Group 1 Automotive
Annual Report 2017

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KGROUP 1 AUTOMOTIVE INC - GPIFiled: February 20, 2018 (period: December 31, 2017)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, 2017or ¨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, tothe 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, a smaller reporting company or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filerþ ¨Accelerated filer Non-accelerated filer¨(Do not check if a smaller reporting company)¨Smaller reporting company ¨Emerging growth companyIf an emerging growth company, indicate by check mark if that registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þThe aggregate market value of common stock held by non-affiliates of the registrant was approximately $1.2 billion based on the reported last sale price of common stock onJune 30, 2017, which was the last business day of the registrant’s most recently completed second quarter.As of February 12, 2018, there were 20,911,543 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 2018 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within120 days of December 31, 2017, are incorporated by reference into Part III of this Form 10-K.Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Comments32Item 2.Properties33Item 3.Legal Proceedings34Item 4.Mine Safety Disclosures34 PART II35Item 5.Market for Registrant Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities35Item 6.Selected Financial Data38Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations40Item 7A.Quantitative and Qualitative Disclosures About Market Risk87Item 8.Financial Statements and Supplementary Data88Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure88Item 9A.Controls and Procedures88Item 9B.Other Information89 PART III91Item 10.Directors, Executive Officers and Corporate Governance91Item 11.Executive Compensation92Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters92Item 13.Certain Relationships and Related Transactions, and Director Independence92Item 14.Principal Accounting Fees and Services92 PART IV93Item 15.Exhibits, Financial Statement Schedules93SIGNATURESF-55iSource: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 tariffs.Although we believe that the expectations reflected in these forward-looking statements are reasonable when and as made, we cannot assure you thatthese expectations will prove to be correct or that future developments affecting us will be those that we anticipate. When used in this Form 10-K, the words“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may” and similar expressions, as they relate to our company and management, are intended toidentify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations andbeliefs concerning future developments and their potential effect on our existing operations and do not include the potential impact of any futureacquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that couldcause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could causeour actual results to differ from those in the forward-looking statements are those 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, except as required by law.1Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017,we owned and operated 227 franchises, representing 32 brands of automobiles, at 173 dealership locations and 48 collision centers worldwide. We own 151franchises at 115 dealership locations and 30 collision service centers in the United States of America (“U.S.”), 55 franchises at 42 dealership locations and11 collision centers in the United Kingdom (“U.K.”) and 21 franchises at 16 dealership locations and seven collision centers 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, New Mexico, Oklahoma, South Carolina, and Texas in theU.S., in 28 towns 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 three operating segments (or regions): the U.S., the U.K. and Brazil. The President of U.S. Operations reportsdirectly to the Company's Chief Executive Officer and is responsible for the overall performance of the U.S. region, as well as for overseeing the marketdirectors and dealership general managers. The operations of the Company's two international regions are structured similar to the U.S. region, each with aregional vice president reporting directly to the Company's Chief Executive Officer. Our financial information, including our revenues from externalcustomers, a measure of profit or loss, and total assets, is segregated into our three operating segments and included in our Consolidated Financial Statementsand 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. With our management structure and level of executive talent, we plan to continueempowering the operators of our dealerships to make appropriate decisions to grow their respective dealership operations and to control fixed and variablecosts. We believe this approach allows us to provide the best possible service to our customers, as well as attract and retain talented employees.Our business strategy primarily focuses on the performance of our existing dealerships to achieve growth, capture market share, and maximize theinvestment return to our stockholders. We are constantly evaluating opportunities to improve the overall profitability of our dealerships. For 2018, ourpriorities will be 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. Our focus on growth in our parts and service operations continues to hinge ontargeted marketing efforts, strategic selling and operational efficiencies, as well as capital investments designed to support our growth targets;•improvement of new and used vehicle retail margins, as well as total new and used vehicle retail profitability. Our efforts to improve are centeredon the efficient and effective use of technology and advertising to enhance our sales efforts, as well as the more efficient management ofinventory;•promotion of the customer experience and customer satisfaction, in all areas of our business; and•improvement of operating efficiencies, through further development of our operating model that promotes commonality of processes, systems andtraining, to further leverage of our cost base. We made significant changes in our operating model during the last six years, which were designed toreduce variable and fixed expenses. And, we continue our efforts to fully leverage our scale, reduce costs, enhance internal controls, and enablefurther growth. As our business grows in 2018 and beyond, we intend to manage our costs carefully and to look for additional opportunities toimprove 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.We will continue to focus on opportunities for enhancement of our current dealership portfolio by strategic acquisitions and improving or disposing ofunderperforming dealerships. We believe that substantial opportunities for growth through acquisitions remain in our industry in the U.S., the U.K. andBrazil. An absolute acquisition target has not been established for 2018, but we expect to acquire dealerships that provide attractive returns on investment.We believe that as of December 31, 2017, 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 on2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.invested capital in our current dealership portfolio for disposition opportunities. In 2017, we completed the acquisition of 12 U.K. dealerships, inclusiveof 14 franchises, and opened one additional dealership for one awarded franchise in the U.K., with expected aggregate annualized revenues of $360.0 million,as estimated at the time of the acquisitions. In addition, the Company acquired three dealerships in the U.S., inclusive of four franchises, opened onedealership for one awarded franchise in the U.S. and added motorcycles to an existing BMW dealership in Brazil, with expected aggregate annualizedrevenues of $130.0 million, estimated at the time of the acquisitions. For more information on our acquisitions and dispositions, including those occurring in2017, see “Acquisition and Divestiture Program” for further details.3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 15 states aggregated into one U.S. region, andinternationally in the U.K. and Brazil, representing our three reportable segments; U.S., U.K. and Brazil. See Note 20 to our Consolidated FinancialStatements, “Segment Information”, for further financial information on our three operating segments. For a discussion of the risks associated with ouroperations in the U.S., U.K. and Brazil, please see Part I, “Item 1A. Risk Factors.” The following table sets forth the regions and geographic markets in whichwe operate, the percentage of new vehicle retail units sold in each region in 2017 and the number of dealerships and franchises in each region: Region Geographic Market Percentage of Our NewVehicle Retail Units SoldDuring the Year EndedDecember 31, 2017 As of December 31, 2017Number ofDealerships Number ofFranchisesUnited States Texas 37.0% 52 70 California 7.5 7 12 Oklahoma 6.1 13 20 Massachusetts 4.6 5 5 Georgia 4.6 7 10 Florida 2.6 4 4 New Hampshire 2.0 3 3 Louisiana 1.9 4 6 New Jersey 1.7 4 4 Kansas 1.6 4 4 South Carolina 1.4 3 3 Mississippi 1.3 3 3 Alabama 1.0 2 2 Maryland 0.4 2 2 New Mexico 0.1 2 3 73.8 115 151International United Kingdom 21.3 42 55 Brazil 4.9 16 21Total 100.0% 173 227Each 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, collision and finance andinsurance departments, is ultimately responsible for the operation, personnel and financial performance of the dealership. Our dealerships are operated asdistinct profit centers, and our general managers have a reasonable degree of empowerment within our organization.4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 2017, we sold 172,200 new vehicles in retail transactions at our dealerships, representing 32 brands. Our retail sales of new vehicles accounted for19.6% of our gross profit in 2017. In addition to the profit related to the transactions, a typical new vehicle retail sale or lease may create the followingadditional 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;•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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017: New VehicleRevenues New VehicleUnit Sales % of TotalUnits Sold Franchises Owned (In thousands) Toyota $1,088,652 36,419 21.1% 17BMW 767,231 16,574 9.7 28Ford 707,123 19,557 11.4 19Audi 656,506 17,924 10.4 13Mercedes-Benz 389,194 6,236 3.6 8Honda 371,458 13,351 7.8 11Nissan 369,486 12,729 7.4 9Lexus 348,392 7,156 4.2 4Chevrolet 266,607 6,690 3.9 6MINI 136,131 5,329 3.1 18Volkswagen 110,793 4,513 2.6 12GMC 109,387 2,170 1.3 5Hyundai 105,040 4,013 2.3 5Jeep 102,256 2,859 1.7 6Acura 101,283 2,531 1.5 4RAM 100,053 2,190 1.3 6Land Rover 73,296 1,100 0.6 7Kia 67,615 2,786 1.6 5Cadillac 66,685 1,213 0.7 2Dodge 45,670 1,285 0.7 6Subaru 40,011 1,443 0.8 2Jaguar 31,942 592 0.3 7Buick 23,257 640 0.4 5Sprinter 21,550 487 0.3 6Chrysler 15,206 358 0.2 6SEAT 15,166 1,104 0.6 1Lincoln 8,758 177 0.1 3Mazda 8,758 325 0.2 1Skoda 3,435 145 0.1 1Vauxhall 3,429 186 0.1 1Volvo 1,691 32 — 1Smart 1,470 86 — 2Total $6,157,531 172,200 100.0% 227 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, 2016, and 2015, is set forth below: For the Year Ended December 31, 2017 % ofTotal 2016 % ofTotal 2015 % ofTotalToyota/Scion/Lexus (1) 43,575 25.3% 42,922 24.9% 46,157 26.5%Volkswagen/Audi/Porsche 22,437 13.0 18,935 11.0 12,106 6.9BMW/MINI 21,903 12.7 23,305 13.5 20,283 11.6Ford/Lincoln 19,733 11.5 18,925 11.0 19,882 11.4Honda/Acura 15,882 9.2 17,031 9.9 19,019 10.9Nissan 12,729 7.4 12,256 7.1 14,570 8.4Chevrolet/GMC/Buick/Cadillac 10,713 6.2 12,811 7.4 13,307 7.6Mercedes-Benz/smart/Sprinter 6,809 4.0 7,349 4.3 7,466 4.3Hyundai/Kia 6,799 3.9 7,256 4.2 10,046 5.6Chrysler/Dodge/Jeep/RAM 6,692 3.9 6,801 4.0 7,962 4.6Other 4,928 2.9 4,462 2.7 3,816 2.2Total 172,200 100.0% 172,053 100.0% 174,614 100.0%(1) The Scion brand was discontinued by Toyota during the third quarter of 2016.Our new vehicle unit sales mix was affected by our acquisitions and dispositions during 2017, 2016 and 2015.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 do not guarantee residual values on leasetransactions. Lease vehicle unit sales represented 14.6%, 16.7% and 16.5% of our total new vehicle retail unit sales for the years ended December 31, 2017,2016 and 2015, respectively.Used Vehicle Sales, Retail and WholesaleWe sell used vehicles at each of our franchised dealerships. In 2017, we sold 129,933 used vehicles at our dealerships, and sold 57,144 used vehicles inwholesale markets. Our retail sales of used vehicles accounted for 10.8% of our gross profit in 2017. Used vehicles sold at retail typically generate highergross 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 utilize used vehiclemanagement software tools with the goal to enhance the management of used vehicle inventory, focusing on the more profitable retail used vehicle businessand reducing our wholesale used vehicle business. This internet-based software tool is an integral part of our used vehicle process, enabling our managers tomake used vehicle inventory decisions based on real time market valuation data. It also allows us to leverage our size and local market presence byexpanding 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 usedvehicle inventory. In addition, this software supports increased oversight of our assets in inventory, allowing us to better control our exposure to declines inused vehicles market valuations, the values of which typically decrease 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 the opportunity to purchase a used vehicle that has passed a rigorous array of manufacturer-defined tests, and are eligible for manufacturer support,such as subsidized finance7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.rates, the extension of manufacturer’s service warranty and other benefits. With the extended service warranty, the sale of CPO vehicles tends to generatebetter ongoing customer loyalty for maintenance and repair services at the selling dealership. CPO vehicles typically cost more to recondition, but sell at apremium compared to other used vehicles and are available only from franchised new vehicle dealerships. Our CPO vehicle sales represented 39.7% of totalused retail sales in 2017.Parts and Service SalesWe sell replacement parts and provide both warranty and non-warranty (i.e., customer-pay) maintenance and repair services at each of our franchiseddealerships, as well as provide collision repair services at the 48 collision centers that we operate. We also sell parts to wholesale customers. Our parts andservice business accounted for 43.7% of our gross profit in 2017. Customer-pay maintenance and repair services, warranty maintenance and repair services,wholesale parts sales and collision repair services accounted for 44.4%, 21.4%, 20.3% and 13.9%, respectively, of the revenues from our parts and servicebusiness in 2017. Our parts and service departments also perform used vehicle reconditioning and new vehicle enhancement services in support of our newand used retail vehicle operations for which they realize a profit. However, the revenue for that internal work is eliminated from our parts and service revenuein the consolidation of our financial statements.The automotive maintenance and repair industry is highly fragmented, with a significant number of independent maintenance and repair facilities inaddition to those of the franchised dealerships. We believe, however, that the increasing complexity of new vehicles, especially in the area of electronics andtechnological advancements, is making it difficult for many independent repair shops to retain the expertise necessary to perform major or technical repairs.We have made investments in recruiting, training, and retaining qualified technicians to work in our service and repair facilities. And, we have madeinvestments in state of the art diagnostic and repair equipment to be utilized by these technicians.Vehicle manufacturers only permit warranty and recall work to be performed at franchised dealerships. Currently, a trend exists in the automobileindustry towards longer new vehicle warranty periods and more diligence with manufacturer recalls. As a result, we believe that over time an increasingpercentage of all repair work will be performed at franchised dealerships that have the necessary sophisticated equipment and skilled personnel necessary toperform repairs and warranty work on today’s complex vehicles.Our strategy to capture an increasing share of the available parts and service business and enhance profitability includes the following 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 enhance 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 currently operate significantly enhances the profit model opportunities for our collision center operations.Finance and Insurance Sales8Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Revenues 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 insurance business accounted for 26.1% of our gross profit in 2017.We offer a wide variety of third-party finance, vehicle service and insurance products in a convenient manner and at competitive prices. To increasetransparency to our customers, we offer all of our products on menus that display pricing and other information, allowing customers to choose the productsthat 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 in full orin part, if a customer defaults or prepays the financing contract, typically during some limited time period at the beginning of the contract term. We havenegotiated incentive 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.Our strategy to improve the customer experience and enhance profitability of our finance and insurance operations includes the following elements:•Continue to enhance our product offerings. We are constantly evaluating the mix of insurance products that we offer our customers to ensure thattheir needs are met. In addition, we regularly work with our current and prospective insurance product providers to assess new product offeringsand match them with changing markets and customer demand. Further, we routinely consider our relationships with finance company andinsurance product providers, as well as our marketing and other strategies to expand the accessibility of our product offerings to more of ourclients.•Improve our processes within the dealership. We routinely consider software and other technological improvements that can make the process bywhich a customer finances a vehicle purchase and/or purchases an insurance product more efficient. Further, we maintain a focus on compliancewith our standard policies and procedures, as well as applicable laws and regulations, in order to optimize the customer experience and overallprofitability of each transaction.New and Used Vehicle Inventory FinancingSee Note 11 to our Consolidated Financial Statements, “Credit Facilities,” for a detailed description of our new and used vehicle inventory financingarrangements.9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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;and/or•capitalize on economies of scale and cost savings opportunities in our existing markets in areas such as used vehicle sourcing, advertising,purchasing, data processing, personnel utilization, and the cost of floorplan financing, thereby, increase operating efficiency.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 2017, we acquired 12 U.K. dealerships, inclusive of 14 franchises and opened one additional dealership for one awardedfranchise in our U.K. segment. We also acquired three dealerships in the U.S., representing four franchises, opened one dealership for one awarded franchise inthe U.S. and added motorcycles to an existing BMW dealership in Brazil. The expected aggregate annualized revenues, estimated at the time of theseacquisitions were $490.0 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 2017, we disposed of two dealerships in Brazil, representing two franchises, and one dealership in the U.K., representingone franchise, with aggregate annualized revenues of approximately $35.0 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 purchase10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of related parts and accessories, as well as the maintenance service and repair of vehicles. In the U.S., according to The National Automobile DealersAssociation, there were approximately 16,708 franchised automobile dealerships as of January 1, 2017, which was up from 16,545 as of January 1, 2016. Inthe U.K., according to the National Franchised Dealers Association, there were approximately 4,184 franchised dealerships as of January 1, 2017, which wasup from 4,065 as of January 1, 2016. In Brazil, according to The National Association of Automobile Manufacturers, there were approximately 4,393franchised automobile dealerships as of January 1, 2017, which was up from 4,389 as of January 1, 2016.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. We face competition in arranging financing for our customers’ vehicle purchases from abroad range of financial institutions. Many financial institutions now offer finance and insurance products over the internet, which may reduce our profitsfrom the sale of these products. We may be charged back for unearned financing, insurance contracts or vehicle service contract fees in the event of earlytermination of the contracts by customers.Acquisitions. We compete with other national dealer groups and individual investors for acquisitions. Increased competition, especially for certainluxury and import brands, may raise the cost of acquisitions. 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, 2017, our outstanding indebtedness, coupled with lease and other obligations totaled $3,652.1 million, including the following:•$1,133.3 million under the Floorplan Line of our Revolving Credit Facility;•$542.1 million in carrying value of 5.00% senior notes due 2022 (“5.00% Notes”);11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•$350.0 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;•$327.6 million of future commitments under various operating leases;•$300.2 million of estimated future interest payments on existing floorplan notes payable and other long-term debt obligations;•$296.2 million in carrying value of 5.25% senior notes due 2023 (“5.25% Notes”);•$265.1 million under floorplan notes payable to various manufacturer affiliates and third-party financial institutions for foreign and rentalvehicles;•$130.5 million under our FMCC Facility;•$79.2 million of mortgage term loans in the U.K. (collectively, “U.K. Notes”);•$51.7 million of capital lease obligations related to real estate, as well as $31.4 million of estimated future interest associated with suchobligations;•$32.7 million of other short and long-term purchase commitments;•$27.0 million under the Acquisition Line;•$25.0 million of letters of credit, to collateralize certain obligations, issued under the Acquisition Line; •$10.6 million of estimated future net obligations from interest rate risk management activities; and•$49.5 million of various other debt and other capital lease obligations.As of December 31, 2017, we had the following amounts available for additional borrowings under our various U.S. credit facilities:•$308.2 million under the Acquisition Line of our Revolving Credit Facility, which is limited based upon a borrowing base calculation withincertain debt covenants under the Revolving Credit Facility;•$306.7 million under the Floorplan Line of our Revolving Credit Facility, including $86.5 million of immediately available funds; and•$169.5 million under our FMCC Facility, including $22.5 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, the 5.00% Notes and the 5.25%Notes in our 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, 2017, the restricted payment baskets limited us to $184.8 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 May 2017, the Board of Directors approved a new authorization of up to $75.0 million to repurchase shares of our common stock, replacing the prior$150.0 million authorization. In aggregate under both of these authorizations, we repurchased 649,298 shares during 2017 at an average price of $61.75 pershare, for a total of $40.1 million. This activity left $49.6 million available for future repurchases as of December 31, 2017, under our current authorization.Future repurchases are subject to the discretion of our Board of Directors after considering our results of operations, financial condition, cash flows, capitalrequirements, existing debt covenants, outlook for our business, general business conditions and other factors.12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.DividendsDuring 2017, our Board of Directors approved four quarterly cash dividends. The first, second, and third dividend was approved and paid at $0.24 pershare and the fourth dividend was increased to $0.25 per share for a total of $0.97 per share, or $20.5 million, for the year ended December 31, 2017. Thepayment of dividends in the future is subject to the discretion of our Board of Directors, after considering our results of operations, financial condition, cashflows, capital requirements, outlook for our business, general business conditions, the political and legislative environments, and other factors. As notedabove, we are also limited in our ability to make restricted payments, such as cash dividend payments to our stockholders, under the terms of several of ourdebt 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 existing13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.authorized dealers within the EU. However, certain restrictions on dealerships may be permissible provided the conditions set out in the relevant EU BlockExemption Regulations are met.The sale of vehicles in Brazil is regulated by federal law, commonly referred to in Brazil as the Ferrari Law. Such law sets forth the terms and conditionsof distribution agreements executed among manufacturers and dealerships, specifically with regard to the distribution of cars, trucks, buses, tractors,motorbikes and similar vehicles. In addition, the Ferrari Law establishes the geographical area of a dealership, termination of distribution agreements andtheir consequences, among other things. Any contractual provision that conflicts with the Ferrari Law is considered void in Brazil. The distributionagreements contemplate the commercialization of vehicles and components fabricated by the manufacturer, the rendering of technical assistance relating tosuch products and the usage by the dealerships of the manufacturers’ brand. According to the Ferrari Law, distribution agreements may be executed for eithera determined or an undetermined term. In the case of a distribution agreement executed for a determined term, its initial term may not be less than 5 years. Atthe end of this initial 5 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. In each of these cases, state law required the manufacturer to repurchase new car inventory, parts and accessories, and certain tools and signage,but the dealership would still incur costs associated with such termination. Subject to similar future economic factors and material changes to the regulationsdiscussed above, we generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms,anticipate routine renewals of the agreements without substantial cost 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, 2017Toyota………………………………………………………………….25.3%Volkswagen…...….…………………………………………………………………………………13.0%BMW……………………………………………………………………..12.7%Ford…………………………………………………………………11.5%Honda…...….…………………………………………………………………………………9.2%14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. Refer to “We are subject to substantial regulations, which may adverselyaffect our business and results of operations” of Item 1A. Risk Factors for further discussion of the Dodd-Frank Act and its potential impact on us.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 or incurrence of capital expenditures, delays in permitting or in the performance of projects, and issuance of injunctions delaying, restricting orprohibiting some or all of our operations in affected areas. We may not be able to recover some or any of these costs from insurance.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 Federal Resource Conservation and Recovery Act, or RCRA, and its state law counterparts.Similarly, below ground lifts may15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.contain fluid reservoirs that may leak. RCRA imposes requirements relating to the handling and disposal of hazardous and non-hazardous wastes and requiresus to comply with stringent and costly requirements in connection with our storage and recycling or disposal of the various used 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 other unauthorized discharges from storagetanks or other equipment operated by us. In addition, water quality protection programs under the Federal Water Pollution Control Act (commonly known asthe Clean Water Act) and comparable state and local programs in the U.S. govern certain wastewater and storm water discharges from our operations, whichdischarges may require permitting. Similarly, certain sources of air emissions from our operations including, for example, paint booths, may be subject topermitting, monitoring and reporting requirements, pursuant to the federal Clean Air Act and related state and local laws. Certain health and safety standardsimposed under the Federal Occupational Safety and Health Act or otherwise promulgated by the Occupational Safety 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 our employees.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 requires management in place but does notrequire removal or other corrective action under applicable regulations. In addition, many of these properties have been operated by third parties whose use,handling and disposal of such petroleum products or wastes were not under our control. In the United States, these properties and the materials transportedand disposed from, or released on, them may be subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act(“CERCLA,” also known as the Superfund law), RCRA and analogous state laws in the U.S., pursuant to which we could be required to remove or remediatepreviously disposed wastes or property contamination or to perform remedial activities to prevent future contamination.Vehicle manufacturers in the United States are subject to regulations adopted in 2012 by the U.S. Environmental Protection Agency (“EPA”) and theNational Highway Traffic Safety Administration (“NHTSA”) that establish greenhouse gas (“GHG”) emissions and corporate average fuel economy (“CAFE”)standards applicable to light-duty vehicles for model years 2017 through 2021. The proposed regulations for the period from 2022 to 2025 are under review,with clarification expected sometime in 2018.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.For further discussion, please read “Item 1A. Risk Factors”.Recently enacted changes to the U.S. Federal Tax LawsOn December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percentto 21 percent, creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and requiringcompanies to pay a one-time transition tax on unrepatriated earnings of their foreign subsidiaries. We have provisionally determined that we do not have atransition tax liability for previously untaxed accumulated and current earnings and profits (E&P) of our foreign subsidiaries. We continue to examine theimpact that the Tax Act may have on us.16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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•potential 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, 2017, we employed 14,108 (full-time, part-time and temporary)people in the U.S., U.K. and Brazil, of whom:•1,785 were employed in managerial positions;•3,565 were employed in non-managerial vehicle sales department positions;•6,633 were employed in non-managerial parts and service department positions; and•2,125 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 conditions, inventory availability, manufacturer incentive programs, severe weather events, changes incurrency exchange rates or shifts in governmental taxes or regulations may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues andoperating income.For further discussion, please read “Item 1A. Risk Factors.”Internet Website and Availability of Public Filings17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 (“Code of Conduct”); and•Our Code of Ethics for our Chief Executive Officer, Chief Financial Officer and Controller (“Code of Ethics”).Within the time period required by the SEC and the NYSE, as applicable, we will post on our website any modifications to the Code of Conduct andCode of Ethics and any waivers applicable to senior officers as defined in the Code of Conduct or Code of Ethics, as applicable, as required by the Sarbanes-Oxley Act of 2002. We make our filings with the Securities and Exchange Commission (“SEC”) available on our website as soon as reasonably practicableafter we electronically file such material with, or furnish such material to, the SEC. The SEC also maintains an internet website at http://sec.gov that containsreports, proxy and information statements, and other information regarding our company that we file and furnish electronically with the SEC. The aboveinformation is 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 theSEC’s Public Reference Room at 100 F. Street, N.E., Washington, DC 20549 and may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, technology and business model changes, supply conditions, consumer transportationpreferences, unemployment rates and credit availability. During economic downturns, such as the recession the U.S. experienced in 2008 and much of 2009,retail new vehicle sales typically experience periods of decline characterized 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, mayadversely impact future consumer spending and result in a difficult business environment. Any tightening of the credit markets and credit conditions maydecrease the availability of automotive loans and leases and adversely impact our new and used vehicle sales and margins. In particular, if sub-prime financecompanies apply higher credit standards or if there is a decline in the overall availability of credit in the sub-prime lending market, the ability of consumersto purchase vehicles could be limited, which could have a 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 (43.1%) for the year ended December 31, 2017 which are dependent upon the oil and gas industry,declines in commodity prices have had and future declines could have an adverse effect on our business and results of operations in those regions.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 97.1% of our total new vehicle retail units sold in 2017. In particular, sales of Toyota/Scion/Lexus new vehicles represented 25.3% of our newvehicle unit sales in 2017. 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, ability to keep up with technologyand business model changes, poor product mix or unappealing vehicle design, governmental laws and regulations, natural disasters, or other adverse events.These and other risks could materially adversely affect the financial condition of any manufacturer and impact its ability to profitably design, market,produce or distribute new vehicles, which in turn could have a material adverse 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.19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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, 2017, we owned three primary Lexusdealerships.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, proceeds from debt and/or equity offerings and/or issuing shares of ourcommon stock as partial consideration for acquired dealerships. Access to funding through the debt or equity capital markets could become challenging inthe future. Also, in the future, the cost 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 toprovide funding to borrowers. Accordingly, our ability to complete acquisitions could be adversely affected if the price of our common stock is depressed orif our access to capital is limited.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;20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•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, and purchase or lease suitable real estate on favorable terms. We are highly dependentupon the availability of real estate in each of our automotive markets. Additionally, real estate we are interested in acquiring will be subject to localmunicipal laws of county, township, parish and other local municipalities that often times will govern what type of real estate we can purchase for our variousautomotive operations. Local ordinances, deed restrictions, zoning and other land use restrictions may prohibit the type of business permitted on a givenleased or purchased property which can add to the challenge of locating appropriate real estate. The costs and length of time associated with changing thepermitted use of a leased or purchased property may affect our ability to enter a market or expand our operations in an existing market. Our inability to locate,and lease or purchase additional suitable properties to meet the needs of our various automotive operations in multiple markets would adversely affect ourbusiness, results of operations and financial condition.