing, the number and quality of trade-ins and lease turn-ins, the availability of consumer credit, and ourability to effectively manage the level and quality of our overall used vehicle inventory.Our total Same Store used vehicle retail revenues increased 8.9% for the twelve months ended December 31, 2015, as compared to 2014, reflecting a9.5% increase in total Same Store used vehicle retail unit sales partially offset by a 0.5% decrease in average used vehicle retail selling price to $20,951. Boththe U.S. and U.K. generated growth in Same Store used vehicle retail revenues, led by an increase in the U.S. of $210.8 million, or 11.3%. This reflects a 1.8%,or $363, increase in average used vehicle retail sales price and a 9.4% increase in used vehicle retail unit sales. In the U.K., Same Store used vehicle retailrevenues increased by $17.6 million, or 6.3%, driven by a 14.1% increase in Same Store used vehicle retail unit sales. This increase in Same Store usedvehicle retail unit sales was partially offset by a 6.8% decline in average used vehicle retail sales price, which is explained by the change in currencyexchange rates. On a local currency basis, Same Store average used vehicle retail sales price increased 0.5% for the year end December 31, 2015 as comparedto the prior year. In Brazil, our Same Store used vehicle retail revenues decreased 25.8% for the year ended December 31, 2015 as compared to the sameperiod in 2014. This decline can be explained by the change in exchange rates. On a local currency basis, Same Store used vehicle retail revenues increased4.7% for the twelve months ended December 31, 2015 as compared to 2014, reflecting an increase of 3.7% in average used vehicle retail selling pricecoupled with a 1.0% increase in Same Store used vehicle retail unit sales.In total, our Same Store used vehicle retail gross profit for the year ended December 31, 2015 decreased 1.2% as compared to the same period in theprior year, as the increase of 1.4% in the U.S. was offset by declines of 6.6% in the U.K., and 45.4% in Brazil. In the U.S., Same Store used vehicle retail grossprofit increased 1.4% for the twelve months ended December 31, 2015, reflecting a 9.4% improvement in Same Store used vehicle retail unit sales that waspartially offset by a decline in Same Store used vehicle retail gross profit PRU of $118, or 7.4%, as compared to the same period last year. The decline inSame Store used vehicle retail gross profit PRU in the U.S. was primarily a result of the competitiveness of the selling environment in the markets in which weoperate. The decline in Same Store used vehicle retail gross profit in the U.K. can be explained by the change in exchange rates between periods. On a localcurrency basis, gross profit in the U.K. improved 0.7% primarily as a result of a 14.1% increase in used vehicle retail unit sales that was partially offset by an11.8% decrease in used vehicle gross profit PRU on a local currency basis. In Brazil, the decrease of 45.4% in Same Store used vehicle retail gross profitresulted from a $609, or 45.9%, decline in Same Store gross profit PRU. On a local currency basis, Same Store used vehicle retail gross profit declined 22.8%,driven by a 23.5% decline in Same Store gross profit PRU for the year ended December 31, 2015 as compared to the same period in 2014.Our U.S. Same Store CPO volume increased 8.8% to 27,688 units sold for the twelve months ended December 31, 2015, as compared to the same periodin 2014. As a percentage of the U.S. Same Store used vehicle retail units sales, CPO units decreased 20 basis points to 27.6% for the year ended December 31,2015 as compared to the same period in 2014.During 2015, total Same Store revenue from wholesale used vehicle sales decreased 3.0%, driven by declines in all three reportable segments. In theU.S, the 0.3% decrease in wholesale used vehicle revenue for the twelve months ended December 31, 2015 was the result of a 0.2% decline in Same Storeused vehicle wholesale average sales price coupled with a 0.1% decline in Same Store used vehicle wholesale unit sales as compared to the same period in2014. In the U.K., the 2.6% decline in Same Store used vehicle wholesale revenue for the year ended December 31, 2015 was driven by the change inexchange rates between periods. On a local currency basis, Same Store used vehicle wholesale revenue increased 5.2% for the year ended December 31, 2015as compared to last year, driven by an increase of 8.8% in Same Store used vehicle wholesale unit sales that was partially offset by a 3.3% decline in SameStore used vehicle wholesale average sales price on a local currency basis. In Brazil, Same Store used vehicle wholesale revenue declined 53.1% as a result ofa decrease in Same Store used vehicle wholesale average sales price of 39.6%, coupled with a decline of 22.5% in Same Store used vehicle wholesale unitsales. On a local currency basis, Same Store used vehicle wholesale revenue in Brazil declined 38.3% for the year ended December 31, 2015. This reflects astrategic decision to sell more of our trade units at retail.Our total Same Store used vehicle wholesale gross profit declined 146.2% from $2.5 million for the year ended December 31, 2014 to a loss of $1.2million for the comparable period in 2015. This decline was driven by a 146.8%, or $69, decrease in our Same Store used vehicle wholesale gross profit perunit from a profit of $47 per unit in 2014 to a loss of $22 per unit. The decrease in the Same Store wholesale used vehicle gross profit was driven by declinesin all reportable segments. The decline in the U.S. was driven by a $66, or 157.1%, decrease in Same Store wholesale gross profit per unit from a profit of $42per unit in 2014 to a loss of $24 per unit for the year ended December 31, 2015. The decline in the U.K. was driven by a $20, or 42.6%, decrease in SameStore wholesale gross profit per unit from a loss of $47 per unit in 2014 to a loss of $67 per unit for the year ended December 31, 2015. In Brazil, the declinein used vehicle wholesale gross profit of 55.7% for the year ended December 31, 2015 was driven by a $240, or 42.9%, decrease in Same Store wholesalegross profit per unit from $560 per unit for the year ended December 2014 to $320 per unit for the same period in 2015, coupled with a decline of 22.5% inwholesale used vehicle unit sales in 2015 over the comparable period.57Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our total Same Store used vehicle retail revenues increased 7.1% for the twelve months ended December 31, 2014, as compared to 2013, reflecting a3.9% increase in total Same Store used vehicle retail unit sales and a 3.1% increase in average used vehicle retail selling price to $21,285. Each of oursegments generated growth in Same Store used vehicle retail revenues, led by an increase in the U.S. of $89.5 million, or 5.4%. This reflects a 3.7% increasein used vehicle retail unit sales and a 1.6% increase in average used vehicle retail sales price. Same Store average used vehicle retail sales price also grew inthe U.K., by 10.5% from $24,326 in 2013 to $26,882 and used vehicle retail unit sales in the U.K. improved 8.7% to 9,902 for the twelve months endedDecember 31, 2014. In Brazil, we experienced a 10.8% improvement in Same Store used vehicle average retail sales price from $20,816 in 2013 to $23,066,which was partially offset by a decline of 3.1% in Same Store used vehicle retail unit sales. Our total Same Store used vehicle retail gross profit increased0.5% for the year ended December 31, 2014, as compared to prior year, primarily driven by increases of 9.9% in the U.K. and 25.5% in Brazil which waspartially offset by a decline in the U.S. of 1.3%. The increase in Same Store used vehicle retail gross profit in the U.K. primarily relates to an 8.7% increase inU.K. Same Store used vehicle retail units, coupled with a 1.1% increase in Same Store used vehicle gross profit PRU. This improvement was driven by ourability to retail more quality used vehicles. The increase in Same Store used vehicle retail gross profit in Brazil primarily relates to a 29.5% increase in SameStore used vehicle gross profit PRU, which was partially offset by a 3.1% decline in Same Store used vehicle retail units sold. This increase in Brazil’s grossprofit PRU was primarily a result of retailing better quality used vehicles in 2014. The decline in Same Store used vehicle retail gross profit in the U.S. wasprimarily a result of strong new vehicle selling environment that shifted some customers from used to new vehicles and increased the competitiveness of theused vehicle retail selling environment.Our U.S. Same Store CPO volume increased 12.1% to 24,725 units sold for the twelve months ended December 31, 2014, as compared to the sameperiod of 2013. As a percentage of the U.S. Same Store used vehicle retail unit sales, CPO units increased 220 basis points to 29.0% for 2014, as compared to2013.During 2014, total Same Store revenue from wholesale used vehicle sales increased by 8.8%, driven by an increase in U.S. Same Store used vehiclewholesale average sales price of 8.4%, coupled with a 4.9% increase in our U.S. Same Store wholesale used vehicle unit sales, as compared to the same periodin 2013. Total Same Store wholesale used vehicle gross profit per unit improved from $18 to $60 for the year ended December 31, 2014, as compared to thesame period in 2013.We increased our used vehicle inventory levels by $20.6 million, or 8.1%, from $254.9 million as of December 31, 2014 to $275.5 million as ofDecember 31, 2015, primarily in response to continued improvement in the used vehicle selling environment in the U.S. and U.K. and the acquisition ofadditional dealerships. Our consolidated days' supply of used vehicle inventory remained flat at 33 days, as of December 31, 2015, as compared to December31, 2014.58Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Parts and Service Data(dollars in thousands) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Parts and Service Revenues Same Stores U.S. $987,762 6.1% $930,597 $891,099 6.0% $840,398U.K. 80,625 (1.8)% 82,126 79,148 17.2% 67,557Brazil 50,607 (23.6)% 66,213 61,855 (1.6)% 62,886Total Same Stores 1,118,994 3.7% 1,078,936 1,032,102 6.3% 970,841Transactions 67,199 46,758 93,592 39,844Total $1,186,193 5.4% $1,125,694 $1,125,694 11.4% $1,010,685Gross Profit Same Stores U.S. $537,701 8.1% $497,265 $474,505 6.6% $445,077U.K. 45,652 1.5% 44,990 43,641 17.5% 37,147Brazil 21,295 (26.5)% 28,992 26,100 (1.9)% 26,599Total Same Stores 604,648 5.8% 571,247 544,246 7.0% 508,823Transactions 37,511 23,068 50,069 21,802Total $642,159 8.1% $594,315 $594,315 12.0% $530,625Gross Margin Same Stores U.S. 54.4% 53.4% 53.2% 53.0%U.K. 56.6% 54.8% 55.1% 55.0%Brazil 42.1% 43.8% 42.2% 42.3%Total Same Stores 54.0% 52.9% 52.7% 52.4%Transactions 55.8% 49.3% 53.5% 54.7%Total 54.1% 52.8% 52.8% 52.5%Our total Same Store parts and service revenues increased 3.7% to $1,119.0 million for the year ended December 31, 2015, as compared to the sameperiod in 2014, primarily driven by U.S. growth. For the year ended December 31, 2015, our U.S. Same Store parts and service revenue increased 6.1%, or$57.2 million, reflecting increases in each portion of our parts and service business. Our U.S. operations generated a 13.3% increase in collision revenue, an8.9% increase in warranty parts and service revenues, a 3.0% increase in customer-pay parts and service revenue and a 5.5% increase in wholesale partsrevenues, when compared to the same period in 2014. The increase in warranty parts and service revenue was primarily driven by high volume recallcampaigns from Honda, Toyota, FCA US (formerly Chrysler), BMW, Hyundai, Ford, Nissan, and Volkswagen that occurred in 2015 compared to 2014. Inaddition, as manufacturer-paid maintenance programs expand in the U.S., a shift of business from our customer-pay to our warranty business continues. Theincrease in collision revenue was primarily attributable to strategic initiatives that continue to enhance our operational processes, the addition of techniciansto add operating capacity and the expansion of partnerships with insurance companies relating to direct repair programs. The U.S. growth in customer-payparts and service revenue was supported by the progress we are making in adding service technicians. Since December 2014, we have added one hundredeighty service technicians.Our U.K. Same Store parts and service revenues decreased 1.8%, or $1.5 million, for the year ended December 31, 2015, as compared to the same periodin 2014. This decline is more than explained by the exchange rate, as Same Store parts and service revenues increased 5.8% on a local currency basis. Thisincrease in U.K. Same Store parts and service revenues on a local currency basis was driven by an 18.4% increase in our warranty parts and service revenuesfor the year ended December 31, 2015, as compared to the same period a year ago. The growth in warranty parts and service revenues in the U.K. is primarilydue to an increase in high volume recalls from BMW, Audi and Ford that occurred during 2015 relative to 2014. In addition, on a local currency basis, weexperienced increases in the U.K. of 1.9% in customer-pay parts and service revenue, 5.2% in wholesale parts revenue and 7.0% in collision revenues in2015. These increases were primarily as a result of management initiatives to enhance processes and increase productivity.59Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Same Store parts and service revenues in Brazil decreased 23.6%, or $15.6 million, for the year ended December 31, 2015, compared to the sameperiod 2014. This decline is more than explained by the exchange rate, as Brazil Same Store parts and service revenues increased 7.3% on a local currencybasis in 2015 compared to the same period last year.Our total Same Store parts and service gross profit for the year ended December 31, 2015 increased 5.8%, as compared to the same period in 2014. Theincrease in total Same Store parts and service gross profit was driven primarily by an 8.1% increase in the U.S., as well as a 1.5% increase in the U.K., whichwas partially offset by a decrease of 26.5% in Brazil. The increase in the U.S. was driven by increases in each portion of our parts and service business, whilethe increase in the U.K. was driven by an increase in warranty parts and service business. The decrease in Brazil can be more than explained by the change inthe exchange rate between the periods, as parts and service gross profit increase 2.7% on a local currency basis. Our total Same Store parts and service grossmargin improved 110 basis points, for the year ended December 31, 2015 as compared to the same period in 2014. The increase in gross margin was driven byimproved profitability in our customer pay parts and service business in the U.S. and the U.K. and was also supported by growth in internal work between theparts and service departments of our U.S. and U.K. dealerships and the respective new and used vehicle departments. This was the result of improved new andused retail vehicles sales volumes.Our total Same Store parts and service revenues increased 6.3% to $1,032.1 million for the year ended December 31, 2014, as compared to 2013. Withinthe total, our U.S. Same Store parts and service revenues increased 6.0%, or $50.7 million, for the year ended December 31, 2014 as compared to 2013, drivenprimarily by an 11.1% increase in wholesale parts revenue, a 10.5% increase in warranty revenues, a 7.3% increase in collision revenue and a 1.4% increasein customer-pay parts and service sales. The increase in wholesale parts revenues was primarily due to increased focus and better overall management of thisportion of our business in a few key markets. The increase in warranty parts and service revenue was primarily driven by high volume recall campaigns fromGeneral Motors, BMW, Toyota and Ford. In addition, as manufacturer-paid maintenance programs expand in the U.S., a shift of business from customer-paybusiness to warranty business continues. These U.S. results were tempered by the negative impact of severe weather in the U.S. during the first quarter of 2014that resulted in a loss of productive work days.Our U.K. Same Store parts and service revenues increased 17.2%, to $79.1 million, for the year ended December 31, 2014 as compared to 2013, drivenprimarily by a 12.8% increase in customer-pay parts and service sales, a 27.9% increase in warranty revenues, a 19.5% increase in wholesale parts revenue,and a 21.5% increase in collision revenue. The increase in customer-pay parts and service sales was driven by management initiatives focused on increasingcapacity, while the increase in warranty revenue was primarily due to an increase in high volume recalls from BMW and Ford.Our Same Store parts and service revenues in Brazil decreased 1.6%, or $1.0 million, for the year ended December 31, 2014. This decline can be morethan explained by the exchange rate as Same Store parts and service revenues increased 5.2% on a local currency basis in 2014 as compared with last year.This increase in local currency Same Store revenue was largely driven by a 15.2% increase in collision revenue as a result of a strategic decision made in2014 to increase the size and capacity of one of our collision centers.Our total Same Store gross profit for the year ended December 31, 2014 increased 7.0% compared to 2013. Our total Same Store parts and service grossmargin increased 30 basis points for the year ended December 31, 2014, compared to 2013. The increase in gross margin was primarily due to improvedprofitability in our warranty and wholesale parts and service business units in U.S. and U.K., as well as a higher volume of internal work between the parts andservice departments of our dealerships and the new and used vehicle departments, which was generated by improved new and used retail vehicles salesvolumes.60Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Finance and Insurance Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Retail New and Used Unit Sales Same Stores U.S. 236,170 6.0% 222,855 209,540 4.0% 201,437U.K. 28,057 12.2% 25,000 23,898 4.8% 22,808Brazil 18,304 (8.4)% 19,978 17,982 (13.8)% 20,860Total Same Stores 282,531 5.5% 267,833 251,420 2.6% 245,105Transactions 16,236 8,936 25,349 9,574Total 298,767 7.9% 276,769 276,769 8.7% 254,679Retail Finance Fees Same Stores U.S. $117,253 10.2% $106,437 $100,265 5.7% $94,876U.K. 12,678 11.1% 11,415 11,082 36.8% 8,101Brazil 1,782 (26.6)% 2,427 2,203 (8.8)% 2,416Total Same Stores 131,713 9.5% 120,279 113,550 7.7% 105,393Transactions 9,621 3,674 10,403 3,811Total $141,334 14.0% $123,953 $123,953 13.5% $109,204Vehicle Service Contract Fees Same Stores U.S. $138,903 6.2% $130,771 $124,043 11.1% $111,628U.K. 613 73.7% 353 284 34.6% 211Brazil — —% — — —% —Total Same Stores 139,516 6.4% 131,124 124,327 11.2% 111,839Transactions 5,180 999 7,796 2,311Total $144,696 9.5% $132,123 $132,123 15.7% $114,150Insurance and Other Same Stores U.S. $103,283 11.1% $92,924 $87,866 18.8% $73,985U.K. 7,362 6.0% 6,945 6,713 17.8% 5,699Brazil 5,356 (33.7)% 8,084 7,465 20.5% 6,195Total Same Stores 116,001 7.5% 107,953 102,044 18.8% 85,879Transactions 6,755 2,536 8,445 2,129Total $122,756 11.1% $110,489 $110,489 25.5% $88,008Total Finance and Insurance Revenues Same Stores U.S. $359,439 8.9% $330,132 $312,174 11.3% $280,489U.K. 20,653 10.4% 18,713 18,079 29.0% 14,011Brazil 7,138 (32.1)% 10,511 9,668 12.3% 8,611Total Same Stores 387,230 7.8% 359,356 339,921 12.1% 303,111Transactions 21,556 7,209 26,644 8,251Total $408,786 11.5% $366,565 $366,565 17.7% $311,36261Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Finance and Insurance Revenues perUnit Sold Same Stores U.S. $1,522 2.8% $1,481 $1,490 7.0% $1,392U.K. $736 (1.7)% $749 $757 23.3% $614Brazil $390 (25.9)% $526 $538 30.3% $413Total Same Stores $1,371 2.2% $1,342 $1,352 9.3% $1,237Transactions $1,328 $807 $1,051 $862Total $1,368 3.3% $1,324 $1,324 8.3% $1,223Our efforts to improve our finance and insurance business processes, coupled with improved retail vehicle sales volumes, continued to generate growthin our finance and insurance revenues. Our total Same Store finance and insurance revenues increased by 7.8% to $387.2 million for the year ended December31, 2015, as compared to 2014, which was driven by growth in the U.S. and U.K. and partially offset by a decline in Brazil. Our U.S. Same Store finance andinsurance revenue increased $29.3 million, or 8.9%, due to a 6.0% increase in new and used vehicle retail unit sales volume, coupled with increases inincome per contract and penetration rates for most of our major U.S. product offerings. These increases more than offset an increase in our U.S. chargebackexpense. In addition, we generated a 10.4% increase in our U.K. Same Store finance and insurance revenues for the year ended December 31, 2015, primarilyreflecting a 12.2% increase in new and used vehicle retail unit sales volume and improved income per contract and penetration from vehicle service contractofferings. Our Same Store finance and insurance revenues PRU sold in the U.K. declined by 1.7%, as a result of the change in exchange rates between periods.On a local currency basis, our Same Store finance and insurance revenues PRU sold increased by 6.0% for the year ended December 31, 2015 as compared tolast year. Our Brazil Same Store finance and insurance revenue declined 32.1% for the year ended December 31, 2015 when compared to 2014, as a result of adecrease in retail unit sales of 8.4%, coupled with a decrease of 25.9% in finance and insurance revenues PRU sold. On a local currency basis, Brazil SameStore finance and insurance revenues PRU increased 4.9%. Our total Same Store finance and insurance revenues PRU improved 2.2% to $1,371, as comparedto the same period in 2014, more than explained by improvements in the U.S. of 2.8%.Our total Same Store finance and insurance revenues increased by 12.1% to $339.9 million for the year ended December 31, 2014, as compared to2013, driven by growth in our U.S. Same Store revenues of $31.7 million, or 11.3%. The improvement in the U.S. was primarily due to the 4.0% increase innew and used vehicle retail unit sales volume, coupled with increases in income per contract and penetration rates from most of our major product offerings,as well as a strategic decision to re-balance our lender portfolio. These increases more than offset an increase in our chargeback expense. We generated a29.0% increase in our U.K. Same Store finance and insurance revenues, reflecting improved income per contract from our finance and vehicle service contractofferings, new and used vehicle retail unit sales volume and finance penetration rates. Additionally, our Brazil Same Store finance and insurance revenuesincreased 12.3% to $9.7 million for the year ended December 31, 2014 when compared to 2013, despite the negative impact of foreign currency translationduring 2014. As a result, our total Same Store finance and insurance revenues PRU improved 9.3% to $1,352, as compared to 2013.62Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Selling, General and Administrative Data(dollars in thousands) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Personnel Same Stores U.S. $585,585 7.9% $542,512 $514,391 4.5% $492,195U.K. 53,159 0.4% 52,956 51,360 17.7% 43,638Brazil 27,460 (27.0)% 37,636 34,728 (10.7)% 38,872Total Same Stores 666,204 5.2% 633,104 600,479 4.5% 574,705Transactions 42,400 25,336 57,961 23,240Total $708,604 7.6% $658,440 $658,440 10.1% $597,945Advertising Same Stores U.S. $65,300 (0.8)% $65,805 $61,973 21.0% $51,231U.K. 3,701 (4.0)% 3,856 3,652 23.0% 2,969Brazil 1,395 (33.2)% 2,087 1,836 (14.6)% 2,150Total Same Stores 70,396 (1.9)% 71,748 67,461 19.7% 56,350Transactions 4,232 2,064 6,351 2,601Total $74,628 1.1% $73,812 $73,812 25.2% $58,951Rent and Facility Costs Same Stores U.S. $79,950 (3.4)% $82,796 $81,839 1.0% $81,022U.K. 8,249 (4.1)% 8,598 8,345 2.3% 8,161Brazil 10,873 (19.1)% 13,433 12,813 (4.0)% 13,346Total Same Stores 99,072 (5.5)% 104,827 102,997 0.5% 102,529Transactions 7,364 9,028 10,858 7,930Total $106,436 (6.5)% $113,855 $113,855 3.1% $110,459Other SG&A Same Stores U.S. $187,092 5.8% $176,838 $168,761 (3.3)% $174,535U.K. 23,658 1.7% 23,260 22,512 12.5% 20,011Brazil 11,735 (28.2)% 16,348 15,165 (3.8)% 15,767Total Same Stores 222,485 2.8% 216,446 206,438 (1.8)% 210,313Transactions 8,680 (589) 9,419 (812)Total $231,165 7.1% $215,857 $215,857 3.0% $209,501Total SG&A Same Stores U.S. $917,927 5.8% $867,951 $826,964 3.5% $798,983U.K. 88,767 0.1% 88,670 85,869 14.8% 74,779Brazil 51,463 (26.0)% 69,504 64,542 (8.0)% 70,135Total Same Stores 1,058,157 3.1% 1,026,125 977,375 3.5% 943,897Transactions 62,676 35,839 84,589 32,959Total $1,120,833 5.5% $1,061,964 $1,061,964 8.7% $976,85663Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Total Gross Profit Same Stores U.S. $1,269,691 5.0% $1,209,172 $1,143,619 6.4% $1,075,234U.K. 115,186 1.2% 113,765 110,673 18.8% 93,172Brazil 56,327 (29.5)% 79,876 71,913 (11.5)% 81,252Total Same Stores 1,441,204 2.7% 1,402,813 1,326,205 6.1% 1,249,658Transactions 92,768 45,125 121,733 42,888Total $1,533,972 5.9% $1,447,938 $1,447,938 12.0% $1,292,546SG&A as a % of Gross Profit Same Stores U.S. 72.3% 71.8% 72.3% 74.3%U.K. 77.1% 77.9% 77.6% 80.3%Brazil 91.4% 87.0% 89.7% 86.3%Total Same Stores 73.4% 73.1% 73.7% 75.5%Transactions 67.6% 79.4% 69.5% 76.8%Total 73.1% 73.3% 73.3% 75.6%Employees 12,900 12,000 12,000 11,500Our SG&A consists primarily of salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising, insurance,benefits, utilities and other fixed expenses. We believe that the majority of our personnel, all of our advertising and a portion of certain other expenses arevariable and can be adjusted in response to changing business conditions. We continue to aggressively pursue opportunities that take advantage of our sizeand negotiating leverage with our vendors and service providers in order to more effectively rationalize our cost structure.Our total Same Store SG&A increased $32.0 million, or 3.1%, for the year ended December 31, 2015, as compared to the same period in 2014, primarilythe result of a 5.8% and a 0.1% increase in the U.S. and U.K. Same Store SG&A, respectively, that was partially offset by a 26.0% decline in Brazil. Theincreases in the U.S. and U.K. are largely related to costs that fluctuate in relation to vehicle sales and general business activity. The decline in Brazil can beexplained by the change in exchange rates between periods, as total Same Store SG&A in Brazil increased 4.2% on a local currency basis. Our total SameStore personnel costs increased by 5.2% for the year ended December 31, 2015, as compared to the same period in 2014, primarily as a result of a 7.9% and0.4% increase in the U.S. and the U.K., respectively. These increases are explained by the general correlation of variable costs, including salespersoncommission payments, and vehicle sales. The increase in the U.S. is also partially explained by an increase in our employee healthcare costs. This increases inthe U.S. and U.K. was partially offset by a 27.0% decline in personnel costs in Brazil that can be explained by the change in exchange rate between periods,as Same Store personnel costs in Brazil increased 3.0% on a local currency basis as compared to last year.For the twelve months ended December 31, 2015, our consolidated Same Store advertising costs decreased 1.9%, to $70.4 million, driven by declines inall of our segments. Our U.S. Same Store advertising expense declined 0.8% primarily due to a reduction in our advertising expenditures as we better leverageour scale. The 4.0% decline in the U.K. Same Store advertising expense can be explained by the change in exchange rates between periods as, on a localcurrency basis, Same Store advertising costs increased 3.6%. The 33.2% decline in Brazil can be primarily explained by the change in exchange ratesbetween periods. On a local currency basis, Same Store advertising costs decreased 5.4% for the year ended December 31, 2015 as compared to prior year,reflecting actions we have taken in response to weaker overall economic conditions.Our consolidated Same Store rent and facility costs decreased 5.5% to $99.1 million for the twelve months ended December 31, 2015, as compared tothe same period a year ago, reflecting declines of 3.4%, 4.1%, and 19.1% in the U.S., U.K., and Brazil, respectively. The decline in the U.S. was predominatelydue to the continued execution of our strategy to add dealership related real estate to our investment portfolio. The decline in Same Store rent and facilitycosts in the U.K. and Brazil can be explained by the change in exchange rates between periods. On a local currency basis Same Store rent and facility costsincreased 3.4% and 13.3% in the U.K. and Brazil respectively for the year ended December 31, 2015 as compared to the same period in 2014.Our total Same Store other SG&A increased 2.8% to $222.5 million as compared to the same period in 2014, primarily driven by a 5.8% and 1.7%increase in the U.S. and U.K., respectively. These increases were partially offset by a 28.2% decrease in Brazil. The decline in our Brazil Same Store otherSG&A was primarily a result of the change of the exchange rate between periods. The increase in the U.S. and the U.K. was primarily driven by increases inother variable costs associated with higher retail sales volumes. Total Same Store other SG&A included $1.6 million in charges related to catastrophic events,a64Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.legal settlement of $1.0 million, a $0.8 million loss related to real estate and dealership transactions, and $0.2 million in severance costs for the twelvemonths ended December 31, 2015. On a comparable basis, total Same Store other SG&A for the year ended December 31, 2014 included a $2.8 millioncharge for a catastrophic event, $1.2 million loss related to real estate and dealership transactions, $0.4 million of expense related to a legal settlement, $0.3million in severance costs, $0.2 million related to acquisition costs and a $0.4 million charge related to a foreign transaction tax in Brazil.For the twelve months ended December 31, 2015, as compared to the same period in 2014, our total Same Store SG&A as a percentage of gross profitincreased 30 basis points from 73.1% to 73.4% primarily driven by a 50 and 440 basis point increase in our U.S. and Brazil segments, respectively. Theincrease in the U.S. was primarily a result of margin pressures on new and used retail vehicle sales described above, and the negative impact of such on thecorrelation to salesperson commission compensation. Offsetting these increases, our U.K. Same Store SG&A as a percentage of gross profit improved 80 basispoints to 77.1% as of December 31, 2015 compared to a year ago, primarily reflecting leverage of our cost structure realized with the improved revenue andgross profit.Our total Same Store personnel costs increased for the year ended December 31, 2014, primarily as a result of commission payments generallycorrelating with increased vehicle sales in the U.S. and U.K. These increases in personnel expense were partially offset by a decrease in the Brazil segmentdue to management’s actions to reduce headcount in response to a significant slowdown in the Brazilian economy and vehicle sales market.Our consolidated Same Store rent and facility costs increased 0.5%, to $103.0 million for the year ended December 31, 2014, primarily driven by a 1.0%increase in our U.S. segment as compared to a year ago. This increase was partially offset by changes in year over year foreign currency exchange rates forBrazil. This increase in the U.S. primarily reflected increases in building maintenance, utilities and real estate taxes, partially offset by a decline in buildingrent. The decline in rent primarily relates to our strategic decision to purchase dealership related real estate.For the year ended December 31, 2014, our total Same Store other SG&A decreased 1.8%, as compared to 2013, which primarily reflected a decrease of3.3% in U.S. Same Store other SG&A in 2014 as compared to 2013. The decline in the U.S. was partially due to a decline in business acquisition costs during2014. During 2013, the Company incurred $5.2 million in business acquisition costs primarily related with the acquisition of UAB motors. In addition,insurance deductible charges associated with vehicle inventory and building damages from certain catastrophic events decreased $9.4 million for the yearended December 31, 2014 as compared to the same period in 2013. These decreases in the U.S. in 2014 were partially offset by an increase of $1.0 million in2014 for net losses on real estate and dealership transactions.Our ongoing cost control efforts and the benefit of the impact of incremental charges in 2013 relative to catastrophic events and acquisition relatedcosts, partially offset by losses on the disposition of real estate and dealership transactions resulted in a 180 basis point improvement in our Same StoreSG&A as a percentage of gross profit for the year ended December 31, 2014 to 73.7% as compared to the same period in 2013.Depreciation and Amortization Data(dollars in thousands) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Same Stores U.S. $39,819 12.1% $35,536 $33,783 8.9% $31,015U.K. 3,176 (4.0)% 3,309 3,156 22.7% 2,573Brazil 1,678 (7.1)% 1,806 1,638 6.6% 1,537Total Same Stores 44,673 9.9%40,651 38,577 9.8% 35,125Transactions 2,566 1,693 3,767 701Total $47,239 11.6% $42,344 $42,344 18.2% $35,826Our total Same Store depreciation and amortization expense increased 9.9% and 9.8% for the years ended December 31, 2015 and 2014,respectively, as compared to the respective prior year period. We continue to strategically add dealership-related real estate to our portfolio and makeimprovements to our existing facilities that are designed to enhance the profitability of our dealerships and the overall customer experience. As a result ofsuch growth in our real estate and facilities investments, our Same Store depreciation and amortization expense has increased. We critically evaluate allplanned future capital spending, working closely with our OEM partners to maximize the return on our investments.65Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Impairment of AssetsWe perform an annual review of the fair value of our goodwill and indefinite-lived intangible assets during the fourth quarter. We also perform interimreviews for impairment when evidence exists that the carrying value of such assets may not be recoverable.During the fourth quarter of 2015, we performed our annual impairment assessment of the carrying value of our goodwill. The fair value of our two U.S.reporting units, as well as our U.K. reporting unit, exceeded the carrying value of its net assets (i.e., step one of the goodwill impairment test) by more than100% for the two U.S. reporting units and by more than 15% for the U.K. reporting unit. As a result, we were not required to conduct the second step of theimpairment test for goodwill relating to our two U.S. and U.K. reporting units. The Brazil reporting unit’s fair value did not exceed the carrying value of itsnet assets. As a result, we performed a step two analysis for this reporting unit, measuring the estimated fair value of the reporting unit’s assets and liabilitiesas of the test date and compared the resulting implied fair value of the reporting unit’s goodwill to its carrying value. As a result of the carrying value ofgoodwill exceeding the implied fair value, a $55.4 million impairment was recorded. We did not identify an impairment of our recorded goodwill in 2014 or2013.During 2015 and 2014, we determined that the carrying value of certain of our intangible franchise rights were greater than fair value. As a result, werecognized a $30.1 million and $31.0 million pre-tax non cash impairment charge, respectively. Also, in 2015 and 2014, we recognized $2.1 million and$10.5 million, respectively, in pre-tax non-cash asset impairment charges, associated with non-operating real estate holdings and other long-lived assets ofour existing dealership facilities. In 2013, we noted impairment indicators relative to intangible franchise rights and, as a result, we recognized $5.4 millionin pre-tax non-cash asset impairment charges. For long-lived assets, we review for impairment whenever there is evidence that the carrying amount of suchassets may not be recoverable. We noted evidence that certain long-lived assets associated with our existing dealership facilities had a carrying value whichmay not be realized. As a result, we recognized $1.1 million in pre-tax non-cash asset impairment charges in 2013.If in future periods, we determine that the carrying amount of our net assets exceeds the respective fair value as a result of step one of our goodwillimpairment test for any or all of its reporting units, the application of the second step of the impairment test could result in a material non-cash impairmentcharge to the goodwill associated with the reporting unit(s). If any of our assumptions change, or fail to materialize, the resulting decline in its estimated fairmarket value of intangible franchise rights could result in a material non-cash impairment charge. For example, if our assumptions regarding the risk-free rateand cost of debt differed such that the estimated WACC used in our 2015 assessment for the franchises acquired prior to the previous annual test increased by200 basis points, and all other assumptions remained constant, an additional $15.9 million of non-cash franchise rights impairment charges, would haveresulted. None of our reporting units would have failed the step one impairment test for goodwill in this scenario. Further, if we forecasted no new vehiclesales growth beyond 2017 in the 2015 impairment assessment for the franchises acquired prior to the previous annual test and all other assumptions remainedconstant, an additional $2.6 million of non-cash franchise rights impairment charges would have resulted. And, again, none of our reporting units would havefailed the step one impairment test for goodwill.Floorplan Interest Expense(dollars in thousands) For The Year Ended December 31, 2015 % Increase/(Decrease) 2014 2014 % Increase/(Decrease) 2013Same Stores U.S. $34,714 4.9% $33,102 $31,572 (3.6)% $32,760U.K. 1,544 (3.8)% 1,605 1,584 (0.3)% 1,589Brazil 965 (83.7)% 5,910 4,713 (24.0)% 6,205Total Same Stores 37,223 (8.4)% 40,617 37,869 (6.6)% 40,554Transactions 2,041 997 3,745 1,113Total $39,264 (5.6)% $41,614 $41,614 (0.1)% $41,667Memo: Manufacturer’s assistance $50,474 11.8% $45,145 $45,145 17.1% $38,543Our floorplan interest expense fluctuates with changes in borrowings outstanding and interest rates, which are based on one-month LIBOR (or Primerate in some cases) in the U.S. and U.K., plus a spread, and a benchmark rate plus a spread in Brazil. To mitigate the impact of U.S. interest rate fluctuations,we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure for a fixed interest rate over the term of the U.S. variable interestrate debt.66Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As of December 31, 2015, we had effective interest rate swaps with an aggregate notional amount of $581.7 million that fixed our underlying one-month LIBOR at a weighted average rate of 2.7%. The majority of the monthly settlements of these interest rate swap liabilities are recognized as floorplaninterest expense. From time to time, we utilize excess cash on hand to pay down our floorplan borrowings, and the resulting interest earned is recognized asan offset to our gross floorplan interest expense. Our total Same Store floorplan interest expense decreased 8.4% to $37.2 million for the year ended December31, 2015, as compared to the same period in 2014. The decline was primarily related to Brazil. Same Store floorplan interest expense in Brazil decreased $4.9million, or 83.7%, primarily due to improved floorplan and cash management. Our U.S. Same Store floorplan interest expense increased 4.9% to $34.7million for the year ended December 31, 2015, as compared to the same period in 2014. The increase in the U.S. Same Store floorplan interest is primarilyattributable to an increase in our weighted average floorplan borrowings outstanding of $18.6 million due to higher inventory levels in 2015. In the U.K.,Same Store floorplan interest expense decreased 3.8% for the year ended December 31, 2015. The decline in Same Store floorplan interest expense in the U.K.can be explained by the change in the exchange rate between periods, as on a local currency basis, Same Store floorplan expense increased 3.4%. Theincrease in the U.K. Same Store floorplan interest on a local currency basis is primarily attributable to an increase in our weighted average floorplanborrowings outstanding due to higher inventory levels in 2015.Our total Same Store floorplan interest expense decreased 6.6%, or $2.7 million, for the year ended December 31, 2014, as compared to 2013. Thisreduction was driven by a $1.5 million decline in floorplan interest expense in Brazil, primarily due to our decision to refinance a portion of our floorplanborrowings with a working capital line of credit that reduced the overall interest rate we are charged and redistributed the borrowings and associated interestcharges to our other long-term debt and interest expense categories. In addition, we experienced a decrease of Same Store floorplan interest expense in theU.S. of $1.2 million resulting from a decline in our floorplan borrowing rate of 25 basis points that was effective on June 20, 2013 with the amendment to ourRevolving Credit Facility. This decline in the U.S. was partially offset by a $51.6 million increase in Same Store weighted average floorplan borrowingsoutstanding for the twelve months ended December 31, 2014, as compared to the same period in 2013.Other Interest Expense, netOther interest expense, net consists of interest charges primarily on our real estate related debt, working capital lines of credit and our other long-termdebt, partially offset by interest income. For the twelve months ended December 31, 2015, other interest expense increased $7.2 million, or 14.5%, to $56.9million, as compared to the same period in 2014. The increase was primarily attributable to incremental interest incurred on our 5.00% Notes used to fund theextinguishment of our 2.25% Notes and 3.00% Notes during the second and third quarters of 2014 and for working capital needs. In addition, other netinterest expense increased for the year ended December 31, 2015, as compared to 2014, due to additional mortgage borrowings associated with recentdealership acquisitions and purchases of existing leased properties. Further contributing to the increase to other interest expense, net, for the twelve monthsended December 31, 2015 as compared to the prior year, was the interest related to our 5.25% Note offering that was executed in December 2015 to fund theoutstanding borrowings of the Company’s acquisition line of credit, to payoff certain mortgages, to contribute to the Company’s floorplan offset accountsand for general corporate purposes.For the twelve months ended December 31, 2014, other net interest expense increased $10.7 million, or 27.5%, to $49.7 million, as compared to thesame period in 2013. This increase was primarily attributable to incremental interest incurred on our 5.00% Notes offering that was executed to fund theextinguishment of our 2.25% Notes and 3.00% Notes, as well as an increase in interest relating to a working capital line of credit in Brazil that we enteredinto during 2014. The working capital line of credit in Brazil redistributed the borrowings and associated interest charge from our floorplan borrowings andinterest related categories. In addition, other net interest expense increased for 2014, as compared to 2013, due to additional mortgage borrowings associatedwith recent dealership acquisitions and purchases of existing leased properties, as well as an increase in weighted average borrowings on our AcquisitionLine to support dealership acquisitions.Included in other interest expense for the years ended December 31, 2014 and 2013 is non-cash, discount amortization expense of $7.2 million and$10.8 million, respectively. This non-cash discount amortization represents the impact of the accounting for our 2.25% Notes and 3.00% Notes as required byASC 470 for convertible debt. We used the proceeds from the 5.00% Notes offering to extinguish all of the outstanding principal of the 2.25% Notes and3.00% Notes as of September 30, 2014.67Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Provision for Income TaxesFor the year ended December 31, 2015, we recorded a tax provision of $88.2 million. The 2015 effective tax rate of 48.4% increased from the 2014effective tax rate of 43.4% primarily due to valuation allowances recorded in 2015 relative to deferred tax assets for goodwill and net operating losses ofcertain Brazil subsidiaries in excess of valuation allowances recognized in 2014. In addition, the 2015 effective tax rate increased over the 2014 rate due tothe impairment of non-deductible goodwill in 2015. Included in the 2014 effective tax rate was the impact of a portion of the U.S. GAAP loss on the 2014extinguishment of the 2.25% Notes and the 3.00% Notes that was not deductible for tax purposes.For the year ended December 31, 2014, we recorded a tax provision of $71.4 million. The 2014 effective tax rate of 43.4% increased from the 2013effective tax rate of 40.6% primarily due to a portion of the U.S. GAAP loss on the 2014 extinguishment of the 2.25% Notes and the 3.00% Notes that was notdeductible for tax purposes and valuation allowances recorded in 2014 relative to net operating losses of certain Brazil subsidiaries in excess of valuationallowances recognized in 2013. The impact of these items on the 2014 effective tax rate was partially offset by the net deferred tax benefit for tax deductiblegoodwill in Brazil, resulting from a restructuring during 2014.We believe that it is more likely than not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on theassumption of future taxable income. We expect our effective tax rate in 2016 will be approximately 38.0%.As of December 31, 2015, we had net deferred tax liabilities totaling $135.4 million relating to the differences between the financial reporting and taxbasis of assets and liabilities, some of which are expected to reverse in the future. This includes $143.5 million of deferred tax liabilities relating tointangibles for goodwill and franchise rights that are deductible for tax purposes and will not reverse until the related intangibles are disposed. In addition, asof December 31, 2015, we had $53.7 million of deferred tax assets relating to loss reserves and accruals, and $46.5 million of valuation allowances ondeferred tax assets. Refer to Note 7 to our Consolidated Financial Statements for more details.Liquidity and Capital ResourcesOur liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of Floorplan Line and FMCCfacility levels, cash from operations, borrowings under our credit facilities, which provide