Group 1 Automotive
Annual Report 2016

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KGROUP 1 AUTOMOTIVE INC - GPIFiled: February 17, 2017 (period: December 31, 2016)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, 2016or ¨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 $1.0 billion based on the reported last sale price of common stock onJune 30, 2016, which was the last business day of the registrant’s most recently completed second quarter.As of February 13, 2017, there were 21,383,593 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 2017 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within120 days of December 31, 2016, are incorporated by reference into Part III of this Form 10-K.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Factors19Item 1B.Unresolved Staff Comments30Item 2.Properties31Item 3.Legal Proceedings32Item 4.Mine Safety Disclosures32 PART II33Item 5.Market for Registrant Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities33Item 6.Selected Financial Data36Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations38Item 7A.Quantitative and Qualitative Disclosures About Market Risk93Item 8.Financial Statements and Supplementary Data94Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure94Item 9A.Controls and Procedures94Item 9B.Other Information95 PART III97Item 10.Directors, Executive Officers and Corporate Governance97Item 11.Executive Compensation98Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters98Item 13.Certain Relationships and Related Transactions, and Director Independence98Item 14.Principal Accounting Fees and Services98 PART IV99Item 15.Exhibits, Financial Statement Schedules99SIGNATURES100iSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 strategy, 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 and divestitures;•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;•availability of financing for inventory, working capital, real estate and capital expenditures; and•implementation of international or domestic trade tariffsAlthough 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, 2017Powered 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, 2016,we owned and operated 210 franchises, representing 31 brands of automobiles, at 159 dealership locations and 38 collision centers worldwide. We own 146franchises at 111 dealership locations and 29 collision service centers in the United States of America (“U.S.”), 41 franchises at 30 dealership locations andeight collision centers in the United Kingdom (“U.K.”) and 23 franchises at 18 dealership locations and one collision center in Brazil. Through ourdealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotivemaintenance and repair services; 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 20towns in the U.K., and in key metropolitan markets in the states of Sao Paulo, Parana, Mato Grosso do Sul and Santa Catarina in Brazil.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 (or regions). As of December 31, 2016, our U.S. retail network consisted of thefollowing two regions (with the number of dealerships they comprised): (a) the East (36 dealerships in Alabama, Florida, Georgia, Louisiana, Maryland,Massachusetts, Mississippi, New Hampshire, New Jersey, and South Carolina) and (b) the West (75 dealerships in California, Kansas, Louisiana, Oklahoma,and Texas). Each U.S. region is managed by a regional vice president who reports directly to our Chief Executive Officer and is responsible for the overallperformance of their region. The operations of the Company’s international regions are structured similarly to the U.S. regions, each with a regional vicepresident reporting directly to the Company’s Chief Executive Officer. The financial matters of each U.S. region are managed by a regional chief financialofficer who reports directly to our Chief Financial Officer. Our two international regions are also managed locally with direct reporting responsibilities to ourcorporate management team. Our financial information, including our revenues from external customers, a measure of profit or loss, and total assets, isincluded in our Consolidated Financial Statements and related notes beginning on page F-1.Business StrategyWe believe that we have developed a distinguished management team with substantial industry expertise. Our business strategy is to leverage what webelieve to be one of our key strengths — the talent of our people — to: (a) sell new and used cars and light trucks; (b) arrange related vehicle financing,service and insurance contracts; (c) provide automotive maintenance and repair services; and (d) sell vehicle parts via an expanding network of franchiseddealerships located primarily in growing regions of the U.S., the U.K. and Brazil. 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 2017, we will primarily focus on four 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;•improvement of new and used vehicle retail margins, as well as total new and used vehicle retail profitability;•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.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 to reduce variable and fixed expenses, appropriately leverage our scale and generate operating efficiencies. As our business grows in 2017 andbeyond, we intend to manage our costs carefully and to look for additional opportunities to improve our operating efficiencies. We continue to look foropportunities to improve our processes and disseminate best practices. We believe that our management structure supports more rapid decision making andfacilitates an efficient and effective roll-out of new processes.2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 continue our efforts to fully leverage our scale, reduce costs, enhance internal controls, and enable further growth and, as such, we are taking steps tostandardize key operating processes. We are constantly evaluating opportunities to improve the profitability of our dealerships.We will continue to focus on opportunities for enhancement of our current dealership portfolio by strategic acquisitions and improving or disposing ofunderperforming dealerships in the U.S., the U.K. and Brazil. We believe that substantial opportunities for growth through acquisitions remain in ourindustry. An absolute acquisition target has not been established for 2017, but we expect to acquire dealerships that provide attractive returns on investment.We believe that as of December 31, 2016, we have sufficient financial resources to support additional acquisitions. We plan to focus our growth ingeographically diverse areas with positive economic outlooks over the longer-term. Further, we intend to critically evaluate our return on invested capital inour current dealership portfolio for disposition opportunities. In 2016, we completed the acquisition of 12 U.K. dealerships, inclusive of 15 franchises, andopened two additional dealerships for two awarded franchises in the U.K., with expected aggregate annualized revenues, estimated at the time of acquisition,of $640.0 million. In addition, we completed the acquisition of one dealership in Brazil, representing one franchise, and opened two dealerships for oneacquired and two previously awarded franchises, with expected aggregate annualized revenues, estimated at the time of acquisition, of $20.0 million. Formore information on our acquisitions and dispositions, including those occurring in 2016, see “Acquisition and Divestiture Program” below.3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 aggregated into two U.S. regions, East and West,and internationally in the U.K. and Brazil. We consolidated four regions into three reportable segments; U.S., U.K. and Brazil. By reportable segment, ourrevenues from external customers for the years ended December 31, 2016, 2015, and 2014 was $8,734.7 million, $8,894.0 million, and $8,175.2 million fromour U.S. operations, respectively, and $1,723.2 million, $1,220.2 million, and $987.3 million from our U.K. operations, respectively. For the years endedDecember 31, 2016, 2015, and 2014, our revenues from external customers from our Brazil operations were $429.8 million, $518.3 million, and $775.4million, respectively. Net income by segment for the years ended December 31, 2016, 2015, and 2014 were $139.6 million, $142.4 million, and $97.2million from our U.S. operations, respectively, and $14.4 million, $15.2 million, and $14.3 million from our U.K. operations, respectively. In our Braziloperations, we realized a net loss of $7.0 million, $63.6 million, and $18.5 million for the years ended December 31, 2016, 2015, and 2014, respectively. Asof December 31, 2016, 2015, and 2014, our aggregate long-lived assets other than goodwill and intangible assets and financial instruments in our U.S.operations were $997.7 million, $922.2 million, and $846.4 million, respectively, and in our U.K. operations were $120.9 million, $107.6 million, and$100.7 million, respectively. As of December 31, 2016, 2015, and 2014, our long-lived assets other than goodwill and intangible assets and financialinstruments in our Brazil operations were $19.3 million, $15.9 million, and $22.1 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 2016 and the number of dealerships and franchises in each region: Region Geographic Market Percentage of Our New VehicleRetail Units Sold During theYear Ended December 31, 2016 As of December 31, 2016Number ofDealerships Number ofFranchisesEast Massachusetts 4.8% 5 5 Georgia 4.3% 7 10 Florida 2.6% 4 4 New Hampshire 1.9% 3 3 New Jersey 1.6% 4 4 Louisiana 1.5% 3 4 Mississippi 1.5% 3 3 South Carolina 1.4% 3 3 Alabama 0.9% 2 2 Maryland 0.5% 2 2 21.0 36 40West Texas 36.5 50 68 California 9.1 7 12 Oklahoma 6.8 13 20 Kansas 1.8 4 4 Louisiana 0.6 1 2 54.8 75 106International United Kingdom 18.4 30 41 Brazil 5.8 18 23Total 100% 159 210Each 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 insurancedepartments, is ultimately responsible for the operation, personnel and financial performance of the dealership. Our dealerships are operated as distinct profitcenters, and our general managers have a reasonable degree of empowerment within our organization. In the U.S., each general manager reports to one of ourmarket directors or one of two regional vice presidents. Our U.S. regional vice presidents report directly to our Chief Executive Officer and are responsible forthe overall performance of their regions, as well as for overseeing the market directors and dealership general managers that report to them. Our U.K. andBrazil operations are structured similarly, with a regional vice president reporting directly to our Chief Executive Officer.4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 2016, we sold or leased 172,053 new vehicles in retail transactions at our dealerships, representing 34 brands. Our retail sales of new vehiclesaccounted for 19.8% of our gross profit in 2016. 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;•arrangement of third-party financing in connection with the retail sale;•the sale of vehicle service and insurance contracts in connection with the retail sale;•the sale of vehicle parts, accessories or other 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, 2017Powered 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 our consolidated new vehicle sales revenue by brand and thenumber of new vehicle retail units sold in the year ended, and the number of franchises we owned as of, December 31, 2016: New VehicleRevenues New VehicleUnit Sales % of TotalUnits Sold Franchises Ownedas ofDecember 31, 2016 (In thousands) Toyota (1) $1,016,055 34,870 20.2 16BMW 831,613 17,777 10.3 28Ford 671,417 18,727 10.9 18Audi 583,949 15,967 9.3 12Mercedes-Benz 405,741 6,769 3.9 8Honda 364,588 14,132 8.2 11Lexus 356,061 7,444 4.3 3Chevrolet 332,610 8,261 4.8 6Nissan 326,342 12,256 7.1 10MINI 138,054 5,528 3.2 18GMC 117,818 2,460 1.4 5Acura 116,075 2,899 1.7 4Hyundai 110,730 4,240 2.5 5Jeep 100,159 2,906 1.7 6RAM 89,281 1,988 1.2 6Volkswagen 68,369 2,918 1.7 7Kia 74,337 3,016 1.8 4Cadillac 74,132 1,343 0.8 2Dodge 50,487 1,517 0.9 6Subaru 42,724 1,568 0.9 2Land Rover 31,858 488 0.3 3Buick 26,641 747 0.4 5Sprinter 23,519 453 0.3 6Jaguar 17,077 310 0.2 4Chrysler 14,720 390 0.2 6Scion (1) 13,707 704 0.4 N/ASEAT 11,389 980 0.6 2Lincoln 9,364 199 0.1 3Mazda 7,759 296 0.2 1Peugeot 5,925 356 0.2 —Skoda 4,486 304 0.2 —Porsche 3,863 50 0.0 —Volvo 3,099 63 0.0 1Smart 2,126 127 0.1 2Total $6,046,075 172,053 100.0 210 (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.6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016, 2015, and 2014, is set forth below: For the Year Ended December 31, 2016 % ofTotal 2015 % ofTotal 2014 % ofTotalToyota 42,922 24.9% 46,157 26.5% 44,621 26.7%BMW 23,305 13.5 20,283 11.6 19,125 11.5Volkswagen 18,935 11.0 12,106 6.9 10,243 6.1Ford 18,925 11.0 19,882 11.4 18,161 10.9Honda 17,031 9.9 19,019 10.9 18,776 11.3General Motors 12,811 7.4 13,307 7.6 10,691 6.4Nissan 12,256 7.1 14,570 8.4 15,664 9.4Daimler (1) 7,349 4.3 7,466 4.3 7,442 4.5Hyundai 7,256 4.2 10,046 5.6 9,151 5.5FCA US (formerly Chrysler) 6,801 4.0 7,962 4.6 7,268 4.4Other 4,462 2.7 3,816 2.2 5,754 3.3Total 172,053 100.0% 174,614 100.0% 166,896 100.0%(1)Daimler includes Mercedes-Benz, smart and Sprinter brands.Our new vehicle unit sales mix was affected by our acquisitions and dispositions during 2016, 2015 and 2014.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, lease or lease-type customer financing arrangements provide our dealerships with a steady supply of late-model, off-lease vehicles to besold as used vehicles. Generally, leased vehicles remain under factory warranty, allowing the opportunity for our dealerships to provide maintenance andrepair services for the contract term. However, the penetration rate for other finance and insurance product sales on leases and lease-type customer financingarrangements tends to be less than in other financing arrangements (such as debt financed vehicles). We typically do not guarantee residual values on leasetransactions. Lease vehicle unit sales represented 16.7%, 16.5% and 15.1% of our total new vehicle retail unit sales for the years ended December 31, 2016,2015 and 2014, respectively.Used Vehicle Sales, Retail and WholesaleWe sell used vehicles at each of our franchised dealerships. In 2016, we sold or lease-financed 129,131 used vehicles at our dealerships, and sold57,339 used vehicles in wholesale markets. Our retail sales of used vehicles accounted for 11.2% of our gross profit in 2016. Used vehicles sold or lease-financed at retail typically generate higher gross margins on a percentage basis than new vehicles primarily because of their relatively limited comparability,which is dependent on a vehicle’s age, 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 generally provide our used vehicle operations with a largesupply of 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 declines in used vehicles market valuations, the values of which typically occur 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 that are eligiblefor manufacturer support,7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.such as subsidized finance rates, the extension of manufacturer’s service warranty and other benefits. With the extended service warranty, the sale of CPOvehicles tends to generate better ongoing customer loyalty for maintenance and repair services at the selling dealership. CPO vehicles typically cost more torecondition, but sell at a premium compared to other used vehicles and are available only from franchised new vehicle dealerships. Our CPO vehicle sales inthe U.S. and U.K. represented 27.2% of total U.S and U.K. used retail sales in 2016. 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 repair services at the38 collision centers that we operate. Our parts and service business accounted for 42.6% of our gross profit in 2016. 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 business andwholesale accounted for 20.4%, 44.9%, 14.2% and 20.5%, respectively, of the revenues from our parts and service business in 2016. Our parts and servicedepartments also perform used vehicle reconditioning and new vehicle enhancement services for which they realize a profit. However, the revenue for thatinternal work is eliminated 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, is making it difficult formany independent repair shops to retain the expertise necessary to perform major or technical repairs. We have made investments in recruiting, training, andretaining qualified technicians to work in our service and repair facilities. And, we have made investments in state of the art diagnostic and repair equipmentto be utilized by these technicians.Manufacturers only permit warranty and recall work to be performed at franchised dealerships. Currently, a trend exists in the automobile industrytowards longer new vehicle warranty periods and more diligence with manufacturer recalls. As a result, we believe that over time an increasing percentage ofall repair work will be performed at franchised dealerships that have the sophisticated equipment and skilled personnel necessary to perform repairs andwarranty 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 customers of our new and used vehiclesas ongoing clients of our parts and service departments. To accomplish this goal, we use computer systems that track the vehicle owners’maintenance records and provide advance notice to them when their vehicles are due for periodic service. Our use of computer-based customerrelationship management tools increases the reach and effectiveness of our marketing efforts, allowing us to target our promotional offerings toareas in which service capacity is under-utilized or profit margins are greatest. We continue to train our service personnel to establish relationshipswith their service clients to promote a long-term business relationship. And, we are focused on enhancing access to our service facilities byproviding patrons with readily-accessible means to schedule service appointments. We believe our parts and service activities are an integral partof the customer service experience, allowing us to maintain ongoing relationships with our dealerships’ clients thereby deepening customerloyalty to the 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 vehicle sales and service departments, selling factory-approved parts for the respective vehicle makes and models. Parts are either used in repairs made in the service department, sold at retail tocustomers, or sold at wholesale to independent repair shops and other franchised dealerships. Our dealerships also frequently share parts with eachother. Our dealerships employ parts managers who oversee parts inventories and sales. Software programs are used to monitor parts inventory,maximize sales, avoid obsolete and unused parts, and make the best use 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 opportunities for our collision center operations.Finance and Insurance SalesRevenues from our finance and insurance operations consist primarily of fees for arranging financing and selling vehicle service and insurancecontracts in connection with the retail purchase of a new or used vehicle. Our finance and insurance8Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.business accounted for 26.4% of our gross profit in 2016. We offer a wide variety of third-party finance, vehicle service and insurance products in aconvenient manner and at competitive prices. To increase transparency to our customers, we offer all of our products on menus that display pricing and otherinformation, 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. The fees we receive from the third-party finance companies are subject to chargeback, or repayment, to the finance company, if acustomer defaults or prepays the financing contract, typically during some limited time period at the beginning of the contract term. We have negotiatedincentive programs with some finance companies pursuant to which we receive additional fees 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 Line (defined below) of our Revolving Credit Facility (defined below),separate floorplan credit facility arrangements with manufacturers and other third-party financial institutions in the U.S., U.K. and Brazil. Our revolvingsyndicated credit facility matures in June 2021 and provides a total borrowing capacity of $1.8 billion, (the “Revolving Credit Facility”). The RevolvingCredit Facility consists of two tranches: a maximum of $1.75 billion for vehicle inventory financing (“Floorplan Line”), as well as a maximum of $360.0million and a minimum of $50.0 million for working capital and general corporate purposes, including acquisitions (“Acquisition Line”). We utilize ourFloorplan Line to finance up to 85% of the value of our used vehicle inventory in the U.S., and up to 100% of the value of all new vehicle inventory in theU.S., other than new vehicles purchased from Ford. The capacity under these two tranches can be re-designated within the overall $1.8 billion commitment,subject to the aforementioned limits. However, the amount of available borrowing capacity under the Acquisition Line is limited from time to time basedupon certain debt covenants under the Revolving Credit Facility. We can expand the Revolving Credit Facility to its maximum commitment of $2.1 billion,subject to participating lender approval.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.In addition, we finance certain rental vehicles in the U.S. through separate arrangements with the respective automobile manufacturers. We also utilizecredit facilities with BMW Financial Services, Volkswagen Finance, FMCC and a third-party financial institution for the financing of new, used, and rentalvehicle inventories associated with our 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, 2017Powered 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 delivering an attractive return on investment.Acquisition Strategy. We seek to acquire large, profitable, well-established dealerships and franchises that are leaders in their markets to:•enhance brand and geographic diversity with primary focus on import and luxury brands;•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 2016, we acquired 12 U.K. dealerships, inclusive of 15 franchises and opened two additional dealerships for two awardedfranchises in our U.K. segment. We also acquired one dealership in Brazil, representing one franchise, and opened two additional dealerships in Brazilrepresenting one acquired and two previously awarded franchises. The expected aggregate annualized revenues, estimated at the time of acquisition, for theseacquisitions, were $660.0 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 for real estate.While it is our desire to only acquire profitable, well-established dealerships, we have at times, acquired dealerships that do not fit our acquisitionstrategy in connection with the acquisition of a larger dealership group. We acquire such dealerships with the understanding that we may need to divest someor all of them at some future time. The costs associated with such potential divestitures are included in our analysis of whether we acquire all dealerships inthe same acquisition. Additionally, we may acquire a dealership whose profitability is marginal, but which we believe can be increased through variousfactors, such as: (a) change in management, (b) expansion or improvement in facility operations, (c) relocation of facility based on demographic 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 will seek to sell thedealership to a third party, or, in a rare case, surrender the franchise back to the manufacturer. In conjunction with the disposition of certain of our dealerships,we may also dispose of the associated real estate. Management constantly monitors the performance of all of our dealerships, and routinely assesses the needfor divestiture. In connection with divestitures, we are sometimes required to incur additional charges associated with lease terminations or the impairment oflong-lived and/or intangible, indefinite-lived assets. We continue to rationalize our dealership portfolio and focus on increasing the overall profitability ofour operations.Recent Dispositions. During 2016, we disposed of five U.S dealerships, four dealerships in Brazil and one dealership in the U.K., with annualizedrevenues of approximately $240.0 million.CompetitionWe operate in a highly competitive industry. In each of our markets, consumers have a number of choices when deciding where to purchase a new orused vehicle and how the purchase will be financed. Consumers also have options for the purchase of related parts and accessories, as well as the maintenanceservice and repair of vehicles. In the U.S., according to The10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.National Automobile Dealers Association, there were approximately 16,545 franchised automobile dealerships as of January 1, 2016, which was up from16,396 as of January 1, 2015. In the U.K., according to the National Franchised Dealers Association, there were approximately 4,065 franchised dealerships asof January 1, 2016, which was down from 4,127 as of January 1, 2015. In Brazil, according to The National Association of Automobile Manufacturers, therewere approximately 4,389 franchised automobile dealerships as of January 1, 2015, which was up from 4,364 as of January 1, 2014.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, concentration of same franchises in the surrounding markets, service,price, and selection. In the new vehicle market, our dealerships compete with other franchised dealerships in their market areas, as well as auto brokers,leasing companies, and internet companies that provide referrals to, or broker vehicle sales with, other dealerships or customers. We are subject tocompetition from dealers that sell the same brands of new vehicles that we sell and from dealers that sell other brands of new vehicles that we do not sell in aparticular market. Our new vehicle dealer competitors also have franchise agreements with the various vehicle manufacturers and, as such, generally haveaccess to new vehicles on the same terms as we do. We do not have any cost advantage in purchasing new vehicles from vehicle manufacturers, and ourfranchise agreements do not grant us the exclusive right to sell a manufacturer’s product 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 Businesses. We believe the principal competitive factors in the parts and service business are the quality of customerservice, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, accessibility and convenience, access to and useof technology required for certain repairs and services (e.g., software patches, diagnostic equipment, etc.), location, price, the competence of technicians, andthe availability of training programs to enhance such expertise. In the parts and service market, our dealerships compete with other franchised dealers toperform warranty maintenance and repairs, conduct manufacturer recall services and sell factory replacement parts. Our dealerships also compete with otherautomobile dealers, franchised and independent service center chains, and independent repair shops for non-warranty repair and maintenance business. Inaddition, our dealerships sell replacement and aftermarket parts both locally and nationally over the internet in competition with franchised and independentretail and wholesale parts outlets. A number of regional or national chains offer selected parts and services at prices that may be lower than ours. Our collisioncenters compete with other large, multi-location companies, as well as local, independent, collision service operations.Finance and Insurance. We believe the principal competitive factors in the finance and insurance business are convenience, interest rates, productavailability, product knowledge and flexibility in contract length, further increasing the competition for customer financing. We face competition inarranging financing for our customers’ vehicle purchases from a broad range of financial institutions. Many financial institutions now offer finance andinsurance products over the internet, which may reduce our profits from the sale of these products. We may be charged back for unearned financing, insurancecontracts or vehicle service contract fees in the event of early termination 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. In the future, we cannot guarantee that there will be opportunities to complete acquisitions, norare we able to guarantee that we will be able to complete acquisitions on terms acceptable to us.Financing Arrangements and IndebtednessAs of December 31, 2016, our outstanding indebtedness, coupled with lease and other obligations totaled $3,593.6 million, including the following:•$1,072.1 million under the Floorplan Line of our Revolving Credit Facility;•$540.5 million in carrying value of 5.00% senior notes due 2022 (“5.00% Notes”);•$394.5 million of future commitments under various operating leases;11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.•$327.3 million of estimated future interest payments on existing floorplan notes payable and other long-term debt obligations;•$321.9 million of mortgage term loans in the U.S., entered into independently with three of our manufacturer-affiliated finance partners, ToyotaMotor Credit Corporation (“TMCC”), BMWFS, and FMCC, as well as several third-party financial institutions, primarily to finance the purchaseof real estate;•$295.6 million in carrying value of 5.25% senior notes due 2023 (“5.25% Notes”);•$222.4 million under floorplan notes payable to various manufacturer affiliates and third-party financial institutions for foreign and rentalvehicles;•$149.7 million under our FMCC Facility;•$50.4 million of mortgage term loans in the U.K. (collectively, “U.K. Notes”);•$47.6 million of capital lease obligations related to real estate, as well as $30.8 million of estimated interest;•$42.6 million of other short and long-term purchase commitments;•$37.1 million of letters of credit, to collateralize certain obligations, issued under the Acquisition Line; •$31.9 million of estimated future net obligations from interest rate risk management activities; as of December 31, 2016, the estimated fair valueof such obligations was $24.4 million; and•$29.2 million of various other debt and other capital lease obligations;As of December 31, 2016, we had the following amounts available for additional borrowings under our various U.S. credit facilities:•$367.9 million under the Floorplan Line of our Revolving Credit Facility, including $59.6 million of immediately available funds;•$322.9 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•$150.2 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, certain mortgage term loans, 5.00% Notes and 5.25% Notes inour ability to make restricted payments, such as repurchase shares of our outstanding common stock and make payments of cash dividends to ourstockholders, among other things. As of December 31, 2016, the restricted payment baskets limited us to $132.3 million in restricted payments. Generally,these restricted payment baskets will increase in the future periods by 50.0% of our future cumulative net income, adjusted to exclude the Company’s foreignoperations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation, plus the net proceeds received from thesale of our capital stock, and decrease by the amount of future payments for cash dividends and share repurchases.In February 2016, the Board of Directors approved a new authorization of $150.0 million, replacing the authorization remaining at that time. Under theauthorizations, we repurchased 2,282,579 shares during 2016 at an average price of $55.90 per share, for a total of $127.6 million, leaving $22.4 millionavailable for future repurchases as of December 31, 2016. Future repurchases are subject to the discretion of our Board of Directors after considering ourresults of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, general business conditions andother factors.DividendsDuring 2016, our Board of Directors approved four quarterly cash dividends. The first dividend was approved and paid at $0.22 per share, the second,third and fourth were increased to $0.23 per share for a total of $0.91 per share, or $20.0 million, for the year ended December 31, 2016. The payment ofdividends in the future is subject to the discretion of our Board of Directors, after considering our results of operations, financial condition, cash flows, capitalrequirements, outlook for our12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.business, general business conditions, the political and legislative environments, and other factors. As noted above, we are also limited in our ability to makecash dividend payments to our stockholders under the terms of several of our debt financing arrangements.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 also grant franchised dealerships the right to use the manufacturer’s ordistributor’s trademarks 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 states in which we operate in the U.S., manufacturers maybe able to terminate our franchises without providing advance notice, an opportunity to cure or showing of good cause. Without the protection of dealer laws,it may also be more difficult for our dealers to renew their franchise agreements upon expiration. Further, U.S. federal law, including any federal bankruptcylaw, may preempt U.S. state law and allow manufacturers greater freedom to terminate or not renew franchises.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. On June 23, 2016, the BritishCitizens voted on a referendum in favor of exiting the E.U. The majority vote in favor of Brexit has created uncertainty in the global markets and in theregulatory environment in the U.K., as well as the overall European Union. The impact on our financial results and operations may not be known for sometime, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislative doctrine of Block13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Exemption to govern market representation activities of competing dealers and dealer groups. To date, there has been no clear indication of how suchlegislation may be effected by Brexit, but a change to such legislation could be adverse.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 year 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 collect. In addition, some manufacturers provide us with incentives to order and/or sell certain models and/orvolumes of inventory over designated periods of time. Under the terms of our dealership franchise agreements, the respective manufacturers are able toperform warranty, incentive, and rebate audits and charge us back for unsupported or non-qualifying warranty repairs, rebates or incentives.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.”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, 2016Toyota24.9%BMW13.5%Ford11.0%Volkswagen11.0%Honda9.9%14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 state in which we operate in the U.S., we must obtain various licenses in order to conduct our businesses, including dealer, sales andfinance, and insurance licenses issued by state regulatory authorities. Numerous laws and regulations govern our conduct of business, including thoserelating to our sales, operations, financing, insurance, advertising and employment practices. These laws and regulations include franchise laws andregulations, consumer protection laws, and other extensive laws and regulations applicable to new and used motor vehicle dealers, as well as a variety ofother laws and regulations. These laws also include U.S. federal and 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. Somestates in the U.S. 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 maybe asserted 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 thatwe purchase in the U.S. are subject to U.S. 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 andthe dealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. U.S. federal laws require various written disclosuresto be provided on new vehicles, including mileage and pricing information. We are aware that several states in the U.S. 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 (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau (the“CFPB”) with broad regulatory powers. Although automotive dealers are generally excluded from the CFPB’s regulatory authority, we are required to complywith regulations applicable to privacy notices, and the CFPB acted to regulate automotive financing activities through its regulation of automotive financecompanies and other financial institutions that service the automotive industry. The CFPB has issued regulatory guidance instructing financial institutions tomonitor dealer loans for potential discrimination resulting from the system used to compensate dealers for assisting in the customer financing transaction.The CFPB has instructed lenders that, if discrimination is found, the lender would be required to change dealer compensation practices. In addition, the CFPBhas announced its intention to regulate the sale of other finance and insurance products. If the result of either of these initiatives is to substantially restrict ourability to generate revenue from arranging financing for our customers for the purchase of vehicles and associated products and services, it could have amaterial adverse effect on our business and results of operations.Environmental and Occupational Health and Safety Laws and RegulationsOur operations in the United States as well as the United Kingdom and Brazil involve the use, handling and storage of materials such as motor oil andfilters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. We contract forrecycling and/or dispose of used fluids, filters and other waste materials generated by our operations. In the United States, our business is subject to numerouslaws and regulations governing management and disposal of materials and wastes, protection of the environment and occupational health and safety. Theselaws and regulations 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, requiring 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.15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 state and local programs in the U.S. govern certain wastewater and stormwater discharges 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 U.S. Department of Labor and related state agencies are also applicable to protection of the health and safety of ouremployees.We generally conduct environmental studies on dealerships to be acquired regardless of whether we are leasing or acquiring 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. We currently own or lease, and in connection with our acquisition program anticipate in the future owning or leasing,properties that in some instances have been used for auto retailing and servicing for many years. Laws regarding the prevention of pollution or remediation ofenvironmental contamination generally apply regardless of whether we lease or purchase the land and facilities. Although we, or our predecessors, may haveutilized operating and disposal practices that were standard in the industry at the time, a risk exists that petroleum products and wastes such as new and usedmotor oil, transmission fluids, antifreeze, lubricants, solvents and motor fuels could have been spilled or released on, under or from the properties owned orleased by us or on, or under or from other locations where such materials were taken for recycling or disposal. Further, we believe that structures found onsome of these properties may contain asbestos-containing materials, although in an undisturbed condition that does not require removal or other correctiveaction under applicable regulations. In addition, many of these properties have been operated by third parties whose use, handling and disposal of suchpetroleum products or wastes were not under our control. In the United States, these properties and the materials transported and disposed from, or releasedon, them may be subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA,” also known as the Superfundlaw), RCRA and analogous state laws in the U.S., pursuant to which we could be required to remove or remediate previously disposed wastes or propertycontamination or to perform remedial 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, vehicle manufacturers in the UnitedStates are subject to regulations adopted in 2012 by the U.S. Environmental Protection Agency (“EPA”) and the National Highway Traffic SafetyAdministration (“NHTSA”) that establish greenhouse gas (“GHG”) emissions and corporate average fuel economy (“CAFE”) standards applicable to light-duty vehicles for model year 2017 through 2021, with procedure in place to extend the application of these standards through model year 2025. Pursuant tothese regulations, the EPA and NHTSA are expected to conduct mid-term reviews in 2017 to determine the technological progress and economic implicationsfor extending these standards to model years 2022-2025. On January 12, 2017, the EPA completed its mid-term review and signed a determination tomaintain the current GHG emissions standards for model year 2022-2025 vehicles. Whereas the CAFE standards are designed to improve vehicle fueleconomy, the GHG standards are based on determinations made by the EPA, that emissions of carbon dioxide and certain other gases, comprising GHGs,present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of theEarth’s atmosphere and other climatic changes. Moreover, climate-change legislation and regulatory changes have been made or are being considered atUnited States’ federal and state levels as well as at international levels. For example, in December 2015, the United States joined other countries of the UnitedNations in preparing an agreement requiring member countries to review and establish goals for limiting GHG emissions. This “Paris agreement” was signedby the United States in April 2016 and entered into force in November 2016; however, this agreement does not create any binding obligations for nations tolimit their GHG emissions but, rather includes pledges to voluntarily limit or reduce future emissions. Although it is not possible at this time to predict howor when the United States might impose restrictions on GHGs as a result of the Paris agreement, the adoption of any laws or regulations requiring significantincreases in fuel economy requirements or new federal or state restrictions on emissions of GHGs on vehicles and automotive fuels in the United States couldadversely affect prices of and demand for the vehicles we sell.16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 controls similar to those used in the United States and relating to the management and disposal of materials and wastes as well as protection ofthe environment exist in the United Kingdom and Brazil, where we also conduct operations. These legal controls as implemented and enforced in the UnitedKingdom and Brazil also affect many aspects of our operations in those countries. For example, with regards to the Paris agreement, the United Kingdom andBrazil each signed that agreement in April 2016. We may incur significant capital expenditures, operational costs and risks of liability and sanction as weseek to comply with those foreign-country environmental legal requirements.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; and•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 risk associated with aggregate loss limits, perclaim deductibles and claims handling expenses, including property and casualty, automobile physical damage, and employee medical benefits. In certaincases, we insure costs in excess of our retained risk under various contracts with third-party insurance carriers. Risk retention levels may change in the futureas a result of changes in the insurance market or other factors affecting the economics of our insurance programs. Although we believe our insurance coverageis adequate, we cannot assure that we will not be exposed to uninsured losses that could have a material adverse effect on our business, results of operationsand 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. Actuarial estimates for the portion of claims not covered by insurance are based on historical claims experience,adjusted for current trends and changes in claims-handling procedures. The insurance companies that underwrite our insurance require that we secure certainof our obligations for self-insured exposures with collateral. Our collateral requirements are set by the insurance companies and, to date, have been satisfiedby posting surety bonds, letters of credit and/or cash deposits. Our collateral requirements may change from time to time based on, among other things, ourtotal insured exposure and the related self-insured retention assumed under the policies. We are subject to potential premium cost fluctuations with theannual renewal of these programs.EmployeesWe believe our relationship with our employees is favorable. As of December 31, 2016, we employed 13,500 (full-time, part-time and temporary)people in the U.S., U.K. and Brazil, of whom:•1,702 were employed in managerial positions;•3,520 were employed in non-managerial vehicle sales department positions;•6,186 were employed in non-managerial parts and service department positions; and•2,129 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 of all these factors, ourconsolidated revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters. Other factorsunrelated to seasonality, such as changes in economic condition,17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.inventory availability, manufacturer incentive programs or shifts in governmental taxes or regulations may exaggerate seasonal or cause counter-seasonalfluctuations 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;•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-0330.18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 the U.S. experienced in 2008 and much of 2009, retail new vehicle sales typically experience periods of declinecharacterized by oversupply and weak demand. In addition, periods of economic uncertainty, as well as volatility in consumer preference around fuel-efficient vehicles in response to volatile fuel prices, and concern about manufacturer viability, may adversely impact future consumer spending and result ina difficult business environment. Any tightening of the credit markets and credit conditions may decrease the availability of automotive loans and leases andadversely impact our new and used vehicle sales and margins. In particular, if sub-prime finance companies apply higher credit standards or if there is adecline in the overall availability of credit in the sub-prime lending market, the ability of consumers to purchase vehicles could be limited, which could havea material adverse 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 (43.3%) for the year ended December 31, 2016 which are dependent upon the oil and gas industry,the recent decline in commodity prices has had and could continue to have an adverse effect on our business and results of operations in those regions.The recently inaugurated president of the U.S., President Donald Trump, has discussed with his advisers the idea of supporting a major tax reformpackage which would include a tax on products imported into the U.S. (“border adjustment tax”). A border adjustment tax would tax imported goods flowinginto the U.S. at the existing corporate income tax rate and exempt exports flowing out from the U.S. The tax is designed to stimulate domestic economicproduction. Foreign companies with large U.S. customer bases, such as some of our manufacturers, as well as domestic retailers that rely heavily on importedgoods, may have to pay a higher cost for their imported products in the short-to-medium term. Those increased costs may be passed on to our customersultimately increasing the price of the products we sell. If such border adjustment tax were to be enacted and implemented in the U.S., it could adversely affectthe volume of our new vehicles and parts sales, which could have an adverse effect on our operations and our business.