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 the21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.vehicle does not conform to the manufacturer’s express warranties and the dealer or manufacturer, after a reasonable number of attempts, is unable to corrector repair the defect. Federal laws require various written disclosures to be provided 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.On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU (commonly referred to as “Brexit”). The majority vote in favorof Brexit has created uncertainty in the regulatory environment in the U.K. To date, there has been no clear indication of how the Brexit vote will ultimatelyeffect our U.K. sales, but if legislation related to Brexit results in a material reduction of sales in our U.K. dealerships, such events could have a materialadverse effect on our revenues and business operations.On April 14, 2016, the EU Parliament approved the General Data Protection Regulation (“GDPR”), which organizations must start complying with byMay 25, 2018. GDPR regulations will replace the UK Data Protection Act of 1998 for organizations doing business in the UK. The GDPR will apply in all EUmember states from 25 May 2018. Because GDPR is a regulation, not a directive, the UK does not need to draw up new legislation - instead, it will applyautomatically. The GDPR was designed to align data privacy laws across Europe, protect all EU citizens’ data by restricting third parties uses of such datawithout such individual’s permission, and change the way organizations approach the protection of data and preserving citizen’s privacy. Unlike previousEU data privacy regulations, the GDPR applies to all organizations storing or processing the data of EU citizens, regardless of the location of the company. Itprovides for strict rules and requirements for EU and non-EU organizations, including requiring organizations to report data breaches within 72 hours and toconduct impact assessments to identify vulnerabilities. Moreover, the GDPR applies a tiered penalty approach, which provides for heavy fines. If anorganization seriously infringes the GDPR, the organization can be fined up to 4% of annual global turnover or 20 million euros, whichever is greater. Anyfuture failure by us to comply with the GDPR could have a material adverse effect on our business, results of operations or financial condition.22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 U.K. finance operations also arrange for the sale of various contracts for products and services in connection with the sale of new and usedvehicles. Those activities in the U.K. are regulated by the Financial Conduct Authority (FCA). The FCA is an independent watchdog that regulates financialservices of our dealerships. The FCA was created in the wake of the financial crisis as a result of passage of the Financial Services Act of 2012 (the “FSAAct”). The FSA Act sets out a system for regulating financial services in order to protect and improve the U.K.’s economy. Its purpose was to make suremarkets work well by confirming that financial services maintain and ensure the integrity of the markets, regulate financial services firms so that they giveconsumers a fair deal and ensure the financial services market is competitive.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 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 or increase ofcapital expenditures, delays in permitting or in the performance of projects and the issuance of injunctions limiting or preventing some or all of ouroperations 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, including 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 place more restrictions and limitations on activities that may affect the environment, and thus any changesin environmental laws and regulations that result in more stringent and costly requirements with respect to pollution control equipment, waste managementand disposal activities, or increased fuel economy and reduced vehicle emmissions for light-duty vehicles could have a material adverse effect on ourbusiness, results of operation and financial condition. For instance, in the United States, vehicle manufacturers are subject to federal regulations requiringGHG reduction and CAFE standards for light-duty vehicles for model years 2017 through 2021. Under these regulations, most manufacturers are required tomodify their vehicle platforms and powertrains to achieve a fleet-wide average fuel efficiency equivalent of 44.7 miles per gallon by model year 2021. TheEPA and NHTSA commenced mid-term reviews in 2017 to determine the technological progress and economic implications for extending these standards tomodel years 2022-2025. While the EPA had previously committed in 2012 to continuing to coordinate development of its GHG emission standards withNHTSA’s development of CAFE standards for light-duty vehicles, it did not do so in the development and publication of the EPA’s January 2017 MidtermEvaluation of standards, which resulted in the EPA signing a final determination to maintain the current GHG emissions standards for model year 2022-2025vehicles. However, in March 2017, the EPA and NHTSA published a notice of intent in which the EPA announced its intention to reconsider its finaldetermination with respect to GHG emissions standards and agreed to coordinate its reconsideration with the parallel process being undertaken by theNHTSA regarding CAFE standards. In August 2017, the EPA published a request for public comment on its proposed plans to reconsider whether thepreviously established GHG emissions standards for light-duty vehicles are appropriate under the Clean Air Act. In connection with its review of the CAFEstandards, the NHTSA published a notice of intent in July 2017 to prepare an Environmental Impact Statement for the model year 2022-2025 light-dutyvehicles CAFE standards to assess the potential environmental impact of those standards.23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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, at that time, inpreparing an agreement requiring member countries to review and establish goals for limiting GHG emissions. This Paris Agreement was signed by the UnitedStates, the United Kingdom and Brazil in April 2016 and the agreement entered into force in November 2016. However, this agreement did not create anybinding obligations for nations to limit their GHG emissions but, rather includes pledges to voluntarily limit or reduce future emissions. However, in August2017, the U.S. State Department informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreementprovides for a four-year exit process beginning when it took effect in November 2016, which would result in an effective exit date of November 2020. TheUnited States’ adherence to the exit process and/or the terms on which the United States may re-enter the Paris Agreement or a separately negotiatedagreement are unclear at this time. As another example, the U.K. government announced in July 2017 that it would ban the sale of new petrol- and diesel-powered vehicles beginning in 2040. In addition, beginning 2020, new pollution taxes will be levied on diesel drivers who use certain congested highways.The adoption of any laws or regulations requiring significant increases in fuel economy requirements or new federal or state restrictions on emissions of theGHGs on vehicles and automotive fuels in the U.S., the U.K. or Brazil could adversely affect prices of and demand for the vehicles we sell, which couldadversely affect our revenues and earnings. The trend in environmental regulation is to often place more restrictions and limitations on activities that mayaffect the environment, and thus any changes in environmental laws and regulations that result in more stringent and costly requirements with respect topollution control equipment, waste management and disposal activities, or increased fuel economy and reduced vehicle emissions for light-duty vehiclescould have a material adverse effect on our business, results of operation and financial condition.Please see “Item 1. Business — Governmental Regulations — Environmental and Occupational Health and Safety Laws and Regulations” for moreinformation.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 our dealership general managers and other key dealership personnel. Accordingly, the inability to retain keyemployees or the failure to attract qualified personnel could have an adverse effect on our business and may impact the ability of our dealerships to conducttheir 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.24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 establishing a dealer-network, they may be able to have a competitiveadvantage over the traditional dealers, which could adversely affect our sales in those states. If internet new vehicle sales are allowed to be conducted withoutthe involvement of franchised dealers, or if dealerships are able to effectively use the internet to sell outside of their markets, our business could be materiallyadversely affected. Our business would also be materially adversely affected to the extent that internet companies acquire dealerships or align themselveswith our competitors’ dealerships.Please see “Item 1. Business — Competition” for more discussion of competition in our industry.A cybersecurity breach, including a breach of personally identifiable information (“PII”) about our customers or employees, could negatively affectoperations and result in high costs.There has been a substantial increase in attempts by third parties with bad intentions to steal data from numerous businesses world-wide, including ourdealerships, by highly sophisticated means. If a third party is successful in obtaining such confidential information of our dealerships or our customers ordisrupting our operations through high-tech security breaches and hacking methods, we could have substantial liability in connection with such securitybreaches. While we attempt to implement state of the art technological defenses to thwart such activities, there is no guaranty that we will be able to keep upwith the ever evolving sophisticated methods of breaching security systems and continue to combat such attempts to breach our own data systems. Failure todo so could ultimately have a material adverse effect on our business operations.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. We have spent to date, and will continue to spend, significantresources to combat and protect against cyber-attacks and other forms of security breaches. 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,25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on ourbusiness, 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 Operations — 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 in March 2013 adversely impacted the results of the impairment test performed in the fourth quarter of 2015. As a result, in our fourth quarter2015 impairment analysis, we determined that there had been material changes to the previous assumptions underlying the amount of goodwill and/orintangible assets associated with our Brazilian dealerships, and we wrote down the value of those assets, which resulted in a material non-cash impairmentcharge.On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU. The majority vote in favor of Brexit has created uncertainty inthe 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 continues to be no clear indication of how such legislationmay be effected 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,assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize, the resulting declinein the estimated fair market value of such assets could result in a material non-cash impairment charge. While we are not aware of any changes incircumstances that have 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 statements26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of operations. Please see Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a discussion regarding our interest ratesensitivity.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.Vehicle technology advancements and ownership model changes.With the advancement in the technology of semi and fully autonomous electric-powered vehicles, several new business models are in early stagedevelopment to create high mileage, self-driving and/or co-ownership vehicle opportunities. These autonomous-electric vehicles may be manufactured byexisting automotive manufacturers or other companies who do not presently manufacture hydrocarbon or alternative fuel source vehicles. Even with thecurrent highway and road infrastructure challenges and the large number of existing internal combustion engines currently in service and to be in service formany years to come, which will create obstacles to the wide-spread implementation of such autonomous-electric vehicles in the immediate future, many inthe automotive industry believe that it will only be a matter of time until such vehicles will be available to the automotive consumer at low usage costs. Suchindustry participants believe projected low usage costs of autonomous-electric vehicles may entice many vehicle owners, particularly in larger, highlypopulated areas, to abandon individual car ownership in favor of multiple co-ownership ride-sharing opportunities. If such autonomous-electric vehicles canbe mass produced at a reasonable production and operating cost and sold by companies not required to conduct their business in accordance with statefranchise laws and thereby circumvent the current dealer-network, and/or if the ride-sharing subscription business model becomes widely popular, suchevents could adversely affect industry new and used vehicle sales volumes and the growth of our earnings and revenues.Additionally, with the anticipated demand by consumers for electric-powered vehicles, our manufacturers must adapt their physical plantsaccordingly to meet the demands of consumers for electric vehicles for years to come. As more and more electric vehicles enter the market, and more andmore combustible engines exit the market, our ability to adapt to such changes, particularly in regards to our ability to manage our inventory, will benecessary to meet the current consumer demands and maintain the current profitability at our dealerships. Furthermore, while in the short term we do notbelieve there will be a significant difference in maintenance costs incurred by a vehicle owner of a combustible engine versus maintenance costs of a vehicleowner of a new electric-powered vehicle that may not be the case as technology advancements are made in the development of electric-powered vehicles. Ifsuch maintenance costs by a consumer of an electric-powered vehicle were to substantially decrease, that could have a material adverse effect on our partsand service revenues.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:27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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 and interest on our indebtedness, therebyreducing the funds available 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.28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 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;•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 conduct29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.involving money-laundering. We do business and may do additional business in the future in countries and regions where strict compliance with anti-briberylaws may not be customary. Our personnel and intermediaries may face, directly or indirectly, corrupt demands by government officials, political parties andofficials, tribal or insurgent organizations, or private entities in the countries in which we operate or may operate in the future. As a result, we face the risk thatan unauthorized payment or offer of payment could be made by one of our employees or intermediaries, even if such parties are not always subject to ourcontrol or are not themselves subject to the FCPA or other anti-bribery laws to which we may be subject. Existing compliance safeguards and any futureimprovements may not prevent all such conduct, and it is possible that our employees and intermediaries may engage in conduct for which we might beinvestigated by U.S. and other authorities, and held responsible. Violations of the FCPA and other anti-bribery and other anticorruption laws (either due toour acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Even allegations ofsuch violations could disrupt our business and result in a material adverse effect on our business and operations.Our growth in emerging markets, such as Brazil, is subject to special risks that could have a material adverse effect on our operations.In February 2013, we acquired UAB Motors Participações S.A. (“UAB Motors”), which allowed us to enter the Brazilian market. At the time we enteredthe Brazilian market, it was an emerging growth market. Since then, Brazil experienced a significant economic downturn and has been in the midst of arecession. Partially as a result, Brazil represented less than 5% of our total new vehicle retail units sold during the year ended December 31, 2017. SinceFebruary 2013, Brazil has also experienced significant currency fluctuations. And, while recent data is beginning to show signs of a recovery, there is noassurance that our future growth strategies in Brazil will be successful or that Brazil’s economy will continue its recovery. If the Brazil financial recovery islonger than expected, it could have a material adverse effect on our business, results of operations and financial condition. See also “We are subject to risksassociated with our non-U.S. operations that could have a material adverse effect on our business, results of operations and financial condition.” Further,our growth in emerging markets by acquisition of existing dealerships, such as our acquisition of UAB Motors, is subject to additional risk as discussed under“Our ability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenuesand earnings” above.Certain restrictions relating to our management and ownership of our common stock could deter prospective acquirers from acquiring control of us andadversely affect our ability to engage in equity offerings.As a condition to granting their consent to our previous acquisitions and our initial public offering, some of our manufacturers have imposed otherrestrictions on us. These restrictions prohibit, among other things:•the removal of a non-employee director from office only for cause;•any one person or entity, who in the opinion of the manufacturer is unqualified to own its franchised dealership or has interests incompatible withthe manufacturer, from acquiring more than a specified percentage of our common stock (ranging from 20% to 50% depending on the particularmanufacturer’s restrictions) and this trigger level can fall to as low as 5% if another vehicle manufacturer is the entity acquiring the ownershipinterest or voting rights;•certain material changes in our business or extraordinary corporate transactions, such as a merger or sale of a material amount of our assets;•the removal of a dealership general manager without the consent of the manufacturer; and•a change in control of our Board of Directors or a change in management.Our manufacturers may also impose additional similar restrictions on us in the future. Actions by our stockholders or prospective stockholders, whichwould violate any of the above restrictions, are generally outside our control. If we are unable to comply with or renegotiate these restrictions, we may beforced to terminate or sell one or more franchises, which could have a material adverse effect on our business. These restrictions may prevent or deterprospective acquirers from acquiring control of us and, therefore, may adversely impact the value of our common stock. These restrictions also may impedeour ability to acquire dealership groups, to raise required capital or to issue our stock as consideration for future acquisitions.Our certificate of incorporation, bylaws and franchise agreements contain provisions that make a takeover of us difficult.Our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if such change of control wouldbe beneficial to our stockholders. These include provisions:•allowing only the Board of Directors to set the number of non-employee directors;30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•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.31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, as well as our regional headquarters inBrazil. In addition, as of December 31, 2017, we had 227 franchises situated in 173 dealership locations throughout the U.S., U.K. and Brazil. As ofDecember 31, 2017, we leased 81 of these dealership locations and owned the remainder. We have one location in Massachusetts, one location in Alabama,one location in California, one location in Texas and two in Brazil where we lease the land, but own the building facilities. These locations are included inthe leased column of the table below. DealershipsRegion Geographic Location Owned LeasedUnited States Texas 23 29 Oklahoma 8 5 Georgia 7 — Massachusetts 4 1 New Jersey 4 — Florida 4 — Kansas 4 — Mississippi 3 — South Carolina 3 — New Mexico 2 — Maryland 2 — New Hampshire 2 1 California 2 5 Louisiana 2 2 Alabama 1 1 71 44International United Kingdom 19 23 Brazil 2 14Total 92 81We use a number of facilities to conduct our dealership operations. Each of our dealerships may include facilities for (1) new and used vehicle sales,(2) vehicle service operations, (3) retail and wholesale parts operations, (4) collision 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 53.2% of our dealership properties as of December 31, 2017, an increase from 45.9% as of December 31, 2016. SeeNote 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. On a consolidated basis for the year ended December 31, 2017, weacquired $137.1 million of real estate, of which $26.8 million was purchased in conjunction with our dealership acquisitions. With these acquisitions, thecapitalized value of the real estate used in operations that we own was $1,105.4 million as of December 31, 2017. Of this capitalized value, $769.3 millionwas mortgaged through our real estate related borrowing arrangements. The related mortgage indebtedness outstanding as of December 31, 2017 was $433.4million, excluding unamortized debt issuance costs of $0.9 million.We do not believe that any single facility is material to our operations and, if necessary, we would obtain a replacement facility.33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. In October 2016, a U.S. Federal judge approved this settlement. In September 2016, Volkswagen agreed toallocate $1.2 billion among its 652 dealers for a class settlement in exchange for their agreement not to sue Volkswagen. In October 2016, we receivednotification from Volkswagen that we are entitled to receive, in the aggregate, approximately $13.2 million in connection with our current and priorownership of seven Volkswagen dealerships in the U.S. As of February 12, 2018, we have received half of the compensation in a lump sum amount and half tobe paid over 18 equal monthly installments, of which 11 payments have been received to date. The Volkswagen brand represented 2.6% of our total newvehicle retail unit sales during the year ended December 31, 2017. Also, in conjunction with the Volkswagen diesel emissions scandal, Volkswagen agreed inMarch 2017 to settle allegations of damages by the Company relative to our three Audi branded dealerships. We received the cash and recognized thesettlement as an offset to SG&A in the accompanying Consolidated Statements of Operations for the twelve months ended December 31, 2017.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.34Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 12, 2018. 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 2016 and 2017: High Low DividendsDeclared2016: 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 0.232017: First Quarter $83.18 $70.85 $0.24Second Quarter 75.66 56.79 0.24Third Quarter 72.78 51.62 0.24Fourth Quarter 84.47 68.32 0.25We 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, 2017, the restricted payment baskets totaled $184.8 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.35Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 2012, 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 2012 $100.00 $100.00 $100.00December 2013 115.70 132.39 142.58December 2014 147.31 150.51 169.48December 2015 125.66 152.59 164.16December 2016 131.31 170.84 158.03December 2017 121.28 208.14 162.0236Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017: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, 2017 — $— — $49,641November 1 - November 30, 2017 — $— — $49,641December 1 - December 31, 2017 — $— — $49,641Total — $— — (1) In May 2017, the Board of Directors approved a new authorization of up to $75.0 million of shares of our common stock, replacing the prior $150.0million authorization. Under both of the authorizations, we repurchased 649,298 shares during 2017 at an average price of $61.75 per share, for a total of$40.1 million, leaving $49.6 million available for future repurchases. Future repurchases are subject to the discretion of our Board of Directors afterconsidering our results of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, generalbusiness conditions and other factors. As shown in the table above, we did not purchase any shares during the three months ended December 31, 2017.37Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, 2016, 2015, 2014, and 2013, and for the five years in the period endedDecember 31, 2017, 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 account for all of our dealership acquisitions by applying the acquisition method. 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, the historical financial information described in the selectedfinancial data is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial positionthat would have resulted had such transactions occurred at the beginning of the periods presented in the selected financial data. Year Ended December 31, 2017 2016 2015 2014 2013 (In thousands, except per share amounts) Income Statement Data: Revenues $11,123,721 $10,887,612 $10,632,505 $9,937,889 $8,918,581Cost of sales 9,478,212 9,292,543 9,098,533 8,489,951 7,626,035Gross profit 1,645,509 1,595,069 1,533,972 1,447,938 1,292,546Selling, general and administrativeexpenses 1,226,195 1,170,763 1,120,833 1,061,964 976,856Depreciation and amortization expense 57,936 51,234 47,239 42,344 35,826Asset impairments 19,506 32,838 87,562 41,520 6,542Income from operations 341,872 340,234 278,338 302,110 273,322Other expense: Floorplan interest expense (52,372) (44,927) (39,264) (41,614) (41,667)Other interest expense, net (70,497) (67,936) (56,903) (49,693) (38,971)Loss on extinguishment of long-termdebt — — — (46,403) —Other expense, net — — — — (789)Income from continuing operationsbefore income taxes 219,003 227,371 182,171 164,400 191,895Provision for income taxes (5,561) (80,306) (88,172) (71,396) (77,903)Net income $213,442 $147,065 $93,999 $93,004 $113,992 Earnings per common share: Basic: Net income $10.08 $6.67 $3.91 $3.82 $4.72Diluted: Net income $10.08 $6.67 $3.90 $3.60 $4.32Dividends per share $0.97 $0.91 $0.83 $0.70 $0.65Weighted average common sharesoutstanding: Basic 20,420 21,161 23,148 23,380 23,096Diluted 20,425 21,170 23,152 24,885 25,31438Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 2014 2013 (Dollars in thousands) Balance Sheet Data: Working capital $130,699 $97,470 $149,102 $101,958 $81,613Inventories 1,763,293 1,651,815 1,737,751 1,556,705 1,542,318Total assets 4,871,065 4,461,903 4,396,716 4,127,198 3,796,762Floorplan notes payable — credit facilityand other (1) 1,154,148 1,077,028 1,154,960 1,103,630 1,086,906Floorplan notes payable — manufactureraffiliates (2) 374,683 367,161 363,571 285,156 346,572Long-term debt, including current portion(3) 1,357,712 1,269,027 1,251,555 1,078,235 697,511Temporary Equity (4) — — — — 29,094Stockholders’ equity $1,124,282 $930,200 $918,252 $978,010 $1,035,175Long-term debt to capitalization (5) 55% 58% 58% 52% 40%(1) Includes immediately available funds of $86.5 million, $59.6 million, $110.8 million, $39.6 million, and $56.2 million, respectively, that we temporarily invest as an offset to thegross outstanding borrowings, as well as $20.9 million, $4.9 million, $4.1 million, $5.5 million, and $18.1 million as of December 31, 2017, 2016, 2015, 2014, and 2013,respectively, of floorplan borrowings under credit facilities with financial institutions in the U.K. and Brazil.(2) Includes immediately available funds of $22.5 million, $25.5 million, $25.5 million, and $22.5 million as of December 31, 2017, 2016, 2015, and 2014, respectively, that wetemporarily invest as an offset 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.39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 non-core business items. These adjustedmeasures are not measures of financial performance under U.S. GAAP, but are instead considered non-GAAP financial performance measures.Our results, which are reported in U.S. dollars, are impacted by fluctuations in exchange rates relating to our operations in the U.K. and Brazil. 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, 2017, the British pound sterling weakened against the U.S. dollar as the average exchange ratedecreased 4.9% compared to the same period in 2016 from 0.74 to 0.78. The Brazilian real strengthened against the U.S. dollar as the average exchange rateincreased 8.5% as compared to the same period in 2016 from 3.49 to 3.19. For the twelve months ended December 31, 2016, the British pound weakenedagainst the U.S. dollar as the average rate decreased 13.2%, as compared to the same period in 2015. The Brazilian real also weakened against the U.S. dollarfor the year ended December 31, 2016 as compared to the same period in 2015 as the average rate declined 4.9%. As such, management evaluates theCompany's results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure,excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplementalinformation regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currencypercentages by converting our current period reported results for entities reporting in currencies other than U.S. dollars using comparative period exchangerates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered asubstitute for, or superior to, the measures 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 other insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our operations are alignedinto three geographic regions: the U.S. Region, the U.K. Region, and the Brazil Region. Our President of U.S. Operations reports directly to our ChiefExecutive Officer and is responsible for the overall performance of the U.S. region, as well as for overseeing the market directors and dealership generalmanagers. The operations of our two international regions are structured similar to the U.S. region, each with a regional vice president reporting directly toour Chief Executive Officer. As such, 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, 2017, we owned and operated 227 franchises, representing 32 brands of automobiles, at 173 dealership locations and 48 collisioncenters worldwide. We own 151 franchises at 115 dealerships and 30 collision centers in the U.S., 55 franchises at 42 dealerships and 11 collision centers inthe U.K., and 21 franchises at 16 dealerships and seven collision centers in Brazil. Our operations are primarily located in major metropolitan areas inAlabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, SouthCarolina and Texas in the U.S., in 28 towns of the U.K. and in key metropolitan markets in the states of Sao Paulo, Parana, Mato Grosso do Sul and SantaCatarina 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, 2013 through December 31, 2017, we have purchased 97 franchises with expected annual revenues, estimated at the time ofacquisition, of $3.6 billion and been granted six new franchises by our manufacturer partners, with expected annual revenues, estimated at the time ofacquisition, of $55.0 million. In 2017, we acquired 12 U.K. dealerships, inclusive of 14 franchises and opened one additional dealership for one awardedfranchise in our U.K. segment. In addition, we acquired three dealerships in the U.S., inclusive of four franchises, opened one dealership for one40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.awarded franchise in the U.S. and added motorcycles to an existing BMW dealership in Brazil. The expected aggregate annualized revenues, estimated at thetime of acquisition, for these acquisitions, were $490.0 million. We make disposition decisions based principally on the rate of return on our capitalinvestment, the location of the dealership, our ability to leverage our cost structure, the brand, future capital investments required and existing real estateobligations. From January 1, 2013 through December 31, 2017, we disposed of or terminated 37 franchises with annual revenues of approximately $1.2billion. Specifically, during 2017, we disposed of two dealerships in Brazil and one dealership in the U.K., with annual revenues of approximately $35.0million.We account for our dealership acquisitions by applying the acquisition method of accounting. As a result, we do not include in our financial statementsthe results 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 and repair business. Historically, each of these activities has been directly orindirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, consumer transportation preferences,discretionary spending levels, availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices, and interest rates. Forexample, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted asconsumers tend to shift their purchases to used vehicles. Some consumers may even delay their purchasing decisions altogether, electing instead to continueto maintain and repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by ourability to offer other products and services, such as used vehicles and parts, as well as maintenance, repair and collision business. In addition, our ability toexpediently adjust our cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such sales 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, seasonal weather events, and changes in currency exchange rates may exaggerate seasonal or causecounter-seasonal fluctuations in our consolidated reported revenues and operating income.According to U.S. industry experts, the annual new light vehicle unit sales for 2017 decreased 327 thousand units, or 1.9%, to 17.2 million units ascompared to the same period a year ago. The U.K. economy represents the fifth largest economy in the world. Vehicle registrations in the U.K. decreased 5.7%to 2.5 million during 2017 as compared to the same period a year ago. The U.K. industry's new vehicle sales experienced more volatility than normalfollowing the Brexit vote. In addition, the announcement of Brexit initially caused significant exchange rate fluctuations that resulted in the weakening ofthe British pound sterling, in which we conduct business in the U.K., against the U.S. dollar and other global currencies. The weakening of the British poundsterling has and may continue to adversely affect our results of operations, as well as have a negative impact on the pricing and affordability of the vehiclesin the U.K. Volatility in exchange rates is expected to continue in the short term at least until there is a clear path forward in response to Brexit.The Brazilian economy represents the ninth largest economy in the world. The Brazilian economy has been in an extended recession however isstarting to show some early signs of recovery. New vehicle registrations in Brazil increased 9.4%, to 2.2 million units, during 2017 as compared to the sameperiod a year ago. We expect macro-economic conditions to continue to improve in Brazil. Longer term, we expect sustained improvements in industry salesvolumes and are utilizing a strategy of aligning with growing brands, in order to most effectively capitalize on that industry growth.41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 IndicatorsOn a consolidated basis for the year ended December 31, 2017, our total revenues increased 2.2% from 2016 to $11.1 billion and gross profit improved3.2% to $1.6 billion. For the years ended December 31, 2016 and 2015, total revenues were $10.9 billion and $10.6 billion, respectively. For the years endedDecember 31, 2016 and 2015, gross profits were $1.6 billion and $1.5 billion, respectively. We generated net income of $213.4 million, or $10.08 per dilutedcommon share for the year ended December 31, 2017, compared to $147.1 million, or $6.67 per diluted share for the year ended December 31, 2016 and$94.0 million, or $3.90 per diluted share for the year ended December 31, 2015. In addition, the following table highlights additional key performanceindicators we use to manage our business:Consolidated Statistical Data For the Year Ended December 31, 2017 2016 2015Unit Sales Retail Sales New Vehicle 172,200 172,053 174,614Used Vehicle 129,933 129,131 124,153Total Retail Sales 302,133 301,184 298,767Wholesale Sales 57,144 57,339 57,226Total Vehicle Sales 359,277 358,523 355,993Gross Margin New Vehicle Retail Sales 5.2% 5.2% 5.1%Total Used Vehicle Sales 5.5% 5.6% 5.8%Parts and Service Sales 53.8% 53.9% 54.1%Total Gross Margin 14.8% 14.7% 14.4%Adjusted Total Gross Margin (1) 14.8% 14.7% 14.4%SG&A as a % of Gross Profit 74.5% 73.4% 73.1%Adjusted SG&A as a % of Gross Profit (1) 74.0% 73.7% 73.4%Operating Margin 3.1% 3.1% 2.6%Adjusted Operating Margin (1) 3.4% 3.4% 3.4%Pretax Margin 2.0% 2.1% 1.7%Adjusted Pretax Margin (1) 2.3% 2.3% 2.3%Finance and Insurance Revenues per Retail Unit Sold $1,420 $1,397 $1,368Adjusted Finance and Insurance Revenues per Retail Unit Sold (1) $1,442 $1,397 $1,368(1) See “Non-GAAP Financial Measures” for more details. In addition to the matters described above, the following factors impacted our financial condition and results of operations in 2017, 2016, and 2015:Year Ended December 31, 2017:•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 $19.3 million pretax non-cash impairment charge, of which $12.6 million related tointangible franchise rights in our U.S. reporting unit and $6.7 million related to intangible franchise rights in our Brazil reporting unit.