vehicle floorplan financing, working capital and dealership andreal estate acquisition financing, and proceeds from debt and equity offerings. Based on current facts and circumstances, we believe we will have adequatecash flow, coupled with available borrowing capacity, to fund our current operations, capital expenditures and acquisitions for 2016. If economic andbusiness conditions deteriorate or if our capital expenditures or acquisition plans for 2016 change, we may need to access the private or public capitalmarkets to obtain additional funding.Cash on Hand. As of December 31, 2015, our total cash on hand was $13.0 million. The balance of cash on hand excludes $136.3 million ofimmediately available funds used to pay down our Floorplan Line and FMCC Facility as of December 31, 2015. We use the pay down of our Floorplan Lineand FMCC Facility as a channel for the short-term investment of excess cash.Cash Flows. With respect to all new vehicle floorplan borrowings in the normal course of business, the manufacturers of the vehicles draft our creditfacilities directly with no cash flow to or from us. With respect to borrowings for used vehicle financing, we finance up to 80% of the value of our usedvehicle inventory in the U.S., and the funds flow directly to us from the lender. All borrowings from, and repayments to, lenders affiliated with our vehiclemanufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) are presented within CashFlows from Operating Activities on the Consolidated Statements of Cash Flows in conformity with U.S. GAAP. All borrowings from, and repayments to, theRevolving Credit Facility (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in Brazilunaffiliated with our manufacturer partners, are presented within Cash Flows from Financing Activities in conformity with U.S. GAAP. However, theincurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale, resulting in a trade payable. Our decision to utilizeour Revolving Credit Facility does not substantially alter the process by which our vehicle inventory is financed, nor does it significantly impact theeconomics of our vehicle procurement activities. Therefore, we believe that all floorplan financing of inventory purchases in the normal course of businessshould correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cashprovided by operating activities” to evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flowsprepared in accordance with U.S. GAAP and avoids the potential to mislead the users of our financial statements.In addition, because the majority of our dealership acquisitions and dispositions are negotiated as asset purchases, we do not assume transfer ofliabilities for floorplan financing in the execution of the transactions. Therefore, borrowings and repayments of all floorplan financing associated withdealership acquisition and disposition are characterized as either operating or financing activities in our statement of cash flows presented in conformity withU.S. GAAP, depending on the relationship described above. However, the floorplan financing activity is so closely related to the inventory acquisitionprocess that we68Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.believe the presentation of all acquisition and disposition related floorplan financing activities should be classified as investing activity to correspond withthe associated inventory activity, and we have made such adjustments in our adjusted operating cash flow presentations.The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows on an adjusted,non-GAAP basis. For further explanation and reconciliation to the most directly comparable measures see “Non-GAAP Financial Measures” below. For the Year Ended December 31, 2015 2014 2013 (In thousands) Adjusted net cash provided by operating activities $244,349 $207,139 $202,823Adjusted net cash used in investing activities (266,791) (315,432) (249,516)Adjusted net cash provided by (used in) financing activities (4) 131,180 66,404Effect of exchange rate changes on cash (5,492) (2,127) (4,146)Net increase (decrease) in cash and cash equivalents $(27,938) $20,760 $15,565Sources and Uses of Liquidity from Operating ActivitiesFor the twelve months ended December 31, 2015, we generated $141.0 million of net cash flow from operating activities. On an adjusted basis, wegenerated $244.3 million in net cash flow from operating activities, primarily consisting of $94.0 million in net income, as well as non-cash adjustmentsrelated to asset impairment of $87.6 million, depreciation and amortization of $47.2 million, deferred income taxes of $11.9 million, amortization of debtdiscounts and debt issue costs of $3.7 million, and stock-based compensation of $18.9 million. These cash inflows were partially offset by a $10.3 millionnegative net change in operating assets and liabilities and $9.7 million of net gains from the disposition of assets. Included in the adjusted net changes ofoperating assets and liabilities were cash inflows of $25.1 million from increases in accounts payable and accrued expenses and $190.8 million from the netincrease in floorplan borrowings. These cash inflows were more than offset by adjusted cash outflows of $17.9 million from increases of vehicle receivablesand contracts-in-transit, $3.2 million from the net increase in prepaid expenses and other assets, $186.6 million from increases in inventory levels, and $17.9million from the net increase in accounts and notes receivable.For the twelve months ended December 31, 2014, we generated $198.3 million of net cash flow from operating activities. On an adjusted basis, wegenerated $207.1 million in net cash flow from operating activities, primarily consisting of $93.0 million in net income and non-operating cash flowadjustments for a loss on the extinguishment of our 3.00% Notes of $29.5 million and a loss on the extinguishment of our 2.25% Notes of $16.9 million, aswell as non-cash adjustments related to depreciation and amortization of $42.3 million, deferred income taxes of $12.3 million, amortization of debtdiscounts and debt issue costs of $10.6 million, asset impairment of $41.5 million, and stock-based compensation of $16.0 million. The cash inflows werepartially offset by a $41.9 million negative net change in operating assets and liabilities. Included in the adjusted net changes of operating assets andliabilities were cash inflows of $37.3 million from increases in accounts payable and accrued expenses and $27.3 million from decreases in inventory levels.These cash inflows were more than offset by adjusted cash outflows of $10.5 million from increases of vehicle receivables and contracts-in-transit, $5.4million from the net increase in prepaid expenses and other assets, $70.0 million from the net decrease in floorplan borrowings, and $20.2 million from thenet increase in accounts and notes receivable. The adjusted net cash flow from operating activities excludes $16.0 million of net gains from the disposition ofassets.For the year ended December 31, 2013, we generated $52.4 million in net cash flow from operating activities. On an adjusted basis, we generated $202.8million in net cash flow from operating activities, primarily consisting of $114.0 million in net income, as well as non-cash adjustments related todepreciation and amortization of $35.8 million, deferred income taxes of $22.4 million, amortization of debt discounts and debt issue costs of $13.9 million,stock-based compensation of $13.9 million and asset impairments of $6.5 million. The adjusted net cash flow from operating activities also included a $6.6million adjusted positive net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash outflows of$241.9 million from increases in inventory, $19.0 million from increases of vehicle receivables and contracts-in-transit and $9.5 million from an increase inaccounts and notes receivables, which were more than offset by cash inflows of $233.7 million from the adjusted net increase in floorplan borrowings, $41.1million provided by increases in accounts payable and accrued expenses, and $1.9 million from a decrease in prepaid expenses and other assets. The adjustednet cash flow from operating activities excludes $11.0 million of net gains from the disposition of assets.Working Capital. At December 31, 2015, we had $163.5 million of working capital. Changes in our working capital are explained primarily by changesin floorplan notes payable outstanding. Borrowings on our new vehicle floorplan notes payable, subject to agreed upon pay-off terms, are equal to 100% ofthe factory invoice of the vehicles. Borrowings on our used vehicle69Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.floorplan notes payable, subject to agreed upon pay-off terms, are limited to 80% of the aggregate book value of our used vehicle inventory, except in theU.K. and Brazil. At times, we have made payments on our floorplan notes payable using excess cash flow from operations and the proceeds of debt and equityofferings. As needed, we re-borrow the amounts later, up to the limits on the floorplan notes payable discussed above, for working capital, acquisitions,capital expenditures or general corporate purposes.Sources and Uses of Liquidity from Investing ActivitiesDuring the twelve months ended December 31, 2015, we used $284.5 million in net cash flow for investing activities. On an adjusted basis, we used$266.8 million in net cash flow for investing activities. We used $180.1 million of adjusted cash flows for the acquisition of three dealerships in the U.S.,including associated real estate where applicable. We also used $120.3 million during the twelve months of 2015 for purchases of property and equipmentand to construct new and improve existing facilities, consisting of $107.2 million for capital expenditures, and $24.6 million for the purchase of real estateassociated with existing dealership operations, offset by a $11.6 million net increase in the accrual for capital expenditures from year-end. These cashoutflows were partially offset by cash inflows of $27.2 million related to dispositions of franchises and fixed assets.During 2014, we used $347.1 million in net cash flow for investing activities. On an adjusted basis, we used $315.4 million in net cash flow forinvesting activities, consisting primarily of $244.4 million of adjusted cash flows related to acquisitions. We also used $150.4 million during 2014 primarilyfor purchases of property and equipment to construct new and improve existing facilities, consisting of $97.7 million for capital expenditures, $2.9 million ofwhich relates to facilities that were subsequently disposed during 2014, and $62.7 million for the purchase of real estate associated with existing dealershipoperations, offset by a $10.0 million net increase in the accrual for capital expenditures from year-end. We also used $4.7 million for escrow deposits onpending dealership and real estate acquisitions. These cash outflows were partially offset by $84.1 million in adjusted proceeds from the sale of franchises,property and equipment during 2014.During 2013, we used $268.7 million in net cash flow for investing activities. On an adjusted basis, we used $249.5 million in net cash flow forinvesting activities, consisting primarily of $205.3 million of adjusted cash flows related to acquisitions. We also used $102.9 million during 2013 primarilyfor purchases of property and equipment to construct new and improve existing facilities, consisting of $38.8 million for real estate to be used for existingdealership operations and $69.2 million for capital expenditures. These cash outflows were partially offset by $56.8 million in adjusted proceeds from thesale of franchises, property and equipment during 2013.Capital Expenditures. Our capital expenditures include costs to extend the useful lives of current facilities, as well as to start or expand operations. Ingeneral, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises beinggranted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities, or manufacturer imaging programs. We criticallyevaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments. We forecast ourcapital expenditures for 2016 to be no more than $150 million excluding expenditures related to future acquisitions, which could generally be funded fromexcess cash.Acquisitions & Dispositions. In 2015, we acquired three dealerships, representing five franchises, with expected annual revenues, estimated at the timeof acquisition, of $340.0 million. In 2014, we acquired 19 franchises with expected annual revenues, estimated at the time of acquisition, of $910.0 million.In 2013, we acquired 38 franchises with expected annual revenues, estimated at the time of acquisition, of $1,317.0 million. We generally purchasebusinesses based on expected return on investment. Cash needed to complete our acquisitions generally comes from excess working capital, operating cashflows of our dealerships, and borrowings under our floorplan facilities, Real Estate Credit Facility, term loans and our Acquisition Line.In 2015, we sold two U.S. dealerships and terminated one U.S. dealership franchise. We also terminated two franchises in Brazil. These dispositionsgenerated annual revenues of approximately $115.0 million. During 2014, we disposed of seven dealerships and one franchise in the U.S. and threedealerships in Brazil with annual revenues of approximately $450.0 million. In 2013, we disposed of six dealerships and one franchise with annual revenuesof approximately $318.9 million.Sources and Uses of Liquidity from Financing ActivitiesFor the twelve months ended December 31, 2015, we generated $121.0 million in net cash flow from financing activities. On an adjusted basis, cashoutflows from financing activities were essentially offset by cash inflows. Total cash outflows of $330.6 million of gross cash flow consisted of $68.1 millionof net payments on our Acquisition Line, $65.6 million in adjusted net payments on our Floorplan Line, $72.1 million for principal payments of long-termdebt related to real estate loans, $97.5 million to repurchase 1,176,908 shares of our Company’s common stock, $6.6 million of net payments of other debt,and $19.9 million for dividend payments. Offsetting these cash outflows were $330.6 million of cash inflows, primarily related to $296.3 million of 5.25%Notes borrowings and $32.0 million from borrowings of long-term debt related to real estate loans.70Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.During 2014, we generated $171.7 million in net cash flow from financing activities. On an adjusted basis, we generated $131.2 million in net cash flowfrom financing activities, primarily related to $539.6 million of 5.00% Notes borrowings, $112.0 million from borrowings of long-term debt related to realestate loans, $32.7 million from proceeds of the call and warrant unwind related to the 3.00% Notes, $9.7 million of net borrowings on our Acquisition Line,and $5.2 million of net borrowings of other debt mainly consisting of working capital loans in Brazil. These cash inflows were partially offset by $260.1million used for the repurchase of our 3.00% Notes, $182.8 million used for the conversion and redemption of our 2.25% Notes, $11.2 million in adjusted netpayments on our Floorplan Line, $60.0 million for principal payments of long-term debt related to real estate loans, $36.8 million to repurchase 537,054shares of our Company’s common stock, and $17.1 million for dividend payments.During 2013, we generated $236.0 million in net cash flow from financing activities. On an adjusted basis, we generated $66.4 million in net cash flowfrom financing activities, primarily related to borrowings of $85.3 million of real estate and other debt, $60.0 million cash inflow related to borrowings on theAcquisition Line, and $56.1 million from an increase in our floorplan offset account. These cash inflows were partially offset by cash outflows of $3.6million used to repurchase 55,655 shares of our common stock, $15.8 million used for dividend payments, and $116.7 million used for principal payments ofreal estate and other debt.Credit Facilities, Debt Instruments and Other Financing Arrangements. Our various credit facilities, debt instruments and other financing arrangementsare used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.Revolving Credit Facility. Our Revolving Credit Facility provides a total borrowing capacity of $1.7 billion and expires on June 20, 2018. TheRevolving Credit Facility, which is comprised of 24 financial institutions, including six manufacturer-affiliated finance companies, consists of two tranches,providing a maximum of $1.6 billion for U.S. vehicle inventory floorplan financing, as well as a maximum of $320.0 million and a minimum of $100.0million for working capital and general corporate purposes, including acquisitions. The capacity under these two tranches can be re-designated within theoverall $1.7 billion commitment, subject to the aforementioned limits. Up to $125.0 million of the Acquisition Line can be borrowed in either euros orBritish pound sterling. The Revolving Credit Facility can be expanded to a maximum commitment of $1.95 billion, subject to participating lender approval.The Floorplan Line bears interest at rates equal to the LIBOR plus 125 basis points for new vehicle inventory and the LIBOR plus 150 basis points for usedvehicle inventory. The Acquisition Line bears interest at the LIBOR plus 150 basis points plus a margin that ranges from zero to 100 basis points forborrowings in U.S. dollars and LIBOR equivalent plus 150 to 250 basis points on borrowings in euros or British pound sterling, depending on our totaladjusted leverage ratio. The Floorplan Line requires a commitment fee of 0.20% per annum on the unused portion. The Acquisition Line also requires acommitment fee ranging from 0.25% to 0.45% per annum, depending on our total adjusted leverage ratio, based on a minimum commitment of $100.0million less outstanding borrowings.After considering the outstanding balance of $1,150.8 million at December 31, 2015, we had $229.2 million of available floorplan borrowing capacityunder the Floorplan Line. Included in the $229.2 million available borrowings under the Floorplan Line was $110.8 million of immediately available funds.The weighted average interest rate on the Floorplan Line was 1.7% and 1.4% as of December 31, 2015 and 2014, respectively, excluding the impact of ourinterest rate swaps. With regards to the Acquisition Line, there were no borrowings outstanding as of December 31, 2015. Borrowings outstanding as ofDecember 31, 2014 were $69.7 million. After considering $41.9 million and $43.2 million of outstanding letters of credit and other factors included in ouravailable borrowing base calculation, there was $278.2 million and $207.1 million of available borrowing capacity under the Acquisition Line as ofDecember 31, 2015 and 2014, respectively. The amount of available borrowing capacity under the Acquisition Line is limited from time to time based uponcertain debt covenants.All of our U.S. dealership-owning subsidiaries are co-borrowers under the Revolving Credit Facility. Our obligations under the Revolving CreditFacility are secured by essentially all of our U.S. personal property (other than equity interests in dealership-owning subsidiaries), including all motor vehicleinventory and proceeds from the disposition of dealership-owning subsidiaries, excluding inventory financed directly with manufacturer-affiliates and otherthird party financing institutions. The Revolving Credit Facility contains a number of significant covenants that, among other things, restrict our ability tomake disbursements outside of the ordinary course of business, dispose of assets, incur additional indebtedness, create liens on assets, make investments andengage in mergers or consolidations. We are also required to comply with specified financial tests and ratios defined in the Revolving Credit Facility, such asthe fixed charge coverage, total adjusted leverage, and senior secured adjusted leverage ratios. Further, the Revolving Credit Facility restricts our ability tomake certain payments, such as dividends or other distributions of assets, properties, cash, rights, obligations or securities (“Restricted Payments”). TheRestricted Payments cannot exceed the sum of $125.0 million plus (or minus if negative) (a) one-half of the aggregate consolidated net income for the periodbeginning on January 1, 2013 and ending on the date of determination and (b) the amount of net cash proceeds received from the sale of capital stock on orafter January 1, 2013 and ending on the date of determination less (c) the Restricted Payment Basket. For purposes of the calculation of the RestrictedPayment Basket, net income represents such amounts per our consolidated financial statements, adjusted to exclude our foreign operations, non-cash interestexpense, non-71Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.cash asset impairment charges, and non-cash stock-based compensation. As of December 31, 2015, the Restricted Payment Basket totaled $144.7 million. Asof December 31, 2015, we were in compliance with all our financial covenants, including: As of December 31, 2015 RequiredActualSenior Secured Adjusted Leverage Ratio< 3.751.67Total Adjusted Leverage Ratio< 5.503.78Fixed Charge Coverage Ratio> 1.352.03Based upon our current five year operating and financial projections, we believe that we will remain compliant with such covenants in the future.Ford Motor Credit Company Facility. Our FMCC Facility provides for the financing of, and is collateralized by, our U.S. Ford new vehicle inventory,including affiliated brands. This arrangement provides for $300.0 million of floorplan financing and is an evergreen arrangement that may be canceled with30 days’ notice by either party. As of December 31, 2015, we had an outstanding balance of $171.3 million under the FMCC Facility with an availablefloorplan borrowing capacity of $128.7 million. Included in the $128.7 million available borrowings under the FMCC Facility was $25.5 million ofimmediately available funds. This facility bears interest at a rate of Prime plus 150 basis points minus certain incentives. The interest rate on the FMCCFacility was 4.75% before considering the applicable incentives, as of December 31, 2015 and 2014.The following table summarizes the position of our U.S. credit facilities as of December 31, 2015: As of December 31, 2015U.S. Credit Facilities TotalCommitment Outstanding Available (In thousands)Floorplan Line(1) $1,380,000 $1,150,847 $229,153Acquisition Line(2) 320,000 41,850 278,150Total Revolving Credit Facility 1,700,000 1,192,697 507,303FMCC Facility(3) 300,000 171,307 128,693Total U.S. Credit Facilities(4) $2,000,000 $1,364,004 $635,996(1)The available balance as of December 31, 2015 includes $110.8 million of immediately available funds.(2)The outstanding balance of $41.9 million is related to outstanding letters of credit.(3)The available balance as of December 31, 2015 includes $25.5 million of immediately available funds.(4)The outstanding balance excludes $196.4 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and rental vehicle financing notassociated with any of our U.S. credit facilities.Other Inventory Credit Facilities. We have credit facilities with BMW Financial Services, Volkswagen Finance and FMCC for the financing of new,used and rental vehicle inventories related to our U.K. operations. These facilities are denominated in British pound sterling and are evergreen arrangementsthat may be canceled with notice by either party and bear interest at a base rate, plus a surcharge that varies based upon the type of vehicle being financed.The annual interest rates charged on borrowings outstanding under these facilities ranged from 1.15% to 3.95%, as of December 31, 2015.We have credit facilities with financial institutions in Brazil, most of which are affiliated with the manufacturers, for the financing of new, used andrental vehicle inventories related to our Brazil operations. These facilities are denominated in Brazilian real and have renewal terms ranging from one monthto twelve months. They may be canceled with notice by either party and bear interest at a benchmark rate, plus a surcharge that varies based upon the type ofvehicle being financed. As of December 31, 2015, the annual interest rates charged on borrowings outstanding under these facilities ranged from 16.77% to25.19%.Other Inventory Financing Arrangements. Excluding rental vehicles financed through the Revolving Credit Facility, financing for U.S. rental vehiclesis typically obtained directly from the automobile manufacturers. These financing arrangements generally require small monthly payments and mature invarying amounts over a period of two years. As of December 31, 2015, the interest rate charged on borrowings related to our rental vehicle fleet varied up to5.00%. Rental vehicles are typically transferred to used vehicle inventory when they are removed from service and repayment of the borrowing is required atthat time.For a more detailed discussion of our credit facilities existing as of December 31, 2015, please see Note 11 to our Consolidated Financial Statements,“Credit Facilities.”5.00% Senior Notes. On June 2, 2014, we issued $350.0 million aggregate principal amount of our 5.00% Notes. Subsequently, on September 9, 2014,we issued an additional $200.0 million of 5.00% Notes at a discount of 1.5% from face value. The 5.00% Notes will mature on June 1, 2022 and pay interestsemiannually, in arrears, in cash on each June 1 and December 1, beginning December 1, 2014. Using proceeds of certain equity offerings, we may redeem upto 35.0% of the 5.00% Notes prior to June 1, 2017, subject to certain conditions, at a redemption price equal to 105% of principal amount of the 5.00% Notesplus accrued and unpaid interest. Otherwise, we may redeem some or all of the 5.00% Notes prior to June 1, 2017 at a redemption price equal to 100% of theprincipal amount of the 5.00% Notes redeemed, plus an applicable premium, and plus accrued and unpaid interest. On or after June 1, 2017, we may redeemsome or all of the 5.00% Notes at specified prices, plus accrued and unpaid interest. We may be required to purchase the 5.00% Notes if we sell certain assetsor trigger the change in control provisions defined in the 5.00% Notes indenture. The 5.00% Notes are senior unsecured obligations and rank equal in right ofpayment to all of our existing and future senior unsecured debt and senior in right of payment to all of our future subordinated debt.The 5.00% Notes are guaranteed by substantially all of our U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to allof our U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, the 5.00% Notes are structurally subordinated to the liabilities of ournon-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restricted payment basketunder the terms of the 5.00% Notes is less restrictive than the Restricted Payment Basket.In connection with the issuance of the 5.00% Notes, we entered into registration rights agreements (the “Registration Rights Agreements”) with theinitial purchasers. Pursuant to the Registration Rights Agreements, we agreed to file a registration statement with the Securities and Exchange Commission sothat holders of the 5.00% Notes could exchange the 5.00% Notes for registered 5.00% Notes that have substantially identical terms as the 5.00% Notes. Wealso agreed to use commercially reasonable efforts to cause the exchange to be completed by June 2, 2015, or be required to pay additional interest. In JuneSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2015, we completed the exchange.Underwriters’ fees and the discount relative to the $550.0 million totaled $10.4 million, which were recorded as a reduction of the 5.00% Notesprincipal balance and are being amortized over a period of eight years. The 5.00% Notes are presented net of unamortized underwriter fees and discountof $8.7 million as of December 31, 2015. In connection with the issuance of the 5.00% Notes, we capitalized $2.6 million of debt issuance costs, which areincluded in Other Assets on the accompanying Consolidated Balance Sheets and amortized over a period of eight years. Unamortized debt issuance costs asof December 31, 2015 totaled $2.0 million.5.25% Senior Notes. On December 8, 2015, we issued $300 million aggregate principal amount of our 5.25% Notes due to mature on December 15,2023 in a private placement exempt from the registration requirements of the SEC. The 5.25% Notes and the related guarantees have not been, and will notbe, registered under the Securities Act or the securities laws of any other jurisdiction. The 5.25% Notes pay interest semiannually, in arrears, in cash on eachJune 15 and December 15, beginning June 15, 2016. Using proceeds of certain equity offerings, the Company may redeem up to 35.0% of the 5.25% Notesprior to December 15, 2018, subject to certain conditions, at a redemption price equal to 105.25% of principal amount of the 5.25% Notes plus accrued andunpaid interest. Otherwise, the Company may redeem some or all of the 5.25% Notes prior to December 15, 2018 at a redemption price equal to 100% of theprincipal amount of the 5.25% Notes redeemed, plus an applicable make-whole premium, plus accrued and unpaid interest. On or after December 15, 2018,the Company may redeem some or all of the 5.25% Notes at specified prices, plus accrued and unpaid interest. We may be required to purchasethe 5.25% Notes if we sell certain assets or trigger the change in control provisions defined in the 5.25% Notes indenture. The 5.25% Notes are seniorunsecured obligations and rank equal in right of payment to all of our existing and future senior unsecured debt and senior in right of payment to all of ourfuture subordinated debt.The 5.25% Notes are guaranteed by substantially all of our U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to allof our U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, the 5.25% Notes are structurally subordinated to the liabilities of ournon-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restricted payment basketunder the terms of the 5.25% Notes is less restrictive than the Restricted Payment Basket.72Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Underwriters' fees totaled $3.8 million, which were recorded as a reduction of the 5.25% Notes principal balance and are being amortized over a periodof eight years. The 5.25% Notes are presented net of unamortized underwriter fees of $3.7 million as of December 31, 2015. At the time of issuance ofthe 5.25% Notes, the Company capitalized $1.1 million of debt issuance costs, which are included in Other Assets on the accompanying ConsolidatedBalance Sheets and amortized over a period of eight years. Unamortized debt issuance costs as of December 31, 2015 totaled $1.1 million.Real Estate Credit Facility. Group 1 Realty, Inc., our wholly-owned subsidiary, is party to a real estate credit facility with Bank of America, N.A. andComerica Bank providing the right for term loans to finance real estate purchases. As of December 31, 2015, $25.0 million of term loan borrowings remainedavailable. The term loans can be expanded provided that (a) no default or event of default exists under the Real Estate Credit Facility; (b) we obtaincommitments from the lenders who would qualify as assignees for such increased amounts; and (c) certain other agreed upon terms and conditions have beensatisfied. The Real Estate Credit Facility is guaranteed by us and substantially all of our existing and future domestic subsidiaries and is secured by therelevant real property owned by us that is mortgaged under the Real Estate Credit Facility.The interest rate on the Real Estate Credit Facility is equal to (a) the per annum rate equal to one-month LIBOR plus 2.00% per annum, determined onthe first day of each month; or (b) 0.95% per annum in excess of the higher of (i) the Bank of America prime rate (adjusted daily on the day specified in thepublic announcement of such price rate), (ii) the Federal Funds Rate adjusted daily, plus 0.50% or (iii) the per annum rate equal to the one-month LIBOR plus1.05% per annum. The Federal Funds Rate is the weighted average of the rates on overnight Federal funds transactions with members of the Federal ReserveSystem arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business day succeeding such day.We are required to make quarterly principal payments equal to 1.25% of the principal amount outstanding and are required to repay the aggregateamount outstanding on the maturity dates of the individual borrowings ranging from March 31, 2016 through December 8, 2018. During the year endedDecember 31, 2015, we made no additional borrowings and made principal payments of $3.3 million on outstanding borrowings from the Real Estate CreditFacility. As of December 31, 2015, borrowings outstanding under the Real Estate Credit Facility totaled $54.7 million, with $29.1 million recorded as acurrent maturity of long-term debt in the accompanying Consolidated Balance Sheets.The Real Estate Credit Facility also contains usual and customary provisions limiting our ability to engage in certain transactions, includinglimitations on our ability to incur additional debt, additional liens, make investments, and pay distributions to our stockholders. In addition, the Real EstateCredit Facility requires certain financial covenants that are identical to those contained in our Revolving Credit Facility.Other Real Estate Related and Long-Term Debt. We have entered into separate term mortgage loans in the U.S. with four of our manufacturer-affiliatedfinance partners, Toyota Motor Credit Corporation, Mercedes-Benz Financial Services USA, LLC, BMW Financial Services NA, LLC, and FMCC, as well asseveral third party financial institutions (collectively, “Real Estate Notes”). The Real Estate Notes may be expanded for borrowings related to specificbuildings and/or properties and are guaranteed by us. Each loan was made in connection with, and is secured by mortgage liens, on the real property ownedby us that is mortgaged under the Real Estate Notes. The Real Estate Notes bear interest at fixed rates between 3.00% and 4.69%, and at variable indexedrates plus a spread between 1.50% and 2.55% per annum. As of December 31, 2015, the aggregate outstanding balance under these Real Estate Notes was$241.8 million, with $13.7 million classified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets.Additionally, we have entered into separate term mortgage loans in the U.K. with other third-party financial institutions which are secured by our U.K.properties. These mortgage loans (collectively, “U.K. Notes”) are being repaid in monthly installments that will mature by September 2034. As ofDecember 31, 2015, borrowings under the U.K. Notes totaled $57.1 million, with $4.5 million classified as a current maturity of long-term debt in theaccompanying Consolidated Balance Sheets.We have also entered into a separate term mortgage loan in Brazil with a third-party financial institution to finance the purchase and construction ofdealership properties (the “Brazil Note”). The Brazil Note is secured by the Company’s Brazilian properties as purchased and/or constructed, as well as aguarantee from the Company. The Brazil Note will be repaid in monthly installments that will mature by April 2025. As of December 31, 2015, borrowingsunder the Brazil Note totaled $3.8 million, with $0.4 million classified as a current maturity of long-term debt in the accompanying Consolidated BalanceSheets.We also have working capital loan agreements with third-party financial institutions in Brazil that will mature by February 2017. As of December 31,2015, borrowings under the Brazilian third-party loans totaled $5.6 million classified as long-term debt in the accompanying Consolidated Balance Sheets.Stock Repurchases. From time to time, our Board of Directors gives authorization to repurchase shares of our common stock, subject to the restrictionsof various debt agreements and our judgment. The Company issues new shares or treasury shares, if available, when restricted stock vests. With respect toshares issued under the Purchase Plan, the Company’s Board of Directors has authorized specific share repurchases to fund the shares issuable under thePurchase Plan.In November 2015, our Board of Directors authorized a new purchase program of up to $100.0 million of our common shares, replacing any amountremaining from the November 2014 authorization. During 2015, we repurchased 1,176,908 shares at an average stock price of $82.82 per share, for a total of$97.5 million, leaving $78.2 million available for future repurchases. In February 2016, the Board of Directors approved a new authorization of $150.0million, replacing the authorization remaining at that time. In 2014, we repurchased 537,054 shares at an average price of $68.51 per share for a total cost of$36.8 million. During 2013, we repurchased 55,655 shares at an average price of $63.82 per share for a total of $3.6 million. Future repurchases are subject tothe discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capital requirements, existing debtcovenants, outlook for our business, general business conditions and other factors.Dividends. The payment of dividends is subject to the discretion of our Board of Directors after considering the results of operations, financialcondition, cash flows, capital requirements, outlook for our business, general business conditions, the political and legislative environments and otherfactors.Further, we are limited under the terms of the Revolving Credit Facility, Real Estate Credit Facility, 5.00% Senior Notes and 5.25% Senior Notes in ourability to make cash dividend payments to our stockholders and to repurchase shares of our outstanding common stock, based primarily on our quarterly netincome or loss. As of December 31, 2015, the most stringent of the restricted payment baskets was under our Revolving Credit Facility and Real Estate CreditFacility (the “Restricted Payment Basket”), limiting us to $144.7 million in restricted payments. The Restricted Payment Basket will increase in the futureperiods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash assetimpairment charges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount offuture payments for cash dividends and share repurchases.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.73Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Contractual ObligationsThe following is a summary of our contractual obligations as of December 31, 2015: Payments Due by PeriodContractual Obligations Total < 1 Year 1-3 Years 3-5 Years Thereafter (In thousands) Floorplan notes payable $1,518,531 $1,518,531 $— $— $—Estimated interest payments on floor plan notespayable (1) 17,296 9,296 6,400 1,600 —Long-term debt obligations (2) 1,248,521 93,240 99,830 104,129 951,322Estimated interest payments on fixed-rate long-term debt obligations (3) 320,849 47,587 93,689 91,069 88,504Estimated interest payments on variable-rate long-term debt obligations (4) 36,288 8,644 11,540 6,811 9,293Capital lease obligations (5) 51,958 3,803 8,562 8,716 30,877Estimated interest on capital lease obligations 35,619 4,857 8,727 7,267 14,768Operating lease obligations 318,158 52,646 90,228 62,460 112,824Estimated interest payments on interest rate riskmanagement obligations (6) 45,821 11,768 23,398 10,380 275Purchase commitments (7) 44,193 10,897 19,875 13,421 —Total $3,637,234 $1,761,269 $362,249 $305,853 $1,207,863(1)Calculated using the Floorplan Line balance and weighted average interest rate at December 31, 2015, and the assumption that these liabilities would be settled within 67 days,which approximates our weighted average inventory days outstanding. In addition, amounts include estimated commitment fees on the unused portion of the Floorplan Linethrough the term of the Revolving Credit Facility, assuming no additional Floorplan Line borrowings beyond 67 days.(2)Includes $41.9 million of outstanding letters of credit associated with the Acquisition Line of our Revolving Credit Facility due in 2016.(3)Includes our 5.00% Notes, 5.25% Notes and other real estate related debt.(4)Includes interest on letters of credit associated with the Acquisition Line of our Revolving Credit Facility due 2016, commitment fees on the unused portion of the AcquisitionLine through the term of the Revolving Credit Facility, and estimated interest on our Foreign Notes and other real estate related debt.(5)Includes $51.9 million related real estate and $0.1 million of other capital leases.(6)Amounts represent the estimated net future settlement of our obligation to pay a fixed interest rate and receive a variable interest rate, based upon a forecasted LIBOR forwardcurve and the maturity date of each obligation. The estimated fair value of these obligations as of December 31, 2015 was $31.2 million.(7)Includes Information Technology commitments and other.We, acting through our subsidiaries, are the lessee under many real estate leases that provide for our use of the respective dealership premises.Generally, our real estate and facility leases have 30-year total terms with initial terms of 15 years and three additional five-year terms, at our option. Pursuantto these leases, our subsidiaries generally agree to indemnify the lessor and other parties from certain liabilities arising as a result of the use of the leasedpremises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements in connectionwith the sale of assets or businesses in which we agree to indemnify the purchaser, or other parties, from certain liabilities or costs arising in connection withthe assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that maycontain indemnification provisions. In the event that an indemnification claim is asserted, liability would be limited by the terms of the applicableagreement.From time to time, primarily in connection with dealership dispositions, we assign or sublet to the dealership purchaser our interests in any realproperty leases associated with such dealerships. In general, we retain responsibility for the performance of certain obligations under such leases to the extentthat the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease.Additionally, we generally remain subject to the terms of any guarantees made by us in connection with such leases. We generally have indemnificationrights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, and we presently have no reason tobelieve that we will be called on to perform under any such assigned leases or subleases. Our exposure under these leases is difficult to estimate and there canbe no assurance that any performance by us required under these leases would not have a material adverse effect on our business, results of operations andfinancial condition. We may be called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repairof the leased premises upon termination of the lease. However, we presently have no reason to believe that we will be called on to so perform and suchobligations cannot be quantified at this time.74Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Non-GAAP Financial MeasuresWe have included certain non-GAAP financial measures as defined under SEC rules, which recharacterize certain items within the Statement of CashFlows. These adjusted measures are not measures of financial performance under GAAP. As required by SEC rules, we provide reconciliations of theseadjusted measures to the most directly comparable GAAP measures. We believe that these adjusted financial measures are relevant and useful to investorsbecause they improve the transparency of our disclosure, provide a meaningful presentation of results from our core business operations and improve period-to-period comparability of our results from our core business operations. Our management uses these measures in conjunction with GAAP financial measuresto assess our business, including in communications with our Board of Directors, investors and analysts concerning financial performance.The following table reconciles cash flow provided by (used in) operating, investing and financing activities on a GAAP basis to the correspondingadjusted amounts (dollars in thousands): Year Ended December 31, 2015 2014 2013CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by (used in) operating activities $141,047 $198,288 $52,372Change in floorplan notes payable-credit facilities, excluding floorplan offset account and netacquisition and disposition 100,302 5,881 165,404Change in floorplan notes payable-manufacturer affiliates associated with net acquisition anddisposition related activity 3,000 2,970 (14,953)Adjusted net cash provided by operating activities $244,349 $207,139 $202,823CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities $(284,502) $(347,051) $(268,654)Change in cash paid for acquisitions, associated with floorplan notes payable 32,140 92,112 64,569Change in proceeds from disposition of franchises, property and equipment, associated withfloorplan notes payable (14,429) (60,493) (45,431)Adjusted net cash used by investing activities $(266,791) $(315,432) $(249,516)CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by operating activities $121,009 $171,650 $235,993Change in net borrowings and repayments on floorplan notes payable-credit facilities,excluding net activity associated with our floorplan offset account (121,013) (40,470) (169,589)Adjusted net cash provided by (used in) financing activities $(4) $131,180 $66,40475Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to a variety of market risks, including interest rate risk and foreign currency exchange rate risk. We address interest rate risks through aprogram of management which includes the use of derivative instruments. We do not currently hedge foreign exchange risk, as discussed further below. Thefollowing quantitative and qualitative information is provided about foreign currency exchange rates and financial instruments to which we are a party atDecember 31, 2015, and from which we may incur future gains or losses from changes in market interest rates. We do not enter into derivative or otherfinancial instruments for speculative or trading purposes.Hypothetical changes in interest rates and foreign currency exchange rates chosen for the following estimated sensitivity analysis are considered to bereasonable near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accuratelypredict future changes in interest rate and foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable futurefluctuations.The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”As of December 31, 2015, our 5.00% Notes, with an outstanding principal amount of $550.0 million, had a fair value and carrying amount of $545.9million and $541.3 million, respectively. Our 5.25% Notes, with an outstanding principal amount of $300.0 million, had a fair value and carrying amount of$297.8 million and $296.3 million, respectively, at December 31, 2015. Our other fixed-rate debt, primarily consisting of real estate related debt, hadoutstanding borrowings of $100.7 million and $158.1 million as of December 31, 2015 and December 31, 2014, respectively. The fair value of such fixedinterest rate borrowings was $102.4 million and $186.4 million as of December 31, 2015 and December 31, 2014, respectively.Interest Rates. We have interest rate risk in our variable-rate debt obligations. Our policy is to monitor the effects of market changes in interest rates andmanage our interest rate exposure through the use of a combination of fixed and floating-rate debt and interest rate swaps.We use interest rate swaps to adjust our exposure to interest rate movements, when appropriate, based upon market conditions. As of December 31,2015, we held interest rate swaps with aggregate notional amounts of $581.7 million that fixed our underlying one-month LIBOR at a weighted average rateof 2.7%. These hedge instruments are designed to convert floating rate vehicle floorplan payables under our Revolving Credit Facility and variable rate RealEstate Credit Facility borrowings to fixed rate debt. We entered into these swaps with several financial institutions that have investment grade credit ratings,thereby minimizing the risk of credit loss. We reflect the current fair value of all derivatives on our Consolidated Balance Sheets. The fair value of interestrate swaps is impacted by the forward one-month LIBOR curve and the length of time to maturity of the swap contracts. The related gains or losses on thesetransactions are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. As of December 31, 2015, net unrealized losses,net of income taxes, totaled $19.5 million. These deferred gains and losses are recognized in income in the period in which the related items being hedged arerecognized in expense. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the itemsbeing hedged, that ineffective portion is immediately recognized in the results of operations. All of our interest rate hedges are designated as cash flowhedges. As of December 31, 2015, all of our derivative contracts were determined to be effective and net unrealized losses, net of income taxes, totaled $19.5million. As of December 31, 2015, a 100 basis-point change in the interest rates of our swaps would have resulted in a $5.5 million change to our annualinterest expense. In addition to the $581.7 million of swaps in effect as of December 31, 2015, we also held 13 interest rate swaps with forward start datesbetween December 2016 and January 2019 and expiration dates between December 2019 and December 2021. As of December 31, 2015, the aggregatenotional amount of these swaps was $650.0 million with a weighted average interest rate of 2.6%. The combination of these swaps is structured such that thenotional value in effect at any given time through October 2022 does not exceed $779.7 million.A summary of our interest rate swaps, including those in effect, as well as forward-starting, follows (dollars in millions): 2015 2016 2017 2018 2019 2020 2021 2022Notional amount in effect at the end of period $582 $730 $578 $627 $325 $74 $14 $—Weighted average interest rate during the period 2.57% 2.72% 2.59% 2.65% 2.53% 2.62% 2.19% 1.63%As of December 31, 2015, we had $1,644.3 million of variable-rate borrowings outstanding, $54.7 million of variable-rate Real Estate Credit Facilityborrowings outstanding, and $205.1 million of other variable-rate real estate related borrowings outstanding. Based on the aggregate amount of variable-rateborrowings outstanding as of December 31, 2015, and before the impact of our interest rate swaps described below, a 100 basis-point change in interest rateswould have resulted in an approximate $16.4 million change to our annual interest expense. After consideration of the interest rate swaps described below, a100 basis-point change would have yielded a net annual change of $10.9 million in annual interest expense based on the76Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.variable borrowings outstanding as of December 31, 2015. This interest rate sensitivity increased from 2014 primarily as a result of the increase in variable-rate floorplan borrowings.Our exposure to changes in interest rates with respect to our variable-rate floorplan borrowings is partially mitigated by manufacturers’ interestassistance, which in some cases is influenced by changes in market based variable interest rates. We reflect interest assistance as a reduction of new vehicleinventory cost until the associated vehicle is sold. During the years ended December 31, 2015 and December 31, 2014, we recognized $50.5 million and$45.1 million of interest assistance as a reduction of new vehicle cost of sales, respectively. For the past three years, the interest assistance reduction to ournew vehicle cost of sales has ranged from 87.3% of our floorplan interest expense for the first quarter of 2013 to 139.9% in the third quarter of 2015. In theU.S., manufacturer’s interest assistance was 136.4% of floorplan interest expense in the fourth quarter of 2015. Although we can provide no assurance as tothe amount of future interest assistance, it is our expectation, based on historical data that an increase in prevailing interest rates would result in increasedassistance from certain manufacturers.Foreign Currency Exchange Rates. As of December 31, 2015, we had dealership operations in the U.K. and Brazil. The functional currency of our U.K.subsidiaries is the British pound sterling (£) and of our Brazil subsidiaries is the Brazilian real (R$). We intend to remain permanently invested in theseforeign operations and, as such, do not hedge against foreign currency fluctuations that may temporarily impact our investment in our U.K. and Brazilsubsidiaries. If we change our intent with respect to such international investment, we would expect to implement strategies designed to manage those risksin an effort to mitigate the effect of foreign currency fluctuations on our earnings and cash flows. A 10% devaluation in average exchange rates for the Britishpound sterling to the U.S. dollar would have resulted in an $110.9 million decrease to our revenues for the year ended December 31, 2015. A 10%devaluation in average exchange rates for the Brazilian real to the U.S. dollar would have resulted in a $47.1 million decrease to our revenues for the yearended December 31, 2015. We believe that inflation rates over the last few years have not had a significant impact on our consolidated revenues orprofitability. We do not expect inflation to have near-term material effects on the sale of our products and services on a consolidated basis; however, wecannot be sure there will be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements withinterest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.Item 8. Financial Statements and Supplementary DataSee our Consolidated Financial Statements beginning on page F-1 for the information required by this Item.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresAs required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Our disclosurecontrols and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submitunder the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, asappropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified inthe rules and forms of the SEC. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosurecontrols and procedures were effective as of December 31, 2015 at the reasonable assurance level.Our management, including the principal executive officer and the principal financial officer, does not expect that our disclosure controls andprocedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,assurance that objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by theintentional acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events,and while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operateeffectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherentlimitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.Changes in Internal Control over Financial Reporting77Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.During the three months ended December 31, 2015, there was no change in our system of internal control over financial reporting (as defined inRules 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) or15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by management, under the supervision of our principalexecutive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with accounting principles generally accepted in the U.S., and includes those policies andprocedures that:(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withaccounting principles generally accepted in the U.S., and that our receipts and expenditures are being made only in accordance with authorizations ofmanagement and our directors; and(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on our Consolidated Financial Statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies and procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only providereasonable assurance of achieving their control objectives.Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed theeffectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management used the 2013 framework setforth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that, as of December 31, 2015,our internal control over financial reporting was effective.Ernst & Young LLP, the independent registered accounting firm who audited the Consolidated Financial Statements included in this Form 10-K, hasissued an attestation report on our internal control over financial reporting. This report, dated February 17, 2016, appears on the following page.Item 9B. Other InformationNone.78Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Group 1 Automotive, Inc.We have audited Group 1 Automotive, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria establishedin Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSOcriteria). Group 1 Automotive, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Controlover Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, Group 1 Automotive, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2015, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof Group 1 Automotive, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensiveincome, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015 of Group 1 Automotive, Inc. and subsidiariesand our report dated February 17, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young LLPHouston, TexasFebruary 17, 201679Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART III Item 10. Directors, Executive Officers and Corporate GovernanceExecutive Officers of Group 1The following sets forth certain information regarding our executive officers as of February 17, 2016.NameAgePositionYears with Group 1Years ofAutomotiveExperienceEarl J. Hesterberg62President and Chief Executive Officer1141John C. Rickel54Senior Vice President and Chief Financial Officer10.532Frank Grese Jr.64Senior Vice President of Human Resources, Training, and Operations Support1141Darryl M. Burman57Vice President and General Counsel918Peter C. DeLongchamps55Vice President, Financial Services and Manufacturer Relations11.533J. Brooks O’Hara60Vice President, Human Resources1635Earl J. Hesterberg has served as our President and Chief Executive Officer and as a director since April 2005. Prior to joining us, Mr. Hesterberg servedas Group Vice President, North America Marketing, Sales and Service for Ford Motor Company, a global manufacturer and distributor of cars, trucks andautomotive parts, since October 2004. From July 1999 to September 2004, he served as Vice President, Marketing, Sales and Service for Ford of Europe, andfrom 1999 until 2005, he served on the supervisory board of Ford Werke AG. Mr. Hesterberg has also served as President and Chief Executive Officer of GulfStates Toyota, an independent regional distributor of new Toyota vehicles, parts and accessories. He has also held various senior sales, marketing, generalmanagement, and parts and service positions with Nissan Motor Corporation in U.S.A. and Nissan Europe, both of which are wholly‑owned by NissanMotor Co., Ltd., a global provider of automotive products and services. Mr. Hesterberg serves on the Board of Directors of Stage Stores, Inc., a national retailclothing chain with over 800 stores located in 39 states where he is a member of the Corporate Governance and Nominating Committee and Chairman of theCompensation Committee. Mr. Hesterberg also serves on the Board of Trustees of Davidson College.John C. Rickel was appointed Senior Vice President and Chief Financial Officer in December 2005. From 1984 until joining Group 1, Mr. Rickel held anumber of executive and managerial positions of increasing responsibility with Ford Motor Company, a global manufacturer and distributor of cars, trucksand automotive parts. He most recently served as Controller, Ford Americas, where he was responsible for the financial management of Ford’s westernhemisphere automotive operations. Immediately prior to that, he was Chief Financial Officer of Ford Europe, where he oversaw all accounting, financialplanning, information services, tax and investor relations activities. From 2002 to 2004, Mr. Rickel was Chairman of the Board of Directors of Ford Russia,and a member of the Board of Directors and the Audit Committee of Ford Otosan, a publicly traded automotive company located in Turkey and owned 41%by Ford.Frank Grese Jr. has served as the Senior Vice President of Human Resources, Training, and Operations Support since February 2016. Mr. Gresepreviously served as Regional Vice President of the West Region from January 2006 through January 2016 and as the Platform President of Group 1 Atlantafrom December 2004 through December 2005. After graduating from the University of Georgia, Mr. Grese began his automotive career in the FordManagement Training Program in 1974. Following Ford, he joined Nissan where he ultimately held the position of National Dealer Advertising Manager. In1986, Mr. Grese left the manufacturer side of the business and began working in various executive positions, including chief operating officer and districtpresident, with large public and private dealer groups. Mr. Grese last served as Director of Dealership Operations, working extensively with underperformingstores, for a large private dealer group.Darryl M. Burman has served as Vice President and General Counsel since December 2006. From September 2005 to December 2006, Mr. Burman wasa partner and head of the corporate and securities practice in the Houston office of Epstein Becker Green Wickliff & Hall, P.C. From September 1995 untilSeptember 2005, Mr. Burman served as the head of the corporate and securities practice of Fant & Burman, L.L.P. in Houston, Texas, specializing in theacquisition of automotive dealerships. Mr. Burman currently serves as a Director of the Texas General Counsel Forum - Houston Chapter and serves on theBoard of Directors of the University of South Florida Foundation and South Texas College of Law.Peter C. DeLongchamps has served as Vice President, Financial Services and Manufacturer Relations since January 2012. He previously served as VicePresident, Manufacturer Relations and Public Affairs from January 2006 through December 2011, and as Vice President, Manufacturer Relations fromJuly 2004 through December 2005. Mr. DeLongchamps began his automotive retailing career in 1980, having worked for General Motors Corporation andBMW of North America,80Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and holding various management positions in the automotive industry. Immediately prior to joining the Company in 2004, Mr. DeLongchamps wasPresident of Advantage BMW, a Houston‑based automotive retailer. Mr. DeLongchamps also serves on the Board of Directors of Junior Achievement ofSoutheast Texas.J. Brooks O’Hara has served as Vice President, Human Resources since February 2000. From 1997 until joining Group 1, Mr. O’Hara was CorporateManager of Organizational Development at Valero Energy Corporation, an integrated refining and marketing company. Prior to joining Valero, Mr. O’Haraserved for a number of years as Vice President of Administration and Human Resources at Gulf States Toyota, an independent regional distributor of newToyota vehicles, parts and accessories. Mr. O’Hara is a certified Senior Professional in Human Resources (SPHR) and serves on the Board of the HoustonChapter of the American Red Cross. Mr. O’Hara has announced his resignation as Vice President, Human Resources effective March 31, 2016, and willcontinue in the employ of the company as Director, Special Projects.Code of EthicsWe have adopted a Code of Ethics for Specified Officers, which is applicable to our principal executive officer and other senior financial officers, whoinclude our principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code, which we refer to as ourFinancial Code of Ethics, is available on our internet website at www.group1auto.com. To the extent required by SEC rules, we intend to disclose anyamendments to this code and any waiver of a provision of the code for the benefit of our principal executive officer, principal financial officer, principalaccounting officer or controller, or persons performing similar functions, on our website within four business days following any such amendment of waiver,or within any other period that may be required under SEC rules from time to time.Pursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 10 the information to be disclosed in our definitive proxy statementprepared in connection with the 2016 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2015.Item 11. Executive CompensationPursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 11 the information to be disclosed in our definitive proxy statementprepared in connection with the 2016 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2015.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersPursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 12 the information to be disclosed in our definitive proxy statementprepared in connection with the 2016 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2015.Item 13. Certain Relationships and Related Transactions, and Director IndependencePursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 13 the information to be disclosed in our definitive proxy statementprepared in connection with the 2016 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2015.Item 14. Principal Accounting Fees and ServicesPursuant to Instruction G to Form 10-K, we incorporate by reference into this Item 14 the information to be disclosed in our definitive proxy statementprepared in connection with the 2016 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2015.81Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IV Item 15. Exhibits, Financial Statement Schedules(a) List of documents filed as part of this Form 10-K:(1) Financial StatementsThe financial statements listed in the accompanying Index to Financial Statements are filed as part of this Form 10-K.(2) Financial Statement SchedulesAll schedules have been omitted since the required information is not present or not present in amounts sufficient to require submissionof the schedule, or because the information required is included in the Consolidated Financial Statements and notes thereto.(3) Index to ExhibitsThose exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibitsfiled herewith and such listing is incorporated herein by reference.82Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized on the 17th day of February, 2016. Group 1 Automotive, Inc. By: /s/ Earl J. Hesterberg Earl J. Hesterberg President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant in the capacities indicated on the 17th day of February, 2016.Signature Title /s/ Earl J. Hesterberg President and Chief Executive Officer and DirectorEarl J. Hesterberg (Principal Executive Officer) /s/ John C. Rickel Senior Vice President and Chief Financial OfficerJohn C. Rickel (Principal Financial and Accounting Officer) /s/ John L. Adams Chairman and DirectorJohn L. Adams /s/ Doyle L. Arnold DirectorDoyle L. Arnold /s/ Lincoln da Cunha Pereira Filho DirectorLincoln da Cunha Pereira Filho /s/ Stephen D. Quinn DirectorStephen D. Quinn /s/ J. Terry Strange DirectorJ. Terry Strange /s/ Max P. Watson, Jr. DirectorMax P. Watson, Jr. /s/ MaryAnn Wright DirectorMaryAnn Wright 83Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTSGroup 1 Automotive, Inc. and Subsidiaries — Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets F-3Consolidated Statements of Operations F-4Consolidated Statements of Comprehensive Income F-5Consolidated Statements of Stockholders’ Equity F-6Consolidated Statements of Cash Flows F-7Notes to Consolidated Financial Statements F-8F- 1Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Group 1 Automotive, Inc.We have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc. and subsidiaries as of December 31, 2015, and 2014, and therelated consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Group 1 Automotive,Inc. and subsidiaries at December 31, 2015, and 2014, and the consolidated results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Group 1 Automotive, Inc.’s andsubsidiaries internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2016 expressed anunqualified opinion thereon./s/ Ernst & Young LLPHouston, TexasFebruary 17, 2016F-2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2015 December 31, 2014 (In thousands, except pershare amounts)ASSETSCURRENT ASSETS: Cash and cash equivalents $13,037 $40,975Contracts-in-transit and vehicle receivables, net 252,438 237,448Accounts and notes receivable, net 157,768 151,330Inventories, net 1,737,751 1,556,705Deferred income taxes 14,109 11,062Prepaid expenses and other current assets 27,852 37,699Total current assets 2,202,955 2,035,219PROPERTY AND EQUIPMENT, net 1,033,981 950,388GOODWILL 854,915 830,377INTANGIBLE FRANCHISE RIGHTS 307,588 303,947OTHER ASSETS 15,490 21,561Total assets $4,414,929 $4,141,492LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other $1,265,719 $1,143,246Offset account related to floorplan notes payable - credit facility (110,759) (39,616)Floorplan notes payable — manufacturer affiliates 389,071 307,656Offset account related to floorplan notes payable - manufacturer affiliates (25,500) (22,500)Current maturities of long-term debt and short-term financing 55,193 72,630Accounts payable 280,423 288,320Accrued expenses 185,323 172,463Total current liabilities 2,039,470 1,922,199LONG-TERM DEBT, net of current maturities 1,203,436 1,008,837DEFERRED INCOME TAXES 150,753 141,239LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES 31,153 25,311OTHER LIABILITIES 71,865 65,896COMMITMENTS AND CONTINGENCIES (NOTE 14) STOCKHOLDERS’ EQUITY: Preferred stock, $0.01 par value, 1,000 shares authorized; none issued or outstanding — —Common stock, $0.01 par value, 50,000 shares authorized; 25,706 and 25,724 issued, respectively 257 257Additional paid-in capital 291,092 286,854Retained earnings 926,169 852,057Accumulated other comprehensive loss (137,984) (81,984)Treasury stock, at cost; 2,291 and 1,385 shares, respectively (161,282) (79,174)Total stockholders’ equity 918,252 978,010Total liabilities and stockholders’ equity $4,414,929 $4,141,492The accompanying notes are an integral part of these consolidated financial statements.F-3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2015 2014 2013 (In thousands, except per share amounts)REVENUES: New vehicle retail sales $6,001,306 $5,741,619 $5,224,921Used vehicle retail sales 2,638,969 2,324,868 2,039,428Used vehicle wholesale sales 397,251 379,143 332,185Parts and service sales 1,186,193 1,125,694 1,010,685Finance, insurance and other, net 408,786 366,565 311,362Total revenues 10,632,505 9,937,889 8,918,581COST OF SALES: New vehicle retail sales 5,695,829 5,430,402 4,935,046Used vehicle retail sales 2,459,499 2,151,346 1,878,549Used vehicle wholesale sales 399,171 376,824 332,380Parts and service sales 544,034 531,379 480,060Total cost of sales 9,098,533 8,489,951 7,626,035GROSS PROFIT 1,533,972 1,447,938 1,292,546SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,120,833 1,061,964 976,856DEPRECIATION AND AMORTIZATION EXPENSE 47,239 42,344 35,826ASSET IMPAIRMENTS 87,562 41,520 6,542INCOME FROM OPERATIONS 278,338 302,110 273,322OTHER EXPENSE: Floorplan interest expense (39,264) (41,614) (41,667)Other interest expense, net (56,903) (49,693) (38,971)Other expense, net — — (789)Loss on extinguishment of long-term debt — (46,403) —INCOME BEFORE INCOME TAXES 182,171 164,400 191,895PROVISION FOR INCOME TAXES (88,172) (71,396) (77,903)NET INCOME $93,999 $93,004 $113,992BASIC EARNINGS PER SHARE $3.91 $3.82 $4.72Weighted average common shares outstanding 23,148 23,380 23,096DILUTED EARNINGS PER SHARE $3.90 $3.60 $4.32Weighted average common shares outstanding 23,152 24,885 25,314CASH DIVIDENDS PER COMMON SHARE $0.83 $0.70 $0.65The accompanying notes are an integral part of these consolidated financial statements.F-4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2015 2014 2013 (In thousands)NET INCOME $93,999 $93,004 $113,992OTHER COMPREHENSIVE LOSS: Unrealized loss on foreign currency translation (54,457) (27,426) (31,701)Realized gain on foreign currency translation associated with disposition offoreign subsidiaries — 1,178 —Net unrealized loss on foreign currency translation (54,457) (26,248) (31,701)Net unrealized gain (loss) on interest rate swaps: Unrealized gain (loss) arising during the period, net of tax benefit (provision) of$5,914, $6,692, and ($3,667), respectively (9,856) (11,153) 6,112Reclassification adjustment for loss included in interest expense, net of taxprovision of $4,987, $4,256 and $4,182 respectively 8,313 7,094 6,969Net unrealized (loss) gain on interest rate swaps, net of tax (1,543) (4,059) 13,081OTHER COMPREHENSIVE LOSS, NET OF TAXES (56,000) (30,307) (18,620)COMPREHENSIVE INCOME $37,999 $62,697 $95,372The accompanying notes are an integral part of these consolidated financial statements.F-5Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock AdditionalPaid-inCapital RetainedEarnings Accumulated OtherComprehensiveIncome (Loss) TreasuryStock Total Shares Amount (In thousands)BALANCE, December 31, 2012 25,836 $258 $332,836 $677,864 $(33,057) $(117,617) $860,284Net income — — — 113,992 — — 113,992Other comprehensive loss, net — — — — (18,620) — (18,620)Purchases of treasury stock — — — (3,554) (3,554)Treasury stock used in acquisition — — 27,689 — — 52,709 80,398Temporary equity adjustment related to 3.00%convertible notes — — 3,411 — — — 3,411Net issuance of treasury shares to employee stockcompensation plans (90) (1) (12,137) — — 10,315 (1,823)Stock-based compensation, including tax effect of$2,993 — — 16,842 — — — 16,842Cash dividends, net of estimated forfeitures relative toparticipating securities — — — (15,755) — — (15,755)BALANCE, December 31, 2013 25,746 257 368,641 776,101 (51,677) (58,147) 1,035,175Net income — — — 93,004 — — 93,004Other comprehensive loss, net — — — — (30,307) — (30,307)Purchases of treasury stock — — — — — (36,802) (36,802)Net temporary equity adjustment related to 3.00% and2.25% Convertible Notes — — (14,163) — — — (14,163)Repurchase of equity component of 3.00% ConvertibleNotes — — (118,044) — — — (118,044)Call/Warrant equity settlement on 3.00% ConvertibleNotes repurchase — — 32,641 — — — 32,641Conversion of equity component of 2.25% ConvertibleNotes — — (20,789) — — 36,860 16,071Call/Warrant equity settlement on 2.25% ConvertibleNotes conversion — — 33,772 — — (33,772) —Net issuance of treasury shares to employee stockcompensation plans (22) — (13,008) — — 12,687 (321)Stock-based compensation, including tax effect of$1,841 — — 17,804 — — — 17,804Cash dividends, net of estimated forfeitures relative toparticipating securities — — — (17,048) — — (17,048)BALANCE, December 31, 2014 25,724 257 286,854 852,057 (81,984) (79,174) 978,010Net income — — — 93,999 — — 93,999Other comprehensive loss, net — — — — (56,000) — (56,000)Purchases of treasury stock — — — — — (99,015) (99,015)Net issuance of treasury shares to employee stockcompensation plans (18) — (16,701) — — 16,907 206Stock-based compensation, including tax effect of$2,142 — — 20,939 — — — 20,939Cash dividends, net of estimated forfeitures relative toparticipating securities — — — (19,887) — — (19,887)BALANCE, December 31, 2015 25,706 $257 $291,092 $926,169 $(137,984) $(161,282) $918,252The accompanying notes are an integral part of these consolidated financial statements.F-6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2015 2014 2013 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income $93,999 $93,004 $113,992Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 47,239 42,344 35,826Deferred income taxes 11,884 12,319 22,412Asset impairments 87,562 41,520 6,542Stock-based compensation 18,851 16,012 13,899Amortization of debt discount and issue costs 3,652 10,559 13,888Loss on 3.00% Convertibles Notes repurchase — 29,478 —Loss on 2.25% Convertible Notes conversion and redemption — 16,925 —Gain on disposition of assets (9,719) (15,994) (11,043)Tax effect from excess stock-based compensation (2,142) (1,841) (2,993)Other 3,334 4,686 3,665Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts payable and accrued expenses 25,108 37,344 41,144Accounts and notes receivable (17,887) (20,179) (9,489)Inventories (186,634) 27,339 (241,871)Contracts-in-transit and vehicle receivables (17,944) (10,530) (18,974)Prepaid expenses and other assets (3,153) (5,385) 1,941Floorplan notes payable — manufacturer affiliates 87,516 (78,822) 83,203Deferred revenues (619) (491) 230Net cash provided by operating activities 141,047 198,288 52,372CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received (212,252) (336,551) (269,860)Proceeds from disposition of franchises, property and equipment 41,581 144,597 102,186Purchases of property and equipment, including real estate (120,252) (150,392) (102,858)Other 6,421 (4,705) 1,878Net cash used in investing activities (284,502) (347,051) (268,654)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility — floorplan line and other 7,557,237 7,832,014 6,379,328Repayments on credit facility — floorplan line and other (7,504,516) (7,802,719) (6,153,677)Borrowings on credit facility — acquisition line 489,548 389,368 60,000Repayments on credit facility — acquisition line (557,696) (379,681) —Borrowings on real estate credit facility — 200 19,640Principal payments on real estate credit facility (3,340) (9,917) (8,597)Net borrowings on 5.00% Senior Unsecured Notes — 539,600 —Net borrowings on 5.25% Senior Unsecured Notes 296,250 — —Debt issue costs (788) (1,881) —Repurchase of 3.00% Convertible Notes — (260,074) —Proceeds from Call/Warrant Unwind related to 3.00% Convertible Notes — 32,697 —Conversion and redemption of 2.25% Convertible Notes — (182,756) —Borrowings on other debt 59,855 91,137 10,289Principal payments on other debt (63,769) (85,905) (71,170)Borrowings on debt related to real estate 32,026 111,979 55,345Principal payments on debt related to real estate loans (68,739) (50,033) (36,978)Issuance of common stock to benefit plans, net 214 (321) (1,822)Repurchases of common stock, amounts based on settlement date (97,473) (36,802) (3,553)Tax effect from stock-based compensation 2,142 1,841 2,993Dividends paid (19,942) (17,097) (15,805)Net cash provided by financing activities 121,009 171,650 235,993EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,492) (2,127) (4,146)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (27,938) 20,760 15,565CASH AND CASH EQUIVALENTS, beginning of period 40,975 20,215 4,650CASH AND CASH EQUIVALENTS, end of period $13,037 $40,975 $20,215SUPPLEMENTAL CASH FLOW INFORMATION: Purchases of property and equipment, including real estate, accrued in accounts payable and accrued expenses $32,720 $21,166 $11,155The accompanying notes are an integral part of these consolidated financial statements.F-7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ANNUAL FINANCIAL INFORMATIONBusiness and OrganizationGroup 1 Automotive, Inc., a Delaware corporation, is a leading operator in the automotive retailing industry with business activities in 14 states in theUnited States of America (“U.S.”), 15 towns in the United Kingdom (“U.K.”), and three states in Brazil. Group 1 Automotive, Inc. and its subsidiaries arecollectively referred to as the “Company” in these Notes to Consolidated Financial Statements. The Company, through its regions, sells new and used carsand light trucks; arranges related vehicle financing; sells service and insurance contracts; provides automotive maintenance and repair services; and sellsvehicle parts.As of December 31, 2015, the Company’s U.S. retail network consisted of the following two regions (with the number of dealerships they comprised):(a) the East (39 dealerships in Alabama, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, and South Carolina),and (b) the West (77 dealerships in California, Kansas, Louisiana, Oklahoma, and Texas). The U.S. regional vice presidents report directly to the Company’sChief Executive Officer and are responsible for the overall performance of their regions, as well as for overseeing the market directors and dealership generalmanagers that report to them. In addition, as of December 31, 2015, the Company had two international regions: (a) the U.K. region, which consisted of 17dealerships in the U.K. and (b) the Brazil region, which consisted of 19 dealerships in Brazil. The operations of the Company’s international regions arestructured similarly to the U.S. regions, each with a regional vice president reporting directly to the Company’s Chief Executive Officer.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATESUse of EstimatesThe preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, thedisclosures 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 various other assumptions that are believed to be reasonable under thecircumstances; however, actual results could differ from such estimates. The significant estimates made by management in the accompanying ConsolidatedFinancial Statements relate to inventory market adjustments, reserves for future chargebacks on finance and vehicle service contract fees, self-insuredproperty/casualty insurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill andintangible franchise rights, and reserves for potential litigation.Basis of PresentationAll business acquisitions completed during the periods presented have been accounted for using the purchase method of accounting, and their resultsof operations are included from the effective dates of the closings of the acquisitions. The preliminary allocations of purchase price to the assets acquired andliabilities assumed are assigned and recorded based on estimates of fair value. All intercompany balances and transactions have been eliminated inconsolidation.Revenue RecognitionRevenues from vehicle sales, parts sales and vehicle service are recognized upon completion of the sale or service and delivery to the customer.Conditions to completing a sale entail having an agreement with the customer, including pricing, and having a reasonable expectation that the sales pricewill be collected. The Company includes revenues from its collision center operations in parts and services sales.The Company records the profit it receives for arranging vehicle fleet transactions, net, in other finance and insurance revenues. Since all sales of newvehicles must occur through franchised new vehicle dealerships, the dealerships effectively act as agents for the automobile manufacturers in completingsales of vehicles to fleet customers. As these customers typically order the vehicles, the Company has no significant general inventory risk. Additionally,fleet customers generally receive special purchase incentives from the automobile manufacturers and the Company receives only a nominal fee forfacilitating the transactions. Taxes collected from customers and remitted to governmental agencies are not included in total revenues.The Company arranges financing for customers through various institutions and receives financing fees based on the difference between the loan ratescharged to customers and wholesale financing rates set by the financing institution. In addition, the Company receives fees from the sale of insurance andvehicle service contracts to customers. Further, through agreements with certain vehicle service contract administrators, the Company earns volume incentiverebates and interestF-8Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)income on reserves, as well as participates in the underwriting profits of the products. The Company may be charged back for unearned financing, insurancecontract or vehicle service contract fees in the event of early termination of the contracts by customers. Revenues from these fees are recorded at the time ofthe sale of the vehicles, and a reserve for future amounts estimated to be charged back is recorded based on the Company’s historical chargeback results andthe termination provisions of the applicable contracts. While chargeback results vary depending on the type of contract sold, a 10% increase in the historicalchargeback results used in determining estimates of future amounts that might be charged back would have increased the reserve at December 31, 2015 by$3.3 million.Cash and Cash EquivalentsCash and cash equivalents include demand deposits and various other short-term investments with original maturities of three months or less at the dateof purchase. As of December 31, 2015 and 2014, cash and cash equivalents excluded $136.3 million and $62.1 million, respectively, of immediatelyavailable funds used to pay down the Floorplan Line of the Revolving Credit Facility and the FMCC Facility (as defined in Note 11, “Credit Facilities”),which are the Company’s primary vehicles for the short-term investment of excess cash. These amounts are reflected in the Company’s Consolidated BalanceSheets as the offset accounts related to Floorplan Notes Payable - Credit Facility and Floorplan Notes Payable - Manufacturer Affiliates.Contracts-in-Transit and Vehicle ReceivablesContracts-in-transit and vehicle receivables consist primarily of amounts due from financing institutions on retail finance contracts from vehicle salesand dealer incentives due from manufacturers. Also included are amounts receivable from vehicle wholesale sales.InventoriesNew, used and demonstrator vehicle inventories are carried at the lower of specific cost or market and are removed from inventory using the specificidentification method in the Consolidated Balance Sheets. Parts and accessories inventories are valued at lower of cost (determined on a first-in, first-outbasis) or market in the Consolidated Balance Sheets. Vehicle inventory cost consists of the amount paid to acquire the inventory, plus the cost ofreconditioning, cost of equipment added and transportation cost. Additionally, the Company receives interest assistance from some of the automobilemanufacturers. This assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on the Company’sConsolidated Balance Sheets and as a reduction to cost of sales in its Statements of Operations as the vehicles are sold. At December 31, 2015 and 2014,inventory cost had been reduced by $10.3 million and $8.8 million, respectively, for interest assistance received from manufacturers. New vehicle cost ofsales was reduced by $50.5 million, $45.1 million and $38.5 million for interest assistance received related to vehicles sold for the years ended December 31,2015, 2014 and 2013, respectively. The assistance over the past three years has ranged from approximately 87.3% of the Company’s quarterly floorplaninterest expense in the first quarter of 2013 to 139.9% for the third quarter of 2015.As the market value of inventory typically declines over time, the Company establishes new and used vehicle reserves based on its historical lossexperience and management’s considerations of current market trends. These reserves are charged to cost of sales and reduce the carrying value of inventoryon hand. Used vehicles are complex to value as there is no standardized source for determining exact values and each vehicle and each market in which theCompany operates is unique. As a result, the value of each used vehicle taken at trade-in, or purchased at auction, is determined based on industry data,primarily accessed via the Company’s used vehicle management software and the industry expertise of the responsible used vehicle manager. Valuation riskis partially mitigated by the speed at which the Company turns this inventory. At December 31, 2015, the Company’s used vehicle days’ supply was 33 days.The Company incurs shipping costs in connection with selling parts to customers. The cost of shipping these parts is included in cost of sales on theConsolidated Statements of Operations.Property and EquipmentProperty 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. Theamortization of assets recorded under capital leases is included with depreciation and amortization expense in the Consolidated Statement of Operations.Expenditures for major additions or improvements, which extend the useful lives of assets, are capitalized. Minor replacements, maintenance andrepairs, which do not improve or extend the lives of the assets, are expensed as incurred. Disposals are removed at cost less accumulated depreciation, and anyresulting gain or loss is reflected in current operations. The Company reviews long-lived assets for impairment at the lowest level of identifiable cash flowswhenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events). This review consists of comparing theF-9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)carrying amount of the asset with its expected future undiscounted cash flows without interest costs. If the asset’s carrying amount is greater than such cashflow estimate, then it is required to be written down to its fair value. Estimates of expected future cash flows represent management’s best estimate based oncurrently available information and reasonable and supportable assumptions. See Note 15, “Asset Impairments,” for additional details regarding theCompany’s impairment of long-lived assets.GoodwillThe Company is organized into four geographic regions, East and West regions in the U.S., the U.K. region and the Brazil region. The Company hasdetermined that each region represents a reporting unit for the purpose of assessing goodwill for impairment. Goodwill represents the excess, at the date ofacquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. Annually in the fourthquarter, based on the carrying values of the Company’s regions as of October 31st, the Company performs a fair value and potential impairment assessment ofits goodwill. An impairment analysis is done more frequently if certain events or circumstances arise that would indicate a change in the fair value of the non-financial asset has occurred (i.e., an impairment indicator).In evaluating its goodwill, the Company compares the carrying value of the net assets of each reporting unit to its respective fair value, which iscalculated by using unobservable inputs based upon the Company’s internally developed assumptions. This represents the first step of the impairment test. Ifthe fair value of a reporting unit is less than the carrying value of its net assets, the Company must proceed to step two of the impairment test. Step twoinvolves allocating the calculated fair value to all of the tangible and identifiable intangible assets of the reporting unit as if the calculated fair value werethe purchase price in a business combination. The Company then compares the value of the implied goodwill resulting from this second step to the carryingvalue of the goodwill in the reporting unit. To the extent the carrying value of the goodwill exceeds its implied fair value under step two of the impairmenttest, a non-cash impairment charge equal to the difference is recorded.The Company uses a combination of the discounted cash flow, or income approach (80% weighted), and the market approach (20% weighted) todetermine the fair value of the Company’s reporting units. Included in the discounted cash flow are assumptions regarding revenue growth rates, future grossmargins, future selling, general and administrative expenses (“SG&A”) and an estimated weighted average cost of capital (“WACC”). The Company alsomust estimate residual values at the end of the forecast period and future capital expenditure requirements. Specifically, with regard to the valuationassumptions utilized in the income approach for the U.S. (which represents the Company’s largest two reporting units) as of October 31, 2015, the Companybased its analysis on an estimate of industry sales of 17.8 million units in 2016 increasing at 1.0% in 2017 and 2018. For the market approach, the Companyutilizes recent market multiples of guideline companies for both revenue and pretax net income weighted as appropriate by reporting unit. Each of theseassumptions requires the Company to use its knowledge of (1) the industry, (2) recent transactions and (3) reasonable performance expectations for itsoperations. If any one of the above assumptions change or fails to materialize, the resulting decline in the estimated fair value could result in a material, non-cash impairment charge to the goodwill associated with the reporting unit(s). See Note 15, “Asset Impairments,” and Note 16, “Intangible Franchise Rightsand Goodwill,” for additional details regarding the Company’s goodwill.Intangible Franchise RightsThe Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which arerecorded at an individual dealership level. The Company expects these franchise agreements to continue for an indefinite period and, for agreements that donot have indefinite terms, the Company believes that renewal of these agreements can be obtained without substantial cost, based on the history with themanufacturer. As such, the Company believes that its franchise agreements will contribute to cash flows for an indefinite period and, therefore, the carryingamounts of the franchise rights are not amortized. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as partof goodwill and remain as part of goodwill at December 31, 2015 and 2014 in the accompanying Consolidated Balance Sheets. Since July 1, 2001,intangible franchise rights acquired in business combinations have been recorded as distinctly separate intangible assets. In accordance with guidanceprimarily codified within Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other, the Company evaluates these franchise rightsfor impairment annually in the fourth quarter, based on the carrying values of the Company’s individual dealerships as of October 31st, or more frequently ifevents or circumstances indicate possible impairment has occurred.In performing its impairment assessments, the Company tests the carrying value of each individual franchise right that was recorded by using a directvalue method discounted cash flow model, or income approach, specifically the excess earnings method. Included in this analysis are assumptions, at adealership level, regarding the cash flows directly attributable to the franchise rights, revenue growth rates, future gross margins and future SG&A expenses.Using an estimated WACC, estimated residual values at the end of the forecast period and estimated future capital expenditure requirements, the CompanycalculatesF-10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)the fair value of each dealership’s franchise rights. See Note 15, “Asset Impairments,” and Note 16, “Intangible Franchise Rights and Goodwill,” foradditional details regarding the Company’s intangible franchise rights.Income TaxesCurrently, the Company operates in 14 different states in the U.S., in the U.K. and in Brazil, each of which has unique tax rates and paymentcalculations. As the amount of income generated in each jurisdiction varies from period to period, the Company’s estimated effective tax rate can vary basedon 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, deferredincome taxes are recorded based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted taxrates 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 itis 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 offuture taxable income. As it relates to state net operating losses, as well as net operating losses and goodwill for certain Brazil subsidiaries, a correspondingvaluation allowance has been established to the extent that the Company has determined that net income attributable to certain jurisdictions will not besufficient to realize the benefit.Fair Value of Financial Assets and LiabilitiesThe Company’s financial instruments consist primarily of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notesreceivable, accounts payable, credit facilities, long-term debt and interest rate swaps. The fair values of cash and cash equivalents, contracts-in-transit andvehicle receivables, accounts and notes receivable, accounts payable, credit facilities and variable-rate long-term debt approximate their carrying values dueto the short-term nature of these instruments or the existence of variable interest rates. However, the carrying value of the Company’s fixed-rate long-termdebt differs from fair value. As of December 31, 2015, the Company’s 5.00% Senior Notes had a carrying value of $541.3 million, and a fair value of $545.9million. The Company’s 5.25% Senior Notes had a carrying value of $296.3 million and a fair value of $297.8 million at December 31, 2015. Of the $311.6million and $358.3 million of other real estate related and long-term debt as of December 31, 2015 and December 31, 2014, respectively, $100.7 millionand $158.1 million represented fixed interest rate borrowings. The fair value of such fixed interest rate borrowings was $102.4 million and $186.4 million asof December 31, 2015 and December 31, 2014, respectively.For discussion on the fair value of the Company’s interest rate swaps, refer to “Derivative Financial Instruments” below.Fair Value of Assets Acquired and Liabilities Assumed in Business CombinationsThe fair values of assets acquired and liabilities assumed in business combinations are estimated using various assumptions. The most significantassumptions, and those requiring the most judgment, involve the estimated fair values of property and equipment and intangible franchise rights, with theremaining amounts attributable to goodwill, if any. The Company utilizes third-party experts to determine the fair values of property and equipmentpurchased, including real estate, and utilizes its fair value model as discussed under “Intangible Franchise Rights” above, supplemented with assistance fromthird-party experts, to determine the fair value of intangible franchise rights acquired.Derivative Financial InstrumentsOne of the Company’s primary market risk exposures is increasing interest rates. Interest rate derivatives, designated as cash flow hedges, are used toadjust interest rate exposures when appropriate based on market conditions.The Company follows the requirements of guidance primarily codified within ASC 815, Derivatives and Hedging (“ASC 815”) pertaining to theaccounting for derivatives and hedging activities. ASC 815 requires the Company to recognize all cash flow hedges on its balance sheet at fair value. Therelated gains or losses on these interest rate derivatives are deferred in stockholders’ equity as a component of accumulated other comprehensive loss.However, 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, thatineffective portion is immediately recognized in other income or expense. Monthly contractual settlements of these swap positions are recognized asfloorplan or other interest expense in the Company’s accompanying Consolidated Statements of Operations. All of the Company’s interest rate hedges weredesignated as cash flow hedges and were deemed to be effective at December 31, 2015, 2014 and 2013.The Company measures its interest rate derivative instruments utilizing an income approach valuation technique, converting future amounts of cashflows to a single present value in order to obtain a transfer exit price within the bid and ask spread that is most representative of the fair value of its derivativeinstruments. In measuring fair value, the Company utilizesF-11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)the option-pricing Black-Scholes present value technique for all of its derivative instruments. This option-pricing technique utilizes a one-month LondonInterbank Offered Rate (“LIBOR”) forward yield curve, obtained from an independent external service provider, matched to the identical maturity term of theinstrument being measured. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixedcoupon rates, periodic terms for interest payments and contract maturity. The fair value estimate of the interest rate derivative instruments also considers thecredit risk of the Company for instruments in a liability position or the counterparty for instruments in an asset position. The credit risk is calculated by usingthe spread between the one-month LIBOR yield curve and the relevant average 10 and 20-year retail rate according to Standard and Poor’s.The Company has determined the valuation measurement inputs of these derivative instruments to maximize the use of observable inputs that marketparticipants would use in pricing similar or identical instruments and market data obtained from independent sources, which is readily observable or can becorroborated by observable market data for substantially the full term of the derivative instrument. Accordingly, the Company has classified the derivativeswithin Level 2 of the ASC 820 hierarchy framework in Note 13, “Fair Value Measurements.” The Company validates the outputs of its valuation techniqueby comparison to valuations from the respective counterparties. See Note 4, “Derivative Instruments and Risk Management Activities,” and Note 13, “FairValue Measurements,” for further details regarding the Company’s derivative financial instruments and fair value measurements.Foreign Currency TranslationThe functional currency for the Company’s U.K. subsidiaries is the British pound sterling (£) and of the Company’s Brazil subsidiaries is the Brazilianreal. The financial statements of all the Company’s foreign subsidiaries have been translated into U.S. dollars. All assets and liabilities of foreign subsidiariesare translated into U.S. dollars using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period. Thedifference in the U.S. dollar results that arise from the translation of all assets and liabilities are included in the cumulative currency translation adjustmentsin accumulated other comprehensive income/loss in stockholders’ equity and in other income/expense, when applicable. Upon disposition of the Company’sinvestment in a foreign subsidiary, the Company removes the accumulated translation adjustment attributable to that subsidiary from equity and recognizesas a part of the gain or loss on the disposition transaction.Factory IncentivesIn addition to the interest assistance discussed above, the Company receives various dealer incentive payments from certain of the automobilemanufacturers. These incentive payments are typically received on parts purchases from the automobile manufacturers and on new vehicle retail sales. Theseincentives are reflected as reductions of cost of sales in the statement of operations.Earnings Per ShareThe Company utilizes the two-class method for the computation of earnings per share (“EPS”). The two-class method requires a portion of net incometo be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividendequivalents. The Company’s restricted stock awards qualify as participating securities as each contain non-forfeitable rights to dividends. Income allocatedto these participating securities is excluded from net earnings available to common shares. Basic EPS is computed by dividing net income available to basiccommon shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net incomeavailable to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.AdvertisingThe Company expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2015, 2014, and 2013, totaled $74.6million, $73.8 million and $59.0 million, respectively. Additionally, the Company receives advertising assistance from some of the automobilemanufacturers that the Company must spend on qualified advertising and is subject to audit and chargeback by the manufacturer. The assistance is accountedfor as a reduction of advertising expense, which is included in SG&A expenses in the accompanying Consolidated Statements of Operations, as the assistanceis earned. Amounts related to vehicles still in inventory as of the balance sheet date are reflected in accrued expenses.Advertising expense has been reduced by $17.3 million, $16.6 million and $24.1 million for advertising assistance earned related to vehicles sold forthe years ended December 31, 2015, 2014, and 2013, respectively.Business and Credit Risk ConcentrationsThe Company owns and operates franchised automotive dealerships in the U.S., the U.K. and Brazil. Automotive dealerships operate pursuant tofranchise agreements with vehicle manufacturers. Franchise agreements generally provide theF-12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)manufacturers or distributors with considerable influence over the operations of the dealership. The success of any franchised automotive dealership isdependent, to a large extent, on the financial condition, management, marketing, production and distribution capabilities of the vehicle manufacturers ordistributors of which the Company holds franchises. The Company purchases substantially all of its new vehicles from various manufacturers or distributorsat the prevailing prices to all franchised dealers. The Company’s sales volume could be adversely impacted by the manufacturers’ or distributors’ inability tosupply the dealerships with an adequate supply of vehicles. For the year ended December 31, 2015, Toyota (including Lexus, Scion and Toyota brands),BMW (including MINI and BMW brands), Ford (including Ford and Lincoln brands), Honda (including Acura and Honda brands), Nissan, General Motors(including Chevrolet, GMC, Buick, and Cadillac brands), Volkswagen (including Audi, Porsche, and Volkswagen brands), Hyundai (including Hyundai andKia brands), FCA US (formerly Chrysler) (including Chrysler, Dodge, RAM and Jeep brands), and Daimler (including Mercedes-Benz, smart and Sprinterbrands), accounted for 26.4%, 11.6%, 11.4%, 10.9%, 8.3%, 7.6%, 6.9%, 5.8%, 4.6%, and 4.3% of the Company’s new vehicle sales volume, respectively. Noother manufacturer accounted for more than 2.2% of the Company’s total new vehicle sales volume in 2015. Through the use of an open account, theCompany purchases and returns parts and accessories from/to the manufacturers and receives reimbursement for rebates, incentives and other earned credits.As of December 31, 2015, the Company was due $93.2 million from various manufacturers (see Note 8, “Accounts and Notes Receivable”). Receivablebalances from General Motors, Toyota, BMW, Daimler, Ford, Volkswagen, Nissan, Hyundai, Honda, and FCA US (formerly Chrysler) represented 16.5%,16.3%, 14.8%, 13.0%, 10.0%, 8.5%, 6.7%, 4.6%, 4.2%, and 2.5%, respectively, of this total balance due from manufacturers.Statements of Cash FlowsWith respect to all new vehicle floorplan borrowings, the manufacturers of the vehicles draft the Company’s credit facilities directly with no cash flowto or from the Company. With respect to borrowings for used vehicle financing in the U.S., the Company finances up to 80% of the value of the used vehicleinventory and the funds flow directly to the Company from the lender. In the U.K., the Company chooses which used vehicles to finance and the borrowingsflow directly to the Company from the lender. All borrowings from, and repayments to, lenders affiliated with the vehicle manufacturers (excluding the cashflows from or to manufacturer affiliated lenders participating in the Company’s syndicated lending group) are presented within Cash Flows from OperatingActivities on the Consolidated Statements of Cash Flows. In addition, all borrowings from, and repayments to, the syndicated lending group under theRevolving Credit Facility (as defined in Note 11, “Credit Facilities”) (including the cash flows from or to manufacturer affiliated lenders participating in thefacility) and borrowing 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 $92.0 million, $80.2 million and $66.2 millionin 2015, 2014 and 2013, respectively. Cash paid for taxes, net of refunds, was $74.8 million, $62.3 million and $49.0 million in 2015, 2014 and 2013,respectively.Stock-Based CompensationStock-based compensation represents the expense related to stock-based awards granted to employees and non-employee directors. The Companymeasures stock-based compensation expense at grant date based on the estimated fair value of the award and recognizes the cost on a straight-line basis, netof estimated forfeitures, over the employee requisite service period. The Company estimates the fair value of its employee stock purchase rights issuedpursuant to the Employee Stock Purchase Plan using a Black-Scholes valuation model. The expense for stock-based awards is recognized as an SG&Aexpense in the accompanying Consolidated Statement of Operations.Business Segment InformationThe Company, through its regions, conducts business in the automotive retailing industry, including selling new and used cars and light trucks,arranging related vehicle financing, selling service and insurance contracts, providing automotive maintenance and repair services and selling vehicle parts.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 reportablesegments are the business activities of the Company for which discrete financial information is available and for which operating results are regularlyreviewed by its chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is its ChiefExecutive Officer. See Note 20, “Segment Information,” for additional details regarding the Company’s reportable segments.Self-Insured Medical, Property and Casualty ReservesThe Company purchases insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefitsand other risks consisting of large deductibles and/or self-insured retentions.F-13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)At least annually, the Company engages a third-party actuary to conduct a study of the exposures under the self-insured portion of its worker’scompensation and general liability insurance programs in the U.S. for all open policy years. In the interim, the Company reviews the estimates within thestudy and monitors actual experience for unusual variances. The appropriate adjustments are made to the accrual, based upon these procedures. Actuarialestimates for the portion of claims not covered by insurance are based on historical claims experience adjusted for loss trending and loss development factors.Changes in the frequency or severity of claims from historical levels could influence the Company’s reserve for claims and its financial position, results ofoperations and cash flows. A 10% increase in the actuarially determined estimate of aggregate future losses would have increased the reserve for these lossesat December 31, 2015, by $2.1 million.The Company’s U.S. auto physical damage insurance coverage is limited and contains two layers of coverage. The first layer is composed of a $10.0million per occurrence company deductible with an annual maximum aggregate deductible of $30.0 million with no maximum payout. The secondary policyprovides for an additional $10.0 million, maximum, in annual loss coverage after the Company has either incurred $20.0 million in company-paiddeductibles related to hail loss, or incurred $5.0 million in company-paid deductibles related to any weather event other than hail.For policy years ended prior to October 31, 2005, the Company’s U.S. workers’ compensation and general liability insurance coverage includedaggregate retention (stop loss) limits in addition to a per claim deductible limit (“Stop Loss Plans”). Due to historical experience in both claims frequencyand severity, the likelihood of breaching the aggregate retention limits described above was deemed remote, and as such, the Company elected not topurchase this stop loss coverage for the policy year beginning November 1, 2005 and for each subsequent year (“No Stop Loss Plans”). The Company’sexposure per claim under the No Stop Loss Plans is limited to $1.0 million per occurrence, with unlimited exposure on the number of claims up to $1.0million that may be incurred. As of December 31, 2015, the Company has accrued $0.3 million and $20.3 million for its Stop Loss and No Stop Loss plans,respectively. The Company’s maximum potential exposure under its worker’s compensation and general liability Stop Loss Plans totaled $34.9 million atDecember 31, 2015, before consideration of amounts previously paid or accruals recorded related to the Company’s loss projections. After consideration ofthe amounts paid or accrued, the remaining potential loss exposure under the Stop Loss Plans totaled $13.9 million at December 31, 2015.Variable Interest EntityIn 2013, the Company entered into arrangements to provide a related-party entity, which owns and operates retail automotive dealerships, a fixed-interest-rate working capital loan and various administrative services for a variable fee, both of which constitute variable interests in the entity. TheCompany’s exposure to loss as a result of its involvement in the entity includes the balance outstanding under the loan arrangement. The Company holds an8% equity ownership interest in the entity. The Company has determined that the entity meets the criteria of a variable interest entity (“VIE”). The terms ofthe loan and services agreements provide the Company with the right to control the activities of the VIE that most significantly impact the VIE’s economicperformance, the obligation to absorb potentially significant losses of the VIE and the right to receive potentially significant benefits from the VIE.Accordingly, the Company qualifies as the VIE’s primary beneficiary and consolidated the assets and liabilities of the VIE as of December 31, 2015 and2014, as well as the results of operations of the VIE beginning on the effective date of the variable interests arrangements to December 31, 2013. Thefloorplan notes payable liability of the VIE is securitized by the new and used vehicle inventory of the VIE. The carrying amounts and classification of assets(which can only be used to settle the liabilities of the VIE) and liabilities (for which creditors do not have recourse to the general credit of the Company)included in the Company’s consolidated statements of financial position for the consolidated VIE is as follows (in thousands): December 31, 2015December 31, 2014Current assets$12,849$19,049Non-current assets11,02231,783Total assets$23,871$50,832Current liabilities$8,257$16,374Non-current liabilities17,06415,955Total liabilities$25,321$32,329Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts withCustomers (Topic 606), that amends the accounting guidance on revenue recognition. The amendments in this ASU are intended to provide a framework foraddressing revenue issues, improve comparability of revenue rF-14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)ecognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reportingperiods beginning after December 15, 2017. The Company is currently evaluating the method of adoption and the impact the provisions of the ASU will haveon its consolidated financial statements.In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis, that amends existingrequirements applicable to reporting entities that are required to evaluate whether certain legal entities should be consolidated. The ASU is effective forinterim and annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may choose to adopt the standard using either a fullretrospective approach or a modified retrospective approach. At this time, the Company does not expect the adoption of this ASU to impact its financialstatements.In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.The amendments in the accounting standard require debt issuance costs to be presented on the balance sheet as a direct reduction from the carrying amount ofthe related debt liability. The amendments in this ASU are to be applied retrospectively and are effective for interim and annual periods beginning afterDecember 15, 2015. Adoption of this ASU will not materially impact the Company’s financial statements.In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) Simplifying the Measurement of Inventory. The amendments in the accountingstandard replace the lower of cost or market test with a lower of cost and net realizable value test. The amendments in this ASU should be appliedprospectively and are effective for interim and annual periods beginning after December 15, 2016. Earlier application is permitted as of the beginning of aninterim or annual reporting period. The Company does not expect the adoption to materially impact its financial statements.In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) Simplifying the Accounting for Measurement-PeriodAdjustments. The amendments in the accounting standard eliminate the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. The amendments also require that the acquirer must recognize adjustments to provisional amounts that are identifiedduring the measurement period in the reporting period in which the adjustment amount is determined, including the effect on earnings of any amounts theywould have recorded in previous periods if the accounting had been completed at the acquisition date. The amendments in this ASU are to be appliedprospectively to adjustments to provisional amounts that occur after the effective date and are effective for interim and annual periods beginning afterDecember 15, 2015. The Company does not expect the adoption to materially impact its financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes that clarifies that in aclassified statement of financial position, an entity shall classify deferred tax liabilities and assets as non-current amounts. The new guidance supersedes ASC740-10-45-5 which required the valuation allowance for a particular tax jurisdiction be allocated between current and non-current deferred tax assets for thattax jurisdiction on a pro rata basis. The new standard will become effective for financial statements issued for annual periods beginning after December 15,2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently assessing the timing of adoption, however theadoption of this update is not expected to have a material impact on its financial statements.3. ACQUISITIONS AND DISPOSITIONSDuring the twelve months ended December 31, 2015, the Company acquired three U.S. dealerships, sold two U.S. dealerships and terminated one U.S.dealership franchise. The Company also terminated two franchises in Brazil. As a result of these dispositions, a net pre-tax gain of $8.2 million wasrecognized for the twelve months ended December 31, 2015.During 2014, the Company acquired seven dealerships and was granted two franchises in the U.S. and also acquired one dealership and opened onedealership for an awarded franchise in Brazil. In addition, the Company acquired three dealerships in the U.K. (collectively, the “2014 Acquisitions”).Aggregate consideration paid for these acquisitions totaled $336.6 million, including associated real estate and new vehicle inventory. The U.S. vehicleinventory associated with the acquisitions was subsequently financed through borrowings under the Company's FMCC Facility and the Floorplan Line (eachas defined in Note 11, “Credit Facilities”), and the Brazil vehicle inventory associated with the acquisitions was subsequently financed through individualmanufacturer captive finance companies. The purchase prices for the 2014 Acquisitions have been allocated as set forth below based upon the considerationpaid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Goodwill associated with the acquisitions wasassigned to the U.S., U.K. and Brazil reportable segments in the amounts of $103.8 million, $18.7 million and zero, respectively.F-15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of Acquisition Date (In thousands)Inventory$132,180Other current assets6,601Property and equipment78,562Goodwill & intangible franchise rights185,307Deferred tax asset7,063Total assets$409,713Current liabilities$59,912Long-term debt13,250Total liabilities$73,162The intangible franchise rights are expected to continue for an indefinite period, therefore these rights are not amortized. These intangible assets will beevaluated on an annual basis in accordance with Accounting Standards Codification (“ASC”) 350. Goodwill represents the excess of consideration paidcompared to the fair value of net assets received in the acquisitions. The goodwill associated with the 2014 Acquisitions relative to the U.S. reportablesegment is deductible for tax purposes; however, the goodwill associated with the 2014 Acquisitions relative to the U.K. reportable segment is not currentlydeductible for tax purposes.During the year ended December 31, 2014, the Company disposed of seven dealerships and one franchise in the U.S. and three dealerships in Brazil. Asa result of these dispositions including the associated real estate, a pre-tax net gain of $13.3 million was recognized for the year ended December 31, 2014.Aggregate consideration received for these dealerships totaled $144.6 million.In February 2013, the Company purchased all of the outstanding stock of UAB Motors. At the time of acquisition, UAB Motors consisted of 18dealerships and 22 franchises in Brazil, as well as five collision centers. In conjunction with the acquisition, the Company incurred $6.5 million of costs,primarily related to professional services associated with the Brazil transaction. The Company included these costs in SG&A in the Consolidated Statementof Operations for the year ended December 31, 2013. As discussed in Note 2, “Summary of Significant Accounting Policies and Estimates,” in connectionwith this acquisition, the Company entered into arrangements that are variable interests in a VIE. The Company qualifies as the primary beneficiary of theVIE. The consolidation of the VIE into the financial statements of the Company was accounted for as a business combination. In addition, during 2013, theCompany acquired certain assets of four dealerships in the U.K. and nine dealerships in the U.S. (collectively, the “2013 Acquisitions”).Aggregate consideration paid for the 2013 Acquisitions totaled $350.2 million, including $269.9 million of cash and 1.39 million shares of theCompany’s common stock. The consideration included amounts paid for vehicle inventory, parts inventory, equipment, and furniture and fixtures, as well asthe purchase of some of the associated real estate. The vehicle inventory acquired in the U.K. acquisitions was subsequently financed through borrowingsunder the Company’s credit facility with Volkswagen Finance and the vehicle inventory acquired in the U.S. acquisitions was subsequently financed throughborrowings under the Company’s FMCC Facility and the Floorplan Line, (each as defined in Note 11, “Credit Facilities”). The Company assumed, inconjunction with the Brazil acquisitions, the arrangements through individual manufacturer captive finance companies used to finance vehicle inventory andalso assumed debt in conjunction with certain of the acquisitions, of which $65.1 million was contemporaneously extinguished. In conjunction with the debtextinguishment, the Company recognized a loss of $0.8 million that is included in other expense, net on the Consolidated Statement of Operations for theyear ended December 31, 2013. The purchase prices for the 2013 Acquisitions have been allocated as set forth below based upon the consideration paid andthe estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Goodwill associated with the acquisitions was assigned to theU.S., U.K. and Brazil reportable segments in the amounts of $56.2 million, $1.5 million and $129.4 million, respectively.F-16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of Acquisition Date (In thousands)Current assets$26,884Inventory164,655Property and equipment72,328Goodwill & intangible franchise rights305,876Other assets864Total assets$570,607Current liabilities$123,025Deferred income taxes28,738Long-term debt68,639Total liabilities$220,402The Company sold six dealerships and one franchise in the U.S. during the year ended December 31, 2013. Gross consideration received for thesedispositions was $97.5 million. As a result of the dispositions, a pre-tax net gain of $10.2 million was recognized for the year ended December 31, 2013.4. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIESThe periodic interest rates of the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”), the Real Estate Credit Facility (as defined inNote 12, “Long-term Debt”), and certain variable-rate real estate related borrowings are indexed to the one-month LIBOR plus an associated company creditrisk rate. In order to minimize the earnings variability related to fluctuations in these rates, the Company employs an interest rate hedging strategy, whereby itenters into arrangements with various financial institutional counterparties with investment grade credit ratings, swapping its variable interest rate exposurefor a fixed interest rate over terms not to exceed the related variable-rate debt.As of December 31, 2015 and December 31, 2014, the Company held interest rate swaps in effect of $581.7 million and $563.0 million, respectively, innotional value that fixed its underlying one-month LIBOR at a weighted average rate of 2.7% and 2.5%, respectively. Of the $581.7 million in notional valueof swaps in effect as of December 31, 2015, $244.6 million became effective during the year ended December 31, 2015. These interest rate swaps expire asfollows: $151.6 million in 2016, $251.6 million in 2017, $151.6 million in 2018, $1.6 million in 2019, $1.6 million in 2020, $9.9 million in 2021 and $13.7million in 2022. For the years ended December 31, 2015, 2014 and 2013, respectively, the impact of the Company’s interest rate hedges in effect increasedfloorplan interest expense by $11.5 million, $9.8 million, and $9.9 million. Total floorplan interest expense was $39.3 million, $41.6 million, and $41.7million for the years ended December 31, 2015, 2014 and 2013, respectively.In addition to the $581.7 million of swaps in effect as of December 31, 2015, the Company held 13 additional interest rate swaps with forward startdates between December 2016 and January 2019 and expiration dates between December 2019 and December 2021. As of December 31, 2015, the aggregatenotional value of these 13 forward-starting swaps was $650.0 million, and the weighted average interest rate was 2.6%. Of the $650.0 million in notionalvalue of forward-starting swaps, $100.0 million was added in the year ended December 31, 2015. The combination of the interest rate swaps currently ineffect and these forward-starting swaps is structured such that the notional value in effect at any given time through October 2022 does not exceed $779.7million, which is less than the Company’s expectation for variable rate debt outstanding during such period.As of December 31, 2015 and December 31, 2014, the Company reflected liabilities from interest rate risk management activities of $31.2 million and$28.7 million, respectively, in its Consolidated Balance Sheets. Included in Accumulated Other Comprehensive Loss at December 31, 2015, 2014 and 2013,were accumulated unrealized losses, net of income taxes, totaling $19.5 million, $17.9 million, and $13.9 million, respectively, related to these interest rateswaps. As of December 31, 2015 and 2014, all of the Company’s derivative contracts that were in effect were determined to be effective. The Company hadno gains or losses related to ineffectiveness or amounts excluded from effectiveness testing recognized in the Consolidated Statements of Operations for theyears ended December 31, 2015, 2014, or 2013, respectively. The following table presents the impact during the current and comparative prior year periodsfor the Company’s derivative financial instruments on its Consolidated Statements of Operations and Consolidated Balance Sheets. Amount of Unrealized Gain (Loss),Net of Tax, Recognized in OCI Year Ended December 31, 2015 2014 2013 (In thousands)Derivatives in Cash Flow Hedging Relationship Interest rate swap contracts $(9,856) $(11,153) $6,112 Amount of Loss Reclassified from OCIinto Statement of Operations Year Ended December 31, 2015 2014 2013 (In thousands)Location of Loss Reclassified from OCI into Statements of Operations Floorplan interest expense $(11,486) $(9,837) $(9,938)Other interest expense (1,814) (1,513) (1,213)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The amount expected to be reclassified out of other comprehensive income (loss) into earnings as additional floorplan interest expense or other interestexpense in the next twelve months is $11.8 million.5. STOCK-BASED COMPENSATION PLANSThe 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 (the "Purchase Plan", formerly named the 1998Employee Stock Purchase Plan).Long Term Incentive PlanThe Incentive Plan provides for the grant of options (including options qualified as incentive stock options under the Internal Revenue Code of 1986and 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 theCompensation Committee of the Company’s Board of Directors. As of December 31, 2015, there were 1,454,675 shares available for issuance under theIncentive Plan.Restricted Stock AwardsUnder the Incentive Plan, the Company grants to non-employee directors and certain employees restricted stock awards or, at their election, restrictedstock units at no cost to the recipient. Restricted stock awards qualify as participating securities as each award contains non-forfeitable rights to dividends. Assuch, the two-class method is required for the computation of earnings per share. See Note 6, “Earnings Per Share,” for further details. Restricted stock awardsare considered outstanding at the date of grant but are subject to vesting periods upon issuance up to five years. Restricted stock units are considered vestedat the time of issuance, however, since they cannot vote, they are not considered outstanding when issued. Restricted stock units settle in cash upon thetermination of the grantees’ employment or directorship. In the event an employee or non-employee director terminates his or her employment or directorshipwith the Company prior to the lapse of the restrictions, the shares, in most cases, will be forfeited to the Company. The Company issues new shares or treasuryshares, if available, when restricted stock vests. Compensation expense for restricted stock awards is calculated based on the market price of the Company’scommon stock at the date of grant and recognized over the requisite service period. Forfeitures are estimated at the time of valuation and reduce expenseratably over the vesting period. This estimate is adjusted annually based on the extent to which actual or expected forfeitures differ from the previousestimate.A summary of the restricted stock awards as of December 31, 2015, along with the changes during the year then ended, is as follows:F-17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Awards Weighted AverageGrant DateFair ValueNonvested at December 31, 2014 911,350 $58.86Granted 298,873 83.92Vested (273,113) 51.06Forfeited (43,750) 67.62Nonvested at December 31, 2015 893,360 $69.16The total fair value of restricted stock awards which vested during the years ended December 31, 2015, 2014 and 2013, was $13.9 million, $12.1million and $9.8 million, respectively.Employee Stock Purchase PlanDuring the twelve months ended December 31, 2015, our shareholders and the Board of Directors approved an additional 1.0 million shares of commonstock for issuance under the Purchase Plan. As a result, the Purchase Plan authorizes the issuance of up to 4.5 million shares of common stock and providesthat 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 theCompany and its participating subsidiaries and is a qualified plan as defined by Section 423 of the Internal Revenue 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 valueof the common stock on the first or the last day of the Option Period, whichever is lower. As of December 31, 2015, there were 1,414,681 shares available forissuance under the Purchase Plan. During the years ended December 31, 2015, 2014 and 2013, the Company issued 102,029, 103,254, and 104,295 shares,respectively, of common stock to employees participating in the Purchase Plan. With respect to shares issued under the Purchase Plan, the Company’s Boardof Directors has authorized specific share repurchases to fund the shares issuable under the Purchase Plan.The weighted average fair value of employee stock purchase rights issued pursuant to the Purchase Plan was $18.56, $15.15, and $14.37 during theyears ended December 31, 2015, 2014 and 2013, respectively. The fair value of stock purchase rights is calculated using the grant date stock price, the valueof the embedded call option and the value of the embedded put option.Stock-Based CompensationTotal stock-based compensation cost was $18.9 million, $16.0 million, and $13.9 million for the years ended December 31, 2015, 2014 and 2013,respectively. Total income tax benefit recognized for stock-based compensation arrangements was $5.3 million, $4.4 million, and $3.7 million for the yearsended December 31, 2015, 2014 and 2013, respectively.As of December 31, 2015, there was $46.8 million of total unrecognized compensation cost related to stock-based compensation arrangements which isexpected to be recognized over a weighted-average period of 3.4 years.Cash received from Purchase Plan purchases was $7.2 million, $6.0 million and $5.6 million for the years ended December 31, 2015, 2014 and 2013,respectively. The tax benefit realized for the tax deductions from options exercised and vesting of restricted shares totaled $2.1 million, $1.8 million and $3.0million and increased additional paid in capital for the years ended December 31, 2015, 2014 and 2013, respectively.Tax benefits relating to excess stock-based compensation deductions are presented as a financing cash inflow, so the Company classified $2.1 million,$1.8 million and $3.0 million of excess tax benefits as an increase in financing activities and a corresponding decrease in operating activities in theConsolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013, respectively.6. EARNINGS PER SHAREThe two-class method is utilized for the computation of EPS. The two-class method requires a portion of net income to be allocated to participatingsecurities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents, including theCompany’s restricted stock awards. Income allocated to these participating securities is excluded from net earnings available to common shares, as shown inthe table below. Basic EPS is computed by dividing net income available to basic common shares by the weighted average number of basic common sharesoutstanding during the period. Diluted EPS is computed by dividing net income available to diluted common shares by the weighted average number ofdilutive common shares outstanding during the period.The following table sets forth the calculation of EPS for the years ended December 31, 2015, 2014, and 2013:F-18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2015 2014 2013 (In thousands, except per shareamounts)Weighted average basic common shares outstanding 23,148 23,380 23,096Dilutive effect of contingently convertible notes and warrants — 1,499 2,213Dilutive effect of employee stock purchases, net of assumed repurchase oftreasury stock 4 6 5Weighted average dilutive common shares outstanding 23,152 24,885 25,314Basic: Net income $93,999 $93,004 $113,992Less: Earnings allocated to participating securities 3,595 3,643 4,963Earnings available to basic common shares $90,404 $89,361 $109,029Basic earnings per common share $3.91 $3.82 $4.72Diluted: Net income $93,999 $93,004 $113,992Less: Earnings allocated to participating securities 3,595 3,468 4,599Earnings available to diluted common shares $90,404 $89,536 $109,393Diluted earnings per common share $3.90 $3.60 $4.32As discussed in Note 12, “Long-Term Debt,” the Company was required to include the dilutive effect, if applicable, of the net shares issuable under the2.25% and 3.00% Notes, as well as the 2.25% and 3.00% Warrants (as defined in Note 12) sold in connection with the respective notes, in its diluted commonshares outstanding for the diluted earnings calculation, during the period in which each was outstanding. As a result, the number of shares included in theCompany’s diluted shares outstanding each period varied based upon the Company’s average adjusted closing common stock price during the applicableperiod. Although the 2.25% and 3.00% Purchased Options (as defined in Note 12) had the economic benefit of decreasing the dilutive effect of the 2.25%and 3.00% Notes, the Company did not factor this benefit into the diluted common shares outstanding for the diluted earnings calculation since the impactwould have been anti-dilutive. The average adjusted closing price of the Company's common stock for the first three quarters of 2014 and each quarter of2013 was more than the respective conversion prices then in effect at the end of the periods for both the 2.25% and 3.00% Notes. Therefore, the dilutive effectof the 2.25% and 3.00% Notes was included in the computation of diluted EPS for such periods. In addition, the dilutive effect of the 2.25% and 3.00%Warrants was also included in the computation of diluted EPS for the first three quarters of 2014 and each quarter of 2013.The 2.25% Notes and 2.25% Warrants were converted or redeemed and settled, respectively, during the three months ended September 30, 2014. The3.00% Notes and 3.00% Warrants were repurchased during the second and third quarters of 2014. As a result, the dilution is calculated based on the weightedaverage length of time the 2.25% and 3.00% Notes, as well as the 2.25% and 3.00% Warrants were outstanding during the twelve months ended December31, 2014. Refer to Note 12, "Long-Term Debt," for a description of the conversion of the 2.25% Notes and Warrants that occurred during the three monthsended September 30, 2014, as well as the repurchase of the 3.00% Notes and Warrants that occurred during 2014.7. INCOME TAXESIncome before income taxes by geographic area was as follows: Year Ended December 31, 2015 2014 2013 (In thousands)Domestic $231,798 $174,964 $176,156Foreign (49,627) (10,564) 15,739Total income before income taxes $182,171 $164,400 $191,895Federal, state and foreign income taxes were as follows:F-19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2015 2014 2013 (In thousands)Federal: Current $66,973 $49,590 $44,785Deferred 15,528 22,549 19,773State: Current 5,165 4,849 4,231Deferred 1,768 727 2,026Foreign: Current 4,150 4,638 6,475Deferred (5,412) (10,957) 613Provision for income taxes $88,172 $71,396 $77,903Actual income tax expense differed from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 35% to incomebefore income taxes in 2015, 2014 and 2013 as follows: Year Ended December 31, 2015 2014 2013 (In thousands)Provision at the U.S. federal statutory rate $63,760 $57,540 $67,163Increase (decrease) resulting from: State income tax, net of benefit for federal deduction 4,448 5,267 4,228Foreign income tax rate differential (2,002) (3,188) (538)Employment credits (407) (481) (421)Changes in valuation allowances 14,667 9,507 2,713Non-deductible goodwill 4,651 — 1,355Deductible goodwill — (10,209) —Non-deductible transaction costs — — 1,064Stock-based compensation 386 245 282Convertible debt redemption — 9,727 —Other 2,669 2,988 2,057Provision for income taxes $88,172 $71,396$77,903During 2015, the Company recorded a tax provision of $88.2 million. Certain expenses for stock-based compensation recorded in 2015 in accordancewith FASB guidance were non-deductible for income tax purposes. The Company provided additional valuation allowances with respect to goodwill and netoperating losses of certain Brazil subsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. Inaddition, no substantial deferred tax benefit relative to the impairment of goodwill in the Brazil reporting unit was recognized for U.S. GAAP reportingpurposes. As a result of these items, and the impact of the 2014 items discussed below, the effective tax rate for the year ended December 31, 2015 increasedto 48.4%, as compared to 43.4% for the year ended December 31, 2014.During 2014, the Company recorded a tax provision of $71.4 million. Certain expenses for stock-based compensation recorded in 2014 in accordancewith FASB guidance were non-deductible for income tax purposes. The Company also had non-deductible goodwill from the dispositions of certain domesticdealerships, as well as non-deductible transaction costs related to foreign acquisitions. The Company provided valuation allowances with respect to certainforeign company deferred tax assets, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of theseitems, and the impact of the items occurring in 2013 discussed below, the effective tax rate for the year ended December 31, 2014 increased to 43.4%, ascompared to 40.6% for the year ended December 31, 2013.During 2013, the Company recorded a tax provision of $77.9 million. Certain expenses for stock-based compensation recorded in 2013 in accordancewith FASB guidance were non-deductible for income tax purposes. The Company provided valuation allowances with respect to certain state net operatinglosses in the U.S. based on expectations concerning theirF-20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)realizability. As a