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 97.3% of our total new vehicle retail units sold in 2016. In particular, sales of Toyota/Scion/Lexus new vehicles represented 24.9% of our newvehicle unit sales in 2016. 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 we bill the manufacturer directly as opposed to invoicing the customer. In addition,we rely on manufacturers to varying extents for original equipment manufactured replacement parts, training, product brochures and point of sale materials,and other 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, 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 unappealingvehicle19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.design, governmental laws and regulations, natural disasters, or other adverse events. These and other risks could materially adversely affect the financialcondition of any manufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a materialadverse effect on our business, 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 approvals and franchise agreements for dealership acquisitions couldadversely affect our acquisition program. In determining whether to approve an acquisition, manufacturers may consider many factors, including the moralcharacter and business experience of the dealership principals, the financial condition, and ownership structure, as well as Customer Satisfaction Index scores,sales efficiency, and other performance measures of our other dealerships. Manufacturers may use these performance indicators, as well as sales performancenumbers, as conditions for certain payments and as factors in evaluating applications for additional acquisitions. In unusual cases where performanceindicators, such as the ones described above, are not met to the satisfaction of the manufacturer, certain manufacturers may either limit our ability to acquireadditional dealerships or require the disposal of existing dealerships or both. From time to time, we have not met all of the manufacturers’ requirements tomake acquisitions and have received requests to dispose of certain of our dealerships. In the event one or more of our manufacturers sought to prohibit futureacquisitions, or imposed requirements to dispose of one or more 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, 2016, we owned three primary Lexusdealerships. Also, under the manufacturer’s interpretation of existing guidelines, as of December 31, 2016, we owned the maximum number of Toyotadealerships permitted in the Gulf States region, which is comprised of Texas, Oklahoma, Louisiana, Mississippi and Arkansas, as well as 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 in the U.S. that are generally designed to protect dealers, a manufacturer may grant another dealer a franchise to start a new dealership near one of ourlocations, or an existing dealership may move its dealership to a location that would more directly compete against us. The location of new dealerships nearour existing dealerships 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 Line, proceeds20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.from debt and/or equity offerings and/or issuing shares of our common stock as partial consideration for acquired dealerships. If potential acquisitioncandidates are unwilling to accept our common stock, we will rely solely on available cash or proceeds from debt or equity financings, which could adverselyaffect our acquisition program. Access to funding through the debt or equity capital markets could become challenging in the future. Also, in the future, thecost of obtaining money from the credit markets could increase if lenders and institutional investors increase interest rates, enact tighter lending standards,refuse to refinance existing debt at maturity on terms similar to current debt or at all, and reduce or, in some cases, cease to provide funding to borrowers.Accordingly, our ability to complete acquisitions could be adversely affected if the price of our common stock is depressed or if our access to capital islimited.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, generally, 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 acquired 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 state franchise laws and regulations in the U.S., anti-trust laws and other extensive laws andregulations applicable to new and used motor vehicle dealers, as well as U.S. federal and state wage-hour, anti-discrimination and other employment practiceslaws. 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 repealedin the states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or showingof good 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 state law in the U.S. and allow manufacturers greater freedom to terminate or not renewfranchises. Furthermore, some states have initiated consumer “bill of rights” statutes which involve increases in our costs associated with the sale of vehicles,or decreases 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 automotive markets. Additionally, real estate we are interested in acquiring will be subject to local municipal laws ofcounty, township, parish and other local municipalities that often times will govern what type of real estate we can purchase for our various automotiveoperations. Local ordinances, deed restrictions, zoning and other land use restrictions may prohibit the type of business permitted on a given leased orpurchased property which can add to the challenge of locating appropriate real estate. The costs and length of time associated with changing the permitteduse 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 leaseor purchase additional suitable properties to meet the needs of our various automotive operations in multiple markets would adversely affect our business,results of operations and financial condition.21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 financing activities with customers are subject to U.S. federal truth-in-lending, consumer leasing and equal credit opportunity laws and regulations,as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations.Some states in the U.S. regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or alleged violations of lawmay be asserted 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 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 the ordinary course of our business, we may, from time to time, be subject to claims for duties, 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. Federal laws require various written disclosures to beprovided on new vehicles, including mileage and pricing information.In July 2010, the Dodd-Frank Act was signed into law and established the CFPB with broad regulatory powers in the U.S. Although automotive dealersare generally excluded from the CFPB’s regulatory authority, we are required to comply with regulations applicable to privacy notices, and the CFPB actedto regulate automotive financing activities through its regulation of automotive finance companies and other financial institutions that service theautomotive industry. The CFPB has issued regulatory guidance instructing financial institutions to monitor dealer loans for potential discriminationresulting from the system used to compensate dealers for assisting in the customer financing transaction. The CFPB has instructed lenders that, ifdiscrimination is found, the lender would be required to change dealer compensation practices. If this initiative substantially restricts our ability to generaterevenue from arranging financing for our customers for the purchase of vehicles, the result could have an adverse effect on our business and results ofoperations.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 a material adverseeffect on our financial condition, results of operations and cash available for distributions to our shareholders.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 suremarkets22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.work well by confirming that financial services maintain and ensure the integrity of the markets, regulate financial services firms so that they give consumersa fair deal and ensure the financial services market is competitive.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 of these laws, the cost of compliance with these laws, or changes inthese 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 in the United States, United Kingdom and Brazil, we generate, handle, store and recycle or dispose of various usedproducts and wastes. These business activities are subject to stringent federal, regional, state and/or local laws, regulations and other controls governing therelease of materials into the environment or otherwise relating to environmental protection. These laws, regulations and controls may impose numerousobligations upon our operations including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how tomanage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent releases of such material, and the imposition ofsubstantial liabilities for pollution resulting from our operations. Failure to comply with these laws, regulations, and permits may result in the assessment ofsanctions, including administrative, civil, and criminal penalties, the imposition of investigatory remedial and corrective action obligations, delays inpermitting or in the performance of projects and the issuance of injunctions limiting or preventing 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, in the United Statesvehicle manufacturers are subject to federal regulations requiring GHG reduction and CAFE standards for light-duty vehicles for model years 2017 through2021. Under these regulations, most manufacturers are required to modify their vehicle platforms and powertrains to achieve a fleet-wide average fuelefficiency equivalent of 44.7 miles per gallon by model year 2021. The EPA and NHTSA are expected to conduct mid-term reviews in 2017 to determine thetechnological progress and economic implications for extending these standards to model years 2022-2025, which extended standards will include meeting aproposed 2025 standards for fleet-wide average fuel efficiency equivalent of 54.5 miles per gallon. On January 12, 2017, the EPA completed its mid-termreview and signed a determination to maintain the current GHG emissions standards for model year 2022-2025 vehicles. Similarly, these regulations imposefleet-wide average carbon dioxide emission tailpipe compliance levels of 243 grams per mile on model 2017 vehicles and would impose similar tailpipecompliance levels of 163 grams per mile on model year 2025 vehicles. These increased fuel efficiency and carbon dioxide, or GHG, reduction requirementsare expected to increase the cost of new vehicles over time, which could potentially result in a reduction in new vehicle sales.Whereas the CAFE standards are designed to improve vehicle fuel economy in the United States, the GHG standards are based on determinations madeby the EPA that emissions of GHGs present an endangerment to public health and the environment because emissions of such gases are, according to theEPA, 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 GHG. These laws generally take the form of cap and trade programs, requiring large sources ofGHG emissions to purchase allowances or take steps to reduce emissions to comply with the cap. Climate-change legal requirements are also beingconsidered on an international level. For example, in December 2015, the United States joined other countries of the United Nations in preparing anagreement requiring member countries to review and establish goals for limiting GHG emissions. This “Paris agreement” was signed by the United States, theUnited Kingdom and Brazil in April 2016 and the agreement entered into force in November 2016; however, this agreement does not create any bindingobligations for nations to limit their GHG emissions but, rather includes pledges to voluntarily limit or reduce future23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.emissions. Although it is not possible at this time to predict how or when the United States, United Kingdom and Brazil might impose restrictions on GHGs asa result of the Paris agreement, the adoption of any laws or regulations requiring significant increases in fuel economy requirements or new federal or staterestrictions on emissions of the GHGs on vehicles and automotive fuels in the United States could adversely affect prices of an demand for the vehicles wesell, which could adversely affect our revenues and earnings. Please see “Item 1. Business — Governmental Regulations — Environmental and OccupationalHealth 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 managers and other key dealership personnel. Accordingly, the inability toretain key employees or the failure to attract qualified personnel could have an adverse effect on our business and may impact the ability of our dealerships toconduct their operations in accordance with our 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, product demand and dealership location in order to sell new vehicles. Our franchise agreements do not grant us the exclusiveright to sell a manufacturer’s product within a given geographic area. If competing dealerships expand their market share or are awarded additional franchisesby manufacturers 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 maintenance and repair servicesand with other automotive dealers, franchised and independent service center chains and independent garages for non-warranty repair and routinemaintenance business. Our parts operations compete with other automotive dealers, service stores and auto parts retailers. We believe the principalcompetitive factors in the parts and service business are the quality of customer service, the use of factory-approved replacement parts, familiarity with amanufacturer’s brands and models, convenience, access to and use of technology required for certain repairs and services, location, price, the competence oftechnicians and the availability of training programs to enhance such expertise. A number of regional or national chains offer selected parts and services atprices that may be lower than our dealerships’ prices. We also 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 establishing24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.a dealer-network, they may be able to have a competitive advantage over the traditional dealers, which could adversely affect our sales in those states. Ifinternet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, or if dealerships are able to effectively use the internetto sell outside of their markets, our business could be materially adversely affected. Our business would also be materially adversely affected to the extentthat internet companies acquire dealerships or align themselves with 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.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 in the U.S., as well as payment card industryand other vendor standards, govern the collection and maintenance of PII from consumers and other individuals. Although many companies across manyindustries are affected by malicious efforts to obtain access to PII, news reports suggest that the automotive dealership industry is a particular target ofidentity thieves. Moreover, there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data,scams, or misappropriation of data by employees, vendors or unaffiliated third parties. Despite the security measures we have in place and any additionalmeasures we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to securitybreaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, or other events. Alleged or actualdata security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individualclaims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could havea material 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 available for sale, couldforce us to incur increased costs and could expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a materialadverse effect on our 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 reporting units to their respective fair values. To determinethe fair value of our reporting units we use a combination of the discounted cash flow and market approaches. In addition, we evaluate the carrying value ofour indefinite-lived, intangible franchise rights at a dealership level using a discounted cash flow based approach. Both these analyses are based upon a seriesof assumptions. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policiesand Accounting Estimates — Goodwill” and “Intangible Franchise Rights” for additional information regarding the assumptions that underlie 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 in25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.March 2013 adversely impacted the results of the impairment test performed in the fourth quarter of 2015. As a result, in our fourth quarter 2015 impairmentanalysis, we determined that there had been material changes to the previous assumptions underlying the amount of goodwill and/or intangible assetsassociated with our Brazilian dealerships, and we wrote down the value of those assets, which resulted in a material non-cash impairment charge.On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the E.U. The majority vote in favor of Brexit has created uncertaintyin the global markets and in the regulatory environment in the U.K., as well as the overall European Union. The impact on our financial results and operationsmay not be known for some time, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislative doctrine of "Block Exemption" togovern market representation activities of competing dealers and dealer groups. To date, there has been no clear indication of how such legislation may beeffected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of these uncertainties, the estimates, assumptionsand inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize, the resulting decline in theestimated fair market value of such assets could result in a material non-cash impairment charge. While we are not aware of any changes in circumstances thathas resulted in a decline in fair value of these assets at this time, we continue to closely monitor the situation.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. A rise in interest rates may also have the effect of depressing demand in the interest rate sensitive aspects of ourbusiness, particularly new and used vehicle sales, because many of our customers finance their vehicle purchases. As a result, a rise in interest rates may havethe effect of simultaneously increasing our costs and reducing our revenues. To mitigate the impact, we have entered into derivative transactions to convert aportion of our variable-rate debt to fixed rates to partially mitigate this risk. In addition, we receive interest assistance from certain automobile manufacturers,which is reflected as a reduction in cost of sales on our statements of operations. Please see Part II, “Item 7A. Quantitative and Qualitative Disclosures AboutMarket Risk” for a discussion regarding our interest rate sensitivity.Natural disasters and adverse weather events can disrupt our business.Some of our dealerships are concentrated in states and regions in the U.S., U.K. and Brazil in which actual or threatened natural disasters and severeweather events (such as hurricanes, earthquakes, snow storms, flooding, and hail storms) have in the past, and may in the future, disrupt our dealershipoperations. A disruption in our operations may adversely impact our business, results of operations, financial condition and cash flows. In addition tobusiness interruption, the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property value atdealership locations. Natural disasters and severe weather events have in the past and may in the future impair the value of our dealership property. Althoughwe have, subject to certain limitations and exclusions, substantial insurance, including business interruption insurance, we may be exposed to uninsuredlosses 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.While we have insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, workers’ compensationinsurance, employee dishonesty coverage, employment practices liability insurance, pollution coverage and errors and omissions insurance in connectionwith vehicle sales and financing activities, we are self-insured for a portion of our potential liabilities. We purchase insurance policies for worker’scompensation, 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 inthe cost of insurance or the availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or couldcause us to reduce our insurance coverage and increase the portion of our risks that we self-insure.26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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; •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; and•during periods of economic downturn, we may be more susceptible to a breach of our debt covenants and default on our indebtedness.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 market. Expanding our operations in the U.K. and Brazil areimportant elements of our growth strategy. Operations outside of the U.S. are subject to various risks which may not be present or as significant for operationswithin U.S. markets, and our exposure to these risks increases as we expand. Government actions, both in terms of policy-setting, as well as actions directlyaffecting our operations, and economic uncertainty in some geographic regions in which we operate, such as emerging markets, could result in the disruptionof 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;27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.•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. Management evaluates the Company’s results of operations on both an as reported and a constant currency basis. See Part II, “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on constant currency basis. See Part II,“Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Exchange Rates” for additional information on foreign currencyexchange 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 always subject to our control or are not themselves subject to the FCPA or other anti-bribery laws to which we maybe subject. Existing compliance safeguards and any future improvements may not prevent all such conduct, and it is possible that our employees andintermediaries may engage in conduct for which we might be investigated by U.S. and other authorities, and held responsible. Violations of the FCPA andother anti-bribery and other anticorruption laws (either due to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us toother liabilities in the U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on ourbusiness 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. Since February 2013, Brazil has experienced financial instability with significant currency fluctuations. There is no assurance that our futuregrowth strategies in Brazil will be successful or that Brazil will return to a growth market in the near-term. 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 also “We are subject to risks associatedwith our non-U.S. operations that could have a material adverse effect on our business, results of operations and financial condition.” Further, our growthin emerging markets by acquisition of existing dealerships, such as our acquisition of UAB Motors, is subject to additional risk as discussed under “Ourability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues andearnings” 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:28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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; and•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.29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016, wehad 210 franchises situated in 159 dealership locations throughout the U.S., U.K. and Brazil. As of December 31, 2016, we leased 86 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 4 1 New Jersey 4 — Louisiana 1 2 Mississippi 3 — Florida 3 1 South Carolina 3 — Maryland 2 — Alabama 1 1 New Hampshire 1 2 29 7West Texas 18 32 Kansas 4 — Oklahoma 2 11 California 2 5 Louisiana 1 — 27 48International United Kingdom 15 15 Brazil 2 16Total 73 86We 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 business operations, (5) storage and (6) general office use. Prior to 2005,we tried to structure our operations so as to avoid the ownership of real property. Since 2005, we have strategically increased the number of purchasedproperties particularly in relation to dealership acquisition activity to enhance our flexibility in managing performing and underperforming dealerships andcontrol our costs. As a result, we own 45.9% of our dealership properties as of December 31, 2016. 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, 2016, we acquired $59.6 million of realestate, of which $20.4 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 $885.1 million as of December 31, 2016. Of this capitalized value, $644.2 million was mortgaged through our real estaterelated borrowing arrangements. The related mortgage indebtedness outstanding as of December 31, 2016 was $376.1 million, excluding unamortized debtissuance costs of $1.0 million.We do not believe that any single facility is material to our operations and, if necessary, we would obtain a replacement facility.31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.In September 2015, Volkswagen admitted that certain of its diesel models were intentionally programmed to meet various regulatory emissionsstandards only during laboratory emissions testing. In late June 2016, Volkswagen agreed to pay up to an aggregate of $14.7 billion to settle claimsstemming from the diesel emissions scandal. On October 25, 2016, a U.S. Federal judge approved this settlement. On or about September 30, 2016,Volkswagen agreed to allocate $1.21 billion among its 652 dealers for a class settlement in exchange for their agreement not to sue Volkswagen. In October2016, we received notification from Volkswagen that we are entitled to receive, in the aggregate, approximately $13.2 million in connection with our currentand prior ownership of seven Volkswagen dealerships in the U.S. As of February 12, 2017, we have received half of the compensation in a lump sum amount,and the rest of the compensation will be received in 18 monthly installments. The Volkswagen brand represented 1.7% of our total new vehicle retail unitsales during the year ended December 31, 2016.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.32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 45 holders of record of our common stock as ofFebruary 13, 2017. 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 2015 and 2016: High Low DividendsDeclared2015: 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 0.222016: First Quarter $75.70 $47.67 $0.22Second Quarter 68.47 48.40 0.23Third Quarter 64.19 47.31 0.23Fourth Quarter 82.35 55.06 0.23We 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, certain mortgage term loans, the 5.00% Notes and the 5.25% Notes in ourability to make restricted payments, such as cash dividend payments to our stockholders and the repurchase of shares of our outstanding common stock. As ofDecember 31, 2016, the restricted payment baskets totaled $132.3 million. Generally, these restricted payment baskets will increase in the future periods by50.0% of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairmentcharges, and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount of futurepayments for cash dividends and share repurchases.33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 2011, 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 2011 $100.00 $100.00 $100.00December 2012 120.96 116.00 128.02December 2013 139.96 153.57 182.54December 2014 178.19 174.60 217.04December 2015 152.01 177.01 210.22December 2016 158.84 198.18 202.3834Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016: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, 2016 — $— — $22,394November 1 - November 30, 2016 — $— — $22,394December 1 - December 31, 2016 — $— — $22,394Total — $— — (1) In February 2016, the Board of Directors approved a new authorization of $150.0 million, replacing the authorization remaining at that time. Under theauthorizations, we repurchased 2,282,579 shares during 2016 at an average price of $55.90 per share, for a total of $127.6 million, leaving $22.4 millionavailable for future repurchases. 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. As shown in thetable above, we did not purchase any shared during the three months ended December 31, 2016.35Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016, 2015, 2014, 2013, and 2012, and for the five years in the period endedDecember 31, 2016, 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, 2016 2015 2014 2013 2012 (In thousands, except per share amounts) Income Statement Data: Revenues $10,887,612 $10,632,505 $9,937,889 $8,918,581 $7,476,100Cost of sales 9,292,543 9,098,533 8,489,951 7,626,035 6,358,848Gross profit 1,595,069 1,533,972 1,447,938 1,292,546 1,117,252Selling, general and administrative expenses 1,170,763 1,120,833 1,061,964 976,856 848,446Depreciation and amortization expense 51,234 47,239 42,344 35,826 31,534Asset impairments 32,838 87,562 41,520 6,542 7,276Income from operations 340,234 278,338 302,110 273,322 229,996Other income and (expense): Floorplan interest expense (44,927) (39,264) (41,614) (41,667) (31,796)Other interest expense, net (67,936) (56,903) (49,693) (38,971) (37,465)Loss on extinguishment of long-termdebt — — (46,403) — —Other expense, net — — — (789) —Income from continuing operationsbefore income taxes 227,371 182,171 164,400 191,895 160,735Provision for income taxes (80,306) (88,172) (71,396) (77,903) (60,526)Net income $147,065 $93,999 $93,004 $113,992 $100,209 Earnings per common share: Basic: Net income $6.67 $3.91 $3.82 $4.72 $4.39Diluted: Net income $6.67 $3.90 $3.60 $4.32 $4.19Dividends per share $0.91 $0.83 $0.70 $0.65 $0.59Weighted average common sharesoutstanding: Basic 21,161 23,148 23,380 23,096 21,620Diluted 21,170 23,152 24,885 25,314 22,68836Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 2015 2014 2013 2012 (Dollars in thousands) Balance Sheet Data: Working capital $97,470 $149,102 $101,958 $81,613 $150,852Inventories 1,651,815 1,737,751 1,556,705 1,542,318 1,194,288Total assets 4,461,903 4,396,716 4,127,198 3,796,762 3,001,413Floorplan notes payable — credit facilityand other (1) 1,077,028 1,154,960 1,103,630 1,086,906 856,698Floorplan notes payable — manufactureraffiliates (2) 367,161 363,571 285,156 346,572 211,965Long-term debt, including current portion(3) 1,269,027 1,251,555 1,078,235 697,511 575,835Temporary Equity (4) — — — 29,094 32,505Stockholders’ equity $930,200 $918,252 $978,010 $1,035,175 $860,284Long-term debt to capitalization (5) 58% 58% 52% 40% 39%(1) Includes immediately available funds of $59.6 million, $110.8 million, $39.6 million, $56.2 million, and $112.3 million, respectively, that we temporarily invest as an offset tothe gross outstanding borrowings, as well as $4.9 million, $4.1 million, $5.5 million and $18.1 million as of December 31, 2016, 2015, 2014 and 2013, respectively, of floorplanborrowings under credit facilities with financial institutions in the U.K and Brazil.(2) Includes immediately available funds of $25.5 million, $25.5 million and $22.5 million as of December 31, 2016, 2015 and 2014, respectively, that we temporarily invest as anoffset to the gross outstanding borrowings.(3) Includes the 5.00% Notes, 5.25% Notes, 3.00% Notes, 2.25% Notes, Acquisition Line, real estate related 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.37Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.In preparation of our financial statements and reporting of our operating results in accordance with United States generally accepted accountingprinciples ("U.S. GAAP"), certain non-core business items are required to be presented. Examples of items that we consider non-core include non-cash assetimpairment charges, gains and losses on dealership, franchise or real estate transactions, and catastrophic events such as hail storms, hurricanes, and snowstorms. In order to improve the transparency of our disclosures, provide a meaningful presentation of results from our core business operations and improveperiod-over-period comparability, we have included certain adjusted financial measures that exclude the impact of these non-core business items. Theseadjusted measures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures.In addition, our results, which are reported in U.S. dollars, are impacted by fluctuations in exchange rates relating to our U.K. and Brazil segments. Forexample, if the British pound sterling were to weaken against the U.S. dollar, our U.K. results of operations would translate into less U.S. dollar reportedresults. During the twelve months ended December 31, 2016, the British pound sterling weakened against the U.S. dollar as the average exchange ratedecreased 13.2% compared to the same period in 2015 from 0.65 to 0.74. The Brazilian real also weakened against the U.S. dollar as the average exchangerate declined 4.9% as compared to the same period in 2015 from 3.32 to 3.49. For the twelve months ended December 31, 2015, the British pound weakenedagainst the U.S. dollar as the average rate decreased 7.7%, as compared to the same period in 2014. The Brazilian real also weakened against the U.S. dollar ascompared to the same period in 2014 as the average rate declined 41.6%. As such, management evaluates the Company's results of operations on both an asreported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreigncurrency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlyingbusiness and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our currentperiod reported results for entities reporting in currencies other than U.S. dollars using comparative period exchange rates rather than the actual exchangerates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, themeasures of financial performance prepared in accordance with U.S. GAAP.Our management uses these adjusted measures in conjunction with U.S. GAAP financial measures to assess our business, including communication withour Board of Directors, investors and industry analysts concerning financial performance. Therefore, we believe these adjusted financial measures are relevantand useful to users of the following financial information. For further explanation and reconciliation to the most directly comparable U.S. GAAP measures,see "Non-GAAP Financial Measures" below.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, 2016, we owned and operated 210 franchises, representing 31 brands of automobiles, at 159 dealership locations and 38 collisioncenters worldwide. We own 146 franchises at 111 dealerships and 29 collision centers in the U.S., 41 franchises at 30 dealerships and eight collision centersin the U.K., and 23 franchises at 18 dealerships and one collision center in Brazil. Our operations are primarily located in major metropolitan areas inAlabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, Oklahoma, South Carolina andTexas in the U.S., in 20 towns of the U.K. and in key metropolitan markets in the states of Sao Paulo, Parana, Mato Grosso do Sul and Santa Catarina in Brazil.Our typical acquisition strategy is to acquire large, profitable, well-established and well-managed dealerships that are leaders in their respective marketareas. From January 1, 2012 through December 31, 2016, we have purchased 93 franchises with expected annual revenues, estimated at the time ofacquisition, of $3.8 billion and been granted six new franchises by our38Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.manufacturer partners, with expected annual revenues, estimated at the time of acquisition, of $55.0 million. In 2016, we acquired 12 U.K. dealerships,inclusive of 15 franchises and opened two additional dealerships for two awarded franchises in our U.K. segment. We also acquired one dealership in Brazil,representing one franchise, and opened two additional dealerships in Brazil representing one acquired and two previously awarded franchises. The expectedaggregate annualized revenues, estimated at the time of acquisition, for these acquisitions, were $660.0 million. We make disposition decisions basedprincipally on the rate of return on our capital investment, the location of the dealership, our ability to leverage our cost structure, the brand, future capitalinvestments required and existing real estate obligations. From January 1, 2012 through December 31, 2016, we disposed of or terminated 40 franchises withannual revenues of approximately $1.3 billion. Specifically, during 2016, we disposed five U.S. dealerships, four dealerships in Brazil and one dealership inthe U.K., with annual revenues of approximately $240.0 million.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. In the following discussion and analysis, we report certain performance measures of ournewly acquired and disposed dealerships separately from those of our existing dealerships.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 business. Historically, each of these activities has beendirectly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, discretionary spending levels,availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices, and interest rates. For example, during periods ofsustained 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 business. In addition, our ability to expediently adjust our coststructure 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 to inclement weather. As a result, our U.S. revenues and operating income are typically lower in thefirst and fourth quarters and higher in the second and third quarters. For the U.K., the first and third calendar quarters tend to be stronger, driven by the vehiclelicense plate change months of March and September. For Brazil, we expect higher volumes in the third and fourth calendar quarters. The first quarter isgenerally the weakest, driven by heavy consumer vacations and activities associated with Carnival. Other factors unrelated to seasonality, such as changes ineconomic condition, manufacturer incentive programs and changes in currency exchange rates may exaggerate seasonal or cause counter-seasonalfluctuations in our consolidated reported revenues and operating income.According to U.S. industry experts, the annual new light vehicle unit sales for 2016 increased 94 thousand units, or 0.5%, to 17.5 million units,compared to 17.4 million units in 2015. The U.K. economy represents the fifth largest economy in the world. Vehicle registrations in the U.K. increased 2.3%to 2.7 million during 2016 as compared to the same period a year ago. The majority vote in favor of the Referendum of the United Kingdom’s Membership ofthe European Union (referred to as Brexit), advising for the exit of the United Kingdom from the European Union, created much uncertainty in the U.K., aswell as the global markets. The U.K. industry's new vehicle sales experienced more volatility than normal following the Brexit vote. We expect industry salesto remain volatile in the near future and potentially down about 10% in 2017. In addition, the announcement of Brexit initially caused significant exchangerate fluctuations that resulted in the weakening of the British pound sterling, in which we conduct business in the U.K., against the U.S. dollar and otherglobal currencies. The weakening of the British pound sterling has and may continue to adversely affect our results of operations, as well as have a negativeimpact on the pricing and affordability of the vehicles in the U.K. Volatility in exchange rates is expected to continue in the short term.The Brazilian economy represents the ninth largest economy in the world. At present, the Brazilian economy is in recession and is facing manychallenges. New vehicle registrations in Brazil declined 19.8% during 2016 as compared to the same period a year ago to 2.0 million. We expect macro-economic conditions in Brazil to remain challenged in the near term and automobile industry sales in 2017 to be about equal to 2016 levels. Longer term, weexpect improvements in industry sales volumes and are utilizing a strategy of aligning with growing brands. In conjunction with this strategy, we added fourfranchises in Brazil during the twelve months ended December 31, 2016. These franchises are expected to generate approximately $20 million in annualrevenues. In addition, since December 31, 2015, we have disposed of four franchises in Brazil. These four39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.franchises combined to generate roughly $35.0 million in trailing twelve month revenues. We expect a positive net impact to our profitability from thisadjustment to our portfolio.On a consolidated basis for the year ended December 31, 2016, our total revenues increased 2.4% from 2015 to $10.9 billion and gross profit improved4.0% to $1.6 billion. For the years ended December 31, 2015 and 2014, total revenues were $10.6 billion and $9.9 billion, respectively. For the years endedDecember 31, 2015 and 2014, gross profits were $1.5 billion and $1.4 billion, respectively. We generated net income of $147.1 million, or $6.67 per dilutedcommon share for the year ended December 31, 2016, compared to $94.0 million, or $3.90 per diluted share for the year ended December 31, 2015 and $93.0million, or $3.60 per diluted share for the year ended December 31, 2014. In addition to the matters described above, the following factors impacted ourfinancial condition and results of operations in 2016, 2015, and 2014:Year Ended December 31, 2016:•Non-cash Asset Impairments: Due to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of ourfranchises did not exceed their carrying value, we recorded a $30.0 million pretax non-cash impairment charge, of which $19.9 million related tointangible franchise rights in our two U.S. reporting units and $10.1 million related to intangible franchise rights in our Brazil reporting unit. Wealso recognized a total of $2.8 million in pre-tax non-cash asset impairment charges related to impairment of various real estate holdings and otherlong-lived assets.•Catastrophic Events: Our results were negatively impacted by several catastrophic events. Insurance deductibles and other related expensestotaling $5.9 million were recognized as SG&A expenses as a result of vehicle damage from hailstorms and flooding in the U.S., during the year.•Real Estate and Dealership Transactions: We disposed of ten franchises: five in the U.S. segment, four in the Brazil segment and one in the U.K.segment. Primarily as a result of these dispositions, a net pre-tax gain of $2.7 million and net pre-tax losses of $0.8 million and $0.3 million,respectively, were recognized for the year ended December 31, 2016.•OEM Settlement: We recognized a net pre-tax gain of $11.7 million associated with the Volkswagen diesel emissions scandal claims settlement, inconnection with our ownership of Volkswagen dealerships in the U.S.•Severance Costs: Negatively impacting our results was $2.0 million of severance costs paid to employees.•Foreign deferred income tax benefit: We recognized a tax benefit of $1.7 million associated with a dealership disposition in Brazil.Year Ended December 31, 2015:•Non-cash Asset Impairments: As a result of our determination that the fair value of goodwill in our Brazil reporting units did not exceed itscarrying value, we recorded a $55.4 million pretax non-cash asset impairment charge. In addition, as a result of our determination that the fairvalue of indefinite-lived intangible franchise rights related to certain of our dealership franchises did not exceed their carrying value, werecognized 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 to intangible franchise rights in our Brazil reporting unit. Also, we recognized $2.1 million in pre-taxnon-cash asset impairment charges associated with non-operating real estate holdings and other long-lived assets of our existing dealershipfacilities. In total, we recognized $87.6 million in pretax 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 in the U.S., during the year.•Real Estate and Dealership Transactions: We disposed of two U.S. dealerships and terminated one U.S. dealership franchise. We also terminatedtwo 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 areduction of SG&A expenses. In addition, we disposed of real estate during the year and received cash proceeds of $3.3 million, recognizing a netgain 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.