•Catastrophic Events: Our results were negatively impacted by several catastrophic events. Most significantly, insurance deductibles and otherrelated expenses totaling $8.8 million were recognized as SG&A expenses and $6.6 million of chargeback expense reserves associated withfinance and insurance revenues were recognized, as a result of vehicle and property damage suffered from Hurricanes Harvey and Irma in the U.S.•OEM Settlement: We recognized a net pre-tax gain of $1.1 million associated with the Audi claims settlement, in connection with our ownershipof Audi dealerships in the U.S.•Tax Rate Changes: We recognized a tax benefit of $73.0 million based upon the remeasurement of net deferred tax liabilities associated with thereduction in the corporate income tax rate enacted by the U.S. government, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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.In addition to the key performance indicators presented above, we also reference numerous Same Store metrics as key indicators of results and trendsoccurring within our business. Those Same Store metrics, results and trends are discussed in more detail in the “Results of Operations” section that follows.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.43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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 accounting policiesand estimates that we believe to be the most difficult, subjective and complex include those related to: revenue recognition, goodwill, intangible franchiserights, income taxes, fair value of assets acquired and liabilities assumed, derivative financial instruments and self-insured medical, property and casualtyreserves. See Note 2 to our Consolidated Financial Statements, “Summary of Significant Accounting Policies and Estimates,” for further discussion of theseaccounting policies and estimates that are of particular importance to the portrayal of our financial position, results of operations and cash flows.44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 2016, the results from this dealership will appear in our Same Store comparison beginning in 2017 forthe period July 2017 through December 2017, when comparing to July 2016 through December 2016 results. Depending on the periods being compared, thedealerships included in Same Store will vary. For this reason, the 2016 Same Store results that are compared to 2017 differ from those used in the comparisonto 2015. 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, 2017 as compared to 2016 and for the year endedDecember 31, 2016 compared to 2015.45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 amount) For The Year Ended December 31, 2017 %Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 %Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Revenues New vehicleretail $5,962,549 0.2% 0.6% $5,951,471 $5,619,881 (4.1)% (2.5)% $5,860,855Used vehicleretail 2,680,878 (1.1)% (0.5)% 2,709,721 2,612,304 1.2% 2.9% 2,582,437Used vehiclewholesale 374,148 (4.6)% (3.3)% 392,071 364,271 (5.4)% (2.3)% 384,969Parts andservice 1,302,836 5.1% 5.3% 1,239,888 1,197,195 3.8% 5.1% 1,153,365Finance,insurance andother 417,905 0.9% 1.2% 414,015 403,685 0.3% 1.2% 402,288Totalrevenues $10,738,316 0.3% 0.7% $10,707,166 $10,197,336 (1.8)% (0.1)% $10,383,914Cost of Sales New vehicleretail $5,650,624 0.2% 0.6% $5,639,370 $5,326,504 (4.2)% (2.6)% $5,561,430Used vehicleretail 2,508,555 (0.8)% (0.2)% 2,529,927 2,437,114 1.3% 3.1% 2,406,135Used vehiclewholesale 376,593 (4.9)% (3.7)% 395,967 367,299 (5.0)% (1.9)% 386,496Parts andservice 602,720 5.6% 5.8% 570,618 552,559 4.6% 5.9% 528,393Total cost ofsales 9,138,492 —% 0.5% 9,135,882 8,683,476 (2.2)% (0.5)% 8,882,454Gross profit $1,599,824 1.8% 2.2% $1,571,284 $1,513,860 0.8% 2.1% $1,501,460SG&A $1,179,996 3.0% 3.3% $1,146,049 $1,102,541 0.9% 2.4% $1,092,982AdjustedSG&A(1) $1,170,756 2.1% 2.4% $1,146,770 $1,103,384 1.3% 2.8% $1,089,467Depreciation andamortizationexpenses $55,399 10.8% 11.2% $50,010 $48,259 6.2% 7.7% $45,441Floorplan interestexpense $51,342 15.3% 15.7% $44,517 $42,208 9.7% 10.5% $38,481Gross margin New vehicleretail 5.2% 5.2% 5.2% 5.1%Used vehicle 5.6% 5.7% 5.8% 5.9%Parts andservice 53.7% 54.0% 53.8% 54.2%Total grossmargin 14.9% 14.7% 14.8% 14.5%Adjusted Totalgross margin (1) 15.0% 14.7% 14.8% 14.5%Adjusted Finance,insurance, andother, net (1) $424,455 2.5% 2.8% $414,015 403,685 0.3% 1.2% 402,288Adjusted Totalrevenue (1) $10,744,866 0.4% 0.8% $10,707,166 $10,197,336 (1.8)% (0.1)% $10,383,914Adjusted Grossprofit(1) $1,606,374 2.2% 2.6% $1,571,284 $1,513,860 0.8% 2.1% $1,501,460SG&A as a % ofgross profit 73.8% 72.9% 72.8% 72.8%Adjusted SG&Aas a % of grossprofit (1) 72.9% 73.0% 72.9% 72.6% 46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Operating margin 3.2% 3.2% 3.2% 2.7%Adjusted operatingmargin (1) 3.5% 3.5% 3.6% 3.5%Finance and insurancerevenues per retail unitsold $1,443 2.6% 2.8% $1,407 $1,429 3.4% 4.4% $1,382Adjusted Finance andinsurance revenues perretail unit sold(1) $1,465 4.1% 4.4% $1,407 $1,429 3.4% 4.4% $1,382(1) See “Non-GAAP Financial Measures” for more details.The discussion that follows provides explanations for the variances noted above by region (U.S., U.K. and Brazil). In addition, each table presents byprimary income statement line item comparative financial and non-financial data of our Same Store locations, those locations acquired or disposed of(“Transactions”) during the periods, and the consolidated company for the years ended December 31, 2017, 2016, and 2015.47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Retail Unit Sales Same Stores U.S. 126,247 (1.7)% 128,441 128,928 (7.0)% 138,599U.K. 31,054 1.1% 30,719 20,401 9.1% 18,701Brazil 8,198 (6.8)% 8,798 9,518 (23.5)% 12,434Total Same Stores 165,499 (1.5)% 167,958 158,847 (6.4)% 169,734Transactions 6,701 4,095 13,206 4,880Total 172,200 0.1% 172,053 172,053 (1.5)% 174,614Retail Sales Revenues Same Stores U.S. $4,732,177 0.4% N/A $4,713,124 $4,691,033 (3.7)% N/A $4,869,109U.K. 943,182 (2.5)% 2.2% 967,424 652,057 1.6% 14.5% 641,888Brazil 287,190 6.0% (2.2)% 270,923 276,791 (20.9)% (16.9)% 349,858Total Same Stores 5,962,549 0.2% 0.6% 5,951,471 5,619,881 (4.1)% (2.5)% 5,860,855Transactions 194,982 94,604 426,194 140,451Total $6,157,531 1.8% 2.3% $6,046,075 $6,046,075 0.7% 3.1% $6,001,306Gross Profit Same Stores U.S. $242,301 0.7% N/A $240,528 $237,915 0.9% N/A $235,706U.K. 52,962 (5.3)% (0.8)% 55,921 39,241 (2.6)% 9.5% 40,300Brazil 16,662 6.5% (1.7)% 15,652 16,221 (30.7)% (26.9)% 23,419Total Same Stores 311,925 (0.1)% 0.3% 312,101 293,377 (2.0)% (0.1)% 299,425Transactions 10,080 4,277 23,001 6,052Total $322,005 1.8% 2.2% $316,378 $316,378 3.6% 6.2% $305,477Gross Profit per Retail UnitSold Same Stores U.S. $1,919 2.5% N/A $1,873 $1,845 8.5% N/A $1,701U.K. $1,705 (6.3)% (1.9)% $1,820 $1,923 (10.8)% 0.4% $2,155Brazil $2,032 14.2% 5.5% $1,779 $1,704 (9.5)% (4.5)% $1,883Total Same Stores $1,885 1.5% 1.8% $1,858 $1,847 4.7% 6.8% $1,764Transactions $1,504 $1,044 $1,742 $1,240Total $1,870 1.7% 2.2% $1,839 $1,839 5.1% 7.8% $1,749Gross Margin Same Stores U.S. 5.1% 5.1% 5.1% 4.8%U.K. 5.6% 5.8% 6.0% 6.3%Brazil 5.8% 5.8% 5.9% 6.7%Total Same Stores 5.2% 5.2% 5.2% 5.1%Transactions 5.2% 4.5% 5.4% 4.3%Total 5.2% 5.2% 5.2% 5.1%48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) 2016 2016 % Increase/(Decrease) 2015Toyota/Scion/Lexus (1) 42,949 0.2% 42,869 42,670 (5.4)% 45,108BMW/MINI 21,520 (7.1) 23,160 20,109 (0.9) 20,283Volkswagen/Audi/Porsche 20,217 8.4 18,645 11,799 3.8 11,370Ford/Lincoln 18,710 (1.1) 18,925 18,880 (5.0) 19,882Honda/Acura 15,882 2.0 15,575 17,017 (8.3) 18,549Nissan 12,045 6.6 11,302 12,192 (11.8) 13,820Chevrolet/GMC/Buick/Cadillac 10,713 (16.4) 12,811 12,811 (3.7) 13,307Mercedes-Benz/smart/Sprinter 6,809 (7.3) 7,349 6,674 (1.3) 6,765Chrysler/Dodge/Jeep/RAM 6,692 (1.6) 6,801 6,801 (14.6) 7,962Hyundai/Kia 6,484 (4.8) 6,813 7,226 (23.0) 9,383Other 3,478 (6.2) 3,708 2,668 (19.3) 3,305Total 165,499 (1.5)% 167,958 158,847 (6.4)% 169,734(1) The Scion brand was discontinued by Toyota during the third quarter of 2016. Our new vehicle business is influenced by general economic conditions, consumer confidence, interest rates, fuel prices, supply conditions, relativeattractiveness of our brand portfolio, consumer transportation preferences, unemployment rates and credit availability, as well as the level of manufacturerincentives. 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.Year Ended December 31, 2017 compared to 2016In total, our Same Store new vehicle retail unit sales decreased 1.5% for the year ended December 31, 2017, as compared to the same period in 2016.The decrease was primarily driven by decreases of 1.7% and 6.8% in the U.S. and Brazil, respectively. The decline in our U.S. new vehicle retail sales was inline with the overall U.S. industry sales which decreased by 1.9% to 17.2 million units for the year ended December 31, 2017 from 17.5 million units in 2016.Our new vehicle unit sales were depressed by softness in our energy-dependent markets, such as Oklahoma and Texas. This softness was partially offset byreplacement demand in our Houston and Beaumont markets following flooding from Hurricane Harvey that damaged hundreds of thousands of vehicles inthe region. In addition, our U.S. new vehicle sales volume lagged the prior year as our operating team placed a heightened focus on improving new vehiclemargins, resulting in lower unit sales volume. We experienced a 6.8% decline in our Same Store new vehicle retail unit sales in Brazil, which was weaker thanthe overall industry. This decline reflected our intentional efforts to prioritize margins over volume. Partially offsetting the declines in the U.S. and Brazil wasa 1.1% increase in our U.K. Same Store new vehicle retail unit sales for the year ended December 31, 2017 compared to a year ago. This increase was despite adecline in industry sales in the U.K. of 5.7% to 2.5 million units for the year ended December 31, 2017, down from 2.7 million units in 2016. The strongperformance in the U.K. compared to 2017 industry results is primarily attributable to our brand portfolio and management team.Our total Same Store revenues from new vehicle retail sales increased 0.2% for the year ended December 31, 2017, as compared to the same period in2016, driven by increases in the U.S. and Brazil that were partially offset by a decline in the U.K. The 0.4% increase in U.S. Same Store new vehicle revenuewas primarily due to a 2.1% increase in average retail sales price to $37,483, which was partially offset by the decline in new vehicle retail units of 1.7%noted above. The increase in our U.S. Same Store average retail sales price for the year ended December 31, 2017 was primarily a result of our operatingteam’s focus on improving new vehicle margins noted above and a mix shift in sales from cars to trucks, which was driven by continued relatively low gasprices, as well as an increase in the demand for trucks in the hurricane impacted markets of the U.S. during the second half of 2017. U.S. new vehicle retailtruck sales represented 61.0% of total Same Store new vehicle retail units sold for the year ended December 31, 2017, as compared to 56.9% for the sameperiod last year. Our Brazil Same Store new vehicle revenues increased 6.0%, which was more than explained by the change in the exchange rate betweenperiods. On a constant currency basis, our Brazil Same Store new vehicle revenues declined 2.2%, as a 5.0% increase in the average retail sales price was morethan offset by the 6.8% decline in new vehicle retail units noted above. The increases in total Same Store new vehicle retail revenues in the U.S. and Brazilwas partially offset by a 2.5% decline in our U.K. Same Store new vehicle revenues for the twelve months ended December 31, 2017 as compared to 2016.The increase of 1.1% in new49Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.vehicle retail unit sales in the U.K. was more than offset by the deterioration in the average new vehicle sales price of 3.6%. This decline is more thanexplained by the change in exchange rates between periods as on a constant currency basis, new vehicle revenue per retail unit increased 1.1% whencompared to the same period a year ago.Our total Same Store new vehicle gross profit decreased 0.1% for the year ended December 31, 2017, as compared to the same period in 2016, reflectingdeclines in the U.K. that were almost fully offset by increases in the U.S. and Brazil. In the U.S., Same Store new vehicle gross profit increased 0.7%, as thedecline in retail units discussed above was more than offset by a 2.5% increase in gross profit PRU to $1,919, which was driven by the operating team’sinitiatives to improve new vehicle margin and the additional demand in our Houston and Beaumont markets as a result of the impact of Hurricane Harvey. Asnoted above, the U.S. gross profit PRU was further bolstered by increased demand for trucks across the U.S. In Brazil, Same Store new vehicle gross profit rose6.5% for the year ended December 31, 2017. The increase in gross profit in Brazil is more than explained by a favorable change in exchange rates. On aconstant currency basis, Same Store new vehicle gross profit decreased 1.7%, as compared to the same period in 2016, as a 6.8% decrease in Same Store newvehicle retail units outpaced a 5.5% increase in gross profit per retail unit on a constant currency basis. Same Store new vehicle gross profit in the U.K.decreased 5.3%, primarily explained by a decline in gross profit PRU of 6.3% to $1,705. The decline in gross profit PRU was partially explained by thechange in exchange rates between periods and the mix in volume-based manufacturer incentives as compared to last year. Our total Same Store new vehiclegross margin remained unchanged at 5.2% for the year ended December 31, 2017, as compared to the same period in 2016.Year Ended December 31, 2016 compared to 2015Our 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 in 2015. The 20.9% decrease in Brazil Same Store new vehiclerevenues was primarily due to the decline in new vehicle retail units of 23.5%, partially offset by a 3.4% increase in the average new vehicle retail sales priceas compared 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 ourU.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 a9.1% increase in new vehicle retail unit sales, partially offset by a 6.9% decline in the average new vehicle retail sales price. The decline in the average salesprice 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 priceimproved 4.9%.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 was more than offset by an 8.5%increase in gross profit PRU to $1,845. The improvement in new vehicle gross profit PRU in the U.S. was primarily a result of our operating team’s disciplinednew vehicle pricing that focused on increasing gross profit per retail unit. Offsetting 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. The decrease in gross profit and gross profit PRU in U.K. can be explained bythe 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 PRUremained relatively flat, as compared to 2015. In Brazil, Same Store new vehicle gross profit declined 30.7% for the year ended December 31, 2016. Thedecrease in gross profit in Brazil is primarily explained by the 23.5% decrease in new units 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 revenues and a 2.0% decrease in total Same Store new vehicle gross profitresulted in a 10 basis point increase in our total Same Store new vehicle gross margin for the year ended December 31, 2016, as compared to the same periodin 2015, from 5.1% to 5.2%.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, 2017, 2016, and 2015 was $48.9 million, $49.2 million, and $50.5 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 88.0% of our quarterly floorplan interest expense in the first quarter of 2017 to 139.9% for the third50Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.quarter of 2015. In the U.S., manufacturer's interest assistance was 101.6% of floorplan interest expense for the year ended December 31, 2017.We increased our new vehicle inventory levels by $38.2 million, or 3.3%, from $1,156.4 million as of December 31, 2016 to $1,194.6 million as ofDecember 31, 2017, primarily as a result of dealership acquisition activity during the year. Our consolidated days' supply of new vehicle inventory was 61days as of December 31, 2017, which is down from 62 days on December 31, 2016.51Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Retail Unit Sales Same Stores U.S. 100,542 (3.7)% 104,451 104,451 1.3% 103,151U.K. 19,632 8.7% 18,062 14,861 5.6% 14,074Brazil 3,974 3.0% 3,859 4,325 2.5% 4,221Total Same Stores 124,148 (1.8)% 126,372 123,637 1.8% 121,446Transactions 5,785 2,759 5,494 2,707Total 129,933 0.6% 129,131 129,131 4.0% 124,153Retail Sales Revenues Same Stores U.S. $2,146,803 (3.2)% N/A $2,217,717 $2,203,802 2.2% N/A $2,155,468U.K. 447,777 6.8% 12.2% 419,455 332,439 (5.4)% 6.5% 351,311Brazil 86,298 19.0% 9.6% 72,549 76,063 0.5% 5.8% 75,658Total Same Stores 2,680,878 (1.1)% (0.5)% 2,709,721 2,612,304 1.2% 2.9% 2,582,437Transactions 118,108 47,992 145,409 56,532Total $2,798,986 1.5% 2.2% $2,757,713 $2,757,713 4.5% 6.7% $2,638,969Gross Profit Same Stores U.S. $143,688 (6.6)% N/A $153,911 $152,960 (1.3)% N/A $154,958U.K. 22,147 3.7% 9.6% 21,350 17,514 (4.5)% 7.4% 18,335Brazil 6,488 43.1% 34.6% 4,533 4,716 56.7% 63.5% 3,009Total Same Stores 172,323 (4.2)% (3.7)% 179,794 175,190 (0.6)% 0.7% 176,302Transactions 5,232 2,685 7,289 3,168Total $177,555 (2.7)% (2.1)% $182,479 $182,479 1.7% 3.3% $179,470Gross Profit per Retail Unit Sold Same Stores U.S. $1,429 (3.1)% N/A $1,474 $1,464 (2.5)% N/A $1,502U.K. $1,128 (4.6)% 0.8% $1,182 $1,179 (9.5)% 1.7% $1,303Brazil $1,633 39.0% 30.7% $1,175 $1,090 52.9% 59.5% $713Total Same Stores $1,388 (2.5)% (1.9)% $1,423 $1,417 (2.4)% (1.1)% $1,452Transactions $904 (7.1)% $973 $1,327 13.4% $1,170Total $1,367 (3.3)% (2.7)% $1,413 $1,413 (2.3)% (0.7)% $1,446Gross Margin Same Stores U.S. 6.7% 6.9% 6.9% 7.2%U.K. 4.9% 5.1% 5.3% 5.2%Brazil 7.5% 6.2% 6.2% 4.0%Total Same Stores 6.4% 6.6% 6.7% 6.8%Transactions 4.4% 5.6% 5.0% 5.6%Total 6.3% 6.6% 6.6% 6.8%52Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Wholesale Unit Sales Same Stores U.S. 37,415 (7.3)% 40,361 40,457 (5.8)% 42,928U.K. 14,861 3.0% 14,428 11,645 2.5% 11,360Brazil 997 6.7% 934 1,086 (10.5)% 1,214Total Same Stores 53,273 (4.4)% 55,723 53,188 (4.2)% 55,502Transactions 3,871 1,616 4,151 1,724Total 57,144 (0.3)% 57,339 57,339 0.2% 57,226Wholesale Sales Revenues Same Stores U.S. $248,922 (8.7)% N/A $272,623 $270,687 (2.9)% N/A $278,909U.K. 113,082 (2.9)% 1.9% 116,519 90,468 (10.2)% 1.1% 100,706Brazil 12,144 314.6% 287.3% 2,929 3,116 (41.8)% (34.4)% 5,354Total Same Stores 374,148 (4.6)% (3.3)% 392,071 364,271 (5.4)% (2.3)% 384,969Transactions 26,022 9,792 37,592 12,282Total $400,170 (0.4)% 1.1% $401,863 $401,863 1.2% 5.2% $397,251Gross Profit Same Stores U.S. $(2,452) 17.3% N/A $(2,964) $(3,120) (274.1)% N/A $(834)U.K. (831) 25.9% 33.2% (1,122) (100) 90.8% 83.2% (1,083)Brazil 838 341.1% 311.2% 190 192 (50.8)% (44.5)% 390Total Same Stores (2,445) 37.2% 37.8% (3,896) (3,028) (98.3)% (102.1)% (1,527)Transactions (297) (546) (1,414) (393)Total $(2,742) 38.3% 38.8% $(4,442) $(4,442) (131.4)% (146.9)% $(1,920)Gross Profit per WholesaleUnit Sold Same Stores U.S. $(66) 9.6% N/A $(73) $(77) (305.3)% N/A $(19)U.K. $(56) 28.2% 35.2% $(78) $(9) 90.5% 83.6% $(95)Brazil $841 314.3% 285.3% $203 $177 (44.9)% (37.9)% $321Total Same Stores $(46) 34.3% 34.9% $(70) $(57) (103.6)% (110.9)% $(28)Transactions $(77) 77.2% $(338) $(341) (49.6)% $(228)Total $(48) 37.7% 38.5% $(77) $(77) (126.5)% (146.5)% $(34)Gross Margin Same Stores U.S. (1.0)% (1.1)% (1.2)% (0.3)%U.K. (0.7)% (1.0)% (0.1)% (1.1)%Brazil 6.9% 6.5% 6.2% 7.3%Total Same Stores (0.7)% (1.0)% (0.8)% (0.4)%Transactions (1.1)% (5.6)% (3.8)% (3.2)%Total (0.7)% (1.1)% (1.1)% (0.5)%53Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Used Vehicle UnitSales Same Stores U.S. 137,957 (4.7)% 144,812 144,908 (0.8)% 146,079U.K. 34,493 6.2% 32,490 26,506 4.2% 25,434Brazil 4,971 3.7% 4,793 5,411 (0.4)% 5,435Total Same Stores 177,421 (2.6)% 182,095 176,825 (0.1)% 176,948Transactions 9,656 4,375 9,645 4,431Total 187,077 0.3% 186,470 186,470 2.8% 181,379Sales Revenues Same Stores U.S. $2,395,725 (3.8)% N/A $2,490,340 $2,474,489 1.6% N/A $2,434,377U.K. 560,859 4.6% 10.0% 535,974 422,907 (6.4)% 5.3% 452,017Brazil 98,442 30.4% 20.4% 75,478 79,179 (2.3)% 3.1% 81,012Total Same Stores 3,055,026 (1.5)% (0.8)% 3,101,792 2,976,575 0.3% 2.2% 2,967,406Transactions 144,130 57,784 183,001 68,814Total $3,199,156 1.3% 2.1% $3,159,576 $3,159,576 4.1% 6.5% $3,036,220Gross Profit Same Stores U.S. $141,236 (6.4)% N/A $150,947 $149,840 (2.8)% N/A $154,124U.K. 21,316 5.4% 12.0% 20,228 17,414 0.9% 13.1% 17,252Brazil 7,326 55.1% 45.7% 4,723 4,908 44.4% 51.1% 3,399Total Same Stores 169,878 (3.4)% (2.9)% 175,898 172,162 (1.5)% (0.2)% 174,775Transactions 4,935 2,139 5,875 2,775Total $174,813 (1.8)% (1.2)% $178,037 $178,037 0.3% 1.7% $177,550Gross Profit per Used Vehicle Unit Sold Same Stores U.S. $1,024 (1.7)% N/A $1,042 $1,034 (2.0)% N/A $1,055U.K. $618 (0.8)% 5.5% $623 $657 (3.1)% 8.5% $678Brazil $1,474 49.6% 40.5% $985 $907 45.1% 51.7% $625Total Same Stores $957 (0.9)% (0.4)% $966 $974 (1.4)% (0.1)% $988Transactions $511 4.5% $489 $609 (2.7)% $626Total $934 (2.2)% (1.5)% $955 $955 (2.5)% (1.1)% $979Gross Margin Same Stores U.S. 5.9% 6.1% 6.1% 6.3%U.K. 3.8% 3.8% 4.1% 3.8%Brazil 7.4% 6.3% 6.2% 4.2%Total Same Stores 5.6% 5.7% 5.8% 5.9%Transactions 3.4% 3.7% 3.2% 4.0%Total 5.5% 5.6% 5.6% 5.8%54Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Year Ended December 31, 2017 compared to 2016Our total Same Store used vehicle retail revenues decreased $28.8 million, or 1.1%, for the twelve months ended December 31, 2017, as compared to2016, reflecting a 1.8% decrease in total Same Store used vehicle retail unit sales partially offset by a 0.7% increase in average used vehicle retail sellingprice to $21,594. In the U.S., Same Store used vehicle retail revenues decreased $70.9 million, or 3.2%, reflecting a 3.7% decrease in Same Store used vehicleretail unit sales partially offset by a 0.6%, or $120, increase in Same Store average used vehicle retail sales price. The decline in Same Store used vehicleretail unit sales was driven by a 5.1% decline in sales in our energy dependent markets of Texas and Oklahoma. While Hurricane Harvey replacement demandlifted our used vehicle retail unit sales in certain U.S. markets for the fourth quarter of 2017, it was not enough to fully offset the impact of depressed oilprices in those markets for the full year. Our U.S. Same Store CPO volume decreased 1.6% to 27,345 units sold for the twelve months ended December 31,2017, as compared to the same period in 2016. As a percentage of total U.S. Same Store used vehicle retail unit sales, CPO units increased 60 basis points to27.2% for the year ended December 31, 2017 as compared to the same period in 2016. In the U.K., Same Store used vehicle retail revenues increased 6.8% forthe year ended December 31, 2017 as compared to same period in the prior year. This increase in Same Store used vehicle retail revenue was driven by an8.7% increase in Same Store used vehicle retail unit sales, partially offset by a 1.8% decrease in Same Store average used vehicle retail sales price to $22,809.The decline in the U.K. Same Store used vehicle average sales price was more than explained by the change in exchange rates between periods, as on aconstant currency basis, Same Store average used vehicle retail sales price increased 3.3%. The increase in used vehicle retail unit sales and average usedvehicle retail sales price in the U.K. was primarily driven by a strong performance from our operating team, as well as the road tariff that went into effect inApril 2017 that lowered associated taxes on used vehicles relative to new vehicles, shifting consumer demand towards used vehicles. In Brazil, for the twelvemonths ended December 31, 2017, Same Store used vehicle retail revenues increased 19.0% as compared to 2016, reflecting a 15.5% increase in the averageused vehicle retail selling price, coupled with 3.0% increase in Same Store used vehicle retail unit sales. This improvement reflects an increased focus by ouroperations 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, 2017, decreased 4.2%, compared to the same period in2016, reflecting a decline in the U.S. that was partially offset by improvements in the U.K. and Brazil. In the U.S., Same Store used vehicle gross profitdecreased by 6.6%, driven by the unit decline discussed previously, coupled with a decrease in Same Store used vehicle gross profit PRU of 3.1%, or $45. Inthe U.K., Same Store used vehicle retail gross profit increased 3.7%, reflecting an improvement of 8.7% in Same Store used vehicle retail unit sales partiallyoffset by a 4.6%, decrease in Same Store used vehicle gross profit PRU. This decline in gross profit PRU is more than explained by the change in theexchange rate between periods as on a constant currency basis, Same Store used vehicle gross profit PRU in the U.K. increased 0.8% over the samecomparable period. The increases in the U.K. were primarily a result of improving used vehicle demand and a strong performance by our operating team. InBrazil, the increase of 43.1% in Same Store used vehicle retail gross profit resulted from the increase of 39.0% and 3.0% in the Same Store used vehicle retailgross profit PRU and unit sales, respectively. The improvement in Brazil is primarily a result of increased focus on used vehicle operations and theimplementation of new and improved sales processes by our local operating team.During the twelve months ended December 31, 2017, total Same Store used vehicle wholesale revenue decreased 4.6%, as compared to the same periodin 2016, driven by declines in the U.S. and U.K., which were partially offset by an increase in Brazil. In the U.S., the 8.7% decrease in Same Store used vehiclewholesale revenue for the year ended December 31, 2017, was the result of a 7.3% decrease in used wholesale vehicle unit sales coupled with 1.5% decreasein Same Store used vehicle wholesale average sales price. The decline in U.S. used vehicle wholesale unit sales volume was primarily driven by the executionof strategic initiatives designed to sell more vehicles through retail channels and reduce our reliance on the wholesale auction markets. In the U.K., SameStore used vehicle wholesale revenue declined 2.9%, more than explained by the change in exchange rates between periods. On a constant currency basis,Same Store used vehicle wholesale sales in the U.K. improved 1.9%, as the increase in unit sales outpaced a 1.0% decline in Same Store used vehiclewholesale average sales price. In Brazil, Same Store used vehicle wholesale revenue increased primarily as a result of an improvement in Same Store usedvehicle wholesale average sales price, coupled with a 6.7% increase in Same Store wholesale used vehicle unit sales.Our total Same Store used vehicle wholesale gross profit increased 37.2% from a loss of $3.9 million for the year ended December 31, 2016, to a loss of$2.4 million for the comparable period in 2017. This increase was driven by a $24 increase in our Same Store used vehicle wholesale gross profit per unitfrom a loss of $70 per unit for the twelve months ended December 31, 2016, to a loss of $46 per unit for the same period this year, coupled with a decrease intotal Same Store used vehicle wholesale units of 4.4%. In the U.S., Same Store used vehicle wholesale gross profit increased 17.3% for the year ended55Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, primarily as a result of a 9.6% increase in Same Store wholesale gross profit per unit from a loss of $73 for the year ended 2016 to a lossof $66 for the comparable period in 2017, coupled with a 7.3% decrease in used vehicle wholesale units from the same period. The increase in used vehiclewholesale gross profit for the year ended 2017, corresponds with a 3.6% increase in the Same Store used vehicle average market prices during 2017, asreflected in the Manheim index. In the U.K., the 25.9% increase in profitability was driven by a 28.2% increase in Same Store used vehicle gross profit perunit, from a loss of $78 for the twelve months ended December 31, 2016 to a loss of $56 for the same period in 2017, which was partially offset by a 3.0%increase in Same Store used vehicle wholesale units as compared to the same period in 2016. In Brazil, the increase in Same Store used vehicle wholesalegross profit for the year ended 2017, was driven by the increase in Same Store used vehicle wholesale gross profit per unit coupled with a 6.7% increase inSame Store used vehicle wholesale units.Year Ended December 31, 2016 compared to 2015Our 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 vehicle operations and the implementation of new and improved sales processes by ourlocal 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.56Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our total Same Store used vehicle 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, partially offset by adecrease in total Same Store used vehicle wholesale units of 4.2%. In the U.S., used vehicle wholesale gross profit declined $2.3 million for the year endedDecember 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 of $77 for thecomparable period in 2016, which was partially 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 was driven by a decrease in Same Store usedvehicle wholesale gross profit per unit of $144.As of December 31, 2017, we increased our used vehicle inventory levels by $55.9 million, or 19.0%, from December 31, 2016 to $350.8 million,primarily in response to continued improvement in the used vehicle selling environment in the U.K and Brazil and the acquisition of additional dealerships.Our consolidated days' supply of used vehicle inventory increased to 39 days, as of December 31, 2017, as compared to 35 days as of December 31, 2016.57Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Parts and ServiceRevenues Same Stores U.S. $1,118,749 5.3% N/A $1,062,465 $1,054,945 4.8% N/A $1,006,640U.K. 138,143 0.2% 5.0% 137,800 98,273 (3.8)% 8.5% 102,183Brazil 45,944 16.0% 7.2% 39,623 43,977 (1.3)% 4.8% 44,542Total Same Stores 1,302,836 5.1% 5.3% 1,239,888 1,197,195 3.8% 5.1% 1,153,365Transactions 35,196 21,419 64,112 32,828Total $1,338,032 6.1% 6.4% $1,261,307 $1,261,307 6.3% 8.1% $1,186,193Gross Profit Same Stores U.S. $599,933 4.0% N/A $576,925 $572,729 4.1% N/A $549,952U.K. 79,083 3.7% 8.6% 76,235 54,509 (2.6)% 9.9% 55,970Brazil 21,100 31.0% 21.1% 16,110 17,398 (8.7)% (2.7)% 19,050Total Same Stores 700,116 4.6% 4.9% 669,270 644,636 3.1% 4.4% 624,972Transactions 19,573 10,730 35,364 17,187Total $719,689 5.8% 6.3% $680,000 $680,000 5.9% 7.7% $642,159Gross Margin Same Stores U.S. 53.6% 54.3% 54.3% 54.6%U.K. 57.2% 55.3% 55.5% 54.8%Brazil 45.9% 40.7% 39.6% 42.8%Total Same Stores 53.7% 54.0% 53.8% 54.2%Transactions 55.6% 50.1% 55.2% 52.4%Total 53.8% 53.9% 53.9% 54.1%Year Ended December 31, 2017 compared to 2016Our total Same Store parts and service revenues increased 5.1% to $1,302.8 million for the year ended December 31, 2017, as compared to the sameperiod in 2016, more than explained by growth in all three regions, with currency changes a partial offset. For the twelve months ended December 31, 2017,our U.S. Same Store parts and service revenues increased 5.3%, or $56.3 million, reflecting a 9.8% increase in warranty parts and service revenues, a 4.9%increase in wholesale parts revenues, a 3.8% increase in collision parts and service revenues, and a 3.8% increase in customer-pay parts and service revenues,when compared to the same period in 2016. The growth in our warranty and customer-pay parts and service revenue in the U.S. was supported by thecontinued progress we are making in adding service technicians and advisors, expanding shop capacity where applicable, and improving accessibility viabetter customer contact handling and expanded hours. In addition, the increase in warranty parts and service revenue in the U.S. was driven by high volumerecall campaigns within our Nissan, Ford, and Lexus brands. The increase in collision revenue was primarily attributable to the continued addition oftechnicians to increase operating capacity, as well as the expansion of our collision facilities and direct repair programs with insurance companies.Our U.K. Same Store parts and service revenues increased 0.2%, or $0.3 million. On a constant currency basis, U.K. Same Store parts and servicerevenues increased 5.0%, representing a 10.0% increase in warranty parts and service revenues, a 5.9% increase in collision revenues parts and servicerevenues, a 4.7% increase in wholesale parts and service revenues and a 2.9% increase in customer-pay parts and service revenues for the year endedDecember 31, 2017, as compared to the same period a year ago. Our increase in warranty parts and service revenues was primarily due to an increase in recallsfrom BMW58Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and Audi during 2017. Additionally, the growth in collision revenues in the U.K. was primarily a result of management initiatives to enhance processes andincrease productivity.Our Same Store parts and service revenues in Brazil increased 16.0%, or $6.3 million, primarily driven by an increase of 37.6% in warranty revenues, a17.9% increase in collision revenue and a 12.2% increase in customer-pay parts and service revenues, partially offset by a strategic decision to exit thewholesale parts business in Brazil at the end of 2016.Our total Same Store parts and service gross profit for the year ended December 31, 2017 increased 4.6%, as compared to the same period in 2016. Theincrease in gross profit was driven by a 4.0% increase the U.S., a 31.0% increase in Brazil and a 3.7% increase in the U.K. In Brazil, on a constant currencybasis, Same Store parts and service gross profit increased 21.1%, primarily reflecting improvements in our warranty parts and service revenue due to animplementation of new and enhanced processes. The increase in the U.S. was driven by growth in each of our parts and service business sectors, primarilyreflecting continued efforts to improve our processes. The increase in U.K. was driven by improvements in our warranty parts and service revenue, primarilydue to an increase in high volume recalls within our BMW and Audi brands as noted above.Our total Same Store parts and service gross margin declined 30 basis points, for the year ended December 31, 2017 as compared to the same period in2016. The decrease in gross margin was driven by a 70 basis point decline in the U.S., partially offset by improvements in Brazil and the U.K. The decline inthe U.S. primarily reflects a decrease in internal work between parts and service departments of our dealerships and the new and used vehicle departments, as aresult of a decline in total retail vehicle sales volumes for the year ended December 31, 2017 as compared to the same period in 2016. The improvement inSame Store parts and service gross margin in Brazil was the result of improved profitability in our warranty parts and service, wholesale parts, and customer-pay parts and service businesses as a result of strategic initiatives implemented by our operating team. The improvement in the U.K. is a result of improvedinternal work and higher labor rates charged on customer-pay and warranty parts and service sales.Year Ended December 31, 2016 compared to 2015Our 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, more than explained by growth in all three regions, partially offset by unfavorable exchange movements in the U.K. and Brazil. For thetwelve 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 incustomer-pay parts and service revenues, a 5.9% increase in warranty parts and service revenues, a 5.2% increase in collision revenues, and a 3.3% increase inwholesale parts revenues, when compared to the same period in 2015. The growth in U.S. customer-pay parts and service revenues was supported by thecontinued progress we are making in adding service technicians, and expanding shop capacity where applicable. The increase in warranty parts and servicerevenues was primarily driven by high volume recall campaigns from Toyota, Ford, Nissan, Mercedes-Benz, Honda, General Motors, Hyundai, and FCA US(formerly Chrysler) that occurred in 2016 compared to 2015. The increase in collision revenues was primarily attributable to strategic initiatives thatcontinue to enhance our operational processes, the addition of technicians to add operating capacity and the expansion of direct repair programs withinsurance companies. 