result of these items, and the impact of certain items occurring in 2012, the effective tax rate for the year ended December 31, 2013increased to 40.6%, as compared to 37.7% for the year ended December 31, 2012.Deferred income tax provisions resulted from temporary differences in the recognition of income and expenses for financial reporting purposes and fortax purposes. The tax effects of these temporary differences representing deferred tax assets/liabilities resulted principally from the following: December 31, 2015 2014 (In thousands)Deferred tax assets: Loss reserves and accruals $53,747 $50,158Interest rate swaps 11,671 10,745Goodwill and intangible franchise rights 7,621 —U.S. state net operating loss (“NOL”) carryforwards 17,413 16,592Foreign NOL carryforwards 20,408 21,770Deferred tax assets 110,860 99,265Valuation allowance on deferred tax assets (46,547) (40,486)Net deferred tax assets $64,313 $58,779Deferred tax liabilities: Goodwill and intangible franchise rights $(143,509) $(138,992)Depreciation expense (53,619) (43,070)Deferred gain on bond redemption (1,535) (2,046)Other (1,060) (1,936)Deferred tax liabilities (199,723) (186,044)Net deferred tax liability $(135,410) $(127,265)As of December 31, 2015, the Company had state NOL carryforwards in the U.S. of $258.0 million that will expire between 2016 and 2035, and foreignNOL carryforwards of $62.4 million that may be carried forward indefinitely. To the extent that the Company expects that net income will not be sufficient torealize these NOLs in certain jurisdictions, a valuation allowance has been established.The Company had gross long-term deferred tax liabilities of $215.3 million and $202.1 million, including $2.1 million and $9.6 million related tolong-term foreign deferred tax liabilities, as of December 31, 2015 and 2014, respectively. The Company had gross long-term deferred tax assets of $65.8million and $63.7 million as of December 31, 2015 and 2014, respectively. The Company believes it is more likely than not, that its deferred tax assets, net ofvaluation allowances provided, will be realized, based primarily on our expectation of future taxable income, considering future reversals of existing taxabletemporary differences, as well as the availability of taxable income in prior years to carry back losses to recover taxes previously paid.As of December 31, 2015, the Company has not provided for U.S. deferred taxes on $31.7 million of undistributed earnings and associated withholdingtaxes of its foreign subsidiaries, as the Company has taken the position that its foreign earnings will be permanently reinvested outside the U.S. If adistribution of those earnings were to be made, the Company may be subject to both foreign withholding taxes and U.S. income taxes, net of any allowableforeign tax credits or deductions, of up to approximately $7.7 million.The Company is subject to income tax in U.S. federal and numerous state jurisdictions, as well as in the U.K. and Brazil. Based on applicable statutes oflimitations, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2011, by U.K. tax authorities in years prior to2011 and by Brazil tax authorities in years prior to 2010.The Company had no unrecognized tax benefits as of December 31, 2015 and 2014.The Company did not incur any interest and penalties nor accrue any interest for the years ended December 31, 2015 and 2014. When applicable,consistent with prior practices, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.F-21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)8. ACCOUNTS AND NOTES RECEIVABLEThe Company’s accounts and notes receivable consisted of the following: December 31, 2015 2014 (In thousands)Amounts due from manufacturers $93,206 $86,062Parts and service receivables 32,479 35,034Finance and insurance receivables 22,374 20,898Other 12,913 12,977Total accounts and notes receivable 160,972 154,971Less allowance for doubtful accounts 3,204 3,641Accounts and notes receivable, net $157,768 $151,3309. INVENTORIESThe Company’s inventories consisted of the following: December 31, 2015 2014 (In thousands)New vehicles $1,262,797 $1,137,478Used vehicles 275,508 254,939Rental vehicles 134,509 103,184Parts, accessories and other 72,917 67,466Total inventories 1,745,731 1,563,067Less lower of cost or market reserves 7,980 6,362Inventories, net $1,737,751 $1,556,705F-22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)10. PROPERTY AND EQUIPMENTThe Company’s property and equipment consisted of the following: EstimatedUseful Livesin Years December 31, 2015 2014 (In thousands)Land — $364,475 $328,474Buildings 30 to 40 505,414 482,496Leasehold improvements varies 155,585 134,658Machinery and equipment 7 to 20 90,993 87,728Furniture and fixtures 3 to 10 82,688 77,581Company vehicles 3 to 5 11,603 10,706Construction in progress — 58,361 32,115Total 1,269,119 1,153,758Less accumulated depreciation and amortization 235,138 203,370Property and equipment, net $1,033,981 $950,388During 2015, the Company acquired $9.8 million of property and equipment associated with dealership acquisitions, including $8.5 million for land.In addition to these acquisitions, the Company incurred $107.2 million of capital expenditures for the purchase of furniture, fixtures, and equipment andconstruction or renovation of facilities, excluding $21.2 million of capital expenditures accrued as of December 31, 2014. During the year ended December31, 2015, the Company accrued $32.7 million of capital expenditures. The Company also purchased real estate (including land and buildings) associatedwith existing dealership operations totaling $24.6 million.As of December 31, 2015, the Company determined that certain real estate qualified as held-for-sale. As a result, the Company classified the carryingvalue of the real estate, totaling $1.4 million, in prepaid and other current assets in its Consolidated Balance Sheets.During 2014, the Company acquired $80.5 million of property and equipment associated with dealership acquisitions, including $34.2 million for landand $41.0 million for buildings. In addition to these acquisitions, the Company incurred $97.7 million of capital expenditures for the purchase of furniture,fixtures, and equipment and construction or renovation of facilities, excluding $11.2 million of capital expenditures accrued as of December 31, 2013.During the year ended December 31, 2014, the Company accrued $21.2 million of capital expenditures. The Company also purchased real estate (includingland and buildings) associated with existing dealership operations totaling $62.7 million.As of December 31, 2014, the Company determined that certain real estate qualified as held-for-sale. As a result, the Company classified the carryingvalue of the real estate, totaling $4.0 million, in prepaid and other current assets in its Consolidated Balance Sheets.Depreciation and amortization expense, including amortization of capital leases, totaled $47.2 million, $42.3 million, and $35.8 million for the yearsended December 31, 2015, 2014, and 2013, respectively. As of December 31, 2015 and 2014, $69.6 million, and $67.5 million of buildings under capitalleases were recorded as property and equipment, before accumulated depreciation, respectively.11. CREDIT FACILITIESIn the U.S., the Company has a $1.7 billion revolving syndicated credit arrangement that expires on June 20, 2018 and is comprised of 24 financialinstitutions, including six manufacturer-affiliated finance companies (“Revolving Credit Facility”). The Company also has a $300.0 million floorplanfinancing arrangement (“FMCC Facility”) with Ford Motor Credit Company (“FMCC”) for financing of new Ford vehicles in the U.S. and other floorplanfinancing arrangements with several other automobile manufacturers for financing of a portion of its U.S. rental vehicle inventory. In the U.K., the Companyhas financing arrangements with BMW Financial Services, Volkswagen Finance and FMCC for financing of its new and used vehicles. In Brazil, theCompany has financing arrangements for new, used, and rental vehicles with several financial institutions, most of which are manufacturer affiliated. Withinthe Company’s Consolidated Balance Sheets, Floorplan notes payable - credit facility and other primarily reflects amounts payable for the purchase ofspecific new, used and rental vehicle inventory (with the exception of new and rental vehicle purchases financed through lenders affiliated with therespective manufacturer) wherebyF-23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)financing is provided by the Revolving Credit Facility. Floorplan notes payable - manufacturer affiliates reflects amounts related to the purchase of vehicleswhereby financing is provided by the FMCC Facility, the financing of rental vehicles in the U.S., as well as the financing of new, used, and rental vehicles inboth 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 theaccompanying Consolidated Balance Sheets as current liabilities. The outstanding balances under these financing arrangements were as follows: December 31, 2015 2014 (In thousands)Floorplan notes payable — credit facility and other New vehicles $1,094,130 $970,075Used vehicles 142,703 125,085Rental vehicles 24,773 42,582Floorplan offset (110,759) (39,616)Total floorplan notes payable - credit facility 1,150,847 1,098,126Other floorplan notes payable 4,113 5,504Total floorplan notes payable - credit facility and other $1,154,960 $1,103,630Floorplan notes payable — manufacturer affiliates FMCC Facility $196,807 $150,183Floorplan offset (25,500) (22,500)Total FMCC Facility 171,307 127,683Foreign and rental vehicles 192,264 157,473Total $363,571 $285,156Revolving Credit FacilityThe Revolving Credit Facility consists of two tranches, providing a maximum of $1.6 billion for U.S. vehicle inventory floorplan financing (“FloorplanLine”), as well as a maximum of $320.0 million and a minimum of $100.0 million for working capital and general corporate purposes, including acquisitions(“Acquisition Line”). The capacity under these two tranches can be re-designated within the overall $1.7 billion commitment, subject to the aforementionedlimits. Up to $125.0 million of the Acquisition Line can be borrowed in either euros or British pound sterling. The Revolving Credit Facility can beexpanded to a maximum commitment of $1.95 billion, subject to participating lender approval. The Floorplan Line bears interest at rates equal to the LIBORplus 125 basis points for new vehicle inventory and the LIBOR plus 150 basis points for used vehicle inventory. The Acquisition Line bears interest at theLIBOR plus 150 basis points plus a margin that ranges from zero to 100 basis points, depending on the Company’s total adjusted leverage ratio, forborrowings in U.S. dollars and a LIBOR equivalent plus 150 to 250 basis points, depending on the Company’s total adjusted leverage ratio, on borrowings ineuros or British pound sterling. The Floorplan Line requires a commitment fee of 0.20% per annum on the unused portion. Amounts borrowed by theCompany under the Floorplan Line for specific vehicle inventory are to be repaid upon the sale of the vehicle financed, and in no case is a borrowing for avehicle to remain outstanding for greater than one year. The Acquisition Line also requires a commitment fee ranging from 0.25% to 0.45% per annum,depending on the Company’s total adjusted leverage ratio, based on a minimum commitment of $100.0 million less outstanding borrowings. In conjunctionwith the Revolving Credit Facility, the Company has $3.7 million of related unamortized costs as of December 31, 2015, which are included in Prepaidexpenses and other current assets and Other Assets on the accompanying Consolidated Balance Sheets and amortized over the term of the facility.After considering the outstanding balance of $1,150.8 million at December 31, 2015, the Company had $229.2 million of available floorplanborrowing capacity under the Floorplan Line. Included in the $229.2 million available borrowings under the Floorplan Line was $110.8 million ofimmediately available funds. The weighted average interest rate on the Floorplan Line was 1.7% and 1.4% as of December 31, 2015 and 2014, respectively,excluding the impact of the Company’s interest rate swaps. With regards to the Acquisition Line, there were no borrowings outstanding as of December 31,2015. After considering $41.9 million of outstanding letters of credit and other factors included in the Company’s available borrowing base calculation, therewas $278.2 million of available borrowing capacity under the Acquisition Line as of December 31, 2015. The amount of available borrowing capacity underthe Acquisition Line is limited from time to time based upon certain debt covenants.F-24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)All of the U.S. dealership-owning subsidiaries are co-borrowers under the Revolving Credit Facility. The Company’s obligations under the RevolvingCredit 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 withmanufacturer-affiliates and other third-party financing institutions. The Revolving Credit Facility contains a number of significant covenants that, amongother 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 andratios defined in the Revolving Credit Facility, such as the fixed charge coverage, total adjusted leverage, and senior secured 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 $125.0 million plus (or minus if negative)(a) one-half of the aggregate consolidated net income for the period beginning on January 1, 2013 and ending on the date of determination and (b) theamount of net cash proceeds received from the sale of capital stock on or after January 1, 2013 and ending on the date of determination less (c) cashdividends and share repurchases (“Restricted Payment Basket”). For purposes of the calculation of the Restricted Payment Basket, net income represents suchamounts per the consolidated financial statements adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash assetimpairment charges, and non-cash stock-based compensation. As of December 31, 2015, the Restricted Payment Basket totaled $144.7 million.As of December 31, 2015 and 2014, the Company was in compliance with all applicable covenants and ratios under the Revolving Credit Facility.Ford Motor Credit Company FacilityThe FMCC Facility provides for the financing of, and is collateralized by, the Company’s Ford new vehicle inventory in the U.S., including affiliatedbrands. This arrangement provides for $300.0 million of floorplan financing and is an evergreen arrangement that may be canceled with 30 days’ notice byeither party. As of December 31, 2015, the Company had an outstanding balance of $171.3 million under the FMCC Facility with an available floorplanborrowing capacity of $128.7 million. Included in the $128.7 million available borrowings under the FMCC Facility was $25.5 million of immediatelyavailable funds. This facility bears interest at a rate of Prime plus 150 basis points minus certain incentives. The interest rate on the FMCC Facility was 4.75%before considering the applicable incentives as of December 31, 2015 and 2014.Other Credit FacilitiesThe Company has credit facilities with BMW Financial Services, Volkswagen Finance and FMCC for the financing of new, used and rental vehicleinventories related to its U.K. operations. These facilities are denominated in British pound sterling and are evergreen arrangements that may be canceledwith notice by either party and bear interest at a base rate, plus a surcharge that varies based upon the type of vehicle being financed. The annual interest ratescharged on borrowings outstanding under these facilities ranged from 1.15% to 3.95% as of December 31, 2015.The Company has credit facilities with financial institutions in Brazil, most of which are affiliated with the manufacturers, for the financing of new, usedand rental vehicle inventories related to its Brazil operations. These facilities are denominated in Brazilian real and have renewal terms ranging from onemonth to twelve months. They may be canceled with notice by either party and bear interest at a benchmark rate, plus a surcharge that varies based upon thetype of vehicle being financed. As of December 31, 2015, the annual interest rates charged on borrowings outstanding under these facilities ranged from16.77% to 25.19%.Excluding rental vehicles financed through the Revolving Credit Facility, financing for U.S. rental vehicles is typically obtained directly from theautomobile manufacturers. These financing arrangements generally require small monthly payments and mature in varying amounts over a period of twoyears. As of December 31, 2015, the interest rate charged on borrowings related to the Company’s rental vehicle fleet varied up to 5.00%. Rental vehicles aretypically transferred to used vehicle inventory when they are removed from service and repayment of the borrowing is required at that time.F-25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)12. LONG-TERM DEBTThe Company carries its long-term debt at face value, net of applicable discounts. Long-term debt consisted of the following: December 31, 2015 2014 (In thousands)5.00% Senior Notes (principal of $550,000 at December 31, 2015 and 2014, respectively) $541,252 $540,1005.25% Senior Notes (principal of $300,000 at December 31, 2015) 296,274 —Real Estate Credit Facility 54,663 58,003Acquisition Line — 69,713Other real estate related and long-term debt 311,568 358,271Capital lease obligations related to real estate, maturing in varying amounts through June 2034 with aweighted average interest rate of 9.8% 51,902 55,380 1,255,659 1,081,467Less current maturities of long-term debt 52,223 72,630 $1,203,436 $1,008,837Included in current maturities of long-term debt and short-term financing in the Company’s Consolidated Balance Sheets for the years endedDecember 31, 2015 and 2014 was $3.0 million and zero, respectively, of short-term financing that was due within one year.5.00% Senior NotesOn June 2, 2014, the Company issued $350.0 million aggregate principal amount of its 5.00% Senior Notes due 2022 (“5.00% Notes”). Subsequently,on September 9, 2014, the Company issued an additional $200.0 million of 5.00% Notes at a discount of 1.5% from face value. The 5.00% Notes will matureon June 1, 2022 and pay interest semiannually, in arrears, in cash on each June 1 and December 1, beginning December 1, 2014. Using proceeds of certainequity offerings, the Company may redeem up to 35.0% of the 5.00% Notes prior to June 1, 2017, subject to certain conditions, at a redemption price equalto 105% of principal amount of the 5.00% Notes plus accrued and unpaid interest. Otherwise, the Company may redeem some or all of the 5.00% Notes priorto June 1, 2017 at a redemption price equal to 100% of the principal amount of the 5.00% Notes redeemed, plus an applicable premium, and plus accrued andunpaid interest. On or after June 1, 2017, the Company may redeem some or all of the 5.00% Notes at specified prices, plus accrued and unpaid interest. TheCompany may be required to purchase the 5.00% Notes if it sells certain assets or triggers the change in control provisions defined in the 5.00% Notesindenture. The 5.00% Notes are senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and future senior unsecureddebt and senior in right of payment to all of its future subordinated debt. The 5.00% Notes are guaranteed by substantially all of the Company’s U.S.subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to all of the Company’s U.S. subsidiary guarantor’s existing and futuresubordinated debt. In addition, the 5.00% Notes are structurally subordinated to the liabilities of its non-guarantor subsidiaries and are subject to customarycovenants, including a restricted payment basket and debt limitations. The restricted payment basket under the terms of the 5.00% Notes is less restrictivethan the Restricted Payment Basket.In connection with the issuance of the 5.00% Notes, the Company entered into registration rights agreements (the “Registration Rights Agreements”)with the initial purchasers. Pursuant to the Registration Rights Agreements, the Company agreed to file a registration statement with the Securities andExchange Commission, so that holders of the 5.00% Notes could exchange the 5.00% Notes for registered 5.00% Notes that have substantially identicalterms as the 5.00% Notes. The Company also agreed to use commercially reasonable efforts to cause the exchange to be completed by June 2, 2015, or berequired to pay additional interest. In June 2015, the Company completed the exchange.Underwriters’ fees and the discount relative to the $550.0 million totaled $10.4 million, which were recorded as a reduction of the 5.00% Notesprincipal balance and are being amortized over a period of eight years. The 5.00% Notes are presented net of unamortized underwriter fees and discount of$8.7 million as of December 31, 2015. In connection with the issuance of the 5.00% Notes, the Company capitalized $2.6 million of debt issuance costs,which are included in Other Assets on the accompanying Consolidated Balance Sheets and amortized over a period of eight years. Unamortized debt issuancecosts as of December 31, 2015 totaled $2.0 million.F-26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)5.25% Senior NotesOn December 8, 2015, the Company issued 5.25% senior unsecured notes with a face amount of $300.0 million due to mature on December 15, 2023(“5.25% Notes”). The 5.25% Notes pay interest semiannually, in arrears, in cash on each June 15 and December 15, beginning June 15, 2016. Using proceedsof certain equity offerings, the Company may redeem up to 35.0% of the 5.25% Notes prior to December 15, 2018, subject to certain conditions, at aredemption price equal to 105.25% of principal amount of the 5.25% Notes plus accrued and unpaid interest. Otherwise, the Company may redeem some orall of the 5.25% Notes prior to December 15, 2018 at a redemption price equal to 100% of the principal amount of the 5.25% Notes redeemed, plus anapplicable make-whole premium, and plus accrued and unpaid interest. On or after December 15, 2018, the Company may redeem some or all ofthe 5.25% Notes at specified prices, plus accrued and unpaid interest. The Company may be required to purchase the 5.25% Notes if it sells certain assets ortriggers the change in control provisions defined in the 5.25% Notes indenture. The 5.25% Notes are senior unsecured obligations and rank equal in right ofpayment to all of the Company’s existing and future senior unsecured debt and senior in right of payment to all of its future subordinated debt.The 5.25% Notes are guaranteed by substantially all of the Company’s U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of paymentto all of the Company’s U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, the 5.25% Notes are structurally subordinated to theliabilities of its non-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restrictedpayment basket under the terms of the 5.25% Notes is less restrictive than the Restricted Payment Basket.Underwriters' fees relative to the 5.25% Notes issuance totaled $3.8 million, which were recorded as a reduction of the 5.25% Notes principal balanceand are being amortized over a period of eight years. The 5.25% Notes are presented net of unamortized underwriter fees of $3.7 million as of December 31,2015. At the time of issuance of the 5.25% Notes, the Company capitalized $1.1 million of debt issuance costs, which are included in Other Assets on theaccompanying Consolidated Balance Sheets and amortized over a period of eight years. Unamortized debt issuance costs as of December 31,2015 totaled $1.1 million.Real Estate Credit FacilityGroup 1 Realty, Inc., a wholly-owned subsidiary of the Company, is party to a real estate credit facility with Bank of America, N.A. and Comerica Bank(the “Real Estate Credit Facility”) providing the right for term loans to finance real estate purchases. As of December 31, 2015, $25.0 million of term loanborrowings remained available. The term loans can be expanded provided that (a) no default or event of default exists under the Real Estate Credit Facility;(b) the Company obtains commitments from the lenders who would qualify as assignees for such increased amounts; and (c) certain other agreed upon termsand conditions have been satisfied. The Real Estate Credit Facility is guaranteed by the Company and substantially all of the existing and future domesticsubsidiaries of the Company and is secured by the real property owned by the Company that is mortgaged under the Real Estate Credit Facility. TheCompany capitalized $1.1 million of debt issuance costs related to the Real Estate Credit Facility which are included in Prepaid expenses and other currentassets and Other Assets on the accompanying Consolidated Balance Sheets and are being amortized over the term of the facility, $0.1 million of whichremained unamortized as of December 31, 2015.The interest rate on the Real Estate Credit Facility is equal to (a) the per annum rate equal to one-month LIBOR plus 2.00% per annum, determined onthe first day of each month; or (b) 0.95% per annum in excess of the higher of (i) the Bank of America prime rate (adjusted daily on the day specified in thepublic announcement of such price rate), (ii) the Federal Funds Rate adjusted daily, plus 0.50% or (iii) the per annum rate equal to the one-month LIBOR plus1.05% per annum. The Federal Funds Rate is the weighted average of the rates on overnight Federal funds transactions with members of the Federal ReserveSystem arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business day succeeding such day.The Company is required to make quarterly principal payments equal to 1.25% of the principal amount outstanding and is required to repay theaggregate amount outstanding on the maturity dates of the individual property borrowings, ranging from March 31, 2016 through December 8, 2018. Duringthe year ended December 31, 2015, the Company made no additional borrowings and made principal payments of $3.3 million on outstanding borrowingsfrom the Real Estate Credit Facility. As of December 31, 2015, borrowings outstanding under the Real Estate Credit Facility totaled $54.7 million, with $29.1million recorded as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets.The Real Estate Credit Facility also contains usual and customary provisions limiting the Company’s ability to engage in certain transactions,including limitations on the Company’s ability to incur additional debt, additional liens, make investments, and pay distributions to its stockholders. Inaddition, the Real Estate Credit Facility requires certain financial covenants that are identical to those contained in the Company’s Revolving CreditFacility. As of December 31, 2015, the Company was in compliance with all applicable covenants and ratios under the Real Estate Credit Facility.F-27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Acquisition LineThe Revolving Credit Facility has the total borrowing capacity of $1.7 billion and expires on June 20, 2018. This arrangement provides a maximum of$320.0 million and a minimum of $100.0 million for working capital and general corporate purposes, including acquisitions. See Note 11, “Credit Facilities,”for further discussion on the Company’s Revolving Credit Facility and Acquisition Line.Other Real Estate Related and Long-Term DebtThe Company, as well as certain of its wholly-owned subsidiaries, has entered into separate term mortgage loans in the U.S. with four of itsmanufacturer-affiliated finance partners - Toyota Motor Credit Corporation (“TMCC”), Mercedes-Benz Financial Services USA, LLC (“MBFS”), BMWFinancial Services NA, LLC (“BMWFS”) and FMCC, as well as several third-party financial institutions (collectively, “Real Estate Notes”). The Real EstateNotes are on specific buildings and/or properties and are guaranteed by the Company. Each loan was made in connection with, and is secured by mortgageliens on, the real property owned by the Company that is mortgaged under the Real Estate Notes. The Real Estate Notes bear interest at fixed rates between3.00% and 4.69%, and at variable indexed rates plus a spread between 1.50% and 2.55% per annum. The Company capitalized $1.3 million of related debtissuance costs related to the Real Estate Notes which are included in Prepaid expenses and other current assets and Other Assets on the accompanyingConsolidated Balance Sheets and are being amortized over the terms of the notes, $0.3 million of which remained unamortized as of December 31, 2015.The loan agreements with TMCC consist of seven term loans. As of December 31, 2015, $35.7 million was outstanding under the TMCC term loanswith $1.5 million classified as a current maturity of long-term debt as compared to $49.9 million outstanding with $5.1 million classified as current as ofDecember 31, 2014. During 2015, the Company made no additional borrowings and made principal payments of $14.3 million. These loans will mature byAugust 2022 and provide for monthly payments based on a 20-year amortization schedule. These seven loans are cross-collateralized and cross-defaultedwith each other and are cross-defaulted with the Revolving Credit Facility.The loan agreements with MBFS consisted of two term loans that were paid in full as of December 31, 2015. During 2015, the Company made principalpayments of $27.4 million. As of December 31, 2014, $27.4 million was outstanding under the MBFS term loans with $7.6 million classified as a currentmaturity of long-term debt.The loan agreements with BMWFS consist of 12 term loans. As of December 31, 2015, $55.7 million was outstanding under the BMWFS term loanswith $4.3 million classified as a current maturity of long-term debt as compared to $66.0 million outstanding with $4.5 million classified as current as ofDecember 31, 2014. During 2015, the Company made no additional borrowings and made principal payments of $10.2 million. The agreements provide formonthly payments based on a 15-year amortization schedule and will mature by October 2021. In the case of three properties owned by subsidiaries, theapplicable loan is also guaranteed by the subsidiary real property owner. These 12 loans are cross-collateralized with each other. In addition, they are cross-defaulted with each other, the Revolving Credit Facility, and certain dealership franchising agreements with BMW of North America, LLC.The loan agreements with FMCC consist of four term loans. As of December 31, 2015, $33.6 million was outstanding under the FMCC term loans,with $1.5 million classified as a current maturity of long-term debt as compared to $35.1 million outstanding with $1.4 million classified as current as ofDecember 31, 2014. During 2015, the Company made no additional borrowings and made principal payments of $1.4 million. The agreements provide formonthly payments based on a 20-year amortization schedule that will mature by December 2024. These four loans are cross-defaulted with the RevolvingCredit Facility.In addition, agreements with third-party financial institutions consist of 18 term loans for an aggregate principal amount of $124.5 million, to financereal estate associated with the Company’s dealerships. The loans are being repaid in monthly installments that will mature by November 2022. As ofDecember 31, 2015, borrowings under these notes totaled $116.8 million, with $6.4 million classified as a current maturity of long-term debt in theaccompanying Consolidated Balance Sheets, as compared to $115.2 million outstanding with $6.5 million classified as current as of December 31, 2014.During 2015, the Company made additional borrowings and principal payments of $9.6 million and $8.0 million, respectively. These 18 loans are cross-defaulted with the Revolving Credit Facility.The Company has entered into eight separate term mortgage loans in the U.K. with other third-party financial institutions, which are secured by theCompany’s U.K. properties. These mortgage loans (collectively, “U.K. Notes”) are being repaid in monthly installments and will mature by September 2034.As of December 31, 2015, borrowings under the U.K. Notes totaled $57.1 million, with $4.5 million classified as a current maturity of long-term debt in theaccompanying Consolidated Balance Sheets, as compared to $45.3 million outstanding with $5.0 million classified as current as of December 31, 2014.During 2015, the Company made additional borrowings and principal payments of $17.4 million and $3.7 million, respectively.F-28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The Company has entered into a separate term mortgage loan in Brazil with a third-party financial institution to finance the purchase and constructionof dealership properties (the “Brazil Note”). The Brazil Note is secured by the Company’s Brazilian properties as purchased and/or constructed, as well as aguarantee from the Company. The Brazil Note will be repaid in monthly installments that will mature by April 2025. As of December 31, 2015, borrowingsunder the Brazil Note totaled $3.8 million, with $0.4 million classified as a current maturity of long-term debt in the accompanying Consolidated BalanceSheets.The Company also has working capital loan agreements with third-party financial institutions in Brazil. The Company paid one of these loanagreements in full as of December 31, 2015, with principal payments of $8.6 million. The principal balance on the remaining loans is due February 2017 withinterest only payments being made until the due date. As of December 31, 2015, borrowings under the Brazilian third-party loans totaled $5.6 millionclassified as long-term debt in the accompanying Consolidated Balance Sheets. During 2015, the Company made no additional borrowings under theworking capital loan agreements.Fair Value of Long-Term DebtThe Company’s outstanding 5.00% Notes had a fair value of $545.9 million as of December 31, 2015. The Company’s outstanding 5.25% Notes had afair value of $297.8 million as of December 31, 2015. The Company’s fixed interest rate borrowings included in other real estate related and long-term debttotaled $100.7 million and $158.1 million as of December 31, 2015 and December 31, 2014, respectively. The fair value of such fixed interest rateborrowings was $102.4 million and $186.4 million as of December 31, 2015 and December 31, 2014, respectively. The fair value estimates are based onLevel 2 inputs of the fair value hierarchy available as of December 31, 2015 and December 31, 2014. The Company determined the estimated fair value of itslong-term debt using available market information and commonly accepted valuation methodologies. Considerable judgment is required in interpretingmarket data to develop the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that the Company, or holders ofthe instruments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a material effect onestimated 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.2.25% Convertible Senior NotesOn September 2, 2014, holders of $182.5 million in aggregate amount of the Company’s then outstanding 2.25% Convertible Senior Notes due 2036(“2.25% Notes”) elected to convert their 2.25% Notes. The Company redeemed the remaining outstanding 2.25% Notes. The settlement for the conversionand the redemption of the 2.25% Notes occurred on September 4, 2014. Consideration paid for the conversion and redemption of the 2.25% Noteswas $237.5 million, including $182.8 million in cash and 701,795 shares of the Company’s common stock, which was recognized as a decrease to treasurystock. In conjunction with the conversion and redemption of the 2.25% Notes, the Company received 421,309 shares of its common stock in net settlement ofthe purchased ten-year call options on its common stock (“2.25% Purchased Options”) and 2.25% Warrants sold in connection with the 2.25% Notes (“2.25%Warrants”), which was recognized as an increase to treasury stock. As a result of the conversion and redemption of the 2.25% Notes, the Company recognizeda loss of $16.9 million based on the difference in the carrying value and the fair value of the liability component immediately prior to the conversion andredemption.For the years ended December 31, 2015, 2014, and 2013, the contractual interest expense and the discount amortization relative to the 2.25% Notes,which is recorded as other interest expense in the accompanying Consolidated Statements of Operations, were as follows: Year Ended December 31, 2015 2014 2013 (dollars in thousands)Year-to-date contractual interest expense $— $1,875 $4,112Year-to-date discount amortization(1) $— $5,366 $7,530Effective interest rate of liability component —% 7.7% 7.7%(1) Represents the incremental impact of the accounting for convertible debt as primarily codified in ASC 470, Debt.The Company determined the discount using the estimated effective interest rate for similar debt with no convertible features. The original effectiveinterest rate of 7.50% was estimated by comparing debt issuances from companies with similar credit ratings during the same annual period as the Company.The effective interest rate differs from the 7.50% due to the impact of underwriter fees associated with this issuance that were capitalized as an additionaldiscount and were beingF-29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)amortized to interest expense through 2016. These costs were written off as part of the conversion and redemption of the 2.25% Notes.3.00% Convertible Senior NotesOn June 25, 2014, the Company repurchased $92.5 million of the $115.0 million principal outstanding of its 3.00% Convertible Senior Notes due 2020(“3.00% Notes”) in a tender offer, leaving an outstanding balance of $22.6 million as of June 30, 2014. Consideration paid for this repurchase was $210.4million. In conjunction with the repurchase, the Company recognized a loss of $23.6 million, based on the difference in the carrying value and the fair valueof the liability component immediately prior to the purchase. Subsequent to June 30, 2014, the Company settled the purchased ten-year call options on itscommon stock (“3.00% Purchased Options”) and 3.00% Warrants in the same proportion as the 3.00% Notes repurchased on June 25, 2014 andreceived $26.4 million in cash as a result, which was recognized as an increase to additional paid in capital.In September 2014, the Company repurchased the remaining outstanding $22.6 million of the 3.00% Notes. Total consideration paid for the repurchasewas $49.5 million in cash. In conjunction with the repurchase, the Company recognized a loss of $5.9 million, based on the difference in the carrying valueand the fair value of the liability component immediately prior to the repurchase. Also, in September 2014, the Company settled theremaining 3.00% Purchased Options and 3.00% Warrants in conjunction with the repurchase and received $6.2 million in cash, which was recognized as anincrease to additional paid in capital.For the years ended December 31, 2015, 2014 and 2013, the contractual interest expense and the discount amortization, which is recorded as interestexpense in the accompanying Consolidated Statements of Operations, were as follows: Year Ended December 31, 2015 2014 2013 (dollars in thousands)Year-to-date contractual interest expense $— $1,839 $3,450Year-to-date discount amortization(1) $— $1,810 $3,251Effective interest rate of liability component —% 8.6% 8.6%(1) Represents the incremental impact of the accounting for convertible debt as primarily codified in ASC 470, Debt.The Company determined the discount using the estimated effective interest rate for similar debt with no convertible features. The original effectiveinterest rate of 8.25% was estimated by receiving a range of quotes from the underwriters for the estimated rate that the Company could reasonably expect toissue non-convertible debt for the same tenure. The effective interest rate differs from the 8.25% due to the impact of underwriter fees associated with thisissuance that were capitalized as an additional discount and were being amortized to interest expense through 2020. These costs were written off as part of theextinguishment of the 3.00% Notes.All Long-Term DebtTotal interest expense on the 3.00% Notes, 2.25% Notes, 5.00% Notes, and 5.25% Notes for the years ended December 31, 2015, 2014 and 2013 was$28.5 million, $17.0 million and $7.6 million, excluding amortization of discounts and capitalized cost of $1.5 million, $8.0 million, and $11.1 million,respectively.Total interest expense on the Real Estate Credit Facility, real estate related debt, and Acquisition Line for the years ended December 31, 2015, 2014and 2013, was $17.6 million, $15.3 million and $13.1 million, excluding amortization of capitalized cost of $0.0 million, $0.3 million and $0.5 million,respectively. Also excluded is the impact of the interest rate derivative instruments related to the Real Estate Credit Facility of $1.8 million, $1.5 million, and$1.2 million for the years ended December 31, 2015, 2014, and 2013 respectively.In addition, the Company incurred $7.6 million, $7.5 million and $5.5 million of total interest expense related to capital leases and various other notespayable, net of interest income, for the years ended December 31, 2015, 2014, and 2013, respectively.The Company capitalized $0.7 million, $0.7 million, and $0.8 million of interest on construction projects in 2015, 2014 and 2013, respectively. Theaggregate annual maturities of long-term debt for the next five years are as follows:F-30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Total (In thousands)Year Ended December 31, 2016$52,223201763,402201844,991201975,669202037,175Thereafter982,199Total$1,255,65913. FAIR VALUE MEASUREMENTSASC 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 betweenmarket participants at the measurement date; requires disclosure of the extent to which fair value is used to measure financial and non-financial assets andliabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, orchanges in net assets, as of the measurement date; and establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in themeasurement 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 arenot 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 theasset or liability.The Company’s financial instruments consist primarily of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notesreceivable, investments in debt and equity securities, accounts payable, credit facilities, long-term debt and interest rate swaps. The fair values of cash andcash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, and credit facilities approximate theircarrying values due to the short-term nature of these instruments or the existence of variable interest rates. The Company evaluated its assets and liabilitiesfor those that met the criteria of the disclosure requirements and fair value framework of ASC 820 and identified demand obligations, interest rate derivativeinstruments, and investment balances in certain financial institutions as having met such criteria.The Company periodically invests in unsecured, corporate demand obligations with manufacturer-affiliated finance companies, which bear interest at avariable rate and are redeemable on demand by the Company. Therefore, the Company has classified these demand obligations as cash and cash equivalentsin the accompanying Consolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputsother than quoted market prices, that are observable or that can be corroborated by observable data by correlation. Accordingly, the Company has classifiedthese 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 thefinancing of new, used and rental vehicle inventories. The investment balances bear interest at a variable rate and are redeemable by the Company in thefuture under certain conditions. The Company has classified these investment balances as other current and long-term assets in the accompanyingConsolidated Balance Sheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted marketprices, that are observable or that can be corroborated by observable data by correlation. Accordingly, the Company has classified these instruments withinLevel 2 of the hierarchy framework.Refer to Note 2 of the Consolidated Financial Statements, “Summary of Significant Accounting Policies and Estimates,” for more information on fairvalue measurements of interest rate derivative instruments.Asset and liabilities recorded at fair value in the accompanying balance sheets as of December 31, 2015 and 2014, respectively, were as follows:F-31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of December 31, 2015 Level 1 Level 2 Total (In thousands)Assets: Investments $— $4,235 $4,235Demand obligations — 131 131Interest rate derivative financial instruments — 31 31Total $— $4,397 $4,397Liabilities: Interest rate derivative financial instruments $— $31,153 $31,153Total $— $31,153 $31,153 As of December 31, 2014 Level 1 Level 2 Total (In thousands)Assets: Investments $— $12,283 $12,283Demand obligations $— $20,304 $20,304 Total $— $32,587 $32,587Liabilities: Interest rate derivative financial instruments $— $28,653 $28,653 Total $— $28,653 $28,65314. COMMITMENTS AND CONTINGENCIESFrom time to time, the Company’s dealerships are named in various types of litigation involving customer claims, employment matters, class actionclaims, purported class action claims, as well as claims involving the manufacturer of automobiles, contractual disputes and other matters arising in theordinary course of business. Due to the nature of the automotive retailing business, the Company may be involved in legal proceedings or suffer losses thatcould have a material adverse effect on the Company’s business. In the normal course of business, the Company is required to respond to customer, employeeand other third-party complaints. Amounts that have been accrued or paid related to the settlement of litigation are included in SG&A expenses in theCompany’s Consolidated Statements of Operations. In addition, the manufacturers of the vehicles that the Company sells and services have audit rightsallowing them to review the validity of amounts claimed for incentive, rebate or warranty-related items and charge the Company back for amountsdetermined to be invalid payments under the manufacturers’ programs, subject to the Company’s right to appeal any such decision. Amounts that have beenaccrued or paid related to the settlement of manufacturer chargebacks of recognized incentives and rebates are included in cost of sales in the Company’sConsolidated Statements of Operations, while such amounts for manufacturer chargebacks of recognized warranty-related items are included as a reduction ofrevenues in the Company’s Consolidated Statements of Operations.Legal ProceedingsCurrently, the Company is not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverseeffect 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 theCompany’s results of operations, financial condition, or cash flows.Other MattersThe Company, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by the Company’s subsidiaries of theirrespective dealership premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the lessor and other parties from certainliabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, fromtime to time, the Company entersF-32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 orcosts 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 belimited 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’ssubsidiaries retain primary responsibility for the performance of certain obligations under such leases. To the extent that the Company remains primarilyresponsible under such leases, a quantification of such lease obligations is included in the Company’s disclosure of future minimum lease payments for non-cancelable operating leases in Note 18, “Operating Leases”.