•Non-cash Asset Impairments: Primarily related to our determination that the fair value of indefinite-lived intangible franchise rights related tocertain of our franchises did not exceed their carrying value and an impairment charge was40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.required, we recorded a $31.0 million pretax non-cash impairment charge. We also recognized a total of $10.5 million in pre-tax non-cash assetimpairment charges related to impairment of various real estate holdings 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 prior to their extinguishment, representing the impact of the accounting forconvertible debt as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt (“ASC470”).•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 in the U.S., during the year.•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.41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.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, 2016 2015 2014Unit Sales Retail Sales New Vehicle 172,053 174,614 166,896Used Vehicle 129,131 124,153 109,873Total Retail Sales 301,184 298,767 276,769Wholesale Sales 57,339 57,226 54,602Total Vehicle Sales 358,523 355,993 331,371Gross Margin New Vehicle Retail Sales 5.2% 5.1% 5.4%Total Used Vehicle Sales 5.6% 5.8% 6.5%Parts and Service Sales 53.9% 54.1% 52.8%Total Gross Margin 14.7% 14.4% 14.6%SG&A as a % of Gross Profit 73.4% 73.1% 73.3%Adjusted SG&A as a % of Gross Profit (1) 73.7% 73.4% 73.9%Operating Margin 3.1% 2.6% 3.0%Adjusted Operating Margin (1) 3.4% 3.4% 3.4%Pretax Margin 2.1% 1.7% 1.7%Adjusted Pretax Margin (1) 2.3% 2.5% 2.5%Finance and Insurance Revenues per Retail Unit Sold $1,397 $1,368 $1,324(1) See “Non-GAAP Financial Measures” for more details. The 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.2016 compared to 2015Our consolidated revenues from new vehicle retail sales increased 0.7% for the twelve months ended December 31, 2016, as compared to the sameperiod in 2015, as growth in our U.K. segment was offset by declines in the U.S. and Brazil. Our new vehicle retail unit sales in the U.K. rose 68.8%, for theyear ended 2016 as compared to 2015, primarily reflecting the acquisition of a dealership group in early February, as well as the overall strength of the autoretail industry in the U.K. during 2016 and the continued successful execution by our operating team on key initiatives. During the second half of 2016, theU.K. experienced more volatility than normal following the Brexit vote. However, industry sales in the U.K. experienced another record year withregistrations of 2.7 million units, an increase of 2.3% as compared to the same period in 2015. Excluding the impact of acquisitions, for the twelve monthsended December 31, 2016, new vehicle retail unit sales increased 9.1% in our U.K. segment. In the U.S. segment during the year ended December 31, 2016,new vehicle retail unit sales decreased 8.3% over the same period last year. The decline in our new vehicle retail unit sales was driven by our over-weightexposure to many energy-dependent markets in Texas and Oklahoma, which have been particularly soft as a result of depressed oil prices. For the twelvemonths ended December 31, 2016, our new vehicle unit sales in Texas were down 7.9%, while our Oklahoma unit sales were down 12.4% when compared tothe same period a year ago. As a result, our U.S. revenues from new vehicle retail sales declined 4.5%, as the reduced volumes were partially offset with anincrease in our average new vehicle retail sales price of 4.2%. The increase in our average sales price was primarily due to the shift in the mix of new retailunits sold, as our truck unit sales increased to 56.5% of total new vehicle retail units sold for the twelve months ended December 31, 2016, as compared to51.3% last year, generally correlating with lower gas prices. For the year ended December 31, 2016, Brazil new vehicle retail unit sales declined 26.7% andnew vehicle retail revenues declined 21.0%, when compared to the same period in 2015, reflecting decreased consumer confidence, higher interest rates andcontinued weakness in the Brazilian economy. Consolidated new vehicle retail gross margin improved 10 basis points to 5.2%, for the twelve months endedDecember 31, 2016, as compared to the same period in 2015, driven by a 30 basis point increase in the U.S. segment. This was primarily attributable to ourU.S. operating team that took a more disciplined approach to new vehicle pricing, which focused on increased gross profit42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.per unit. As a result, we improved new vehicle gross profit per retail unit “PRU” sold in the U.S. by 10.1% for the year ended December 31, 2016, as comparedto last year. The increase in the U.S. was partially offset by the competitive selling environment in the U.K., the worsening economic conditions in Brazil, andthe impact of the change in exchange rates between periods.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 total revenues from used vehicle retail sales increased 4.5% for the twelve months ended December 31, 2016, ascompared to the same period in 2015, as a result of growth in both our U.S. and U.K. segments. In the U.S., used vehicle retail revenues increased 1.7%, as aresult of a 1.2% increase in the average used vehicle retail sales price coupled with a 0.5% increase in used vehicle retail units sold. Principal contributors tothese improvements were an increase in the number of off-lease vehicles which provided our U.S. dealerships with a better supply of late model, lowermileage units in the first part of 2016 and an overall strong performance by our operating teams. The U.K. generated increases in used vehicle retail revenueof 23.6%, primarily reflecting the acquisition of a dealership group in early February, as well as an exceptional performance by our operating team. Theincrease in the U.K., as measured in U.S. dollars, was dampened by the impact of exchange rates between periods. In Brazil, our used vehicle retail revenuesdeclined by 2.3%, for the twelve months ended December 31, 2016, due to the impact of the change in the currency rates between periods. On a constantcurrency basis, used vehicle retail sales increased 2.4% for year ended December 31, 2016, compared to the same period in 2015. Total used vehicle retailgross profit increased 1.7% for the twelve months ended December 31, 2016, as improvements in used vehicle retail unit sales were partially offset by adecline in used vehicle retail gross profit PRU of 2.3%. The decline in used vehicle retail gross profit PRU primarily reflects a decline of 11.1% in the U.K., ascompared to the same period in 2015 that was driven by the change in the exchange rates between periods. On a constant currency basis, used vehicle retailgross profit PRU in the U.K. remained flat for the year ended 2016, as compared to prior year. In Brazil, used vehicle retail gross profit PRU increased 52.0%for the twelve months ended December 31, 2016 in Brazil primarily due to improved sales processes and the overall strong performance of our operatingteam. In the U.S., used vehicle gross profit PRU declined 1.7% for the year ended December 31, 2016 when compared to a year ago. The used vehicle grossprofit PRU decline in the U.S. was primarily a result of an increasingly competitive selling environment. The rise in U.S. supply of used vehicle inventoryduring the fourth quarter of 2016 was particularly challenging in our more car-centric brands, such as Toyota.Our parts and service sales increased 6.3% for the twelve months ended December 31, 2016 as compared to the same periods in 2015. This growth wasdriven by increases in all aspects of our business: customer-pay parts and service, warranty parts and service, collision and wholesale parts. Primarily, theseincreases were due to the execution of key management initiatives, dealership acquisition activity, a rise in the number of units being recalled, and growth inthe number of the late-model vehicles in operation, which tend to more consistently return to the dealership for warranty, maintenance and repair services.The increase in our customer-pay parts and service and wholesale parts revenues was driven by the U.S. segment, primarily as a result of the execution ofmanagement initiatives. These initiatives in the U.S. include focusing on customer relationships utilizing computer-based customer relationship managementtools and an emphasis with customers on preventive maintenance. Further, the growth we have achieved in our finance and insurance portion of the business,specifically the increase in sales of our vehicle service contracts, secures repeat customer business for our parts and service departments. During 2016, ourwarranty parts and service revenues were bolstered from high volume recall campaigns by manufacturers in the U.S. and Brazil, particularly in our Toyota,Ford, Nissan, Honda, Mercedes-Benz, and General Motor brands. Additionally, as manufacturer paid maintenance programs continue to expand in the U.S.,there has been an ongoing shift of business from our customer-pay to our warranty parts and service business. The increase in our collision business wasprimarily the result of enhanced operational processes, the addition of technicians to add operating capacity, and the expansion of our relationships withinsurance providers. The increase in wholesale parts revenues was primarily due to increased focus and better overall management of this portion of ourbusiness in a few key markets in our U.S. segment. Our parts and service gross margin decreased 20 basis points for the twelve months ended December 31,2016, as compared to the same period in 2015, driven primarily by a decline in the U.S. parts and service gross margin of 30 basis points, partially offset byan increase of 60 basis points in the U.K. The decline in our U.S. parts and service gross margin was primarily the result of less lucrative, Original EquipmentManufacturer ("OEM") paid recall warranty campaigns in 2016 as compared to those in 2015. And, as a result of a decline in U.S. retail new and used unitsales, our internal work contributed relatively less to the overall gross profit of our parts and service business in 2016. The increase in the U.K. during 2016reflects a mix shift away from lower margin wholesale parts business towards customer-pay business that generates higher margins on a relative basis.Our consolidated finance and insurance revenues PRU sold increased 2.1% for the twelve months ended December 31, 2016, as compared to the sameperiod in 2015. Growth in both our income per contract and penetration rates on many of our product offerings was partially offset by an increase in ouroverall chargeback experience. We generated a 4.9% increase in finance and insurance revenues PRU to $1,599 in the U.S. and a 15.9% improvement inBrazil. These improvements were partially offset by a 2.2% decline in finance and insurance revenues PRU in the U.K, coupled with the mix effect of arelatively43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.greater contribution from our U.K. segment. The 2.2% decline in the PRU in the U.K. was directly related to the change in exchange rates between periods, ason a constant currency basis, our finance and insurance revenues PRU improved 10.6%.Our total consolidated gross margin increased 30 basis points for the twelve months ended December 31, 2016, to 14.7%, as compared to the sameperiod in 2015. Declines in the parts and service and used vehicle sectors of our business were more than offset by improvements in our new vehicle results.Our consolidated SG&A expenses increased in absolute dollars by 4.5% for the twelve months ended December 31, 2016, as compared to the sameperiod in 2015, primarily as a result of the incremental number of dealerships owned and operated and increased personnel costs, as well as higher insurancedeductible charges in the U.S. relating to catastrophic events. The increase in personnel costs was primarily driven by commission payments that grew as aresult of higher new vehicle margins, as well as severance costs. Consolidated SG&A expenses increased in 2016 compared to 2015 also as a result of adecline in the gains recognized on real estate and dealership transactions in 2016 when compared to 2015. Further, during 2016, we experienced additionalloaner vehicle costs as we continued to service a large amount of customers affected by recalled vehicles. Offsetting these increases, we recorded a net gain of$11.7 million in the fourth quarter of 2016 relative to a settlement with an OEM. For the twelve months ended December 31, 2016, our consolidated SG&Aexpenses as a percentage of gross profit increased 30 basis points on both a U.S. GAAP and adjusted basis to 73.4% and 73.7%, respectively, as compared tothe same period a year ago. These increases were partially due to the mix effect of a greater contribution from our U.K. operations that inherently have ahigher cost structure, as well as the additional U.K. dealerships acquired in 2016. As a partial offset, SG&A as a percent of gross profit in our U.S. segmentimproved 40 basis points on both a U.S. GAAP and adjusted basis to 71.2% and 71.7%, respectively.The combination of all of these factors, as well as non-cash asset impairments of $32.8 million, resulted in an operating margin of 3.1% for the twelvemonths ended December 31, 2016. This reflects a 50 basis-point improvement compared to the same period in 2015. On an adjusted basis, operating marginremained flat for the twelve months ended December 31, 2016, as compared to the same period in 2015, at 3.4%.Floorplan interest expense increased 14.4% for the year ended December 31, 2016, as compared to the same period in 2015, primarily driven by the U.S.and U.K., due to a higher average London Interbank Offered Rate (“LIBOR”) interest rate in the U.S. when compared to 2015 and the impact of acquisitionsin the U.K. segment in early 2016. For the twelve months ended December 31, 2016, the increase in our consolidated floorplan interest expense was alsoattributable to an increase in our supply of luxury brand units beginning in the fourth quarter of 2015, as our OEM partners redirected additional supply tothe U.S. and U.K. to offset weakness in other global markets. By the end of 2016, however, we had worked our way through this oversupply of inventory andas a result for the three months ended December 31, 2016 as compared to the same period in 2015, our weighted average floorplan borrowings outstandingdeclined by $82.3 million. Furthermore, for most of 2016, several manufacturers issued stop sales on a number of vehicle models, due to recall campaigns,which contributed to an increase in our new and used vehicle inventory as compared to the same period in 2015. The increases in the U.S. and U.K. wereoffset by a decline in Brazil as a result of improvements in vehicle inventory management processes. Other interest expense, net increased 19.4% for thetwelve months ended December 31, 2016, as compared to the same periods in 2015, primarily attributable to interest incurred on our 5.25% Notes offerings.As a partial offset, the vast majority of the proceeds from the 5.25% Notes offering was used to fund the outstanding borrowings of the Company’sAcquisition Line and pay off certain mortgages. We address these items further, and other variances between the periods presented, in the “Results ofOperations” section below.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 then-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 at that time with registrations increasing 6.3% to 2.6 million units ascompared to the same 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, from 2014 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 endedDecember 31, 2015 as compared to the same period in 2014. The decline in Brazil reflects overall weaker economy and industry unit sales and dealershipdispositions. In Brazil, industry sales declined for the 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 decreased consumer confidence, higher interest rates and the expiration of the government sponsored auto purchase taxincentive at the end of 2014. Consolidated new vehicle 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.44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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 constant 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 2014. This growth was driven by increasesin all aspects of our business: warranty parts and service, wholesale parts, customer-pay parts and service, and collision business. Generally, this is due to theexecution of key management initiatives, dealership acquisition activity, an increase in the number of units being recalled by manufacturers (which can onlybe repaired by franchised dealerships), and growth in the number of the late-model vehicles in operation (which tend to more consistently return to thedealership for warranty, maintenance and repair services). Specifically, during 2015, our warranty parts and service revenues were bolstered from high volumerecall campaigns by a number of manufacturers in each of our regions, including BMW, Toyota, Honda, Acura, Ford, and FCA US (formerly Chrysler).Additionally, as manufacturer paid maintenance programs continue to expand in the U.S., our parts and service business shifts from customer-pay to warranty.The increase in our collision business was the result of enhanced operational processes, the addition of technicians to add operating capacity and theexpansion of our relationships with insurance providers. The increase in our customer-pay parts and service and parts wholesales revenues was driven byimprovements in the U.S., primarily as a result of the execution of management initiatives and dealership acquisition activity. Our parts and service grossmargin increased 130 basis points for the twelve months ended December 31, 2015, as compared to 2014 predominantly driven by improvements in the U.S.of 120 basis points. These increases in U.S. gross margin were primarily due to improved profitability in both our customer-pay parts and service wholesaleparts businesses, as well as a higher volume of internal work between the parts and service departments and the new and used vehicle departments of ourdealerships, which stemmed from improved new and used retail vehicle 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. These improvements were primarily driven byour U.S. and U.K. segments. In the U.S., finance and insurance revenues increased 12.2%, reflecting an 8.0% increase in new and used retail unit sales and a3.9% increase in finance and insurance revenues PRU driven by increases in income per contract and penetration rates. In the U.K., our finance and insurancerevenues improved 27.0%, explained by a 28.7% increase in new and used retail sales volume. These increases were partially offset by a 36.2% decline in ourfinance 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 and insurance revenuesPRU. The decline in the Brazilian finance and insurance revenues PRU is more than explained by the change in exchange rates between periods as thefinance and insurance revenues PRU increased 8.5% on a constant 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 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 and used retailvehicle 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. Consolidated SG&A expenses increased in 2015 compared to2014 also as a result of a $5.0 million decline in the gains recognized on real estate and dealership transactions and also due to a legal settlement of $1.0million. For the twelve months ended December 31, 2015, our consolidated SG&A expenses as a percentage of gross profit fell on a U.S. GAAP basis by 20basis points to 73.1% and on an adjusted basis by 50 basis points to 73.4% as compared to the same period in 2014, primarily reflecting the leverage of ourcost 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. On an adjusted basis, operating marginremained flat for the twelve months ended December 31, 2015 as compared to the same period in 2014, at 3.4%.45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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. Otherinterest expense, net increased 14.5% for the twelve months ended December 31, 2015, as compared to the same period in 2014, primarily attributable tointerest incurred on our 5.00% Notes offering. The vast majority of the proceeds from the 5.00% Notes offering was used to extinguish our 2.25% Notes andour 3.00% Notes during the second and third quarters of 2014. In addition, other interest expense, net increased for the year ended December 31, 2015, ascompared to 2014, due to additional mortgage borrowings associated with recent dealership acquisitions and purchases of existing leased properties. Furthercontributing to the increase in other interest expense, net, was the interest related to our 5.25% Note offering that was executed in December 2015 to fund thepayoff of outstanding borrowings on the Company’s Acquisition Line, to payoff certain mortgages, to contribute to the Company’s floorplan offset accountsand for general corporate purposes.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 U.S. GAAP requires management to make certain estimates and assumptions. Theseestimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet dateand the amounts of revenues and expenses recognized during the reporting period. We analyze our estimates based on our historical experience and variousother assumptions that we believe to be reasonable under the circumstances. However, actual results could differ from such estimates. The following is adiscussion 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. Taxes collected from customers andremitted to governmental agencies are not included in total revenues.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.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. Revenues from these fees are recorded at the time of the sale of the vehicles as finance and insurance revenue earned. We may be charged backfor unearned financing, insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers. A reserve for futureamounts which might be charged back is established based on our historical chargeback results and the termination provisions of the applicable contracts.While chargeback results vary depending on the type of contract sold, a 10% increase in the historical chargeback results used in determining estimates offuture amounts which might be charged back would have increased the reserve at December 31, 2016 by $3.8 million. Further, through agreements withcertain vehicle service contract administrators, we earn volume incentive rebates and interest income on reserves, as well as participate in the underwritingprofits of the products.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, 2016 and 2015, inventory cost had been reducedby $9.6 million and $10.3 million, respectively, for interest46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.assistance received from manufacturers. New vehicle cost of sales was reduced by $49.2 million, $50.5 million, and $45.1 million for interest assistancereceived related to vehicles sold for the years ended December 31, 2016, 2015, and 2014, respectively. The interest assistance over the past three years hasranged from approximately 90% of our quarterly floorplan interest expense in the first quarter of 2014 to 139.9% for the third quarter of 2015.Since the market value of inventory typically declines over time, we establish new and used vehicle reserves based on our historical loss experienceand considerations 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, 2016, our used vehicle days’ supply was 35 days.We incur shipping costs in connection with selling parts to customers. The cost of shipping these parts is included in cost of sales on the ConsolidatedStatements 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 intangible asset hasoccurred (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 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 approach are assumptions regarding revenue growth rates, future gross margins, futureSG&A expenses and an estimated weighted average cost of capital (“WACC”). We also must estimate residual values at the end of the forecast period andfuture capital expenditure requirements. Specifically, with regards to the valuation assumptions utilized in the income approach for the U.S. reporting units(which represents our largest two reporting units) as of October 31, 2016, we based our analysis on an estimate of industry sales of 17.3 million units in 2017,remaining flat for the remainder of the forecasted years. For the market approach, we utilize recent market multiples of guideline companies for both revenueand pretax net income. Each of these assumptions requires us to use our knowledge of (1) the industry, (2) recent transactions and (3) reasonable performanceexpectations for our operations. If any one of the above assumptions change or fails to materialize, the resulting decline in the estimated fair value couldresult in a material non-cash impairment charge to the goodwill associated with our reporting unit(s).On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the E.U. The majority vote in favor of Brexit has created uncertaintyin the global markets and in the regulatory environment in the U.K., as well as the overall European Union. The impact on our financial results and operationsmay not be known for some time, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislative doctrine of "Block Exemption" togovern market representation activities of competing dealers and dealer groups. To date, there has been no clear indication of how such legislation may beeffected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of these uncertainties, the estimates, assumptionsand inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize, the resulting decline in theestimated fair market value of such assets could result in a material non-cash impairment charge. While we are not aware of any changes in circumstances thathas resulted in a decline in fair value of these assets at this time, we continue to closely monitor the situation.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, 2016 and 2015 in the accompanying47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Consolidated Balance Sheets. Since July 1, 2001, intangible franchise rights acquired in business combinations have been recorded as distinctly separateintangible 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 changes 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 are settled. Avaluation 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. Each taxposition 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, 2016, 2015, and 2014.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 LIBOR forward yield curve, obtained from an independent external service provider, matched to the identicalmaturity term of the instrument being measured. Observable inputs utilized in the income approach valuation48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. Our fair valueestimate of the interest rate derivative instruments also considers the credit risk of our instruments in a liability position or the counterparty for theinstruments in an asset position. The credit risk is calculated by using the spread between the one-month LIBOR yield curve and the relevant average 10 and20-year retail rate according to Standard and Poor’s. We have determined the valuation measurement inputs of these derivative instruments to maximize theuse of observable inputs that market participants would use in pricing similar or identical instruments and market data obtained from independent sources,which is readily observable or can be corroborated by observable market data for substantially the full term of the derivative instrument. Accordingly, wehave classified the derivatives within Level 2 of the ASC 820, Fair Value Measurements and Disclosures, hierarchy framework in Note 13 to ourConsolidated Financial Statements, “Fair Value Measurements.” We validate the outputs of our valuation technique by comparison to valuations from therespective 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.Our auto physical damage insurance coverage is composed of a $10.0 million per occurrence company deductible with an annual maximum aggregatedeductible of $30.0 million with no maximum payout. 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, 2016,we have accrued $0.4 million and $20.4 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, 2016, 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 $13.6 million at December 31, 2016.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, 2016, by $2.1 million.Variable Interest Entity. On December 22, 2016, we acquired the remaining equity shares of an entity that was previously reported as a variable interestentity. Prior to our acquisition of the remaining equity shares, we qualified as the primary beneficiary and consolidated 100% of the assets and liabilities, aswell as 100% of the results of operations. As a result of the acquisition of the remaining equity shares, the entity no longer meets the definition of a variableinterest entity. However, we continued to consolidate 100% of the assets and liabilities, as well as 100% of the results of operations, of the entity subsequentto acquisition of the remaining equity shares, as a wholly-owned subsidiary.49Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 2015, the results from this dealership will appear in our Same Store comparison beginning in 2016 forthe period July 2016 through December 2016, when comparing to July 2015 through December 2015 results. Depending on the periods being compared, thedealerships included in Same Store will vary. For this reason, the 2015 Same Store results that are compared to 2016 differ from those used in the comparisonto 2014. 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, 2016 as compared to 2015 and for the year endedDecember 31, 2015 compared to 2014.50Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Same Store Data(dollars in thousands, except per unit amounts) For The Year Ended December 31, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Revenues New vehicle retail $5,619,881 (4.1)% (2.5)% $5,860,855 $5,616,700 1.6% 5.0% $5,530,067Used vehicle retail 2,612,304 1.2% 2.9% 2,582,437 2,453,406 8.9% 11.4% 2,253,681Used vehiclewholesale 364,271 (5.4)% (2.3)% 384,969 351,649 (3.0)% (0.7)% 362,498Parts and service 1,197,195 3.8% 5.1% 1,153,365 1,118,994 3.7% 6.2% 1,078,936Finance, insuranceand other 403,685 0.3% 1.2% 402,288 387,230 7.8% 9.0% 359,356Total revenues $10,197,336 (1.8)% (0.1)% $10,383,914 $9,927,979 3.6% 6.6% $9,584,538Cost of Sales New vehicle retail $5,326,504 (4.2)% (2.6)% $5,561,430 $5,334,257 2.0% 5.4% $5,230,371Used vehicle retail 2,437,114 1.3% 3.1% 2,406,135 2,285,372 9.7% 12.3% 2,083,660Used vehiclewholesale 367,299 (5.0)% (1.9)% 386,496 352,800 (2.0)% 0.3% 360,005Parts and service 552,559 4.6% 5.9% 528,393 514,346 1.3% 4.2% 507,689Total cost ofsales 8,683,476 (2.2)% (0.5)% 8,882,454 8,486,775 3.7% 6.8% 8,181,725Gross profit $1,513,860 0.8% 2.1% $1,501,460 $1,441,204 2.7% 5.0% $1,402,813Selling, general andadministrativeexpenses $1,102,541 0.9% $1,092,982 $1,058,157 3.1% $1,026,125Adjusted selling,general andadministrativeexpenses(1) $1,103,384 1.3% $1,089,467 $1,054,520 3.3% $1,020,775Depreciation andamortizationexpenses $48,259 6.2% 7.7% $45,441 $44,673 9.9% 12.1% $40,651Floorplan interestexpense $42,208 9.7% 10.5% $38,481 $37,223 (8.4)% (7.4)% $40,617Gross margin New vehicle retail 5.2% 5.1% 5.0% 5.4%Used vehicle 5.8% 5.9% 5.9% 6.6%Parts and service 53.8% 54.2% 54.0% 52.9%Total gross margin 14.8% 14.5% 14.5% 14.6%SG&A as a % ofgross profit 72.8% 72.8% 73.4% 73.1%Adjusted SG&A as a% of gross profit (1) 72.9% 72.6% 73.2% 72.8%Operating margin 3.2% 2.7% 2.5% 3.2%Adjusted operatingmargin (1) 3.6% 3.5% 3.4% 3.6%Finance andinsurance revenuesper retail unit sold $1,429 3.4% 4.4% $1,382 $1,371 2.2% 3.4% $1,342(1) See “Non-GAAP Financial Measures” for more details.The 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, 2016, 2015, and 2014.51Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Retail Unit Sales Same Stores U.S. 128,928 (7.0)% 138,599 135,994 3.6% 131,249U.K. 20,401 9.1% 18,701 15,974 10.8% 14,412Brazil 9,518 (23.5)% 12,434 13,460 (11.3)% 15,180Total Same Stores 158,847 (6.4)% 169,734 165,428 2.9% 160,841Transactions 13,206 4,880 9,186 6,055Total 172,053 (1.5)% 174,614 174,614 4.6% 166,896Retail Sales Revenues Same Stores U.S. $4,691,033 (3.7)% N/A $4,869,109 $4,722,491 4.9% N/A $4,501,913U.K. 652,057 1.6% 14.5% 641,888 534,117 5.1% 13.4% 508,345Brazil 276,791 (20.9)% (16.9)% 349,858 360,092 (30.7)% (2.6)% 519,809Total Same Stores 5,619,881 (4.1)% (2.5)% 5,860,855 5,616,700 1.6% 5.0% 5,530,067Transactions 426,194 140,451 384,606 211,552Total $6,046,075 0.7% 3.1% $6,001,306 $6,001,306 4.5% 8.0% $5,741,619Gross Profit Same Stores U.S. $237,915 0.9% N/A $235,706 $224,561 (3.6)% N/A $232,997U.K. 39,241 (2.6)% 9.5% 40,300 33,967 0.4% 8.4% 33,820Brazil 16,221 (30.7)% (26.9)% 23,419 23,915 (27.3)% 1.9% 32,879Total Same Stores 293,377 (2.0)% (0.1)% 299,425 282,443 (5.8)% (1.7)% 299,696Transactions 23,001 6,052 23,034 11,521Total $316,378 3.6% 6.2% $305,477 $305,477 (1.8)% 2.4% $311,217Gross Profit per RetailUnit Sold Same Stores U.S. $1,845 8.5% N/A $1,701 $1,651 (7.0)% N/A $1,775U.K. $1,923 (10.8)% 0.4% $2,155 $2,126 (9.4)% (2.2)% $2,347Brazil $1,704 (9.5)% (4.5)% $1,883 $1,777 (18.0)% 14.9% $2,166Total Same Stores $1,847 4.7% 6.8% $1,764 $1,707 (8.4)% (4.4)% $1,863Transactions $1,742 $1,240 $2,508 $1,903Total $1,839 5.1% 7.8% $1,749 $1,749 (6.2)% (2.2)% $1,865Gross Margin Same Stores U.S. 5.1% 4.8% 4.8% 5.2%U.K. 6.0% 6.3% 6.4% 6.7%Brazil 5.9% 6.7% 6.6% 6.3%Total Same Stores 5.2% 5.1% 5.0% 5.4%Transactions 5.4% 4.3% 6.0% 5.4%Total 5.2% 5.1% 5.1% 5.4%52Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) 2015 2015 % Increase/(Decrease) 2014Toyota/Scion/Lexus 42,670 (5.4)% 45,108 46,157 3.4% 44,621BMW/MINI 20,109 (0.9) 20,283 17,556 (0.6) 17,664Ford/Lincoln 18,880 (5.0) 19,882 19,797 9.2 18,132Honda/Acura 17,017 (8.3) 18,549 19,019 6.4 17,870Chevrolet/GMC/Buick/Cadillac 12,811 (3.7) 13,307 11,155 6.3 10,496Nissan 12,192 (11.8) 13,820 14,570 (7.0) 15,664Volkswagen/Audi/Porsche 11,799 3.8 11,370 9,990 1.1 9,886Hyundai/Kia 7,226 (23.0) 9,383 9,473 5.1 9,012Chrysler/Dodge/Jeep/RAM 6,801 (14.6) 7,962 7,962 9.5 7,268Mercedes-Benz/smart/Sprinter 6,674 (1.3) 6,765 6,195 (5.3) 6,541Other 2,668 (19.3) 3,305 3,554 (3.6) 3,687Total 158,847 (6.4)% 169,734 165,428 2.9% 160,841In total, our Same Store new vehicle retail unit sales decreased 6.4% for the year ended December 31, 2016, as compared to the same period in 2015.The decrease was primarily driven by decreases of 7.0% and 23.5% in our Same Store U.S. and Brazil segments, respectively. The decline in our U.S. newvehicle retail sales was primarily due to softness in our energy-dependent markets, particularly Texas and Oklahoma, as overall U.S. industry sales increasedby 0.5% to 17.5 million units for the year ended December 31, 2016 from 17.4 million units in 2015. Our unit sales in the energy-dependent markets of Texasand Oklahoma were down 7.9% and 12.4%, respectively, for the full year of 2016 when compared to the same period a year ago as a result of depressed oilprices. In addition, our U.S. operating team has placed a heightened focus on improving new vehicle margins, resulting in lower unit sales volumes. The23.5% decline in our Same Store new vehicle retail unit sales in Brazil reflected the decrease in total Brazil industry sales, as well as the continued localeconomic challenges. Partially offsetting the declines in the U.S. and Brazil was a 9.1% increase in our U.K. Same Store new vehicle retail unit sales for theyear ended December 31, 2016 compared to a year ago. The increase of 9.1% in our U.K new vehicle retail units sales reflects growth of 14.2% in ourBMW/MINI brands and 10.2% in our Audi brands for the year ended December 31, 2016 as compared to the same period last year, primarily due to enhancedsales processes, as well as an increase in overall U.K. industry sales. During the second half of 2016, the U.K. experienced more volatility than normalfollowing the Brexit vote. However, industry sales in the U.K. experienced a record year with registrations of 2.7 million units, an increase of 2.3% ascompared to the same period in 2015.Our total Same Store revenues from new vehicle retail sales decreased 4.1% for the year ended December 31, 2016, as compared to the same period in2015. This decrease was primarily driven by a decrease of 3.7% in U.S., coupled with a decrease of 20.9% in Brazil. The 3.7% decrease in U.S. Same Storenew vehicle revenue was primarily due to the decline in new vehicle retail units of 7.0%, which was partially offset by a 3.6% increase in average retail salesprice to $36,385. The increase in our U.S. Same Store average retail sales price for the year ended December 31, 2016 was primarily a result of a mix shift insales from cars to trucks, generally driven by lower gas prices. U.S. new vehicle retail truck sales represented 56.6% of total Same Store new vehicle retailunits sold for the year ended December 31, 2016, as compared to 51.8% for the same period last year. The 20.9% decrease in Brazil Same Store new vehiclerevenues was primary due to the decline in new vehicle retail units of 23.5%, partially offset a 3.4% increase in the average new vehicle retail sales price ascompared to 2015. The decrease in total Same Store new vehicle retail revenues in the U.S. and Brazil was partially offset by a 1.6% improvement in our U.K.Same Store new vehicle revenues for the twelve months ended December 31, 2016 as compared to 2015. This increase in the U.K. was the result of a 9.1%increase in new vehicle retail unit sales highlighted above, partially offset by a 6.9% decline in the average new vehicle retail sales price. The decline in theaverage sales price was driven by the change in exchange rates between periods. On a constant currency basis, our U.K. Same Store average new vehicle retailsales price improved 4.9%. 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.Our total Same Store new vehicle gross profit decreased 2.0% for the year ended December 31, 2016, as compared to the same period in 2015, reflectingdeclines in the U.K. and Brazil. In the U.S., Same Store new vehicle gross profit increased 0.9%, as the decline in retail units discussed above was more thanoffset by an 8.5% increase in gross profit PRU to $1,845 as a result of our operating team’s disciplined new vehicle pricing that focused on increasing grossprofit per retail unit. Offsetting53Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 increase in the U.S., Same Store new vehicle gross profit, the U.K. decreased 2.6%, explained by a decline in gross profit PRU of 10.8% to $1,923. Thedecrease in gross profit and gross profit PRU in U.K. can be explained by the change in the exchange rate between periods. On a constant currency basis,Same Store new vehicle gross profit increased by 9.5% and gross profit PRU remained relatively flat, as compared to 2015. In Brazil, Same Store new vehiclegross profit declined 30.7% for the year ended December 31, 2016. The decrease in gross profit in Brazil is primarily explained by the 23.5% decrease in newunits sold, coupled with a decrease in gross profit PRU of 9.5% to $1,704. The combination of a 4.1% decline in our total Same Store new vehicle revenuesand a 2.0% decrease total Same Store new vehicle gross profit resulted in a 10 basis point increase in our total Same Store new vehicle gross margin for theyear ended December 31, 2016, as compared to the same period in 2015, from 5.1% to 5.2%.Our total Same Store revenues from new vehicle retail sales increased 1.6% for the year ended December 31, 2015, as compared to the same period in2014. 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 year ended 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, partially offset by a5.2% decline in the average new vehicle retail sales price. The decline in the average sales price was driven by the change in exchange rates between periods.On a constant currency basis, our U.K. Same Store average new vehicle retail sales price improved 2.3%. Partially offsetting these increases in the U.S. andU.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 retail units 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 driven by thechange in the exchange rate between periods. On a constant currency basis, our Brazil Same Store average new vehicle retail sales price improved 9.9%.Our total Same Store new vehicle gross profit decreased 5.8% for the year ended 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 constant currencybasis Same Store new vehicle gross profit PRU declined by 2.2%. The Same Store new vehicle gross profit PRU decline in both the U.S. and U.K. is furtherexplained by a rise in inventory and days’ supply levels in 2015 as compared to the same period last year, particularly in our BMW and Daimler (includingMercedes-Benz) brands, resulting from increased inventory allocation from our manufacturer partners. In Brazil, Same Store new vehicle gross profit declined27.3% and new vehicle gross profit PRU declined 18.0%. The decrease in gross profit and gross profit PRU in Brazil can be explained by the change in theexchange rate between periods. On a constant currency basis, Brazil’s Same Store new vehicle gross profit and new vehicle gross profit PRU increased 1.9%and 14.9%, respectively, primarily attributable to our Honda and Nissan brands. As a result of the 1.6% improvement in our total Same Store new vehiclerevenues coupled with the 5.8% decrease in total Same Store new vehicle gross profit, our total Same Store new vehicle gross margin for the year endedDecember 31, 2015 as compared to the same period in 2014 declined 40 basis points from 5.4% to 5.0%.