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.Our U.K. Same Store parts and service revenues decreased 3.8%, or $3.9 million, for the year ended December 31, 2016, as compared to the same periodin 2015. This decline is more than explained by the exchange rate, as Same Store parts and 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 in warranty parts and service revenues, a 9.0% increase in wholesaleparts revenues, and a 11.4% increase in collision revenues. These increases were primarily a result of management initiatives to enhance processes andincrease productivity. Additionally, the growth in warranty parts and service revenues in the U.K. was primarily due to an increase in high volume recallsfrom 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, more than explained by the exchange rate. Brazil Same Store partsand service revenues increased 4.8% on a constant currency basis in 2016 compared to the same period last year. The increase in Brazil Same Store parts andservice revenues on a constant currency basis was due to an increase of 15.1% in collision revenues, 10.7% increase in warranty revenues, and 1.9% increasein customer pay parts and service 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 our59Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.customer-pay parts and service business towards 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 2016.60Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Retail New and Used UnitSales Same Stores U.S. 226,789 (2.6)% 232,892 233,379 (3.5)% 241,750U.K. 50,686 3.9% 48,781 35,262 7.6% 32,775Brazil 12,172 (3.8)% 12,657 13,843 (16.9)% 16,655Total Same Stores 289,647 (1.6)% 294,330 282,484 (3.0)% 291,180Transactions 12,486 6,854 18,700 7,587Total 302,133 0.3% 301,184 301,184 0.8% 298,767Retail Finance Fees Same Stores U.S. $115,794 (4.5)% N/A $121,267 $120,323 (1.3)% N/A $121,868U.K. 23,233 14.5% 18.9% 20,288 15,679 4.8% 18.5% 14,955Brazil 2,331 52.4% 42.4% 1,530 1,660 (0.5)% 4.7% 1,668Total Same Stores 141,358 (1.2)% (0.7)% 143,085 137,662 (0.6)% 0.9% 138,491Transactions 5,321 1,713 7,136 2,843Total $146,679 1.3% 1.9% $144,798 $144,798 2.5% 4.5% $141,334Vehicle Service ContractFees Same Stores U.S. $144,109 1.4% N/A $142,105 $142,348 (0.3)% N/A $142,706U.K. 639 22.4% 26.9% 522 513 (26.9)% (16.4)% 702Brazil — —% —% — — —% —% —Total Same Stores 144,748 1.5% 1.5% 142,627 142,861 (0.4)% (0.3)% 143,408Transactions 858 1,253 1,019 1,288Total $145,606 1.2% 1.2% $143,880 $143,880 (0.6)% (0.5)% $144,696Insurance and Other Same Stores U.S. $112,098 2.6% N/A $109,209 $108,873 1.7% N/A $107,029U.K. 13,890 (6.0)% (1.3)% 14,772 9,502 12.3% 26.4% 8,460Brazil 5,811 34.5% 24.2% 4,322 4,787 (2.3)% 1.5% 4,900Total Same Stores 131,799 2.7% 2.9% 128,303 123,162 2.3% 3.4% 120,389Transactions 4,918 3,673 8,814 2,367Total $136,717 3.6% 3.8% $131,976 $131,976 7.5% 9.2% $122,756Total Finance and InsuranceRevenues Same Stores U.S. $372,001 (0.2)% N/A $372,581 $371,544 —% N/A $371,603U.K. 37,762 6.1% 10.7% 35,582 25,694 6.5% 20.3% 24,117Brazil 8,142 39.1% 28.9% 5,852 6,447 (1.8)% 2.3% 6,568Total Same Stores 417,905 0.9% 1.2% 414,015 403,685 0.3% 1.2% 402,288Transactions 11,097 6,639 16,969 6,498Total $429,002 2.0% 2.3% $420,654 $420,654 2.9% 4.1% $408,78661Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. $1,640 2.5% N/A $1,600 $1,592 3.6% N/A $1,537U.K. $745 2.2% 6.5% $729 $729 (1.0)% 11.8% $736Brazil $669 44.8% 34.0% $462 $466 18.3% 23.1% $394Total Same Stores $1,443 2.6% 2.8% $1,407 $1,429 3.4% 4.4% $1,382Transactions $889 $969 $907 $856Total $1,420 1.6% 2.0% $1,397 $1,397 2.1% 3.3% $1,368Adjusted Total Finance andInsurance Revenues(1) Same Stores U.S. $378,551 1.6% N/A $372,581 $371,544 —% N/A $371,603U.K. 37,762 6.1% 10.7% 35,582 25,694 6.5% 20.3% 24,117Brazil 8,142 39.1% 28.9% 5,852 6,447 (1.8)% 2.3% 6,568Total Same Stores 424,455 2.5% 2.8% 414,015 403,685 0.3% 1.2% 402,288Transactions 11,097 6,639 16,969 6,498Total $435,552 3.5% 3.8% $420,654 $420,654 2.9% 4.1% $408,786Adjusted Finance and InsuranceRevenues per Unit Sold(1) Same Stores U.S. $1,669 4.3% N/A $1,600 $1,592 3.6% N/A $1,537U.K. $745 2.2% 6.5% $729 $729 (1.0)% 11.8% $736Brazil $669 44.8% 34.0% $462 $466 18.3% 23.1% $394Total Same Stores $1,465 4.1% 4.4% $1,407 $1,429 3.4% 4.4% $1,382Transactions $889 $969 $907 $856Total $1,442 3.2% 3.5% $1,397 $1,397 2.1% 3.3% $1,368(1) See “Non-GAAP Financial Measures” for more details. Year Ended December 31, 2017 compared to 2016Our efforts to improve our finance and insurance business processes have continued to generate growth. Our total Same Store finance and insurancerevenue increased by $3.9 million, or 0.9%, to $417.9 million for the year ended December 31, 2017, as compared to the same period in 2016. After adjustingfor $6.6 million in chargeback expense for reserves associated with expected finance and insurance product cancellations on vehicles sold by the Companyand damaged by flooding from Hurricane Harvey, our adjusted total Same Store finance and insurance revenue increased $10.4 million, or 2.5%, to $424.5million for the year ended December 31, 2017. All of our segments generated improvements compared to the same period in 2016. Our adjusted U.S. SameStore finance and insurance revenue grew $6.0 million, or 1.6%, as increases in income per contract and penetration rates for most of our major U.S. productofferings were partially offset by a 2.6% decline in our U.S. retail unit sales volume and an increase in our chargeback experience. In the U.K., our Same Storefinance and insurance revenue increased $2.2 million, or 6.1%, for the year ended December 31, 2017, as compared to 2016, primarily related toimprovements in income per contract for our retail finance and vehicle service contract fees coupled with a 3.9% growth in total retail sales volume. Theincreases in the U.K. finance and insurance revenue were partially offset by declines in finance fee penetration rates and an increase in chargeback expense.Our Brazil Same Store finance and insurance revenue increased 39.1%, or $2.3 million, for the year ended December 31, 2017, as compared to 2016. Thisimprovement was related to increases in penetration rates and income per contract for our retail finance fees and also reflects an increase in vehicle insurancerevenue. For the year ended December 31, 2017, our total Same Store finance and insurance revenue PRU increased 2.6% to $1,443, as compared to the sameperiod in 2016. On an adjusted basis, our total Same Store finance and insurance revenue PRU improved 4.1% to $1,465, as compared to 2016. Theimprovement can be explained by increases in PRU for all of our segments as compared to last year.Year Ended December 31, 2016 compared to 2015Our total Same Store finance and insurance revenues improved $1.4 million to $403.7 million for the year ended December 31, 2016, as compared to2015, primarily driven by an increase in the U.K. partially offset by a decline in Brazil. Our62Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. Same Store finance and insurance revenue increased $1.6 million, or 6.5%, reflecting 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 were partially offset by the change in exchange rates betweenperiods. Our Brazil Same Store finance and insurance revenue declined 1.8% for the year ended December 31, 2016 when compared to 2015, primarily as aresult of the change in exchange rates between periods. On a constant currency basis, Brazil Same Store finance and insurance revenues increased 2.3%,despite a 16.9% decrease in retail unit sales. Our U.S. Same Store finance and insurance revenues remained about flat for the year ended December 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 by a 3.5% decline innew and used vehicle retail unit sales volumes and an increase in our overall chargeback experience. On a PRU basis, our total Same Store finance andinsurance revenues improved 3.4% to $1,429, as compared to the same period in 2015. This improvement can be explained by increases in the U.S. andBrazil 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 beexplained by the change in exchange rates between periods. On a constant currency basis, our Same Store finance and insurance revenues PRU in the U.K.increased 11.8% for the twelve month ended December 31, 2016 as compared to last year.63Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Personnel Same Stores U.S. $620,073 0.7% N/A $615,620 $613,894 2.4% N/A $599,609U.K. 92,226 3.8% 8.6% 88,826 65,148 (0.6)% 12.2% 65,524Brazil 27,671 24.8% 15.9% 22,166 23,912 0.1% 5.1% 23,898Total Same Stores 739,970 1.8% 2.1% 726,612 702,954 2.0% 3.4% 689,031Transactions 24,561 14,309 37,967 19,573Total $764,531 3.2% 3.6% $740,921 $740,921 4.6% 6.4% $708,604Advertising Same Stores U.S. $65,104 (2.9)% N/A $67,039 $67,334 1.2% N/A $66,560U.K. 5,375 (5.8)% (1.6)% 5,706 4,315 (5.7)% 6.8% 4,574Brazil 885 (24.3)% (29.4)% 1,169 1,286 (2.6)% 1.6% 1,320Total Same Stores 71,364 (3.4)% (3.2)% 73,914 72,935 0.7% 1.5% 72,454Transactions 2,756 1,418 2,397 2,174Total $74,120 (1.6)% (1.3)% $75,332 $75,332 0.9% 2.1% $74,628Rent and FacilityCosts Same Stores U.S. $79,748 (1.6)% N/A $81,059 $81,523 0.8% N/A $80,883U.K. 16,137 2.1% 6.4% 15,799 9,023 (9.1)% 2.6% 9,922Brazil 8,625 17.0% 7.9% 7,373 8,310 (4.4)% 2.0% 8,697Total Same Stores 104,510 0.3% 0.3% 104,231 98,856 (0.6)% 1.1% 99,502Transactions 6,538 5,689 11,064 6,934Total $111,048 1.0% 1.1% $109,920 $109,920 3.3% 6.0% $106,436Other SG&A Same Stores U.S. $210,776 10.1% N/A $191,390 $189,846 (1.4)% N/A $192,483U.K. 42,631 5.8% 10.2% 40,295 28,065 (2.4)% 10.4% 28,750Brazil 10,745 11.8% 3.5% 9,607 9,885 (8.1)% (1.8)% 10,762Total Same Stores 264,152 9.5% 9.9% 241,292 227,796 (1.8)% 0.1% 231,995Transactions 12,344 3,298 16,794 (830)Total $276,496 13.0% 13.6% $244,590 $244,590 5.8% 8.6% $231,165Total SG&A Same Stores U.S. $975,701 2.2% N/A $955,108 $952,597 1.4% N/A $939,535U.K. 156,369 3.8% 8.4% 150,626 106,551 (2.0)% 10.6% 108,770Brazil 47,926 18.9% 10.1% 40,315 43,393 (2.9)% 2.7% 44,677Total Same Stores 1,179,996 3.0% 3.3% 1,146,049 1,102,541 0.9% 2.4% 1,092,982Transactions 46,199 24,714 68,222 27,851Total $1,226,195 4.7% 5.1% $1,170,763 $1,170,763 4.5% 6.5% $1,120,83364Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. $1,355,471 1.1% N/A $1,340,981 $1,332,028 1.6% N/A $1,311,385U.K. 191,123 1.7% 6.6% 187,966 136,858 (0.6)% 12.0% 137,639Brazil 53,230 25.7% 16.4% 42,337 44,974 (14.2)% (9.4)% 52,436Total Same Stores 1,599,824 1.8% 2.2% 1,571,284 1,513,860 0.8% 2.1% 1,501,460Transactions 45,685 23,785 81,209 32,512Total $1,645,509 3.2% 3.6% $1,595,069 $1,595,069 4.0% 5.7% $1,533,972SG&A as a % of GrossProfit Same Stores U.S. 72.0% 71.2% 71.5% 71.6%U.K. 81.8% 80.1% 77.9% 79.0%Brazil 90.0% 95.2% 96.5% 85.2%Total Same Stores 73.8% 72.9% 72.8% 72.8%Transactions 101.1% 103.9% 84.0% 85.7%Total 74.5% 73.4% 73.4% 73.1%Adjusted TotalSG&A (1) Same Stores U.S. $967,224 1.1% N/A $956,848 $954,336 1.9% N/A $936,378U.K. 156,081 4.1% 8.7% 149,882 105,929 (2.4)% 10.2% 108,562Brazil 47,451 18.5% 9.7% 40,041 43,119 (3.2)% 2.5% 44,527Total Same Stores 1,170,756 2.1% 2.4% 1,146,770 1,103,384 1.3% 2.8% 1,089,467Transactions 29,209 29,210 72,596 36,715Total $1,199,965 2.0% 3.9% $1,175,980 $1,175,980 4.4% 6.5% $1,126,182Adjusted SG&A as a %of Gross Profit (1) Same Stores U.S. 71.0% 71.4% 71.6% 71.4%U.K. 81.7% 79.7% 77.4% 78.9%Brazil 89.1% 94.6% 95.9% 84.9%Total Same Stores 72.9% 73.0% 72.9% 72.6%Transactions 63.9% 122.8% 89.4% 112.9%Total 73.7% 73.7% 73.7% 73.4%Employees 14,100 13,500 13,500 12,900(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.Year Ended December 31, 2017 compared to 2016Our total Same Store SG&A increased $33.9 million, or 3.0%, for the year ended December 31, 2017, as compared to the same period in 2016, explainedby increases of 2.2%, 18.9% and 3.8% in the U.S., Brazil and the U.K, respectively. After adjusting for non-core Same Store SG&A charges of $8.8 million fordeductible charges related to catastrophic events, $0.8 million in losses related to real estate and dealership disposition transactions, $0.5 million associatedwith severance costs and $0.3 million of costs related to dealership acquisition activities, partially offset by a $1.1 million gain associated with legalsettlements, our adjusted total Same Store SG&A increased 2.1% for the year ended December 31, 2017, as compared to the same period in 2016.65Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 $13.4 million, or 1.8%, for the year ended December 31, 2017, as compared to the same period in 2016,explained by increases of 24.8%, 0.7% and 3.8% in Brazil, the U.S. and the U.K, respectively. The increase in Brazil was primarily explained by increases invariable commission payments as a result of a 12.2% increase in revenues and profitability across our business sectors. The increase in Same Store personnelcosts in the U.S. was primarily explained by an increase in variable commission payments relative to the growth in our parts and service business andimproved retail new vehicle gross profit, largely driven by the high demand in our Houston and Beaumont markets, as a result of the impact of HurricaneHarvey, as well as the impact of non-core charges for disaster pay for our employees who were impacted by Hurricanes Harvey and Irma. The increase in totalSame Store personnel costs in the U.K. primarily relates to an increase in variable costs largely driven by an overall improvement in the profitability of ourused vehicle and parts and service businesses.For the year ended December 31, 2017, our total Same Store advertising costs decreased 3.4%, to $71.4 million, explained by decreases of 2.9%, 5.8%and 24.3% in the U.S., the U.K and Brazil, respectively. The decreases in both the U.S. and U.K. are the result of initiatives to control costs in response to theoverall decline in sales in the retail automotive industry. The decrease in Brazil can also be explained by management's cost rationalization efforts throughmost of 2017.Our total Same Store rent and facility costs increased 0.3% to $104.5 million for the year ended December 31, 2017, as compared to the same period in2016, reflecting increases of 17.0% and 2.1% in Brazil and the U.K., respectively, substantially offset by a decrease of 1.6% in the U.S. The increase in Brazilresulted from additional rent expense incurred following annual increases in rental rates during 2017. The increase in the U.K. was more than explained by anincrease in property taxes, as well as rent expense, associated with new facilities. The decrease in the U.S. can be explained by management’s strategy to ownmore real estate, thereby reducing rent costs, and ongoing initiatives to control costs, partially offset by an increase associated with non-core charges forbuilding and property damage as a result of Hurricanes Harvey and Irma.Our total Same Store other SG&A increased 9.5% to $264.2 million for the year ended December 31, 2017, as compared to the same period in 2016,explained by increases of 10.1%, 5.8% and 11.8% in the U.S., the U.K. and Brazil, respectively. The increase in the U.S. can be partially attributed to the non-core charges for vehicle damage as a result of Hurricane Harvey. The increases in the U.K. and Brazil were primarily explained by increases in expenses thatgenerally correlate to the overall growth in gross profit of 6.6% and 16.4%, respectively, on a constant currency basis.For the year ended December 31, 2017, as compared to the same period in 2016, our total Same Store SG&A as a percentage of gross profit increased 90basis points to 73.8% primarily driven by 170 and 80 basis point increases in the U.K. and U.S., respectively. Offsetting these increases, our Same StoreSG&A as a percentage of gross profit in Brazil improved 520 basis points to 90.0%, primarily reflecting continued leverage of our cost structure realized witha growth in gross profit. On an adjusted basis, total Same Store SG&A as a percentage of gross profit improved by 10 basis points to 72.9%, as compared tothe same period in 2016, driven by a 550 basis point improvement in Brazil and a 40 basis point improvement in the U.S. resulting from the furtherleveraging of our cost structure from revenue and gross profit growth and cost rationalization efforts that resulted in particular reductions in advertising andrent and facilities cost in the U.S. The improvements in Brazil and the U.S. were partially offset by an increase in the U.K. of 200 basis points.Year Ended December 31, 2016 compared to 2015Our 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.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.66Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2016, our total Same Store advertising costs increased 0.7%, to $72.9 million, driven by a 1.2% increase inthe 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 advertising activitydesigned to generate incremental sales opportunities. The decreases in Same Store advertising costs in the U.K. and Brazil can be explained by the changes inexchange rates between periods, as Same Store advertising costs increased by 6.8% and 1.6%, respectively, on a constant currency basis. These increases inboth the U.K. and Brazil were also largely driven by activity designed to generate incremental sales opportunities and capture market share.Our total Same Store rent and facility costs decreased 0.6% to $98.9 million for the twelve months ended December 31, 2016, as compared to the sameperiod 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. The decrease inSame 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 canbe explained by the changes in exchange rates between periods, as Same Store rent and facility costs remained relatively flat on a constant currency basis, ascompared to the same period in 2015. The increase in the U.S. is primarily driven by increased property taxes, as compared to the same period in 2015,associated with higher property values that stem from continued improvements to our existing facilities designed to enhance the profitability of ourdealerships 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 an 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 were 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 $0.3 million in charges 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.Depreciation and Amortization Data(dollars in thousands) For The Year Ended December 31, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Same Stores U.S. $47,217 11.0% N/A $42,554 $42,510 6.4% N/A $39,936U.K. 6,787 8.3% 13.1% 6,264 4,589 6.5% 20.4% 4,307Brazil 1,395 17.0% 7.8% 1,192 1,160 (3.2)% 3.1% 1,198Total Same Stores 55,399 10.8% 11.2%50,010 48,259 6.2% 7.7% 45,441Transactions 2,537 1,224 2,975 1,798Total $57,936 13.1% 13.6% $51,234 $51,234 8.5% 10.5% $47,239Our total Same Store depreciation and amortization expense increased 10.8% and 6.2% for the years ended December 31, 2017 and 2016, respectively,as compared to the respective prior year periods, 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 AssetsWe perform an annual review of the fair value of our goodwill and indefinite-lived intangible assets during the fourth quarter. We also perform interimreviews for impairment of all of our long-lived and indefinite-lived assets when evidence67Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.exists that the carrying value of such assets may not be recoverable. See Note 15 to our Consolidated Financial Statements, “Asset Impairments,” for furtherdiscussion of our annual impairment assessments.During the fourth quarters of 2017 and 2016, we performed our annual impairment assessment of the carrying value of our goodwill. The fair value ofeach of our reporting units exceeded the carrying value of the respective net assets (step one of the goodwill impairment test). As a result, we were notrequired to conduct the second step of the impairment test for goodwill. During the 2015 goodwill assessment, it was determined that, in Brazil, the carryingvalue of goodwill exceeded the implied fair value and as a result a $55.4 million impairment was recorded.During 2017, 2016, and 2015, we determined that the carrying value of certain of our intangible franchise rights were greater than fair value. As a result,we recognized $19.3 million, $30.0 million and $30.1 million of pre-tax non-cash impairment charges, respectively. Also, in 2017, 2016, and 2015, werecognized $0.2 million, $2.8 million, and $2.1 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.Floorplan Interest Expense(dollars in thousands) For The Year Ended December 31, 2017 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2016 2016 % Increase/(Decrease) Constant Currency%Increase/(Decrease) 2015Same Stores U.S. $46,845 16.6% N/A $40,186 $39,955 12.8% N/A $35,424U.K. 4,182 4.8% 8.9% 3,991 2,190 (3.8)% 9.3% 2,276Brazil 315 (7.4)% (8.3)% 340 63 (91.9)% (88.6)% 781Total Same Stores 51,342 15.3% 15.7% 44,517 42,208 9.7% 10.5% 38,481Transactions 1,030 410 2,719 783Total $52,372 16.6% 17.0% $44,927 $44,927 14.4% 16.0% $39,264Memo: Manufacturer’s assistance $48,935 (0.5)% (0.4)% $49,202 $49,202 (2.5)% (2.3)% $50,474Our 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.During 2017 and 2016, our average notional amount of interest rate swaps in effect was $822.2 million and $612.0 million, respectively, that fixed ourunderlying one-month LIBOR at a weighted average rate of 2.53% and 2.65%, respectively. The majority of the monthly settlements of these interest rateswap liabilities are recognized as floorplan interest expense. From time to time, we utilize excess cash on hand to pay down our floorplan borrowings, and theresulting interest earned is recognized as an offset to our gross floorplan interest expense.Year Ended December 31, 2017 compared to 2016Our total Same Store floorplan interest expense increased 15.3% to $51.3 million for the year ended December 31, 2017, as compared to the same periodin 2016. The increase was primarily driven by our Same Store floorplan interest expense in the U.S. that grew $6.7 million, or 16.6%, from the same period ayear ago, which is more than explained by the increase in LIBOR interest rates since the fourth quarter of 2016. The increase was partially offset by a declinein our U.S. weighted average borrowings compared to the same period in 2016.Year Ended December 31, 2016 compared to 2015Our total Same Store floorplan interest expense increased 9.7% to $42.2 million for the year ended December 31, 2016, as compared to the same periodin 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 weightedaverage 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 ourweighted average floorplan borrowings in the U.S. of $62.3 million for year ended December 31, 2016 reflecting higher inventory levels in 2016 whencompared with 2015. Beginning in the later part of the fourth quarter of 2015, we experienced an increase in our supply of68Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.luxury 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.Other Interest Expense, netYear Ended December 31, 2017 compared to 2016Other 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, 2017, other interest expense increased $2.6million, or 3.8%, to $70.5 million, as compared to the same period in 2016. The increase was primarily attributable to an increase in the weighted averageinterest rates associated with real estate and other long-term debt.Year Ended December 31, 2016 compared to 2015For the twelve months ended December 31, 2016, other interest expense increased $11.0 million, or 19.4%, to $67.9 million, as compared to the sameperiod in 2015. The increase was primarily attributable to interest incurred on our 5.25% Notes offering that was executed in December 2015. As a partialoffset, we used a portion of the proceeds from the 5.25% Notes offering to repay the outstanding borrowings of the Company’s Acquisition Line and to payoffcertain real estate related mortgages.Provision for Income TaxesFor the year ended December 31, 2017, we recorded a tax provision of $5.6 million. The 2017 effective tax rate of 2.5% decreased from the 2016effective tax rate of 35.3%, primarily due to the enactment of new tax legislation in the United States during 2017, as well as excess tax deductions forrestricted stock resulting from the adoption of ASU 2016-09, partially offset by unrecognized tax benefits with respect to uncertain tax positions recorded in2017. On an adjusted basis, for the year ended December 31, 2017, our effective tax rate decreased to 35.7% from 35.8% as compared to the same period in2016.On December 22, 2017, the U.S. government enacted comprehensive tax legislation, the Tax Act. The Tax Act made broad and complex changes to theU.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%, creating a territorial tax system that generallyeliminates U.S. federal income taxes on dividends from foreign subsidiaries, and requiring companies to pay a one-time transition tax on unrepatriatedearnings of their foreign subsidiaries. In accordance with SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts andJob Act (“SAB 118”), we have determined a reasonable estimate of the tax rate reduction on our existing deferred taxes, based on a remeasurement of ourdeferred tax assets and liabilities, and recorded a provisional tax benefit of $73.0 million, with a corresponding reduction in our deferred tax liabilities for theyear ended December 31, 2017. Additionally, we have provisionally determined that we do not have a transition tax liability for previously untaxedaccumulated and current earnings and profits (E&P) of our foreign subsidiaries.Due to the timing of the enactment and complexity involved in applying the provisions of the Tax Act, we based our provisions on reasonableestimates of the law’s effects in our financial statements as of December 31, 2017. We will complete our accounting for the Tax Act after we have consideredadditional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and we have gathered andanalyzed additional data relative to our calculations. This may result in adjustments to our provisional amounts, which would impact our provision forincome taxes and effective tax rate in the period the adjustments are made. We will complete our accounting for the Tax Act in 2018.For 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 other deferred tax assets in certain U.S. states and in Brazil, as well as the deferred tax impact of adealership disposition in Brazil. In addition, the 2016 effective tax rate decreased from the 2015 rate due to the impairment of non-deductible goodwill inBrazil in 2015. 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 sameperiod in 2015.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 2018 will be approximately between 23.0% and 24.0%.As of December 31, 2017, we had net deferred tax liabilities totaling $119.8 million relating to the differences between the financial reporting and taxbasis of assets and liabilities. This includes $115.7 million of net deferred tax liabilities relating69Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to intangibles for goodwill and franchise rights that are deductible for tax purposes and will not reverse until the related intangibles are disposed. We alsohad $17.4 million of deferred tax assets for net operating losses in U.S. states, as well as $40.6 million of deferred tax assets for foreign net operating losses.As of December 31, 2017, we had $44.0 million of deferred tax assets relating to loss reserves and accruals. In addition, we had $54.4 million of valuationallowances for net operating losses in certain U.S. states, as well as the deferred tax assets (including net operating losses) for certain entities in Brazil. Referto 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 2018. Ifeconomic and business conditions deteriorate or if our capital expenditures or acquisition plans for 2018 change, we may need to access the private or publiccapital markets to obtain additional funding.Cash on Hand. As of December 31, 2017, our total cash on hand was $28.8 million. The balance of cash on hand excludes $109.0 million ofimmediately available funds used to pay down our Floorplan Line and FMCC Facility as of December 31, 2017. 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/used in operating activities” and “Adjusted net cash provided by/used infinancing activities” to evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared inaccordance with U.S. GAAP and avoids the potential to mislead the users of our financial statements.In addition, because the majority of our dealership acquisitions and dispositions are negotiated as asset purchases, we do not assume transfer ofliabilities for floorplan financing in the execution of the transactions. Therefore, borrowings and repayments of all floorplan financing associated withdealership acquisition and disposition are characterized as either operating or financing activities in our statement of cash flows presented in conformity withU.S. GAAP, depending on the relationship described above. However, the floorplan financing activity is so closely related to the inventory acquisitionprocess that we believe the presentation of all dealership acquisition- and disposition-related floorplan financing activities should be classified as investingactivity to correspond with the associated inventory activity, and we have made such adjustments in our adjusted 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. 70Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Year Ended December 31,U.S. GAAP Basis 2017 2016 2015 (In thousands) Net cash provided by operating activities $198,925 $384,857 $141,047Net cash used in investing activities (312,598) (174,040) (284,502)Net cash provided by (used in) financing activities 121,476 (205,007) 121,009Effect of exchange rate changes on cash (8) 2,145 (5,492)Net increase (decrease) in cash and cash equivalents $7,795 $7,955 $(27,938) For the Year Ended December 31,Adjusted, Non-GAAP Basis(1) 2017 2016 2015 (In thousands) Adjusted net cash provided by operating activities $284,667 $271,741 $244,349Adjusted net cash used in investing activities (297,865) (190,639) (266,791)Adjusted net cash provided by (used in) financing activities 21,001 (75,292) (4)Effect of exchange rate changes on cash (8) 2,145 (5,492)Net increase (decrease) in cash and cash equivalents $7,795 $7,955 $(27,938)(1) See “Non-GAAP Financial Measures” for detailsSources and Uses of Liquidity from Operating ActivitiesFor the twelve months ended December 31, 2017, we generated $198.9 million of net cash flow from operating activities. On an adjusted basis for thesame period, we generated $284.7 million in net cash flow from operating activities, primarily consisting of $213.4 million in net income, as well as non-cashadjustments related to depreciation and amortization of $57.9 million, stock-based compensation of $18.9 million and asset impairments of $19.5 million,partially offset by a $46.1 million non-cash adjustment related to deferred income taxes, which includes the provisional deferred tax benefit of $73.0 millionrecognized as a result of the Tax Act. Also included in adjusted net cash flow from operating activities was an $18.5 million net change in operating assetsand liabilities, consisting of cash inflows of $77.4 million from a net increase in floorplan borrowings and $35.6 million from increases in accounts payableand accrued expenses. These cash inflows were partially offset by cash outflows of $10.7 million from the net increase in accounts and notes receivable,$44.0 million from the increase in inventory levels, $33.5 million from increases in vehicle receivables and contracts-in-transit, and $6.9 million from the netincrease in prepaid expenses and other assets.For the twelve months ended December 31, 2016, we generated $384.9 million of net cash flow from operating activities. On an adjusted basis for thesame period, we generated $271.7 million in net cash flow from operating activities, primarily consisting of $147.1 million in net income, as well as non-cashadjustments related to depreciation and amortization of $51.2 million, stock-based compensation of $21.1 million, deferred income taxes of $14.2 millionand asset impairments of $32.8 million. Also included in adjusted net cash flow from operating activities was a $3.3 million net change in operating assetsand liabilities. Included in the adjusted net changes of operating assets and liabilities were cash inflows of $79.3 million from a net decrease in inventorylevels, $76.1 million from increases in accounts payable and accrued expenses, and $8.2 million from the net decrease in prepaid expenses and other assets.These cash inflows were partially offset by cash outflows of $18.7 million from the net increase in accounts and notes receivable, $125.7 million from a netdecrease in floorplan borrowings, and $15.6 million from increases in vehicle receivables and contracts-in-transit.For the twelve months ended December 31, 2015, we generated $141.0 million of net cash flow from operating activities. On an adjusted basis for thesame period, we generated $244.3 million in net cash flow from operating activities, primarily consisting of $94.0 million in net income, as well as non-cashadjustments related to depreciation and amortization of $47.2 million, stock-based compensation of $18.9 million, deferred income taxes of $11.9 million,and asset impairments of $87.6 million. Partially offsetting these adjusted net cash flow from operating activities was a $10.3 million net outflow related tothe change in operating assets and liabilities. Included in the adjusted net changes of operating assets and liabilities were cash outflows of $17.9 million fromthe net increase in accounts and notes receivable, $186.6 million from the increase in inventory levels, $17.9 million from increases in vehicle receivablesand contracts-in-transit, and $3.2 million from the net increase in prepaid expenses and other assets. The cash outflows were partially offset by cash inflows of$190.8 million from a net increase in floorplan borrowings and $25.1 million from increases in accounts payable and accrued expenses.Working Capital. At December 31, 2017, we had $130.7 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,71Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.subject to agreed upon pay-off terms, are equal to 100% of the 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 the aggregate 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 using excess cash flow from operations and the proceeds of debt and equity offerings. As needed, were-borrow the amounts later, up to the limits on the floorplan notes payable discussed above, for working capital, acquisitions, capital expenditures or generalcorporate purposes.Sources and Uses of Liquidity from Investing ActivitiesFor the twelve months ended December 31, 2017, we used $312.6 million in net cash flow for investing activities. On an adjusted basis for the sameperiod, we used $297.9 million in net cash flow for investing activities, primarily consisting of $94.3 million of cash outflows for dealership acquisitionactivity and $215.8 million for purchases of property and equipment and to construct new and improve existing facilities. Within this total of property andequipment purchases, $98.3 million was used for capital expenditures, $110.4 million was used for the purchase of real estate associated with existingdealership operations and $7.1 million represents the net decrease in the accrual for capital expenditures from year-end. These cash outflows were partiallyoffset by cash inflows of $10.7 million related to dispositions of franchises and fixed assets and $1.6 million of other items.For the twelve months ended December 31, 2016, we used $174.0 million in net cash flow for investing activities. On an adjusted basis for the sameperiod, we used $190.6 million in net cash flow for investing activities, primarily consisting of $57.3 million of cash outflows for dealership acquisitionactivity and $156.5 million for purchases of property and equipment and to construct new and improve existing facilities. Within this total of property andequipment purchases, $100.6 million was used for capital expenditures, $39.1 million was used for the purchase of real estate associated with existingdealership operations, and $16.8 million was a net decrease in the accrual for capital expenditures from year-end. These cash outflows were partially offset bycash inflows of $20.2 million related to dispositions of franchises and fixed assets and $3.0 million of other items.For the twelve months ended December 31, 2015, we used $284.5 million in net cash flow for investing activities. On an adjusted basis for the sameperiod, we used $266.8 million in net cash flow for investing activities, primarily consisting of $180.1 million of cash outflows for dealership acquisitionactivity and $120.3 million for purchases of property and equipment and to construct new and improve existing facilities. Within this total of property andequipment purchases, $107.2 million was used for capital expenditures and $24.6 million was used for the purchase of real estate associated with existingdealership operations, partially offset by an $11.5 million net increase in the accrual for capital expenditures from year-end. These cash outflows werepartially offset by cash inflows of $27.2 million related to dispositions of franchises and fixed assets and $6.4 million of other items.