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 ofcertain 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 withsuch leases. In these circumstances, the Company generally has indemnification rights against the assignee in the event of non-performance under theseleases, as well as certain defenses. The Company and its subsidiaries also may be called on to perform other obligations under these leases, such asenvironmental remediation of the leased premises or repair of the leased premises upon termination of the lease. However, potential environmental liabilitiesare generally known at the time of the sale of the dealership if not previously remediated. The Company does not have any known material environmentalcommitments 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 bematerial, the Company’s exposure under these leases is difficult to estimate and there can be no assurance that any performance of the Company or itssubsidiaries required under these leases would not have a material adverse effect on the Company’s business, financial condition, or cash flows.15. ASSET IMPAIRMENTSDuring the fourth quarters of 2015, 2014, and 2013, the Company performed its annual impairment assessment of the carrying value of its goodwill.In the 2015 assessment, the fair value of Company’s two U.S. reporting units, as well as the U.K. reporting unit, exceeded the carrying value of its netassets (i.e., step one of the goodwill impairment test) by more than 100% for the two U.S. reporting units and by more than 15% for the U.K. reporting unit. Asa result, the Company was not required to conduct the second step of the impairment test for goodwill relating to its two U.S. and U.K. reporting units. TheBrazil reporting unit’s fair value did not exceed the carrying value of its net assets. As a result, the Company performed a step two analysis for this reportingunit, measured the estimated fair value of the reporting unit’s assets and liabilities as of the test date using level 3 inputs and compared the resulting impliedfair value of the reporting unit’s goodwill to its carrying value. As a result of the carrying value of goodwill exceeding the implied fair value, a $55.4 millionimpairment was recorded. Brazil is experiencing a recession, coupled with higher interest rates and the expiration of the government sponsored auto purchasetax incentive at the end of 2014. As a result, industry sales declined 25.6% for the twelve months ended December 31, 2015, as compared to the same period ayear ago.In the 2014 and 2013 assessment, the fair value of each of the Company’s reporting units exceeded the carrying value of its net assets (step one of thegoodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill in either year.During 2015, the Company also completed other applicable impairment assessments and recorded the following non-cash impairment charges, all ofwhich are reflected in asset impairments in the accompanying Consolidated Statement of Operations:•The Company determined that the carrying value of certain of its intangible franchise rights was greater than the fair value and, as a result, recognizeda $30.1 million pre-tax non-cash asset impairment charge.•In addition, the Company determined that the carrying amount of various real estate holdings was no longer recoverable, and recognized $1.3 millionin pre-tax non-cash asset impairment charges.•The Company also determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $0.8 million in pre-tax non-cash asset impairment charges.F-33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)If in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value as a result of step one of itsgoodwill impairment test for any or all of its reporting units, the application of the second step of the impairment test could result in a material non-cashimpairment charge to the goodwill associated with the reporting unit(s). If any of the Company’s assumptions change, or fail to materialize, the resultingdecline in its estimated fair market value of intangible franchise rights could result in a material non-cash impairment charge. For example, if the Company’sassumptions regarding the risk-free rate and cost of debt differed such that the estimated WACC used in its 2015 assessment increased by 200 basis points,and all other assumptions remained constant, an additional $15.9 million of non-cash franchise rights impairment charges, would have resulted, excludingfranchises acquired since the previous annual test. The Company’s U.S. and U.K. reporting units would not have failed the step one impairment test forgoodwill in this scenario. Further, if the Company forecasted no new vehicle sales growth beyond 2017 in the 2015 impairment assessment and all otherassumptions remained constant in its 2015 assessment, an additional $2.6 million of non-cash franchise rights impairment charges would have resulted,excluding the franchises acquired since the previous annual test. Again, neither the Company’s U.S. or U.K. reporting units would have failed the step oneimpairment test for goodwill.During 2014, the Company completed applicable impairment assessments and recorded the following non-cash impairment charges, all of which arereflected in asset impairments in the accompanying Consolidated Statement of Operations:•Primarily related to the Company’s determination that the carrying value of certain of its intangible franchise rights was greater than the fair value, theCompany recognized a $31.0 million pre-tax non-cash asset impairment charge.•In addition, the Company determined that the carrying amount of various real estate holdings was no longer recoverable, and recognized $9.2 millionin pre-tax non-cash asset impairment charges.•The Company also determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $1.3 million in pre-tax non-cash asset impairment charges.During 2013, the Company completed applicable impairment assessments and recorded the following non-cash impairment charges, all of which arereflected in asset impairments in the accompanying Consolidated Statement of Operations:•In the fourth quarter of 2013, the Company determined that the carrying value of certain of its intangible franchise rights was greater than the fairvalue and as such a non-cash asset impairment was recognized for $5.4 million of pre-tax non-cash asset impairment charges.•The Company also determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $1.1 million in pre-tax non-cash asset impairment charges.16. INTANGIBLE FRANCHISE RIGHTS AND GOODWILLThe following is a roll-forward of the Company’s intangible franchise rights and goodwill accounts by reportable segment: Intangible Franchise Rights U.S. U.K. Brazil Total (In thousands)BALANCE, December 31, 2013 $216,412 $8,659 $76,434 $301,505Additions through acquisitions 60,122 — 2,490 62,612Purchase price allocation adjustments (2,114) — (9,061) (11,175)Disposals (12,075) — — (12,075)Impairments (4,843) — (24,085) (28,928)Currency translation — (502) (7,490) (7,992)BALANCE, December 31, 2014 257,502 8,157 38,288 303,947Additions through acquisitions 49,432 — — 49,432Disposals (3,188) — — (3,188)Impairments (18,087) — (12,024) (30,111)Currency translation — (384) (12,108) (12,492)BALANCE, December 31, 2015 $285,659 $7,773$14,156 $307,588F-34Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Goodwill U.S. U.K. Brazil Total (In thousands) BALANCE, December 31, 2013 $612,468 $19,602 $105,233 $737,303(1)Additions through acquisitions 103,924 16,802 — 120,726 Purchase price allocation adjustments 1,459 — 4,536 5,995 Disposals (16,828) — — (16,828) Impairments (312) — (1,813) (2,125) Currency translation — (1,266) (13,359) (14,625) Tax adjustments (69) — — (69) BALANCE, December 31, 2014 700,642 35,13894,597 830,377(1)Additions through acquisitions 115,317 — — 115,317 Purchase price allocation adjustments (73) 1,930 — 1,857 Disposals (6,088) — — (6,088) Impairments — — (55,386) (55,386) Currency translation — (1,748) (29,391) (31,139) Tax adjustments (23) — — (23) BALANCE, December 31, 2015 $809,775 $35,320$9,820 $854,915(2)(1) Net of accumulated impairment of $42.4 million(2) Net of accumulated impairment of $97.8 millionThe increase in the Company’s goodwill in 2015 was primarily related to the goodwill associated with the purchase of three dealerships in the U.S.,substantially offset by a non-cash impairment recognized in Brazil, as well as foreign currency translation adjustments for the U.K. and Brazil.The increase in the Company’s goodwill in 2014 was primarily related to the goodwill associated with the purchase of seven dealerships in the U.S. andthree dealerships in the U.K.The increase in the Company’s intangible franchise rights in 2015 and 2014 was primarily related to the acquisitions in the U.S. described above,substantially offset by non-cash impairments recognized in the U.S. and Brazil. The allocation of the purchase price for the 2015 acquisitions, including thevaluation of intangible franchise rights and goodwill, is preliminary and based on estimates and assumptions that are subject to change within the purchaseprice allocation period.17. EMPLOYEE SAVINGS PLANSThe Company has a deferred compensation plan to provide select employees and non-employee members of the Company’s Board of Directors with theopportunity to accumulate additional savings for retirement on a tax-deferred basis (“Deferred Compensation Plan”). Participants in the DeferredCompensation Plan are allowed to defer receipt of a portion of their salary and/or bonus compensation, or in the case of the Company’s non-employeedirectors, annual retainer and meeting fees earned. The participants can choose from various defined investment options to determine their earnings creditingrate. However, the Company has complete discretion over how the funds are utilized. Participants in the Deferred Compensation Plan are unsecured creditorsof the Company. The balances due to participants of the Deferred Compensation Plan as of December 31, 2015 and 2014 were $40.6 million and $34.0million, respectively, and are included in other liabilities in the accompanying Consolidated Balance Sheets.The Company offers a 401(k) plan to all of its employees and provides a matching contribution to employees that participate in the plan. For the yearsended December 31, 2015 and 2014, the matching contributions paid by the Company totaled $5.3 million and $4.6 million, respectively.F-35Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)18. OPERATING LEASESThe Company leases various facilities and equipment under long-term operating lease agreements. Generally, our real estate and facility leases have 30-year total terms with initial terms of 15 years and three additional five-year terms, at our option.Future minimum lease payments for non-cancelable operating leases as of December 31, 2015, are as follows: Total (In thousands)Year Ended December 31, 2016$52,646201749,044201841,184201934,726202027,734Thereafter112,824Total (1) $318,158(1) Includes $2.1 million of future, non-cancelable sublease payments to be received.Total rent expense under all operating leases was $51.5 million, $58.9 million, and $59.7 million for the years ended December 31, 2015, 2014 and2013, respectively.19. ACCUMULATED OTHER COMPREHENSIVE INCOMEChanges in the balances of each component of accumulated other comprehensive income for the years ended December 31, 2015, 2014 and 2013 are asfollows: AccumulatedLoss onForeign CurrencyTranslation AccumulatedGain (Loss)on InterestRate Swaps AccumulatedOtherComprehensiveLoss (In thousands)BALANCE, December 31, 2012 $(6,126) $(26,931) $(33,057)Other comprehensive income (loss), net of tax (31,701) 13,081 (18,620)BALANCE, December 31, 2013 (37,827) (13,850) (51,677)Other comprehensive loss, net of tax (26,248) (4,059) (30,307)BALANCE, December 31, 2014 (64,075) (17,909) (81,984)Other comprehensive loss, net of tax (54,457) (1,543) (56,000)BALANCE, December 31, 2015 $(118,532) $(19,452) $(137,984)F-36Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)20. SEGMENT INFORMATIONAs of December 31, 2015, the Company had three reportable segments: (1) the U.S., (2) the U.K., and (3) Brazil. Each of the reportable segments iscomprised of retail automotive franchises, which sell new vehicles, used vehicles, parts and automotive services, finance and insurance products, andcollision restoration services. The vast majority of the Company’s corporate office activities are associated with the operations of the U.S. operating segmentsand therefore the corporate office’s financial results are included within the U.S. reportable segment.Reportable segment revenue, gross profit, SG&A, depreciation and amortization expense, asset impairment, floorplan interest expense, other interestexpense, benefit (provision) for income taxes, net income (loss) and capital expenditures were as follows for the years ended December 31, 2015, 2014 and2013: Year Ended December 31, 2015 U.S. U.K. Brazil Total (In thousands) New vehicle retail sales$4,989,290 $641,888 $370,128 $6,001,306 Used vehicle retail sales2,204,728 351,311 82,930 2,638,969 Used vehicle wholesale sales289,580 100,706 6,965 397,251 Parts and service1,032,960 102,183 51,050 1,186,193 Finance and insurance377,432 24,117 7,237 408,786 Total revenues8,893,990 1,220,205 518,310 10,632,505 Gross profit1,338,947 137,646 57,379 1,533,972 Selling, general and administrative expense958,608(1) 108,719 53,506 1,120,833 Depreciation and amortization expense41,220 4,307 1,712 47,239 Asset impairment18,983 330 68,249 87,562 Floorplan interest expense(36,062) (2,276) (926) (39,264) Other interest expense, net(52,277) (3,135)(1,491) (56,903) Income (loss) before income taxes231,797 18,879 (68,505) 182,171 (Provision) benefit for income taxes(89,433) (3,655) 4,916 (88,172) Net income (loss)142,364(2) 15,224 (63,589)(3) 93,999 Capital expenditures$97,504 $9,395 $333 $107,232 (1) Includes the following, pre-tax: loss due to catastrophic events of $1.6 million, a net gain on real estate and dealership transactions of $8.9 million, andlegal items of $1.0 million.(2) Includes the following, after tax: loss due to catastrophic events of $1.0 million, net gain on real estate and dealership transactions of $5.5 million, andnon-cash asset impairment charges of $12.0 million.(3) Includes after-tax non-cash asset impairment charges of $62.4 million.F-37Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2014 U.S. U.K. Brazil Total (In thousands) New vehicle retail sales$4,669,512 $519,137 $552,970 $5,741,619 Used vehicle retail sales1,923,740 283,147 117,981 2,324,868 Used vehicle wholesale sales279,074 82,235 17,834 379,143 Parts and service966,672 83,747 75,275 1,125,694 Finance and insurance336,243 18,986 11,336 366,565 Total revenues8,175,241 987,252 775,396 9,937,889 Gross profit1,245,907 115,393 86,638 1,447,938 Selling, general and administrative expense891,693(1) 90,427 79,844 1,061,964 Depreciation and amortization expense36,701 3,403 2,240 42,344 Asset impairment15,570 — 25,950 41,520 Floorplan interest expense(34,060) (1,662) (5,892) (41,614) Other interest expense, net(46,516) (2,065) (1,112) (49,693) Loss on extinguishment of long-term debt(46,403) — — (46,403) Income (loss) before income taxes174,964 17,836 (28,400) 164,400 (Provision) benefit for income taxes(77,715) (3,561) 9,880(2) (71,396) Net income (loss)97,249 14,275 (18,520) 93,004 Capital expenditures$88,774 $3,679 $5,256 $97,709 (1) Includes the following, pre-tax: loss due to catastrophic events of $2.8 million and a gain on real estate and dealership transactions of $13.8 million.(2) Includes the tax impact on deductible goodwill for $3.4 million.F-38Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2013 U.S. U.K. Brazil (1) Total (In thousands) New vehicle retail sales$4,220,913 $441,537 $562,471 $5,224,921 Used vehicle retail sales1,728,072 221,590 89,766 2,039,428 Used vehicle wholesale sales236,995 66,077 29,113 332,185 Parts and service878,951 67,557 64,177 1,010,685 Finance and insurance288,409 14,028 8,925 311,362 Total revenues7,353,340 810,789 754,452 8,918,581 Gross profit1,116,415 93,221 82,910 1,292,546 Selling, general and administrative expense830,275(2) 74,777 71,804(3) 976,856 Depreciation and amortization expense31,671 2,573 1,582 35,826 Asset impairment6,542 — — 6,542 Floorplan interest expense(33,789) (1,589) (6,289) (41,667) Other interest (expense) income, net(37,982) (1,158) 169 (38,971) Other expense, net— — (789) (789) Income before income taxes176,156 13,124 2,615 191,895 Provision for income taxes70,815 3,064 4,024 77,903 Net income (loss)105,340(4) 10,061 (1,409)(5) 113,992 Capital expenditures$64,442 $1,489 $3,285 $69,216 (1) Includes financial data from the date of acquisition in February 2013 through December 31, 2013.(2) Includes the following, pre-tax: loss due to catastrophic events of $12.2 million, a net gain on real estate and dealership transactions of $10.2 million andacquisition costs of $5.2 million.(3) Includes pre-tax acquisition costs of $1.2 million.(4) Includes the following, after tax: loss due to catastrophic events of $7.4 million, net gain on real estate and dealership transactions of $5.4 million, non-cash asset impairment charges of $4.0 million and acquisition costs of $3.2 million, as well as the income tax effect of non-deductible acquisition costs of$1.7 million.(5) Includes the following, after tax: income tax effect of reserve for certain deferred tax assets of $3.5 million and acquisition costs of $1.3 million.Goodwill and intangible franchise rights and total assets by reportable segment were as follows: As of December 31, 2015 U.S. U.K. Brazil Total (In thousands)Goodwill and intangible franchise rights $1,095,434 $43,093 $23,976 $1,162,503Total assets $3,940,926 $358,476 $115,527 $4,414,929 As of December 31, 2014 U.S. U.K. Brazil Total (In thousands)Goodwill and intangible franchise rights $958,144 $43,295 $132,885 $1,134,324Total assets $3,529,643 $327,644 $284,205 $4,141,492F-39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter First Second Third Fourth Full Year (In thousands, except per share data)Year Ended December 31, 2015 Total revenues $2,432,854 $2,726,480 $2,800,569 $2,672,602 $10,632,505Gross profit 363,884 391,573 398,382 380,133 1,533,972Net income 35,815 46,310 45,261 (33,387) 93,999Basic earnings per share (1) 1.47 1.91 1.88 (1.41) 3.91Diluted earnings per share (1) 1.47 1.91 1.88 (1.41) 3.902014 Total revenues $2,260,863 $2,511,638 $2,626,448 $2,538,940 $9,937,889Gross profit 338,122 369,148 374,709 365,959 1,447,938Net income 31,303 16,862 26,162 18,677 93,004Basic earnings per share (1) 1.29 0.70 1.07 0.77 3.82Diluted earnings per share (1) 1.19 0.62 1.03 0.77 3.60(1) The sum of the quarterly income per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the fullyear based on the respective weighted average common shares outstanding.During the second, third and fourth quarters of 2015, the Company incurred charges of $1.0 million, $0.9 million, and $85.7 million related to theimpairment of assets. In addition, during 2015, the Company sold two dealerships in the U.S. and recognized a net gain of $9.4 million.During the second, third and fourth quarters of 2014, the Company incurred charges of $1.7 million, $9.4 million, and $30.4 million related to theimpairment of assets. Included in these charges, for the third and fourth quarters of 2014, were impairments of the Company’s intangible assets of $5.5 millionand $25.6 million, respectively. During the third quarter of 2014, the Company sold five dealerships in the U.S. and recognized a net gain of $16.6 millionand also realized a $3.4 million tax benefit relative to deductible goodwill in the Brazil segment. In addition, the Company had a loss of $23.6 million and$22.8 million on the extinguishment of debt for the second and third quarters of 2014, respectively.For more information on non-cash impairment charges, refer to Note 15, “Asset Impairments.”F-40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)22. CONDENSED CONSOLIDATING FINANCIAL INFORMATIONThe following tables include condensed consolidating financial information as of December 31, 2015 and 2014, and for each of the years in the three-year period ended December 31, 2015, for Group 1 Automotive, Inc.’s (as issuer of the 5.00% Notes), guarantor subsidiaries and non-guarantor subsidiaries(representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, statement of operations andcash flows items that are not necessarily indicative of the financial position, results of operations or cash flows of these entities had they operated on a stand-alone basis.CONDENSED CONSOLIDATED BALANCE SHEETDecember 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $6,338 $6,699 $— $13,037Contracts-in-transit and vehicle receivables, net— 233,275 19,163 — 252,438Accounts and notes receivable, net— 132,078 25,690 — 157,768Intercompany accounts receivable— 1,192 — (1,192) —Inventories, net— 1,533,166 204,585 — 1,737,751Deferred income taxes264 13,845 — — 14,109Prepaid expenses and other current assets5,586 9,117 13,149 — 27,852Total current assets5,8501,929,011269,286(1,192) 2,202,955PROPERTY AND EQUIPMENT, net— 916,338 117,643 — 1,033,981GOODWILL— 809,775 45,140 — 854,915INTANGIBLE FRANCHISE RIGHTS— 285,659 21,929 — 307,588INVESTMENT IN SUBSIDIARIES2,388,081 — — (2,388,081) —OTHER ASSETS— 9,321 6,169 — 15,490Total assets$2,393,931 $3,950,104 $460,167 $(2,389,273) $4,414,929 LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other$— $1,261,606 $4,113 $— $1,265,719Offset account related to floorplan notes payable - credit facility— (110,759) — — (110,759)Floorplan notes payable — manufacturer affiliates— 303,810 85,261 — 389,071Offset account related to floorplan notes payable - manufactureraffiliates— (25,500) — — (25,500)Current maturities of long-term debt and short-term financing— 47,186 8,007 — 55,193Accounts payable— 178,544 101,879 — 280,423Intercompany accounts payable500,171 — 1,192 (501,363) —Accrued expenses— 167,509 17,814 — 185,323Total current liabilities500,1711,822,396218,266(501,363) 2,039,470LONG-TERM DEBT, net of current maturities837,526 300,997 64,913 — 1,203,436LIABILITIES FROM INTEREST RATE RISK MANAGEMENTACTIVITIES— 31,153 — — 31,153DEFERRED INCOME TAXES AND OTHER LIABILITIES(1) 217,669 4,950 — 222,618STOCKHOLDERS’ EQUITY: Group 1 stockholders’ equity1,056,235 2,078,060 172,038 (2,388,081) 918,252Intercompany note receivable— (500,171) — 500,171 —Total stockholders’ equity1,056,2351,577,889172,038(1,887,910) 918,252Total liabilities and stockholders’ equity$2,393,931$3,950,104$460,167$(2,389,273) $4,414,929F-41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED BALANCE SHEETDecember 31, 2014 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $25,379 $15,596 $— $40,975Contracts-in-transit and vehicle receivables, net— 218,361 19,087 — 237,448Accounts and notes receivable, net— 117,427 33,903 — 151,330Intercompany accounts receivable— 276,217 — (276,217) —Inventories, net— 1,342,022 214,683 — 1,556,705Deferred income taxes196 10,866 — — 11,062Prepaid expenses and other current assets590 22,039 15,070 — 37,699Total current assets7862,012,311298,339(276,217) 2,035,219PROPERTY AND EQUIPMENT, net— 839,063 111,325 — 950,388GOODWILL— 700,642 129,735 — 830,377INTANGIBLE FRANCHISE RIGHTS— 257,502 46,445 — 303,947INVESTMENT IN SUBSIDIARIES1,964,442 — — (1,964,442) —OTHER ASSETS— 10,120 11,441 — 21,561Total assets$1,965,228$3,819,638$597,285$(2,240,659) $4,141,492 LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other$— $1,137,743 $5,503 $— $1,143,246Offset account related to floorplan notes payable - credit facility— (39,616) — — (39,616)Floorplan notes payable — manufacturer affiliates— 207,329 100,327 — 307,656Offset account related to floorplan notes payable - manufactureraffiliates— (22,500) — — (22,500)Current maturities of long-term debt and short-term financing— 61,185 11,445 — 72,630Accounts payable— 176,143 112,177 — 288,320Intercompany accounts payable295,421 — 276,217 (571,638) —Accrued expenses— 149,700 22,763 — 172,463Total current liabilities295,4211,669,984528,432(571,638) 1,922,199LONG-TERM DEBT, net of current maturities609,812 347,202 51,823 — 1,008,837LIABILITIES FROM INTEREST RATE RISK MANAGEMENTACTIVITIES— 25,311 — — 25,311DEFERRED INCOME TAXES AND OTHER LIABILITIES— 193,077 14,058 — 207,135STOCKHOLDERS’ EQUITY: —Group 1 stockholders’ equity1,059,995 1,879,485 2,972 (1,964,442) 978,010Intercompany note receivable— (295,421) — 295,421 —Total stockholders’ equity1,059,995 1,584,0642,972(1,669,021) 978,010Total liabilities and stockholders’ equity$1,965,228$3,819,638$597,285$(2,240,659) $4,141,492F-42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $8,893,990 $1,738,515 $— $10,632,505COST OF SALES:— 7,555,043 1,543,490 — 9,098,533GROSS PROFIT— 1,338,947 195,025 — 1,533,972SELLING, GENERAL AND ADMINISTRATIVE EXPENSES3,024 950,268 167,541 — 1,120,833DEPRECIATION AND AMORTIZATION EXPENSE— 41,220 6,019 — 47,239ASSET IMPAIRMENTS— 18,899 68,663 — 87,562(LOSS) INCOME FROM OPERATIONS(3,024) 328,560 (47,198) — 278,338OTHER EXPENSE: Floorplan interest expense— (36,063) (3,201) — (39,264)Other interest expense, net2,320 (52,276) (6,947) — (56,903)(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY INEARNINGS OF SUBSIDIARIES(704)240,221(57,346)— 182,171BENEFIT (PROVISION) FOR INCOME TAXES264 (89,698) 1,262 — (88,172)EQUITY IN EARNINGS OF SUBSIDIARIES94,439 — — (94,439) —NET INCOME (LOSS)$93,999$150,523$(56,084)$(94,439) $93,999COMPREHENSIVE LOSS— (1,543) (54,457) — (56,000)COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOPARENT$93,999$148,980$(110,541)$(94,439) $37,999F-43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2014 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $8,175,242 $1,762,647 $— $9,937,889COST OF SALES:— 6,929,334 1,560,617 — 8,489,951GROSS PROFIT— 1,245,908 202,030 — 1,447,938SELLING, GENERAL AND ADMINISTRATIVE EXPENSES2,796 883,442 175,726 — 1,061,964DEPRECIATION AND AMORTIZATION EXPENSE— 36,701 5,643 — 42,344ASSET IMPAIRMENTS— 15,571 25,949 — 41,520(LOSS) INCOME FROM OPERATIONS(2,796) 310,194 (5,288) — 302,110OTHER EXPENSE: Floorplan interest expense— (34,061) (7,553) — (41,614)Other interest expense, net2,272 (46,517) (5,448) — (49,693)Loss on extinguishment of long-term debt— (46,403) — — (46,403)(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY INEARNINGS OF SUBSIDIARIES(524)183,213(18,289)— 164,400BENEFIT (PROVISION) FOR INCOME TAXES196 (77,911) 6,319 — (71,396)EQUITY IN EARNINGS OF SUBSIDIARIES93,332 — — (93,332) —NET INCOME (LOSS)$93,004$105,302$(11,970)$(93,332) 93,004COMPREHENSIVE LOSS— (4,059) (26,248) — (30,307)COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOPARENT$93,004$101,243$(38,218)$(93,332) 62,697F-44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2013 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $7,353,340 $1,565,241 $— $8,918,581COST OF SALES:— 6,236,925 1,389,110 — 7,626,035GROSS PROFIT— 1,116,415 176,131 — 1,292,546SELLING, GENERAL AND ADMINISTRATIVE EXPENSES7,922 817,907 151,027 — 976,856DEPRECIATION AND AMORTIZATION EXPENSE— 31,670 4,156 — 35,826ASSET IMPAIRMENTS— 6,542 — — 6,542(LOSS) INCOME FROM OPERATIONS(7,922) 260,296 20,948 — 273,322OTHER EXPENSE: Floorplan interest expense— (33,789) (7,878) — (41,667)Other interest expense, net1,846 (37,982) (2,835) — (38,971)Other expense, net— — (789) — (789)(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY INEARNINGS OF SUBSIDIARIES(6,076)188,5259,446— 191,895BENEFIT (PROVISION) FOR INCOME TAXES2,277 (73,092) (7,088) — (77,903)EQUITY IN EARNINGS OF SUBSIDIARIES117,791 — — (117,791) —NET INCOME (LOSS)$113,992$115,433$2,358$(117,791) 113,992COMPREHENSIVE INCOME (LOSS)— 13,081 (31,701) — (18,620)COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOPARENT$113,992$128,514$(29,343)$(117,791) $95,372F-45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended December 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities$93,999 $49,710 $(2,662) $141,047CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (212,252) — (212,252)Proceeds from disposition of franchises, property and equipment— 40,833 748 41,581Purchases of property and equipment, including real estate— (97,009) (23,243) (120,252)Other— 6,421 — 6,421Net cash used in investing activities—(262,007)(22,495)(284,502)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,557,237 — 7,557,237Repayments on credit facility - floorplan line and other— (7,504,516) — (7,504,516)Borrowings on credit facility - acquisition line489,548 — — 489,548Repayment on credit facility - acquisition line(557,696) — — (557,696)Principal payments on real estate credit facility— (3,340) — (3,340)Net borrowings on 5.25% Senior Unsecured Notes296,250 — — 296,250Debt issue costs— (788) — (788)Borrowings on other debt— 451 59,404 59,855Principal payments on other debt— (1,386) (62,383) (63,769)Borrowings on debt related to real estate— 9,596 22,430 32,026Principal payments on debt related to real estate loans— (64,894) (3,845) (68,739)Issuance of common stock to benefit plans, net214 — — 214Repurchases of common stock, amounts based on settlement date(97,473) — — (97,473)Tax effect from stock-based compensation— 2,142 — 2,142Dividends paid(19,942) — — (19,942)Borrowings (repayments) with subsidiaries220,281 (211,236) (9,045) —Investment in subsidiaries(425,181) 409,990 15,191 —Distributions to parent— — — —Net cash (used in) provided by financing activities(93,999)193,25621,752 121,009EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (5,492) (5,492)NET DECREASE IN CASH AND CASH EQUIVALENTS—(19,041)(8,897) (27,938)CASH AND CASH EQUIVALENTS, beginning of period— 25,379 15,596 40,975CASH AND CASH EQUIVALENTS, end of period$—$6,338$6,699 $13,037F-46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended December 31, 2014 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used in) provided by operating activities$(327) $235,236 $(36,621) $198,288CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (306,364) (30,187) (336,551)Proceeds from disposition of franchises, property and equipment— 141,147 3,450 144,597Purchases of property and equipment, including real estate— (140,407) (9,985) (150,392)Other— (4,705) — (4,705)Net cash used in investing activities—(310,329)(36,722) (347,051)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,832,014 — 7,832,014Repayments on credit facility - floorplan line and other— (7,802,719) — (7,802,719)Borrowings on credit facility - acquisition line389,368 — — 389,368Repayment on credit facility - acquisition line(379,681) — — (379,681)Borrowings on real estate credit facility— 200 — 200Principal payments on real estate credit facility— (9,917) — (9,917)Net borrowings on 5.00% Senior Unsecured Notes539,600 — — 539,600Debt issue costs(1,881) — — (1,881)Repurchase of 3.00% Convertible Notes(260,074) — — (260,074)Proceeds from Call/Warrant Unwind related to 3.00% Convertible Notes32,697 — — 32,697Conversion and redemption of 2.25% Convertible Notes(182,756) — — (182,756)Borrowings on other debt— — 91,137 91,137Principal payments on other debt— — (85,905) (85,905)Borrowings on debt related to real estate— 86,522 25,457 111,979Principal payments on debt related to real estate loans— (33,143) (16,890) (50,033)Issuance of common stock to benefit plans, net(321) — — (321)Repurchases of common stock, amounts based on settlement date(36,802) — — (36,802)Tax effect from stock-based compensation— 1,841 — 1,841Dividends paid(17,097) — — (17,097)Borrowings (repayments) with subsidiaries78,199 (141,824) 63,625 —Investment in subsidiaries(160,925) 161,073 (148) —Distributions to parent— 2,119 (2,119) —Net cash provided by financing activities32796,16675,157 171,650EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (2,127) (2,127)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS—21,073(313) 20,760CASH AND CASH EQUIVALENTS, beginning of period— 4,306 15,909 20,215CASH AND CASH EQUIVALENTS, end of period$—$25,379$15,596 $40,975F-47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended December 31, 2013 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used in) provided by operating activities$(3,797) $47,525 $8,644 $52,372CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (131,654) (138,206) (269,860)Proceeds from disposition of franchises, property and equipment— 102,069 117 102,186Purchases of property and equipment, including real estate— (73,615) (29,243) (102,858)Other— 1,878 — 1,878Net cash used in investing activities—(101,322)(167,332) (268,654)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 6,379,328 — 6,379,328Repayments on credit facility - floorplan line and other— (6,153,677) — (6,153,677)Borrowings on credit facility - acquisition line60,000 — — 60,000Borrowings on real estate credit facility— 19,640 — 19,640Principal payments on real estate credit facility— (8,597) — (8,597)Borrowings of other debt— — 10,289 10,289Principal payments of other debt— — (71,170) (71,170)Principal payments of long-term debt related to real estate loans— (21,038) (15,940) (36,978)Borrowings of debt related to real estate— 27,925 27,420 55,345Issuance of common stock to benefit plans, net(1,822) — — (1,822)Repurchases of common stock, amounts based on settlement date(3,553) — — (3,553)Tax effect from stock-based compensation— 2,993 — 2,993Dividends paid(15,805) — — (15,805)Borrowings (repayments) with subsidiaries50,651 (278,850) 228,199 —Investment in subsidiaries(85,674) 86,038 (364) —Distributions to parent— — — —Net cash provided by financing activities3,79753,762178,434 235,993EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (4,146) (4,146)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS—(35)15,600 15,565CASH AND CASH EQUIVALENTS, beginning of period— 4,341 309 4,650CASH AND CASH EQUIVALENTS, end of period$— $4,306 $15,909 $20,215F-48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT INDEXExhibitNumber Description2.1 — Share Purchase Agreement dated as of January 24, 2013, by and among Group 1 Automotive, Inc. and the Shareholders of UABMotors Participações S.A. named therein and UAB Motors Participações S.A., as Intervening and Consenting Party (Incorporated byreference to Exhibit 2.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed January 30, 2013)2.2 — Amendment dated as of February 27, 2013 to Share Purchase Agreement dated as of January 24, 2013, by and among Group 1Automotive, Inc. and the Shareholders of UAB Motors Participações S.A. named therein and UAB Motors Participações S.A., asIntervening and Consenting Party (Incorporated by reference to Exhibit 2.1 of Group 1 Automotive, Inc.’s Quarterly Report onForm 10-Q (File No. 001-13461) for the period ended September 30, 2013)2.3 — Second Amendment dated as of May 29, 2013 to Share Purchase Agreement dated as of January 24, 2013, by and among Group 1Automotive, Inc. and the Shareholders of UAB Motors Participações S.A. named therein and UAB Motors Participações S.A., asIntervening and Consenting Party (Incorporated by reference to Exhibit 2.2 of Group 1 Automotive, Inc.’s Quarterly Report onForm 10-Q (File No. 001-13461) for the period ended September 30, 2013)2.4 — Third Amendment dated as of July 26, 2013 to Share Purchase Agreement dated as of January 24, 2013, by and among Group 1Automotive, Inc. and the Shareholders of UAB Motors Participações S.A. named therein and UAB Motors Participações S.A., asIntervening and Consenting Party (Incorporated by reference to Exhibit 2.3 of Group 1 Automotive, Inc.’s Quarterly Report onForm 10-Q (File No. 001-13461) for the period ended September 30, 2013)3.1 — Amended and Restated Certificate of Incorporation of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.1 of Group1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)3.2 — Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of Group 1’sQuarterly Report on Form 10-Q (File No. 001-13461) for the period ended March 31, 2007)3.3 — Seconded Amended and Restated Bylaws of Group 1 Automotive, Inc. (incorporated by reference to Exhibit 3.2 of Group 1Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)4.1 — Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Group 1 Automotive, Inc.’s RegistrationStatement on Form S-1 (Registration No. 333-29893))4.2 — Indenture, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto and Wells Fargo Bank,National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014)4.3 — Form of 5.000% Senior Notes due 2022 (included as Exhibit A to Exhibit 4.2)4.4 — Registration Rights Agreement, dated as of June 2, 2014, by and among Group 1 Automotive, Inc., the guarantors party thereto andJ.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 toGroup 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 2, 2014)4.5 — Registration Rights Agreement, dated as of September 9, 2014, by and among Group 1 Automotive, Inc., the guarantors partythereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference toExhibit 4.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 11, 2014)4.6 — Indenture, dated as of December 8, 2015, by and among Group 1 Automotive, Inc., the guarantors party thereto and Wells FargoBank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Group 1 Automotive, Inc.’s Current Report onForm 8-K (File No. 001-13461) filed December 9, 20154.7 — Form of 5.250% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to Group 1 Automotive, Inc.’s Current Report onForm 8-K (File No. 001-13461) filed December 9, 2015)10.1 — Ninth Amended and Restated Revolving Credit Agreement, dated effective as of June 20, 2013, among Group 1 Automotive, Inc.,the Subsidiary Borrowers listed therein, the Lenders listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, ComericaBank, as Floor Plan Agent and Bank of America, N.A., as Syndication Agent (Incorporated by reference to Exhibit 10.1 of Group 1Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 26, 2013)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ExhibitNumber Description10.2 — First Amendment to Ninth Amended and Restated Revolving Credit Agreement, dated effective May 13, 2014, among Group 1Automotive, Inc., the Subsidiary Borrowers listed therein, the Lenders listed therein, JPMorgan Chase Bank, N.A., asAdministrative Agent, Comerica Bank, as Floor Plan Agent, Bank of America, N.A., as Syndication Agent, U.S. Bank, N.A. andWells Fargo Bank, N.A., as Co-Documentation Agents and Capital One National Association and Compass Bank, as ManagingAgents (incorporated by reference to Exhibit 10.4 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2014)10.3 — Partial Unwind Agreement between Group 1 Automotive, Inc. and JPMorgan Chase Bank, National Association, dated June 25,2014 (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461)filed June 26, 2014)10.4 — Partial Unwind Agreement between Group 1 Automotive, Inc. and Bank of America, N.A., dated June 25, 2014 (incorporated byreference to Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed June 26, 2014)10.5 — Unwind Agreement between Group 1 Automotive, Inc. and JPMorgan Chase Bank, National Association, dated July 25, 2014(incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filedJuly 31, 2014)10.6 — Unwind Agreement between Group 1 Automotive, Inc. and Bank of America, N.A., dated July 25, 2014 (incorporated by referenceto Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed July 31, 201410.7 — Stockholders Agreement dated as of February 28, 2013, by and among Group 1 Automotive, Inc. and former shareholders of UABMotors Participações S.A. named therein (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Reporton Form 8-K (File No. 001-13461) filed March 5, 2013)10.8 — Master Assignment and Acceptance Agreement, dated effective December 11, 2012, between JPMorgan Chase Bank, N.A.,Comerica Bank, and Bank of America, N.A., each, an Assignor, and VW Credit, Inc., as Assignee, pursuant to the terms of theEighth Amended and Restated Revolving Credit Agreement, dated effective as of July 1, 2011, as amended (Incorporated byreference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year endedDecember 31, 2012)10.9 — Loan Facility dated as of October 3, 2008 by and between Chandlers Garage Holdings Limited and BMW Financial Services (GB)Limited. (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2008)10.10 — Form of Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement(Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) forthe quarter ended June 30, 2003)10.11 — Supplemental Terms and Conditions dated September 4, 1997 between Ford Motor Company and Group 1 Automotive, Inc.(Incorporated by reference to Exhibit 10.16 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 RegistrationNo. 333-29893)10.12 — Form of Agreement between Toyota Motor Sales, U.S.A., Inc. and Group 1 Automotive, Inc. (Incorporated by reference toExhibit 10.12 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893)10.13 — Toyota Dealer Agreement effective April 5, 1993 between Gulf States Toyota, Inc. and Southwest Toyota, Inc. (Incorporated byreference to Exhibit 10.17 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893)10.14 — Lexus Dealer Agreement effective August 21, 1995 between Lexus, a division of Toyota Motor Sales, U.S.A., Inc. and SMC LuxuryCars, Inc. (Incorporated by reference to Exhibit 10.18 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1Registration No. 333-29893)10.15 — Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of Group 1Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893)10.16 — Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38 of Group 1 Automotive,Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998)10.17 — Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference toExhibit 10.13 of Group 1 Automotive, Inc.’s Registration Statement on Form S-1 Registration No. 333-29893)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ExhibitNumber Description10.18 — Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39 of Group 1 Automotive,Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 1998)10.19 — Form of Nissan Division of Nissan North America, Inc. Dealer Sales and Service Agreement (Incorporated by reference toExhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31,2003)10.20 — Form of Infiniti Division of Nissan North America, Inc. Dealer Sales and Service Agreement (Incorporated by reference toExhibit 10.26 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31,2003)10.21* — Policy on Payment or Recoupment of Performance-Based Cash Bonuses and Performance-Based Stock Bonuses in the Event ofCertain Restatement (Incorporated by reference to the section titled “Policy on Payment or Recoupment of Performance-BasedCash Bonuses and Performance-Based Stock Bonuses in the Event of Certain Restatement” in Item 5.02 of Group 1 Automotive,Inc.’s Current Report on Form 8-K (File No. 13461) filed November 16, 2009)10.22* — Form of Indemnification Agreement of Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.1 of Group 1Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed November 13, 2007)10.23* — Group 1 Automotive, Inc. Non-Employee Director Compensation Plan, effective January 1, 2012 (Incorporated by reference toExhibit 10.16 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31,2011)10.24* — Group 1 Automotive, Inc. 2014 Corporate Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 of Group 1Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed February 28, 2014)10.25* — Group 1 Automotive, Inc. 2015 Short Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Group 1 Automotive, Inc.’sCurrent Report on Form 8-K (File No. 001-13461) filed March 2, 2015)10.26* — Officer’s Terms of Engagement and Guarantees between UAB Motors Participações S.A. and Lincoln da Cunha Pereira Filho datedas of February 28, 2013 (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q(File No. 001-13461) for the quarter ended March 31, 2013)10.27* — Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008 (Incorporated byreference to Exhibit 10.28 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year endedDecember 31, 2007)10.28* — First Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008(Incorporated by reference to Exhibit 10.25 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) forthe year ended December 31, 2008)10.29* — Second Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1,2008 (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended June 30, 2009)10.30* — Third Amendment to Group 1 Automotive, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2008(Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filedNovember 15, 2010)10.31* — Group 1 Automotive, Inc. 2007 Long Term Incentive Plan (As Amended and Restated Effective as of March 11, 2010)(Incorporated by reference to Exhibit A to Group 1 Automotive, Inc.’s definitive proxy statement on Schedule 14A filed on April 8,2010)10.32* — Group 1 Automotive, Inc. 