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 twelve-month periods endedDecember 31, 2016, 2015, and 2014 was $49.2 million, $50.5 million, and $45.1 million, respectively. The amount of interest assistance that we recognize ina given period is primarily 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 therespective manufacturers' interest assistance programs and market interest rates in effect at the time, (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 expensehas ranged from approximately 90% of our quarterly floorplan interest expense in the first quarter of 2014 to 139.9% for the third quarter of 2015. In the U.S.,manufacturer's interest assistance was 119.6% of floorplan interest expense for the year ended December 31, 2016.We decreased our new vehicle inventory levels by $106.4 million, or 8.4%, from $1,262.8 million as of December 31, 2015 to $1,156.4 million as ofDecember 31, 2016 as a result of our focus on inventory management in response to an over-supply of inventory in some of our luxury brands as of December31, 2015. Our consolidated days' supply of new vehicle inventory was 62 days as of December 31, 2016, which is down from 67 days on December 31, 2015.54Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Retail Unit Sales Same Stores U.S. 104,451 1.3% 103,151 100,176 9.4% 91,606U.K. 14,861 5.6% 14,074 12,083 14.1% 10,588Brazil 4,325 2.5% 4,221 4,844 1.0% 4,798Total Same Stores 123,637 1.8% 121,446 117,103 9.5% 106,992Transactions 5,494 2,707 7,050 2,881Total 129,131 4.0% 124,153 124,153 13.0% 109,873Retail Sales Revenues Same Stores U.S. $2,203,802 2.2% N/A $2,155,468 $2,075,497 11.3% N/A $1,864,698U.K. 332,439 (5.4)% 6.5% 351,311 295,667 6.3% 14.7% 278,116Brazil 76,063 0.5% 5.8% 75,658 82,242 (25.8)% 4.7% 110,867Total Same Stores 2,612,304 1.2% 2.9% 2,582,437 2,453,406 8.9% 11.4% 2,253,681Transactions 145,409 56,532 185,563 71,187Total $2,757,713 4.5% 6.7% $2,638,969 $2,638,969 13.5% 16.2% $2,324,868Gross Profit Same Stores U.S. $152,960 (1.3)% N/A $154,958 $149,006 1.4% N/A $147,001U.K. 17,514 (4.5)% 7.4% 18,335 15,546 (6.6)% 0.7% 16,648Brazil 4,716 56.7% 63.5% 3,009 3,482 (45.4)% (22.8)% 6,372Total Same Stores 175,190 (0.6)% 0.7% 176,302 168,034 (1.2)% 0.4% 170,021Transactions 7,289 3,168 11,436 3,501Total $182,479 1.7% 3.3% $179,470 $179,470 3.4% 5.1% $173,522Gross Profit per Retail Unit Sold Same Stores U.S. $1,464 (2.5)% N/A $1,502 $1,487 (7.4)% N/A $1,605U.K. $1,179 (9.5)% 1.7% $1,303 $1,287 (18.1)% (11.8)% $1,572Brazil $1,090 52.9% 59.5% $713 $719 (45.9)% (23.5)% $1,328Total Same Stores $1,417 (2.4)% (1.1)% $1,452 $1,435 (9.7)% (8.3)% $1,589Transactions $1,327 13.4% $1,170 $1,622 33.5% $1,215Total $1,413 (2.3)% (0.7)% $1,446 $1,446 (8.4)% (7.0)% $1,579Gross Margin Same Stores U.S. 6.9% 7.2% 7.2% 7.9%U.K. 5.3% 5.2% 5.3% 6.0%Brazil 6.2% 4.0% 4.2% 5.7%Total Same Stores 6.7% 6.8% 6.8% 7.5%Transactions 5.0% 5.6% 6.2% 4.9%Total 6.6% 6.8% 6.8% 7.5%55Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Wholesale Unit Sales Same Stores U.S. 40,457 (5.8)% 42,928 42,065 (0.1)% 42,120U.K. 11,645 2.5% 11,360 9,379 8.8% 8,618Brazil 1,086 (10.5)% 1,214 1,552 (22.5)% 2,002Total Same Stores 53,188 (4.2)% 55,502 52,996 0.5% 52,740Transactions 4,151 1,724 4,230 1,862Total 57,339 0.2% 57,226 57,226 4.8% 54,602Wholesale SalesRevenues Same Stores U.S. $270,687 (2.9)% N/A $278,909 $266,864 (0.3)% N/A $267,799U.K. 90,468 (10.2)% 1.1% 100,706 77,846 (2.6)% 5.2% 79,891Brazil 3,116 (41.8)% (34.4)% 5,354 6,939 (53.1)% (38.3)% 14,808Total Same Stores 364,271 (5.4)% (2.3)% 384,969 351,649 (3.0)% (0.7)% 362,498Transactions 37,592 12,282 45,602 16,645Total $401,863 1.2% 5.2% $397,251 $397,251 4.8% 7.4% $379,143Gross Profit Same Stores U.S. $(3,120) (274.1)% N/A $(834) $(1,016) (157.2)% N/A $1,777U.K. (100) 90.8% 83.2% (1,083) (632) (55.7)% (63.3)% (406)Brazil 192 (50.8)% (44.5)% 390 497 (55.7)% (42.1)% 1,122Total Same Stores (3,028) (98.3)% (102.1)% (1,527) (1,151) (146.2)% (141.4)% 2,493Transactions (1,414) (393) (769) (174)Total $(4,442) (131.4)% (146.9)% $(1,920) $(1,920) (182.8)% (178.5)% $2,319Gross Profit per Wholesale Unit Sold Same Stores U.S. $(77) (305.3)% N/A $(19) $(24) (157.1)% N/A $42U.K. $(9) 90.5% 83.6% $(95) $(67) (42.6)% (50.1)% $(47)Brazil $177 (44.9)% (37.9)% $321 $320 (42.9)% (25.4)% $560Total Same Stores $(57) (103.6)% (110.9)% $(28) $(22) (146.8)% (141.2)% $47Transactions $(341) (49.6)% $(228) $(182) (95.7)% $(93)Total $(77) (126.5)% (146.5)% $(34) $(34) (181.0)% (174.9)% $42Gross Margin Same Stores U.S. (1.2)% (0.3)% (0.4)% 0.7 %U.K. (0.1)% (1.1)% (0.8)% (0.5)%Brazil 6.2 % 7.3 % 7.2 % 7.6 %Total Same Stores (0.8)% (0.4)% (0.3)% 0.7 %Transactions (3.8)% (3.2)% (1.7)% (1.0)%Total (1.1)% (0.5)% (0.5)% 0.6 %56Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Used Vehicle UnitSales Same Stores U.S. 144,908 (0.8)% 146,079 142,241 6.4% 133,726U.K. 26,506 4.2% 25,434 21,462 11.7% 19,206Brazil 5,411 (0.4)% 5,435 6,396 (5.9)% 6,800Total Same Stores 176,825 (0.1)% 176,948 170,099 6.5% 159,732Transactions 9,645 4,431 11,280 4,743Total 186,470 2.8% 181,379 181,379 10.3% 164,475Sales Revenues Same Stores U.S. $2,474,489 1.6% N/A $2,434,377 $2,342,361 9.8% N/A $2,132,497U.K. 422,907 (6.4)% 5.3% 452,017 373,513 4.3% 12.6% 358,007Brazil 79,179 (2.3)% 3.1% 81,012 89,181 (29.0)% (0.4)% 125,675Total Same Stores 2,976,575 0.3% 2.2% 2,967,406 2,805,055 7.2% 9.7% 2,616,179Transactions 183,001 68,814 231,165 87,832Total $3,159,576 4.1% 6.5% $3,036,220 $3,036,220 12.3% 14.9% $2,704,011Gross Profit Same Stores U.S. $149,840 (2.8)% N/A $154,124 $147,990 (0.5)% N/A $148,778U.K. 17,414 0.9% 13.1% 17,252 14,914 (8.2)% (0.9)% 16,242Brazil 4,908 44.4% 51.1% 3,399 3,979 (46.9)% (25.7)% 7,494Total Same Stores 172,162 (1.5)% (0.2)% 174,775 166,883 (3.3)% (1.7)% 172,514Transactions 5,875 2,775 10,667 3,327Total $178,037 0.3% 1.7% $177,550 $177,550 1.0% 2.7% $175,841Gross Profit per Used Vehicle Unit Sold Same Stores U.S. $1,034 (2.0)% N/A $1,055 $1,040 (6.6)% N/A $1,113U.K. $657 (3.1)% 8.5% $678 $695 (17.8)% (11.3)% $846Brazil $907 45.1% 51.7% $625 $622 (43.6)% (21.0)% $1,102Total Same Stores $974 (1.4)% (0.1)% $988 $981 (9.2)% (7.7)% $1,080Transactions $609 (2.7)% $626 $946 35.0% $701Total $955 (2.5)% (1.1)% $979 $979 (8.4)% (6.9)% $1,069Gross Margin Same Stores U.S. 6.1% 6.3% 6.3% 7.0%U.K. 4.1% 3.8% 4.0% 4.5%Brazil 6.2% 4.2% 4.5% 6.0%Total SameStores 5.8% 5.9% 5.9% 6.6%Transactions 3.2% 4.0% 4.6% 3.8%Total 5.6% 5.8% 5.8% 6.5%57Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 1.2% for the twelve months ended December 31, 2016, as compared to 2015, reflecting a1.8% increase in total Same Store used vehicle retail unit sales partially offset by a 0.6% decrease in average used vehicle retail selling price to $21,129. Inthe U.S., Same Store used vehicle retail revenues increased $48.3 million, or 2.2%, reflecting a 1.3% increase in Same Store used vehicle retail unit salescoupled with a 1.0%, or $203, increase in the average used vehicle retail sales price. Our U.S. Same Store CPO volume decreased 2.2% to 27,607 units soldfor the twelve months ended December 31, 2016, as compared to the same period in 2015. As a percentage of the U.S. Same Store used vehicle retail unitsales, CPO units decreased 100 basis points to 26.4% for the year ended December 31, 2016 as compared to the same period in 2015. In the U.K., Same Storeused vehicle retail revenues decreased 5.4% for the year ended December 31, 2016 as compared to same period in the prior year and average used vehicleretail sales price decreased 10.4%. This decline can be more than explained by a change in exchange rates as on a constant currency basis, our U.K. SameStore used vehicle retail revenue increased 6.5%, driven by a 5.6% increase in Same Store used vehicle retail unit sales and a 0.8% increase in the averageused vehicle retail sales price on a constant currency basis. In Brazil, for the twelve months ended December 31, 2016, as compared to 2015, Same Store usedvehicle retail revenues were flat and Same Store average used vehicle sales price decreased 1.9% , while on a constant currency basis Same Store used vehicleretail revenues increased 5.8%, reflecting a 3.3% growth in Same Store average used vehicle sales price coupled with a 2.5% increase in Same Store usedvehicle retail unit sales. This improvement reflects an increased focus by our operations team and enhanced processes that are being implemented.In total, our Same Store used vehicle retail total gross profit for the year ended December 31, 2016, decreased 0.6%, compared to the same period in2015, reflecting declines in the U.S. and U.K. segments that were partially offset by improvements in Brazil. In the U.S., Same Store used vehicle gross profitdecreased by 1.3%, driven by a decline in Same Store used vehicle gross profit PRU of 2.5%, or $38, partially offset by an increase in Same Store used vehicleretail unit sales of 1.3%. The vehicle gross profit PRU decline in the U.S. was the result of an increased supply of used vehicle inventory, specifically carinventory, which occurred during the fourth quarter of 2016. In the U.K., Same Store used vehicle retail gross profit declined 4.5%, reflecting a 9.5% decreasein Same Store gross profit PRU that was partially offset by the 5.6% improvement in Same Store used vehicle retail unit sales described above. These declinesin the U.K. can be explained by the change in exchange rates between periods as, on a constant currency basis, Same Store used vehicle retail gross profit andused vehicle gross profit PRU in the U.K. improved 7.4% and 1.7%, respectively. The increases in the U.K. were primarily a result of improving industryconditions and a strong performance by our operating teams. In Brazil, the increase of 56.7% in Same Store used vehicle retail gross profit resulted from a$377, or 52.9%, increase in Same Store used vehicle retail gross profit PRU coupled with a 2.5% increase in Same Store used vehicle retail unit sales. Theimprovement in Brazil is primarily a result of increased focus on used vehicles operations and the implementation of new and improved sales processes byour local operating team.During the twelve months ended December 31, 2016, total Same Store wholesale used vehicle revenue decreased 5.4%, as compared to the same periodin 2015, driven by declines in all three reportable segments. In the U.S., the 2.9% decrease in Same Store wholesale used vehicle revenue for the year endedDecember 31, 2016, was the result of a 5.8% decrease in used wholesale vehicle unit sales that was partially offset by a 3.0% increase in Same Store usedvehicle wholesale average sales price. The increase in our average used vehicle wholesale sales price reflects the improvement in used vehicle market prices.The Manheim Index average for 2016 improved 0.3% as compared to 2015. The decline in U.S. used vehicle wholesale unit sales volume was driven bylower used vehicle trade-in activity associated with lower new vehicle unit sales volume during 2016, particularly in our energy driven markets. In the U.K.,Same Store used vehicle wholesale revenue declined 10.2%, which is more than explained by the change in exchange rates between periods. On a constantcurrency basis, Same Store used vehicle wholesale sales in the U.K. improved 1.1%, reflecting a 2.5% increase in Same Store used vehicle wholesale unitsthat was partially offset by a 1.4% decrease in Same Store used vehicle wholesale average price on a constant currency basis. In Brazil, Same Store usedvehicle wholesale revenue declined 41.8% as a result of a decrease in Same Store used vehicle wholesale average sales price of 34.9% coupled with adecrease of 10.5% in Same Store wholesale used vehicle unit sales. This decline in our wholesale business in Brazil reflects a strategic decision to retail moreof our trade-in units.Our total Same Store used vehicle wholesale gross profit decreased 98.3% from a loss of $1.5 million for the year ended December 31, 2015, to a loss of$3.0 million for the comparable period in 2016. This decrease was driven by a $29 decrease in our Same Store used vehicle wholesale gross profit per unitfrom a loss of $28 per unit for the twelve months ended December 31, 2015, to a loss of $57 per unit for the same period this year, offset by a decrease in totalSame Store used vehicle wholesale units of 4.2%. In the U.S., used vehicle wholesale gross profit declined $2.3 million for the year ended December 31,2016, primarily as a result of a $58 decrease in wholesale gross profit per unit from a loss of $19 for the year ended 2015 to a loss of58Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.$77 for the comparable period in 2016, which was offset by a 5.8% decline in used vehicle wholesale units from the same period. In the U.K., the $1.0 millionincrease in profitability was driven by an increase in used vehicle gross profit per unit, from a loss of $95 for the twelve months ended December 31, 2015 toa loss of $9 for the same period in 2016. In Brazil, the decline in Same Store used vehicle wholesale gross profit of 50.8% was driven by a decrease in SameStore used vehicle wholesale gross profit per unit of 44.9%.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 constant currency basis, Same Store average used vehicle retail sales price increased 0.5% for the year end December 31, 2015 ascompared to the prior year. In Brazil, our Same Store used vehicle retail revenues decreased 25.8% and average used vehicle retail selling price decreased26.5% for the year ended December 31, 2015 as compared to the same period in 2014. This decline can be explained by the change in exchange rates. On aconstant currency basis, Same Store used vehicle retail revenues increased 4.7% for the twelve months ended December 31, 2015 as compared to 2014,reflecting an increase of 3.7% in average used vehicle retail selling price coupled 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. In the U.K., we experienced an 18.1% decrease in Same Store used vehicle retail gross profit PRU. The decline in Same Store used vehicle retail grossprofit in the U.K. can be explained by the change in exchange rates between periods. On a constant currency 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 an 11.8% decrease in used vehicle gross profit PRU on aconstant currency basis. In Brazil, the decrease of 45.4% in Same Store used vehicle retail gross profit resulted from a $609, or 45.9%, decline in Same Storegross profit PRU. On a constant currency basis, Same Store used vehicle retail gross profit declined 22.8%, driven by a 23.5% decline in Same Store grossprofit 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 unit 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 and 10.5% decline in Same Store used vehicle wholesale average salesprice for the year ended December 31, 2015 was driven by the change in exchange rates between periods. On a constant currency basis, Same Store usedvehicle wholesale revenue increased 5.2% for the year ended December 31, 2015 as compared to last year, driven by an increase of 8.8% in Same Store usedvehicle wholesale unit sales that was partially offset by a 3.3% decline in Same Store used vehicle wholesale average sales price on a constant currency basis.In Brazil, Same Store used vehicle wholesale revenue declined 53.1% as a result of a decrease in Same Store used vehicle wholesale average sales price of39.6%, coupled with a decline of 22.5% in Same Store used vehicle wholesale unit sales. This reflects a strategic decision to sell more of our trade units atretail.Our total Same Store used vehicle wholesale gross profit declined from $2.5 million for the year ended December 31, 2014 to a loss of $1.2 million forthe comparable period in 2015. This decline was driven by a $69 decrease in our Same Store used vehicle wholesale gross profit per unit from a profit of $47per unit in 2014 to a loss of $22 per unit. The decrease in the Same Store wholesale used vehicle gross profit was driven by declines in all reportablesegments. The decline in the U.S. was driven by a $66 decrease in Same Store wholesale gross profit per unit from a profit of $42 per 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 decrease in Same Store wholesale gross profit per unit from aloss of $47 per unit in 2014 to a loss of $67 per unit for the year ended December 31, 2015. In Brazil, the decline in used vehicle wholesale gross profit for theyear ended December 31, 2015 was driven by a $240 decrease59Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Same Store wholesale gross profit per unit from $560 per unit for the year ended December 2014 to $320 per unit for the same period in 2015, coupled witha decline of 22.5% in wholesale used vehicle unit sales in 2015 over the comparable period.As of December 31, 2016, we increased our used vehicle inventory levels by $19.3 million, or 7.0%, from December 31, 2015 to $294.8 million,primarily as a result of the acquisition of additional dealerships. Our consolidated days' supply of used vehicle inventory increased to 35 days, as ofDecember 31, 2016, as compared to 33 days as of December 31, 2015.60Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Parts and ServiceRevenues Same Stores U.S. $1,054,945 4.8% N/A $1,006,640 $987,762 6.1% N/A $930,597U.K. 98,273 (3.8)% 8.5% 102,183 80,625 (1.8)% 5.8% 82,126Brazil 43,977 (1.3)% 4.8% 44,542 50,607 (23.6)% 7.3% 66,213Total Same Stores 1,197,195 3.8% 5.1% 1,153,365 1,118,994 3.7% 6.2% 1,078,936Transactions 64,112 32,828 67,199 46,758Total $1,261,307 6.3% 8.1% $1,186,193 $1,186,193 5.4% 7.9% $1,125,694Gross Profit Same Stores U.S. $572,729 4.1% N/A $549,952 $537,701 8.1% N/A $497,265U.K. 54,509 (2.6)% 9.9% 55,970 45,652 1.5% 9.4% 44,990Brazil 17,398 (8.7)% (2.7)% 19,050 21,295 (26.5)% 2.7% 28,992Total Same Stores 644,636 3.1% 4.4% 624,972 604,648 5.8% 8.0% 571,247Transactions 35,364 17,187 37,511 23,068Total $680,000 5.9% 7.7% $642,159 $642,159 8.1% 10.2% $594,315Gross Margin Same Stores U.S. 54.3% 54.6% 54.4% 53.4%U.K. 55.5% 54.8% 56.6% 54.8%Brazil 39.6% 42.8% 42.1% 43.8%Total Same Stores 53.8% 54.2% 54.0% 52.9%Transactions 55.2% 52.4% 55.8% 49.3%Total 53.9% 54.1% 54.1% 52.8%Our total Same Store parts and service revenues increased 3.8% to $1,197.2 million for the year ended December 31, 2016, as compared to the sameperiod in 2015, primarily driven by growth in the U.S. partially offset by declines in the U.K. and Brazil. For the twelve months ended December 31, 2016,our U.S. Same Store parts and service revenues increased 4.8%, or $48.3 million, reflecting a 4.9% increase in customer-pay parts and service revenues, a5.9% increase in warranty parts and service revenues, a 5.2% increase in collision revenues, and a 3.3% increase in wholesale parts revenues, when comparedto the same period in 2015. The growth in U.S. customer-pay parts and service revenues was supported by the continued progress we are making in addingservice technicians, and expanding shop capacity where applicable. The increase in warranty parts and service revenues was primarily driven by high volumerecall campaigns from Toyota, Ford, Nissan, Mercedes-Benz, Honda, General Motors, Hyundai, and FCA US (formerly Chrysler) that occurred in 2016compared to 2015. The increase in collision revenues was primarily attributable to strategic initiatives that continue to enhance our operational processes,the addition of technicians to add operating capacity and the expansion of direct repair programs with insurance companies. The increase in wholesale partsrevenues was primarily due to increased focus and better overall management of this portion of our business in a few key markets.Our U.K. Same Store parts and service revenues decreased 3.8%, or $3.9 million, representing a 4.8% decrease in customer pay parts and servicerevenues, a 3.1% decrease in warranty parts and service revenues, a 3.3% decrease in wholesale parts revenues, and a 1.3% decrease in collision revenues, forthe year ended December 31, 2016, as compared to the same period in 2015. This decline is more than explained by the exchange rate, as Same Store partsand service revenues increased 8.5% on a constant currency basis, representing a 7.3% increase in customer pay parts and service revenues, a 9.4% increase inwarranty parts and service revenues, a 9.0% increase in wholesale parts revenues, and a 11.4% increase in collision revenues for the year ended December 31,2016, as compared to the same period a year ago. These increases were primarily a result of61Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.management initiatives to enhance processes and increase productivity. Additionally, the growth in warranty parts and service revenues in the U.K. wasprimarily due to an increase in high volume recalls from BMW and Audi that occurred during 2016 relative to 2015.Our Same Store parts and service revenues in Brazil decreased 1.3%, or $0.6 million, primarily driven by a decrease of 4.1% in customer pay parts andservice revenues, partially offset by an increase of 9.2% in collision revenues, and a 5.5% decrease in warranty revenues, for the year ended December 31,2016, compared to the same period 2015. This decline is more than explained by the exchange rate, as Brazil Same Store parts and service revenues increased4.8% on a constant currency basis in 2016 compared to the same period last year. The increase in Brazil Same Store parts and service revenues on a constantcurrency basis was due to an increase of 15.1% in collision revenues, 10.7% increase in warranty revenues, and 1.9% increase in customer pay parts andservice revenues in 2016 compared to 2015.Our total Same Store parts and service gross profit for the year ended December 31, 2016 increased 3.1%, as compared to the same period in 2015. Theincrease in gross profit was driven by a 4.1% increase in the U.S., partially offset by declines of 2.6% and 8.7% in the U.K. and Brazil, respectively. Theincrease in the U.S. was driven by increases in our customer-pay, warranty, and collision businesses. The decrease in U.K. can be more than explained by thechange in exchange rate between the periods as on constant currency basis U.K. Same Store parts and service gross profit increased 9.9%. In Brazil, on aconstant currency basis, Same Store parts and service gross profit declined 2.7%, reflecting a mix shift away from our customer-pay parts and service businesstowards our collision and warranty parts and service businesses that generate lower margins on a relative basis.Our total Same Store parts and service gross margin declined 40 basis points, for the year ended December 31, 2016 as compared to the same period in2015. The decrease in gross margin was driven by a 30 basis point decline in the U.S. primarily driven by lower margin, parts-intensive warranty campaignsin 2016 as compared to higher margin, labor-intensive warranty campaigns in 2015. And, as a result of a decline in U.S. Same Store retail new and used unitssales, our internal work contributed relatively less to the overall gross profit of our parts and service business in 2016.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 revenues 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 revenues, an8.9% increase in warranty parts and service revenues, a 3.0% increase in customer-pay parts and service revenues and a 5.5% increase in wholesale partsrevenues, when compared to the same period in 2014. The increase in warranty parts and service revenues 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 revenues was primarily attributable to strategic initiatives that continue to enhance our operational processes, the addition oftechnicians to add operating capacity and the expansion of partnerships with insurance companies relating to direct repair programs. The U.S. growth incustomer-pay parts and service revenue was supported by the progress we are making in adding service technicians. Since December 2014, we have addedone hundred eighty service technicians.Our U.K. Same Store parts and service revenues decreased 1.8%, or $1.5 million, primarily as the result of a 5.5% decrease in customer-pay parts andservice revenues, 2.5% decrease in wholesale parts revenue, 0.8% decrease in collision revenues, partially offset by a 10.0% increase in our warranty parts andservice revenues, for the year ended December 31, 2015, as compared to the same period in 2014. This decline is more than explained by the exchange rate,as Same Store parts and service revenues increased 5.8% on a constant currency basis. This increase in U.K. Same Store parts and service revenues on aconstant currency basis was driven by an 18.4% increase in our warranty parts and service revenues for the year ended December 31, 2015, as compared to thesame period a year ago. The growth in warranty parts and service revenues in the U.K. is primarily due to an increase in high volume recalls from BMW, Audiand Ford that occurred during 2015 relative to 2014. In addition, on a constant currency basis, we experienced increases in the U.K. of 1.9% in customer-payparts and service revenues, 5.2% in wholesale parts revenues and 7.0% in collision revenues in 2015. These increases were primarily as a result ofmanagement initiatives to enhance processes and increase productivity.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 constant 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. Theimprovement in total Same Store parts and service gross profit was driven primarily by an 8.1% growth in the U.S., as well as a 1.5% increase in the U.K.,which was partially offset by a decrease of 26.5% in Brazil. The improvement in the U.S. was driven by increases in each portion of our parts and servicebusiness, while the growth in the U.K. was driven by an increase in warranty parts and service business. The decrease in Brazil can be more than explained bythe62Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.change in the exchange rate between the periods, as parts and service gross profit increase 2.7% on a constant currency basis. Our total Same Store parts andservice gross margin improved 110 basis points, for the year ended December 31, 2015 as compared to the same period in 2014. The increase in gross marginwas driven by improved profitability in our customer pay parts and service business in the U.S. and the U.K. and was also supported by growth in internalwork between the parts and service departments of our U.S. and U.K. dealerships and the respective new and used vehicle departments. This was the result ofimproved new and used retail vehicles sales volumes.63Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency %Increase/(Decrease) 2014Retail New and Used UnitSales Same Stores U.S. 233,379 (3.5)% 241,750 236,170 6.0% 222,855U.K. 35,262 7.6% 32,775 28,057 12.2% 25,000Brazil 13,843 (16.9)% 16,655 18,304 (8.4)% 19,978Total Same Stores 282,484 (3.0)% 291,180 282,531 5.5% 267,833Transactions 18,700 7,587 16,236 8,936Total 301,184 0.8% 298,767 298,767 7.9% 276,769Retail Finance Fees Same Stores U.S. $120,323 (1.3)% $121,868 $117,253 10.2% $106,437U.K. 15,679 4.8% 14,955 12,678 11.1% 11,415Brazil 1,660 (0.5)% 1,668 1,782 (26.6)% 2,427Total Same Stores 137,662 (0.6)% 138,491 131,713 9.5% 120,279Transactions 7,136 2,843 9,621 3,674Total $144,798 2.5% $141,334 $141,334 14.0% $123,953Vehicle Service ContractFees Same Stores U.S. $142,348 (0.3)% $142,706 $138,903 6.2% $130,771U.K. 513 (26.9)% 702 613 73.7% 353Brazil — —% — — —% —Total Same Stores 142,861 (0.4)% 143,408 139,516 6.4% 131,124Transactions 1,019 1,288 5,180 999Total $143,880 (0.6)% $144,696 $144,696 9.5% $132,123Insurance and Other Same Stores U.S. $108,873 1.7% $107,029 $103,283 11.1% $92,924U.K. 9,502 12.3% 8,460 7,362 6.0% 6,945Brazil 4,787 (2.3)% 4,900 5,356 (33.7)% 8,084Total Same Stores 123,162 2.3% 120,389 116,001 7.5% 107,953Transactions 8,814 2,367 6,755 2,536Total $131,976 7.5% $122,756 $122,756 11.1% $110,489Total Finance andInsurance Revenues Same Stores U.S. $371,544 —% N/A $371,603 $359,439 8.9% N/A $330,132U.K. 25,694 6.5% 20.3% 24,117 20,653 10.4% 18.9% 18,713Brazil 6,447 (1.8)% 2.3% 6,568 7,138 (32.1)% (3.8)% 10,511Total Same Stores 403,685 0.3% 1.2% 402,288 387,230 7.8% 9.0% 359,356Transactions 16,969 6,498 21,556 7,209Total $420,654 2.9% 4.7% $408,786 $408,786 11.5% 12.8% $366,56564Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Revenuesper Unit Sold Same Stores U.S. $1,592 3.6% N/A $1,537 $1,522 2.8% N/A $1,481U.K. $729 (1.0)% 11.8% $736 $736 (1.7)% 6.0% $749Brazil $466 18.3% 23.1% $394 $390 (25.9)% 4.9% $526Total Same Stores $1,429 3.4% 4.4% $1,382 $1,371 2.2% 3.4% $1,342Transactions $907 $856 $1,328 $807Total $1,397 2.1% 3.3% $1,368 $1,368 3.3% 4.5% $1,324Our efforts to improve our finance and insurance business processes continued to generate growth in our finance and insurance revenues. Our total SameStore finance and insurance revenues improved $1.4 million to $403.7 million for the year ended December 31, 2016, as compared to 2015, primarily drivenby an increase in the U.K. offset by a decline in Brazil. Our U.K. Same Store finance and insurance revenue increased $1.6 million, or 6.5%, due to a 7.6%increase in new and used vehicle retail unit sales volume, coupled with an increase in our penetration rates and income per contract. These increases werepartially offset by the change in exchange rates between periods. Our U.S. Same Store finance and insurance revenues remained flat for the year endedDecember 31, 2016, as compared to 2015, as increases in income per contract and penetration rates for most of our major U.S. product offerings were offset bya 3.5% decline in new and used vehicle retail unit sales volumes and an increase in our overall chargeback experience. Our Brazil Same Store finance andinsurance revenue declined 1.8% for the year ended December 31, 2016 when compared to 2015, as a result of a decrease in retail unit sales of 16.9% and thechange in exchange rates between periods. On a constant currency basis, Brazil Same Store finance and insurance revenues increased 2.3%. On a PRU basis,our total Same Store finance and insurance revenues improved 3.4% to $1,429, as compared to the same period in 2015. This improvement can be explainedby increases in the U.S. and Brazil of 3.6% and 18.3%, respectively, compared to the same period in 2015. These increases were partially offset by a 1.0%decline in the U.K. that can be explained by the change in exchange rates between periods. On a constant currency basis, our Same Store finance andinsurance revenues PRU in the U.K. increased 11.8% for the twelve month ended December 31, 2016 as compared to last year.Our total Same Store finance and insurance revenues increased by 7.8% to $387.2 million for the year ended December 31, 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 and insurance 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 in income per contract andpenetration rates for most of our major U.S. product offerings. These increases more than offset an increase in our U.S. chargeback expense. In addition, wegenerated a 10.4% increase in our U.K. Same Store finance and insurance revenues for the year ended December 31, 2015, primarily reflecting a 12.2%increase in new and used vehicle retail unit sales volume and improved income per contract and penetration from vehicle service contract offerings. Our SameStore 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 constantcurrency basis, our U.K. Same Store finance and insurance revenues PRU sold increased by 6.0% for the year ended December 31, 2015 as compared to lastyear. 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 constant 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%.65Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Personnel Same Stores U.S. $613,894 2.4% N/A $599,609 $585,585 7.9% N/A $542,512U.K. 65,148 (0.6)% 12.2% 65,524 53,159 0.4% 8.2% 52,956Brazil 23,912 0.1% 5.1% 23,898 27,460 (27.0)% 3.0% 37,636Total Same Stores 702,954 2.0% 3.3% 689,031 666,204 5.2% 7.3% 633,104Transactions 37,967 19,573 42,400 25,336Total $740,921 4.6% $708,604 $708,604 7.6% $658,440Advertising Same Stores U.S. $67,334 1.2% N/A $66,560 $65,300 (0.8)% N/A $65,805U.K. 4,315 (5.7)% 6.8% 4,574 3,701 (4.0)% 3.6% 3,856Brazil 1,286 (2.6)% 1.6% 1,320 1,395 (33.2)% (5.4)% 2,087Total Same Stores 72,935 0.7% 1.4% 72,454 70,396 (1.9)% (0.9)% 71,748Transactions 2,397 2,174 4,232 2,064Total $75,332 0.9% $74,628 $74,628 1.1% $73,812Rent and FacilityCosts Same Stores U.S. $81,523 0.8% N/A $80,883 $79,950 (3.4)% N/A $82,796U.K. 9,023 (9.1)% 2.6% 9,922 8,249 (4.1)% 3.4% 8,598Brazil 8,310 (4.4)% 2.0% 8,697 10,873 (19.1)% 13.3% 13,433Total Same Stores 98,856 (0.6)% 1.2% 99,502 99,072 (5.5)% 1.3% 104,827Transactions 11,064 6,934 7,364 9,028Total $109,920 3.3% $106,436 $106,436 (6.5)% $113,855Other SG&A Same Stores U.S. $189,846 (1.4)% N/A $192,483 $187,092 5.8% N/A $176,838U.K. 28,065 (2.4)% 10.4% 28,750 23,658 1.7% 9.6% 23,260Brazil 9,885 (8.1)% (1.8)% 10,762 11,735 (28.2)% 0.5% 16,348Total Same Stores 227,796 (1.8)% (0.5)% 231,995 222,485 2.8% 5.1% 216,446Transactions 16,794 (830) 8,680 (589)Total $244,590 5.8% $231,165 $231,165 7.1% $215,857Total SG&A Same Stores U.S. $952,597 1.4% N/A $939,535 $917,927 5.8% N/A $867,951U.K. 106,551 (2.0)% 10.6% 108,770 88,767 0.1% 7.9% 88,670Brazil 43,393 (2.9)% 2.7% 44,677 51,463 (26.0)% 4.2% 69,504Total Same Stores 1,102,541 0.9% 2.4% 1,092,982 1,058,157 3.1% 5.8% 1,026,125Transactions 68,222 27,851 62,676 35,839Total $1,170,763 4.5% $1,120,833 $1,120,833 5.5% $1,061,96466Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. $1,332,028 1.6% N/A $1,311,385 $1,269,691 5.0% N/A $1,209,172U.K. 136,858 (0.6)% 12.0% 137,639 115,186 1.2% 9.2% 113,765Brazil 44,974 (14.2)% (9.4)% 52,436 56,327 (29.5)% (1.2)% 79,876Total Same Stores 1,513,860 0.8% 2.1% 1,501,460 1,441,204 2.7% 5.0% 1,402,813Transactions 81,209 32,512 92,768 45,125Total $1,595,069 4.0% $1,533,972 $1,533,972 5.9% $1,447,938SG&A as a % of GrossProfit Same Stores U.S. 71.5% 71.6% 72.3% 71.8%U.K. 77.9% 79.0% 77.1% 77.9%Brazil 96.5% 85.2% 91.3% 87.0%Total Same Stores 72.8% 72.8% 73.4% 73.1%Transactions 84.0% 85.7% 67.6% 79.4%Total 73.4% 73.1% 73.1% 73.3%Adjusted TotalSG&A (1) Same Stores U.S. $954,336 1.9% N/A $936,378 $914,519 5.9% N/A $863,532U.K. 105,929 (2.4)% 10.2% 108,562 88,763 0.3% 8.1% 88,483Brazil 43,119 (3.2)% 2.5% 44,527 51,238 (25.5)% 4.7% 68,760Total Same Stores 1,103,384 1.3% 2.8% 1,089,467 1,054,520 3.3% 6.0% 1,020,775Transactions 36,715 36,715 71,662 49,928Total $1,140,099 1.2% $1,126,182 $1,126,182 5.2% $1,070,703Adjusted SG&A as a% of Gross Profit (1) Same Stores U.S. 71.6% 71.4% 72.0% 71.4%U.K. 77.4% 78.9% 77.1% 77.8%Brazil 95.9% 84.9% 91.0% 86.1%Total Same Stores 72.9% 72.6% 73.2% 72.8%Transactions 45.2% 112.9% 77.2% 110.6%Total 71.5% 73.4% 73.4% 73.9%Employees 13,500 12,900 12,900 12,000(1) See “Non-GAAP Financial Measures” for more details.Our 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 $10.0 million, or 0.9%, for the year ended December 31, 2016, as compared to the same period in 2015, primarilythe result of a 1.4% increase in the U.S. Same Store SG&A that was partially offset by a 2.9% and 2.0% decline in Brazil and U.K, respectively. The increasein the U.S. is largely related to increased personnel costs. The decline in the U.K. and Brazil can be explained by the change in exchange rates betweenperiods, as total Same Store SG&A increased 10.6% and 2.7%, respectively, on a constant currency basis. After adjusting for non-core items of $5.9 million indeductible charges related to catastrophic events, $1.8 million in severance costs, $0.6 million of costs related to dealership acquisition activities, $0.4million related to real estate and dealership disposition transactions and $0.3 million charge related to a foreign transaction tax in Brazil, offset by $9.9million gain associated with the settlement of a claim with one of our OEM partners, our adjusted total Same Store SG&A increased 1.3% for the year endedDecember 31, 2016, as compared to the same period in 2015 adjusted for comparable non-core items.67Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 personnel costs increased $13.9 million, or 2.0%, for the year ended December 31, 2016, as compared to the same period in 2015,primarily as a result of a 2.4% and 0.1% increase in the U.S. and the Brazil, respectively, partially offset by a 0.6% decline in the U.K. The increase in the U.S.is a result of the fluctuation in variable costs such as salesperson commission payments, which increased due to higher new vehicle margins, incrementalseverance costs and an increase in our overall employee healthcare costs. The U.S. Same Store personnel costs included $1.8 million of severance costs for2016. The decrease in total Same Store personnel costs in the U.K is the result of the change in exchange rates between periods. On a constant currency basis,Same Store personnel costs in the U.K. rose 12.2%, primarily driven by commission payments as a result of an overall improvement in the profitability of ournew and used vehicle and finance and insurance departments in the U.K.For the twelve months ended December 31, 2016, our consolidated Same Store advertising costs increased 0.7%, to $72.9 million, driven by a 1.2%increase in the U.S. that was partially offset by a 5.7% and 2.6% decline in the U.K and Brazil, respectively. The increase in the U.S. is a result of advertisingactivity designed to generate incremental sales opportunities. The decreases in Same Store advertising costs in the U.K. and Brazil can be explained by thechanges in exchange rates between periods, as Same Store advertising costs increased by 6.8% and 1.6%, respectively, on a constant currency basis. Theseincreases in both the U.K. and Brazil were also largely driven by activity designed to generate incremental sales opportunities and capture market share.Our consolidated Same Store rent and facility costs decreased 0.6% to $98.9 million for the twelve months ended December 31, 2016, as compared tothe same period a year ago, reflecting declines of 9.1% and 4.4% in the U.K. and Brazil, respectively, partially offset by an increase of 0.8% in the U.S.segment. The decrease in Same Store rent and facility costs in the U.K. was driven by lower utility expense associated with a reduction in oil and gas prices.The decrease in Brazil can be explained by the changes in exchange rates between periods, as Same Store rent and facility costs remained relatively flat on aconstant currency basis, as compared to the same period in 2015. The increase in the U.S. is primarily driven by increased property taxes, as compared to thesame period in 2015, associated with higher property values that stem from continued improvements to our existing facilities designed to enhance theprofitability of our dealerships and the overall customer experience.Our total Same Store other SG&A decreased 1.8% to $227.8 million as compared to the same period in 2015, driven by a 8.1%, 2.4% and 1.4% declinein Brazil, the U.K. and the U.S., respectively. The decline in our U.K. Same Store other SG&A was primarily a result of the change in the exchange ratebetween periods, as Same Store other SG&A costs in U.K. increased 10.4% on a constant currency basis. The 1.4% decrease in Same Store other SG&A in theU.S. is partially attributable to a net gain of $9.9 million recognized for a settlement with one of our OEM partners. Also included in total Same Store otherSG&A for the year ended December 31, 2016 was non-core items of $5.9 million in charges related to catastrophic events and $0.4 million of costs related toreal estate and dealership activities in the U.S., $0.6 million associated with dealership acquisition costs in the U.K. and a $0.3 million charge related to aforeign transaction tax in Brazil.For the twelve months ended December 31, 2016, as compared to the same period in 2015, our total Same Store SG&A as a percentage of gross profitremained flat at 72.8%. Our adjusted total Same Store SG&A as a percentage of gross profit increased 30 basis points to 72.9%, primarily driven by 1,100 and20 basis point increase in Brazil and the U.S., respectively, offset by a 150 basis point decrease in the U.K. segment. The increase in Brazil was due to a 14.2%decline in gross profit. The improvement in the U.K. is a reflection of the leverage of our cost structure realized with the growth of revenue and gross profit.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 constant 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. These increasesin the U.S. and U.K. were partially offset by a 27.0% decline in personnel costs in Brazil that can be explained by the change in exchange rate betweenperiods, as Same Store personnel costs in Brazil increased 3.0% on a constant 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 better leveraging of our scale and more active management ofour vendor relationships. 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 local currency basis, Same68Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Store advertising costs increased 3.6%. The 33.2% decline in Brazil Same Store advertising costs can be partially explained by actions we have taken torationalize our advertising expenditures 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 for the year ended December 31, 2015 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. Thedecline in our Brazil Same Store other SG&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 in other variable costs associated with higher retail sales volumes. Total Same Store other SG&A included $1.6 million incharges related to catastrophic events, a legal settlement of $1.0 million, a $0.8 million loss related to real estate and dealership transactions, and $0.2 millionin severance costs for the twelve months 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 million charge for a catastrophic event, $1.2 million loss related to real estate and dealership transactions, $0.4 million of expenserelated to a legal settlement, $0.3 million in severance costs, $0.2 million related to acquisition costs and a $0.4 million charge related to a foreigntransaction tax in Brazil. Our adjusted total Same Store SG&A increased $33.7 million, or 3.3%, reflecting an increase of 5.9% and 0.3% in the U.S. and U.K.,respectively, offset by a 25.5% decrease 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 adjusted total Same Store SG&A as a percentage of gross profit increased 40 basis points to 73.2% for the twelve months ended December31, 2015, as compared to the same period in 2014, driven by a 490 and 60 basis point increase in our Brazil and U.S., respectively, adjusted total Same StoreSG&A as a percentage of gross profit, partially offset by a 70 basis point decrease in the U.K.Depreciation and Amortization Data(dollars in thousands) For The Year Ended December 31, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Same Stores U.S. $42,510 6.4% N/A $39,936 $39,819 12.1% N/A $35,536U.K. 4,589 6.5% 20.4% 4,307 3,176 (4.0)% 3.5% 3,309Brazil 1,160 (3.2)% 3.1% 1,198 1,678 (7.1)% 28.6% 1,806Total Same Stores 48,259 6.2% 7.7%45,441 44,673 9.9% 12.1% 40,651Transactions 2,975 1,798 2,566 1,693Total $51,234 8.5% 10.5% $47,239 $47,239 11.6% 13.9% $42,344Our total Same Store depreciation and amortization expense increased 6.2% and 9.9% for the years ended December 31, 2016 and 2015, respectively, ascompared to the respective prior year period, as we continue to strategically add dealership-related real estate to our investment portfolio and makeimprovements to our existing facilities that are designed to enhance the profitability of our dealerships and the overall customer experience. We criticallyevaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments.Impairment of Assets69Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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 of all of our long-lived and indefinite-lived assets when evidence exists that the carrying value of such assets may not be recoverable.During the fourth quarter of 2016, we performed our annual impairment assessment of the carrying value of our goodwill. The fair value of each of ourreporting units exceeded the carrying value of the respective net assets (step one of the goodwill impairment test). As a result, we were not required toconduct the second step of the impairment test for goodwill. During the 2015 goodwill assessment, it was determined that, in Brazil, the carrying value ofgoodwill exceeded the implied fair value and as a result a $55.4 million impairment was recorded. We did not identify an impairment of our recordedgoodwill in 2014.During 2016, 2015, and 2014, we determined that the carrying value of certain of our intangible franchise rights were greater than fair value. As a result,we recognized $30.0 million, $30.1 million and $31.0 million of pre-tax non-cash impairment charges, respectively. Also, in 2016, 2015, and 2014, werecognized $2.8 million, $2.1 million and $10.5 million, respectively, in pre-tax non-cash asset impairment charges, associated with non-operating real estateholdings and other long-lived assets of our existing dealership facilities.If, in future periods, we determine that the carrying amount of our nets assets exceeds the respective fair value of goodwill for any or all of our reportingunits, we could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). If any of ourassumptions change, or fail to materialize, the resulting decline in the estimated fair market value of intangible franchise rights could result in a material non-cash impairment charge. For example, we performed two separate sensitivity analyses on our 2016 annual impairment assessment of goodwill and intangiblefranchise rights. If our assumptions regarding the risk-free rate and cost of debt differed such that the estimated WACC used in our 2016 assessment increasedby 200 basis points, and all other assumptions remained constant, an additional $40.2 million of non-cash franchise rights impairment charges, would haveresulted, excluding franchises acquired since the previous annual test. This additional impairment consists of $37.6 million in the U.S., $0.4 million in theU.K. and $2.2 million in Brazil. Our Brazil reporting unit would have failed the step one impairment test for goodwill in this scenario, while the U.S. and U.Kreporting units would have passed step one. Our second sensitivity analysis represented a recessionary sales environment in the U.S., utilizing the U.S. SAARequivalent to 2009 levels for 2018. Similar industry sales levels were also applied to the U.K. reporting unit. Since Brazil is currently in a recessionaryeconomy, we did not assume further industry sales declines for this sensitivity analysis, but instead assumed no sales growth in 2018 . In this sensitivityanalysis, an additional $55.3 million of non-cash franchise rights impairment charges would have resulted, including $52.8 million, $1.6 million and $0.9million for the U.S., U.K. and Brazil, respectively. In this scenario, none of the Company’s reporting units would have failed the step one impairment test forgoodwill.Floorplan Interest Expense(dollars in thousands) For The Year Ended December 31, 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015 2015 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2014Same Stores U.S. $39,955 12.8% N/A $35,424 $34,714 4.9% N/A $33,102U.K. 2,190 (3.8)% 9.3% 2,276 1,544 (3.8)% 3.4% 1,605Brazil 63 (91.9)% (88.6)% 781 965 (83.7)% (79.3)% 5,910Total Same Stores 42,208 9.7% 10.5% 38,481 37,223 (8.4)% (7.4)% 40,617Transactions 2,719 783 2,041 997Total $44,927 14.4% 16.0% $39,264 $39,264 (5.6)% (4.6)% $41,614Memo: Manufacturer’s assistance $49,202 (2.5)% $50,474 $50,474 11.8% $45,145Our floorplan interest expense fluctuates with changes in borrowings outstanding and interest rates, which are based on LIBOR (or Prime rate in somecases) plus a spread in the U.S. and U.K. and a benchmark rate plus a spread in Brazil. To mitigate the impact of U.S. interest rate fluctuations, we employ aninterest rate hedging strategy, whereby we swap variable interest rate exposure for a fixed interest rate over the term of the U.S. variable interest rate debt. Asof December 31, 2016, we were party to interest rate swaps with an aggregate notional amount of $765.3 million in effect that fixed our underlying one-70Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.month LIBOR at a weighted average interest rate of 2.5%. The majority of the monthly settlements of liabilities are recognized as floorplan interest expense.From time to time, we utilize excess cash on hand to pay down our floorplan borrowings, and the resulting interest earned is recognized as an offset to ourgross floorplan interest expense. Our total Same Store floorplan interest expense increased 9.7% to $42.2 million for the year ended December 31, 2016, ascompared to the same period in 2015. The increase was driven by our Same Store floorplan interest expense in the U.S. that grew $4.5 million, or 12.8%,driven by a rise in the weighted average borrowing rate primarily as a result of an increase in LIBOR compared to the same period a year ago. Additionally,we experienced an increase in our weighted average floorplan borrowings in the U.S. of $62.3 million for year ended December 31, 2016 reflecting higherinventory levels in 2016 when compared with 2015. Beginning in the later part of the fourth quarter of 2015, we experienced an increase in our supply ofluxury brand units as several of our manufacturer partners redirected additional inventory supply to the U.S. to offset weakness in other global markets.Furthermore, for most of 2016, several manufacturers issued stop sales on a number of vehicle models due to recall campaigns that contributed to an increasein our new and used vehicle inventory as compared to the same period in 2015. In the U.K., Same Store floorplan interest expense decreased 3.8% for the yearended December 31, 2016, due to the change in exchange rates between periods. On a constant currency basis, total Same Store floorplan interest expenseincreased 9.3% for the twelve months ended December 31, 2016 as compared to 2015 driven by an increase in the weighted average borrowing rate. In Brazil,our Same Store floorplan interest expense decreased $0.7 million, or 91.9% for the year ended December 31, 2016. The decrease in the Brazil Same Storefloorplan interest was the direct result of improved management processes over inventory levels and the execution of strategic cash management policies.