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 2018 to be no more than $140.0 million excluding expenditures related to future acquisitions, which could generally be funded fromexcess cash.Acquisitions & Dispositions. We generally purchase businesses based on expected return on investment. Cash needed to complete our acquisitionsgenerally comes from excess working capital, operating cash flows of our dealerships, and borrowings under our floorplan facilities, term loans and ourAcquisition Line.72Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, we generated $121.5 million in net cash flow from financing activities. On an adjusted basis for thesame period, we generated $21.0 million in net cash flow from financing activities, primarily related to cash inflows of $25.8 million of net borrowings on ourAcquisition Line, $45.9 million of net borrowings of real estate debt, and $29.2 million of net borrowings of other debt. These inflows were partially offset bycash outflows of $40.1 million related to the repurchase our Company's common stock, $23.9 million in net payments on our Floorplan lines (representingthe net cash activity in our floorplan offset accounts), and $20.5 million for dividend payments.For the twelve months ended December 31, 2016, we used $205.0 million in net cash flow from financing activities. On an adjusted basis for the sameperiod, we used $75.3 million in net cash flow from financing activities, primarily related to cash outflows of $127.6 million to repurchase our Company'scommon stock and $20.0 million for dividend payments. These outflows were partially offset by cash inflows of $17.2 million of net borrowings of real estatedebt, $4.2 million of net borrowings of other debt, and $50.8 million in net borrowings on our Floorplan lines (representing the net cash activity in ourfloorplan offset accounts).For the twelve months ended December 31, 2015, we generated $121.0 million in net cash flow from financing activities. On an adjusted basis for thesame period, net cash outflows from financing activities were essentially offset by cash inflows. The cash inflows primarily related to $296.3 million of 5.25%Notes borrowings. The cash inflows were offset by cash outflows of $97.5 million to repurchase our Company's common stock, $19.9 million for dividendpayments, $40.1 million of net payments of real estate debt, $6.6 million of net payments of other debt, $65.6 million in net payments on our Floorplan lines(representing the net cash activity in our floorplan offset accounts), and $68.1 million in net payments on our Acquisition Line.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.The following table summarizes the position of our U.S. credit facilities as of December 31, 2017: As of December 31, 2017U.S. Credit Facilities TotalCommitment Outstanding Available (In thousands)Floorplan Line(1) $1,440,000 $1,133,296 $306,704Acquisition Line(2) 360,000 51,816 308,184Total Revolving Credit Facility 1,800,000 1,185,112 614,888FMCC Facility(3) 300,000 130,484 169,516Total U.S. Credit Facilities(4) $2,100,000 $1,315,596 $784,404(1)The available balance as of December 31, 2017 includes $86.5 million of immediately available funds.(2)The outstanding balance of $51.8 million is related to outstanding letters of credit of $25.0 million and $26.8 million in borrowings as of December 31, 2017. The borrowingsoutstanding under the Acquisition Line represent 20.0 million British pound sterling translated at the spot rate on the day borrowed, solely for the purpose of calculating theOutstanding and Available borrowings under the Acquisition Line. The available borrowings may be limited from time to time, based on certain debt covenants.(3)The available balance as of December 31, 2017 includes $22.5 million of immediately available funds.(4)The outstanding balance excludes $265.1 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.Revolving Credit Facility. 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”). As of December 31, 2017, the CreditFacility Restricted Payment Basket totaled $184.8 million and we were in compliance with all our financial covenants, including: As of December 31, 2017 RequiredActualTotal Adjusted Leverage Ratio< 5.503.83Fixed Charge Coverage Ratio> 1.202.3173Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Based upon our current five year operating and financial projections, we believe that we will remain compliant with such covenants in the future.Other Inventory Credit Facilities and Financing Arrangements. We have other credit facilities in the U.S., U.K. and Brazil with third-party financialinstitutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicleinventories. In addition, we have outstanding debt instruments, including our 5.00% Notes and 5.25% Notes, as well as real estate related and other long-termdebt instruments.See Note 11 and 12 to our Consolidated Financial Statements, “Credit Facilities” and “Long-Term Debt”, respectively, for further discussion of ourcredit facilities, debt instruments and other financing arrangements existing as of December 31, 2017.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 May 2017, our Board of Directors approved a new authorization of $75.0 million for the purchase of our common shares, replacing the prior $150.0million authorization. Under both of the authorizations, we repurchased 649,298 shares during 2017 at an average price of $61.75 per share, for a total of$40.1 million, leaving $49.6 million available for future repurchases. Future repurchases are subject to the discretion of our Board of Directors afterconsidering our results of operations, financial condition, cash flows, capital requirements, existing debt covenants, outlook for our business, generalbusiness 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, 2017, the restrictedpayment baskets limited us to $184.8 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. For the twelve months ended December 31, 2017, we paid dividends of $19.7 million to common stock shareholdersand $0.8 million to unvested restricted stock award holders.74Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017: Payments Due by PeriodContractual Obligations Total 1 Year 2-3 Years 4-5 Years Thereafter (In thousands) Floorplan notes payable $1,528,831 $1,528,831 $— $— $—Acquisition line payable 26,988 — — 26,988 —Estimated interest payments on floor plan notespayable (1) 16,974 10,411 5,250 1,313 —Debt obligations (2) 1,345,687 98,194 132,878 638,868 475,747Estimated interest payments on fixed-rate long-term debt obligations (3) 229,046 46,857 91,725 74,288 16,176Estimated interest payments on variable-rate long-term debt obligations (4) 54,169 11,438 17,449 13,208 12,074Capital lease obligations 51,665 4,633 9,259 9,886 27,887Estimated interest on capital lease obligations 31,390 4,681 8,204 6,329 12,176Operating lease obligations 327,587 42,693 71,672 55,013 158,209Estimated interest payments on interest rate riskmanagement obligations (5) 10,582 6,925 3,657 — —Purchase commitments (6) 32,723 11,281 17,503 3,939 —Total $3,655,642 $1,765,944 $357,597 $829,832 $702,269(1)Calculated using the Floorplan Line outstanding balance and weighted average interest rate at December 31, 2017, and the assumption that these liabilities would be settled within61 days, which approximates our weighted average new vehicle inventory days outstanding. In addition, amounts include estimated commitment fees on the unused portion ofthe Floorplan Line through the term of the Revolving Credit Facility, assuming no additional Floorplan Line borrowings beyond 61 days.(2)Payments due within 1 year include $25.0 million of outstanding letters of credit associated with the Acquisition Line of our Revolving Credit Facility.(3)Includes interest on 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, 2017 was $10.6 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 $2.5 million and $4.5 millionfor periods 4-5 years and thereafter, respectively.(6)Includes Information Technology commitments and other.Refer to Note 14 of our Consolidated Financial Statements, “Commitments and Contingencies,” for additional discussion of our contractualobligations.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 measures75Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.considered and evaluated by management are reviewed in conjunction with a review of the most directly comparable measures calculated in accordance withU.S. GAAP. We caution investors not to place undue reliance on such non-GAAP measures, but also 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; may not foot due to rounding). Only adjusted amounts are reconciledbelow:76Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 U.S. GAAP Catastrophicevents Gain (loss) on realestate anddealershiptransactions Legal settlements Non-cash assetimpairment Allowance foruncertain taxpositions Tax rate changes Non-GAAPAdjustedFinance, insurance, and otherrevenues, net$375,954 $6,550 $— $— $— $— $— $382,504Selling, general and administrativeexpenses983,974 (8,792) (798) 1,113 — — — 975,497Asset impairments12,762 — — — (12,762) — — —Income (loss) from operations320,293 15,342 798 (1,113) 12,762 — — 348,082Income (loss) before income taxes206,579 15,342 798 (1,113) 12,762 — — 234,368Benefit (provision) for incometaxes(5,679) (5,926) (301) 426 (4,801) 834 (73,028) (88,475)Net income (loss)$200,900 $9,416 $497 $(687) $7,961 $834 $(73,028) $145,893 SG&A as % Gross Profit:72.1 71.1Operating Margin %:3.7 4.0Pretax Margin %:2.4 2.7 Same Store Finance, insurance, andother revenues, net$372,001 $6,550 $— $— $— $— $— $378,551Same Store SG&A975,701 (8,792) (798) 1,113 — — — 967,224Same Store SG&A as % GrossProfit:72.0 71.0 Same Store income (loss) fromoperations$319,800 $15,342 $798 $(1,113) $12,762 $— $— $347,589Same Store Operating Margin %:3.7 4.0 U.K. Adjustments for Year Ended December 31, 2017 U.S. GAAP Acquisition costs Non-GAAP AdjustedSelling, general and administrative expenses$191,570 $(288) $191,282Income from operations25,485 288 25,773Income before income taxes17,094 288 17,382Provision for income taxes(2,142) — (2,142)Net income$14,952 $288 $15,240 SG&A as % Gross Profit:85.0 84.9Operating Margin %:1.3 1.3Pretax Margin %:0.9 0.9 Same Store SG&A$156,369 $(288) $156,081Same Store SG&A as % Gross Profit:81.8 81.7 Same Store income from operations$27,967 $288 $28,255Same Store Operating Margin %:1.7 1.777Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 U.S. GAAP Severance costs Non-cash asset impairment Non-GAAP AdjustedSelling, general and administrative expenses$50,651 $(475) $— $50,176Asset impairments6,744 — (6,744) —Income (loss) from operations(3,906) 475 6,744 3,313Income (loss) before income taxes(4,670) 475 6,744 2,549Benefit (provision) for income taxes2,260 (122) (2,293) (155)Net income (loss)$(2,410) $353 $4,451 $2,394 SG&A as % Gross Profit:92.2 91.3Operating Margin %:(0.9) 0.7Pretax Margin %:(1.0) 0.6 Same Store SG&A$47,926 $(475) $— $47,451Same Store SG&A as % Gross Profit:90.0 89.1 Same Store income (loss) from operations$(2,835) $475 $6,744 $4,384Same Store Operating Margin %:(0.6) 1.078Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 U.S. GAAP Catastrophicevents Gain (loss) on realestate anddealershiptransactions Severancecosts Acquisitioncosts Legal settlements(1) Non-cash assetimpairment Allowance foruncertain taxpositions Tax ratechanges Non-GAAPAdjustedFinance,insurance, andother revenues,net$429,002 $6,550 $— $— $— $— $— $— $— $435,552Selling, generalandadministrativeexpenses1,226,195 (8,792) (798) (475) (288) 1,113 — — — 1,216,955Assetimpairments19,506 — — — — — (19,505) — — —Income (loss)from operations341,872 15,342 798 475 288 (1,113) 19,505 — — 377,167Income (loss)before incometaxes219,003 15,342 798 475 288 (1,113) 19,505 — — 254,298Benefit(provision) forincome taxes(5,561) (5,926) (301) (122) — 426 (7,094) 834 (73,028) (90,772)Net income (loss)$213,442 $9,416 $497 $353 $288 $(687) $12,411 $834 $(73,028) $163,526Less: Adjustedearnings (loss)allocated toparticipatingsecurities7,511 334 18 13 10 (24) 441 30 (2,595) 5,738Adjusted netincome (loss)available todiluted commonshares$205,931 $9,081 $479 $340 $278 $(663) $11,971 $804 $(70,433) $157,788 Diluted income(loss) percommon share$10.08 $0.45 $0.03 $0.01 $0.01 $(0.03) $0.59 $0.04 $(3.45) $7.73 Effective tax rate%2.5 35.7 SG&A as %Gross Profit:74.5 73.7OperatingMargin %:3.1 3.4Pretax Margin %:2.0 2.3 Same StoreFinance,insurance, andother revenues,net$417,905 $6,550 $— $— $— $— $— $— $— $424,455Same StoreSG&A1,179,996 (8,792) (798) (475) (288) 1,113 — — — 1,170,756Same StoreSG&A as %Gross Profit:73.8 72.9 Same Storeincome (loss)from operations$90,909 $15,342 $798 $475 $288 $(1,113) $19,505 $— $— $126,204Same StoreOperatingMargin %:3.2 3.5(1) For the year ended December 31, 2017, we recognized a net pre-tax gain related to a settlement with an OEM of $1.8 million.79Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. GAAPCatastrophiceventsGain (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 income taxes(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 2.72016 v. 2017 Same Store SG&A (1)$955,108$(5,873)$(384)$(1,837)$(30)$9,864$—$956,848Same Store SG&A as % Gross Profit:(1)71.2 71.4 Same Store income (loss) fromoperations (1)$321,658$5,873$385$1,837$30$(9,864)$21,671$341,590Same Store Operating Margin %:(1)3.7 4.02016 v. 2015 Same Store SG&A (1)$952,597$(5,873)$(385)$(1,837)$(30)$9,864$—$954,336Same Store SG&A as % Gross Profit:(1)71.5 71.6 Same Store income (loss) fromoperations (1)$315,206$5,873$385$1,837$30$(9,864)$21,653$335,120Same Store Operating Margin %:(1)3.7 3.9(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.80Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 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 1.12016 v. 2017 Same Store SG&A (1)$150,626$(61)$(122)$(561)$—$149,882Same Store SG&A as % Gross Profit: (1)80.1 79.7 Same Store income from operations (1)$30,875$229$122$561$33$31,820Same Store Operating Margin %: (1)1.8 1.92016 v. 2015 Same Store SG&A (1)$106,551$(61)$—$(561)$—$105,929Same Store SG&A as % Gross Profit: (1)77.9 77.4 Same Store income from operations (1)$25,718$61$—$561$—$26,340Same Store Operating Margin %: (1)2.1 2.2(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.81Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 transactiontaxForeign 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)2016 v. 2017 Same Store SG&A (1)$40,315$—$(274)$—$—$40,041Same Store SG&A as % Gross Profit: (1)95.2 94.6 Same Store income (loss) from operations (1)$(9,590)$—$274$—$10,420$1,104Same Store Operating Margin %: (1)(2.4) 0.32016 v. 2015 Same Store SG&A (1)$43,393$—$(274)$—$—$43,119Same Store SG&A as % Gross Profit: (1)96.5 95.9 Same Store income (loss) from operations (1)$(9,903)$423$274$—$9,901$695Same Store Operating Margin %: (1)(2.4) 0.2(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.82Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 (2)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)$147,065$3,666$(592)$1,249$580$(7,312)$274$(1,686)$20,448$163,692Less: 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 2.32016 v. 2017 Same Store SG&A (1)$1,146,049$(5,873)$(446)$(1,959)$(591)$9,864$(274)$—$—$1,146,770Same Store SG&A as % GrossProfit: (1)72.9 73.0 Same Store income (loss) fromoperations (1)$342,943$5,873$614$1,959$591$(9,864)$274$—$32,124$374,514Same Store Operating Margin%: (1)3.2 3.52016 v. 2015 Same Store SG&A (1)$1,102,541$(5,873)$(446)$(1,837)$(591)$9,864$(274)$—$—$1,103,384Same Store SG&A as % GrossProfit: (1)72.8 72.9 Same Store income (loss) fromoperations (1)(3)$331,021$5,873$869$1,837$591$(9,864)$274$—$31,554$362,155Same Store Operating Margin%: (1)3.2 3.6(1) As further described in “Results of Operations,” Same Store results for 2016 that are compared to 2017 differ from those used in the comparison to 2015.(2) 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 aSame Store basis).(3) 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 toBrazil.83Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 2.7 Same Store SG&A$939,535$(1,588)$(569)$(1,000)$—$936,378Same Store SG&A as % Gross Profit:71.6 71.4 Same Store income from operations$315,399$1,588$569$1,000$16,535$335,091Same Store Operating Margin %:3.6 3.9 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$15,224167$263$15,654 SG&A as % Gross Profit:79.0 78.8Operating Margin %:2.0 2.0Pretax Margin %:1.5 1.6 Same Store SG&A$108,770(208)$—$108,562Same Store SG&A as % Gross Profit:79.0 78.9 Same Store income from operations$24,232$208$330$24,770Same Store Operating Margin %:2.0 2.084Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 estateand dealershiptransactionsSeverance costsNon-cash asset impairmentNon-GAAP AdjustedSelling, general and administrativeexpenses$53,506$(520)$(226)$—$52,760Asset impairments68,249——(68,249)—Income from operations(66,088)52022668,2492,907Income (loss) before income taxes(68,505)52022668,249490Benefit (provision) for income taxes4,916—(7)(5,996)(1,087)Net income (loss)$(63,589)$520$219$62,253$(597) SG&A as % Gross Profit:93.3 92.0Operating Margin %:(12.8) 0.6Pretax Margin %:(13.2) 0.1 Same Store SG&A$44,677$—$(150)$—$44,527Same Store SG&A as % Gross Profit:85.2 84.9 Same Store income (loss) from operations$(59,460)$—$150$66,021$6,711Same Store Operating Margin %:(12.3) 1.4 Consolidated Adjustments for Year Ended December 31, 2015 U.S. GAAPCatastrophic eventsGain (loss) on real estateand dealershiptransactionsSeverance costsLegal settlementsNon-cash assetimpairmentNon-GAAP AdjustedSelling, general and administrative expenses$1,120,833$(1,588)$8,372$(435)$(1,000)$—$1,126,182Asset impairments87,562————(87,562)—Income (loss) from operations278,3381,588(8,372)4351,00087,562360,554Income (loss) before income taxes182,1711,588(8,372)4351,00087,562264,387Benefit (provision) for income taxes(88,172)(597)3,413(48)(390)(13,143)(98,937)Net income (loss)$93,999$991$(4,959)$387$610$74,419$165,450Less: 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) per common share$3.90$0.04$(0.21)$0.02$0.03$3.09$6.87 Effective tax rate48.4 37.4 SG&A as % Gross Profit:73.1 73.4Operating Margin %:2.6 3.4Pretax Margin %:1.7 2.5 Same Store SG&A$1,092,982$(1,588)$(569)$(358)$(1,000)$—$1,089,467Same Store SG&A as % Gross Profit:72.8 72.6 Same Store income from operations$280,171$1,588$569$358$1,000$82,889$366,575Same Store Operating Margin %:2.7 3.585Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $198,925 $384,857 $141,047Change in floorplan notes payable-credit facilities, excluding floorplan offset account and netacquisition and disposition related activity 88,742 (113,116) 100,302Change in floorplan notes payable-manufacturer affiliates associated with net acquisition anddisposition related activity (3,000) — 3,000Adjusted net cash provided by operating activities $284,667 $271,741 $244,349CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities $(312,598) $(174,040) $(284,502)Change in cash paid for acquisitions, associated with floorplan notes payable 14,733 — 32,140Change in proceeds from disposition of franchises, property and equipment, associated withfloorplan notes payable — (16,599) (14,429)Adjusted net cash used in investing activities $(297,865) $(190,639) $(266,791)CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by (used in) operating activities $121,476 $(205,007) $121,009Change in net borrowings and repayments on floorplan notes payable-credit facilities,excluding net activity associated with our floorplan offset account (100,475) 129,715 (121,013)Adjusted net cash provided by (used in) financing activities $21,001 $(75,292) $(4)86Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 manage a portion of our interest raterisks through 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, 2017, 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, 2017, our 5.00% Notes, with an outstanding principal amount of $550.0 million, had a fair value and carrying amount of $567.9million and $542.1 million, respectively. Our 5.25% Notes, with an outstanding principal amount of $300.0 million, had a fair value and carrying amount of$310.9 million and $296.2 million, respectively, at December 31, 2017. Our other fixed-rate debt, primarily consisting of real estate related debt, hadoutstanding borrowings of $86.8 million and a fair value of $92.9 million as of December 31, 2017.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 31,2017, we held interest rate swaps in effect with aggregate notional amounts of $623.0 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, 2017, net unrealizedlosses, net of income taxes, totaled $0.7 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 $623.0 million of swaps in effect as of December 31, 2017, we also held 11 interest rateswaps with forward start dates between January 2018 and December 2020 and expiration dates between December 2020 and December 2030. As of December31, 2017, the aggregate notional amount of these swaps was $575.0 million with a weighted average interest rate of 2.1%. The combination of these swaps isstructured such that the notional value in effect at any given time through December 2030 does not exceed $918.4 million.A summary of our interest rate swaps, including those in effect, as well as forward-starting, follows (dollars in millions): 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031Averagenotionalamount ineffect duringthe period $822 $821 $917 $564 $432 $168 $134 $125 $125 $100 $100 $100 $100 $100 $—Weightedaverage interestrate during theperiod 2.53% 2.59% 2.28% 2.19% 1.76% 1.74% 1.81% 1.81% 1.81% 1.85% 1.85% 1.85% 1.85% 1.85% —%As of December 31, 2017, we had $1,761.7 million of variable-rate borrowings outstanding. Based on the average amount of variable-rate borrowingsoutstanding for 2017, and before the impact of our interest rate swaps described below, a 100 basis-point change in interest rates would have resulted in anapproximate $16.5 million change to our annual interest expense. After consideration of the average interest rate swaps in effect during 2017, a 100 basis-point change would have yielded a net annual change of $8.3 million in annual interest expense. This interest rate sensitivity increased from the similar87Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.analysis prepared for 2016, primarily as a result of the increase in variable-rate floorplan borrowings, which was partially offset by an increase in the averagenotional swap amount outstanding between periods.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, 2017 and December 31, 2016, we recognized $48.9 million and$49.2 million of interest assistance as a reduction of new vehicle cost of sales, respectively. For the past three years, the reduction to our new vehicle cost ofsales has ranged from 88.0% of our floorplan interest expense for the first quarter of 2017 to 139.9% in the third quarter of 2015. In the U.S., manufacturer’sinterest assistance was 105.6% of floorplan interest expense in the fourth quarter of 2017. Although we can provide no assurance as to the amount of futureinterest assistance, it is our expectation, based on historical practice of the OEMs, that an increase in prevailing interest rates would result in increasedassistance from certain manufacturers over time.Foreign Currency Exchange Rates. As of December 31, 2017, we had dealership operations in the U.K. and Brazil. The functional currency of our U.K.subsidiaries is the British pound sterling (£) and of our Brazil subsidiaries is the Brazilian real (R$). 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 a $180.5 million decrease to our revenues for the year ended December 31, 2017. A 10% devaluationin average exchange rates for the Brazilian real to the U.S. dollar would have resulted in a $41.6 million decrease to our revenues for the year endedDecember 31, 2017. We believe that inflation rates over the last few years have not had a significant impact on our consolidated revenues or profitability. Wedo not expect inflation to have near-term material effects on the sale of our products and services on a consolidated basis; however, we cannot be sure therewill be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates thatvary 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 and incorporated herein by reference.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, 2017 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.88Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, 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, 2017. 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, 2017,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 16, 2018, appears on the following page.Item 9B. Other InformationNone.89Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Opinion on Internal Control over Financial ReportingWe have audited Group 1 Automotive, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria establishedin Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSOcriteria). In our opinion, Group 1 Automotive, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of Group 1 Automotive, Inc. and subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations,comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and ourreport dated February 16, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating 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.Definition and Limitations of Internal Control over Financial ReportingA 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./s/ Ernst & Young LLPHouston, TexasFebruary 16, 201890Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 16, 2018.NameAgePositionYears with Group 1Years ofAutomotiveExperienceEarl J. Hesterberg64President and Chief Executive Officer12.543Daryl Kenningham53President, U.S. Operations6.530John C. Rickel56Senior Vice President and Chief Financial Officer1234Frank Grese Jr.66Senior Vice President of Human Resources, Training, and Operations Support1343Darryl M. Burman59Senior Vice President and General Counsel1120Peter C. DeLongchamps57Senior Vice President, Manufacturer Relations, Financial Services and PublicAffairs13.535Earl 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.Daryl Kenningham has served as President, U.S. Operations since April 2017. Previously, he served as Regional Vice President of the West Region fromFebruary 2016 through April 2017 and as Regional Vice President of the East Region from April 2011 through January 2016. Prior to joining the Company,he served as the Chief Operating Officer of Ascent Automotive in Houston and previously held a variety of sales, marketing, finance and automotive-logisticspositions with Gulf States Toyota. He also held various sales, marketing and vehicle distribution positions in the United States and Japan with Nissan MotorCorporation, where he began his career in 1988.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. In his last position with Ford, he served as Controller, Ford Americas, where he was responsible for the financial management of Ford’swestern hemisphere automotive operations. Immediately prior to that, he was Chief Financial Officer of Ford Europe, where he oversaw all accounting,financial planning, information services, tax and investor relations activities. From 2002 to 2004, Mr. Rickel was Chairman of the Board of Directors of FordRussia, and a member of the Board of Directors and the Audit Committee of Ford Otosan, a publicly traded automotive company located in Turkey andowned 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 Senior Vice President and General Counsel since January 2018 and as Vice President and General Counsel fromDecember 2006 through December 2017. From September 2005 to December 2006, Mr. Burman was a partner and head of the corporate and securitiespractice in the Houston office of Epstein Becker Green Wickliff & Hall, P.C. From September 1995 until September 2005, Mr. Burman served as the head ofthe corporate and securities practice of91Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Fant & Burman, L.L.P. in Houston, Texas, specializing in mergers and acquisitions, including automotive dealerships. Mr. Burman currently serves as aDirector of the Texas General Counsel Forum - Houston Chapter and serves on the Board of Directors of the University of South Florida Foundation andSouth Texas College of Law.Peter C. DeLongchamps has served as Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs since January 2018. Hepreviously served as Vice President, Manufacturer Relations, Financial Services and Public Affairs from January 2012 through December 2017, and as VicePresident, Manufacturer Relations and Public Affairs from January 2006 through December 2011. He served 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,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 2018 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.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 2018 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.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 2018 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.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 2018 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.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 2018 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2017.92Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.93Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc. and subsidiaries (the Company) as of December 31, 2017 and2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in theperiod ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accountingprinciples.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2018 expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2002.Houston, TexasFebruary 16, 2018F-2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 December 31, 2016 (In thousands, except pershare amounts)ASSETSCURRENT ASSETS: Cash and cash equivalents $28,787 $20,992Contracts-in-transit and vehicle receivables, net 306,433 269,508Accounts and notes receivable, net 188,611 173,364Inventories, net 1,763,293 1,651,815Prepaid expenses and other current assets 42,062 34,908Total current assets 2,329,186 2,150,587PROPERTY AND EQUIPMENT, net 1,318,959 1,125,883GOODWILL 913,034 876,763INTANGIBLE FRANCHISE RIGHTS 285,632 284,876OTHER ASSETS 24,254 23,794Total assets $4,871,065 $4,461,903LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other $1,240,695 $1,136,654Offset account related to floorplan notes payable - credit facility (86,547) (59,626)Floorplan notes payable — manufacturer affiliates 397,183 392,661Offset account related to floorplan notes payable - manufacturer affiliates (22,500) (25,500)Current maturities of long-term debt and short-term financing 77,609 72,419Current liabilities from interest rate risk management activities 1,996 3,941Accounts payable 412,981 356,099Accrued expenses 177,070 176,469Total current liabilities 2,198,487 2,053,117LONG-TERM DEBT, net of current maturities 1,318,184 1,212,809DEFERRED INCOME TAXES 124,404 161,502LIABILITIES FROM INTEREST RATE RISK MANAGEMENT ACTIVITIES 8,583 20,470OTHER LIABILITIES 97,125 83,805COMMITMENTS 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; 25,515 and 25,663 issued, respectively 255 257Additional paid-in capital 291,461 290,899Retained earnings 1,246,323 1,053,301Accumulated other comprehensive loss (123,226) (146,944)Treasury stock, at cost; 4,617 and 4,258 shares, respectively (290,531) (267,313)Total stockholders’ equity 1,124,282 930,200Total liabilities and stockholders’ equity $4,871,065 $4,461,903The accompanying notes are an integral part of these consolidated financial statements.F-3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 (In thousands, except per share amounts)REVENUES: New vehicle retail sales $6,157,531 $6,046,075 $6,001,306Used vehicle retail sales 2,798,986 2,757,713 2,638,969Used vehicle wholesale sales 400,170 401,863 397,251Parts and service sales 1,338,032 1,261,307 1,186,193Finance, insurance and other, net 429,002 420,654 408,786Total revenues 11,123,721 10,887,612 10,632,505COST OF SALES: New vehicle retail sales 5,835,526 5,729,697 5,695,829Used vehicle retail sales 2,621,431 2,575,234 2,459,499Used vehicle wholesale sales 402,912 406,305 399,171Parts and service sales 618,343 581,307 544,034Total cost of sales 9,478,212 9,292,543 9,098,533GROSS PROFIT 1,645,509 1,595,069 1,533,972SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,226,195 1,170,763 1,120,833DEPRECIATION AND AMORTIZATION EXPENSE 57,936 51,234 47,239ASSET IMPAIRMENTS 19,506 32,838 87,562INCOME FROM OPERATIONS 341,872 340,234 278,338OTHER EXPENSE: Floorplan interest expense (52,372) (44,927) (39,264)Other interest expense, net (70,497) (67,936) (56,903)INCOME BEFORE INCOME TAXES 219,003 227,371 182,171PROVISION FOR INCOME TAXES (5,561) (80,306) (88,172)NET INCOME $213,442 $147,065 $93,999BASIC EARNINGS PER SHARE $10.08 $6.67 $3.91Weighted average common shares outstanding 20,420 21,161 23,148DILUTED EARNINGS PER SHARE $10.08 $6.67 $3.90Weighted average common shares outstanding 20,425 21,170 23,152CASH DIVIDENDS PER COMMON SHARE $0.97 $0.91 $0.83The accompanying notes are an integral part of these consolidated financial statements.F-4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 (In thousands)NET INCOME $213,442 $147,065 $93,999Other comprehensive income (loss), net of taxes: Foreign currency translation adjustment 15,061 (19,081) (54,457)Net unrealized gain (loss) on interest rate risk management activities: Unrealized gain (loss) arising during the period, net of tax benefit(provision) of ($620), ($1,037), and $5,914, respectively 1,034 1,728 (9,856)Reclassification adjustment for loss included in interest expense, net oftax provision of $4,573, $5,036, and $4,987, respectively 7,623 8,393 8,313Unrealized gain (loss) on interest rate risk management activities,net of tax 8,657 10,121 (1,543)OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES 23,718 (8,960) (56,000)COMPREHENSIVE INCOME $237,160 $138,105 $37,999The accompanying notes are an integral part of these consolidated financial statements.F-5Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 OtherComprehensive Loss TreasuryStock Total Shares Amount (In thousands)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) $930,200Net income — — — 213,442 — — 213,442Other comprehensive income, net — — — — 23,718 — 23,718Acquisition of treasury stock — — — — — (42,084) (42,084)Net issuance of treasury shares to employee stockcompensation plans (148) (2) (18,293) — — 18,866 571Stock-based compensation — — 18,855 — — — 18,855Cash dividends, net of estimated forfeitures relativeto participating securities — — — (20,420) — — (20,420)BALANCE, December 31, 2017 25,515 $255 $291,461 $1,246,323 $(123,226) $(290,531) $1,124,282The accompanying notes are an integral part of these consolidated financial statements.F-6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income $213,442 $147,065 $93,999Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,936 51,234 47,239Deferred income taxes (46,063) 14,162 11,884Asset impairments 19,506 32,838 87,562Stock-based compensation 18,900 21,073 18,851Amortization of debt discount and issue costs 3,661 3,694 3,652Gain on disposition of assets (781) (2,675) (9,719)Other (407) 1,084 1,192Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts payable and accrued expenses 35,576 76,126 25,108Accounts and notes receivable (10,674) (18,663) (17,887)Inventories (44,021) 79,319 (186,634)Contracts-in-transit and vehicle receivables (33,484) (15,621) (17,944)Prepaid expenses and other assets (6,889) 8,244 (3,153)Floorplan notes payable — manufacturer affiliates (8,294) (12,630) 87,516Deferred revenues 517 (393) (619)Net cash provided by operating activities 198,925 384,857 141,047CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash received (109,081) (57,327) (212,252)Proceeds from disposition of franchises, property and equipment 10,708 36,843 41,581Purchases of property and equipment, including real estate (215,832) (156,521) (120,252)Other 1,607 2,965 6,421Net cash used in investing activities (312,598) (174,040) (284,502)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility — floorplan line and other 7,019,070 6,597,406 7,557,237Repayments on credit facility — floorplan line and other (6,957,866) (6,676,161) (7,504,516)Borrowings on credit facility — acquisition line 68,086 220,020 489,548Repayments on credit facility — acquisition line (42,278) (220,020) (557,696)Net borrowings on 5.25% Senior Unsecured Notes — — 296,250Borrowings on other debt 165,702 49,972 59,855Principal payments on other debt (121,199) (45,928) (63,769)Borrowings on debt related to real estate, net of debt issue costs 75,309 39,141 31,238Principal payments on debt related to real estate (29,391) (25,463) (72,079)Employee stock purchase plan purchases, net of employee tax withholdings 4,603 3,868 214Repurchases of common stock, amounts based on settlement date (40,094) (127,606) (97,473)Tax effect from stock-based compensation — (249) 2,142Dividends paid (20,466) (19,987) (19,942)Net cash provided by (used in) financing activities 121,476 (205,007) 121,009EFFECT OF EXCHANGE RATE CHANGES ON CASH (8) 2,145 (5,492)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,795 7,955 (27,938)CASH AND CASH EQUIVALENTS, beginning of period 20,992 13,037 40,975CASH AND CASH EQUIVALENTS, end of period $28,787 $20,992 $13,037SUPPLEMENTAL CASH FLOW INFORMATION: Purchases of property and equipment, including real estate, accrued in accounts payable and accrued expenses $8,759 $15,930 $32,720The accompanying notes are an integral part of these consolidated financial statements.F-7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 15 states in theUnited States of America (“U.S.”), 28 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, 2017, the Company’s U.S. retail network consisted of 115 dealerships within the following states: Alabama, California, Florida,Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina, and Texas. ThePresident of U.S. Operations reports directly to the Company's Chief Executive Officer and is responsible for the overall performance of the U.S. region, aswell as for overseeing the market directors and dealership general managers. In addition, as of December 31, 2017, the Company had two internationalregions: (a) the U.K., which consisted of 42 dealerships and (b) Brazil, which consisted of 16 dealerships. The operations of the Company's internationalregions are structured similar to the U.S. region, 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 by applying the aquisition method of accounting, and theirresults of operations are included from the effective dates of the closings of the acquisitions. The allocations of purchase price to the assets acquired andliabilities assumed are assigned and recorded based on estimates of fair value and are subject to change within the purchase price allocation period (generallyone year from 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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. Further, through agreements with certain vehicle service contract administrators, theCompany earns volume incentive rebates and interest income on reserves, as well as participates in the underwriting profits of the products. These amountsearned are also recognized as finance and insurance revenue. 