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to Group 1 Automotive, Inc.’sdefinitive proxy statement on Schedule 14A filed April 10, 2014)10.33* — Form of Restricted Stock Agreement for Employees (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’sCurrent Report on Form 8-K (File No. 001-13461) filed March 16, 2005)10.34* — Form of Senior Executive Officer Restricted Stock Agreement (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive,Inc.’s Current Report on Form 8-K (File No. 001-13461) filed September 9, 2010)10.35* — Form of Restricted Stock Agreement with Qualified Retirement Provisions (Incorporated by reference to Exhibit 10.27 of Group 1Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2011)10.36* — Form of Phantom Stock Agreement for Employees (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’s CurrentReport on Form 8-K (File No. 001-13461) filed March 16, 2005)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ExhibitNumber Description10.37* — Form of Phantom Stock Agreement for Non-Employee Directors (Incorporated by reference to Exhibit 10.36 of Group 1Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2009)10.38* — Form of Phantom Stock Agreement for Non-Employee Directors (Incorporated by reference to Exhibit 10.5 of Group 1 Automotive,Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 16, 2005)10.39* — Employment Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated byreference to Exhibit 10.1 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)10.40* — Non-Compete Agreement dated effective May 19, 2015 between Group 1 Automotive, Inc. and Earl J. Hesterberg (incorporated byreference to Exhibit 10.2 to Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed May 22, 2015)10.41†* — Transition Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara10.42†* — Employment Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara10.43* — Employment Agreement dated January 1, 2009 between Group 1 Automotive, Inc. and John C. Rickel (Incorporated by reference toExhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filed March 17, 2009)10.44* — Incentive Compensation and Non-Compete Agreement dated June 2, 2006 between Group 1 Automotive, Inc. and John C. Rickel(Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filedJune 7, 2006)10.45* — Employment Agreement dated effective as of December 1, 2009 between Group 1 Automotive, Inc. and Darryl M. Burman(Incorporated by reference to Exhibit 10.1 of Group 1 Automotive, Inc.’s Current Report on Form 8-K (File No. 001-13461) filedNovember 16, 2009)10.46* — Incentive Compensation and Non-Compete Agreement dated December 1, 2006 between Group 1 Automotive, Inc. and Darryl M.Burman (Incorporated by reference to Exhibit 10.2 of Group 1 Automotive, Inc.’s Current Report on Form 8-K/A (File No. 001-13461) filed December 1, 2006)10.47* — Incentive Compensation, Confidentiality, Non-Disclosure and Non-Compete Agreement dated January 1, 2010 between Group 1Automotive, Inc. and Mark J. Iuppenlatz (Incorporated by reference to Exhibit 10.48 of Group 1 Automotive, Inc.’s Annual Reporton Form 10-K (File No. 001-13461) for the year ended December 31, 2009)10.48* — Group 1 Automotive, Inc. Corporate Aircraft Usage Policy (Incorporated by reference to Exhibit 10.49 of Group 1 Automotive,Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year ended December 31, 2009)10.49* — Description of UAB Motors Participações S.A. Bonus Plan for 2013 (Incorporated by reference to Exhibit 10.4 of Group 1Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended March 31, 2013)10.50* — Form of Senior Executive Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’sQuarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)10.51* — Form of Restricted Stock Agreement with Qualified Retirement Provisions (incorporated by reference to Exhibit 10.4 of Group 1Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)10.52* — Form of Restricted Stock Agreement for Employees (incorporated by reference to Exhibit 10.5 of Group 1 Automotive, Inc.’sQuarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)10.53* — Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.6 of Group 1Automotive, Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)10.54* — Form of Phantom Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.7 of Group 1 Automotive,Inc.’s Quarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)10.55* — Form of Performance-Based Restricted Stock Agreement (incorporated by reference to Exhibit 10.8 of Group 1 Automotive, Inc.’sQuarterly Report on Form 10-Q (File No. 001-13461) for the quarter ended September 30, 2014)11.1 — Statement re Computation of Per Share Earnings (Incorporated by reference to Note 6 to the financial statements)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ExhibitNumber Description12.1† — Statement re Computation of Ratios21.1† — Group 1 Automotive, Inc. Subsidiary List23.1† — Consent of Ernst & Young LLP31.1† — Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2† — Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1** — Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2** — Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS — XBRL Instance Document101.SCH — XBRL Taxonomy Extension Schema Document101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document101.DEF — XBRL Taxonomy Extension Definition Linkbase Document101.LAB — XBRL Taxonomy Extension Label Linkbase Document101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document †Filed herewith*Management contract or compensatory plan or arrangement**Furnished herewithSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41Execution VersionTRANSITION AGREEMENTThis Transition Agreement (“Agreement”) is entered into by and between Group 1 Automotive, Inc. (“Group 1” or the “Company”)and James Brooks O’Hara (“Employee”).A. RECITALS1.On or about December 18, 2015, Group 1 and Employee agreed that so long as he remained employed through such date,Employee would become Director, Special Projects effective April 1, 2016. Between the time that Employee executes thisAgreement and April 1, 2016, (such period, the “Transition Period”), unless earlier terminated pursuant to Section 3 below,Employee will continue to serve as the Vice President of Human Resources and perform the duties commensurate with thatposition.B. AGREEMENTIn consideration of the following promises and covenants, the Parties agree as follows:1.Release: In return for the Company’s agreement to enter into this Agreement and, provided that he is still employed by theCompany at the end of the Transition Period, to employ Employee as Director, Special Projects under the terms of theEmployment Agreement (attached hereto as Exhibit “A”) beginning April 1, 2016 (the “Employment Agreement”), and otherpromises as outlined herein, Employee agrees to accept the terms of this Agreement and, on April 1, 2016, to execute theRelease and Waiver of Claims Agreement (“Release,” attached hereto as Exhibit “B”).2.Role; Compensation & Benefits: Until April 1, 2016, unless earlier terminated pursuant to Section 3 below, Employee shallcontinue to serve as Vice President of Human Resources for Group 1. Employee will continue to be paid his regular salary andbe eligible for any bonuses for which he is currently eligible and shall continue to participate in and receive all health andwelfare benefits to which he is entitled as a Group 1 employee, including, but not limited to, those set forth in Section 4 below. 3.Term: Both Group 1 and Employee expressly understand and agree that until April 1, 2016, unless terminated pursuant to thefollowing sentence, Employee will remain employed as the Vice President of Human Resources of Group 1. Termination priorto April 1, 2016, by either party, shall occur only in the event or occurrence of one of the following: (1) Employee’s death or“Disability” (as defined in the Employee’s Restricted Stock Agreement(s) (Qualified Retirement)); (2) an uncured materialbreach by Employee of one or more of the material terms and conditions of this Agreement or the confidentiality, non-competition, and non-solicitation provisions contained in Exhibit A of the Employee’s Restricted Stock Agreement(s)(Qualified Retirement); (3) an act of fraud, embezzlement or other dishonesty by Employee during the Transition Period; or (4)the commission by the Employee of any illegal and/or unethical act in connection with the Employee’s business activitiesduring the Transition Period that would adversely and materially impact on the character, goodwill and public reputation ofGroup 1. Prior to the termination of employment for any of the events or occurrences (other than (1)), Group 1 shall provide inwriting to Employee notice of the event or occurrence warranting termination of employment and, in the case of (2) above, thesteps reasonably needed to cure the material breach. Upon receipt of the written notice, Employee shall have ten (10) businessdays to respond inSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41writing to the notice. Group 1 and Employee agree to confer in good faith before the termination of employment. If theEmployee’s employment is terminated for any reason then, subject to Employee’s entry into (and non-revocation in the timeprovided to do so), on the date of termination or within 21 days thereafter, a release of claims acceptable to the Company in aform (subject to adjustment by the Company to reflect applicable law, Employee’s particular terms and date of separationand/or payments to be received) similar to the Release, the Company agrees to pay, within thirty (30) days of the date oftermination, and subject to Section 4.f. of the Employment Agreement, which provision is hereby incorporated into this Section3 to the extent necessary to avoid the imposition of additional taxes on the Employee pursuant to Section 409A of the InternalRevenue Code of 1986, as amended, (a) the Employee’s base salary through April 1, 2016 (to the extent unpaid as of the dateof such termination), (b) the sum of $252,000, and (c) any bonus payable with respect to services to the Company in 2015 andthe first quarter of 2016 (paid on a pro-rata basis and calculated off a full-year bonus amount as described in the Company’sShort Term Incentive Plan) that the Employee would be entitled to receive had he remained employed through April 1, 2016.In addition, provided Employee was terminated for any reason other than those set forth in clauses (2) through (4) of thepreceding paragraph, in the event that Employee and/or his dependents elects to continue his group health insurance under theConsolidated Omnibus Budget Reconciliation Act (“COBRA”) on behalf of himself or his dependents, then the Company willpay the premiums to maintain health insurance coverage (based on the coverage the Employee has elected and so long as theEmployee is participating in a Company-sponsored group health plan) pursuant to COBRA for the Employee and anydependents enrolled in the Company’s medical plan as of the last day of the Employee’s employment, less the amount ofpremiums the Employee would have otherwise been required to pay for such coverage had the Employee continued to beemployed by the Company, less all required deductions and tax withholdings. If the period for continuation coverage underCOBRA expires prior to the expiration of 36 months following termination of employment, then in addition, the Companyshall pay the Employee a lump sum cash payment equal to (a) the monthly COBRA premium for similarly situated formeremployees of the Company with respect to the coverage election in effect for Employee and his eligible dependents at the timeCOBRA expires, less the amount of premiums the Employee would have otherwise been required to pay for such coveragehad the Employee continued to be employed by the Company, multiplied by (b) the number of months remaining in the 36month period following Employee’s termination of employment. The Company also agrees that, if Employee’s termination ofemployment was not by reason of death or Disability, any restricted stock which has not vested and been released as of the dateof termination, will continue vesting for two years following such termination under and subject to the provisions of theQualified Retirement provisions of the Restricted Stock Agreement. These shares will become vested and nonforfeitablefollowing the two-year holding period provided that the Employee satisfies the confidentiality, non-competition, and non-solicitation provisions contained in Exhibit A of the Restricted Stock Agreement. The Company acknowledges and agrees thatthe Compensation Committee of the Board of Directors has agreed to waive the age requirement of the Qualified Retirementprovision under these circumstances. For the purpose of determining the timing of payments upon termination pursuant to thisSection 3, “date of termination,” “termination of employment” and similar terms will mean “separation from service” within themeaning of Treasury Regulation § 1.409A-1(h).4.Rights Not Affected: This Agreement will not affect Employee’s rights in the Group 1 Automotive, Inc. DeferredCompensation Plan, the Group 1 Automotive, Inc. Long Term IncentivePage 2 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41Plan, the Executive Term Life & Accidental Death and Dismemberment Insurance, the Disability Income Insurance: LongTerm Benefits, the Company’s 401(k) Plans or any deferred compensation plan, or Employee’s ownership rights to shares ofstock in the Company.5.Confidentiality:(a)Group 1 and Employee agree that the terms of this Agreement are a private matter, which shall not be divulged inany form to others. Accordingly, Group 1 and Employee hereby agree that, except as provided by law, they will notdisclose, disseminate and/or publicize or cause to be disclosed, disseminated and/or publicized any of the terms ofthis Agreement or the discussions which have led up to this Agreement to anyone, with the exception of thosewithin Group 1 who have a business need to know the terms and the Employee’s attorney, any financial or taxadvisors, and spouse and children, who shall not divulge its contents to any third party.(b)On April 1, 2016 or any such earlier date that Employee’s employment terminates, Employee agrees to execute anydocuments necessary to effectuate his resignation as Vice President of Human Resources with Group 1 and tocooperate in any filings with the Securities and Exchange Commission related to his resignation.(c)Group 1 and Employee agree to work together to draft a statement that may be communicated by Group 1 or theEmployee regarding Employee’s resignation as Vice President of Human Resources and continuing employment asDirector, Special Projects.6.Prior Agreements: Except as otherwise specified herein, all other terms of Employee’s agreements with Group 1, remain infull force and effect during and after the Transition Period, subject to the terms of those agreements.7.Severability: In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal, orunenforceable in any respect, the validity, legality, and enforceability of the remaining provisions of this Agreement shall not beaffected thereby.8.Employee Indemnity Not Affected: The releases contained herein shall not affect Group 1’s obligation under law, to theextent applicable, to indemnify Employee as an employee for actions taken within the scope and course of Employee’semployment.9.Jurisdiction and Choice of Law: The Employee and Company agrees to use the Laws of Texas to enforce the terms of thisAgreement and the matter shall be heard in Harris County, Texas. Employee agrees to service and personal jurisdiction inHarris County, Texas.Page 3 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41In Witness Whereof, the parties have executed this Agreement effective as of the date last written below.JAMES BROOKS O’HARA (“EMPLOYEE”) GROUP 1 AUTOMOTIVE, INC. By: /s/ J. Brooks O’Hara By: /s/ Darryl M. Burman Dated: 12/18/2015 Dated: 12/18/2015Page 4 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41EXHIBIT “A”EMPLOYMENT AGREEMENTThis Employment Agreement (the “Agreement”) is made by and between Group 1 Automotive, Inc. (the “Company”) andJames Brooks O’Hara (“Employee”).WHEREAS, the Company desires to continue to employ Employee, and Employee desires to continue such employment withthe Company, upon the terms and conditions set forth in this Agreement;NOW THEREFORE, in consideration of the promises and the mutual covenants contained herein, and other good andvaluable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, theparties hereto covenant and agree as follows:1. Term of Agreement. The term of this Agreement shall commence on April 1, 2016 and, except as provided below, shallterminate on March 31, 2019 (the “Employment Term”).2. Employment; Services. The Company hereby employs the Employee as Director, Special Projects to render the followingservices (“Services”) to the Company for the term of this Agreement: (a) the Employee shall assist the Company in human resourcesand other business activities; (b) the Employee shall testify as a witness in any proceeding or otherwise provide information orreasonable assistance to the Company in connection with any claim or lawsuit threatened or filed against the Company; and (c) theEmployee shall assist the Company’s Chief Executive Officer and Vice President of Human Resources with any special projects asmay be requested from time to time. During the Employment Term, it is agreed that the Employee may work for another employer on apart-time basis (limited to no more than 25 hours per week), provide services as a paid consultant, or undertake other activities tosupplement his income, provided that such any activity does not compete with or create a conflict of interest with the Company. TheEmployee also may serve on boards of directors of, or provide volunteer services for, non-profit entities.3. Schedule; Compensation.a.Schedule. The Company shall employ Employee on a full-time basis during the term of thisAgreement and the Employee agrees that his work schedule shall be thirty (30) hours a week. It is mutually agreed by theparties that Employee shall work no less than fifty per cent (50%) of the average number of hours worked by Employee duringthe immediately preceding 36-month period.b.Payments. The Company shall pay the Employee the sum of Seven Thousand Dollars and Zero Cents($7,000.00) per month during the Employment Term, to be paid at the Company’s regular payroll intervals, beginning April 1,2016 and ending on March 31, 2019. If the Company requires that Employee provide Services in excess of thirty (30) hours inany calendar week, then the Company shall pay the Employee a daily rate of One Thousand Dollars ($1,000.00) for each dayduring the calendar week in which such Services in excess of thirty (30) hours were requested and were provided. Allpayments to Employee shall be made in accordance with the Company’s normal payroll practices and subject to taxes,withholdings, benefit deductions and other similar statutory obligations. Employee shall not expect to participate in any bonusplan or receive any additional equity awards (other than continued participation inPage 5 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41the Company’s Employee Stock Purchase Plan and Employee Purchase Plan), additional cash compensation or other short orlong term incentive compensation during the Employment Term.c.Benefit Plans. During the Employment Term, Employee and his eligible dependents may continue toparticipate in the Company’s group health insurance and supplemental benefits plans subject to and pursuant to the terms andconditions of the applicable plan documents and the laws governing same. The Company shall pay the employer portion of thepremiums for such coverage and Employee shall be responsible for paying any additional employee premiums for suchcoverage through reductions in the payments described in Section 3.b. above. Employee, as a full-time employee, shall beeligible to participate in any other benefit plans offered to all employees of the Company, including but not limited to the 401(k)Plan, Employee Stock Purchase Plan, and Employee Purchase Plan. Employee may also participate in the Company’s DeferredCompensation, Executive Long Term Disability Plan and Executive Life Plan subject to the terms and conditions of said planduring the Employment Term. This Agreement will not affect Employee’s rights in the Group 1 Automotive, Inc. DeferredCompensation Plan, the Group 1 Automotive, Inc. Long Term Incentive Plan, the Executive Term Life & Accidental Deathand Dismemberment Insurance, the Disability Income Insurance: Long Term Benefits, the Company’s 401(k) Plans or anydeferred compensation plan, or Employee’s ownership rights to shares of stock in the Company.d.Restricted Stock. During the term of the Employment Agreement, Employee shall continue to vest inthe 17,720 shares of restricted stock previously issued to him in prior award grants (the “Restricted Stock”), and will be eligibleto receive said shares during his Employment Term, subject to the terms and conditions of the 2014 Long Term Incentive Planand Restricted Stock Agreement(s) between the Company and the Employee. If Employee’s termination of employment wasnot by reason of death or “Disability” (as defined in the Employee’s Restricted Stock Agreement(s) (Qualified Retirement)),then any stock not vested and released before the end of the Employment Term will continue vesting and remain subject toforfeiture for two years under the provisions of and subject to the Qualified Retirement provisions of the Restricted StockAgreement(s). These shares will become vested and nonforfeitable following the two-year period provided that the Employeesatisfies the confidentiality, non-completion, and non-solicitation provisions contained in Exhibit A of the Restricted StockAgreement(s).4. Termination of Employment.a. Resignation by the Employee. Employee may terminate his employment by providing at least thirty (30) days prior,written notice of his resignation of employment. In the event of such resignation, the Company agrees to pay, subject to Sections 4.f.and 4.g., on the first regular pay date following the Release Expiration Date, any remaining, unpaid amount of the 36-monthlypayments of $7,000.00 per month as referenced in Section 3.b. of the Agreement. The Company also agrees that any Restricted Stock,which has not vested and been released as of the date of resignation, will continue vesting and remain subject to forfeiture for twoyears following such termination under the provisions of and subject to the Qualified Retirement provisions of the Restricted StockAgreement. These shares will become vested and nonforfeitable following the two-year period provided that Employee satisfies theconfidentiality, non-competition, and non-solicitation provisions contained in Exhibit A of the Restricted Stock Agreement(s). TheCompany acknowledges and agrees that the CompensationPage 6 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41Committee of the Board of Directors has agreed to waive the age requirement of the Qualified Retirement provision under thesecircumstances.b. Death of the Employee. Employee’s employment shall terminate in the event of the death of Employee. In the event ofEmployee’s death, the Company agrees to pay, to Employee’s estate, subject to Section 4.g., on the first regular pay date following theRelease Expiration Date, any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section3.b. of the Agreement. Relative to all unvested Restricted Stock, the forfeiture restrictions shall lapse as to all of the restricted sharessubject to forfeiture restrictions on the date employee’s employment with the Company is terminated by reason of death (as provided inSection 2.b - Restricted Stock Agreement (Qualified Retirement)).c. Disability of the Employee. The Company may terminate the Agreement on account of Employee’s Disability. Beforemaking any termination decision, the Company shall determine whether there is any reasonable accommodation (within the meaning ofthe Americans with Disabilities Act), which would enable the Employee to perform the essential functions of the Employee’s positionunder this Agreement despite the existence of any such Disability. If such a reasonable accommodation is possible, the Company shallmake that accommodation and shall not terminate Employee’s employment hereunder based on such Disability. In the event of suchtermination, the Company agrees to pay, subject to Sections 4.f. and 4.g., on the first regular pay date following the Release ExpirationDate, any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section 3.b. of theAgreement. Relative to all unvested Restricted Stock, the forfeiture restrictions shall lapse as to all of the restricted shares subject toforfeiture restrictions on the date employee’s employment with the Company is terminated by reason of Disability (as provided inSection 2.b - Restricted Stock Agreement (Qualified Retirement)). d. Termination by the Company. The Company may terminate the Agreement by providing at least thirty (30) days prior,written notice of the termination of employment, to the Employee. In the event of termination by the Company pursuant to this Section3.d., the Company agrees to pay, subject to Sections 4.f. and 4.g., on the first regular pay date following the Release Expiration Date,any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section 3.b. of the Agreement.The Company also agrees that any restricted stock, which has not vested and been released as of the date of resignation, will continuevesting and remain subject to forfeiture for two years following such termination under the provisions of and subject to the QualifiedRetirement provisions of the Restricted Stock Agreement(s). These shares will become vested and nonforfeitable following the two-year period provided that Employee satisfies the confidentiality, non-competition, and non-solicitation provisions contained in ExhibitA of the Restricted Stock Agreement. The Company acknowledges and agrees that the Compensation Committee of the Board ofDirectors has agreed to waive the age requirement of the Qualified Retirement provision under these circumstances.e. Insurance Benefits upon Termination of Employment. In the event of Employee’s termination for any reason other thanresignation by the Employee or termination by the Company for “Cause” in the event that Employee and/or his dependents elects tocontinue his group health insurance under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)on behalf of himself orhis dependents, then the Company will pay the premiums to maintain health insurance coverage (based on the coverage the Employeehas elected and so long as the Employee is participating in a Company-sponsored group health plan) pursuant to COBRA forEmployee and any dependents enrolledPage 7 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41in the Company’s medical plan as of the last day of Employee’s employment, less the amount of premiums Employee would haveotherwise been required to pay for such coverage had Employee continued to be employed by the Company, less all requireddeductions and tax withholdings. In addition, if the period for continuation coverage under COBRA expires prior to the expiration of36 months following termination of employment, then in addition, the Company shall pay the Employee a lump sum cash paymentequal to (a) the monthly COBRA premium for similarly situated former employees of the Company with respect to the coverageelection in effect for Employee and his eligible dependents at the time COBRA expires, less the amount of premiums the Employeewould have otherwise been required to pay for such coverage had the Employee continued to be employed by the Company,multiplied by (b) the number of months remaining in the 36 month period following Employee’s termination of employment.f. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code to the extentapplicable, and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application ofSection 409A. If any provision of this Agreement (or the payment of any compensation or benefits hereunder) would cause Employeeto incur any additional tax or interest under Section 409A, the Employer shall, after consulting with Employee, reform such provisionto comply with Section 409A, to the extent such reformation is permitted under Section 409A. If, at the time of Employee’s separationfrom service (within the meaning of section 409A of the Code), Employee is a specified employee (within the meaning of section409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes agood faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of section 409A ofthe Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in section 409A of the Code inorder to avoid taxes or penalties under section 409A of the Code, then the Company will not pay such amount on the otherwisescheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separationfrom service. For the purpose of determining the timing of payments upon termination pursuant to this Section 3, “date of termination,”“termination of employment” and similar terms will mean “separation from service” within the meaning of Treasury Regulation §1.409A-1(h).g. Release. As a condition to the receipt of any post-employment compensation as set forth in Sections 4.a., 4.b., 4.c. or 4.d.,Employee (or Employee’s estate or representative) must first execute and return to the Company, by the Release Expiration Date, andnot revoke in the time provided to do so, a release of claims acceptable to the Company, and in a form (subject to adjustment by theCompany to reflect applicable law, Employee’s particular terms and date of separation and/or payments to be received) similar to thatattached hereto as Exhibit B to the Transition Agreement by and between the Company and the Employee (the “Release”). The“Release Expiration Date” shall mean the date that is 21 days following the date upon which the Company delivers to the Employeethe Release (which shall occur no later than 7 days after the date of Employee’s termination of employment), or in the event that suchtermination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase isdefined in the Age Discrimination in Employment Act of 1967, as amended), the date that is 45 days following such delivery date.5. Method, Means and Location of the Services. The Company, and not Employee, shall have the sole discretion todetermine the method, means, and location of the Services to be performed under this Agreement. The Company shall provideEmployee with the use of an office (if necessary), a cellular telephone, laptop computer and access to Outlook (with his existingcompany email account).Page 8 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41Employee agrees to abide by all Company policies regarding the appropriate use of these Company resources. The Company agreesthat Employee may provide these Services at the Company’s place of business, from Employee’s residence, or other locations asappropriate.6. Non-Disclosure of Confidential/Trade Secret Information. In the course of providing the Services, and in the course ofhis employment with the Company, the Employee has been and may be exposed to and/or provided with confidential informationrelating to the operation of the Company’s business that are “Confidential Information/Trade Secrets” (as defined below) ConfidentialInformation/Trade Secrets belong exclusively to the Company. By example, and without any limitation, “ConfidentialInformation/Trade Secrets” include non-public information regarding potential and actual merger or acquisition targets, informationregarding other potential, planned, or pending purchase or sale transactions, customer lists and potential customer lists, informationrelating to the pricing of Company’s product, information relating to the Company or the Company’s customers obtained or madeknown to Employee as a result of Employee performing his services for the Company, copyrighted materials and software created forthe benefit of the Company, as well as the Company’s business plans, strategy plans, sales figures, sales reports, accounting/financialrecords, personnel policies, marketing plans, marketing methods and related data, operating guidelines, non-public informationconcerning the Company’s vendors or suppliers, information relating to costs, sales or services provided to the Company by suchvendors or suppliers, the prices the Company obtains or has obtained for the Company’s products or services, compensation paid to theCompany’s employees and other terms of employment, information regarding the Company’s relations with its employees, informationregarding other consultants or agents of the Company, information regarding factory agreements and relations, confidential informationregarding the manner of business operations and actual or demonstrably anticipated business, research or development of theCompany, and any other information protected by law as trade secret or which is provided to the Employee in confidence. TheEmployee acknowledges and agrees that the sale or unauthorized use or disclosure of any of the Company’s ConfidentialInformation/Trade Secrets obtained by Employee during his employment with the Company (whether before or during theEmployment Term) constitutes unfair competition. The Employee promises not to engage in any unfair competition with the Companyduring or following the Employment Term.7. Non-Competition Covenant. The Employee promises that, during the Employment Term, he shall not, directly orindirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, board member,director, or in any other individual or representative capacity, in any geographic area or market where the Company or any of itssubsidiaries or affiliated companies are conducting any business, (a) engage in any business competitive with any line of businessconducted by the Company or any of its subsidiaries or (b) render advice or services to, or otherwise assist, any other person,association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by theCompany or any of its subsidiaries or affiliates.8. Non-Solicitation Covenant. The Employee agrees that during the Employment Term he will not, either directly or throughothers, solicit or attempt to solicit any employee, consultant, or independent contractor of the Company to terminate or lessen his or herrelationship with the Company in order to become an employee, consultant or independent contractor to or for any other person orentity.9. Overlapping Covenants. To the extent the covenants set forth in Sections 6, 7 and 8 of this Agreement overlap post-employment covenants and continuing obligations of the same or similarPage 9 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41nature contained in any other Agreement, the parties agree that the covenants providing the greatest protection to Company shall beapplied and enforced.10. Assignment. This Agreement shall bind the successors and assigns of each party and will inure to the benefit of eachparty, their successors and assigns.11. Notices. All notices required or given herewith shall be in writing and shall be delivered as follows with notice deemedgiven as indicated: (i) by personal delivery at the time of delivery; (ii) by overnight courier upon written verification of receipt; (iii) bycertified or registered mail, return receipt requested, upon verification of receipt; or (iv) by email or facsimile upon acknowledgment ofreceipt of transmission. Notices shall be sent to the addresses set forth below or such other address as either party may specify inwriting:To the Company: Group 1 Automotive, Inc.800 Gessner, Suite 500Houston, Texas 77024Attn: General CounselTo the Employee: 1235 Harvard StreetHouston, Texas 7700812. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Texas without regard to theconflict of law provisions thereof.13. Arbitration. The parties agree that any claim, dispute, and/or controversy arising from this Agreement shall be submittedto and determined exclusively by binding arbitration under the Federal Arbitration Act. In addition to any other requirements imposedby law, the arbitrator selected shall be a retired state or federal court Judge or otherwise qualified individual to whom the partiesmutually agree, and shall be subject to disqualification on the same grounds as would apply to a judge of such courts. All rules ofpleading, discovery, evidence and all rights to resolution of the dispute by means of motions for summary judgment and judgment onthe pleadings under the Federal Rules of Civil Procedure and Evidence shall apply and be observed. Resolution of the dispute shall bebased solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis (including but notlimited to, notions of “just cause”) other than such controlling law. The arbitrator shall have the immunity of a judicial officer from civilliability when acting in the capacity of an arbitrator, which immunity supplements any other existing immunity. Likewise, allcommunications during or in connection with the arbitration proceedings are privileged. Notwithstanding this agreement to arbitrate,the parties shall have the right to obtain injunctive or other appropriate equitable relief in a civil court to the extent permitted by law inorder to preserve the rights of the parties pending the appointment of an arbitrator. IN ENTERING INTO THIS SECTION 13, THEPARTIES ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.14. Severability. If any provisions of this Agreement should be held to be illegal, invalid or unenforceable by a court of lawor an arbitrator, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected or impairedthereby.15. Entire Agreement. This Agreement constitutes the entire agreement between the parties regarding this subject matter andsupersedes all prior or contemporaneous oral or written agreementsPage 10 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41concerning such subject matter other than the terms and conditions of the 2014 Long Term Incentive Plan and Restricted StockAgreement(s) between the Company and the Employee which will continue to govern the Restricted Stock. This Agreement can onlybe modified by a subsequent agreement of the parties in writing and signed by the parties. The Employee acknowledges that norepresentations, inducements, promises, agreements or warranties, oral or otherwise, have been made by the Company or anyoneacting on its behalf which are not embodied in this Agreement; that the Employee has not executed this Agreement in reliance on anyrepresentation, inducement, promise, agreements, warranty, fact or circumstances not expressly set forth in this Agreement; and that norepresentation, inducement, promise, agreement or warranty not contained in this Agreement shall be valid or binding, unless executedin writing by the Chief Executive Officer of the Company.16. Construction. This Agreement shall not be construed in favor of one party or against the other.17. Voluntary and Knowing. The parties acknowledge that this Agreement is executed voluntarily and without any duressor undue influence on the part or behalf of the parties hereto.In Witness Whereof, the parties have executed this Agreement effective as of the date last written below.JAMES BROOKS O’HARA (“EMPLOYEE”) GROUP 1 AUTOMOTIVE, INC. By: _________________________________ By: ___________________________ Dated: _______________________________ Dated: ________________________Page 11 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41EXHIBIT “B”RELEASE AND WAIVER OF CLAIMS AGREEMENTThis Release and Waiver of Claims Agreement (“Agreement”) is made and entered into by and between James Brooks O’Hara(the “Employee”) and Group 1 Automotive, Inc. (the “Company”).NOW, THEREFORE, in consideration of and exchange for the promises, covenants, and releases contained herein, the partiesmutually agree as follows:1. Effective Date. Except as provided herein, this Agreement shall be effective the date it is signed by both parties.2. Resignation Date. Employee will resign his position as Vice President of Human Resources and will resign all othercurrent positions and responsibilities effective March 31, 2016 (“Resignation Date”). Employee will continue to be employed as aDirector, Special Projects from that date forward until March 31, 2019 subject to the terms and conditions of the EmploymentAgreement attached as Exhibit “A” to the Transition Agreement.3. Consideration by the Company. For and in consideration of the promises made by the Employee in this Agreement, theCompany shall:a. Prior to Employee’s execution of this Agreement, enter into the Employment Agreement, which is attached asExhibit “A” to the Transition Agreement.b. Pay a pro-rated bonus for work performed from January 1, 2016 until March 31, 2016 calculated off a full-yearbonus amount as described in the Company’s Short Term Incentive Plan. If this Agreement has become irrevocable on orbefore April 30, 2016, the Company shall make this bonus payment no later than May 31, 2016. The bonus payment shall beless all required, customary and authorized deductions and withholdings.c. With the exception of any claim arising from fraud, illegal activity or dishonesty, the Company and its subsidiaries,related companies, parents, successors and assigns agrees to forever unconditionally release, waive and discharge Employeeand his heirs, executors, administrators successors and assigns from any and all claims, debts, liabilities, promises, agreements,demands, causes of action, attorneys’ fees, losses and expenses of every nature whatsoever, known or unknown, suspected orunsuspected, filed or unfiled, arising prior to the Effective Date of this Agreement, or arising out of or in connection withEmployee’s employment with the Company or any affiliate of the Company.Employee SPECIFICALLY ACKNOWLEDGES THAT HE WOULD NOT OTHERWISE BE ENTITLED TO THECONSIDERATION SET FORTH IN THIS PARAGRAPH WERE IT NOT FOR HIS COVENANTS, PROMISES ANDRELEASES SET FORTH HEREUNDER.4. Consideration by the Employee. For and in consideration of the promises made by the Company in Paragraph 3 of thisAgreement, Employee agrees as follows:a. Employee agrees for himself and his heirs, executors, administrators, successors and assigns to foreverunconditionally release, waive and discharge the Company and itsPage 12 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41subsidiaries, related companies, parents, affiliates and each of the foregoing entities’ respective successors and assigns, andcurrent and former divisions, partnerships, related entities, officers, directors, managers, members, shareholders, attorneys,agents, insurers, benefit plans (and the fiduciaries and trustees of such plans) and employees (collectively, the “ReleasedParties”) from any and all claims, debts, liabilities, promises, agreements, demands, causes of action, attorneys' fees, losses andexpenses of every nature whatsoever, known or unknown, suspected or unsuspected, filed or unfiled, arising on or prior to theEffective Date of this Agreement. This total release includes, but is not limited to, all claims or demands related to: (i) salary,bonuses, commissions, compensation, stock, stock options, vacation pay, fringe benefits and expense reimbursements pursuantto any federal, state or local statutory or common law or ordinance or cause of action, including, but not limited to, breach ofcontract, breach of the implied covenant of good faith and fair dealing, infliction of emotional harm, wrongful discharge,violation of public policy, defamation and impairment of economic opportunity; (ii) any federal, state or local anti-discrimination or anti-retaliation law; (iii) violation of (each, as may have been amended): the United States and TexasConstitutions; the Texas Labor Code (specifically including the Texas Payday Act, the Texas Anti-Retaliation Act, Chapter 21of the Texas Labor Code and the Texas Whistleblower Act), the Civil Rights Act of 1866, Title VII of the Civil Rights Act of1964, the Age Discrimination in Employment Act of 1967, the Older Workers' Benefit Protection Act, the Americans WithDisabilities Act of 1990, the Employee Retirement Income and Security Act of 1974 (“ERISA”), the Fair Labor Standards Act,the Family and Medical Leave Act, the Occupational Safety and Health Act, and the Sarbanes Oxley Act. Employeespecifically does not release his right to apply for unemployment compensation benefits. Should Employee apply for suchbenefits, the Company will not oppose such application.b. Employee agrees and promises that Employee will not engage in any disparaging conduct directed at the Companyor any other Released Party, and Employee shall refrain from making any derogatory statements or disparaging behaviorconcerning the Company or any other Released Party in the future. The Company agrees and promises that it will not engagein any disparaging conduct directed at Employee, and the Company shall refrain from making any derogatory statements ordisparaging behavior concerning Employee in the future.c. Employee hereby represents and warrants that he will return to the Company all Company property, materials, filesand documents in his possession including, but not limited to, Company files, notes, records, computer recorded information,electronically stored information, tangible property, credit cards, entry cards, pagers, identification badges, and keys. Employeewill retain the use of his cell phone and laptop computer and be afforded access to the Company’s email system to continue hiswork as a Director, Special Projects as described in the Employment Agreement. d. Employee agrees that Darryl Burman and Earl Hesterberg have been designated as the only persons he willcontact on matters related to this Agreement. Employee specifically agrees that he will not contact any other employee of theCompany concerning these matters.e. Employee understands and agrees that, after April 1, 2016, he is no longer authorized to incur any expensesor obligations or liabilities on behalf of the Company or to make or take any actions as an officer of the Company unlessspecifically instructed to do so by Earl Hesterberg.Page 13 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41f. Employee agrees that during his tenure as an employee and thereafter, he shall not, directly or indirectly,personally, or on behalf of any other person, business, corporation or entity, divulge or make use of any confidential businessinformation or trade secrets of the Company or any other Released Party, including but not limited to: customer or employeeinformation, training material, information related to acquisitions or divestments, buying habits and preferences of customers;marketing strategies; pricing or financial information; technical information; operations information and operations strategies. g. Employee specifically waives his right to recover in any action which may be brought on his behalf by anyperson or entity, including, but not limited to, any governmental department or agency such as the Equal EmploymentOpportunity Commission or the United States Department of Labor. Employee specifically represents and warrants that he hasnot initiated or caused to be initiated any legal action with any court and that he has not filed or caused to be filed anadministrative charge, claim or complaint with any governmental office or department or agency, including but not limited tothe Equal Employment Opportunity Commission.h. Notwithstanding this release of liability, nothing in this Agreement prevents Employee from filing any non-legallywaivable claim (including a challenge to the validity of this Agreement) with the Equal Employment Opportunity Commission(“EEOC”), National Labor Relations Board (“NLRB”), Department of Labor (“DOL”) or comparable state or local agencyor participating in any investigation or proceeding conducted by the EEOC, NLRB, DOL or comparable state or local agencyor cooperating with such agency; however, Employee understands and agrees that Employee is waiving any and all rights torecover any monetary or personal relief or recover as a result of such EEOC, NLRB, DOL or comparable state or local agencyor proceeding or subsequent legal actions. Further notwithstanding this release of liability, nothing in this Agreement limitsEmployee’s right to obtain vested benefits under any benefit plan governed by ERISA.i. Employee hereby acknowledges that a partial consideration for the benefits he will receive pursuant to thisAgreement and an inducement for the Company to enter into this Agreement is Employee’s agreement, if reasonably requestedby the Company, to cooperate with the Company in the defense or prosecution of one or more existing or future court actions,governmental investigations, arbitrations, mediations or other legal or equitable proceedings which involve Company or any ofits current or former employees, officers or directors. This cooperation may include, but shall not be limited to, the availabilityto provide testimony in deposition, affidavit, trial, mediation or arbitration, as well as preparation for that testimony. Employeeacknowledges that he shall make himself available at the Company’s reasonable request for any meetings or conferences theCompany deems necessary in preparation for the defense or prosecution of any such legal proceedings. If the Companyrequests Employee to travel or travel is otherwise required in conjunction with the Employee providing assistance to theCompany pursuant to this provision, the Company will reimburse or pay for Employee’s necessary and reasonable travelexpenses.j. In signing below, Employee expressly represents that, as of the date Employee signs this Agreement, he hasreceived all leaves (paid and unpaid) to which he has been entitled during his employment with the Company and any otherReleased Party and he has received allPage 14 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41wages, bonuses and other compensation that he is owed and has been by the Company and each other Released Party.k. The parties hereby expressly agree and acknowledge that this release of liability of claims shall inure to the benefitof, and apply to, each of the Released Parties that are not signatories hereto, even though such Released Parties are notsignatories to this Agreement, as the parties expressly agree and acknowledge that each such Released Party is a third-partybeneficiary of Employee’s releases, covenants and representations set forth in this Agreement. 