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%. Our total Same Store floorplan interest expense decreased 8.4% to $37.2 million for the year endedDecember 31, 2015, as compared to the same period in 2014. The decline was primarily related to Brazil. Same Store floorplan interest expense in Brazildecreased $4.9 million, or 83.7%, primarily due to improved floorplan and cash management. Our U.S. Same Store floorplan interest expense increased 4.9%to $34.7 million 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 isprimarily attributable to an increase in our weighted average floorplan borrowings outstanding of $18.6 million due to higher inventory levels in 2015. In theU.K., Same Store floorplan interest expense decreased 3.8% for the year ended December 31, 2015. The decline in Same Store floorplan interest expense inthe U.K. can be explained by the change in the exchange rate between periods, as on a constant currency basis, Same Store floorplan expense increased 3.4%.The increase in the U.K. Same Store floorplan interest on a constant currency basis is primarily attributable to an increase in our weighted average floorplanborrowings outstanding due to higher inventory levels in 2015.Other Interest Expense, netOther interest expense, net consists of interest charges primarily on our 5.00% and 5.25% Notes, real estate related debt, working capital lines of creditand our other long-term debt, partially offset by interest income. For the twelve months ended December 31, 2016, other interest expense increased $11.0million, or 19.4%, to $67.9 million, as compared to the same period in 2015. The increase was primarily attributable to interest incurred on our 5.25% Notesoffering that was executed in December 2015. As a partial offset, we used a portion of the proceeds from the 5.25% Notes offering to fund the outstandingborrowings of the Company’s Acquisition Line and to payoff certain real estate related mortgages.For the twelve months ended December 31, 2015, other interest expense increased $7.2 million, or 14.5%, to $56.9 million, as compared to the sameperiod in 2014. The increase was primarily attributable to incremental interest incurred on our 5.00% Notes used to fund the extinguishment 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 net interest expense increased for theyear ended December 31, 2015, as compared to 2014, due to additional mortgage borrowings associated with dealership acquisitions and purchases ofexisting leased properties. Further contributing to the increase to other interest expense, net, for the twelve months ended December 31, 2015 as compared tothe prior year, was the incremental interest related to our 5.25% Note offering that was executed in December 2015 to fund the outstanding borrowings of theCompany’s Acquisition Line, to payoff certain mortgages, to contribute to the Company’s floorplan offset accounts and for general corporate purposes.Included in other interest expense for the year ended December 31, 2014 is non-cash, discount amortization expense of $7.2 million . This non-cashdiscount amortization represents the impact of the accounting for our 2.25% Notes and 3.00% Notes as required by ASC 470 for convertible debt. We usedthe proceeds from the 5.00% Notes offering to extinguish all of the outstanding principal of the 2.25% Notes and 3.00% Notes as of September 30, 2014.Provision for Income TaxesFor the year ended December 31, 2016, we recorded a tax provision of $80.3 million. The 2016 effective tax rate of 35.3% decreased from the 2015effective tax rate of 48.4%, primarily due to the mix effect resulting from proportionately more pretax income generated in our U.K. region and changes tovaluation allowances provided for net operating losses and other71Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.deferred tax assets in certain U.S. states and in Brazil, as well as the deferred tax impact of a dealership disposition in Brazil. In addition, the 2016 effectivetax rate decreased from the 2015 rate due to the impairment of non-deductible goodwill in 2015.For 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 an increase in valuation allowances recorded in 2015 as compared to 2014, relative to deferred tax assets forgoodwill and net operating losses of certain Brazil subsidiaries . In addition, the 2015 effective tax rate increased over the 2014 rate due to the impairment ofnon-deductible goodwill in Brazil 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.On an adjusted basis, for the year ended December 31, 2016, our effective tax rate decreased to 35.8% from 37.4% as compared to the same period in2015. The decrease was primarily due to the mix effect resulting from proportionately more pretax income generated in our U.K. region, which has asignificantly lower corporate tax rate than the U.S., and changes to valuation allowances provided for net operating losses and other deferred tax assets incertain U.S. states and in Brazil. On an adjusted basis, for the year ended December 31, 2015, our effective tax rate decreased to 37.4% from 37.7% ascompared to the same period in 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 2017 will be approximately 36.5%.As of December 31, 2016, we had net deferred tax liabilities totaling $159.2 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 $154.5 million of net 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, 2016, we had $59.9 million of deferred tax assets relating to loss reserves and accruals, and $53.9 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, real estate mortgages, and proceeds from debt and equity offerings. Based on current facts and circumstances, we believe wewill have adequate cash flow, coupled with available borrowing capacity, to fund our current operations, capital expenditures and acquisitions for 2017. Ifeconomic and business conditions deteriorate or if our capital expenditures or acquisition plans for 2017 change, we may need to access the private or publiccapital markets to obtain additional funding.Cash on Hand. As of December 31, 2016, our total cash on hand was $21.0 million. The balance of cash on hand excludes $85.1 million ofimmediately available funds used to pay down our Floorplan Line and FMCC Facility as of December 31, 2016. 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 85% 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 theU.K. and Brazil unaffiliated with our manufacturer partners (collectively, “Non-OEM Floorplan Credit Facilities”), are presented within Cash Flows fromFinancing Activities in conformity with U.S. GAAP. However, the incurrence of all floorplan notes payable represents an activity necessary to acquireinventory for resale, resulting in a trade payable. Our decision to utilize our Revolving Credit Facility does not substantially alter the process by which ourvehicle inventory is financed, nor does it significantly impact the economics of our vehicle procurement activities. Therefore, we believe that all floorplanfinancing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operatingactivity. As a result, we use the non-GAAP measure “Adjusted net cash provided by operating activities” to evaluate our cash flows. We believe that thisclassification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP and avoids the potential to mislead the users ofour 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 operating72Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.or financing activities in our statement of cash flows presented in conformity with U.S. GAAP, depending on the relationship described above. However, thefloorplan financing activity is so closely related to the inventory acquisition process that we believe the presentation of all acquisition and dispositionrelated floorplan financing activities should be classified as investing activity to correspond with the associated inventory activity, and we have made suchadjustments in our adjusted operating cash flow presentations.The following tables sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows on a U.S. GAAPand on an adjusted, non-GAAP basis. For further explanation and reconciliation to the most directly comparable U.S. GAAP measures see “Non-GAAPFinancial Measures” below. For the Year Ended December 31,U.S. GAAP Basis 2016 2015 2014 (In thousands) Net cash provided by operating activities $384,857 $141,047 $198,288Net cash used in investing activities (174,040) (284,502) (347,051)Net cash provided by (used in) financing activities (205,007) 121,009 171,650Effect of exchange rate changes on cash 2,145 (5,492) (2,127)Net increase (decrease) in cash and cash equivalents $7,955 $(27,938) $20,760 For the Year Ended December 31,Adjusted, Non-GAAP Basis(1) 2016 2015 2014 (In thousands) Adjusted net cash provided by operating activities $271,741 $244,349 $207,139Adjusted net cash used in investing activities (190,639) (266,791) (315,432)Adjusted net cash provided by (used in) financing activities (75,292) (4) 131,180Effect of exchange rate changes on cash 2,145 (5,492) (2,127)Net increase (decrease) in cash and cash equivalents $7,955 $(27,938) $20,760(1) See “Non-GAAP Financial Measures” for detailsSources and Uses of Liquidity from Operating ActivitiesFor the twelve months ended December 31, 2016, we generated $384.9 million of net cash flow from operating activities, primarily consisting of $147.1million in net income, adjusted for non-cash items related to asset impairment of $32.8 million, depreciation and amortization of $51.2 million, deferredincome taxes of $14.2 million, amortization of debt discounts and debt issue costs of $3.7 million, and stock-based compensation of $21.1 million, as well as$116.4 million net change in operating assets and liabilities and partially offset by $2.7 million of net gains from the disposition of assets. Included in the netchanges of operating assets and liabilities were cash inflows of $76.1 million from increases in accounts payable and accrued expenses, $79.3 million fromdecreases in inventory levels, and $8.2 million from the net decrease in prepaid expenses and other assets. These cash inflows were partially offset by cashoutflows of $15.6 million from increases of vehicle receivables and contracts-in-transit, $12.6 million from the net decrease in floorplan borrowings, and$18.7 million from the net increase in accounts and notes receivable. After adjusting for $113.1 million of cash outflows related to the net change in our Non-OEM Floorplan Credit Facilities, excluding the change in our floorplan offset accounts and net dealership acquisition and disposition activity, and thechange in our FMCC floorplan offset account, our adjusted net cash flow generated from operating activities for the twelve months ended December 31, 2016was $271.7 million.For the twelve months ended December 31, 2015, we generated $141.0 million of net cash flow from operating activities, primarily consisting of $94.0million in net income, adjusted for non-cash items related to depreciation and amortization of $47.2 million, deferred income taxes of $11.9 million,amortization of debt discounts and debt issue costs of $3.7 million, asset impairment of $87.6 million, and stock-based compensation of $18.9 million, aswell as a $113.6 million net change in operating assets and liabilities and $9.7 million of net gains from the disposition of assets. Included in the net changesof operating assets and liabilities were cash inflows of $25.1 million from increases in accounts payable and accrued expenses and $87.5 million from the netincrease in floorplan borrowings. These cash inflows were more than offset by $17.9 million from increases of vehicle receivables and 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 $17.9 million from the netincrease in accounts and notes receivable. After adjusting for $100.3 million of cash inflows related to the net change in our Non-OEM Floorplan CreditFacilities, excluding the change in our floorplan offset accounts and net dealership acquisition and disposition activity, as well as $3.0 million of net cashinflows associated with the change in our manufacturer-affiliated floorplan notes payable related to net73Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 acquisition and disposition activity, and the change in our FMCC floorplan offset account, our adjusted net cash flow generated from operatingactivities for the twelve months ended December 31, 2015 was $244.3 million.For the twelve months ended December 31, 2014, we generated $198.3 million of net cash flow from operating activities, primarily consisting of $93.0million in net income, adjusted for non-operating items related to a loss on the extinguishment of our 3.00% Notes of $29.5 million, a loss on theextinguishment of our 2.25% Notes of $16.9 million and $16.0 of net gains from the disposition of assets, as well as non-cash items related to depreciationand amortization of $42.3 million, deferred income taxes of $12.3 million, amortization of debt discounts and debt issue costs of $10.6 million, stock-basedcompensation of $16.0 million and asset impairments of $41.5 million. The cash inflows were partially offset by a $50.7 million net change in operatingassets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $27.3 million from decreases in inventory and $37.3million from an increase in accounts payables and accrued expenses, which were more than offset by cash outflows of $78.8 million from the net decrease infloorplan borrowings, $20.2 million from increases in accounts and notes receivables, $10.5 million from increases of vehicle receivables and contracts-in-transit, and $5.4 million from an increase in prepaid expenses and other assets. After adjusting for $5.9 million of cash inflows related to the net change in ourNon-OEM Floorplan Credit Facilities, excluding the change in our floorplan offset accounts and net dealership acquisition and disposition activity, as wellas $3.0 million of net cash inflows associated with the change in our manufacturer-affiliated floorplan notes payable related to net dealership acquisition anddispositions activity, and the change in our FMCC floorplan offset account, our adjusted net cash flow generated from operating activities for the twelvemonths ended December 31, 2014 was $207.1 million.Working Capital. At December 31, 2016, we had $97.5 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 vehicle floorplan notes payable, subject to agreed upon pay-off terms, are limited to 85% of theaggregate book value of our used vehicle inventory, except in the U.K. and Brazil. At times, we have made payments on our floorplan notes payable usingexcess cash flow from operations and the proceeds of debt and equity offerings. As needed, we re-borrow the amounts later, up to the limits on the floorplannotes 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, 2016, we used $174.0 million in net cash flow for investing activities. Included in the total cash use forthe twelve months ended December 31, 2016, was $57.3 million for dealership acquisition activity. We also used $156.5 million during the twelve months of2016 for purchases of property and equipment and to construct new and improve existing facilities, consisting of $100.6 million for capital expenditures,$39.1 million for the purchase of real estate associated with existing dealership operations, and a $16.8 million net decrease in the accrual for capitalexpenditures from year-end. These cash outflows were partially offset by cash inflows of $36.8 million related to dispositions of franchises and fixed assets.After adjusting for $16.6 million of cash outflows associated with the change in floorplan notes payable in conjunction with dealership disposition activity,our adjusted net cash flow used in investing activities for the twelve months ended December 31, 2016 was $190.6 million.During 2015, we used $284.5 million in net cash flow for investing activities. Included in the total cash use for the twelve months ended December 31,2015, was $212.3 million for dealership acquisition activity. We also used $120.3 million during 2015 primarily for purchases of property and equipment toconstruct 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 $11.5 million net increase in the accrual for capital expenditures from year-end. These cashoutflows were partially offset by $41.6 million in proceeds from the sale of franchises, property and equipment during 2015. After adjusting for $32.1 millionof cash inflows associated with the change in floorplan notes payable in conjunction with dealership acquisition activity and $14.4 million of cash outflowsassociated with the change in floorplan notes payable in conjunction with dealership disposition activity, our adjusted net cash flow used in investingactivities for the twelve months ended December 31, 2015 was $266.8 million.During 2014, we used $347.1 million in net cash flow for investing activities. Included in the total cash use for the twelve months ended December 31,2014, was $336.6 million for dealership acquisition activity. We also used $150.4 million during 2014 primarily for purchases of property and equipment toconstruct new and improve existing facilities, consisting of $62.7 million for real estate to be used for existing dealership operations and $97.7 million forcapital expenditures, $2.8 million of which relates to facilities that were subsequently disposed during 2014, offset by a $10.0 million net increase in theaccrual for capital expenditures from year-end. We also used $4.7 million for escrow deposits on pending dealership and real estate acquisitions. These cashoutflows were partially offset by $144.6 million in proceeds from the sale of franchises, property and equipment during 2014. After adjusting for $92.1million of cash inflows associated with the change in floorplan notes payable in conjunction with dealership acquisition activity and $60.5 million of cashoutflows associated with74Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 change in floorplan notes payable in conjunction with dealership disposition activity, our adjusted net cash flow used in investing activities for thetwelve months ended December 31, 2014 was $315.4 million.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 2017 to be no more than $150 million excluding expenditures related to future acquisitions, which could generally be funded fromexcess cash.Acquisitions & Dispositions. During the twelve months ended December 31, 2016, we completed the acquisition of 12 U.K. dealerships, inclusiveof 15 franchises and opened two additional dealerships for two awarded franchises in the U.K., with expected aggregate annualized revenues, estimated at thetime of acquisition, of $640.0 million. In addition, we completed the acquisition of one dealership, in Brazil, representing one franchise and opened twodealerships for one acquired and two previously awarded franchises, with expected aggregate annualized revenues, estimated at the time of acquisition, of$20.0 million.During 2015, the Company acquired three U.S. dealerships, representing five franchises, with expected annual revenues, estimated at the time ofacquisition, of $340.0 million
. During 2014, we acquired 19 franchises with expected annual revenues, estimated at the time of acquisition, of $910.0million. We generally purchase businesses based on expected return on investment. Cash needed to complete our acquisitions generally comes from excessworking capital, operating cash flows of our dealerships, and borrowings under our floorplan facilities, term loans and our Acquisition Line.In 2016, we disposed of five U.S. dealerships, four dealerships in Brazil and one dealership in the U.K, with annual revenues totaling approximately$240.0 million. During 2015, we disposed of two dealerships and one franchise in the U.S. and terminated two franchises in Brazil, with annual revenuestotaling approximately $115.0 million. During 2014, we disposed of seven dealerships and one franchise in the U.S. and three dealerships in Brazil withannual revenues totaling approximately $450.0 million75Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Sources and Uses of Liquidity from Financing ActivitiesFor the twelve months ended December 31, 2016, we used $205.0 million in net cash flow from financing activities, primarily related to cash outflowsof $78.6 million in net payments on our Floorplan Line, $127.6 million to repurchase 2,282,579 shares of our Company’s common stock, and $20.0 millionfor dividend payments. These cash outflows were partially offset by cash inflows of $4.0 million of net borrowings of other debt and $17.2 million in netborrowings of long-term debt related to real estate loans. Adjusting for $129.5 million of cash outflows from net repayments associated with our non-OEMfloorplan notes payable, the adjusted cash flow from financing activities associated with our Floorplan Line was $50.8 million (representing the net cashactivity in our floorplan offset accounts). In total, we used $75.3 million in adjusted net cash flow from financing activities.For the twelve months ended December 31, 2015, we generated $121.0 million in net cash flow from financing activities, primarily related to $296.3million of 5.25% Notes borrowings and $52.7 million in net borrowings on our Floorplan Line. These cash inflows are partially offset by cash outflows of$40.1 million from net payments of long-term debt related to real estate loans, $68.1 million of net payments on our Acquisition Line, $3.9 million of netpayments borrowings of other debt, $97.5 million to repurchase 1,176,908 shares of our Company’s common stock, and $19.9 million for dividend payments.Adjusting for $118.3 million of cash inflows from net borrowings associated with our non-OEM floorplan notes payable, the adjusted cash flow fromfinancing activities associated with our Floorplan Line was $65.6 million (representing the net cash activity in our floorplan offset accounts). In total,adjusted cash outflows from financing activities were essentially offset by cash inflows.During 2014, we generated $171.7 million in net cash flow from financing activities, primarily related to $539.6 million of 5.00% Notes borrowings,$52.2 million from net borrowings of long-term debt related to real estate loans, $5.2 million from net borrowings of other debt, $32.7 million from proceedsof the call and warrant unwind related to the 3.00% Notes, $9.7 million cash inflow related to borrowings on the Acquisition Line, and $29.3 million in netborrowings on our Floorplan Line. These cash inflows were partially offset by cash outflows of $260.1 million used for the repurchase of our 3.00% Notes,$182.8 million used for the conversion and redemption of our 2.25% Notes, $36.8 million used to repurchase 537,054 shares of our common stock, and $17.1million used for dividend payments. Adjusting for $40.5 million of cash inflows from net borrowings associated with our non-OEM floorplan notes payable,the adjusted cash flow from financing activities associated with our Floorplan Line was $11.2 million (representing the net cash activity in our floorplanoffset accounts). In total, we generated $131.2 million in adjusted net cash flow from financing activities.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. On June 17, 2016, we amended our Revolving Credit Facility principally to increase the total borrowing capacity from $1.7billion to $1.8 billion and to extend the term from an expiration date of June 20, 2018 to June 17, 2021. The Revolving Credit Facility, which is comprisedof 24 financial institutions, including six manufacturer-affiliated finance companies, consists of two tranches, providing a maximum of $1.75 billion for U.S.vehicle inventory floorplan financing, as well as a maximum of $360.0 million and a minimum of $50.0 million for working capital and general corporatepurposes, including acquisitions. The capacity under these two tranches can be re-designated within the overall $1.8 billion commitment, subject to theaforementioned limits. Up to $125.0 million of the Acquisition Line can be borrowed in either euros or British pound sterling. The Revolving Credit Facilitycan be expanded to a maximum commitment of $2.1 billion, subject to participating lender approval. The Floorplan Line bears interest at rates equal to theLIBOR plus 125 basis points for new vehicle inventory and the LIBOR plus 150 basis points for used vehicle inventory. The Acquisition Line bears interestat the LIBOR plus 150 basis points plus a margin that ranges from zero to 100 basis points, depending on our total adjusted leverage ratio, for borrowings inU.S. dollars and a LIBOR equivalent plus 125 to 250 basis points, depending on our total adjusted leverage ratio, on borrowings in euros or British poundsterling. The Floorplan Line requires a commitment fee of 0.15% per annum on the unused portion. The Acquisition Line also requires a commitment feeranging from 0.20% to 0.45% per annum, depending on our total adjusted leverage ratio, based on a minimum commitment of $50.0 million less outstandingborrowings.After considering the outstanding balance of $1,072.1 million at December 31, 2016, we had $367.9 million of available floorplan borrowing capacityunder the Floorplan Line. Included in the $367.9 million available borrowings under the Floorplan Line was $59.6 million of immediately available funds.The weighted average interest rate on the Floorplan Line was 2.0% and 1.7% as of December 31, 2016 and 2015, respectively, excluding the impact of ourinterest rate swaps. With regards to the Acquisition Line, there were no borrowings outstanding as of December 31, 2016 or December 31, 2015. Afterconsidering $37.1 million and $41.9 million of outstanding letters of credit and other factors included in our available borrowing base calculation, there was$322.9 million and $278.2 million of available borrowing capacity under the Acquisition Line as of December 31, 2016 and 2015, respectively. The amountof available borrowing capacity under the Acquisition Line is limited from time to time based upon certain debt covenants.76Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.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 and total adjusted leverage ratios. Further, the Revolving Credit Facility restricts our ability to make certain payments, such asdividends or other distributions of assets, properties, cash, rights, obligations or securities (“Restricted Payments”). The Restricted Payments cannot exceedthe sum of $208.5 million plus (or minus if negative) (a) one-half of the aggregate consolidated net income for the period beginning on April 1, 2014 andending on the date of determination and (b) the amount of net cash proceeds received from the sale of capital stock after June 2, 2014 and ending on the dateof determination less (c) cash dividends and share repurchases after June 2, 2014 (“Credit Facility Restricted Payment Basket”). For purposes of thecalculation of the Credit Facility Restricted Payment Basket, net income represents such amounts per our consolidated financial statements, adjusted toexclude our foreign operations, non-cash interest expense, non-cash asset impairment charges, and non-cash stock-based compensation. As of December 31,2016, the Credit Facility Restricted Payment Basket totaled $132.3 million. As of December 31, 2016, we were in compliance with all our financialcovenants, including: As of December 31, 2016 RequiredActualTotal Adjusted Leverage Ratio< 5.503.70Fixed Charge Coverage Ratio> 1.202.49Based 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, 2016, we had an outstanding balance of $149.7 million under the FMCC Facility with an availablefloorplan borrowing capacity of $150.2 million. Included in the $150.2 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 5.25% and 4.75% before considering the applicable incentives, as of December 31, 2016 and 2015, respectively.The following table summarizes the position of our U.S. credit facilities as of December 31, 2016: As of December 31, 2016U.S. Credit Facilities TotalCommitment Outstanding Available (In thousands)Floorplan Line(1) $1,440,000 $1,072,092 $367,908Acquisition Line(2) 360,000 37,139 322,861Total Revolving Credit Facility 1,800,000 1,109,231 690,769FMCC Facility(3) 300,000 149,744 150,256Total U.S. Credit Facilities(4) $2,100,000 $1,258,975 $841,025(1)The available balance as of December 31, 2016 includes $59.6 million of immediately available funds.(2)The outstanding balance of $37.1 million is related to outstanding letters of credit. The available borrowings may be limited from time to time, based on certain debt covenants.(3)The available balance as of December 31, 2016 includes $25.5 million of immediately available funds.(4)The outstanding balance excludes $222.4 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 BMWFS, Volkswagen Finance, FMCC and a third-party financial institution for thefinancing of new, used and rental vehicle inventories related to our U.K. operations. These facilities are denominated in British pound sterling and areevergreen arrangements that may be canceled with notice by either party and bear interest at a base rate, plus a surcharge that varies based upon the type ofvehicle being financed. The annual interest rates charged on borrowings outstanding under these facilities ranged from 1.90% to 3.95%, as of December 31,2016.77Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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 Brazilian 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, 2016, the annual interest rates charged on borrowings outstanding under these facilities, after the graceperiod of zero to 90 days, ranged from 18.16% to 22.41%.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, 2016, the interest rate charged on borrowings related to our rental vehicle fleet varied up to5.25%. 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, 2016, please see Note 11 to our Consolidated Financial Statements,“Credit Facilities.”5.00% Notes. On June 2, 2014, we issued $350.0 million aggregate principal amount of our 5.00% Notes. Subsequently, on September 9, 2014, weissued 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 areguaranteed by substantially all of our U.S. subsidiaries. The U.S. subsidiary guarantees rank equally in the right of payment to all of our U.S. subsidiaryguarantor’s existing and future subordinated debt. In addition, the 5.00% Notes are structurally subordinated to the liabilities of our non-guarantorsubsidiaries and are subject to customary covenants, including a restricted payment basket and debt limitations. The restricted payment basket calculationunder the terms of the 5.00% Notes is the same as under the Credit Facility 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 June2015, we completed the exchange.The underwriters’ fees, discount and capitalized debt issuance costs relative to the $550.0 million totaled $13.1 million. These amounts were includedas a direct reduction of the 5.00% Notes principal balance and are being amortized over a period of eight years in conjunction with the term ofthe 5.00% Notes. The 5.00% Notes are presented net of unamortized underwriters’ fees, discount and debt issuance costs of $9.5 million as of December 31,2016.5.25% Notes. On December 8, 2015, we issued $300.0 million aggregate principal amount of our 5.25% Notes due to mature on December 15, 2023 in aprivate placement exempt from the registration requirements of the SEC. The 5.25% Notes and the related guarantees have not been, and will not be,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 each June15 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% Notes prior toDecember 15, 2018, subject to certain conditions, at a redemption price equal to 105.25% of principal amount of the 5.25% Notes plus accrued and unpaidinterest. 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,78Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 5.25% Notes are structurally subordinated to the liabilities of our non-guarantor subsidiaries and are subject to customary covenants, including arestricted payment basket and debt limitations. The restricted payment basket calculation under the terms of the 5.25% Notes is the same as under the CreditFacility Restricted Payment Basket.The underwriters' fees and capitalized debt issuance costs relative to the 5.25% Notes totaled $5.0 million. These amounts were included as a directreduction of the 5.25% Notes principal balance and are being amortized over a period of eight years in conjunction with the term of the 5.25% Notes.The 5.25% Notes are presented net of unamortized underwriters’ fees and debt issuance costs of $4.4 million as of December 31, 2016.Real Estate Related and Other Long-Term Debt. We have entered into separate term mortgage loans in the U.S. with three of our manufacturer-affiliatedfinance partners, TMCC, BMWFS, and FMCC, as well as several third party financial institutions. These mortgage loans may be expanded for borrowingsrelated to specific buildings and/or properties and are guaranteed by us. Each mortgage loan was made in connection with, and is secured by mortgage liens,on the real property owned by us that is mortgaged under the loans. The mortgage loans bear interest at fixed rates between 3.00% and 4.69%, and at variableindexed rates plus a spread between 1.50% and 2.50% per annum. As of December 31, 2016, the aggregate outstanding balance under these loans was $321.9million, with $39.8 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, U.K. Notes, are denominated in British pound sterling and are being repaid in monthly installments that will mature bySeptember 2034. As of December 31, 2016, borrowings under the U.K. Notes totaled $50.4 million, with $4.3 million classified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets.We also have a revolving working capital loan agreement with a third-party financial institution in the U.K. As of December 31, 2016, short-termborrowings under the U.K. third-party loan totaled $7.3 million.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 denominated in Brazilian real and is secured by one of the Company’s Brazilian properties aspurchased and/or constructed, as well as a guarantee from the Company. The Brazil Note is being repaid in monthly installments that will mature by April2025. As of December 31, 2016, borrowings under the Brazil Note totaled $3.8 million, with $0.4 million classified as a current maturity of long-term debt inthe accompanying Consolidated Balance Sheets.We also have a working capital loan agreement with a third-party financial institution in Brazil. The principal balance on this loan is due by February2017 with interest only payments being made until the due date. As of December 31, 2016, borrowings under the Brazilian third-party loan totaled $6.8million classified as a current maturity of 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 February 2016, the Board of Directors approved a new authorization of $150.0 million, replacing the authorization remaining at that time. Under theauthorizations, we repurchased 2,282,579 shares during 2016 at an average price of $55.90 per share, for a total of $127.6 million, leaving $22.4 millionavailable for future repurchases. 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.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, certain mortgage term loans, 5.00% Notes and 5.25% Notes in our ability tomake cash dividend payments to our stockholders and to repurchase shares of our outstanding common stock. As of December 31, 2016, the restrictedpayment baskets limited us to $132.3 million in restricted payments. Generally, these restricted payment baskets will increase in the future periods by 50.0%of our future cumulative net income, adjusted to exclude the Company’s foreign operations, non-cash interest expense, non-cash asset impairment charges,and non-cash stock-based compensation, plus the net proceeds received from the sale of our capital stock, and decrease by the amount of future payments forcash dividends and share repurchases.79Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.Contractual ObligationsThe following is a summary of our contractual obligations as of December 31, 2016: Payments Due by PeriodContractual Obligations Total < 1 Year 1-3 Years 3-5 Years Thereafter (In thousands) Floorplan notes payable $1,444,189 $1,444,189 $— $— $—Estimated interest payments on floor plan notespayable (1) 18,045 8,857 5,250 3,938 —Debt obligations (2) 1,278,898 105,658 105,008 84,829 983,403Estimated interest payments on fixed-rate long-term debt obligations (3) 273,196 47,124 92,444 89,340 44,288Estimated interest payments on variable-rate long-term debt obligations (4) 36,046 7,883 11,880 8,343 7,940Capital lease obligations 47,613 4,187 8,559 9,336 25,531Estimated interest on capital lease obligations 30,756 4,539 8,009 6,426 11,782Operating lease obligations 394,470 56,706 88,608 66,455 182,701Estimated interest payments on interest rate riskmanagement obligations (5) 31,910 12,166 17,283 2,461 —Purchase commitments (6) 42,636 11,695 19,802 9,826 1,313Total $3,597,759 $1,703,004 $356,843 $280,954 $1,256,958(1)Calculated using the Floorplan Line outstanding balance and weighted average interest rate at December 31, 2016, and the assumption that these liabilities would be settled within62 days, which approximates our weighted average inventory days outstanding. In addition, amounts include estimated commitment fees on the unused portion of the FloorplanLine through the term of the Revolving Credit Facility, assuming no additional Floorplan Line borrowings beyond 62 days.(2)Payments due within 1 year include $37.1 million of outstanding letters of credit associated with the Acquisition Line of our Revolving Credit Facility.(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, commitment fees on the unused portion of the Acquisition Line throughthe term of the Revolving Credit Facility, and estimated interest on our U.K. Notes, Brazil Note and other real estate related debt.(5)Amounts represent the estimated net future settlement of our obligation to pay a fixed interest rate and right to receive a variable interest rate, based upon a forecasted LIBORforward curve and the maturity date of each obligation. The estimated fair value of these obligations as of December 31, 2016 was $24.4 million. These amounts exclude theimpact of estimated net future settlements in which our right to receive a variable interest rate exceeds our obligation to pay a fixed interest rate of $0.6 million and $4.7 millionfor periods 3-5 years and Thereafter, respectively.(6)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. As of December 31, 2016, there were no indemnification claims.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 be80Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repair of the leased premises upontermination of the lease. However, we presently have no reason to believe that we will be called on to so perform and such obligations cannot be quantified atthis time.Non-GAAP Financial MeasuresIn addition to evaluating the financial condition and results of our operations in accordance with U.S. GAAP, from time to time our managementevaluates and analyzes results and any impact on the Company of strategic decisions and actions relating to, among other things, cost reduction, growth, andprofitability improvement initiatives, and other events outside of normal, or "core," business and operations, by considering alternative financial measuresnot prepared in accordance with U.S. GAAP. In our evaluation of results from time to time, we exclude items that do not arise directly from core operations,such as non-cash asset impairment charges, gains and losses on dealership franchise or real estate transactions, and catastrophic weather events such as hailstorms, hurricanes, and snow storms. Because these non-core charges and gains materially affect the Company's financial condition or results in the specificperiod in which they are recognized, management also evaluates, and makes resource allocation and performance evaluation decisions based on, the relatednon-GAAP measures excluding such items. This includes evaluating measures such as adjusted selling, general and administrative expenses, adjusted netincome, adjusted diluted income per share, adjusted cash flows from operating, investing and financing activities and constant currency. These adjustedmeasures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures. Non-GAAPmeasures do not have definitions under U.S. GAAP and may be defined differently by and not be comparable to similarly titled measures used by othercompanies. As a result, any non-GAAP financial measures considered and evaluated by management are reviewed in conjunction with a review of the mostdirectly comparable measures calculated in accordance with U.S. GAAP. We caution investors not to place undue reliance on such non-GAAP measures, butalso to consider them with the most directly comparable U.S. GAAP measures.In addition to using such non-GAAP measures to evaluate results in a specific period, management believes that such measures may provide morecomplete and consistent comparisons of operational performance on a period-over-period historical basis and a better indication of expected future trends.Our management also uses these adjusted measures in conjunction with U.S. GAAP financial measures to assess our business, including communication withour Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures, and the relatedreconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance, and to allow investors to betterunderstand and evaluate the information used by management to assess operating performance. The exclusion of certain expenses in the calculation of non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. We anticipate excluding these expenses in thefuture presentation of our non-GAAP financial measures.In addition, we evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is anon-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information providesvaluable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. Wecalculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than U.S. dollars usingcomparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measuresshould not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.The following tables reconcile certain reported non-GAAP measures to the most comparable U.S. GAAP measure from our Statements of Operations bysegment and on a consolidated basis (dollars in thousands, except per share amounts). Only adjusted amounts are reconciled below:81Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. U.S. Adjustments for Year Ended December 31, 2016 U.S. GAAPCatastrophic eventsGain (loss) on realestate anddealershiptransactionsSeverance costsAcquisition costsLegal settlementsNon-cash assetimpairmentNon-GAAPAdjustedSelling, general and administrativeexpenses$965,139$(5,873)$2,838$(1,837)$(30)$11,671$—$971,908Asset impairments21,794—(124)———(21,670)—Income (loss) from operations324,9445,873(2,714)1,83730(11,671)21,670339,969Income (loss) before income taxes222,1805,873(2,714)1,83730(11,671)21,670237,205Benefit (provision) for incometaxes(82,541)(2,207)1,015(686)(11)4,359(8,126)(88,197)Net income (loss)$139,639$3,666$(1,699)$1,151$19$(7,312)$13,544$149,008 SG&A as % Gross Profit:71.2 71.7Operating Margin %:3.7 3.9Pretax Margin %:2.5 2.7 Same Store SG&A$952,597$(5,873)$(385)$(1,837)$(30)$9,864$—$954,336Same Store SG&A as % GrossProfit:71.5 71.6 Same Store income (loss) fromoperations$315,206$5,873$385$1,837$30$(9,864)$21,653$335,120Same Store Operating Margin %:3.7 3.9 U.K. Adjustments for Year Ended December 31, 2016 U.S. GAAPGain (loss) on real estateand dealershiptransactionsSeverance costsAcquisition costsNon-cash assetimpairmentNon-GAAP AdjustedSelling, general and administrative expenses$158,636$(223)$(122)$(561)$—$157,730Asset impairments201(168)——(33)—Income from operations27,5513911225613328,658Income before income taxes18,1323911225613319,239Provision for income taxes(3,697)(78)(24)—(7)(3,806)Net income$14,435$313$98$561$26$15,433 SG&A as % Gross Profit:82.2 81.7Operating Margin %:1.6 1.7Pretax Margin %:1.1 1.1 Same Store SG&A$106,551$(61)$—$(561)$—$105,929Same Store SG&A as % Gross Profit:77.9 77.4 Same Store income from operations$25,718$61$—$561$—$26,340Same Store Operating Margin %:2.1 2.282Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Brazil Adjustments for Year Ended December 31, 2016 U.S. GAAPGain (loss) on real estateand dealershiptransactionsForeign transaction taxForeign deferredincome tax benefitNon-cash assetimpairmentNon-GAAP AdjustedSelling, general and administrative expenses$46,988$(372)$(274)$—$—$46,342Asset impairments10,843(423)——(10,420)—Income (loss) from operations(12,261)795274—10,420(772)Income (loss) before income taxes(12,941)795274—10,420(1,452)Benefit (provision) for income taxes5,932—$—(1,686)(3,543)703Net income (loss)$(7,009)$795$274$(1,686)$6,877$(749) SG&A as % Gross Profit:100.5 99.2Operating Margin %:(2.9) (0.2)Pretax Margin %:(3.0) (0.3) Same Store SG&A$43,393$—$(274)$—$—$43,119Same Store SG&A as % Gross Profit:96.5 95.9 Same Store income (loss) from operations$(9,903)$423$274$—$9,901$695Same Store Operating Margin %:(2.4) 0.283Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Consolidated Adjustments for Year Ended December 31, 2016 U.S. GAAPCatastrophiceventsGain (loss) onreal estate anddealershiptransactionsSeverancecostsAcquisitioncostsLegal settlements (1)Foreigntransaction taxForeigndeferredincome taxbenefitNon-cash assetimpairmentNon-GAAPAdjustedSelling, general andadministrative expenses$1,170,763$(5,873)$2,243$(1,959)$(591)$11,671$(274)$—$—$1,175,980Asset impairments32,838—(714)—————(32,124)—Income (loss) from operations340,2345,873(1,529)1,959591(11,671)274—32,124367,855Income (loss) before incometaxes227,3715,873(1,529)1,959591(11,671)274—32,124254,992Benefit (provision) for incometaxes(80,306)(2,207)937(710)(11)4,359—(1,686)(11,676)(91,300)Net income (loss)147,0653,666(592)1,249580(7,312)274(1,686)20,448163,692Less: Adjusted earnings (loss)allocated to participatingsecurities5,869147(24)5023(293)11(68)8226,537Adjusted net income (loss)available to diluted commonshares$141,196$3,519$(568)$1,199$557$(7,019)$263$(1,618)$19,626$157,155 Diluted income (loss) percommon share$6.67$0.17$(0.03)$0.05$0.02$(0.33)$0.01$(0.07)$0.93$7.42 Effective tax rate %35.3 35.8 SG&A as % Gross Profit:73.4 73.7Operating Margin %:3.1 3.4Pretax Margin %:2.1 2.3 Same Store SG&A$1,102,541$(5,873)$(446)$(1,837)$(591)$9,864$(274)$—$—$1,103,384Same Store SG&A as % GrossProfit:72.8 72.9 Same Store income (loss) fromoperations (2)$331,021$5,873$869$1,837$591$(9,864)$274$—$31,554$362,155Same Store Operating Margin%:3.2 3.6(1)For the year ended December 31, 2016, the Company recognized a net pre-tax gain related to a settlement with an OEM of $11.7 million ($9.9 million on a Same Store basis).