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 experience used in determining estimates of future amounts that might be charged back would have increased thereserve at December 31, 2017 by $5.0 million.Cash and Cash EquivalentsCash and cash equivalents include demand deposits and various other short-term investments with original maturities of three months or less at the dateof purchase. As of December 31, 2017 and 2016, cash and cash equivalents excluded $109.0 million and $85.1 million, respectively, of immediatelyavailable funds used to pay down the Floorplan Line of the Revolving Credit Facility and the FMCC Facility (as defined in Note 11, “Credit Facilities”),which are the Company’s primary options 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 net realizable value and are removed from inventory usingthe specific identification method in the Consolidated Balance Sheets. Vehicle inventory cost consists of the amount paid to acquire the inventory, plus thecost of reconditioning, 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, 2017 and 2016,inventory cost had been reduced by $9.1 million and $9.6 million, respectively, for interest assistance received from manufacturers. New vehicle cost of saleswas reduced by $48.9 million, $49.2 million and $50.5 million for interest assistance received related to vehicles sold for the years ended December 31,2017, 2016 and 2015, respectively. The interest assistance over the past three years has ranged from approximately 88.0% of the Company’s quarterlyfloorplan interest expense in the first quarter of 2017 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, 2017, the Company’s used vehicle days’ supply was 39 days.Parts and accessories inventories are valued at lower of cost (determined on a first-in, first-out basis) or net realizable value in the Consolidated BalanceSheets. 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.F-9Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)Expenditures for major additions or improvements, which extend the useful lives of assets, are capitalized. Minor replacements, maintenance andrepairs, which do not improve or extend the lives of the assets, are expensed as incurred. Disposals are removed at cost less accumulated depreciation, and anyresulting gain or loss is reflected in current operations. The Company reviews long-lived assets that are held-for-use for impairment at the lowest level ofidentifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events). This review consistsof comparing the carrying amount of the asset with its expected future undiscounted cash flows without interest costs. If the asset’s carrying amount is greaterthan such cash flow estimate, then it is required to be written down to its fair value. Estimates of expected future cash flows represent management’s bestestimate based on currently available information and reasonable and supportable assumptions. See Note 15, “Asset Impairments,” for additional detailsregarding the Company’s impairment of long-lived assets.GoodwillGoodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible andintangible assets acquired. During 2016, the Company was organized into four geographic regions, East and West regions in the U.S., the U.K. region and theBrazil region. During 2017, the Company reorganized into three geographic regions, the U.S. region, 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. Annually in the fourth quarter, based on thecarrying values of the Company’s regions as of October 31st, the Company performs a fair value and potential impairment assessment of its 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 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 unit (which represents the Company’s largest reporting unit) as of October 31,2017, the Company based its analysis on an estimate of industry sales of 16.9 million units in 2018, 16.7 million units in 2019, 16.5 million units in 2020and remaining flat for the remainder of the forecasted years. For the market approach, the Company utilizes recent market multiples of guideline companiesfor both revenue and pretax net income weighted as appropriate by reporting unit. Each of these assumptions requires the Company to use its knowledge of(1) the industry, (2) recent transactions and (3) reasonable performance expectations for its operations. If any one of the above assumptions change or fails tomaterialize, the resulting decline in the estimated fair value could result in a material, non-cash impairment charge to the goodwill associated with thereporting unit(s). See Note 15, “Asset Impairments,” and Note 16, “Intangible Franchise Rights and Goodwill,” for additional details regarding theCompany’s goodwill.Intangible Franchise RightsThe Company’s only significant identifiable intangible assets, other than goodwill, are rights under franchise agreements with manufacturers, which arerecorded at an individual dealership level. The Company expects these franchise agreements to continue for an indefinite period and, for agreements that donot have indefinite terms, the Company believes that renewal of these agreements can be obtained without substantial cost, based on the history with themanufacturer. As such, the Company believes that its franchise agreements will contribute to cash flows for an indefinite period and, therefore, the carryingamounts of the franchise rights are not amortized. Franchise rights acquired in business acquisitions prior to July 1, 2001, were recorded and amortized as partof goodwill in the U.S. reporting unit and remain as part of goodwill in the U.S. reporting unit at December 31, 2017 and 2016 in the accompanyingConsolidated Balance Sheets. Since July 1, 2001, intangible franchise rights acquired in business combinations have been recorded as distinctly separateintangible assets. In accordance with guidance primarily codified within Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other,the Company evaluates these franchise rights for impairment annually in the fourth quarter, based on the carrying values of the Company’sF-10Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)individual dealerships as of October 31st, or more frequently if events 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 15 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 U.S. state net operating losses, as wellas deferred tax assets primarily relating to net operating losses and goodwill for certain Brazil subsidiaries, a corresponding valuation allowance has beenestablished to the extent that the Company has determined that net income attributable to certain jurisdictions may not be sufficient to realize the benefit.See Note 7, “Income Taxes” for additional details.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 derivative instruments. The fair values of cash and cash equivalents, contracts-in-transit and vehicle receivables, accounts and notes receivable, accounts payable, credit facilities and variable-rate long-term debt approximate theircarrying values due to the short-term nature of these instruments and/or the existence of variable interest rates. However, the carrying value of the Company’sfixed-rate long-term debt differs from fair value.For discussion on the fair value of the Company’s interest rate derivative instruments and fixed-rate long-term debt, refer to “Derivative FinancialInstruments” and Note 12, “Long-Term Debt” below, respectively.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. TheCompany utilizes third-party experts to determine the fair values of property and equipment purchased, including real estate, and utilizes its fair value modelas discussed under “Intangible Franchise Rights” above, supplemented with assistance from third-party experts, to determine the fair value of intangiblefranchise rights acquired.F-11Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 determined appropriate based on current and forecasted future 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, 2017, 2016 and 2015.The Company measures the fair value of its interest rate derivative instruments utilizing an income approach valuation technique, converting estimatedfuture amounts 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 thefair value of its derivative instruments. In measuring fair value, the Company utilizes the option-pricing Black-Scholes present value technique for all of itsderivative instruments. 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 (R$). The financial statements of all the Company’s foreign subsidiaries have been translated into U.S. dollars. All assets and liabilities of foreignsubsidiaries are translated into U.S. dollars using period-end exchange rates and all revenues and expenses are translated at average rates during therespective period. The difference in the U.S. dollar results that arise from the translation of all assets and liabilities are included in the cumulative currencytranslation adjustments in accumulated other comprehensive income/loss in stockholders’ equity and in other income/expense, when applicable. Upondisposition of the Company’s investment in a foreign subsidiary, the Company removes the accumulated translation adjustment attributable to thatsubsidiary from equity and recognizes it through earnings as 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 Consolidated Statements of Operations. Factory incentive amounts related to parts and vehiclesstill in inventory as of the balance sheet date are reflected in inventory.F-12Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)Earnings Per ShareThe Company utilizes the two-class method for the computation of earnings per share (“EPS”). The two-class method requires a portion of net incometo be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividendequivalents. The Company’s restricted stock awards qualify as participating securities as each contain non-forfeitable rights to dividends. Income allocatedto these participating securities is excluded from net earnings available to common shares. Basic EPS is computed by dividing net income available to basiccommon shares by the weighted average number of basic common shares outstanding during the period. Diluted EPS is computed by dividing net incomeavailable to diluted common shares by the weighted average number of dilutive common shares outstanding during the period.AdvertisingThe Company expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2017, 2016, and 2015, totaled $74.1million, $75.3 million and $74.6 million, respectively. The Company receives advertising assistance from some of the automobile manufacturers that theCompany must spend on qualified advertising and is subject to audit and chargeback by the manufacturer. The assistance is accounted for as a reduction ofadvertising expense, which is included in SG&A expenses in the accompanying Consolidated Statements of Operations, as the assistance is earned.Advertising assistance amounts received related to vehicles still in inventory as of the balance sheet date are reflected in accrued expenses.Advertising expense has been reduced by $15.3 million, $16.7 million and $17.3 million for advertising assistance earned related to vehicles sold forthe years ended December 31, 2017, 2016 and 2015, 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, 2017, Toyota (including Lexus, Scion and Toyota brands), Volkswagen (including Audi, Porsche, and Volkswagen brands),BMW (including MINI and BMW brands), Ford (including Ford and Lincoln brands), Honda (including Acura and Honda brands), Nissan, General Motors(including Chevrolet, GMC, Buick, and Cadillac brands), Daimler (including Mercedes-Benz, smart and Sprinter brands), Hyundai (including Hyundai andKia brands) and FCA US (formerly Chrysler) (including Chrysler, Dodge, RAM and Jeep brands), accounted for 25.3%, 13.0%, 12.7%, 11.5%, 9.2%, 7.4%,6.2%, 4%, 3.9%, and 3.9% of the Company’s new vehicle sales volume, respectively. No other manufacturer accounted for more than 2.9% of the Company’stotal new vehicle sales volume in 2017. Through the use of an open account, the Company purchases and returns parts and accessories from/to themanufacturers and receives reimbursement for rebates, incentives and other earned credits. As of December 31, 2017, the Company was due $109.6 millionfrom various manufacturers (see Note 8, “Accounts and Notes Receivable”). Receivable balances from Toyota, General Motors, BMW, Volkswagen, Daimler,Ford, Nissan, Hyundai, Honda, and FCA US (formerly Chrysler), represented 16.6%, 14.1%, 14.0%, 13.5%, 11.2%, 9.0%, 5.0%, 3.8%, 3.4% and 3.2%,respectively, of this total balance due from manufacturers.Statements of Cash FlowsWith respect to all new vehicle floorplan borrowings, the manufacturers of the vehicles draft the Company’s credit facilities directly with no cash flowto or from the Company. With respect to borrowings for used vehicle financing in the U.S., the Company finances up to 85% of the value of the used vehicleinventory and the funds flow directly to the Company from the lender. In the U.K. and Brazil, the Company chooses which used vehicles to finance and theborrowings flow directly to the Company from the lender. All borrowings from, and repayments to, lenders affiliated with the vehicle manufacturers(excluding the cash flows from or to manufacturer affiliated lenders participating in the Company’s syndicated lending group under the Revolving CreditFacility) are presented within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. All borrowings from, and repayments to,the syndicated lending group under the Revolving Credit Facility (as defined in Note 11, “Credit Facilities”) (including the cash flows from or tomanufacturer affiliated lenders participating in the facility), as well as borrowing from, and repayments to, the Company’s other credit facilities are presentedwithin Cash Flows from Financing Activities.F-13Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)Cash paid for interest, including the monthly settlement of the Company’s interest rate derivatives, was $117.1 million, $109.3 million and $92 millionin 2017, 2016 and 2015, respectively. Cash paid for taxes, net of refunds, was $61.0 million, $56.9 million and $74.8 million in 2017, 2016 and 2015,respectively.Stock-Based CompensationStock-based compensation represents the expense related to stock-based awards granted to employees and non-employee directors. The Companymeasures stock-based compensation expense at grant date based on the estimated fair value of the award and recognizes the cost on a straight-line basis, netof estimated forfeitures, over the employee requisite service period. The Company estimates the fair value of its employee stock purchase rights issuedpursuant to the Employee Stock Purchase Plan using a Black-Scholes valuation model. The expense for stock-based awards is recognized as an SG&Aexpense in the accompanying Consolidated Statement of Operations.Business Segment InformationThe Company, through its regions, conducts business in the automotive retailing industry, including selling new and used cars and light trucks,arranging related vehicle financing, selling service and insurance contracts, providing automotive maintenance and repair services and selling vehicle parts.The Company has three reportable segments: the U.S., which includes the activities of the Company’s corporate office, the U.K., and Brazil. The reportablesegments are the business activities of the Company for which discrete financial information is available and for which operating results are regularlyreviewed by its chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is its ChiefExecutive Officer. See Note 20, “Segment Information,” for additional details regarding the Company’s reportable segments.Self-Insured Medical, Property and Casualty ReservesThe Company purchases insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefitsand other risks consisting of large deductibles and/or self-insured retentions.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.Under the Company’s U.S. workers’ compensation and general liability insurance coverage, its exposure per claim is limited to $1.0 million peroccurrence, with unlimited exposure on the number of claims up to $1.0 million that may be incurred. As of December 31, 2017, the Company had accrued$20.5 million for its estimated liability on incurred workers’ compensation and general liability claims.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 andmonitors 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 31,2017, by $2.1 million.The Company’s U.S. insurance coverage for employee medical benefits limits the Company’s exposure to $1.0 million per occurrence. The Company’sU.S. property insurance includes coverage for building damage, content damage and business interruption. Deductibles for the U.S. property insurance varydepending on the cause of damage and the location.The Company has insurance policies covering similar risks with smaller deductibles and/or self-insured retentions in both the U.K. and Brazil.F-14Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)Recently Adopted Accounting PronouncementsIn July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, Inventory (Topic 330):Simplifying the Measurement of Inventory. The amendments in the accounting standard replaced the lower of cost or market test with a lower of cost and netrealizable value test. The amendments in this ASU were to be applied prospectively and were effective for interim and annual periods beginning afterDecember 15, 2016. The Company adopted ASU 2015-11 during the first quarter of 2017. The adoption of this ASU did not materially impact itsconsolidated financial statements or results of operations.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. The Company adopted ASU 2016-09 during the firstquarter of 2017. The adoption of this ASU did not materially impact its consolidated financial statements or results of operations.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 team identified the Company’s material revenue streams to be the sale of new and used vehicles; arrangement of associated vehicle financing andthe sale of service and other insurance contracts; the performance of vehicle maintenance and repair services; and the sale of vehicle parts. The team revieweda sample of contracts and other related documents associated with each revenue stream in each region. Based upon this review and application within theASU, the team has concluded that no changes to the timing of revenue recognition for the sale of new and used vehicles, as well as parts are necessary. As itrelates to vehicle maintenance and repair services, the team identified a change in the Company’s accounting policies and procedures. Through December 31,2017, the Company has recognized revenue once the maintenance or repair services are completed and the vehicle is delivered to the customer. Under thenew standard, the team has determined that the Company has an enforceable right to payment during the course of the work being performed and, thus, willbe required to recognize revenue over time as the maintenance and repair services are performed. With regards to the revenue generated from the arrangementof vehicle financing and the sale of service and other insurance contracts, the team also identified a change in the Company’s accounting policies andprocedures. Generally, the Company receives an upfront commission for these transactions from the finance or insurance provider and recognizes theassociated revenue when the contract is executed. In some cases, the Company also earns retrospective commission income by participating in the futureprofitability of the portfolio of contracts sold by the Company. Through December 31, 2017, the Company’s accounting policy was to recognize theretrospective commission income as the amounts were determined and realized. The team has concluded that this retrospective commission income representsvariable consideration for which the Company’s performance obligation is satisfied when the contract is executed. Under the new standard, an estimate ofvariable consideration, subject to a constraint, is to be included in the transaction price and recognized when or as the performance obligation is satisfied.Therefore, the Company’s accounting policy must change under the new ASU such that the Company will estimate the amount of future earnings that it willrealize from the ultimate profitability of the portfolio and recognize such estimate, subject to any constraint in the estimate, upfront when the contract isexecuted. Changes in the Company’s estimates of the amount of variable consideration to be ultimately realized will be adjusted through revenue asdetermined. The Company will adopt the amendments of this ASU during the first fiscal quarter of 2018, using the modified retrospective approach. As aresult of adopting the new standard and implementing the changes aforementioned, the Company expects the net, after-tax cumulative effect adjustment toincrease retained earnings as of the date of adoption. The Company is in the process of finalizing its estimate of the cumulative effect adjustment, pendingcertain data and considerations of the appropriate level of constraint. The Company expects to complete its calculation in the first quarter of adoption.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 forF-15Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires both lessees and lessors to disclosecertain key information about lease transactions. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periodswithin those fiscal years. The Company is in the process of evaluating the impact that adoption will have on its consolidated balance sheet and statement ofincome. However, the Company expects that the adoption of the provisions of the ASU will have a significant impact on its consolidated balance sheet, ascurrently approximately 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 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, but does not expect the amendments in this ASU to materially impact its consolidated financial statements. 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 ("EITF"). The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cashequivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on thestatement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The standard will beeffective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impactthat the adoption of the provisions of the ASU will have on its consolidated financial statements.In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in thisupdate clarify the definition of a business in order to assist entities with evaluating whether transactions should be accounted for as acquisitions (ordisposals) of assets or businesses. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact on its consolidatedfinancial statements as it will depend on the facts and circumstances of any specific future transactions.In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Theamendment eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will recordan impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The amendments in this update should be appliedprospectively and are effective for interim and annual periods beginning after December 15, 2019. Earlier application is permitted for interim or annualgoodwill impairment tests performed on testing dates after January 1, 2017. The impact of the adoption of the provisions of the ASU on the Company’sconsolidated financial statements will depend upon the significance of future impairments realized.In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendmentsin this update provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance of Topic 718 to a change to theterms or conditions of a share-based payment award. Under the new guidance, an entity will not apply modification accounting to a share-based paymentaward if all of the following are the same immediately before and after the change: 1) the award's fair value (or calculated value or intrinsic value, if thosemeasurement methods are used), 2) the award's vesting conditions, and 3) the award's classification as an equity or liability instrument. The amendments inthis ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Companyis currently evaluating the impact on its consolidated financial statements as it will depend on the facts and circumstances of any specific future transactions.F-16Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 715): Targeted Improvements to Accounting for Hedging Activities.The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to boththe designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance eliminates therequirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to bepresented in the same income statement line as the hedged item. The guidance also eases the administrative burden of hedge documentation requirementsand assessing hedge effectiveness. The amendments to cash flow and net investment hedge relationships should be applied using a modified retrospectiveapproach while the presentation and disclosure requirements are applied prospectively, effective for fiscal years beginning after December 15, 2018, withearly adoption permitted. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on itsconsolidated financial statements.3. ACQUISITIONS AND DISPOSITIONSDuring the twelve months ended December 31, 2017, the Company acquired 12 U.K. dealerships, inclusive of 14 franchises, and opened one additionaldealership for one awarded franchise in the U.K. In addition, the Company acquired three dealerships in the U.S., inclusive of four franchises, opened onedealership for one awarded franchise in the U.S. and added motorcycles to an existing BMW dealership in Brazil. Aggregate consideration paid for thesedealerships totaled $120.3 million, including the associated real estate and goodwill, as well as $11.2 million of cash received in the acquisition of thedealerships. The purchase prices have been allocated based upon the consideration paid and the estimated fair values of the assets acquired and liabilitiesassumed at the acquisition dates. The allocation of the purchase prices is preliminary and based on estimates and assumptions that are subject to changewithin the purchase price allocation periods (generally one year from the respective acquisition date). In addition, during the twelve months ended December31, 2017, the Company disposed of three dealerships: two in Brazil representing two franchises and one in the U.K. representing one franchise.During 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. 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 prices were allocated based upon the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at theacquisition dates. In addition, during the twelve months ended December 31, 2016, the Company disposed of ten franchises: five in the U.S., four in Braziland one in the U.K. 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 $0.8million and $0.3 million, respectively, were recognized for the twelve months ended December 31, 2016.4. 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 investment grade credit ratings, swapping its variable interest rate exposure for a fixed interest rate over terms not to exceed the relatedvariable-rate debt.In effect as of December 31, 2017 and December 31, 2016, the Company held interest rate derivative instruments with an aggregate notional value of$623.0 million and $765.3 million, respectively, that fixed its underlying one-month LIBOR at a weighted average rate of 2.5% and 2.5%, respectively. Ofthe $623.0 million in notional value of swaps in effect as of December 31, 2017, $110.6 million became effective during the year ended December 31, 2017.The following table presents the notional value of the annual expiration of swaps in effect as of December 31, 2017 (excludes forward starting swaps): 2018201920202021202220232024Notional amount of swaps expiring (in millions)$153.6$353.7$53.7$12.0$18.8$26.9$4.2The Company records the majority of the impact of the periodic settlements of these swaps as a component of floorplan interest expense. For the yearsended December 31, 2017, 2016 and 2015, the impact of the Company’s interest rate hedges in effect increased floorplan interest expense by $10.3 million,$11.1 million, and $11.5 million, respectively. Total floorplanF-17Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 expense, inclusive of the aforementioned impact of the Company’s interest rate hedges, was $52.4 million, $44.9 million, and $39.3 million for theyears ended December 31, 2017, 2016 and 2015, respectively.In addition to the $623.0 million of swaps in effect as of December 31, 2017, the Company held 11 additional interest rate derivative instruments withforward start dates between January 2018 and December 2020 and expiration dates between December 2020 and December 2030. As of December 31, 2017,the aggregate notional value of these 11 forward-starting swaps was $575.0 million, of which $200.0 million were to become effective by January 2, 2018,and the weighted average interest rate was 2.1%. The combination of the interest rate derivative instruments currently in effect and these forward-startingderivative instruments is structured such that the notional value in effect at any given time through December 2030 does not exceed $918.4 million, which isless than the Company’s expectation for variable rate debt outstanding during such period.In aggregate, as of December 31, 2017 and December 31, 2016, the Company reflected liabilities from interest rate risk management activities of $10.6million and $24.4 million, respectively, in its Consolidated Balance Sheets. In addition, as of both December 31, 2017 and December 31, 2016, the Companyreflected $9.5 million of assets from interest rate risk management activities included in Other Assets in the Consolidated Balance Sheet. Included inAccumulated Other Comprehensive Loss at December 31, 2017, 2016 and 2015, were accumulated unrealized losses, net of income taxes, totaling $0.7million, $9.3 million, and $19.5 million, respectively, related to these interest rate derivative instruments. As of December 31, 2017 and 2016, all of theCompany’s derivative contracts that were in effect were determined to be effective. The Company had no gains or losses related to ineffectiveness or amountsexcluded from effectiveness testing recognized in the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 or 2015,respectively. The following table presents the impact during the current and comparative prior year periods for the Company’s derivative financialinstruments on its Consolidated Statements of Operations and Consolidated Balance Sheets. Amount of Unrealized Income (Loss),Net of Tax, Recognized in OCI Year Ended December 31, 2017 2016 2015 (In thousands)Derivatives in Cash Flow Hedging Relationship Interest rate derivative instruments $1,034 $1,728 $(9,856) Amount of Loss Reclassified from OCIinto Statement of Operations Year Ended December 31, 2017 2016 2015 (In thousands)Location of Loss Reclassified from OCI into Statements of Operations Floorplan interest expense $(10,272) $(11,097) $(11,486)Other interest expense (1,924) (2,332) (1,814)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 $6.9 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, 2017, there were 1,063,975 shares available for issuance under theIncentive Plan.F-18Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)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 because each award contains non-forfeitable rights todividends. As such, the two-class method is required for the computation of earnings per share. See Note 6, “Earnings Per Share,” for further details. Restrictedstock awards are considered outstanding at the date of grant, but are subject to vesting periods upon issuance of up to five years. Restricted stock units areconsidered vested at the time of issuance. However, since they convey no voting rights, they are not considered outstanding when issued. Restricted stockunits settle in cash upon the termination of the grantees’ employment or directorship. In the event an employee or non-employee director terminates his or heremployment or directorship with the Company prior to the lapse of the restrictions, the shares, in most cases, will be forfeited to the Company. The Companyissues new shares or treasury shares, if available, when restricted stock vests. Compensation expense for restricted stock awards is calculated based on themarket price of the Company’s common stock at the date of grant and recognized over the requisite service period. Forfeitures are estimated at the time ofvaluation and reduce expense ratably over the vesting period. This estimate is adjusted annually based on the extent to which actual or expected forfeituresdiffer from the previous estimate.A summary of the restricted stock awards as of December 31, 2017, along with the changes during the year then ended, is as follows: Awards Weighted AverageGrant DateFair ValueNonvested at December 31, 2016 850,422 $67.25Granted 223,139 75.45Vested (270,335) 70.93Forfeited (100,448) 68.79Nonvested at December 31, 2017 702,778 $68.23The total fair value of restricted stock awards which vested during the years ended December 31, 2017, 2016 and 2015, was $19.2 million, $16.5million and $13.9 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, 2017, there were 1,139,095 shares available for issuance under the Purchase Plan. During the yearsended December 31, 2017, 2016 and 2015, the Company issued 123,448, 152,138, and 102,029 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.The weighted average per share fair value of employee stock purchase rights issued pursuant to the Purchase Plan was $16.51, $13.40, and $18.56during the years ended December 31, 2017, 2016 and 2015, 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 $18.9 million, $21.1 million, and $18.9 million for the years ended December 31, 2017, 2016 and 2015,respectively. As of December 31, 2017, there was $34.7 million of total unrecognized compensation cost related to stock-based compensation arrangementswhich is expected to be recognized over a weighted-average period of 3.1 years. Cash received from Purchase Plan purchases was $7.1 million, $7.1 millionand $7.