5. No Admissions. Employee agrees that this Agreement does not, and shall not be construed to, constitute an admission bythe Company or any other Released Party of any violation of any federal, state or local statute or regulation, or any violation of any ofthe Employee’s rights or of any duty owed by the Company or any other Released Party to the Employee.6. Modification. This Agreement along with the Employment Agreement and any Restricted Stock Agreement contain theentire agreement of the parties hereto and there are no agreements, understandings or representations made by the Company or theEmployee, except as expressly stated herein. This Agreement supersedes all prior agreements and understandings between theCompany and the Employee. No cancellation, modification, amendment, deletion, addition or other changes in this Agreement or anyprovision hereof or any right herein provided shall be effective for any purpose unless specifically set forth in a subsequent writtenagreement signed by both Employee and an authorized representative of the Company.7. Construction. The parties agree that this Agreement shall be construed as if the parties jointly prepared it so that anyuncertainty or ambiguity shall not be interpreted against any one party and in favor of the other.8. Severability and Waiver. The parties agree that the covenants of this Agreement are severable and that if any single clauseor clauses shall be found unenforceable, the entire Agreement shall not fail but shall be construed and enforced without any severedclauses in accordance with the terms of this Agreement. The parties also agree that any failure by any party to enforce any right orprivilege under this Agreement shall not be deemed to constitute waiver of any rights and privileges contained herein. The terms of thisAgreement is to be construed under the laws of the State of Texas. The parties consent to the jurisdiction of the courts of the State ofTexas for any disputes arising hereunder.9. Adequacy of Consideration. The parties further acknowledge the adequacy of the additional consideration providedherein by each to the other, that this is a legally binding document, and that they intend to be bound by and faithful to its terms.10. Period of Consideration. The Employee is fully aware of the contents of this Agreement and of its legal effect. TheEmployee acknowledges that he was advised on the date he received this Agreement that he had a period of twenty-one (21) calendardays to review and consider this Agreement before signing. The Employee further acknowledges that he voluntarily may waive hisright to take the full 21-day consideration period and may sign this Agreement at any time before the 21-day period elapses.11. Period of Revocation. The Employee understands that after signing this Agreement he may, in his sole discretion, revokehis acceptance of the Agreement by giving written notice to Darryl Burman, within seven (7) days after the Employee signs theAgreement. Notice of revocation must bePage 15 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.41received no later than the close of business on the seventh (7th) day following the Employee’s execution of this Agreement.12. Confidentiality. Employee agrees that he will not disclose that he has entered into a Release and Waiver ofClaims Agreement with the Company, and further agrees that he will keep the terms of this Agreement completelyconfidential and that he will not hereafter disclose any information concerning this Agreement, the existence of thisAgreement, and the negotiations that resulted in this Agreement to anyone; provided, however, that he may make suchdisclosures to his professional representatives (e.g., attorneys, accountants, auditors, tax preparers), all of whom shall beinformed of and agree to be bound by this confidentiality clause, and provided that he may make other such disclosuresas may be required by law. If Employee is contacted, served, or learns that he will be served with a subpoena to compelhis testimony or the production of documents concerning this Agreement or his employment with the Company, theEmployee agrees to immediately notify Darryl Burman by telephone and then as soon as possible thereafter in writing.13. Attorney Consultation. Employee certifies that by signing this Agreement he has had a reasonable amountof time to consider its terms, that he has had the opportunity to consult with an attorney before signing this Agreement,and that he has signed this Agreement after good-faith negotiations concerning its terms. Employee is hereby advised inwriting to consult with an attorney prior to signing this Agreement.14. Voluntary and Knowing. This Agreement is executed voluntarily and without any duress or undueinfluence on the part or behalf of the parties hereto.In Witness Whereof, the parties have executed this Agreement effective as of the date last written below.JAMES BROOKS O’HARA (“EMPLOYEE”) GROUP 1 AUTOMOTIVE, INC. By: _________________________________ By: ___________________________ Dated: _______________________________ Dated: ________________________Page 16 of 16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42Execution VersionEMPLOYMENT AGREEMENTThis Employment Agreement (the “Agreement”) is made by and between Group 1 Automotive, Inc. (the “Company”) andJames Brooks O’Hara (“Employee”).WHEREAS, the Company desires to continue to employ Employee, and Employee desires to continue such employment withthe Company, upon the terms and conditions set forth in this Agreement;NOW THEREFORE, in consideration of the promises and the mutual covenants contained herein, and other good andvaluable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, theparties hereto covenant and agree as follows:1. Term of Agreement. The term of this Agreement shall commence on April 1, 2016 and, except as provided below, shallterminate on March 31, 2019 (the “Employment Term”).2. Employment; Services. The Company hereby employs the Employee as Director, Special Projects to render the followingservices (“Services”) to the Company for the term of this Agreement: (a) the Employee shall assist the Company in human resourcesand other business activities; (b) the Employee shall testify as a witness in any proceeding or otherwise provide information orreasonable assistance to the Company in connection with any claim or lawsuit threatened or filed against the Company; and (c) theEmployee shall assist the Company’s Chief Executive Officer and Vice President of Human Resources with any special projects asmay be requested from time to time. During the Employment Term, it is agreed that the Employee may work for another employer on apart-time basis (limited to no more than 25 hours per week), provide services as a paid consultant, or undertake other activities tosupplement his income, provided that such any activity does not compete with or create a conflict of interest with the Company. TheEmployee also may serve on boards of directors of, or provide volunteer services for, non-profit entities.3. Schedule; Compensation.a.Schedule. The Company shall employ Employee on a full-time basis during the term of thisAgreement and the Employee agrees that his work schedule shall be thirty (30) hours a week. It is mutually agreed by theparties that Employee shall work no less than fifty per cent (50%) of the average number of hours worked by Employee duringthe immediately preceding 36-month period.b.Payments. The Company shall pay the Employee the sum of Seven Thousand Dollars and Zero Cents($7,000.00) per month during the Employment Term, to be paid at the Company’s regular payroll intervals, beginning April 1,2016 and ending on March 31, 2019. If the Company requires that Employee provide Services in excess of thirty (30) hours inany calendar week, then the Company shall pay the Employee a daily rate of One Thousand Dollars ($1,000.00) for each dayduring the calendar week in which such Services in excess of thirty (30) hours were requested and were provided. Allpayments to Employee shall be made in accordance with the Company’s normal payroll practices and subject to taxes,withholdings, benefit deductions and other similar statutory obligations. Employee shall not expect to participate in any bonusplan or receive any additional equity awards (other than continued participation in the Company’s Employee Stock PurchasePlan and Employee Purchase Plan), additional cash compensation or other short or long term incentive compensation duringthe Employment Term.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42c.Benefit Plans. During the Employment Term, Employee and his eligible dependents may continue toparticipate in the Company’s group health insurance and supplemental benefits plans subject to and pursuant to the terms andconditions of the applicable plan documents and the laws governing same. The Company shall pay the employer portion of thepremiums for such coverage and Employee shall be responsible for paying any additional employee premiums for suchcoverage through reductions in the payments described in Section 3.b. above. Employee, as a full-time employee, shall beeligible to participate in any other benefit plans offered to all employees of the Company, including but not limited to the 401(k)Plan, Employee Stock Purchase Plan, and Employee Purchase Plan. Employee may also participate in the Company’s DeferredCompensation, Executive Long Term Disability Plan and Executive Life Plan subject to the terms and conditions of said planduring the Employment Term. This Agreement will not affect Employee’s rights in the Group 1 Automotive, Inc. DeferredCompensation Plan, the Group 1 Automotive, Inc. Long Term Incentive Plan, the Executive Term Life & Accidental Deathand Dismemberment Insurance, the Disability Income Insurance: Long Term Benefits, the Company’s 401(k) Plans or anydeferred compensation plan, or Employee’s ownership rights to shares of stock in the Company.d.Restricted Stock. During the term of the Employment Agreement, Employee shall continue to vest inthe 17,720 shares of restricted stock previously issued to him in prior award grants (the “Restricted Stock”), and will be eligibleto receive said shares during his Employment Term, subject to the terms and conditions of the 2014 Long Term Incentive Planand Restricted Stock Agreement(s) between the Company and the Employee. If Employee’s termination of employment wasnot by reason of death or “Disability” (as defined in the Employee’s Restricted Stock Agreement(s) (Qualified Retirement)),then any stock not vested and released before the end of the Employment Term will continue vesting and remain subject toforfeiture for two years under the provisions of and subject to the Qualified Retirement provisions of the Restricted StockAgreement(s). These shares will become vested and nonforfeitable following the two-year period provided that the Employeesatisfies the confidentiality, non-completion, and non-solicitation provisions contained in Exhibit A of the Restricted StockAgreement(s).4. Termination of Employment.a. Resignation by the Employee. Employee may terminate his employment by providing at least thirty (30) days prior,written notice of his resignation of employment. In the event of such resignation, the Company agrees to pay, subject to Sections 4.f.and 4.g., on the first regular pay date following the Release Expiration Date, any remaining, unpaid amount of the 36-monthlypayments of $7,000.00 per month as referenced in Section 3.b. of the Agreement. The Company also agrees that any Restricted Stock,which has not vested and been released as of the date of resignation, will continue vesting and remain subject to forfeiture for twoyears following such termination under the provisions of and subject to the Qualified Retirement provisions of the Restricted StockAgreement. These shares will become vested and nonforfeitable following the two-year period provided that Employee satisfies theconfidentiality, non-competition, and non-solicitation provisions contained in Exhibit A of the Restricted Stock Agreement(s). TheCompany acknowledges and agrees that the Compensation Committee of the Board of Directors has agreed to waive the agerequirement of the Qualified Retirement provision under these circumstances.b. Death of the Employee. Employee’s employment shall terminate in the event of the death of Employee. In the event ofEmployee’s death, the Company agrees to pay, to Employee’s estate, subject to Section 4.g., on the first regular pay date following theRelease Expiration Date, any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section3.b. of the Agreement. Relative to all unvested Restricted Stock, the forfeiture restrictions shall lapse as to all of the restricted sharessubject to forfeiture restrictions on the date employee’s employment with the Company isPage 2 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42terminated by reason of death (as provided in Section 2.b - Restricted Stock Agreement (Qualified Retirement)).c. Disability of the Employee. The Company may terminate the Agreement on account of Employee’s Disability. Beforemaking any termination decision, the Company shall determine whether there is any reasonable accommodation (within the meaning ofthe Americans with Disabilities Act), which would enable the Employee to perform the essential functions of the Employee’s positionunder this Agreement despite the existence of any such Disability. If such a reasonable accommodation is possible, the Company shallmake that accommodation and shall not terminate Employee’s employment hereunder based on such Disability. In the event of suchtermination, the Company agrees to pay, subject to Sections 4.f. and 4.g., on the first regular pay date following the Release ExpirationDate, any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section 3.b. of theAgreement. Relative to all unvested Restricted Stock, the forfeiture restrictions shall lapse as to all of the restricted shares subject toforfeiture restrictions on the date employee’s employment with the Company is terminated by reason of Disability (as provided inSection 2.b - Restricted Stock Agreement (Qualified Retirement)). d. Termination by the Company. The Company may terminate the Agreement by providing at least thirty (30) days prior,written notice of the termination of employment, to the Employee. In the event of termination by the Company pursuant to this Section3.d., the Company agrees to pay, subject to Sections 4.f. and 4.g., on the first regular pay date following the Release Expiration Date,any remaining unpaid amount of the 36-monthly payments of $7,000.00 per month as referenced in Section 3.b. of the Agreement.The Company also agrees that any restricted stock, which has not vested and been released as of the date of resignation, will continuevesting and remain subject to forfeiture for two years following such termination under the provisions of and subject to the QualifiedRetirement provisions of the Restricted Stock Agreement(s). These shares will become vested and nonforfeitable following the two-year period provided that Employee satisfies the confidentiality, non-competition, and non-solicitation provisions contained in ExhibitA of the Restricted Stock Agreement. The Company acknowledges and agrees that the Compensation Committee of the Board ofDirectors has agreed to waive the age requirement of the Qualified Retirement provision under these circumstances.e. Insurance Benefits upon Termination of Employment. In the event of Employee’s termination for any reason other thanresignation by the Employee or termination by the Company for “Cause” in the event that Employee and/or his dependents elects tocontinue his group health insurance under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)on behalf of himself orhis dependents, then the Company will pay the premiums to maintain health insurance coverage (based on the coverage the Employeehas elected and so long as the Employee is participating in a Company-sponsored group health plan) pursuant to COBRA forEmployee and any dependents enrolled in the Company’s medical plan as of the last day of Employee’s employment, less the amountof premiums Employee would have otherwise been required to pay for such coverage had Employee continued to be employed by theCompany, less all required deductions and tax withholdings. In addition, if the period for continuation coverage under COBRAexpires prior to the expiration of 36 months following termination of employment, then in addition, the Company shall pay theEmployee a lump sum cash payment equal to (a) the monthly COBRA premium for similarly situated former employees of theCompany with respect to the coverage election in effect for Employee and his eligible dependents at the time COBRA expires, less theamount of premiums the Employee would have otherwise been required to pay for such coverage had the Employee continued to beemployed by the Company, multiplied by (b) the number of months remaining in the 36 month period following Employee’stermination of employment.f. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code to the extentapplicable, and any ambiguous provision will be construed in a manner that isPage 3 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42compliant with or exempt from the application of Section 409A. If any provision of this Agreement (or the payment of anycompensation or benefits hereunder) would cause Employee to incur any additional tax or interest under Section 409A, the Employershall, after consulting with Employee, reform such provision to comply with Section 409A, to the extent such reformation is permittedunder Section 409A. If, at the time of Employee’s separation from service (within the meaning of section 409A of the Code),Employee is a specified employee (within the meaning of section 409A of the Code and using the identification methodology selectedby the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunderconstitutes deferred compensation (within the meaning of section 409A of the Code) the payment of which is required to be delayedpursuant to the six-month delay rule set forth in section 409A of the Code in order to avoid taxes or penalties under section 409A ofthe Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, withoutinterest, on the tenth business day of the seventh month after such separation from service. For the purpose of determining the timing ofpayments upon termination pursuant to this Section 3, “date of termination,” “termination of employment” and similar terms will mean“separation from service” within the meaning of Treasury Regulation § 1.409A-1(h).g. Release. As a condition to the receipt of any post-employment compensation as set forth in Sections 4.a., 4.b., 4.c. or 4.d.,Employee (or Employee’s estate or representative) must first execute and return to the Company, by the Release Expiration Date, andnot revoke in the time provided to do so, a release of claims acceptable to the Company, and in a form (subject to adjustment by theCompany to reflect applicable law, Employee’s particular terms and date of separation and/or payments to be received) similar to thatattached hereto as Exhibit B to the Transition Agreement by and between the Company and the Employee (the “Release”). The“Release Expiration Date” shall mean the date that is 21 days following the date upon which the Company delivers to the Employeethe Release (which shall occur no later than 7 days after the date of Employee’s termination of employment), or in the event that suchtermination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase isdefined in the Age Discrimination in Employment Act of 1967, as amended), the date that is 45 days following such delivery date.5. Method, Means and Location of the Services. The Company, and not Employee, shall have the sole discretion todetermine the method, means, and location of the Services to be performed under this Agreement. The Company shall provideEmployee with the use of an office (if necessary), a cellular telephone, laptop computer and access to Outlook (with his existingcompany email account). Employee agrees to abide by all Company policies regarding the appropriate use of these Companyresources. The Company agrees that Employee may provide these Services at the Company’s place of business, from Employee’sresidence, or other locations as appropriate.6. Non-Disclosure of Confidential/Trade Secret Information. In the course of providing the Services, and in the course ofhis employment with the Company, the Employee has been and may be exposed to and/or provided with confidential informationrelating to the operation of the Company’s business that are “Confidential Information/Trade Secrets” (as defined below) ConfidentialInformation/Trade Secrets belong exclusively to the Company. By example, and without any limitation, “ConfidentialInformation/Trade Secrets” include non-public information regarding potential and actual merger or acquisition targets, informationregarding other potential, planned, or pending purchase or sale transactions, customer lists and potential customer lists, informationrelating to the pricing of Company’s product, information relating to the Company or the Company’s customers obtained or madeknown to Employee as a result of Employee performing his services for the Company, copyrighted materials and software created forthe benefit of the Company, as well as the Company’s business plans, strategy plans, sales figures, sales reports, accounting/financialrecords, personnel policies, marketing plans, marketing methods and related data, operatingPage 4 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42guidelines, non-public information concerning the Company’s vendors or suppliers, information relating to costs, sales or servicesprovided to the Company by such vendors or suppliers, the prices the Company obtains or has obtained for the Company’s products orservices, compensation paid to the Company’s employees and other terms of employment, information regarding the Company’srelations with its employees, information regarding other consultants or agents of the Company, information regarding factoryagreements and relations, confidential information regarding the manner of business operations and actual or demonstrably anticipatedbusiness, research or development of the Company, and any other information protected by law as trade secret or which is provided tothe Employee in confidence. The Employee acknowledges and agrees that the sale or unauthorized use or disclosure of any of theCompany’s Confidential Information/Trade Secrets obtained by Employee during his employment with the Company (whether beforeor during the Employment Term) constitutes unfair competition. The Employee promises not to engage in any unfair competition withthe Company during or following the Employment Term.7. Non-Competition Covenant. The Employee promises that, during the Employment Term, he shall not, directly orindirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, board member,director, or in any other individual or representative capacity, in any geographic area or market where the Company or any of itssubsidiaries or affiliated companies are conducting any business, (a) engage in any business competitive with any line of businessconducted by the Company or any of its subsidiaries or (b) render advice or services to, or otherwise assist, any other person,association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by theCompany or any of its subsidiaries or affiliates.8. Non-Solicitation Covenant. The Employee agrees that during the Employment Term he will not, either directly or throughothers, solicit or attempt to solicit any employee, consultant, or independent contractor of the Company to terminate or lessen his or herrelationship with the Company in order to become an employee, consultant or independent contractor to or for any other person orentity.9. Overlapping Covenants. To the extent the covenants set forth in Sections 6, 7 and 8 of this Agreement overlap post-employment covenants and continuing obligations of the same or similar nature contained in any other Agreement, the parties agreethat the covenants providing the greatest protection to Company shall be applied and enforced.10. Assignment. This Agreement shall bind the successors and assigns of each party and will inure to the benefit of eachparty, their successors and assigns.11. Notices. All notices required or given herewith shall be in writing and shall be delivered as follows with notice deemedgiven as indicated: (i) by personal delivery at the time of delivery; (ii) by overnight courier upon written verification of receipt; (iii) bycertified or registered mail, return receipt requested, upon verification of receipt; or (iv) by email or facsimile upon acknowledgment ofreceipt of transmission. Notices shall be sent to the addresses set forth below or such other address as either party may specify inwriting:To the Company: Group 1 Automotive, Inc.800 Gessner, Suite 500Houston, Texas 77024Attn: General CounselTo the Employee: 1235 Harvard StreetHouston, Texas 77008Page 5 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.4212. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Texas without regard to theconflict of law provisions thereof.13. Arbitration. The parties agree that any claim, dispute, and/or controversy arising from this Agreement shall be submittedto and determined exclusively by binding arbitration under the Federal Arbitration Act. In addition to any other requirements imposedby law, the arbitrator selected shall be a retired state or federal court Judge or otherwise qualified individual to whom the partiesmutually agree, and shall be subject to disqualification on the same grounds as would apply to a judge of such courts. All rules ofpleading, discovery, evidence and all rights to resolution of the dispute by means of motions for summary judgment and judgment onthe pleadings under the Federal Rules of Civil Procedure and Evidence shall apply and be observed. Resolution of the dispute shall bebased solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis (including but notlimited to, notions of “just cause”) other than such controlling law. The arbitrator shall have the immunity of a judicial officer from civilliability when acting in the capacity of an arbitrator, which immunity supplements any other existing immunity. Likewise, allcommunications during or in connection with the arbitration proceedings are privileged. Notwithstanding this agreement to arbitrate,the parties shall have the right to obtain injunctive or other appropriate equitable relief in a civil court to the extent permitted by law inorder to preserve the rights of the parties pending the appointment of an arbitrator. IN ENTERING INTO THIS SECTION 13, THEPARTIES ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.14. Severability. If any provisions of this Agreement should be held to be illegal, invalid or unenforceable by a court of lawor an arbitrator, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected or impairedthereby.15. Entire Agreement. This Agreement constitutes the entire agreement between the parties regarding this subject matter andsupersedes all prior or contemporaneous oral or written agreements concerning such subject matter other than the terms and conditionsof the 2014 Long Term Incentive Plan and Restricted Stock Agreement(s) between the Company and the Employee which willcontinue to govern the Restricted Stock. This Agreement can only be modified by a subsequent agreement of the parties in writing andsigned by the parties. The Employee acknowledges that no representations, inducements, promises, agreements or warranties, oral orotherwise, have been made by the Company or anyone acting on its behalf which are not embodied in this Agreement; that theEmployee has not executed this Agreement in reliance on any representation, inducement, promise, agreements, warranty, fact orcircumstances not expressly set forth in this Agreement; and that no representation, inducement, promise, agreement or warranty notcontained in this Agreement shall be valid or binding, unless executed in writing by the Chief Executive Officer of the Company.16. Construction. This Agreement shall not be construed in favor of one party or against the other.17. Voluntary and Knowing. The parties acknowledge that this Agreement is executed voluntarily and without any duressor undue influence on the part or behalf of the parties hereto.Page 6 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.42In Witness Whereof, the parties have executed this Agreement effective as of the date last written below.JAMES BROOKS O’HARA (“EMPLOYEE”) GROUP 1 AUTOMOTIVE, INC. By: /s/ J. Brooks O’Hara By: /s/ Darryl M. Burman Dated: 12/18/2015 Dated: 12/18/2015Page 7 of 7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 12.1Group 1 Automotive, Inc.Ratios of Earnings to Fixed Charges(Dollars in thousands, unaudited) For the year ended December 31, 2015 2014 2013 2012 2011Earnings: Pretax income $182,171 $164,400 $191,895 $160,735 $132,094Add: Fixed charges 108,106 105,739 97,233 84,395 78,429Less: Capitalized interest (741) (731) (805) (689) (635)Total Earnings $289,536 $269,408 $288,323 $244,441 $209,888Fixed Charges: Interest expense $96,167 $91,306 $80,639 $69,261 $61,409Estimated interest within rent expense 11,198 13,702 15,789 14,445 16,385Capitalized interest 741 731 805 689 635Total Fixed Charges $108,106 $105,739 $97,233 $84,395 $78,429Ratio of Earnings to Fixed Charges 2.7 2.5 3.0 2.9 2.7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.Advantagecars.com, Inc. (DE)dbaAdvantage Car SalesAdvantagecarsAdvantage CarsAdvantagecars.comSterling McCall HyundaiAmarillo Motors-F, Inc. (DE)dbaGene Messer FordGene Messer LincolnGene Messer Ford LincolnGene Messer Ford of AmarilloGene Messer Lincoln of AmarilloGene Messer Ford Lincoln of AmarilloGene Messer Ford Value LotGene Messer Ford of Amarillo Collision CenterGene Messer Auto GroupGene Messer Collision Center of AmarilloBaron Development Company, LLC (KS)Baron Leasehold, LLC (KS)Bob Howard Automotive-East, Inc. (OK)dbaSouth Pointe ChevroletSouth Pointe Truck AnnexBob Howard Chevrolet, Inc. (OK)dbaBob Howard ChevroletBob Howard Dodge, Inc. (OK)dbaBob Howard Chrysler Dodge Jeep RamBob Howard Motors, Inc. (OK)dbaBob Howard ToyotaBob Howard ScionBob Howard Auto GroupBob Howard Nissan, Inc. (OK)dbaBob Howard NissanBohn-FII, LLC (DE)Bohn Holdings, Inc. (DE)Bohn Holdings, LLC (DE)Chaperral Dodge, Inc. (DE)dbaDallas Chrysler Dodge Jeep RamDanvers-S, Inc. (DE)dbaIra AudiPorsche of DanversIra PorscheDanvers-SB, Inc. (DE)dbaIra BMW of StrathamBMW of StrathamDanvers-SU, LLC (DE)dbaIra Subaru Danvers-T, Inc. (DE)dbaIra ToyotaIra ScionIra Toyota of DanversIra Collision CenterIra Collision Center of DanversDanvers-TII, Inc. (DE)dbaIra Toyota IIIra Scion IIIra Toyota of TewksburyIra Scion of TewksburyIra Toyota II/Scion IIDanvers-TIII, Inc. (DE)dbaIra Toyota IIIIra Scion IIIIra Toyota of MilfordDanvers-TL, Inc. (DE)dbaIra LexusFMM, Inc. (CA)G1R Florida, LLC (DE)G1R Mass, LLC (DE)GPI, Ltd. (TX)GPI AL-N, Inc. (DE)dbaNissan of MobileGPI AL-SB, LLC (DE)dbaBMW of MobileBMW of Mobile Collision CenterGPI CA-DMII, Inc. (DE)dbaMercedes-Benz of EscondidoGPI CA-F, Inc. (NV)dbaFord of EscondidoGPI CA-NIII, Inc. (DE)GPI CA-SH, Inc. (NV)dbaHyundai of EscondidoGPI CA-SV, Inc. (DE)dbaVolkswagen Kearny MesaGPI CA-TII, Inc. (DE)dbaMiller Scion of AnaheimMiller Toyota of AnaheimGPI CC, Inc. (DE)dbaGroup 1 Automotive Call CenterGPI FL-A, LLC (DE)dbaPrestige AudiGPI FL-H, LLC (DE)dbaHonda of Bay CountyPage 1 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.GPI FL-VW, LLC (DE)dbaVolkswagen of Panama CityGPI FL-VWII, LLC (DE)GPI GA-CGM, LLC (NV)dbaRivertown Buick GMCGPI GA-DM, LLC (DE)dbaMercedes-Benz of AugustaGPI GA-F, LLC (DE)GPI GA-FII, LLC (DE)dbaJim Tidwell FordGroup 1 AtlantaGroup 1 Automotive - Southeast RegionTidwell Ford Collision CenterTidwell Collision Center of KennesawGPI GA-FIII, LLC (DE)dbaRivertown FordGPI GA-FM, LLC (NV)GPI GA-SU, LLC (NV)dbaVolvo of ColumbusRivertown SubaruRivertown Bargain CenterRivertown Auto Mall Bargain Center of ColumbusRivertown Auto MallGPI GA-T, LLC (DE)dbaWorld ToyotaWorld Toyota Collision & Glass CenterWorld ScionWorld Toyota Collision Center of AtlantaGPI GA-TII, LLC (NV)dbaRivertown ToyotaRivertown ScionRivertown SupercenterRivertown Collision CenterRivertown Collision Center of ColumbusGPI GA Holdings, Inc. (DE)GPI GA Liquidation, LLC (DE)GPI KS Motors, Inc. (DE)dbaPeoples Auto CreditGPI KS-SB, Inc. (DE)dbaBaron BMWBaron MINIBaron BMW Collision CenterBaron Collision Center of Kansas CityGPI KS-SH, Inc. (DE)dbaShawnee Mission HyundaiGPI KS-SK, Inc. (DE)dbaShawnee Mission Kia GPI LA-FII, LLC (DE)dbaRountree Ford LincolnGPI LA-SH, LLC (DE)GPI MD-SB, Inc. (DE)dbaBMW of AnnapolisMINI of AnnapolisBMW of Annapolis Collision CenterGPI MS-H, Inc. (DE)dbaPat Peck HondaGPI MS-N, Inc. (DE)dbaPat Peck NissanGulfport Used Car OutletGPI MS-SK, Inc. (DE)dbaPat Peck KiaGPI NH-T, Inc. (DE)dbaIra Toyota of ManchesterIra Scion of ManchesterGPI NH-TL, Inc. (DE)dbaIra Lexus of ManchesterGPI NJ-HA, LLC (NV)dbaElite AcuraGPI NJ-HII, LLC (NV)dbaBoardwalk HondaGPI NJ-SB, LLC (NV)dbaBMW of Atlantic CityBMW of Atlantic City Collision CenterGPI NY-DM, LLC (NV)GPI NY-FV, LLC (NV)GPI NY Holdings, Inc. (NV)GPI NY-SB, LLC (NV)GPI OK-HII, Inc. (NV)dbaSouth Pointe HondaSouth Pointe Used Car and Truck CenterGPI OK-SH, Inc. (DE)dbaBob Howard HyundaiGPI SA, LLC (DE)GPI SAC-T, Inc. (DE)dbaFolsom Lake ToyotaFolsom Lake ScionFolsom Lake Used Car OutletFolsom Lake Toyota Collision CenterFolsom Lake Collision CenterGPI SC-A, LLC (DE)Page 2 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.GPI SC-SB, LLC (DE)dbaBMW of ColumbiaGPI SC-SBII, LLC (DE)dbaHilton Head BMWGPI SC-T, LLC (DE)dbaToyota of Rock HillScion of Rock HillGPI SC, Inc. (DE)dbaSterling McCall Collision of Jersey VillageSterling McCall Collision Center of Jersey VillageGPI SC Holdings, Inc. (DE)GPI SD-DC, Inc. (DE)dbaRancho Chrysler Dodge Jeep RamRancho Auto GroupRancho Collision CenterRancho Collision Center of San DiegoGPI TX Management Company, Inc. (NV)dbaMunday Operating CompanyGPI TX-A, Inc. (NV)dbaDFW AudiGPI TX-ARGMIII, Inc. (NV)dbaCadillac of ArlingtonGPI TX-DMII, Inc. (NV)dbaMercedes-Benz of Clear LakeSprinter of Clear LakeMercedes-Benz and Sprinter of Clear LakeGPI TX-DMIII, Inc. (NV)dbaMercedes-Benz of BoerneGPI TX-DMIV, Inc. (NV)dbaMercedes-Benz of GeorgetownSprinter of Georgetownsmart center of GeorgetownGeorgetown Mercedes-BenzGeorgetown SprinterGeorgetown smart centerGPI TX-EPGM, Inc. (DE)dbaShamaley Buick GMCGPI TX-F, Inc. (DE)dbaShamaley FordShamaley Collision CenterShamaley Collision Center of El PasoGPI TX-FM, Inc. (NV)dbaMunday MazdaGPI TX-HAII, Inc. (NV) GPI TX-HGM, Inc. (DE)dbaDavid Taylor CadillacGPI TX-HGMII, Inc. (NV)dbaSterling McCall Buick GMCGPI TX-HGMIV, Inc. (NV)dbaMunday ChevroletMunday Collision CenterSterling McCall Collision Center NorthGPI TX-NVI, Inc. (NV)GPI TX-SBII, Inc. (DE)dbaBMW of El PasoMINI of El PasoGPI TX-SBIII, Inc. (NV)dbaBMW of ArlingtonMINI of ArlingtonBMW-MINI of ArlingtonBMW of Arlington Collision CenterBMW of North Arlington Collision CenterGPI TX-SHII, Inc. (DE)dbaSouth Loop HyundaiAuto Needs Superstore.comGPI TX-SK, Inc. (DE)dbaGene Messer KiaGene Messer Auto GroupGPI TX-SKII, Inc. (NV)dbaKia of South AustinGPI TX-SV, Inc. (DE)dbaMetro VolkswagenGPI TX-SVII, Inc. (DE)dbaVolkswagen of BeaumontMike Smith Auto GroupGPI TX-SVIII Inc. (DE)dbaVolkswagen of Alamo HeightsGPI UK Holdings-1, LLC (NV)GPI UK Holdings-2, LLC (NV)Group 1 Associates, Inc. (DE)Group 1 Associates Holdings, LLC (DE)Group 1 FL Holdings, Inc. (DE)Group 1 Funding, Inc. (DE)Group 1 Holdings-DC, LLC (DE)Group 1 Holdings-F, LLC (DE)Group 1 Holdings-GM, LLC (DE)Group 1 Holdings-H, LLC (DE)Group 1 Holdings-N, LLC (DE)Page 3 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.Group 1 Holdings-S, LLC (DE)Group 1 Holdings-T, LLC (DE)Group 1 LP Interests-DC, Inc. (DE)Group 1 Realty, Inc. (DE)dbaGroup 1 Realty, Inc. of Delaware (LA)G1R New Hampshire (NH)Harvey Ford, LLC (DE)dbaDon Bohn FordBohnZone Collision CenterBohnZone Collision Center of West BankHarvey GM, LLC (DE)dbaDon Bohn Buick GMCDon Bohn Buick GMC Pre-OwnedHarvey Operations-T, LLC (DE)dbaBohn Brothers ToyotaBohn Brothers ScionBohn Brothers Quality Select Used CarsHoward-DCIII, LLC (DE)dbaSouth Pointe Chrysler Dodge Jeep RamSouth Pointe AutomallHoward-GM, Inc. (DE)dbaBob Howard GMC TruckBob Howard Buick GMCBob Howard Collision CenterBob Howard Collision Center of EdmondHoward-GM II, Inc. (DE)dbaSmicklas ChevroletBob Howard PDCHoward Parts Distribution CenterSmicklas PDCJohn Smicklas ChevroletSmicklas Chevrolet Collision CenterGroup 1 Autoparts.comGroup 1 AutopartsSmicklas Collision Center of Oklahoma CityHoward-H, Inc. (DE)dbaBob Howard HondaHoward-HA, Inc. (DE)dbaBob Howard AcuraHoward-SB, Inc. (DE)dbaBMW of TulsaIra Automotive Group, LLC (DE)Ivory Auto Properties of South Carolina, LLC (SC)Key Ford, LLC (DE)dbaWorld Ford PensacolaWorld Ford Pensacola Collision CenterWorld Ford Collision Center of Pensacola Kutz-N, Inc. (DE)dbaCourtesy NissanLubbock Motors, Inc. (DE)dbaThe Credit ConnectionThe Credit Connection of AmarilloLubbock Motors-F, Inc. (DE)dbaGene Messer Ford LincolnGene Messer FordGene Messer LincolnThe Credit ConnectionGene Messer Value LotGene Messer Ford Collision CenterGene Messer Auto GroupGene Messer Collision Center of LubbockLubbock Motors-GM, Inc. (DE)dbaGene Messer ChevroletGene Messer AccessoriesGene Messer Quality Used CarsGene Messer Auto GroupLubbock Motors-S, Inc. (DE)dbaGene Messer VolkswagenGene Messer Used CarsGene Messer Value Lot WolfforthGene Messer Auto GroupLubbock Motors-SH, Inc. (DE)dbaGene Messer HyundaiGene Messer Auto GroupLubbock Motors-T, Inc. (DE)dbaGene Messer ToyotaGene Messer ScionGene Messer Auto GroupMaxwell Ford, Inc. (DE)dbaMaxwell FordMaxwell Ford SupercenterMaxwell Ford Collision CenterMaxwell Collision Center of AustinMaxwell-GMII, Inc. (DE)dbaFreedom ChevroletMaxwell-N, Inc. (DE)dbaTown North NissanMaxwell-NII, Inc. (DE)dbaRound Rock NissanMcCall-F, Inc. (DE)dbaSterling McCall FordSterling McCall Ford Collision CenterSterling McCall Collision Center of HoustonMcCall-H, Inc. (DE)dbaSterling McCall HondaPage 4 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.McCall-HA, Inc. (DE)dbaSterling McCall AcuraMcCall-N, Inc. (DE)dbaSterling McCall NissanSterling McCall Nissan Collision CenterSterling McCall Nissan Collision Center of StaffordMcCall-SB, Inc. (DE)dbaAdvantage BMWAdvantage BMW MidtownBMW of Clear LakeAdvantage BMW of Clear LakeMINI of Clear LakeAdvantage MINI of Clear LakeMcCall-T, Inc. (DE)dbaSterling McCall ToyotaSterling McCall ScionWest Region Management GroupMcCall-TII, Inc. (DE)dbaFort Bend ToyotaFort Bend ScionFort Bend Toyota Collision CenterMcCall-TL, Inc. (DE)dbaSterling McCall LexusLexus of Clear LakeSterling McCall Restoration CenterSMR Auto GlassSterling McCall Collision Center of Clear LakeMike Smith Automotive-H, Inc. (DE)dbaMike Smith HondaMike Smith Collision CenterMike Smith Auto GroupMike Smith Automotive-N, Inc. (TX)dbaMike Smith NissanMike Smith Auto GroupMike Smith Collision Center of BeaumontMike Smith Autoplaza, Inc. (TX)Mike Smith Autoplex, Inc. (TX)Mike Smith Autoplex Dodge, Inc. (TX)dbaMike Smith Chrysler Dodge Jeep RamMike Smith Auto GroupMike Smith Autoplex-German Imports, Inc. (TX)dbaMercedes-Benz of BeaumontMike Smith Auto GroupMike Smith Mercedes-BenzMike Smith Imports, Inc. (TX)dbaBMW of BeaumontMike Smith BMWMike Smith Auto GroupMillbro, Inc. (CA)Miller Automotive Group, Inc. (CA) Miller-DM, Inc. (DE)dbaMercedes-Benz of Beverly HillsMiller’s Mercedes-Benz of Beverly Hillssmart center Beverly HillsBeverly Hills, Ltd.Miller Family Company, Inc. (CA)dbaMiller Honda - Van NuysMiller HondaMiller Infiniti, Inc. (CA)Miller Nissan, Inc. (CA)NJ-DM, Inc. (DE)NJ-H, Inc. (DE)NJ-HAII, Inc. (DE)dbaBoardwalk AcuraBoardwalk Acura Collision CenterNJ-SV, Inc. (DE)dbaVolkswagen of FreeholdRockwall Automotive-DCD, Ltd. (TX)dbaRockwall Chrysler Dodge Jeep RamRockwall Automotive-F, Inc. (DE)dbaRockwall FordRockwall Ford Collision CenterTate CG, LLC (MD)Acanthicus Participações Ltda.(Brazil)AR Centro-Oeste Comércio de Veículos Ltda. (Brazil)dbaMercedes-Benz of Campo GrandeAR Sudeste Comércio de Veiculos Ltda. (Brazil)dbaAR Motors Nissan Parque CuritibaAR Motors Nissan CearáAR - Veiculos e Participações Ltda. (Brazil)dbaAlpes - Peugeot São Caetano do SulAlpes - Pegeout São Bernardo do CampoAlpes - Pegeout CaçapavaBarons Farnborough Limited (UK)dbaBarons FarnboroughBarons Hindhead Limited (UK)dbaBarons HindheadChandlers Garage Holdings Limited (UK)Chandlers Garage Worthing Limited (UK)dbaChandlers WorthingChandlers Garage (Brighton) Limited (UK)dbaChandlers BrightonPage 5 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.Chandlers (Hailsham) Limited (UK)dbaChandlers HailshamCVK Auto Comércio de Veiculos Ltda. (Brazil)dbaEuro Import BMW/MINI LondrinaEuro Import BMW - CascavelELMS Automotive Ltd (UK)dbaElms Bedford BMW/MINIElms Cambridge BMW/MINIElms Stansted BMW/MINIElms Stansted Limited (UK)Euro Import Comércio e Serviços Ltda. (Brazil)dbaEuro Import MINI - CuritibaEuro Import BMW - Marechal CuritibaEuro Import BMW - Arthur Bernardes CuritibaEuro Import BMW - Collision CenterEuro Import Motos Comércio de Motocicletas Ltda. (Brazil)dbaEuro Import BMW - Motorrad LondrinaEuro Import Veiculos e Serviços Ltda. (Brazil)GPI UK Partners-1, LP (UK)GPI UK Partners-2, LP (UK)Group 1 Automotive Reinsurance Two, Ltd. (Turks & Caicos Islands)Group 1 Automotive UK Limited (UK)Group 1 Holdings BV (Netherlands)Group 1 SA BV (Netherlands)Hodgson Automotive Limited (UK)dbaChingford AudiChelmsford AudiColchester AudiHarold Wood AudiSouthend AudiStansted AudiOphiucus Participações Ltda. (Brazil)Sceptrum Empreendimentos Imobiliários Ltda. (Brazil)Sterling Management Holdings Limited (Cayman Islands)Sul Import Veiculos e Serviços Ltda. (Brazil)dbaEuro Import Land Rover CuritibaEuro Import Land Rover LondrinaThink One Limited (UK)dbaThink Ford BracknellThink Ford FarnboroughThink Ford GuildfordThink Ford WokinghamUABMotors Corretora de Seguros Ltda. (Brazil)UAB Motors Participações Ltda. (Brazil)UAN Motors Participações Ltda. (Brazil)UAQ Publicidade Propaganda Ltda. (Brazil) United Auto Aricanduva Comércio de Veiculos Ltda. (Brazil)dbaT-Drive SJCT-Drive TatuapéT-Drive Collision CenterUnited Auto Interlagos Comércio de Veiculos Ltda. (Brazil)dbaAR Motors Nissan NaçõesAR Motors Nissan MorumbiUnited Auto Nagoya Comércio de Veiculos Ltda. (Brazil)dbaHonda - AricanduvaHonda - GuarulhosHonda - Santo AndréHonda - São Bernardo do CampoUnited Auto Participações Ltda. (Brazil)United Auto São Paulo Comércio de Veiculos Ltda. (Brazil)Walter Holdings Limited (UK)Page 6 of 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-3 ASR No. 333-207690) of Group 1 Automotive, Inc.,(2)Registration Statement (Form S-8 No. 333-205923) pertaining to the Group 1 Automotive, Inc. Employee Stock PurchasePlan,(3) Registration Statement (Form S-8 No. 333-145034) pertaining to the Group 1 Automotive, Inc. Deferred CompensationPlan;(4) Registration Statement (Form S-8 No. 333-196424) pertaining to the Group 1 Automotive, Inc. 2014 Long TermIncentive Plan;of our reports dated February 17, 2016, with respect to the consolidated financial statements of Group 1 Automotive, Inc. and subsidiaries and theeffectiveness of internal control over financial reporting of Group 1 Automotive, Inc. and subsidiaries included in this Annual Report (Form 10-K) ofGroup 1 Automotive, Inc. and subsidiaries for the year ended December 31, 2015./s/ Ernst & Young LLPHouston, TexasFebruary 17, 2016Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Earl J. Hesterberg, certify that:1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2015 of Group 1 Automotive, Inc. (“registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting./s/ Earl J. HesterbergEarl J. HesterbergChief Executive OfficerDate: February 17, 2016Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John C. Rickel, certify that:1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2015 of Group 1 Automotive, Inc. (“registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting./s/ John C. RickelJohn C. RickelChief Financial OfficerDate: February 17, 2016Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1CERTIFICATION OFCHIEF EXECUTIVE OFFICEROF GROUP 1 AUTOMOTIVE, INC.PURSUANT TO 18 U.S.C. § 1350AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission on thedate hereof (“Report”), I, Earl J. Hesterberg, Chief Executive Officer of Group 1 Automotive, Inc. (“Company”), hereby certify that to my knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ Earl J. HesterbergEarl J. HesterbergChief Executive OfficerDate: February 17, 2016Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.2CERTIFICATION OFCHIEF FINANCIAL OFFICEROF GROUP 1 AUTOMOTIVE, INC.PURSUANT TO 18 U.S.C. § 1350AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission on thedate hereof (“Report”), I, John C. Rickel, Chief Financial Officer of Group 1 Automotive, Inc. (“Company”), hereby certify that to my knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ John C. RickelJohn C. RickelChief Financial OfficerDate: February 17, 2016Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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