(2)Same Store loss on real estate and dealership transactions of $0.9 million, includes the impact of non-cash impairment charges of $0.4 million related to Brazil.84Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. U.S. Adjustments for Year Ended December 31, 2015 U.S. GAAPCatastrophic eventsGain (loss) on realestate and dealershiptransactionsLegal settlementsNon-cash assetimpairmentNon-GAAP AdjustedSelling, general and administrative expenses$958,608$(1,588)$8,891$(1,000)$—$964,911Asset impairments18,983———(18,983)—Income (loss) from operations320,1361,588(8,891)1,00018,983332,816Income (loss) before income taxes231,7971,588(8,892)1,00018,983244,476Benefit (provision) for income taxes(89,433)(597)3,413(390)(7,080)(94,087)Net income (loss)$142,364$991$(5,479)$610$11,903$150,389 SG&A as % Gross Profit:71.6 72.1Operating Margin %:3.6 3.7Pretax Margin %:2.6 2.72015 v. 2016 Same Store SG&A (1)$939,535$(1,588)$(569)$(1,000)$—$936,378Same Store SG&A as % Gross Profit: (1)71.6 71.4 Same Store income from operations (1)$315,399$1,588$569$1,000$16,535$335,091Same Store Operating Margin %: (1)3.6 3.92015 v. 2014 Same Store SG&A (1)$917,927$(1,588)$(819)$(1,000)$—$914,520Same Store SG&A as % Gross Profit: (1)72.3 72.0 Same Store income from operations (1)$293,251$1,588$819$1,000$18,694$315,352Same Store Operating Margin %: (1)3.5 3.7(1) As further described in “Results of Operations,” Same Store results for 2015 that are compared to 2016 differ from those used in the comparison to 2014.85Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. U.K. Adjustments for Year Ended December 31, 2015 U.S. GAAPSeverance costsNon-cash asset impairmentNon-GAAP AdjustedSelling, general and administrative expenses$108,719$(208)$—$108,511Asset impairments330—(330)—Income from operations24,29020833024,828Income before income taxes18,87920833019,417Provision for income taxes(3,655)(41)(67)(3,763)Net income$15,224$167$263$15,654 SG&A as % Gross Profit:79.0 78.8Operating Margin %:2.0 2.0Pretax Margin %:1.5 1.62015 v. 2016 Same Store SG&A (1)$108,770$(208)$—$108,562Same Store SG&A as % Gross Profit: (1)79.0 78.9 Same Store income from operations (1)$24,232$208$330$24,770Same Store Operating Margin %: (1)2.0 2.02015 v. 2014 Same Store SG&A (1)$88,767$—$—$88,767Same Store SG&A as % Gross Profit: (1)77.1 77.1 Same Store income from operations (1)$22,913$—$330$23,243Same Store Operating Margin %: (1)2.3 2.3(1) As further described in “Results of Operations,” Same Store results for 2015 that are compared to 2016 differ from those used in the comparison to 2014.86Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Brazil Adjustments for Year Ended December 31, 2015 U.S. GAAPGain (loss) on real estate anddealership transactionsSeverance costsNon-cash asset impairmentNon-GAAP AdjustedSelling, general and administrative expenses$53,506$(520)$(226)$—$52,760Asset impairments68,249——(68,249)—Income (loss) from operations(66,088)52022668,2492,907Income (loss) before income taxes(68,505)52022668,249490Benefit (provision) for income taxes4,916—(7)(5,996)(1,087)Net income (loss)$(63,589)$520$219$62,253$(597) SG&A as % Gross Profit:93.3 92.0Operating Margin %:(12.8) 0.6Pretax Margin %:(13.2) 0.12015 v. 2016 Same Store SG&A (1)$44,677$—$(150)$—$44,527Same Store SG&A as % Gross Profit: (1)85.2 84.9 Same Store income from operations (1)$(59,460)$—$150$66,021$6,711Same Store Operating Margin %: (1)(12.3) 1.42015 v. 2014 Same Store SG&A (1)$51,463$—$(226)$—$51,237Same Store SG&A as % Gross Profit: (1)91.4 91.0 Same Store income from operations (1)$(64,523)$—$226$67,708$3,411Same Store Operating Margin %: (1)(12.7) 0.7(1) As further described in “Results of Operations,” Same Store results for 2015 that are compared to 2016 differ from those used in the comparison to 2014.87Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Consolidated Adjustments for Year Ended December 31, 2015 U.S. GAAPCatastrophic eventsGain (loss) on realestate anddealershiptransactionsSeverance costsLegal settlementsNon-cash assetimpairmentNon-GAAPAdjustedSelling, general andadministrative expenses$1,120,833$(1,588)$8,372$(435)$(1,000)$—$1,126,182Asset impairments87,562————(87,562)—Income (loss) fromoperations278,3381,588(8,372)4351,00087,562360,554Income (loss) beforeincome taxes182,1711,588(8,372)4351,00087,562264,387Benefit (provision) forincome taxes(88,172)(597)3,413(48)(390)(13,143)(98,937)Net income (loss)93,999991(4,959)38761074,419165,450Less: Adjusted earnings(loss) allocated toparticipating securities3,59538(190)15232,8576,338Adjusted net income (loss)available to dilutedcommon shares$90,404$953$(4,769)$372$587$71,562$159,112 Diluted income (loss) percommon share$3.90$0.04$(0.21)$0.02$0.03$3.09$6.87 Effective tax rate %48.4 37.4 SG&A as % Gross Profit:73.1 73.4Operating Margin %:2.6 3.4Pretax Margin %:1.7 2.52015 v. 2016 Same Store SG&A (1)$1,092,982$(1,588)$(569)$(358)$(1,000)$—$1,089,467Same Store SG&A as %Gross Profit: (1)72.8 72.6 Same Store income fromoperations (1)$280,171$1,588$569$358$1,000$82,889$366,575Same Store OperatingMargin %: (1)2.7 3.52015 v. 2014 Same Store SG&A (1)1,058,157$(1,588)$(819)$(226)$(1,000)$—1,054,524Same Store SG&A as %Gross Profit: (1)73.4 73.2 Same Store income fromoperations (1)251,641$1,588$819$226$1,000$86,735342,009Same Store OperatingMargin %: (1)2.5 3.4(1) As further described in “Results of Operations,” Same Store results for 2015 that are compared to 2016 differ from those used in the comparison to 2014.88Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. U.S. Adjustments for Year Ended December 31, 2014 U.S. GAAPCatastrophic eventsGain (loss) on realestate anddealershiptransactionsLegal settlementsLoss onextinguishment ofdebtNon-cash assetimpairmentNon-GAAPAdjustedSelling, general andadministrative expenses$891,693$(2,775)$13,835$(442)$—$—$902,311Asset impairments15,570————(15,570)—Income (loss) fromoperations301,9432,775(13,835)442—15,570306,895Income (loss) beforeincome taxes174,9642,775(13,835)44246,40315,570226,319Benefit (provision) forincome taxes(77,715)(1,065)6,002(168)(7,692)(5,827)(86,465)Net income (loss)$97,249$1,710$(7,833)$274$38,711$9,743$139,854 SG&A as % Gross Profit:71.6 72.4Operating Margin %:3.7 3.8Pretax Margin %:2.1 2.8 Same Store SG&A$867,951$(2,775)$(1,200)$(442)$—$—$863,534Same Store SG&A as %Gross Profit:71.8 71.4 Same Store income fromoperations$294,088$2,775$1,200$442$—$11,610$310,115Same Store OperatingMargin %:3.7 3.9 U.K. Adjustments for Year Ended December 31, 2014 U.S. GAAPAcquisition costsNon-GAAP AdjustedSelling, general and administrative expenses$90,427$(188)$90,239Asset impairments———Income from operations21,56318821,751Income before income taxes17,83618818,024Provision for income taxes(3,561)—(3,561)Net income$14,275$188$14,463 SG&A as % Gross Profit:78.4 78.2Operating Margin %:2.2 2.2Pretax Margin %:1.8 1.8 Same Store SG&A$88,670$(188)$88,482Same Store SG&A as % Gross Profit:77.9 77.8 Same Store income from operations$21,786$188$21,974Same Store Operating Margin %:2.3 2.389Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Brazil Adjustments for Year Ended December 31, 2014 U.S. GAAPGain (loss) on realestate and dealershiptransactionsSeverance costsForeign transactiontaxForeign deferredincome tax benefitNon-cash assetimpairmentNon-GAAPAdjustedSelling, general andadministrative expenses$79,844$(495)$(781)$(416)$—$—$78,152Asset impairments25,950————(25,950)—Income from operations(21,396)495781416—25,9506,246Income (loss) beforeincome taxes(28,400)495781415—25,950(759)Benefit (provision) forincome taxes9,880—(8)(141)(3,358)(8,189)(1,816)Net income (loss)$(18,520)$495$773$274$(3,358)$17,761$(2,575) SG&A as % Gross Profit:92.2 90.2Operating Margin %:(2.8) 0.8Pretax Margin %:(3.7) (0.1) Same Store SG&A$69,504$—$(329)$(416)$—$—$68,759Same Store SG&A as %Gross Profit:87.0 86.1 Same Store income fromoperations$(12,212)$—$329$416$—$20,778$9,311Same Store OperatingMargin %:(1.7) 1.390Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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. Consolidated Adjustments for Year Ended December 31, 2014 U.S. GAAPCatastrophiceventsGain (loss) on realestate anddealershiptransactionsSeverance costsAcquisitioncostsLegalsettlementsForeigntransaction taxLoss onextinguishmentof debtForeigndeferredincome taxbenefitNon-cash assetimpairmentNon-GAAPAdjustedSelling, general andadministrativeexpenses$1,061,964$(2,775)$13,339$(781)$(188)$(442)$(416)$—$—$1,070,701Asset impairments41,520———————(41,520)—Income (loss) fromoperations302,1102,775(13,339)781188442416——41,520334,893Income (loss)before income taxes164,4002,775(13,339)78118844241546,403—41,520243,585Benefit (provision)for income taxes(71,396)(1,065)6,002(8)—(168)(141)(7,692)(3,358)(14,016)(91,842)Net income (loss)93,0041,710(7,337)77318827427438,711(3,358)27,504151,743Less: Adjustedearnings (loss)allocated toparticipatingsecurities3,46864(273)29711111,438(124)1,0215,652Adjusted net income(loss) available todiluted commonshares$89,536$1,646$(7,064)$744$181$263$263$37,273$(3,234)$26,483$146,091 Diluted income(loss) per commonshare$3.60$0.07$(0.28)$0.03$0.01$0.01$0.01$1.50$(0.13)$1.05$5.87 Effective tax rate43.4 37.7 SG&A as % GrossProfit:73.3 73.9Operating Margin%:3.0 3.4Pretax Margin %:1.7 2.5 Same Store SG&A$1,026,125$(2,775)$(1,200)$(329)$(188)$(442)$(416)$—$—$—$1,020,775Same Store SG&Aas % Gross Profit:73.1 72.8 Same Store incomefrom operations$303,662$2,775$1,200$329$188$442$416$—$—$32,388$341,400Same StoreOperating Margin%:3.2 3.691Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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, 2016 2015 2014CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $384,857 $141,047 $198,288Change in floorplan notes payable-credit facilities, excluding floorplan offset account and netacquisition and disposition (113,116) 100,302 5,881Change in floorplan notes payable-manufacturer affiliates associated with net acquisition anddisposition related activity — 3,000 2,970Adjusted net cash provided by operating activities $271,741 $244,349 $207,139CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities $(174,040) $(284,502) $(347,051)Change in cash paid for acquisitions, associated with floorplan notes payable — 32,140 92,112Change in proceeds from disposition of franchises, property and equipment, associated withfloorplan notes payable (16,599) (14,429) (60,493)Adjusted net cash used by investing activities $(190,639) $(266,791) $(315,432)CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by (used in) operating activities $(205,007) $121,009 $171,650Change in net borrowings and repayments on floorplan notes payable-credit facilities,excluding net activity associated with our floorplan offset account 129,715 (121,013) (40,470)Adjusted net cash provided by (used in) financing activities $(75,292) $(4) $131,18092Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 primarilythrough the use of interest rate swaps. We do not currently hedge foreign exchange risk, as discussed further below. The following quantitative andqualitative information is provided about foreign currency exchange rates and financial instruments to which we are a party at December 31, 2016, and fromwhich we may incur future gains or losses from changes in market interest rates. We do not enter into derivative or other financial instruments for speculativeor 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, 2016, our 5.00% Notes, with an outstanding principal amount of $550.0 million, had a fair value and carrying amount of $548.4million and $540.5 million, respectively. Our 5.25% Notes, with an outstanding principal amount of $300.0 million, had a fair value and carrying amount of$297.0 million and $295.6 million, respectively, at December 31, 2016. Our other fixed-rate debt, primarily consisting of real estate related debt, hadoutstanding borrowings of $93.9 million as of December 31, 2016. The fair value of such fixed interest rate borrowings was $94.5 million as of December 31,2016.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 31,2016, we held interest rate swaps in effect with aggregate notional amounts of $765.3 million that fixed our underlying one-month LIBOR at a weightedaverage rate of 2.5%. These hedge instruments are designed to convert floating rate vehicle floorplan payables under our Revolving Credit Facility andvariable rate real estate related borrowings to fixed rate debt. We entered into these swaps with several financial institutions that have investment grade creditratings, thereby minimizing the risk of credit loss. We reflect the current fair value of all derivatives on our Consolidated Balance Sheets. The fair value ofinterest rate 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 onthese transactions are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. As of December 31, 2016, net unrealizedlosses, net of income taxes, totaled $9.3 million. These deferred gains and losses are recognized in income in the period in which the related items beinghedged are recognized in expense. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value ofthe items being hedged, that ineffective portion is immediately recognized in the results of operations. All of our interest rate hedges are designated as cashflow hedges and were determined to be effective. In addition to the $765.3 million of swaps in effect as of December 31, 2016, we also held 13 interest rateswaps with forward start dates between January 2017 and December 2020 and expiration dates between December 2019 and December 2030. As of December31, 2016, the aggregate notional amount of these swaps was $675.0 million with a weighted average interest rate of 2.2%. The combination of these swaps isstructured such that the notional value in effect at any given time through December 2030 does not exceed $908.6 million.A summary of our interest rate swaps, including those in effect, as well as forward-starting, follows (dollars in millions): 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030Averagenotionalamount ineffect duringthe period $612 $814 $811 $908 $555 $424 $163 $129 $125 $125 $100 $100 $100 $100 $100Weightedaverage interestrate during theperiod 2.65% 2.54% 2.60% 2.28% 2.19% 1.75% 1.72% 1.80% 1.81% 1.81% 1.85% 1.85% 1.85% 1.85% 1.85%As of December 31, 2016, we had $1,588.6 million of variable-rate borrowings outstanding. Based on the average amount of variable-rate borrowingsoutstanding for 2016, and before the impact of our interest rate swaps described below, a 100 basis-point change in interest rates would have resulted in anapproximate $16.3 million change to our annual interest expense. After consideration of the average interest rate swaps in effect during 2016, a 100 basis-point change would have93Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.yielded a net annual change of $10.2 million in annual interest expense. This interest rate sensitivity increased from 2015 primarily as a result of the increasein 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, 2016 and December 31, 2015, we recognized $49.2 million and$50.5 million of interest assistance as a reduction of new vehicle cost of sales, respectively. For the past three years, the reduction to our new vehicle cost ofsales has ranged from 90% of our floorplan interest expense for the first quarter of 2014 to 139.9% in the third quarter of 2015. In the U.S., manufacturer’sinterest assistance was 121.8% of floorplan interest expense in the fourth quarter of 2016. Although we can provide no assurance as to the amount of futureinterest assistance, it is our expectation, based on historical practice of the OEMs, that an increase in prevailing interest rates would result in increasedassistance from certain manufacturers over time.Foreign Currency Exchange Rates. As of December 31, 2016, we had dealership operations in the U.K. and Brazil. The functional currency of our U.K.subsidiaries is the British pound sterling (£) and of our Brazil subsidiaries is the Brazilian real (R$). 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 $156.7 million decrease to our revenues for the year ended December 31, 2016. A 10%devaluation in average exchange rates for the Brazilian real to the U.S. dollar would have resulted in a $39.1 million decrease to our revenues for the yearended December 31, 2016. 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, 2016 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.94Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Changes in Internal Control over Financial ReportingDuring the three months ended December 31, 2016, 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, 2016. 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, 2016,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, 2017, appears on the following page.Item 9B. Other InformationNone.95Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016, 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, 2016, 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, 2016 and 2015, 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, 2016 of Group 1 Automotive, Inc. and subsidiariesand our report dated February 17, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPHouston, TexasFebruary 17, 201796Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2017.NameAgePositionYears with Group 1Years ofAutomotiveExperienceEarl J. Hesterberg63President and Chief Executive Officer1242John C. Rickel55Senior Vice President and Chief Financial Officer11.533Frank Grese Jr.65Senior Vice President of Human Resources, Training, and Operations Support1242Darryl M. Burman58Vice President and General Counsel1019Peter C. DeLongchamps56Vice President, Financial Services and Manufacturer Relations12.534Earl 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, and holding various management positions in the automotive industry. Immediately prior to joining the Company in 2004,97Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Mr. DeLongchamps was President of Advantage BMW, a Houston‑based automotive retailer. Mr. DeLongchamps also serves on the Board of Directors ofJunior Achievement of Southeast Texas.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 2017 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2016.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 2017 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2016.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 2017 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2016.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 2017 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2016.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 2017 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2016.98Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.99Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2017. 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, 2017.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/ Charles L. Szews DirectorCharles L. Szews /s/ Max P. Watson, Jr. DirectorMax P. Watson, Jr. /s/ MaryAnn Wright DirectorMaryAnn Wright 100Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2017Powered 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, 2016, and 2015, and therelated consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2016. 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, 2016, and 2015, and the consolidated results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2016, 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, 2016, 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, 2017 expressed anunqualified opinion thereon./s/ Ernst & Young LLPHouston, TexasFebruary 17, 2017F-2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 December 31, 2015 (In thousands, except pershare amounts)ASSETSCURRENT ASSETS: Cash and cash equivalents $20,992 $13,037Contracts-in-transit and vehicle receivables, net 269,508 252,438Accounts and notes receivable, net 173,364 157,768Inventories, net 1,651,815 1,737,751Prepaid expenses and other current assets 34,908 27,376Total current assets 2,150,587 2,188,370PROPERTY AND EQUIPMENT, net 1,125,883 1,033,981GOODWILL 876,763 854,915INTANGIBLE FRANCHISE RIGHTS 284,876 307,588OTHER ASSETS 23,794 11,862Total assets $4,461,903 $4,396,716LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other $1,136,654 $1,265,719Offset account related to floorplan notes payable - credit facility (59,626) (110,759)Floorplan notes payable — manufacturer affiliates 392,661 389,071Offset account related to floorplan notes payable - manufacturer affiliates (25,500) (25,500)Current maturities of long-term debt and short-term financing 72,419 54,991Current liabilities from interest rate risk management activities 3,941 —Accounts payable 356,099 280,423Accrued expenses 176,469 185,323Total current liabilities 2,053,117 2,039,268LONG-TERM DEBT, net of current maturities 1,212,809 1,199,534DEFERRED INCOME TAXES 161,502 136,644LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES 20,470 31,153OTHER LIABILITIES 83,805 71,865COMMITMENTS 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; 25,663 and 25,706 issued, respectively 257 257Additional paid-in capital 290,899 291,092Retained earnings 1,053,301 926,169Accumulated other comprehensive loss (146,944) (137,984)Treasury stock, at cost; 4,258 and 2,291 shares, respectively (267,313) (161,282)Total stockholders’ equity 930,200 918,252Total liabilities and stockholders’ equity $4,461,903 $4,396,716The accompanying notes are an integral part of these consolidated financial statements.F-3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 2015 2014 (In thousands, except per share amounts)REVENUES: New vehicle retail sales $6,046,075 $6,001,306 $5,741,619Used vehicle retail sales 2,757,713 2,638,969 2,324,868Used vehicle wholesale sales 401,863 397,251 379,143Parts and service sales 1,261,307 1,186,193 1,125,694Finance, insurance and other, net 420,654 408,786 366,565Total revenues 10,887,612 10,632,505 9,937,889COST OF SALES: New vehicle retail sales 5,729,697 5,695,829 5,430,402Used vehicle retail sales 2,575,234 2,459,499 2,151,346Used vehicle wholesale sales 406,305 399,171 376,824Parts and service sales 581,307 544,034 531,379Total cost of sales 9,292,543 9,098,533 8,489,951GROSS PROFIT 1,595,069 1,533,972 1,447,938SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,170,763 1,120,833 1,061,964DEPRECIATION AND AMORTIZATION EXPENSE 51,234 47,239 42,344ASSET IMPAIRMENTS 32,838 87,562 41,520INCOME FROM OPERATIONS 340,234 278,338 302,110OTHER EXPENSE: Floorplan interest expense (44,927) (39,264) (41,614)Other interest expense, net (67,936) (56,903) (49,693)Loss on extinguishment of long-term debt — — (46,403)INCOME BEFORE INCOME TAXES 227,371 182,171 164,400PROVISION FOR INCOME TAXES (80,306) (88,172) (71,396)NET INCOME $147,065 $93,999 $93,004BASIC EARNINGS PER SHARE $6.67 $3.91 $3.82Weighted average common shares outstanding 21,161 23,148 23,380DILUTED EARNINGS PER SHARE $6.67 $3.90 $3.60Weighted average common shares outstanding 21,170 23,152 24,885CASH DIVIDENDS PER COMMON SHARE $0.91 $0.83 $0.70The accompanying notes are an integral part of these consolidated financial statements.F-4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 2015 2014 (In thousands)NET INCOME $147,065 $93,999 $93,004Other comprehensive loss, net of taxes: Unrealized loss on foreign currency translation (19,081) (54,457) (27,426)Realized gain on foreign currency translation associated with disposition offoreign subsidiaries — — 1,178Net unrealized loss on foreign currency translation (19,081) (54,457) (26,248)Net unrealized gain (loss) on interest rate management activities: Unrealized gain (loss) arising during the period, net of tax benefit (provision) of($1,037), $5,914, and $6,692, respectively 1,728 (9,856) (11,153)Reclassification adjustment for loss included in interest expense, net of taxprovision of $5,036, $4,987 and $4,256, respectively 8,393 8,313 7,094Unrealized (loss) gain on interest rate swaps, net of tax 10,121 (1,543) (4,059)OTHER COMPREHENSIVE LOSS, NET OF TAXES (8,960) (56,000) (30,307)COMPREHENSIVE INCOME $138,105 $37,999 $62,697The accompanying notes are an integral part of these consolidated financial statements.F-5Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 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)Acquisition of treasury stock — — — — — (36,802) (36,802)Net temporary equity adjustment related to 3.00%and 2.25% Convertible Notes — — (14,163) — — — (14,163)Repurchase of equity component of 3.00%Convertible Notes — — (118,044) — — — (118,044)Call/Warrant equity settlement on 3.00% ConvertibleNotes repurchase — — 32,641 — — — 32,641Conversion of equity component of 2.25%Convertible Notes — — (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 relativeto participating 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)Acquisition 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 relativeto participating securities — — — (19,887) — — (19,887)BALANCE, December 31, 2015 25,706 $257 $291,092 $926,169 $(137,984) $(161,282) $918,252Net income — — — 147,065 — — 147,065Other comprehensive loss, net — — — — (8,960) — (8,960)Acquisition of treasury stock — — — — — (129,187) (129,187)Net issuance of treasury shares to employee stockcompensation plans (43) — (20,963) — — 23,156 2,193Stock-based compensation, including tax effect of($249) — — 20,770 — — — 20,770Cash dividends, net of estimated forfeitures relativeto participating securities — — — (19,933) — — (19,933)BALANCE, December 31, 2016 25,663 $257 $290,899 $1,053,301 $(146,944) $(267,313) $930,200The accompanying notes are an integral part of these consolidated financial statements.F-6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 2015 2014 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income $147,065 $93,999 $93,004Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 51,234 47,239 42,344Deferred income taxes 14,162 11,884 12,319Asset impairments 32,838 87,562 41,520Stock-based compensation 21,073 18,851 16,012Amortization of debt discount and issue costs 3,694 3,652 10,559Loss on 3.00% Convertibles Notes repurchase — — 29,478Loss on 2.25% Convertible Notes conversion and redemption — — 16,925Gain on disposition of assets (2,675) (9,719) (15,994)Tax effect from excess stock-based compensation 249 (2,142) (1,841)Other 835 3,334 4,686Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts payable and accrued expenses 76,126 25,108 37,344Accounts and notes receivable (18,663) (17,887) (20,179)Inventories 79,319 (186,634) 27,339Contracts-in-transit and vehicle receivables (15,621) (17,944) (10,530)Prepaid expenses and other assets 8,244 (3,153) (5,385)Floorplan notes payable — manufacturer affiliates (12,630) 87,516 (78,822)Deferred revenues (393) (619) (491)Net cash provided by operating activities 384,857 141,047 198,288CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash received (57,327) (212,252) (336,551)Proceeds from disposition of franchises, property and equipment 36,843 41,581 144,597Purchases of property and equipment, including real estate (156,521) (120,252) (150,392)Other 2,965 6,421 (4,705)Net cash used in investing activities (174,040) (284,502) (347,051)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility — floorplan line and other 6,597,406 7,557,237 7,832,014Repayments on credit facility — floorplan line and other (6,676,161) (7,504,516) (7,802,719)Borrowings on credit facility — acquisition line 220,020 489,548 389,368Repayments on credit facility — acquisition line (220,020) (557,696) (379,681)Net borrowings on 5.00% Senior Unsecured Notes — — 539,600Net borrowings on 5.25% Senior Unsecured Notes — 296,250 —Debt issue costs (3,513) (788) (1,881)Repurchase of 3.00% Convertible Notes — — (260,074)Proceeds from Call/Warrant Unwind related to 3.00% Convertible Notes — — 32,697Conversion and redemption of 2.25% Convertible Notes — — (182,756)Borrowings on other debt 49,972 59,855 91,137Principal payments on other debt (45,928) (63,769) (85,905)Borrowings on debt related to real estate 42,654 32,026 112,179Principal payments on debt related to real estate loans (25,463) (72,079) (59,950)Issuance of common stock to benefit plans, net 3,868 214 (321)Repurchases of common stock, amounts based on settlement date (127,606) (97,473) (36,802)Tax effect from stock-based compensation (249) 2,142 1,841Dividends paid (19,987) (19,942) (17,097)Net cash (used in) provided by financing activities (205,007) 121,009 171,650EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,145 (5,492) (2,127)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,955 (27,938) 20,760CASH AND CASH EQUIVALENTS, beginning of period 13,037 40,975 20,215Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 AND CASH EQUIVALENTS, end of period $20,992 $13,037 $40,975SUPPLEMENTAL CASH FLOW INFORMATION: Purchases of property and equipment, including real estate, accrued in accounts payable and accrued expenses $15,930 $32,720 $21,166The accompanying notes are an integral part of these consolidated financial statements.F-7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.”), 20 towns in the United Kingdom (“U.K.”), and four 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, 2016, the Company’s U.S. retail network consisted of the following two regions (with the number of dealerships they comprised):(a) the East (36 dealerships in Alabama, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, and South Carolina),and (b) the West (75 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, 2016, the Company had two international regions: (a) the U.K. region, which consisted of 30dealerships in the U.K. and (b) the Brazil region, which consisted of 18 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 U.S. (“U.S. GAAP”) requiresmanagement to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosuresof contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Managementanalyzes the Company’s estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances;however, actual results could differ from such estimates. The significant estimates made by management in the accompanying Consolidated FinancialStatements relate to inventory market adjustments, reserves for future chargebacks on finance and vehicle service contract fees, self-insured property/casualtyinsurance exposure, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of goodwill and intangible franchiserights, 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 allocations of purchase price to the assets acquired and liabilitiesassumed are assigned and recorded based on estimates of fair value and are subject to change within the purchase price allocation period (generally one yearfrom the respective acquisition date). All intercompany balances and transactions have been eliminated in consolidation.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. Taxes collected from customers andremitted to governmental agencies are not included in total revenues.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.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. InF-8Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)addition, the Company receives fees from the sale of insurance and vehicle service contracts to customers. Revenues from these fees are recorded at the timeof the sale of the vehicles as finance and insurance revenue earned. The Company may be charged back for unearned financing, insurance contract or vehicleservice contract fees in the event of early termination of the contracts by customers. A reserve for future amounts estimated to be charged back is recorded, asa reduction of Finance, insurance and other revenue, net in the accompanying Consolidated Statement of Operations, based on the Company’s historicalchargeback results and the termination provisions of the applicable contracts. While chargeback results vary depending on the type of contract sold, a 10%increase in the historical chargeback results used in determining estimates of future amounts that might be charged back would have increased the reserve atDecember 31, 2016 by $3.8 million. Further, through agreements with certain vehicle service contract administrators, the Company earns volume incentiverebates and interest income on reserves, as well as participates in the underwriting profits of the products.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, 2016 and 2015, cash and cash equivalents excluded $85.1 million and $136.3 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, 2016 and 2015,inventory cost had been reduced by $9.6 million and $10.3 million, respectively, for interest assistance received from manufacturers. New vehicle cost ofsales was reduced by $49.2 million, $50.5 million and $45.1 million for interest assistance received related to vehicles sold for the years ended December 31,2016, 2015 and 2014, respectively. The interest assistance over the past three years has ranged from approximately 90.0% of the Company’s quarterlyfloorplan interest expense in the first quarter of 2014 to 139.9% for the third quarter of 2015.Since 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, 2016, the Company’s used vehicle days’ supply was 35 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.F-9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations. The Company reviews long-lived assets for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not berecoverable (i.e., triggering events). This review consists of comparing the carrying amount of the asset with its expected future undiscounted cash flowswithout interest costs. If the asset’s carrying amount is greater than such cash flow estimate, then it is required to be written down to its fair value. Estimates ofexpected future cash flows represent management’s best estimate based on currently available information and reasonable and supportable assumptions. SeeNote 15, “Asset Impairments,” for additional details regarding the Company’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 theintangible 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 proceeds to step two of the impairment test. Step two involvesallocating the calculated fair value to all of the tangible and identifiable intangible assets of the reporting unit as if the calculated fair value were thepurchase 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 approach are assumptions regarding revenue growth rates,future gross margins, future selling, general and administrative expenses (“SG&A”) and an estimated weighted average cost of capital (“WACC”). TheCompany also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Specifically, with regard to thevaluation assumptions utilized in the income approach for the U.S. reporting units (which represents the Company’s largest two reporting units) as of October31, 2016, the Company based its analysis on an estimate of industry sales of 17.3 million units in 2017, and remaining flat for the remainder of the forecastedyears. For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pretax net income weighted asappropriate by reporting unit. Each of these assumptions requires the Company to use its knowledge of (1) the industry, (2) recent transactions and(3) reasonable performance expectations for its operations. If any one of the above assumptions change or fails to materialize, the resulting decline in theestimated fair value could result in a material, non-cash impairment charge to the goodwill associated with the reporting unit(s). See Note 15, “AssetImpairments,” and Note 16, “Intangible Franchise Rights and Goodwill,” for additional details regarding the Company’s goodwill.On June 23, 2016, the British citizens voted on a referendum in favor of exiting the European Union. The majority vote in favor of Brexit has createduncertainty in the global markets and in the regulatory environment in the U.K., as well as the overall European Union. The impact on the Company’sfinancial results and operations may not be known for some time, but could be adverse. In addition, automotive dealers in the U.K. rely on the legislativedoctrine of "Block Exemption" to govern market representation activities of competing dealers and dealer groups. To date, there has been no clear indicationof how such legislation may be effected by Brexit, but a change to such legislation could be adverse. If, as a result of the clarification of any of theseuncertainties, the estimates, assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail tomaterialize, the resulting decline in the estimated fair market value of such assets could result in a material non-cash impairment charge. While the Companyis not aware of any changes in circumstances that has resulted in a decline in fair value of these assets at this time, we continue to closely monitor thesituation.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 CompanyF-10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)believes that its franchise agreements will contribute to cash flows for an indefinite period and, therefore, the carrying amounts of the franchise rights are notamortized. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as part of goodwill in the U.S. reporting unitsand remain as part of goodwill in the U.S. reporting units at December 31, 2016 and 2015 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 Companycalculates 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 valuationallowances, that it believes will be realized, based primarily on the assumption of future taxable income. As it relates to state net operating losses, as well asnet operating losses and goodwill for certain Brazil subsidiaries, a corresponding valuation allowance has been established to the extent that the Companyhas determined that net income attributable to certain jurisdictions may not be sufficient 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 and/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, 2016, the Company’s 5.00% Notes had a carrying value of $540.5 million, and a fair value of $548.4 million.The Company’s 5.25% Notes had a carrying value of $295.6 million and a fair value of $297.0 million at December 31, 2016. Of the $385.4million and $365.6 million of real estate related and other long-term debt as of December 31, 2016 and December 31, 2015, respectively, $93.9 millionand $100.7 million represented fixed interest rate borrowings. The fair value of such fixed interest rate borrowings was $94.5 million and $102.4 million as ofDecember 31, 2016 and December 31, 2015, 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.F-11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)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. Thesedeferred gains and losses are recognized in income in the period in which the related items being hedged are recognized in expense. Monthly contractualsettlements of these swap positions are recognized as floorplan or other interest expense in the Company’s accompanying Consolidated Statements ofOperations. 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 beinghedged, that ineffective portion is immediately recognized in other income or expense. All of the Company’s interest rate hedges were designated as cashflow hedges and were deemed to be effective at December 31, 2016, 2015 and 2014.The Company measures the fair value of its interest rate derivative instruments utilizing an income approach valuation technique, converting futureamounts of 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 valueof its derivative instruments. In measuring fair value, the Company utilizes the option-pricing Black-Scholes present value technique for all of its derivativeinstruments. This option-pricing technique utilizes a one-month London Interbank Offered Rate (“LIBOR”) forward yield curve, obtained from anindependent external service provider, matched to the identical maturity term of the instrument being measured. Observable inputs utilized in the incomeapproach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contractmaturity. The fair value estimate of the interest rate derivative instruments also considers the credit risk of the Company for instruments in a liability positionor the counterparty for instruments in an asset position. The credit risk is calculated by using the spread between the one-month LIBOR yield curve and therelevant average 10 and 20-year 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. Further, the valuation measurement inputs minimize theuse of unobservable inputs. Accordingly, the Company has classified the derivatives within Level 2 of the ASC 820, Fair Value Measurement andDisclosures (“ASC 820”), hierarchy framework in Note 13, “Fair Value Measurements.” The Company validates the outputs of its valuation technique bycomparison to valuations from the respective counterparties. See Note 4, “Derivative Instruments and Risk Management Activities,” and Note 13, “Fair ValueMeasurements,” 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 isF-12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)excluded from net earnings available to common shares. Basic EPS is computed by dividing net income available to basic common shares by the weightedaverage number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net income available to diluted common sharesby 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, 2016, 2015, and 2014, totaled $75.3million, $74.6 million and $73.8 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. Advertising expense amounts related to vehicles still in inventory as of the balance sheet date are reflected in accrued expenses.Advertising expense has been reduced by $16.7 million, $17.3 million and $16.6 million for advertising assistance earned related to vehicles sold forthe years ended December 31, 2016, 2015 and 2014, 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 the manufacturers or distributors with considerable influence overthe operations of the dealership. The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management,marketing, production and distribution capabilities of the vehicle manufacturers or distributors of which the Company holds franchises. The Companypurchases substantially all of its new vehicles from various manufacturers or distributors at the prevailing prices to all franchised dealers. The Company’ssales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the dealerships with an adequate supply of vehicles. Forthe year ended December 31, 2016, Toyota (including Lexus, Scion and Toyota brands), BMW (including MINI and BMW brands), Ford (including Ford andLincoln 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 and Kia brands), FCA US (formerly Chrysler) (including Chrysler, Dodge,RAM and Jeep brands), and Daimler (including Mercedes-Benz, smart and Sprinter brands), accounted for 24.9%, 13.5%, 11.0%, 9.9%, 7.1%, 7.4%, 11.0%,4.2%, 4.0%, and 4.3% of the Company’s new vehicle sales volume, respectively. No other manufacturer accounted for more than 2.7% of the Company’s totalnew vehicle sales volume in 2016. Through the use of an open account, the Company purchases and returns parts and accessories from/to the manufacturersand receives reimbursement for rebates, incentives and other earned credits. As of December 31, 2016, the Company was due $95.8 million from variousmanufacturers (see Note 8, “Accounts and Notes Receivable”). Receivable balances from Toyota, General Motors, Daimler, BMW, Volkswagen, Ford, Nissan,FCA US (formerly Chrysler), Hyundai, and Honda, represented 17.0%, 15.0%, 14.0%, 13.0%, 12%, 9.0%, 6.0%, 3.0%, 3.0% and 2.0%, respectively, of thistotal 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 85% 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 under the Revolving Credit Facility) are presentedwithin Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. In addition, all borrowings from, and repayments to, thesyndicated lending group under the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”) (including the cash flows from or to manufactureraffiliated lenders participating in the facility) and borrowing from, and repayments to, the Company’s other credit facilities are presented within Cash Flowsfrom Financing Activities.Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $109.3 million, $92.0 million and $80.2million in 2016, 2015 and 2014, respectively. Cash paid for taxes, net of refunds, was $56.9 million, $74.8 million and $62.3 million in 2016, 2015 and2014, 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 theF-13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)award and recognizes the cost on a straight-line basis, net of estimated forfeitures, over the employee requisite service period. The Company estimates the fairvalue of its employee stock purchase rights issued pursuant to the Employee Stock Purchase Plan using a Black-Scholes valuation model. The expense forstock-based awards is recognized as an SG&A expense 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.The Company’s U.S. auto physical damage insurance coverage is composed of a $10.0 million per occurrence company deductible with an annualmaximum aggregate deductible of $30.0 million with no maximum payout.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, 2016, the Company has accrued $0.4 million and $20.4 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, 2016, 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 $13.6 million at December 31, 2016.At least annually, the Company engages a third-party actuary to conduct a study of the exposures under the self-insured portion of our worker’scompensation and general liability insurance programs for all open policy years. In the interim, the Company reviews the estimates within the study andmonitor actual experience for unusual variances. The appropriate adjustments are made to the accrual, based upon these procedures. Actuarial estimates forthe portion of claims not covered by insurance are based on historical claims experience adjusted for loss trending and loss development factors. Changes inthe frequency or severity of claims from historical levels could influence our reserve for claims and our financial position, results of operations and cashflows. A 10% increase in the actuarially determined estimate of aggregate future losses would have increased the reserve for these losses at December 31,2016, by $2.1 million.Variable Interest EntityOn December 22, 2016, the Company acquired the remaining equity shares of an entity that was previously reported as a variable interest entity. Prior toits acquisition of the remaining equity shares, the Company qualified as the primary beneficiary and consolidated 100% of the assets and liabilities, as wellas 100% of the results of operations. As a result of the acquisition of the remaining equity shares, the entity no longer meets the definition of a variableinterest entity. However, the Company continued to consolidate 100% of the assets and liabilities, as well as 100% of the results of operations, of the entitysubsequent to acquisition of the remaining equity shares, as a wholly-owned subsidiaryRecently Adopted Accounting PronouncementsIn April 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30) Simplifying thePresentation of Debt Issuance Costs. The amendments in the accounting standard require debt issuance costs to be presented on the balance sheet as a directreduction from the carrying amount of the related debt liability. The Company adopted ASU 2015-03 during the first quarter of fiscal 2016, withretrospective application. Accordingly, debt issuance costs in the amounts of $0.5 million and $3.6 million, which were previously classified as current andlong-termF-14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)assets, respectively, at December 31, 2015, were reclassified as a direct reduction from the carrying amount of the related debt liability on the Company'sConsolidated Balance Sheets to conform to current year presentation.