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.F-19Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)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.The following table sets forth the calculation of EPS for the years ended December 31, 2017, 2016, and 2015: Year Ended December 31, 2017 2016 2015 (In thousands, except per shareamounts)Weighted average basic common shares outstanding 20,420 21,161 23,148Dilutive effect of employee stock purchases, net of assumed repurchase oftreasury stock 5 9 4Weighted average dilutive common shares outstanding 20,425 21,170 23,152Basic: Net income $213,442 $147,065 $93,999Less: Earnings allocated to participating securities 7,512 5,871 3,595Earnings available to basic common shares $205,930 $141,194 $90,404Basic earnings per common share $10.08 $6.67 $3.91Diluted: Net income $213,442 $147,065 $93,999Less: Earnings allocated to participating securities 7,511 5,869 3,595Earnings available to diluted common shares $205,931 $141,196 $90,404Diluted earnings per common share $10.08 $6.67 $3.90F-20Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 (In thousands)Domestic $206,579 $222,178 $231,798Foreign 12,424 5,193 (49,627)Total income before income taxes $219,003 $227,371 $182,171Federal, state and foreign income tax provisions/(benefits) were as follows: Year Ended December 31, 2017 2016 2015 (In thousands)Federal: Current $44,921 $57,321 $66,973Deferred (46,938) 18,704 15,528State: Current 3,774 4,636 5,165Deferred 3,921 1,878 1,768Foreign: Current 2,929 4,187 4,150Deferred (3,046) (6,420) (5,412)Provision for income taxes $5,561 $80,306 $88,172Actual 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 2017, 2016 and 2015 as follows: Year Ended December 31, 2017 2016 2015 (In thousands)Provision at the U.S. federal statutory rate $76,651 $79,580 $63,760Increase (decrease) resulting from: State income tax, net of benefit for federal deduction 4,472 4,230 4,448Foreign income tax rate differential (2,443) (2,799) (2,002)Employment credits (862) (821) (407)Changes in valuation allowances 629 749 14,667Non-deductible goodwill — 34 4,651Tax Cuts and Jobs Act - Deferred Tax Effect (73,028)—— —Stock-based compensation (136) 368 386Other 278 (1,035) 2,669Provision for income taxes $5,561 $80,306$88,172On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The TaxAct made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%,creating a territorial tax system that generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and requiring companies to pay aone-time transition tax on unrepatriated earnings of their foreign subsidiaries.F-21Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)In December 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Job Act (“SAB 118”),which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not exceed one year from the TaxAct enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects ofthose aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects ofthe Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a companycannot determine a provisional estimate in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws thatwere in effect immediately before the enactment of the Tax Act.For the year ended December 31, 2017, the Company was able to determine a reasonable estimate of the impact of the Tax Act and recognized thatestimate as a provisional amount. Based on the reduction of the U.S. federal corporate tax to 21%, effective January 1, 2018, the Company recorded aprovisional $73.0 million tax benefit to continuing operations, with a corresponding reduction in its net deferred tax liabilities. This was based on theremeasurement of the Company’s deferred tax assets and liabilities, and a review of the Company’s valuation allowances, using the new tax rate prescribed inthe Tax Act effective in 2018. In addition, the Company provisionally determined that it does not have a transition tax liability for previously untaxedaccumulated and current earnings and profits (E&P) of our foreign subsidiaries, based on its estimated calculation of E&P as of the relevant measurementdates.Due to the timing of the enactment and complexity involved in applying the provisions of the Tax Act, we based our provisions on reasonableestimates of the law’s effects in our financial statements as of December 31, 2017. We will complete our accounting for the Tax Act after we have consideredadditional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and we have gathered andanalyzed additional data relative to our calculations. This may result in adjustments to our provisional amounts, which would impact our provision forincome taxes and effective tax rate in the period the adjustments are made. We will complete our accounting for the Tax Act in 2018. With regard to the newtax on post-2017 “global intangible low-taxed income” (GILTI) created by the Tax Act, the Company has elected to adopt an accounting policy ofaccounting for this tax as a period charge in the future period the tax may arise, and has not provided any deferred taxes related to its foreign investmentswith respect to GILTI.For the year ended December 31, 2017, the Company recorded a tax provision of $5.6 million. This included the tax benefit for the deferred tax impactof the Tax Act noted above, as well as excess tax deductions for restricted stock resulting from the adoption of ASU 2016-09, which were partially offset bycertain expenses for stock-based compensation recorded in 2017 that were non-deductible for income tax purposes. For the year ended December 31, 2017,the Company also provided valuation allowances with respect to deferred tax assets primarily relating 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 these items recorded in 2017compared to the 2016 items discussed below, the effective tax rate for the year ended December 31, 2017 decreased to 2.5%, as compared to 35.3% for theyear ended December 31, 2016.During 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 these items, the impact of arelatively higher proportion of the Company’s pretax income being generated in the Company’s U.K. region, relatively less valuation allowances recognizedin 2016 compared to 2015 and the 2015 items discussed below, the effective tax rate for the year ended December 31, 2016 decreased to 35.3%, as comparedto 48.4% for the year ended 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.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:F-22Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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) December 31, 2017 2016 (In thousands)Deferred tax assets: Loss reserves and accruals $44,004 $59,884Interest rate swaps 259 5,598Goodwill and intangible franchise rights 2,770 5,907U.S. state net operating loss (“NOL”) carryforwards 17,430 16,848Depreciation expense — 775Foreign NOL carryforwards 40,582 34,946Other 379 —Deferred tax assets 105,424 123,958Valuation allowance on deferred tax assets (54,415) (53,946)Net deferred tax assets $51,009 $70,012Deferred tax liabilities: Goodwill and intangible franchise rights $(118,447) $(160,439)Depreciation expense (50,166) (64,465)Deferred gain on bond redemption (327) (1,023)Other (1,820) (3,317)Deferred tax liabilities (170,760) (229,244)Net deferred tax liability $(119,751) $(159,232)As of December 31, 2017, the Company had state NOL carryforwards in the U.S. of $261.9 million that will expire between 2018 and 2037, and foreignNOL carryforwards of $122.0 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 of December 31, 2017, the Company had two controlled foreign corporations that own its foreign operations (the “Foreign Subsidiaries”). TheCompany has not provided for U.S. deferred taxes on the outside basis differences of its Foreign Subsidiaries, as the Company has taken the position that itsinvestment in the Foreign Subsidiaries will be permanently reinvested outside the U.S. The book basis for one of the Company’s Foreign Subsidiaries thatconsists of the Company’s U.K. operations exceeded the tax basis by approximately $15.0 million, as of December 31, 2017. If a taxable event resulting inthe recognition of these outside basis differences occurred, the resulting tax would not be material.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 2013, by U.K. tax authorities in years prior to2013 and by Brazil tax authorities in years prior to 2012.The Company had no unrecognized tax benefits as of December 31, 2016 with respect to uncertain tax positions and did not incur any interest andpenalties for the year then ended. The Company added $1.0 million of unrecognized tax benefits during 2017, based upon tax positions in prior years, thatwas also the total unrecognized tax benefit balance as of December 31, 2017. To the extent that any such tax benefits are recognized in the future, suchrecognition would impact the effective tax rate in that period by approximately $0.8 million. For the year ended December 31, 2017, the Company recordedapproximately $0.2 million of interest and penalty related to its uncertain tax positions. Consistent with prior practice, the Company recognizes interest andpenalties related to uncertain tax positions in income tax expense in the accompanying Consolidated Statements of Operations.F-23Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)8. ACCOUNTS AND NOTES RECEIVABLE, NETThe Company’s accounts and notes receivable consisted of the following: December 31, 2017 2016 (In thousands)Amounts due from manufacturers $109,599 $95,754Parts and service receivables 39,343 35,318Finance and insurance receivables 25,293 24,866Other 17,514 20,322Total accounts and notes receivable 191,749 176,260Less allowance for doubtful accounts 3,138 2,896Accounts and notes receivable, net $188,611 $173,3649. INVENTORIES, NETThe Company’s inventories consisted of the following: December 31, 2017 2016 (In thousands)New vehicles $1,194,632 $1,156,383Used vehicles 350,760 294,812Rental vehicles 144,213 131,080Parts, accessories and other 82,755 77,762Total inventories 1,772,360 1,660,037Less lower of cost or net realizable value allowance 9,067 8,222Inventories, net $1,763,293 $1,651,815F-24Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 EQUIPMENT, NETThe Company’s property and equipment consisted of the following: EstimatedUseful Livesin Years December 31, 2017 2016 (In thousands)Land — $482,600 $400,163Buildings 25 to 50 700,257 553,961Leasehold improvements varies 172,071 170,060Machinery and equipment 7 to 20 117,781 100,164Furniture and fixtures 3 to 10 100,881 87,691Company vehicles 3 to 5 11,933 11,632Construction in progress — 41,824 66,658Total 1,627,347 1,390,329Less accumulated depreciation and amortization 308,388 264,446Property and equipment, net $1,318,959 $1,125,883During 2017, the Company incurred $98.3 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 $15.9 million of capital expenditures accrued asof December 31, 2016. As of December 31, 2017, the Company had accrued $8.8 million of capital expenditures. In addition, in 2017, the Companypurchased real estate (including land and buildings) associated with existing dealership operations totaling $110.4 million. And, in conjunction with theacquisition of dealerships and franchises in 2017, the Company acquired $29.0 million of real estate and other property and equipment. The Companyrecognized $0.2 million in asset impairments related to property and equipment for the year ended December 31, 2017.During 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 $39.1 million. And, in conjunction with the acquisition ofdealerships and franchises in 2016, the Company acquired $28.8 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.Depreciation and amortization expense, including amortization of capital leases, totaled $57.9 million, $51.2 million and $47.2 million for the yearsended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, $77.4 million and $68.9 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, Toyota Motor Credit Corporation, FMCC and a third-party financial institution for financing of its new, used, and rental vehicles. In Brazil, the Company has financing arrangements for new, used, and rentalvehicles with several financial institutions, most of which are manufacturer affiliated. Within the Company’s Consolidated Balance Sheets, Floorplan notespayable - credit facility and other primarily reflects amounts payable for the purchase of specific new, used and rental vehicle inventory (with the exceptionof new and rental vehicle purchases financed through lenders affiliated with the respective manufacturer) whereby financing is provided by the RevolvingCredit Facility. Floorplan notes payable - manufacturer affiliates reflects amounts related to the purchase of vehicles whereby financing is provided by theFMCC Facility, the financing of a portion of the Company’s rental vehicles in the U.S. (through lenders affiliated with the respective manufacturer), as well asthe financing of new, used, and rental vehicles with manufacturer affiliates in both the U.K. and Brazil. Payments on the floorplan notes payable are generallydue as theF-25Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)vehicles are sold. As a result, these obligations are reflected in the accompanying Consolidated Balance Sheets as current liabilities. The outstandingbalances under these financing arrangements were as follows: December 31, 2017 2016 (In thousands)Floorplan notes payable — credit facility and other New vehicles $1,019,511 $941,913Used vehicles 176,802 160,070Rental vehicles 23,530 29,735Floorplan offset (86,547) (59,626)Total floorplan notes payable - credit facility 1,133,296 1,072,092Other floorplan notes payable 20,852 4,936Total floorplan notes payable - credit facility and other $1,154,148 $1,077,028Floorplan notes payable — manufacturer affiliates FMCC Facility $152,984 $175,244Floorplan offset (22,500) (25,500)Total FMCC Facility 130,484 149,744Foreign and rental vehicles 244,199 217,417Total floorplan notes payable — manufacturer affiliates $374,683 $367,161Revolving Credit FacilityThe Company’s Revolving Credit Facility provides a total borrowing capacity of $1.8 billion and expires on June 17, 2021. The Revolving CreditFacility consists of two tranches, providing a maximum of $1.75 billion for U.S. vehicle inventory floorplan financing (“Floorplan Line”), as well as amaximum of $360.0 million and a minimum of $50.0 million for working capital and general corporate purposes, including acquisitions (“AcquisitionLine”). The Acquisition Line is not due until maturity of the facility and is, therefore, classified as long-term debt in the accompanying Consolidated BalanceSheets. See further discussion of the Acquisition Line in Note 12, “Long-Term Debt”. The capacity under these two tranches can be re-designated within theoverall $1.8 billion commitment, subject to the aforementioned limits. Up to $125.0 million of the Acquisition Line can be borrowed in either euros orBritish pound sterling. The Revolving Credit Facility can be expanded to a maximum commitment of $2.1 billion, subject to participating lender approval.The Floorplan Line bears interest at rates equal to the LIBOR plus 125 basis points for new vehicle inventory and the LIBOR plus 150 basis points for usedvehicle inventory. The Acquisition Line bears interest at the LIBOR plus 150 basis points plus a margin that ranges from zero to 100 basis points, dependingon the Company’s total adjusted leverage ratio, for borrowings in U.S. dollars and a LIBOR equivalent plus 125 to 250 basis points, depending on theCompany’s total adjusted leverage ratio, on borrowings in euros or British pound sterling. The Floorplan Line requires a commitment fee of 0.15% per annumon the unused portion. Amounts borrowed by the Company under the Floorplan Line for specific vehicle inventory are to be repaid upon the sale of thevehicle financed, and in no case is a borrowing for a vehicle to remain outstanding for greater than one year. The Acquisition Line also requires acommitment fee ranging from 0.20% to 0.45% per annum, depending on the Company’s total adjusted leverage ratio, based on a minimum commitment of$50.0 million less outstanding borrowings. In conjunction with the Revolving Credit Facility, the Company has $4.2 million of related unamortized costs asof December 31, 2017, which are included in Prepaid expenses and other current assets and Other Assets on the accompanying Consolidated Balance Sheetsand amortized over the term of the facility.After considering the outstanding balance of $1,133.3 million at December 31, 2017, the Company had $306.7 million of available floorplanborrowing capacity under the Floorplan Line. Included in the $306.7 million available borrowings under the Floorplan Line was $86.5 million ofimmediately available funds. The weighted average interest rate on the Floorplan Line was 2.7% and 2.0% as of December 31, 2017 and 2016, respectively,excluding the impact of the Company’s interest rate derivative instruments. With regards to the Acquisition Line, there were $27.0 million borrowingsoutstanding as of December 31, 2017 and no borrowings outstanding as of December 31, 2016. The interest rate on the Acquisition Line was 2.25% as ofDecember 31, 2017. After considering $25.0 million of outstanding letters of credit and other factors included in the Company’s available borrowing basecalculation, there was $308.2 million of available borrowing capacity under the Acquisition Line as ofF-26Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)December 31, 2017. The amount of available borrowing capacity under the Acquisition Line is limited from time to time based upon certain debt covenants.All of the U.S. dealership-owning subsidiaries are co-borrowers under the Revolving Credit Facility. The Company’s obligations under the 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, 2017, the Credit Facility Restricted Payment Basket totaled $184.8million.As of December 31, 2017 and 2016, 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, 2017, the Company had an outstanding balance of $130.5 million under the FMCC Facility with an available floorplanborrowing capacity of $169.5 million. Included in the $169.5 million available borrowings under the FMCC Facility was $22.5 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 6.00%and 5.25% before considering the applicable incentives as of December 31, 2017 and 2016, respectively.Other Credit FacilitiesThe Company has credit facilities with BMWFS, Volkswagen Finance, Toyota Motor Credit Corporation, FMCC and a third-party financial institutionfor the financing of new, used and rental vehicle inventories related to its 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. As of December 31, 2017, borrowings outstanding under these facilities totaled $122.8 million. Annual interest rates charged onborrowings outstanding under these facilities, after the grace period of zero to 30 days, ranged from 1.25% to 3.95%.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, 2017, borrowings under these facilities totaled $22.7 million. Annual interest rates charged onborrowings outstanding under these facilities, after the grace period of zero to 90 days, ranged from 11.42% to 18.02%.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. Rental vehicles are typically transferred to used vehicle inventory when they are removed from service and repayment of the borrowing is required atthat time. As of December 31, 2017, borrowings outstanding under these rental vehicle facilities totaled $119.6 million, with interest rates that vary up to6.00%.F-27Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 (In thousands)5.00% Senior Notes (aggregate principal of $550,000 at December 31, 2017 and 2016) $542,063 $540,4655.25% Senior Notes (aggregate principal of $300,000 at December 31, 2017 and 2016) 296,151 295,591Acquisition Line 26,988 —Real Estate Related and Other Long-Term Debt 440,845 385,358Capital lease obligations related to real estate, maturing in varying amounts through June 2034 with aweighted average interest rate of 10.4% and 9.9%, respectively 51,665 47,613 1,357,712 1,269,027Less current maturities of long-term debt 39,528 56,218 $1,318,184 $1,212,809Included in current maturities of long-term debt and short-term financing in the Company’s Consolidated Balance Sheets, the Company has two short-term revolving working capital loan agreements with third-party financial institutions in the U.K. and an unsecured loan agreement with a third-partyfinancial institution in the U.S. As of December 31, 2017 and December 31, 2016, short-term borrowings under the U.K. third-party loans totaled $13.4million and $16.2 million, respectively. During 2017, the Company made borrowings of $5.1 million and no principal payments under the U.K. third-partyloans. As of December 31, 2017, short-term borrowings under the U.S. third-party loan totaled $24.7 million. During 2017, the Company made borrowings of$25.1 million and made principal payments of $0.3 million under the U.S. third-party loan.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. On or after June 1, 2017, theCompany may redeem some or all of the 5.00% Notes at specified prices, plus accrued and unpaid interest. The Company may be required to purchasethe 5.00% Notes if it sells certain assets or triggers the change in control provisions defined in the 5.00% Notes indenture. The 5.00% Notes are seniorunsecured obligations and rank equal in right of payment to all of the Company’s existing and future senior unsecured debt and senior in right of payment toall 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 guaranteesrank equally in the right of payment to all of the Company’s U.S. subsidiary guarantor’s existing and future subordinated debt. In addition, the 5.00% Notesare structurally subordinated to the liabilities of its non-guarantor subsidiaries and are subject to customary covenants, including a restricted payment basketand debt limitations. The restricted payment basket calculation under the terms of the 5.00% Notes is the same as under the Credit Facility RestrictedPayment Basket. The 5.00% Notes were registered with the Securities and Exchange Commission in June 2015. The 5.00% Notes are presented net ofunamortized underwriters’ fees, discount and debt issuance costs, which are being amortized over a period of eight years in conjunction with the term of the5.00% Notes, of $7.9 million as of December 31, 2017.5.25% 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-28Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 5.25% Notes are presented net of unamortized underwriters’ fees, discount anddebt issuance costs, which are being amortized over a period of eight years in conjunction with the term of the 5.25% Notes, of $3.8 million asof December 31, 2017.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 3.25% and 4.69%, and at variable indexed rates plus aspread between 1.50% and 2.50% per annum. The mortgage loans consist of 57 term loans for an aggregate principal amount of $398.0 million. As ofDecember 31, 2017, borrowings outstanding under these notes totaled $350.0 million, with $26.4 million classified as a current maturity of long-term debt inthe accompanying Consolidated Balance Sheets, as compared to $321.9 million outstanding with $39.8 million classified as current as of December 31,2016. During 2017, the Company made additional net borrowings and principal payments of $46.4 million and $18.4 million, respectively. These mortgageloans are presented net of unamortized underwriters’ fees, discount, and debt issuance costs, which are being amortized over the terms of the mortgage loans,of $0.6 million as of December 31, 2017. The agreements provide for monthly payments based on 15 or 30-year amortization schedules and mature betweenDecember 2018 and November 2032. These mortgage loans are cross-collateralized and cross-defaulted with each other.The Company has entered into 16 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, 2017, borrowings under the U.K. Notes totaled $79.2 million, with $7.4 millionclassified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets, as compared to $50.4 million outstanding with $4.3million classified as current as of December 31, 2016. During 2017, the Company made additional borrowings and principal payments of $28.9 million and$5.7 million, respectively, associated with the U.K. Notes.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, 2017, borrowings under the Brazil Note totaled $3.3 million, with $0.4 millionclassified as a current maturity of long-term debt in the accompanying Consolidated Balance Sheets. During 2017, the Company made no additionalborrowings and made principal payments of $0.6 million associated with the Brazil Note.The Company also has a working capital loan agreement with a third-party financial institution in Brazil. The principal balance on the loan is due byFebruary 2020 with interest only payments being made until the due date. As of December 31, 2017, borrowings under the Brazilian third-party loan totaled$6.6 million. During 2017, the Company made no additional borrowings or principal payments.Fair Value of Long-Term DebtThe Company’s outstanding 5.00% Notes had a fair value of $567.9 million and $548.4 million as of December 31, 2017 and December 31, 2016,respectively. The Company’s outstanding 5.25% Notes had a fair value of $310.9 million and $297.0F-29Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)million as of December 31, 2017 and December 31, 2016, respectively. The carrying value of the Company’s fixed interest rate borrowings included in realestate related and other long-term debt totaled $86.8 million and $93.9 million as of December 31, 2017 and December 31, 2016, respectively. The fair valueof such fixed interest rate borrowings was $92.9 million and $94.5 million as of December 31, 2017 and December 31, 2016, respectively. The fair valueestimates are based on Level 2 inputs of the fair value hierarchy available as of December 31, 2017 and December 31, 2016. The Company determined theestimated fair value of its long-term debt using available market information and commonly accepted valuation methodologies. Considerable judgment isrequired in interpreting market data to develop the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that theCompany, or holders of the instruments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies couldhave a material effect on estimated fair values. The carrying value of the Company’s variable rate debt approximates fair value due to the short-term nature ofthe interest rates.All Long-Term DebtTotal interest expense on the 5.00% Notes and 5.25% Notes for the years ended December 31, 2017, 2016, and 2015 was $43.3 million, $43.3 million,and $28.5 million, respectively, excluding amortization of discounts and capitalized cost of $2.2 million, $2.1 million, and $1.5 million, respectively.Total interest expense on real estate related and other long-term debt, as well as the Acquisition Line, for the years ended December 31, 2017, 2016 and2015, was $15.0 million, $13.7 million and $17.6 million, respectively. These amounts exclude the impact of the interest rate derivative instruments relatedto various real estate related mortgage loans of $1.9 million, $2.3 million, and $1.8 million for the years ended December 31, 2017, 2016, and 2015,respectively.In addition, the Company recognized $8.2 million, $6.6 million and $7.6 million of total interest expense related to capital leases and various othernotes payable, net of interest income, for the years ended December 31, 2017, 2016 and 2015, respectively.The Company capitalized $1.6 million, $1.7 million, and $0.7 million of interest on construction projects in 2017, 2016 and 2015, respectively.The aggregate annual maturities of long-term debt, excluding unamortized capitalized debt issuance costs of $3.5 million, for the next five years are asfollows: Total (In thousands)Year Ended December 31, 2018$39,721201986,967202055,170202186,3362022589,406Thereafter503,634Total$1,361,234F-30Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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-31Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 and2016, respectively, were as follows: As of December 31, 2017 2016 (In thousands)Assets: Investments$844 $3,254Demand obligations13 12Interest rate derivative financial instruments9,501 9,484Total$10,358 $12,750Liabilities: Interest rate derivative financial instruments$10,579 $24,411Total$10,579 $24,41114. 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. In October 2016, a U.S. Federal judge approved thissettlement. In September 2016, Volkswagen agreed to allocate $1.2 billion among its 652 dealers for a class settlement in exchange for their agreement not tosue Volkswagen. In October 2016, the Company received notification from Volkswagen that it is entitled to receive, in the aggregate, approximately $13.2million in connection with the Company's current and prior ownership of seven Volkswagen dealerships in the U.S. segment to date. The Company acceptedand executed the offer in the fourth quarter of 2016. As of December 31, 2017, the Company has received half of the aggregate compensation in a lump sumamount and is to receive the remaining half in 18 equal installments, of which 11 payments have been made to date. The Company recognized the entiresettlement as an offset to Selling, General and Administrative Expenses in the accompanying Consolidated Statements of Operations for the year endedDecember 31, 2016. In addition, as a result of Volkswagen’s agreement to repurchase customers’ vehicles in the settlement, the Company identified itspotential liability as it relates to chargebacks for finance and insurance products sold by the Company to such customers. So, in conjunction with therecognition of the Company’s settlement with Volkswagen, the Company estimated its liability for these chargebacks and recognized such as an offset to thesettlement for the year ended December 31, 2016. The Volkswagen brand represented 2.6% of the Company's total new vehicle retail unit sales for the twelvemonths ended December 31, 2017. Also, in conjunction with the Volkswagen diesel emissions scandal, Volkswagen agreed in March 2017 to settleallegations of damages by the Company relative to its three Audi branded dealerships. The Company received the cash and recognized the settlement as anoffset to SG&A in the accompanying Consolidated Statements of Operations for the twelve months ended December 31, 2017.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, includingF-32Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)class action lawsuits. However, the results of current, or future, matters cannot be predicted with certainty, and an unfavorable resolution of one or more ofsuch matters could have a material adverse effect on the Company’s results of operations, financial condition, or cash flows.Other MattersThe Company, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by the Company’s subsidiaries of theirrespective dealership premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the lessor and other parties from certainliabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, fromtime to time, the Company 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 2017 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). In the Company’s 2017 interim and annual impairment assessments of long-lived assets and intangible franchise rights, the Company recorded thefollowing non-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 $19.3 million in aggregate pre-tax non-cash asset impairment charges during the third and fourth quarters of 2017.•In addition, the Company determined that the carrying value of various other long-term assets was no longer recoverable, and recognized $0.2 millionin 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 2017 annual impairmentassessment of goodwill and intangible franchise rights. If theF-33Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)Company’s assumptions regarding the risk-free rate and cost of debt differed such that the estimated WACC used in its 2017 assessment increased by 200basis points, and all other assumptions remained constant, an additional $33.2 million of non-cash franchise rights impairment charges would have resulted,excluding franchises acquired since the previous annual test. This additional impairment would have consisted of $33.1 million in the U.S. and $0.1 millionin the U.K. The Company’s Brazil reporting unit would have failed the step one impairment test for goodwill in this scenario, while the U.S. and U.K.reporting units would have passed step one. The Company’s second sensitivity analysis represented a recessionary sales environment in the U.S., utilizing theU.S. SAAR equivalent to 2009 levels for 2018. Similar industry sales levels were also applied to the U.K. reporting unit. Relative to the Brazil reporting unit,the recessionary case forecasted revenues to be flat in 2019 and 2020, with increases for the remaining years at lower levels as compared to the base case. Inthis sensitivity analysis, an additional $51.8 million of non-cash franchise rights impairment charges would have resulted, including $51.0 million and $0.8million for the U.S. and the U.K., respectively. In this scenario, none of the Company’s reporting units would have failed the step one impairment test forgoodwill.On June 23, 2016, the British Citizens voted on a referendum in favor of exiting the EU. The majority vote in favor of Brexit has created uncertainty inthe 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 the Company is not aware of any changes incircumstances that has resulted in a decline in fair value of these assets at this time, the Company continues to closely monitor the situation.In the Company’s 2016 annual goodwill assessment, the fair value of each of its reporting units exceeded the carrying value of its net assets (step one ofthe goodwill impairment test). As a result, the Company was not required to conduct the second step of the impairment test for goodwill. 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 or all of its reporting units, theCompany could be required to recognize a material non-cash impairment charge to the goodwill associated with the reporting unit(s). During 2016, theCompany also completed other impairment assessments on an annual and interim basis, as applicable, and recorded the following non-cash impairmentcharges, 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.