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 were 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 adopted ASU 2015-16 during the first quarter of fiscal 2016. The adoption of this amendment did not materially impactthe Company’s financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. This update requires anentity to classify deferred tax liabilities and assets as non-current within a classified statement of financial position. The Company elected to early adopt ASU2015-17 during the first quarter of fiscal 2016, with retrospective application. Accordingly, deferred tax assets in the amount of $14.1 million, which werepreviously classified as current assets at December 31, 2015, were reclassified to non-current deferred income tax liabilities on the Company's ConsolidatedBalance Sheets to conform to current year presentation.Recently Issued Accounting PronouncementsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), that amends the accounting guidance on revenuerecognition. The amendments in this ASU are intended to provide a framework for addressing revenue issues, improve comparability of revenue recognitionpractices, and improve disclosure requirements. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model,an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects toreceive in exchange for those goods or services. The amendments in this accounting standard update are effective for interim and annual reporting periodsbeginning after December 15, 2017. The standard can be adopted either retrospectively to each reporting period presented or as a cumulative effectadjustment as of the date of adoption. To assess the impact of the ASU, the Company established an internal implementation team to review its currentaccounting policies and practices, identify all material revenue streams, assess the impact of the ASU on its material revenue streams and identify potentialdifferences with current policies and practices. The Company’s internal implementation team has substantially completed its initial review of the likelyimpacts that the application of the amendments in this ASU will have on its consolidated financial statements. The team has identified the Company’smaterial revenue streams to be the sale of new and used vehicles; arrangement of associated vehicle financing; the sale of service and insurance contracts; theperformance of vehicle maintenance and repair services; and the sale of vehicle parts. The team has begun its review of a sample of associated contracts andother related documents, but currently, has not quantified an estimated impact of changes, if any, to its current revenue recognition policies and practices.The Company’s implementation team is in the preliminary stages of evaluating the additional disclosure requirements of the ASU, as well as the change, ifany, to the Company’s underlying accounting and financial reporting systems and processes necessary to support the recognition and disclosurerequirements. The Company expects to identify and implement the necessary changes, if any, during 2017. At this time, based on this review, the Companydoes not expect the adoption to materially impact its consolidated financial statements. The Company currently expects to adopt the amendments of thisASU during the first fiscal quarter of 2018, as a cumulative effect adjustment as of the date of adoption, but will not make a final decision on the adoptionmethod until later in 2017.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 expects to adopt the amendments of this ASU during the first fiscal quarter of 2017 and does not expect theadoption to materially impact its consolidated financial statements or results of operations.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this ASU relate to the accounting for leasingtransactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with leaseterms of more than 12 months. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. Thisstandard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in theprocess of evaluating the impact that adoption will have on its consolidated balance sheet and statement of income. However, the Company expects that theadoption of the provisions of the ASU will have a significant impact on its consolidated balanceF-15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)sheet, as currently about half of its real estate is rented, not owned, via operating leases. Adoption of this ASU is required to be done using a modifiedretrospective approach.In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting. The amendment addresses several aspects of the accounting for share-based payment award transactions, including: income tax consequences;classification of awards as either equity or liabilities; and classification on the statement of cash flows. This standard will be effective for fiscal yearsbeginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company expects to adopt theamendments of this ASU during the first fiscal quarter of 2017 and does not expect the adoption to materially impact its consolidated financial statements.In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on FinancialInstruments. The amendment replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with amethodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit lossestimates. The standard will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for periods after December 15,2018. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements orresults of operations.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.The amendment addresses several specific cash flow issues with the objective of reducing the diversity in practice in how certain cash receipts and cashpayments are presented and classified in the statement of cash flows. The standard will be effective for fiscal years beginning after December 15, 2017, andinterim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on itsconsolidated financial statements.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging IssuesTask Force. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amountsgenerally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalentsshould be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement ofcash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The standard will be effective for fiscalyears beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoptionof the provisions of the ASU will have on its consolidated financial statements.3. ACQUISITIONS AND DISPOSITIONSDuring the twelve months ended December 31, 2016, the Company acquired 12 U.K. dealerships, inclusive of 15 franchises, and opened two additionaldealerships for two awarded franchises in the U.K. segment. The Company also acquired one dealership in Brazil, representing one franchise, and opened twoadditional dealerships in Brazil representing one acquired and two previously awarded franchises. Aggregate consideration paid for these dealershipstotaled $61.2 million, including the associated real estate and goodwill, as well as $3.9 million of cash received in the acquisition of the dealerships. Thepurchase price has been allocated based upon the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at theacquisition date. The allocation of the purchase price is preliminary and based on estimates and assumptions that are subject to change within the purchaseprice allocation period (generally one year from the respective acquisition date). In addition, during the twelve months ended December 31, 2016, theCompany disposed of ten franchises: five in the U.S. segment, four in the Brazil segment and one in the U.K. segment. Primarily as a result of these U.S.,Brazil and U.K. dealership dispositions, a net pre-tax gain of $2.7 million and net pretax losses of $0.8 million and $0.3 million, respectively, wererecognized for the twelve months ended December 31, 2016.During 2015, the Company acquired three U.S. dealerships, sold two U.S. dealerships and terminated one U.S. dealership franchise. The Company alsoterminated two franchises in Brazil. As a result of these dispositions, a net pre-tax gain of $8.2 million, net of the related asset impairments, was recognizedfor the twelve months ended December 31, 2015.4. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT ACTIVITIESThe periodic interest rates of the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”) and certain variable-rate real estate relatedborrowings in the U.S. are indexed to the one-month LIBOR plus an associated company credit risk rate. In order to minimize the earnings variability relatedto fluctuations in these rates, the Company employs an interest rate hedging strategy, whereby it enters into arrangements with various financial institutionalcounterparties with investmentF-16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)grade credit ratings, swapping its variable interest rate exposure for a fixed interest rate over terms not to exceed the related variable-rate debt.As of December 31, 2016 and December 31, 2015, the Company held interest rate swaps in effect of $765.3 million and $581.7 million, respectively, innotional value that fixed its underlying one-month LIBOR at a weighted average rate of 2.5% and 2.7%, respectively. Of the $765.3 million in notional valueof swaps in effect as of December 31, 2016, $335.2 million became effective during the year ended December 31, 2016. The following table presents thenotional value of swaps in effect expiring in each year (excludes forward starting swaps): 2017201820192020202120222023Notional amount of swaps expiring (in millions)$253.0$153.0$303.1$3.1$11.4$15.2$26.5The Company records the majority of the impact of the period settlements of these swaps as a component of floorplan interest expense. For the yearsended December 31, 2016, 2015 and 2014, the impact of the Company’s interest rate hedges in effect increased floorplan interest expense by $11.1 million,$11.5 million, and $9.8 million, respectively. Total floorplan interest expense, inclusive of the aforementioned impact of the Company’s interest rate hedges,was $44.9 million, $39.3 million, and $41.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.In addition to the $765.3 million of swaps in effect as of December 31, 2016, the Company held 13 additional interest rate swaps with forward startdates between January 2017 and December 2020 and expiration dates between December 2019 and December 2030. As of December 31, 2016, the aggregatenotional value of these 13 forward-starting swaps was $675.0 million, and the weighted average interest rate was 2.2%. Of the $675.0 million in notionalvalue of forward-starting swaps, $325.0 million was added in the year ended December 31, 2016. 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 December 2030 does not exceed $908.6million, which is less than the Company’s expectation for variable rate debt outstanding during such period.In aggregate, as of December 31, 2016 and December 31, 2015, the Company reflected liabilities from interest rate risk management activities of $24.4million and $31.2 million, respectively, in its Consolidated Balance Sheets. In addition, as of December 31, 2016 the Company reflected $9.5 million ofassets from interest rate risk management activities included in Other Assets in the Consolidated Balance Sheet. Included in Accumulated OtherComprehensive Loss at December 31, 2016, 2015 and 2014, were accumulated unrealized losses, net of income taxes, totaling $9.3 million, $19.5 million,and $17.9 million, respectively, related to these interest rate swaps. As of December 31, 2016 and 2015, all of the Company’s derivative contracts that were ineffect were determined to be effective. The Company had no gains or losses related to ineffectiveness or amounts excluded from effectiveness testingrecognized in the Consolidated Statements of Operations for the years ended December 31, 2016, 2015 or 2014, respectively. The following table presentsthe impact during the current and comparative prior year periods for the Company’s derivative financial instruments on its Consolidated Statements ofOperations and Consolidated Balance Sheets. Amount of Unrealized Gain (Loss),Net of Tax, Recognized in OCI Year Ended December 31, 2016 2015 2014 (In thousands)Derivatives in Cash Flow Hedging Relationship Interest rate swap contracts $1,728 $(9,856) $(11,153) Amount of Loss Reclassified from OCIinto Statement of Operations Year Ended December 31, 2016 2015 2014 (In thousands)Location of Loss Reclassified from OCI into Statements of Operations Floorplan interest expense $(11,097) $(11,486) $(9,837)Other interest expense (2,332) (1,814) (1,513)F-17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 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 $12.2 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, 2016, there were 1,221,459 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 of up to five years. Restricted stock units are consideredvested at the time of issuance. However, since they convey no voting rights, they are not considered outstanding when issued. Restricted stock units settle incash upon the termination of the grantees’ employment or directorship. In the event an employee or non-employee director terminates his or her employmentor directorship with the Company prior to the lapse of the restrictions, the shares, in most cases, will be forfeited to the Company. The Company issues newshares or treasury shares, if available, when restricted stock vests. Compensation expense for restricted stock awards is calculated based on the market price ofthe Company’s common stock at the date of grant and recognized over the requisite service period. Forfeitures are estimated at the time of valuation andreduce expense ratably over the vesting period. This estimate is adjusted annually based on the extent to which actual or expected forfeitures differ from theprevious estimate.A summary of the restricted stock awards as of December 31, 2016, along with the changes during the year then ended, is as follows: Awards Weighted AverageGrant DateFair ValueNonvested at December 31, 2015 893,360 $69.16Granted 274,352 54.68Vested (274,680) 59.97Forfeited (42,610) 73.34Nonvested at December 31, 2016 850,422 $67.25The total fair value of restricted stock awards which vested during the years ended December 31, 2016, 2015 and 2014, was $16.5 million, $13.9million and $12.1 million, respectively.Employee Stock Purchase PlanThe Purchase Plan authorizes the issuance of up to 4.5 million shares of common stock and provides that no options to purchase shares may be grantedunder the Purchase Plan after May 19, 2025. The Purchase Plan is available to all employees of the Company and its participating subsidiaries and is aqualified 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 PurchasePlan, employees can acquire shares of common stock from the Company at 85% of the fair market value of the common stock on the first or the last day of theOption Period, whichever is lower. As of December 31, 2016, there were 1,262,543 shares available for issuance under the Purchase Plan. During the yearsended December 31, 2016, 2015 and 2014, the Company issued 152,138, 102,029, and 103,254 shares, respectively, of common stock to employeesparticipating in the Purchase Plan. With respect to shares issued under the Purchase Plan, the Company’s Board of Directors has authorized specific sharerepurchases to fund the shares issuable under the Purchase Plan.F-18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 weighted average per share fair value of employee stock purchase rights issued pursuant to the Purchase Plan was $13.40, $18.56, and $15.15during the years ended December 31, 2016, 2015 and 2014, respectively. The fair value of stock purchase rights is calculated using the grant date stock price,the value of the embedded call option and the value of the embedded put option.Stock-Based CompensationTotal stock-based compensation cost was $21.1 million, $18.9 million, and $16.0 million for the years ended December 31, 2016, 2015 and 2014,respectively. Total income tax benefit recognized for stock-based compensation arrangements was $6.3 million, $5.3 million, and $4.4 million for the yearsended December 31, 2016, 2015 and 2014, respectively.As of December 31, 2016, there was $41.0 million of total unrecognized compensation cost related to stock-based compensation arrangements which isexpected to be recognized over a weighted-average period of 3.2 years.Cash received from Purchase Plan purchases was $7.1 million, $7.2 million and $6.0 million for the years ended December 31, 2016, 2015 and 2014,respectively. The tax provision for the tax deductions from options exercised and vesting of restricted shares totaled $0.2 million and decreased additionalpaid in capital for the year ended December 31, 2016. The tax benefit realized for the tax deductions from options exercised and vesting of restricted sharestotaled $2.1 million and $1.8 million and increased additional paid in capital for the years ended, December 31, 2015 and 2014, respectively.Tax provision relating to excess stock-based compensation deductions are presented as a financing cash outflow, so the Company classified $0.2million of excess tax provision as a decrease in financing activities and a corresponding increase in operating activities in the Consolidated Statement ofCash Flows for the year ended December 31, 2016. Tax benefits relating to excess stock-based compensation deductions are presented as a financing cashinflow, so the Company classified $2.1 million and $1.8 million of excess tax benefits as an increase in financing activities and a corresponding decrease inoperating activities in the Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014, 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. The Company’srestricted stock awards qualify as participating securities as each contain non-forfeitable rights to dividends. Income allocated to these participatingsecurities is excluded from net earnings available to common shares, as shown in the table below. Basic EPS is computed by dividing net income available tobasic common shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing netincome available to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.F-19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 following table sets forth the calculation of EPS for the years ended December 31, 2016, 2015, and 2014: Year Ended December 31, 2016 2015 2014 (In thousands, except per shareamounts)Weighted average basic common shares outstanding 21,161 23,148 23,380Dilutive effect of contingently convertible notes and warrants — — 1,499Dilutive effect of employee stock purchases, net of assumed repurchase oftreasury stock 9 4 6Weighted average dilutive common shares outstanding 21,170 23,152 24,885Basic: Net income $147,065 $93,999 $93,004Less: Earnings allocated to participating securities 5,871 3,595 3,643Earnings available to basic common shares $141,194 $90,404 $89,361Basic earnings per common share $6.67 $3.91 $3.82Diluted: Net income $147,065 $93,999 $93,004Less: Earnings allocated to participating securities 5,869 3,595 3,468Earnings available to diluted common shares $141,196 $90,404 $89,536Diluted earnings per common share $6.67 $3.90 $3.60The Company was required to include the dilutive effect, if applicable, of the net shares issuable under the 2.25% Convertible Senior Notes due 2036(“2.25% Notes”) and 3.00% Convertible Senior Notes due 2020 (“3.00% Notes”), as well as the 2.25% Warrants sold in connection with the 2.25% Notes(“2.25% Warrants”) and 3.00% Warrants sold in connection with the 3.00% Notes (“3.00% Warrants”), in its diluted common shares outstanding for thediluted earnings calculation, during the period in which each was outstanding. As a result, the number of shares included in the Company’s diluted sharesoutstanding each period varied based upon the Company’s average adjusted closing common stock price during the applicable period. Although the ten-yearcall options on its common stock for the 2.25% and 3.00% Notes 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 impact would have beenanti-dilutive. The average adjusted closing price of the Company's common stock for the first three quarters of 2014 was more than the respective conversionprices then in effect at the end of the periods for both the 2.25% and 3.00% Notes. Therefore, the dilutive effect of the 2.25% and 3.00% Notes was includedin 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 ofdiluted EPS for the first three quarters of 2014.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.F-20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)7. INCOME TAXESIncome/(loss) before income taxes by geographic area was as follows: Year Ended December 31, 2016 2015 2014 (In thousands)Domestic $222,178 $231,798 $174,964Foreign 5,193 (49,627) (10,564)Total income before income taxes $227,371 $182,171 $164,400Federal, state and foreign income tax provisions/(benefits) were as follows: Year Ended December 31, 2016 2015 2014 (In thousands)Federal: Current $57,321 $66,973 $49,590Deferred 18,704 15,528 22,549State: Current 4,636 5,165 4,849Deferred 1,878 1,768 727Foreign: Current 4,187 4,150 4,638Deferred (6,420) (5,412) (10,957)Provision for income taxes $80,306 $88,172 $71,396Actual 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 2016, 2015 and 2014 as follows: Year Ended December 31, 2016 2015 2014 (In thousands)Provision at the U.S. federal statutory rate $79,580 $63,760 $57,540Increase (decrease) resulting from: State income tax, net of benefit for federal deduction 4,230 4,448 5,267Foreign income tax rate differential (2,799) (2,002) (3,188)Employment credits (821) (407) (481)Changes in valuation allowances 749 14,667 9,507Non-deductible goodwill 34 4,651 —Deductible goodwill — — (10,209)Stock-based compensation 368 386 245Convertible debt redemption — — 9,727Other (1,035) 2,669 2,988Provision for income taxes $80,306 $88,172$71,396During 2016, the Company recorded a tax provision of $80.3 million. Certain expenses for stock-based compensation recorded in 2016 were non-deductible for income tax purposes. The Company provided valuation allowances with respect to goodwill and net operating losses of certain Brazilsubsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of the impact of a relativelyhigher proportion of the Company’s pretax income being generated in the Company’s U.K. region, relatively less valuation allowances recognized in 2016compared toF-21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)2015 and the 2015 items discussed below, the effective tax rate for the year ended December 31, 2016 decreased to 35.3%, as compared to 48.4% for the yearended December 31, 2015.During 2015, the Company recorded a tax provision of $88.2 million. Certain expenses for stock-based compensation recorded in 2015 were non-deductible for income tax purposes. The Company provided valuation allowances with respect to goodwill and net operating losses of certain Brazilsubsidiaries, as well as state net operating losses in the U.S., based on expectations concerning their realizability. In addition, no substantial deferred taxbenefit relative to the impairment of goodwill in the Brazil reporting unit was recognized for U.S. GAAP reporting purposes. As a result of these items, and theimpact of the 2014 items discussed below, the effective tax rate for the year ended December 31, 2015 increased to 48.4%, as compared to 43.4% for the yearended December 31, 2014.During 2014, the Company recorded a tax provision of $71.4 million. Certain expenses for stock-based compensation recorded in 2014 were non-deductible for income tax purposes. A portion of the U.S. GAAP loss on the extinguishment of the 2.25% Notes and 3.00% Notes was also not deductible fortax purposes. This was partially offset by the net tax benefit from tax deductible goodwill in Brazil resulting from a restructuring during 2014. The Companyalso had non-deductible goodwill from the dispositions of certain domestic dealerships, as well as non-deductible transaction costs related to foreignacquisitions. The Company provided valuation allowances with respect to certain foreign company deferred tax assets including tax deductible goodwill inBrazil, as well as state net operating losses in the U.S., based on expectations concerning their realizability. As a result of these items, and the impact of theitems occurring in 2013, the effective tax rate for the year ended December 31, 2014 increased to 43.4%, as compared to 40.6% for the year ended December31, 2013.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, 2016 2015 (In thousands)Deferred tax assets: Loss reserves and accruals $59,884 $53,747Interest rate swaps 5,598 11,671Goodwill and intangible franchise rights 5,907 7,621U.S. state net operating loss (“NOL”) carryforwards 16,848 17,413Depreciation expense 775 —Foreign NOL carryforwards 34,946 20,408Deferred tax assets 123,958 110,860Valuation allowance on deferred tax assets (53,946) (46,547)Net deferred tax assets $70,012 $64,313Deferred tax liabilities: Goodwill and intangible franchise rights $(160,439) $(143,509)Depreciation expense (64,465) (53,619)Deferred gain on bond redemption (1,023) (1,535)Other (3,317) (1,060)Deferred tax liabilities (229,244) (199,723)Net deferred tax liability $(159,232) $(135,410)As of December 31, 2016, the Company had state NOL carryforwards in the U.S. of $252.6 million that will expire between 2017 and 2036, and foreignNOL carryforwards of $104.9 million that may be carried forward indefinitely. To the extent that the Company expects that net income will not be sufficientto realize these NOLs in certain jurisdictions, a valuation allowance has been established.The Company believes it is more likely than not, that its deferred tax assets, net of valuation allowances provided, will be realized, based primarily onour expectation of future taxable income, considering future reversals of existing taxable temporary differences, as well as the availability of taxable incomein prior years to carry back losses to recover taxes previously paid.F-22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016, the Company has not provided for U.S. deferred taxes on $46.0 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 $5.9 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 2012, by U.K. tax authorities in years prior to2012 and by Brazil tax authorities in years prior to 2011.The Company had no unrecognized tax benefits as of December 31, 2016 and 2015.The Company did not incur any interest and penalties nor did it accrue any interest for the years ended December 31, 2016 and 2015. When applicable,consistent with prior practice, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.8. ACCOUNTS AND NOTES RECEIVABLEThe Company’s accounts and notes receivable consisted of the following: December 31, 2016 2015 (In thousands)Amounts due from manufacturers $95,754 $93,206Parts and service receivables 35,318 32,479Finance and insurance receivables 24,866 22,374Other 20,322 12,913Total accounts and notes receivable 176,260 160,972Less allowance for doubtful accounts 2,896 3,204Accounts and notes receivable, net $173,364 $157,7689. INVENTORIESThe Company’s inventories consisted of the following: December 31, 2016 2015 (In thousands)New vehicles $1,156,383 $1,262,797Used vehicles 294,812 275,508Rental vehicles 131,080 134,509Parts, accessories and other 77,762 72,917Total inventories 1,660,037 1,745,731Less lower of cost or market reserves 8,222 7,980Inventories, net $1,651,815 $1,737,751F-23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 2015 (In thousands)Land — $400,163 $364,475Buildings 25 to 50 553,961 505,414Leasehold improvements varies 170,060 155,585Machinery and equipment 7 to 20 100,164 90,993Furniture and fixtures 3 to 10 87,691 82,688Company vehicles 3 to 5 11,632 11,603Construction in progress — 66,658 58,361Total 1,390,329 1,269,119Less accumulated depreciation and amortization 264,446 235,138Property and equipment, net $1,125,883 $1,033,981During 2016, the Company incurred $100.6 million of capital expenditures for the construction of new or expanded facilities and the purchase ofequipment and other fixed assets in the maintenance of the Company’s dealerships and facilities, excluding $32.7 million of capital expenditures accrued asof December 31, 2015. As of December 31, 2016, the Company had accrued $15.9 million of capital expenditures. In addition, the Company purchased realestate (including land and buildings) associated with existing dealership operations totaling $28.8 million. And, in conjunction with the acquisition ofdealerships and franchises in 2016, the Company acquired $39.1 million of real estate and other property and equipment. The Company recognized $2.8million in asset impairments related to property and equipment for the year ended December 31, 2016.During 2015, the Company incurred $107.2 million of capital expenditures for the purchase of furniture, fixtures, and equipment and construction orrenovation of facilities, excluding $21.2 million of capital expenditures accrued as of December 31, 2014. As of December 31, 2015, the Company hadaccrued $32.7 million of capital expenditures. In addition, the Company purchased real estate (including land) associated with existing dealership operationstotaling $24.6 million. And, in conjunction with the acquisition of dealerships and franchises in 2015, the Company acquired $9.8 million of real estate andother property and equipment. The Company recognized $2.1 million in asset impairments related to property and equipment for the year ended December31, 2015.As of December 31, 2015, the Company determined that certain real estate investments qualified for held-for-sale treatment. As a result, the Companyclassified the carrying value, after adjustment to estimated fair market value, of the real estate, totaling $1.4 million, in prepaid and other current assets in itsConsolidated Balance Sheets.Depreciation and amortization expense, including amortization of capital leases, totaled $51.2 million, $47.2 million and $42.3 million for the yearsended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016 and 2015, $68.9 million and $69.6 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 $1.8 billion revolving syndicated credit arrangement that matures on June 17, 2021 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 NA, LLC (“BMWFS”), Volkswagen Finance, FMCC and a third-party financial institution forfinancing of its new and used vehicles. In Brazil, the Company has financing arrangements for new, used, and rental vehicles with several financialinstitutions, most of which are manufacturer affiliated. Within the Company’s Consolidated Balance Sheets, Floorplan notes payable - credit facility andother primarily reflects amounts payable for the purchase of specific new, used and rental vehicle inventory (with the exception of new and rental vehiclepurchases financed through lenders affiliated with the respective manufacturer) whereby financing is provided by the Revolving Credit Facility. Floorplannotes payable - manufacturer affiliates reflects amounts related to the purchase of vehicles whereby financing is provided by the FMCC Facility, thefinancing of a portion of the Company’s rental vehicles in the U.S., as well as the financingF-24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)of new, used, and rental vehicles in both the U.K. and Brazil. Payments on the floorplan notes payable are generally due as the vehicles are sold. As a result,these obligations are reflected in the accompanying Consolidated Balance Sheets as current liabilities. The outstanding balances under these financingarrangements were as follows: December 31, 2016 2015 (In thousands)Floorplan notes payable — credit facility and other New vehicles $941,913 $1,094,130Used vehicles 160,070 142,703Rental vehicles 29,735 24,773Floorplan offset (59,626) (110,759)Total floorplan notes payable - credit facility 1,072,092 1,150,847Other floorplan notes payable 4,936 4,113Total floorplan notes payable - credit facility and other $1,077,028 $1,154,960Floorplan notes payable — manufacturer affiliates FMCC Facility $175,244 $196,807Floorplan offset (25,500) (25,500)Total FMCC Facility 149,744 171,307Foreign and rental vehicles 217,417 192,264Total floorplan notes payable — manufacturer affiliates $367,161 $363,571Revolving Credit FacilityOn June 17, 2016, the Company amended its Revolving Credit Facility principally to increase the total borrowing capacity from $1.7 billion to $1.8billion and to extend the term from an expiration date of June 20, 2018 to June 17, 2021. The Revolving Credit Facility consists of two tranches, providing amaximum of $1.75 billion for U.S. vehicle inventory floorplan financing (“Floorplan Line”), as well as a maximum of $360.0 million and a minimum of$50.0 million for working capital and general corporate purposes, including acquisitions (“Acquisition Line”). The capacity under these two tranches can bere-designated within the overall $1.8 billion commitment, subject to the aforementioned limits. Up to $125.0 million of the Acquisition Line can beborrowed in either euros or British pound sterling. The Revolving Credit Facility can be expanded to a maximum commitment of $2.1 billion, subject toparticipating lender approval. The Floorplan Line bears interest at rates equal to the LIBOR plus 125 basis points for new vehicle inventory and the LIBORplus 150 basis points for used vehicle inventory. The Acquisition Line bears interest at the LIBOR plus 150 basis points plus a margin that ranges from zeroto 100 basis points, depending on the Company’s total adjusted leverage ratio, for borrowings in U.S. dollars and a LIBOR equivalent plus 125 to 250 basispoints, depending on the Company’s total adjusted leverage ratio, on borrowings in euros or British pound sterling. The Floorplan Line requires acommitment fee of 0.15% per annum on the unused portion. Amounts borrowed by the Company under the Floorplan Line for specific vehicle inventory areto be repaid upon the sale of the vehicle financed, and in no case is a borrowing for a vehicle to remain outstanding for greater than one year. The AcquisitionLine also requires a commitment fee ranging from 0.20% to 0.45% per annum, depending on the Company’s total adjusted leverage ratio, based on aminimum commitment of $50.0 million less outstanding borrowings. In conjunction with the Revolving Credit Facility, the Company has $5.3 million ofrelated unamortized costs as of December 31, 2016, which are included in Prepaid expenses and other current assets and Other Assets on the accompanyingConsolidated Balance Sheets and amortized over the term of the facility.After considering the outstanding balance of $1,072.1 million at December 31, 2016, the Company had $367.9 million of available floorplanborrowing capacity under the Floorplan Line. Included in the $367.9 million available borrowings under the Floorplan Line was $59.6 million ofimmediately available funds. The weighted average interest rate on the Floorplan Line was 2.0% and 1.7% as of December 31, 2016 and 2015, 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 31,2016. After considering $37.1 million of outstanding letters of credit and other factors included in the Company’s available borrowing base calculation, therewas $322.9 million of available borrowing capacity under the Acquisition Line as of December 31, 2016. The amount of available borrowing capacity underthe Acquisition Line is limited from time to time based upon certain debt covenants.F-25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 and total adjusted leverage ratios. Further, the Revolving Credit Facilityrestricts the Company’s ability to make certain payments, such as dividends or other distributions of assets, properties, cash, rights, obligations or securities(“Restricted Payments”). The Restricted Payments cannot exceed the sum of $208.5 million plus (or minus if negative) (a) one-half of the aggregateconsolidated net income for the period beginning on April 1, 2014 and ending on the date of determination and (b) the amount of net cash proceeds receivedfrom the sale of capital stock after June 2, 2014 and ending on the date of determination less (c) cash dividends and share repurchases after June 2, 2014(“Credit Facility Restricted Payment Basket”). For purposes of the calculation of the Credit Facility Restricted Payment Basket, net income represents 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, 2016, the Credit Facility Restricted Payment Basket totaled $132.3million.As of December 31, 2016 and 2015, 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, 2016, the Company had an outstanding balance of $149.7 million under the FMCC Facility with an available floorplanborrowing capacity of $150.2 million. Included in the $150.2 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 5.25%and 4.75% before considering the applicable incentives as of December 31, 2016 and 2015, respectively.Other Credit FacilitiesThe Company has credit facilities with BMWFS, Volkswagen Finance, FMCC and a third-party financial institution for the financing of new, used andrental vehicle inventories related to its U.K. operations. These facilities are denominated in British pound sterling and are evergreen arrangements that maybe 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 annualinterest rates charged on borrowings outstanding under these facilities ranged from 1.90% to 3.95% as of December 31, 2016. As of December 31, 2016,borrowings under these facilities totaled $98.1 million.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 Brazilian 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, 2016, the annual interest rates charged on borrowings outstanding under these facilities, after the graceperiod of zero to 90 days, ranged from 18.16% to 22.41%. As of December 31, 2016, borrowings under these facilities totaled $17.8 million.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, 2016, the interest rate charged on borrowings related to the Company’s rental vehicle fleet varied up to 5.25%. Rental vehicles aretypically transferred to used vehicle inventory when they are removed from service and repayment of the borrowing is required at that time. As ofDecember 31, 2016, borrowings under these facilities totaled $106.5 million.F-26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 and capitalized debt issuance costs. Long-term debt consisted of thefollowing: December 31, 2016 2015 (In thousands)5.00% Senior Notes (aggregate principal of $550,000 at December 31, 2016 and 2015) $540,465 $538,9335.25% Senior Notes (aggregate principal of $300,000 at December 31, 2016 and 2015) 295,591 295,156Real Estate Related and Other Long-Term Debt 385,358 365,564Capital lease obligations related to real estate, maturing in varying amounts through June 2034 with aweighted average interest rate of 9.9% 47,613 51,902 1,269,027 1,251,555Less current maturities of other long-term debt 56,218 52,021 $1,212,809 $1,199,534Included in current maturities of long-term debt and short-term financing in the Company’s Consolidated Balance Sheets for the years endedDecember 31, 2016 and 2015 was $16.2 million and $3.0 million, 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 calculation under the terms of the 5.00% Notes is thesame as under the Credit Facility Restricted Payment Basket. The 5.00% Notes were registered with the Securities and Exchange Commission in June 2015.The underwriters’ fees, discount and capitalized debt issuance costs relative to the 5.00% Notes totaled $13.1 million. These amounts were included asa direct reduction of the 5.00% Notes on the accompanying Consolidated Balance Sheets and are being amortized over a period of eight years in conjunctionwith the term of the 5.00% Notes. The 5.00% Notes are presented net of unamortized underwriters’ fees, discount and debt issuance costs of $9.5 million asof December 31, 2016.5.25% 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 unpaidF-27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)interest. The Company may be required to purchase the 5.25% Notes if it sells certain assets or triggers the change in control provisions defined inthe 5.25% Notes indenture. The 5.25% Notes are senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and futuresenior 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 theCompany’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 existingand future subordinated debt. In addition, the 5.25% Notes are structurally subordinated to the liabilities of its non-guarantor subsidiaries and are subject tocustomary covenants, including a restricted payment basket and debt limitations. The restricted payment basket calculation under the terms of the 5.25%Notes is the same as under the Credit Facility Restricted Payment Basket.The underwriters' fees and capitalized debt issuance costs relative to the 5.25% Notes totaled $5.0 million. These amounts were included as a directreduction of the 5.25% Notes on the accompanying Consolidated Balance Sheets and are being amortized over a period of eight years in conjunction withthe term of the 5.25% Notes. The 5.25% Notes are presented net of unamortized underwriters’ fees and debt issuance costs of $4.4 million as of December 31,2016.Acquisition LineThe Revolving Credit Facility has the total borrowing capacity of $1.8 billion and expires on June 17, 2021. This arrangement provides a maximum of$360.0 million and a minimum of $50.0 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.Real Estate Related and Other 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 three of itsmanufacturer-affiliated finance partners - Toyota Motor Credit Corporation (“TMCC”), BMW Financial Services NA, LLC (“BMWFS”) and FMCC, as well asseveral third-party financial institutions. These mortgage loans may be expanded for borrowings related to specific buildings and/or properties and areguaranteed by the Company. Each mortgage loan was made in connection with, and is secured by mortgage liens on, the real property owned by theCompany that is mortgaged under the loans. The mortgage loans bear interest at fixed rates between 3.00% and 4.69%, and at variable indexed rates plus aspread between 1.50% and 2.50% per annum. The Company capitalized $2.8 million of related debt issuance costs related to mortgage loans that areincluded as a direct reduction to the mortgage loans on the accompanying Consolidated Balance Sheets and are being amortized over the terms of themortgage loans. As of December 31, 2016, $0.7 million remained unamortized.The mortgage loans consist of 55 term loans for an aggregate principal amount of $363.0 million. As of December 31, 2016, borrowings outstandingunder these notes totaled $321.9 million, with $39.8 million classified as a current maturity of long-term debt in the accompanying Consolidated BalanceSheets, as compared to $241.8 million outstanding with $13.7 million classified as current as of December 31, 2015. During 2016, the Company madeadditional net borrowings and principal payments of $42.7 million and $17.2 million, respectively. The agreements provide for monthly payments based on15 or 20-year amortization schedules and mature between May 2017 and December 2024. These mortgage loans are cross-collateralized and cross-defaultedwith each other.The Company has entered into 13 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 denominated in British pound sterling and are being repaid in monthlyinstallments that will mature by September 2034. As of December 31, 2016, borrowings under the U.K. Notes totaled $50.4 million, with $4.3 millionclassified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets, as compared to $57.1 million outstanding with $4.5million classified as current as of December 31, 2015. During 2016, the Company assumed $8.3 million of term mortgage loans in conjunction with U.K.dealership acquisitions, made no additional borrowings and made principal payments of $4.6 million associated with the U.K. Notes.In addition, the Company has a revolving working capital loan agreement with a third-party financial institution in the U.K. included in currentmaturities of long-term debt and short-term financing in the Company’s Consolidated Balance Sheets. As of December 31, 2016, short-term borrowings underthe U.K. third-party loan totaled $7.3 million. During 2016, the Company made $7.8 million of additional borrowings and made principal payments of $3.0million.The Company has a separate term mortgage loan in Brazil with a third-party financial institution (the “Brazil Note”). The Brazil Note is denominated inBrazilian real and is secured by one of the Company’s Brazilian properties, as well as a guarantee from the Company. The Brazil Note is being repaid inmonthly installments that will mature by April 2025. As of December 31, 2016, borrowings under the Brazil Note totaled $3.8 million, with $0.4 millionclassified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets. As of December 31, 2016, there were $0.3 millionunamortized debtF-28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)issuance costs related to this loan. These costs were included as a direct reduction of the Brazil Note principal balance and are being amortized inconjunction with the term. During 2016, the Company made no additional borrowings and made principal payments of $0.5 million associated with theBrazil Note.The Company also has a working capital loan agreement with a third-party financial institution in Brazil. The principal balance on the loan is due byFebruary 2017 with interest only payments being made until the due date. As of December 31, 2016, borrowings under the Brazilian third-party loan totaled$6.8 million classified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets. During 2016, the Company made noadditional borrowings.Fair Value of Long-Term DebtThe Company’s outstanding 5.00% Notes had a fair value of $548.4 million and $545.9 million as of December 31, 2016 and December 31, 2015,respectively. The Company’s outstanding 5.25% Notes had a fair value of $297.0 million and $297.8 million as of December 31, 2016 and December 31,2015, respectively. The Company’s fixed interest rate borrowings included in real estate related and other long-term debt totaled $93.9 million and $100.7million as of December 31, 2016 and December 31, 2015, respectively. The fair value of such fixed interest rate borrowings was $94.5 million and $102.4million as of December 31, 2016 and December 31, 2015, respectively. The fair value estimates are based on Level 2 inputs of the fair value hierarchyavailable as of December 31, 2016 and December 31, 2015. The Company determined the estimated fair value of its long-term debt using available marketinformation and commonly accepted valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fairvalue. Accordingly, these estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a currentmarket exchange. The use of different assumptions and/or estimation methodologies could have a material effect on estimated fair values. The carrying valueof the Company’s variable rate debt approximates fair value due to the short-term nature of the interest rates.All Long-Term DebtTotal interest expense on the 5.00% Notes and 5.25% Notes for the years ended December 31, 2016 and 2015 was $43.3 million and $28.5 million,excluding amortization of discounts and capitalized cost of $2.1 million and $1.5 million, respectively. Total interest expense on the 3.00% Notes,2.25% Notes and 5.00% Notes for the year ended December 31, 2014 was $17.0 million, excluding amortization of discounts and capitalized cost of $8.0million.Total interest expense on real estate related and other long-term debt, as well as the Acquisition Line, for the years ended December 31, 2016, 2015 and2014, was $13.7 million, $17.6 million and $15.3 million. These amounts exclude the impact of the interest rate derivative instruments related to various realestate related mortgage loans of $2.3 million, $1.8 million, and $1.5 million for the years ended December 31, 2016, 2015, and 2014 respectively.In addition, the Company incurred $6.6 million, $7.6 million and $7.5 million of total interest expense related to capital leases and various other notespayable, net of interest income, for the years ended December 31, 2016, 2015 and 2014, respectively.The Company capitalized $1.7 million, $0.7 million, and $0.7 million of interest on construction projects in 2016, 2015 and 2014, respectively.The aggregate annual maturities of long-term debt, excluding unamortized capitalized debt issuance costs of $4.1 million, for the next five years are asfollows: Total (In thousands)Year Ended December 31, 2017$56,506201833,434201980,133202041,683202152,481Thereafter1,008,935Total$1,273,172F-29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)13. 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 and/or the existence of variable interest rates. The Company evaluated its assets andliabilities for those that met the criteria of the disclosure requirements and fair value framework of ASC 820 and identified demand obligations, interest ratederivative instruments, 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 long-term assets in the accompanying Consolidated BalanceSheets. The Company determined that the valuation measurement inputs of these instruments include inputs other than quoted market prices, that areobservable or that can be corroborated by observable data by correlation. Accordingly, the Company has classified these instruments within Level 2 of thehierarchy 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.F-30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)Asset and liabilities recorded at fair value, within Level 2 of the hierarchy framework, in the accompanying balance sheets as of December 31, 2016 and2015, respectively, were as follows: As of December 31, 2016 2015 (In thousands)Assets: Investments$3,254 $4,235Demand obligations12 131Interest rate derivative financial instruments9,484 31Total$12,750 $4,397Liabilities: Interest rate derivative financial instruments$24,411 $31,153Total$24,411 $31,15314. 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 ProceedingsIn September 2015, Volkswagen admitted that certain of its diesel models were intentionally programmed to meet various regulatory emissionsstandards only during laboratory emissions testing. In late June 2016, Volkswagen agreed to pay up to an aggregate of $14.7 billion to settle claimsstemming from the diesel emissions scandal, including claims from customers and automotive dealers. On October 25, 2016, a U.S. Federal judge approvedthis settlement. On or about September 30, 2016, Volkswagen agreed to allocate $1.2 billion among its 652 dealers for a class settlement in exchange for theiragreement not to sue Volkswagen. In October 2016, the Company received notification from Volkswagen that it is entitled to receive, in the aggregate,approximately $13.2 million in connection with the Company's current and prior ownership of seven Volkswagen dealerships in the U.S. segment to date.The Company accepted and executed the offer in the fourth quarter and received half of the compensation in a lump sum amount in January 2017, and willreceive the rest of the compensation in 18 monthly installments. The Company recognized the entire settlement as an offset to Selling, General andAdministrative Expenses in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016. In addition, as a result ofVolkswagen agreement to repurchase customers’ vehicles in the settlement, the Company has identified its potential liability as it relates to chargebacks forfinance and insurance products sold by the Company to such customers. So, in conjunction with the recognition of the Company’s settlement, the Companyestimated its liability for these chargebacks and recognized such as an offset to the settlement for the year ended December 31, 2016. The Volkswagen brandrepresented 1.7% of the Company's total new vehicle retail unit sales for the twelve months ended December 31, 2016.Currently, 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.F-31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)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 enters into agreements in connection with the sale of assets or businesses in which it agrees to indemnify the purchaser, or otherparties, from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchasesor sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claimis asserted, liability would be limited by the terms of the applicable agreement.From time to time, primarily in connection with dealership dispositions, the Company’s subsidiaries sublet to the dealership purchaser the subsidiaries’interests in any real property leases associated with such dealerships and continue to be primarily obligated on the lease. In these situations, the Company’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 IMPAIRMENTSThe Company performs its annual impairment assessment of the carrying value of its goodwill and intangible franchise rights as of October 31st of eachyear. The Company also performs interim reviews of all of its long-lived and indefinite-lived assets for impairment when evidence exists that the carryingvalue may not be recoverable. In the Company’s 2016 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value ofits net assets (step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test forgoodwill. If, in future periods, the Company determines that the carrying amount of its net assets exceeds the respective fair value of its goodwill for any orall of its reporting units, the Company could be required to recognize a material non-cash impairment charge to the goodwill associated with the reportingunit(s). During 2016, the Company also completed other impairment assessments on an annual and interim basis, as applicable, and recorded the followingnon-cash impairment charges, all of which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:•The Company determined that the carrying values of certain of its intangible franchise rights were greater than the fair value and, as a result,recognized a $30.0 million pre-tax non-cash asset impairment charge.•In addition, the Company determined that the carrying amounts of various real estate holdings and other long-lived assets were no longer fullyrecoverable, and recognized $2.8 million in pre-tax non-cash asset impairment charges.If any of the Company’s assumptions change, or fail to materialize, the resulting decline in its estimated fair market value of intangible franchise rightscould result in a material non-cash impairment charge. For example, the Company performed two separate sensitivity analyses on its 2016 annual impairmentassessment of goodwill and intangible franchise rights. If the Company’s assumptions regarding the risk-free rate and cost of debt differed such that theestimated WACC used in its 2016 assessment increased by 200 basis points, and all other assumptions remained constant, an additional $40.2 million of non-cash franchise rights impairment charges would have resulted, excluding franchises acquired since the previous annual test. This additional impairmentwould have consisted of $37.6 million in the U.S., $0.4 million in the U.K. and $2.2 million in Brazil. The Company’s Brazil reporting unit would have failedthe step one impairment test for goodwill in this scenario, while theF-32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)U.S. and U.K reporting units would have passed step one. The Company’s second sensitivity analysis represented a recessionary sales environment in theU.S., utilizing the U.S. SAAR equivalent to 2009 levels for 2018. Similar industry sales levels were also applied to the U.K. reporting unit. Since Brazil iscurrently in a recessionary economy, the Company did not assume further industry sales declines for this sensitivity analysis, but instead assumed no salesgrowth in 2018. In this sensitivity analysis, an additional $55.3 million of non-cash franchise rights impairment charges would have resulted, including$52.8 million, $1.6 million and $0.9 million for the U.S., U.K. and Brazil, respectively. In this scenario, none of the Company’s reporting units would havefailed the step one impairment test for goodwill.In the Company’s 2015 goodwill assessment, the fair value of its two U.S. reporting units, as well as the U.K. reporting unit, exceeded the carryingvalue of its net assets (i.e., step one of the goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairmenttest for goodwill relating to its two U.S. and U.K. reporting units. The Brazil reporting unit’s fair value did not exceed the carrying value of its net assets. As aresult, the Company performed a step two analysis for this reporting unit, measured the estimated fair value of the reporting unit’s assets and liabilities as ofthe test date using level 3 inputs and compared the resulting implied fair value of the reporting unit’s goodwill to its carrying value. As a result of thecarrying value of goodwill exceeding the implied fair value, a $55.4 million impairment was recorded as of December 31, 2015. During 2015, the Companyalso completed other impairment assessments on an annual or interim basis, as applicable, 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 values of certain of its intangible franchise rights were greater than the fair value and, as a result,recognized a $30.1 million pre-tax non-cash asset impairment charge.•In addition, the Company determined that the carrying amounts of various real estate holdings were no longer recoverable, and recognized $1.3million in pre-tax non-cash asset impairment charges.•The Company also determined that the carrying values of various other long-term assets were no longer recoverable, and recognized $0.8 million inpre-tax non-cash asset impairment charges.In the Company’s 2014 goodwill assessment, the fair value of each of its 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. During 2014, theCompany completed other impairment assessments on an annual or interim basis, as applicable, and recorded the following non-cash impairment charges, allof which are reflected in asset impairments in the accompanying Consolidated Statement of Operations:•Primarily related to the Company’s determination that the carrying values of certain of its intangible franchise rights were greater than the fair value,the Company recognized a $31.0 million pre-tax non-cash asset impairment charge.•In addition, the Company determined that the carrying amounts of various real estate holdings were no longer recoverable, and recognized $9.2million in pre-tax non-cash asset impairment charges.•The Company also determined that the carrying values of various other long-term assets were no longer recoverable, and recognized $1.3 million inpre-tax non-cash asset impairment charges.F-33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)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, 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 14,156 307,588Additions through acquisitions — 12,833 — 12,833Disposals (5,203) — — (5,203)Impairments (19,922) — (9,901) (29,823)Currency translation — (3,269) 2,750 (519)BALANCE, December 31, 2016 $260,534 $17,337$7,005 $284,876The decrease in the Company’s intangible franchise rights in 2016 was primarily related to impairments in the U.S. and Brazil reportable segments of$19.9 million and $9.9 million, respectively, as a result of the Company’s interim and annual impairment assessments. These impairments were partiallyoffset by the addition of franchise rights associated with the purchase of 12 dealerships in the U.K. reportable segment. The increase in the Company’sintangible franchise rights in 2015 was primarily related to the acquisitions in the U.S. described below, substantially offset by non-cash impairmentsrecognized in Brazil. Goodwill U.S. U.K. Brazil Total (In thousands)BALANCE, December 31, 2014 $700,642 $35,138 $94,597 $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 35,3209,820 854,915(2)Additions through acquisitions — 31,644 1,855 33,499 Purchase price allocation adjustments 28 1,024 — 1,052 Disposals (3,868) — (191) (4,059) Currency translation — (10,934) 2,290 (8,644) BALANCE, December 31, 2016 $805,935 $57,054$13,774 $876,763(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 2016 was primarily related to the goodwill associated with the purchase of 12 dealerships in the U.K.,partially offset by foreign currency translation adjustments in the U.K. and Brazil and the disposal of five U.S dealerships. The increase in the Company’sgoodwill in 2015 was primarily related to the goodwill associated withF-34Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 purchase of three dealerships in the U.S., substantially offset by a non-cash impairment recognized in Brazil, as well as foreign currency translationadjustments for the U.K. and Brazil.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, 2016 and 2015 were $49.0 million and $40.6million, 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, 2016 and 2015, the matching contributions paid by the Company totaled $5.4 million and $5.3 million, respectively.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, 2016, are as follows: Total (In thousands)Year Ended December 31, 2017$56,706201846,939201941,669202036,340202130,115Thereafter182,701Total (1) $394,470(1) Includes $2.4 million of future, non-cancelable sublease payments to be received.Total rent expense under all operating leases was $53.8 million, $51.5 million, and $58.9 million for the years ended December 31, 2016, 2015 and2014, respectively.F-35Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)19. ACCUMULATED OTHER COMPREHENSIVE INCOMEChanges in the balances of each component of accumulated other comprehensive income for the years ended December 31, 2016, 2015 and 2014 are asfollows: AccumulatedLoss onForeign CurrencyTranslation AccumulatedGain (Loss)on InterestRate Swaps AccumulatedOtherComprehensiveLoss (In thousands)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)Other comprehensive (loss) income, net of tax (19,081) 10,121 (8,960)BALANCE, December 31, 2016 $(137,613) $(9,331) $(146,944)20. SEGMENT INFORMATIONAs of December 31, 2016, 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 sells new and used cars and light trucks; arranges related vehicle financing; sells service insurance contracts;provides automotive maintenance and repair services; and sells vehicle parts. The vast majority of the Company’s corporate activities are associated with theoperations of the U.S. operating segments and therefore the corporate 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, 2016, 2015 and2014: Year Ended December 31, 2016 U.S. U.K. Brazil Total (In thousands) New vehicle retail sales$4,766,047 $987,538 $292,490 $6,046,075 Used vehicle retail sales2,242,508 434,203 81,002 2,757,713 Used vehicle wholesale sales276,710 121,747 3,406 401,863 Parts and service1,071,651 143,362 46,294 1,261,307 Finance, insurance and other, net377,756 36,305 6,593 420,654 Total revenues8,734,672 1,723,155 429,785 10,887,612 Gross profit1,355,349 192,982 46,738 1,595,069 Selling, general and administrative expense965,139(1) 158,636 46,988(3) 1,170,763 Depreciation and amortization expense43,472 6,594 1,168 51,234 Asset impairment21,794 201 10,843 32,838 Floorplan interest expense(40,444) (4,222) (261) (44,927) Other interest expense, net(62,320) (5,197)(419) (67,936) Income (loss) before income taxes222,180 18,132 (12,941) 227,371 (Provision) benefit for income taxes(82,541) (3,697) 5,932 (80,306) Net income (loss)139,639(2) 14,435 (7,009)(4) 147,065 Capital expenditures$86,692 $12,602 $1,312 $100,606 (1) Includes the following, pre-tax: gain on OEM settlement of $11.7 million, loss due to catastrophic events of $5.9 million, a net gain on real estate anddealership transactions of $2.7 million, and severance costs of $1.8 million.F-36Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)(2) Includes the following, after tax: non-cash asset impairment charges of $13.5 million, gain on OEM settlement of $7.3 million, loss due to catastrophicevents of $3.7 million, net gain on real estate and dealership transactions of $1.7 million, and severance costs of $1.2 million.(3) Includes pre-tax loss on real estate and dealership transactions of $0.8 million.(4) Includes after-tax non-cash asset impairment charge of $6.9 million and a foreign deferred income tax benefit of $1.7 million. 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, insurance and other, net377,432 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, 2017Powered 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, insurance and other, net336,243 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) Income before income taxes174,964 17,836 (28,400) 164,400 Provision 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 of conversion of non-deductible goodwill to deductible goodwill for $3.4 million.Goodwill and intangible franchise rights and total assets by reportable segment were as follows: As of December 31, 2016 U.S. U.K. Brazil Total (In thousands)Goodwill and intangible franchise rights $1,066,469 $74,391 $20,779 $1,161,639Total assets $3,855,701 $482,937 $123,265 $4,461,903 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 $3,923,001 $358,476 $115,239 $4,396,716F-38Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 Total revenues $2,608,355 $2,782,449 $2,823,176 $2,673,632 $10,887,612Gross profit 389,101 410,119 406,668 389,181 1,595,069Net income 34,291 46,580 35,366 30,828 147,065Basic earnings per share (1) 1.47 2.12 1.65 1.44 6.67Diluted earnings per share (1) 1.47 2.12 1.65 1.44 6.672015 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) 3.90(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 first, second, third and fourth quarters of 2016, the Company incurred charges of $0.9 million, $1.0 million, $10.9 million and $20.0million, respectively, related to the impairment of assets. Included in these charges for the first, third and fourth quarters were impairments of the Company’sintangible assets of $0.2 million, $10.6 million and $19.2 million, respectively. In addition, during 2016, the Company sold five dealerships in the U.S., fourdealerships in Brazil and one dealership in the U.K., and recognized an aggregate net pre-tax gain of $2.2 million, excluding related asset impairments of$0.6 million.During the second, third and fourth quarters of 2015, the Company incurred charges of $1.0 million, $0.9 million and $85.7 million, respectively,related to the impairment of assets. Included in these charges for the fourth quarter was impairments of the Company’s intangible assets of $85.5 million.During 2015, the Company sold two dealerships in the U.S. and recognized a net pre-tax gain of $9.4 million.For more information on non-cash impairment charges, refer to Note 15, “Asset Impairments.”F-39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 and 2015, and for each of the years in the three-year period ended December 31, 2016, 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. In accordance with Rule 3-10 of Regulation S-X, condensed consolidated financial statements of non-guarantors are not required. The Companyhas no assets or operations independent of its subsidiaries. Obligations under the 5.00% Notes are fully and unconditionally and jointly and severallyguaranteed on a senior unsecured basis by the Company’s current 100%-owned domestic subsidiaries and certain of the Company’s future domesticsubsidiaries, with the exception of the Company’s “minor” subsidiaries (as defined by Rule 3-10 of Regulation S-X). There are no significant restrictions onthe ability of the Company or subsidiary guarantors for the Company to obtain funds from its subsidiary guarantors by dividend or loan. None of thesubsidiary guarantors’ assets represent restricted assets pursuant to SEC Rule 4-08(e)(3) of Regulation S-X.F-40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $8,039 $12,953 $— $20,992Contracts-in-transit and vehicle receivables, net— 241,097 28,411 — 269,508Accounts and notes receivable, net— 140,985 32,379 — 173,364Intercompany accounts receivable— 8,929 — (8,929) —Inventories, net— 1,386,871 264,944 — 1,651,815Prepaid expenses and other current assets516 7,188 27,204 — 34,908Total current assets5161,793,109365,891(8,929) 2,150,587PROPERTY AND EQUIPMENT, net— 990,084 135,799 — 1,125,883GOODWILL— 805,935 70,828 — 876,763INTANGIBLE FRANCHISE RIGHTS— 260,534 24,342 — 284,876INVESTMENT IN SUBSIDIARIES2,787,328 — — (2,787,328) —OTHER ASSETS— 19,313 4,481 — 23,794Total assets$2,787,844 $3,868,975 $601,341 $(2,796,257) $4,461,903 LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other$— $1,131,718 $4,936 $— $1,136,654Offset account related to floorplan notes payable - credit facility— (59,626) — — (59,626)Floorplan notes payable — manufacturer affiliates— 281,747 110,914 — 392,661Offset account related to floorplan notes payable - manufactureraffiliates— (25,500) — — (25,500)Current maturities of long-term debt and short-term financing— 44,659 27,760 — 72,419Current liabilities from interest rate risk management activities—3,941——3,941Accounts payable— 211,050 145,049 — 356,099Intercompany accounts payable875,662 — 8,929 (884,591) —Accrued expenses— 156,648 19,821 — 176,469Total current liabilities875,6621,744,637317,409(884,591) 2,053,117LONG-TERM DEBT, net of current maturities836,056 324,540 52,213 — 1,212,809LIABILITIES FROM INTEREST RATE RISK MANAGEMENTACTIVITIES— 20,470 — — 20,470DEFERRED INCOME TAXES AND OTHER LIABILITIES(1,020) 240,348 5,979 — 245,307STOCKHOLDERS’ EQUITY: Group 1 stockholders’ equity1,077,146 2,414,642 225,740 (2,787,328) 930,200Intercompany note receivable— (875,662) — 875,662 —Total stockholders’ equity1,077,1461,538,980225,740(1,911,666) 930,200Total liabilities and stockholders’ equity$2,787,844$3,868,975$601,341$(2,796,257) $4,461,903F-41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED BALANCE SHEETDecember 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $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 — 1,737,751Prepaid expenses and other current assets5,312 8,946 13,118 — 27,376Total current assets5,3121,914,995269,255(1,192) 2,188,370PROPERTY 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— 5,950 5,912 — 11,862Total assets$2,393,393$3,932,717$459,879$(2,389,273) $4,396,716 LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other$— $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— 47,015 7,976 — 54,991Accounts payable— 178,544 101,879 — 280,423Intercompany accounts payable503,333 — 1,192 (504,525) —Accrued expenses— 167,509 17,814 — 185,323Total current liabilities503,3331,822,225218,235(504,525) 2,039,268LONG-TERM DEBT, net of current maturities834,090 300,788 64,656 — 1,199,534LIABILITIES FROM INTEREST RATE RISK MANAGEMENTACTIVITIES— 31,153 — — 31,153DEFERRED INCOME TAXES AND OTHER LIABILITIES(265) 203,824 4,950 — 208,509STOCKHOLDERS’ EQUITY: Group 1 stockholders’ equity1,056,235 2,078,060 172,038 (2,388,081) 918,252Intercompany note receivable— (503,333) — 503,333 —Total stockholders’ equity1,056,235 1,574,727172,038(1,884,748) 918,252Total liabilities and stockholders’ equity$2,393,393$3,932,717$459,879$(2,389,273) $4,396,716F-42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2016 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $8,734,673 $2,152,939 $— $10,887,612COST OF SALES:— 7,379,323 1,913,220 — 9,292,543GROSS PROFIT— 1,355,350 239,719 — 1,595,069SELLING, GENERAL AND ADMINISTRATIVE EXPENSES2,722 954,495 213,546 — 1,170,763DEPRECIATION AND AMORTIZATION EXPENSE— 43,472 7,762 — 51,234ASSET IMPAIRMENTS— 21,794 11,044 — 32,838INCOME (LOSS) FROM OPERATIONS(2,722) 335,589 7,367 — 340,234OTHER EXPENSE: Floorplan interest expense— (40,444) (4,483) — (44,927)Other interest expense, net— (64,870) (3,066) — (67,936)INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INEARNINGS OF SUBSIDIARIES(2,722)230,275(182)— 227,371BENEFIT (PROVISION) FOR INCOME TAXES1,020 (83,560) 2,234 — (80,306)EQUITY IN EARNINGS OF SUBSIDIARIES148,767 — — (148,767) —NET INCOME (LOSS)$147,065$146,715$2,052$(148,767) $147,065COMPREHENSIVE INCOME (LOSS) 10,121 (19,081) (8,960)COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOPARENT$147,065$156,836$(17,029)$(148,767) $138,105F-43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $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 — 87,562INCOME (LOSS) FROM OPERATIONS(3,024) 328,560 (47,198) — 278,338OTHER EXPENSE: Floorplan interest expense— (36,063) (3,201) — (39,264)Other interest income (expense), net2,320 (52,276) (6,947) — (56,903)INCOME (LOSS) 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)$(94,439) 37,999F-44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2014 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $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 — 41,520INCOME (LOSS) FROM OPERATIONS(2,796) 310,194 (5,288) — 302,110OTHER EXPENSE: Floorplan interest expense— (34,061) (7,553) — (41,614)Other interest income (expense), net2,272 (46,517) (5,448) — (49,693)Loss on extinguishment of long-term debt— (46,403) — — (46,403)INCOME (LOSS) 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-45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities$147,065 $238,552 $(760) $384,857CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— — (57,327) (57,327)Proceeds from disposition of franchises, property and equipment— 35,317 1,526 36,843Purchases of property and equipment, including real estate— (138,263) (18,258) (156,521)Other— 2,748 217 2,965Net cash used in investing activities—(100,198)(73,842)(174,040)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 6,597,406 — 6,597,406Repayments on credit facility - floorplan line and other— (6,676,161) — (6,676,161)Borrowings on credit facility - acquisition line220,020 — — 220,020Repayment on credit facility - acquisition line(220,020) — — (220,020)Debt issue costs(2,997) (516) — (3,513)Borrowings on other debt— — 49,972 49,972Principal payments on other debt— (923) (45,005) (45,928)Borrowings on debt related to real estate— 42,654 — 42,654Principal payments on debt related to real estate loans— (20,309) (5,154) (25,463)Issuance of common stock to benefit plans, net3,868 — — 3,868Repurchases of common stock, amounts based on settlement date(127,606) — — (127,606)Tax effect from stock-based compensation(249) — — (249)Dividends paid(19,987) — — (19,987)Borrowings (repayments) with subsidiaries399,151 (406,888) 7,737 —Investment in subsidiaries(399,245) 328,084 71,161 —Net cash (used in) provided by financing activities(147,065)(136,653)78,711 (205,007)EFFECT OF EXCHANGE RATE CHANGES ON CASH— — 2,145 2,145NET DECREASE IN CASH AND CASH EQUIVALENTS—1,7016,254 7,955CASH AND CASH EQUIVALENTS, beginning of period— 6,338 6,699 13,037CASH AND CASH EQUIVALENTS, end of period$—$8,039$12,953 $20,992F-46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 (used in) provided by operating activities$93,999 $49,710 $(2,662) $141,047CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (212,252) — (212,252)Proceeds from disposition of franchises, property and equipment— 40,833 748 41,581Purchases of property and equipment, including real estate— (97,009) (23,243) (120,252)Other— 6,421 — 6,421Net cash used in investing activities—(262,007)(22,495) (284,502)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,557,237 — 7,557,237Repayments on credit facility - floorplan line and other— (7,504,516) — (7,504,516)Borrowings on credit facility - acquisition line489,548 — — 489,548Repayment on credit facility - acquisition line(557,696) — — (557,696)Net borrowings of 5.25% Senior Unsecured Notes296,250 — — 296,250Debt issue costs— (788) — (788)Borrowings on other debt— 451 59,404 59,855Principal payments on other debt— (1,386) (62,383) (63,769)Borrowings on debt related to real estate— 9,596 22,430 32,026Principal payments on debt related to real estate loans— (68,234) (3,845) (72,079)Issuance of common stock to benefit plans, net214 — — 214Repurchases of common stock, amounts based on settlement date(97,473) — — (97,473)Tax effect from stock-based compensation— 2,142 — 2,142Dividends paid(19,942) — — (19,942)Borrowings (repayments) with subsidiaries220,281 (211,236) (9,045) —Investment in subsidiaries(425,181) 409,990 15,191 —Net cash (used in) provided by financing activities(93,999)193,25621,752 121,009EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (5,492) (5,492)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS—(19,041)(8,897) (27,938)CASH AND CASH EQUIVALENTS, beginning of period— 25,379 15,596 40,975CASH AND CASH EQUIVALENTS, end of period$—$6,338$6,699 $13,037F-47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended December 31, 2014 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used in) provided by operating activities$(327) $235,236 $(36,621) $198,288CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (306,364) (30,187) (336,551)Proceeds from disposition of franchises, property and equipment— 141,147 3,450 144,597Purchases of property and equipment, including real estate— (140,407) (9,985) (150,392)Other— (4,705) — (4,705)Net cash used in investing activities—(310,329)(36,722) (347,051)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,832,014 — 7,832,014Repayments on credit facility - floorplan line and other— (7,802,719) — (7,802,719)Borrowings on credit facility - acquisition line389,368 — — 389,368Repayment on credit facility - acquisition line(379,681) — — (379,681)Net borrowings of 5.00% Senior Unsecured Notes539,600 — — 539,600Debt issue costs(1,881) — — (1,881)Repurchase of 3.00% Convertible Notes(260,074) — — (260,074)Proceeds from Call/Warrant Unwind related to 3.00% Convertible Notes32,697 — — 32,697Conversion and redemption of 2.25% Convertible Notes(182,756) — — (182,756)Borrowings of other debt— — 91,137 91,137Principal payments of other debt— — (85,905) (85,905)Principal payments of long-term debt related to real estate loans— (43,060) (16,890) (59,950)Borrowings of debt related to real estate— 86,722 25,457 112,179Issuance of common stock to benefit plans, net(321) — — (321)Repurchases of common stock, amounts based on settlement date(36,802) — — (36,802)Tax effect from stock-based compensation— 1,841 — 1,841Dividends paid(17,097) — — (17,097)Borrowings (repayments) with subsidiaries78,199 (141,824) 63,625 —Investment in subsidiaries(160,925) 161,073 (148) —Distributions to parent— 2,119 (2,119) —Net cash provided by financing activities32796,16675,157 171,650EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (2,127) (2,127)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS—21,073(313) 20,760CASH AND CASH EQUIVALENTS, beginning of period— 4,306 15,909 20,215CASH AND CASH EQUIVALENTS, end of period$— $25,379 $15,596 $40,975F-48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2017Powered 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 — 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)10.3 — 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)10.4 — 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)10.5 — 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, 201410.6 — 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)10.7 — 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)10.8 — 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)10.9 — 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)10.10 — 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)10.11 — 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)10.12 — 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)10.13 — 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)10.14 — 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)10.15 — 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)10.16 — 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, 2017Powered 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 Description10.17 — 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)10.18 — 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)10.19 — 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)10.20* — 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)10.21* — 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)10.22†* — Group 1 Automotive, Inc. Non-Employee Director Compensation Plan, effective January 1, 201710.23* — Group 1 Automotive, Inc. 2016 Short Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of Group 1 Automotive,Inc.’s Current Report on Form 8-K (File No. 001-13461) filed February 19, 2016)10.24* — 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)10.25* — 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)10.26* — 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)10.27* — 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)10.28* — 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)10.29* — 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 April8, 2010)10.30* — Group 1 Automotive, Inc. 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to Group 1 Automotive,Inc.’s definitive proxy statement on Schedule 14A filed April 10, 2014)10.31* — 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)10.32* — 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)10.33* — 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)10.34* — Form of Phantom Stock Agreement for Employees (Incorporated by reference to Exhibit 10.3 of Group 1 Automotive, Inc.’sCurrent Report on Form 8-K (File No. 001-13461) filed March 16, 2005)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Description10.35* — 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)10.36* — 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)10.37* — 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)10.38* — 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)10.39 — Transition Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara (Incorporated byreference to Exhibit 10.41 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year endedDecember 31, 2015)10.40* — Employment Agreement dated December 18, 2015 between Group 1 Automotive, Inc. and J. Brooks O’Hara (Incorporated byreference to Exhibit 10.42 of Group 1 Automotive, Inc.’s Annual Report on Form 10-K (File No. 001-13461) for the year endedDecember 31, 2015)10.41* — 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)10.42* — 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)10.43* — 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)10.44* — 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)10.45* — 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)10.46* — 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)10.47* — 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)10.48* — 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)10.49* — 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)10.50* — 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)10.51* — 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)10.52* — 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)10.53* — 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)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Description11.1 — Statement re Computation of Per Share Earnings (Incorporated by reference to Note 6 to the financial statements)12.1† — 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, 2017Powered 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, 2016 2015 2014 2013 2012Earnings: Pretax income $227,371 $182,171 $164,400 $191,895 $160,735Add: Fixed charges 127,014 108,106 105,739 97,233 84,395Less: Capitalized interest (1,720) (741) (731) (805) (689)Total Earnings $352,665 $289,536 $269,408 $288,323 $244,441Fixed Charges: Interest expense $112,863 $96,167 $91,306 $80,639 $69,261Estimated interest within rent expense 12,431 11,198 13,702 15,789 14,445Capitalized interest 1,720 741 731 805 689Total Fixed Charges $127,014 $108,106 $105,739 $97,233 $84,395Ratio of Earnings to Fixed Charges 2.8 2.7 2.5 3.0 2.9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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)dbaAdvantagecarsAdvantage CarsAdvantagecars.comAdvantage Car SalesSterling 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 Auto GroupGene Messer Ford Value LotGene Messer Ford of Amarillo Collision CenterGene 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 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)dbaAudi PeabodyDanvers-SB, Inc. (DE)dbaIra BMW of StrathamBMW of StrathamIra Preowned of ExeterDanvers-SU, LLC (DE)dbaIra SubaruDanvers-T, Inc. (DE)dbaIra ToyotaIra Toyota of DanversIra Collision CenterIra Collision Center of DanversDanvers-TII, Inc. (DE)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Danvers-TII, Inc. (DE)dbaIra Toyota of TewksburyIra Toyota IIDanvers-TIII, Inc. (DE)Danvers-TL, Inc. (DE)dbaIra LexusIra Lexus of DanversFMM, 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)GPI CA-SV, Inc. (DE)dbaVolkswagen Kearny MesaGPI CA-TII, Inc. (DE)dbaMiller Toyota of AnaheimGPI CC, Inc. (DE)dbaGroup 1 Automotive Call CenterGPI FL-A, LLC (NV)dbaPrestige AudiGPI FL-H, LLC (DE)dbaHonda of Bay CountyGPI 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)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.GPI GA-FIII, LLC (DE)dbaRivertown FordGPI GA-FM, LLC (NV)GPI GA-SU, LLC (NV)dbaVolvo Cars ColumbusVolvo of ColumbusRivertown SubaruRivertown Bargain CenterRivertown Auto MallRivertown Auto Mall Bargain Center of ColumbusGPI GA-T, LLC (DE)dbaWorld ToyotaWorld Toyota Collision & Glass CenterWorld Toyota Collision Center of AtlantaGPI GA-TII, LLC (NV)dbaRivertown ToyotaRivertown SupercenterRivertown Toyota 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 KiaGPI 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 ManchesterGPI NH-TL, Inc. (DE)dbaIra Lexus of ManchesterGPI NJ-HA, LLC (NV)dbaElite AcuraSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.GPI 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 Collision CenterFolsom Lake Toyota Collision CenterFolsom Lake Used Car OutletGPI SC-A, LLC (DE)GPI SC-SB, LLC (DE)dbaBMW of ColumbiaGPI SC-SBII, LLC (DE)dbaHilton Head BMWGPI SC-T, LLC (DE)dbaToyota of Rock HillGPI SC, Inc. (DE)dbaSterling McCall Collision Center of Jersey VillageSterling McCall Collision 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 GeorgetownSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Mercedes-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-P, Inc. (TX)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)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 Associates, Inc. (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)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 Quality Select Used CarsHoward-DCIII, LLC (DE)dbaSouth Pointe Chrysler Dodge Jeep RamSouth Pointe AutomallHoward-GM, Inc. (DE)dbaBob Howard Buick GMCBob Howard GMC TruckBob Howard Collision CenterBob Howard Collision Center of EdmondHoward-GM II, Inc. (DE)dbaSmicklas ChevroletJohn Smicklas ChevroletBob Howard PDCGroup 1 Autoparts.comGroup 1 AutopartsHoward Parts Distribution CenterSmicklas PDCSmicklas Chevrolet Collision CenterSmicklas 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 Collision Center of PensacolaWorld Ford Pensacola Collision CenterSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Kutz-N, Inc. (DE)dbaCourtesy NissanLubbock Motors, Inc. (DE)dbaThe Credit ConnectionThe Credit Connection of AmarilloLubbock Motors-F, Inc. (DE)dbaGene Messer FordGene Messer LincolnGene Messer Ford LincolnGene Messer Ford Collision CenterGene Messer Collision Center of LubbockGene Messer Auto GroupThe Credit ConnectionGene Messer Value LotLubbock Motors-GM, Inc. (DE)dbaGene Messer ChevroletGene Messer Auto GroupGene Messer AccessoriesGene Messer Quality Used CarsLubbock Motors-S, Inc. (DE)dbaGene Messer VolkswagenGene Messer Auto GroupGene Messer Used CarsGene Messer Value Lot WolfforthLubbock Motors-SH, Inc. (DE)dbaGene Messer HyundaiGene Messer Auto GroupLubbock Motors-T, Inc. (DE)dbaGene Messer ToyotaGene Messer Auto GroupMaxwell Ford, Inc. (DE)dbaMaxwell FordMaxwell Ford SupercenterMaxwell Collision Center of AustinMaxwell Ford Collision CenterMaxwell-GMII, Inc. (DE)dbaFreedom ChevroletMaxwell-N, Inc. (DE)dbaTown North NissanMaxwell-NII, Inc. (DE)dbaRound Rock NissanGP1 Collision Center of Round RockGP1 Collision of Round RockMcCall-F, Inc. (DE)dbaSterling McCall FordSterling McCall Ford Collision CenterSterling McCall Collision Center of HoustonMcCall-H, Inc. (DE)dbaSterling McCall HondaMcCall-HA, Inc. (DE)dbaSterling McCall AcuraMcCall-N, Inc. (DE)dbaSterling McCall NissanSterling McCall Nissan Collision CenterSterling McCall Nissan Collision Center of StaffordSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.McCall-SB, Inc. (DE)dbaAdvantage BMWAdvantage BMW MidtownAdvantage BMW of Clear LakeAdvantage MINI of Clear LakeBMW of Clear LakeMINI of Clear LakeMcCall-T, Inc. (DE)dbaSterling McCall ToyotaWest Region Management GroupMcCall-TII, Inc. (DE)dbaFort Bend ToyotaFort Bend Toyota Collision CenterMcCall-TL, Inc. (DE)dbaSterling McCall LexusLexus of Clear LakeSMR Auto GlassSterling McCall Restoration CenterSterling McCall Collision Center of Clear LakeMike Smith Automotive-H, Inc. (DE)dbaMike Smith HondaMike Smith Auto GroupMike Smith Collision CenterMike 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 Mercedes-BenzMike Smith Auto GroupMike 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)Miller Nissan, Inc. (CA)NJ-DM, Inc. (DE)NJ-H, Inc. (DE)NJ-HAII, Inc. (DE)dbaBoardwalk AcuraBoardwalk Acura Collision CenterSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.NJ-SV, Inc. (DE)Rockwall Automotive-DCD, Ltd. (TX)dbaRockwall Chrysler Dodge Jeep RamRockwall Automotive-F, Inc. (DE)dbaRockwall FordRockwall Ford Collision CenterTate CG, LLC (MD)Acanthicus Empreendimentos Imobiliários Ltda. (Brazil)AR Centro-Oeste Comércio de Veículos Ltda. (Brazil)dbaMercedes-Benz of Campo GrandeAR Sudeste Comércio de Veiculos Ltda. (Brazil)dbaAR Motors NissanAR - Veículos e Participações Ltda. (Brazil)Barons 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 BrightonChandlers (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)Essex Audi LimitedEuro Import Comércio e Serviços Ltda. (Brazil)dbaEuro Import MINI – CuritibaEuro Import BMW – 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)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Hodgson Automotive Limited (UK)dbaChelmsford AudiChingford AudiColchester AudiHarold Wood AudiSouthend AudiStansted AudiJoi Comércio de Veiculos Ltda. (Brazil)dbaBMW JoinvilleMyltons Limited (UK)Ophiucus Participações Ltda. (Brazil)Sceptrum Empreendimentos Imobiliários Ltda. (Brazil)Shape Automotive Holdings Limited (UK)Shape Automotive Limited (UK)Spire Automotive Limited (UK)dbaFinchley Road AudiHatfield AudiHatfield SEATSpire Borehamwood - BMW/MINISpire JaguarSpire Kentish Town - BMW/MINISpire Watford - BMW/MINIVW Van Centre (Hatfield)Watford AudiWatford SEATWhetstone AudiSpire Holdings Limited (UK)Spire Used Cars Limited (UK)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 BasingstokeThink Ford BracknellThink Ford FarnboroughThink Ford GuildfordThink Ford NewburyThink Ford WokinghamTorez Participações Ltda. (Brazil)UABMotors 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 Collision CenterT-Drive – TaubateUnited Auto Interlagos Comércio de Veiculos Ltda. (Brazil)United 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)Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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.Page 1 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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 and the Group 1 Automotive, Inc. 2007 Long Term Incentive Plan, and(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, 2017, with respect to the consolidated financial statements of Group 1 Automotive, Inc. andsubsidiaries and the effectiveness of internal control over financial reporting of Group 1 Automotive, Inc. and subsidiaries includedin this Annual Report (Form 10-K) of Group 1 Automotive, Inc. and subsidiaries for the year ended December 31, 2016./s/ Ernst & Young LLPHouston, TexasFebruary 17, 2017Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 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, 2017Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 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, 2017Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 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, 2017Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2016 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, 2017Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 17, 2017Powered 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, 2017Powered 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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