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.F-34Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 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 7,005 284,876Additions through acquisitions 8,035 10,133 — 18,168Impairments (12,588) — (6,744) (19,332)Currency translation — 2,013 (93) 1,920BALANCE, December 31, 2017 $255,981 $29,483$168 $285,632The increase in the Company’s intangible franchise rights in 2017 was primarily related to the addition of franchise rights associated with the purchaseof 12 dealerships in the U.K. and three dealerships in the U.S. The 2017 additions were partially offset by impairments of $12.6 million and $6.7 million inthe U.S. and Brazil, respectively. The decrease in the Company’s intangible franchise rights in 2016 was primarily related to impairments in the U.S. andBrazil of $19.9 million and $9.9 million, respectively, as a result of the Company’s interim and annual impairment assessments. The impairments werepartially offset by the addition of franchise rights associated with the purchase of 12 dealerships in the U.K. during the year ended December 31, 2016. Goodwill U.S. U.K. Brazil Total (In thousands)BALANCE, December 31, 2015 $809,775 $35,320 $9,820 $854,915(1)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 57,05413,774 876,763(1)Additions through acquisitions 29,332 2,575 95 32,002 Disposals — — (933) (933) Currency translation — 5,405 (203) 5,202 BALANCE, December 31, 2017 $835,267 $65,034$12,733 $913,034(1)(1) Net of accumulated impairment of $97.8 millionThe increase in the Company’s goodwill in 2017 was primarily related to the goodwill associated with the purchase of three dealerships in the U.S. and12 dealerships in the U.K. and foreign currency translation adjustments in the U.K. and Brazil, partially offset by the disposal of two dealerships in Brazil.The 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., partiallyoffset by foreign currency translation adjustments in the U.K. and Brazil and the disposal of five U.S. dealerships.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 basisF-35Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)(“Deferred Compensation Plan”). Participants in the Deferred Compensation Plan are allowed to defer receipt of a portion of their salary and/or bonuscompensation, or in the case of the Company’s non-employee directors, annual retainer and meeting fees earned. The participants can choose from variousdefined investment options to determine their earnings crediting rate. However, the Company has complete discretion over how the funds are utilized.Participants in the Deferred Compensation Plan are unsecured creditors of the Company. The balances due to participants of the Deferred Compensation Planas of December 31, 2017 and 2016 were $56.6 million and $49.0 million, respectively, and are included in other liabilities in the accompanyingConsolidated 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, 2017 and 2016, the matching contributions paid by the Company totaled $5.1 million and $5.4 million, respectively.18. OPERATING LEASESThe Company leases various facilities and equipment under long-term operating lease agreements. Generally, our real estate and facility leases in theU.S. have 30-year total terms with initial terms of 15 years and three additional five-year terms, at our option. In the U.K. and Brazil, our real estate andfacility leases generally have 20-year terms and 5-year terms, respectively.Future minimum lease payments for non-cancelable operating leases as of December 31, 2017, are as follows: Total (In thousands)Year Ended December 31, 2018$42,693201937,980202033,692202129,447202225,566Thereafter158,209Total (1) $327,587(1) Includes $1.3 million of future, non-cancelable sublease payments to be received.Total rent expense under all operating leases was $51.8 million, $53.8 million, and $51.5 million for the years ended December 31, 2017, 2016 and2015, respectively.F-36Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017, 2016 and 2015 are asfollows: Accumulatedloss onforeign currencytranslation Accumulatedlosson interestrate swaps Total (In thousands)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)Other comprehensive income, net of tax 15,061 8,657 23,718BALANCE, December 31, 2017 $(122,552) $(674) $(123,226)20. SEGMENT INFORMATIONAs of December 31, 2017, 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, 2017, 2016 and2015: Year Ended December 31, 2017 U.S. U.K. Brazil Total (In thousands) New vehicle retail sales$4,768,864 $1,092,612 $296,055 $6,157,531 Used vehicle retail sales2,160,699 546,266 92,021 2,798,986 Used vehicle wholesale sales250,668 136,847 12,655 400,170 Parts and service1,124,380 165,755 47,897 1,338,032 Finance, insurance and other, net375,954 44,523 8,525 429,002 Total revenues8,680,565(1) 1,986,003 457,153 11,123,721 Gross profit1,365,314 225,253 54,942 1,645,509 Selling, general and administrative expense983,974(2) 191,570 50,651 1,226,195 Depreciation and amortization expense48,285 8,198 1,453 57,936 Asset impairment12,762 — 6,744 19,506 Floorplan interest expense(47,221) (4,727) (424) (52,372) Other interest expense, net(66,493) (3,664) (340) (70,497) Income (loss) before income taxes206,579 17,094 (4,670) 219,003 (Provision) benefit for income taxes(5,679)(3) (2,142) 2,260 (5,561) Net income (loss)200,900(4) 14,952 (2,410)(5) 213,442 Capital expenditures$77,477 $19,944 $880 $98,301 (1) Includes the impact of chargeback reserves for finance and insurance revenues associated with catastrophic events of $6.6 million.(2) Includes the following, pre-tax: gain on OEM settlement of $1.8 million and loss due to catastrophic events of $8.8 million.(3) Includes a tax benefit of $73.0 million associated with a reduction in the corporate income tax rate enacted in the Tax Act.F-37Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)(4) Includes the after-tax impact of the items noted above and the after-tax non-cash asset impairment charges of $8.0 million.(5) Includes after-tax non-cash asset impairment charges of $4.4 million. 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 and dealership transactions of $2.7million, and severance costs of $1.8 million.(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 catastrophic events of $3.7 million, netgain 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 charges of $6.9 million and a foreign deferred income tax benefit of $1.7 million.F-38Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2015 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 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, and legal 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, and non-cash asset impairmentcharges of $12.0 million.(3) Includes after-tax non-cash asset impairment charges of $62.4 million.Goodwill and intangible franchise rights and total assets by reportable segment were as follows: As of December 31, 2017 U.S. U.K. Brazil Total (In thousands)Goodwill and intangible franchise rights $1,091,248 $94,517 $12,901 $1,198,666Total assets $4,087,039 $654,154 $129,872 $4,871,065 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 $4,461,903F-39Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 Total revenues $2,518,829 $2,672,195 $3,012,292 $2,920,405 $11,123,721Gross profit 383,522 404,892 431,420 425,675 1,645,509Net income 33,939 39,133 29,881 110,489 213,442Basic earnings per share (1) 1.58 1.84 1.43 5.27 10.08Diluted earnings per share (1) 1.58 1.84 1.43 5.27 10.082016 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 6.67(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 third and fourth quarters of 2017, the Company incurred charges of $9.5 million and $10.0 million, respectively, related to the impairmentof assets. Included in these charges for the third and fourth quarters were impairments of the Company’s intangible assets of $9.5 million and $9.8 million,respectively. Also included in the third quarter was $14.7 million related to chargeback expense for reserves associated with expected finance and insuranceproduct cancellations and property damage as a result of Hurricanes Harvey and Irma.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.For more information on non-cash impairment charges, refer to Note 15, “Asset Impairments.”F-40Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, 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-41Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $10,096 $18,691 $— $28,787Contracts-in-transit and vehicle receivables, net— 266,788 39,645 — 306,433Accounts and notes receivable, net— 144,872 43,739 — 188,611Intercompany accounts receivable26,988 12,948 — (39,936) —Inventories, net— 1,434,852 328,441 — 1,763,293Prepaid expenses and other current assets1,934 8,378 31,750 — 42,062Total current assets28,9221,877,934462,266(39,936) 2,329,186PROPERTY AND EQUIPMENT, net— 1,121,108 197,851 — 1,318,959GOODWILL— 835,268 77,766 — 913,034INTANGIBLE FRANCHISE RIGHTS— 255,980 29,652 — 285,632INVESTMENT IN SUBSIDIARIES2,999,407 — — (2,999,407) —OTHER ASSETS— 13,682 10,572 — 24,254Total assets$3,028,329 $4,103,972 $778,107 $(3,039,343) $4,871,065 LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES: Floorplan notes payable — credit facility and other$— $1,219,844 $20,851 $— $1,240,695Offset account related to floorplan notes payable - credit facility— (86,547) — — (86,547)Floorplan notes payable — manufacturer affiliates— 272,563 124,620 — 397,183Offset account related to floorplan notes payable - manufactureraffiliates— (22,500) — — (22,500)Current maturities of long-term debt and short-term financing24,741 31,229 21,639 — 77,609Current liabilities from interest rate risk management activities—1,996——1,996Accounts payable— 229,470 183,511 — 412,981Intercompany accounts payable890,995 — 39,936 (930,931) —Accrued expenses— 150,241 26,829 — 177,070Total current liabilities915,7361,796,296417,386(930,931) 2,198,487LONG-TERM DEBT, net of current maturities865,202 360,526 92,456 — 1,318,184LIABILITIES FROM INTEREST RATE RISK MANAGEMENTACTIVITIES— 8,583 — — 8,583DEFERRED INCOME TAXES AND OTHER LIABILITIES(117) 210,216 11,430 — 221,529STOCKHOLDERS’ EQUITY: Group 1 stockholders’ equity1,247,508 2,619,346 256,835 (2,999,407) 1,124,282Intercompany note receivable— (890,995) — 890,995 —Total stockholders’ equity1,247,5081,728,351256,835(2,108,412) 1,124,282Total liabilities and stockholders’ equity$3,028,329$4,103,972$778,107$(3,039,343) $4,871,065F-42Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED BALANCE SHEETDecember 31, 2016 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination TotalCompany (In thousands)ASSETSCURRENT ASSETS: Cash and cash equivalents$— $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’ equity1,077,146 1,538,980225,740(1,911,666) 930,200Total liabilities and stockholders’ equity$2,787,844$3,868,975$601,341$(2,796,257) $4,461,903F-43Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2017 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $8,680,565 $2,443,156 $— $11,123,721COST OF SALES:— 7,315,252 2,162,960 — 9,478,212GROSS PROFIT— 1,365,313 280,196 — 1,645,509SELLING, GENERAL AND ADMINISTRATIVE EXPENSES3,381 974,413 248,401 — 1,226,195DEPRECIATION AND AMORTIZATION EXPENSE— 48,284 9,652 — 57,936ASSET IMPAIRMENTS— 12,762 6,744 — 19,506INCOME (LOSS) FROM OPERATIONS(3,381) 329,854 15,399 — 341,872OTHER EXPENSE: Floorplan interest expense— (47,222) (5,150) — (52,372)Other interest income (expense), net— (66,490) (4,007) — (70,497)INCOME BEFORE INCOME TAXES AND EQUITY INEARNINGS OF SUBSIDIARIES(3,381)216,1426,242— 219,003BENEFIT (PROVISION) FOR INCOME TAXES1,268 (6,947) 118 — (5,561)EQUITY IN EARNINGS OF SUBSIDIARIES215,556 — — (215,556) —NET INCOME (LOSS)$213,443$209,195$6,360$(215,556) $213,442COMPREHENSIVE INCOME— 8,657 15,061 — 23,718COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TOPARENT$213,443$217,852$21,421$(215,556) $237,160F-44Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2016 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $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) $138,105F-45Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)CONDENSED CONSOLIDATED STATEMENTS OF INCOMEYear Ended December 31, 2015 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Elimination Total Company (In thousands)REVENUES:$— $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-46Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 Group 1Automotive, Inc. GuarantorSubsidiaries Non-GuarantorSubsidiaries Total Company (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities$214,595 $(13,759) $(1,911) $198,925CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (62,474) (46,607) (109,081)Proceeds from disposition of franchises, property and equipment— 8,345 2,363 10,708Purchases of property and equipment, including real estate— (185,342) (30,490) (215,832)Other— 1,607 — 1,607Net cash used in investing activities—(237,864)(74,734)(312,598)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,019,070 — 7,019,070Repayments on credit facility - floorplan line and other— (6,957,866) — (6,957,866)Borrowings on credit facility - acquisition line68,086 — — 68,086Repayments on credit facility - acquisition line(42,278) — — (42,278)Borrowings on other debt25,054 19 140,629 165,702Principal payments on other debt(313) (718) (120,168) (121,199)Borrowings on debt related to real estate— 46,419 28,890 75,309Principal payments on debt related to real estate— (22,931) (6,460) (29,391)Employee stock purchase plan purchases, net of employee tax withholdings4,603 — — 4,603Repurchases of common stock, amounts based on settlement date(40,094) — — (40,094)Dividends paid(20,466) — — (20,466)Borrowings (repayments) with subsidiaries2,892 (32,719) 29,827 —Investment in subsidiaries(212,079) 202,406 9,673 —Net cash (used in) provided by financing activities(214,595)253,68082,391 121,476EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (8) (8)NET INCREASE IN CASH AND CASH EQUIVALENTS—2,0575,738 7,795CASH AND CASH EQUIVALENTS, beginning of period— 8,039 12,953 20,992CASH AND CASH EQUIVALENTS, end of period$—$10,096$18,691 $28,787F-47Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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-48Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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) $141,047CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid in acquisitions, net of cash received— (212,252) — (212,252)Proceeds from disposition of franchises, property and equipment— 40,833 748 41,581Purchases of property and equipment, including real estate— (97,009) (23,243) (120,252)Other— 6,421 — 6,421Net cash used in investing activities—(262,007)(22,495) (284,502)CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facility - floorplan line and other— 7,557,237 — 7,557,237Repayments on credit facility - floorplan line and other— (7,504,516) — (7,504,516)Borrowings on credit facility - acquisition line489,548 — — 489,548Repayment on credit facility - acquisition line(557,696) — — (557,696)Net borrowings of 5.25% Senior Unsecured Notes296,250 — — 296,250Debt issue costs— (788) — (788)Borrowings on other debt— 451 59,404 59,855Principal payments on other debt— (1,386) (62,383) (63,769)Principal payments on debt related to real estate loans— (68,234) (3,845) (72,079)Borrowings on debt related to real estate— 9,596 22,430 32,026Issuance of common stock to benefit plans, net214 — — 214Repurchases of common stock, amounts based on settlement date(97,473) — — (97,473)Tax effect from stock-based compensation— 2,142 — 2,142Dividends paid(19,942) — — (19,942)Borrowings (repayments) with subsidiaries220,281 (211,236) (9,045) —Investment in subsidiaries(425,181) 409,990 15,191 —Net cash (used in) provided by financing activities(93,999)193,25621,752 121,009EFFECT OF EXCHANGE RATE CHANGES ON CASH— — (5,492) (5,492)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS—(19,041)(8,897) (27,938)CASH AND CASH EQUIVALENTS, beginning of period— 25,379 15,596 40,975CASH AND CASH EQUIVALENTS, end of period$— $6,338 $6,699 $13,037F-49Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Description3.1 — 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 — Third 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 April 6, 2017)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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 — 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)10.3 — 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)10.4 — 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)10.5 — 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)10.6 — 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)10.7 — 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)10.8 — 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)10.9 — 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)10.10 — 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)10.11 — 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)10.12 — 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Description10.13 — 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)10.14 — 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)10.15 — 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)10.16* — 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)10.17* — 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)10.18* — Group 1 Automotive, Inc. 2017 Short Term Incentive Plan Guidelines (incorporated by reference to Exhibit 10.1 to Group 1Automotive, Inc.'s Current Report on Form 8-K (File No. 001-134561) filed March 3, 2017)10.19 — 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)10.20 — 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)10.21 — 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)10.22 — 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)10.23* — 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)10.24* — 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)10.25* — 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)10.26* — 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)10.27* — 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)10.28* — 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)10.29* — 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 Description10.30* — 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)10.31* — 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)10.32* — 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)10.33* — 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)10.34 — 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)10.35* — 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)10.36* — 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)10.37* — 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)10.38* — 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)10.39* — 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)10.40* — 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)10.41†* — Group 1 Automotive, Inc. Aircraft Usage Policy10.42* — 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)10.43* — 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)10.44* — 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)10.45* — 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)10.46* — 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)10.47* — 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)10.48* — 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 16th day of February, 2018. 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 16th day of February, 2018.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/ Stephen D. Quinn Chairman and DirectorStephen D. Quinn /s/ John L. Adams DirectorJohn L. Adams /s/ Carin Barth DirectorCarin Barth /s/ Lincoln da Cunha Pereira Filho DirectorLincoln da Cunha Pereira Filho /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 F-55Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Aircraft Usage PolicyRevised: November 8, 2017I.POLICYThis policy governs the use of commercial and private Group 1 corporate aircraft (the "aircraft") by Group 1 associates andtheir guests. Any use of the aircraft must be approved by the Chairman of the Board or the President and CEO of Group 1Automotive.II.GUIDELINES ON USAGEA.General. Aircraft use is generally restricted to company business, or entertainment related to company business. Personal use ofthe aircraft is discouraged due to unfavorable IRS deductibility, compensation, and disclosure treatment (see Appendix A). Inexigent circumstances, personal use of the aircraft shall be considered by and require the approval of the Chairman of the Boardand the President and CEO of Group 1.B.Supplement to Commercial Air Travel. Private aircraft should be used to supplement commercial air travel. Common senseshould be employed when planning travel so that use of corporate aircraft hours is maximized.C.Upgrades. Upgrades of aircraft should be limited to situations where seating capacity and/or range are considerations. Anyproposed upgrade should be noted on the Aircraft Request Form and approved by the person approving the use of the aircraft.D.Primary Service Area; Other Limitations. Aircraft operations are limited to the Primary Service Area of the Fractional InterestProgram (all of the contiguous United States, southern Canada, Mexico, and portions of the Caribbean). In addition, aircraftoperations are currently limited to FAR Part 135 operations, which impose certain restrictions on runway length and weatherreporting capability at the destination airfield. Most primary and regional airports will meet FAR Part 135 requirements;however, in certain cases, these restrictions may require the selection of an alternate destination airfield.E.Corporate Risk. Those responsible for planning and/or booking a trip should consider who is traveling on the aircraft from acorporate risk perspective. Situations in which a number1Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of top executives or board members are traveling together should be avoided. A point system will be used to determine whomay fly together on either Group 1 corporate aircraft or any commercial flight (domestic or international) (see Appendix B). Inaddition to the point system set forth on Appendix B, it shall be expressly prohibited for the Chief Executive Officer to travelon any aircraft (private or commercial) with either the President (if different than the CEO) or the President-US Operations.Additionally, no more than three non-CEO directors may travel on the same private aircraft with the Chief Executive Officer,and no more than four directors should travel together on the same private aircraft.III.COORDINATING TRAVEL; APPROVALA.Travel Coordinator. All travel must be coordinated through the office of the President and CEO. Every attempt should be madeto coordinate travel arrangements at least 48 hours in advance.B.Requests; Approval. Requests for use of the aircraft shall be submitted by completing an “Aircraft Request Form” (seeAppendix C) to the appropriate approving person. Use of the aircraft by Group 1 associates must be approved by the Chairmanof the Board or the President and CEO. Use of the aircraft by members of the Board of Directors of Group 1 must be approvedby the Chairman of the Board.C.Notice of Upcoming Trips. The office of the President and CEO will publish a notice of upcoming trips to company officers,so that if there is a business need for other employees to travel to that destination, they may be considered for transport.D.Trip Log. The office of the President and CEO will maintain a trip log to track, with respect to each trip, the date,destination(s), business purpose, and passengers.IV.OTHER MATTERSA.Regulation; Group 1 Policy. Aircraft passengers must abide by all jurisdictional laws and regulations, fractional program termsand conditions, as well as all Group 1 corporate policies.B.Logistics. Passengers should arrange to be at the departure location at least 15 minutes prior to the assigned departure time.Delays can add unnecessary expense to the program. Travelers are encouraged to travel “light” as there are weight and luggagespace restrictions on smaller aircraft.2Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C.Ground Transportation; Catering. Ground transportation and in-flight meals can be coordinated through the travel coordinator.Ground transportation should be limited to taxi, rental car or town car service (no limousines).3Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Appendix APersonal Use of the AircraftWhere the company-provided airplane is used for personal purposes (including entertainment) by employees, their relatives orother individuals accompanying them, the value of the trip(s) must generally be included in the taxable income of the employee, unlessthe individual repays the company using a method generally acceptable to the IRS (SIFL rate). In November of 2007, theCompensation Committee of the Board approved the personal use of the aircraft by Earl Hesterberg, the President and CEO, for up to40 hours per year, provided that Mr. Hesterberg reimburse the company using the generally accepted rate cited above.The Jobs Creation Act of 2004 added a provision to limit the company’s deductions in the case of personal use by specifiedindividuals (including corporate officers) of corporate aircraft to the amount the individual includes as taxable compensation. Based onIRS procedures, companies must determine all expenses relating to the aircraft based on occupied seat hours or occupied seat milesflown, and allocate these expenses to any personal use by specified individuals, their relatives and other companions.Where a spouse, dependent or other individual accompanies the employee on a trip that is a qualified business trip for theemployee, their expenses will be considered personal and therefore taxable to the employee unless it can be established that there was abona fide business purpose for them to make the trip (and substantiation requirements are met). This is a facts and circumstancesdetermination, to be determined by the Chairman of the Board and President and CEO.Where expenses for the personal use of a company aircraft are attributable to an employee that is subject to the excesscompensation limitations under Section 162(m) of the Internal Revenue Code of 1986, the company’s deduction will be disallowed tothe extent that the employee’s income (including the expenses attributable to personal use of the aircraft) exceed the annual $1 millionexcess compensation threshold.4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Appendix BPoints System for Determining Flight RiskIn determining who may fly together on the aircraft, consideration must be given to succession risk. The following point systemwill help determine if passengers should be scheduled on alternative forms of transportation to minimize these risks. Any score over100 requires the approval of the Chairman of the Board of Directors. Absent such approval, the trip planner shall be required to re-schedule the trip to get the score below 100.Position Points per passengerCEO and/or President 50Board Member 15President, U.S. Operations 25Executive Vice President 25Senior Vice President 25Vice President (two or less) 153rd or 4th Vice President 25TOTAL ____5Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Appendix CAircraft Request FormName: Request to Upgrade Aircraft to Type:Department: Date of Proposed Trip: Reason: Range Capacity (circle one/both)Business purpose of proposed trip: Leg 1: City, State AirportOrigin: Destination: Passengers: Ground Transportation: Catering: Leg 2: City, State AirportOrigin: Destination: Passengers: Ground Transportation: Catering: Leg 3: City, State AirportOrigin: Destination: Passengers: 6Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Appendix CGround Transportation: Catering: Date: Approved by: CEO or Chairman (only)7Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 2016 2015 2014 2013Earnings: Pretax income $219,003 $227,371 $182,171 $164,400 $191,895Add: Fixed charges 138,199 127,014 108,106 105,739 97,233Less: Capitalized interest (1,649) (1,720) (741) (731) (805)Total Earnings $355,553 $352,665 $289,536 $269,408 $288,323Fixed Charges: Interest expense $122,869 $112,863 $96,167 $91,306 $80,639Estimated interest within rent expense 13,681 12,431 11,198 13,702 15,789Capitalized interest 1,649 1,720 741 731 805Total Fixed Charges $138,199 $127,014 $108,106 $105,739 $97,233Ratio of Earnings to Fixed Charges 2.6 2.8 2.7 2.5 3.0Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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)dbaSterling McCall HyundaiAmarillo Motors-F, Inc. (DE)dbaGene Messer Ford of AmarilloGene Messer Lincoln of AmarilloGene Messer Ford Lincoln of AmarilloGene Messer Auto GroupGene 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, LLC (DE)Chaperral Dodge, Inc. (DE)dbaDallas Chrysler Dodge Jeep RamDanvers-S, Inc. (DE)dba Audi 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)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)dbaPage 1 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Mercedes-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)dbaAudi North MiamiGPI FL-H, LLC (DE)dbaHonda of Bay CountyGPI FL-VW, LLC (DE)dbaVolkswagen of Panama CityGPI GA-CGM, LLC (NV)dbaRivertown Buick GMCGPI GA-DM, LLC (DE)dbaMercedes-Benz of AugustaGPI GA-FII, LLC (DE)dbaJim Tidwell FordGroup 1 AtlantaGroup 1 Automotive - Southeast RegionTidwell Ford Collision CenterTidwell Collision Center of Kennesaw 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)GPI 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 KiaPage 2 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.GPI LA-FII, LLC (DE)dbaRountree Ford LincolnGPI 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 AcuraGPI NJ-HII, LLC (NV)dbaBoardwalk HondaGPI NJ-SB, LLC (NV)dbaBMW of Atlantic CityBMW of Atlantic City Collision CenterGPI NM-J, Inc. (NM)dbaJaguar Land Rover AlbuquerqueGPI NM-LR, Inc. (NM)GPI NM-LRII, Inc. (NM) dbaLand Rover Santa FeGPI 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)Page 3 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.GPI SD-DC, Inc. (DE)dbaRancho Chrysler Dodge Jeep RamRancho Auto GroupRancho Collision CenterRancho Collision Center of San DiegoGPI TX-A, Inc. (NV)dbaAudi GrapevineGPI TX-AII, Inc. (TX)dbaAudi Fort WorthGPI TX-AIII, Inc. (TX)GPI TX-ARGMIII, Inc. (NV)dbaCadillac of ArlingtonGPI TX-DMII, Inc. (NV)dbaMercedes-Benz of Clear LakeSprinter of Clear LakeMercedes-Benz and Sprinter of Clear LakeGPI TX-DMIII, Inc. (NV)dbaMercedes-Benz of BoerneGPI TX-DMIV, Inc. (NV)dbaMercedes-Benz of GeorgetownSprinter of Georgetownsmart center of GeorgetownGeorgetown Mercedes-BenzGeorgetown SprinterGeorgetown smart centerGPI TX-EPGM, Inc. (DE)dbaShamaley Buick GMCGPI TX-F, Inc. (DE) dbaShamaley FordShamaley Collision CenterShamaley Collision Center of El PasoGPI TX-FM, Inc. (NV)dbaMunday MazdaGPI TX-HAII, Inc. (NV)GPI TX-HGM, Inc. (DE)dbaDavid Taylor CadillacGPI TX-HGMII, Inc. (NV)dbaSterling McCall Buick GMCGPI TX-HGMIV, Inc. (NV)dbaMunday ChevroletMunday Collision CenterSterling McCall Collision Center NorthGPI TX-NVI, Inc. (NV)dbaCedar Park NissanGPI 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)Page 4 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.dbaGene Messer KiaGene Messer Auto GroupGPI TX-SKII, Inc. (NV)dbaKia of South AustinGPI TX-SU, Inc. (TX)GPI TX-SV, Inc. (DE)dbaMetro VolkswagenGPI TX-SVII, Inc. (DE)dbaVolkswagen of BeaumontMike Smith Auto GroupGPI TX-SVIII Inc. (DE)dbaVolkswagen of Alamo HeightsGPI UK Holdings-1, LLC (NV)GPI UK Holdings-2, LLC (NV)Group 1 Associates, Inc. (DE)Group 1 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)dbaBohn FordBohnZone Collision CenterBohnZone Collision Center of West BankHarvey GM, LLC (DE)dbaBohn Buick GMCBohn Buick GMC Pre-OwnedHarvey Operations-T, LLC (DE)dbaBohn ToyotaBohn 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)Page 5 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.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 CenterKutz-N, Inc. (DE)dbaCourtesy NissanLubbock Motors, Inc. (DE)Lubbock Motors-F, Inc. (DE)dbaGene Messer FordGene Messer LincolnGene Messer Ford LincolnGene Messer Ford Collision CenterGene Messer Collision Center of LubbockGene Messer Auto GroupLubbock Motors-GM, Inc. (DE)dbaGene Messer ChevroletGene Messer Auto GroupGene Messer AccessoriesGene Messer Quality Used CarsLubbock Motors-S, Inc. (DE)dba Gene 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 AcuraPage 6 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.McCall-N, Inc. (DE)dbaSterling McCall NissanSterling McCall Nissan Collision CenterSterling McCall Nissan Collision Center of StaffordMcCall-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 CenterNJ-SV, Inc. (DE)Rockwall Automotive-DCD, Ltd. (TX)dbaRockwall Chrysler Dodge Jeep RamRockwall Automotive-F, Inc. (DE)Page 7 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.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)AR - Veículos e Participações Ltda. (Brazil)Beadles Group Limited (UK)Beadles Aylesford Limited (UK)dbaBeadles Vauxhall MaidstoneBeadles Bromley Limited (UK)Beadles Contract Hire Limited (UK)Beadles Coulsdon Limited (UK)dbaBeadles Kia CoulsdonBeadles Dartford Limited (UK)dbaBeadles Volkswagen BromleyBeadles Volkswagen DartfordBeadles Volkswagen MaidstoneBeadles Volkswagen SevenoaksBeadles Van CentreBeadles Maidstone Limited (UK)dbaBeadles Škoda MaidstoneBeadles Medway Limited (UK)dbaBeadles Toyota MaidstoneBeadles Toyota MedwayBeadles Sevenoaks Limited (UK)Beadles Sidcup Limited (UK) dbaBeadles Jaguar Land Rover SidcupBeadles Jaguar Land Rover SouthendChandlers Garage Holdings Limited (UK)Chandlers Garage Worthing Limited (UK)Chandlers Garage (Brighton) Limited (UK)Chandlers (Hailsham) LimitedCVK Auto Comércio de Veiculos Ltda. (Brazil)dbaEuro Import BMW/MINI LondrinaEuro Import BMW - CascavelElms Automotive Limited (UK)dbaChandlers Brighton Portslade BMW/MINIChandlers Worthing Rustington BMW/MINIChandlers Hailsham East Sussex BMW/MINIBarons Farnborough Hampshire BMW/MINIBarons Hindhead BMW/MINIBarons Bedford BMW/MINIBarons Cambridge Cambourne BMW/MINIBarons Stansted Bishop's Stortford BMW/MINIElms Stansted Limited (UK)Essex Audi Limited (UK)Euro 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 - MotorradEuro Import Motors - CascavelEuro Import Veiculos e Serviços Ltda. (Brazil)GPI UK Partners-1, LP (UK)Page 8 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Group 1 Automotive, Inc.GPI 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)dbaChelmsford AudiChingford AudiColchester AudiHarold Wood AudiSouthend AudiStansted AudiJoi Comércio de Veiculos Ltda. (Brazil)dbaBMW JoinvilleMyltons Limited (UK)Oakfield Kent Limited (UK)Ophiucus Participações Ltda. (Brazil)Sceptrum Empreendimentos Imobiliários Ltda. (Brazil)Shape Automotive Holdings Limited (UK)Shape Automotive Limited (UK)Spire Automotive Limited (UK)dbaBarons Borehamwood - BMW/MINIBarons Kentish Town - BMW/MINIBarons Watford - BMW/MINIFinchley Road AudiHatfield AudiHatfield SEATSpire JaguarVW Van Centre (Hatfield)Watford AudiWatford SEATWhetstone Audi Spire Holdings Limited (UK)Spire Used Cars Limited (UK)Sterling Management Holdings Limited (Cayman Islands)Sul Import Veiculos e Serviços Ltda. (Brazil)dbaEuro Import Land RoverThink One Limited (UK)dbaThink Ford BasingstokeThink Ford BracknellThink Ford FarnboroughThink Ford GuildfordThink Ford NewburyThink Ford ReadingThink 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 - TaubateT-Drive - TatuapéUnited 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)Page 9 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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.Walter Holdings Limited (UK)Page 10 of 4Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 16, 2018, with respect to the consolidated financial statements and the related notes of Group 1 Automotive, Inc. andsubsidiaries and the effectiveness of internal control over financial reporting of Group 1 Automotive, Inc. and subsidiaries included in this AnnualReport (Form 10-K) of Group 1 Automotive, Inc. and subsidiaries for the year ended December 31, 2017./s/ Ernst & Young LLPHouston, TexasFebruary 16, 2018Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 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 16, 2018Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 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 16, 2018Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 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 16, 2018Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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, 2017 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 16, 2018Source: GROUP 1 AUTOMOTIVE INC, 10-K, February 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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 20, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except 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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