Group 1 Automotive Reports Second-Quarter 2008 Financial Results

Group 1 Automotive, Inc. (NYSE:GPI), a Fortune 500 automotive retailer, today reported 2008 second-quarter net income from continuing operations of $18.5 million, or $0.82 per diluted share. This compares to net income of $24.3 million, or $1.02 per diluted share, in the second quarter of 2007. The results in both periods include lease termination and asset impairment charges related to franchise disposals. Excluding the lease termination charge, second-quarter net income from continuing operations was $19.0 million, or $0.84 per diluted share. Second-quarter 2008 same-store revenues fell 7.1 percent, to $1.5 billion. This decline is primarily due to an 8.2 percent reduction in new vehicle unit sales that resulted in 9.9 percent lower new vehicle revenues, as well as a 5.8 percent decrease in total used vehicle revenues. Retail used vehicle unit sales fell 2.4 percent resulting in a 2.0 percent revenue decline. Consistent with Group 1’s strategy of reducing its low-margin used vehicle wholesale business, wholesale used vehicle revenues were 19.7 percent lower as the company wholesaled 13.4 percent fewer vehicles. These declines more than offset a 4.8 percent increase in parts and service revenues, as well as a 0.6 percent increase in finance and insurance (F&I) revenues. The growth in parts and service reflected improvements in all areas of this business. The revenue increase in F&I was realized despite a 6.3 percent retail unit sales decline as lower product costs and improved penetration more than offset the volume decline. Same-store gross margin improved 60 basis points, to 15.9 percent, from the second quarter of 2007. The gross margin increase reflected an increase in the mix of the higher-margin parts and service and F&I business, partially offset by lower margins in new and used vehicles. On a consolidated basis, selling, general and administrative (SG&A) expenses as a percent of gross profit increased 160 basis points, to 77.7 percent, as gross profit was down slightly and SG&A expenses grew 1.7 percent, or $3.3 million, from the prior-year period. The increase in absolute expenses is more than explained by acquisitions. "The challenges of the new vehicle retail market became even more severe in the second quarter, but our performance in the other areas of our business – used vehicles, parts and service, and finance and insurance – substantially tempered the financial impact of reduced new vehicle sales,” said Earl J. Hesterberg, Group 1’s president and chief executive officer. "The strategic initiatives we launched two years ago, that were focused on the higher-margin used vehicle, parts and service, and finance and insurance businesses, are delivering the desired results and providing meaningful benefits during this period of weaker new vehicle sales.” For the six-month period, Group 1 reported net income from continuing operations of $35.6 million, or $1.57 per diluted share. On a comparable basis, excluding lease termination and asset impairment charges related to franchise disposals for both periods, six-month net income from continuing operations in 2008 was $36.1 million, or $1.59 per diluted share, compared to $45.0 million, or $1.88, in the 2007 period. Six-month same-store revenues were down 5.3 percent to $2.9 billion, reflecting decreases in new vehicle and wholesale used vehicle sales, partially offset by increases in all other aspects of the business. Total same-store gross margin also improved to 16.2 percent from 15.7 percent in the prior-year period. 2008 Acquisition Target Revised / Corporate Development Update In light of the more challenging economic conditions, Group 1 has lowered its 2008 acquisition revenue target to $200 million from $300 million. In June, Group 1 acquired Chrysler and Jeep franchises that will operate out of its existing Dodge dealership in the Austin, Texas, market. The two franchises are estimated to generate $7.7 million in annual revenues and will complete the "Alpha” configuration which includes all three Chrysler brands under one roof, as desired by Chrysler LLC. Year to date, Group 1 has acquired a total of five franchises expected to generate $90.2 million in estimated annual revenues toward its revised $200 million acquisition target. In addition, Group 1 disposed of nine franchises in the second quarter with 12-month revenues of $128.8 million. These dispositions include the sale on June 30 of all seven of Group 1’s franchises in New Mexico. The financial results associated with the New Mexico operations have been categorized in the second-quarter financial reporting as "discontinued operations,” as the disposition of these six domestic franchises (Chevrolet, Pontiac, Buick, GMC, Chrysler and Jeep) and one import franchise (Mitsubishi) represents Group 1’s withdrawal from the New Mexico market. Additionally, Group 1 closed a Ford dealership in Florida and a Volkswagen dealership in South Carolina in the second quarter. The company also announced that it disposed of four franchises (Pontiac, Buick, GMC and Cadillac) in Beaumont, Texas, in late July. 2008 Full-Year Guidance and Outlook Revised Group 1 revised its 2008 full-year guidance from continuing operations to a range of $2.65 to $2.95 based on its outlook and the following assumptions: Industry seasonally adjusted annual sales rate (SAAR) of 14.0 to 14.5 million vehicles Same-store revenues six to seven percent lower SG&A expenses as a percent of gross profit at 78 percent to 79 percent, excluding any one-time items, as lower sales revenues are expected to offset cost improvements Libor interest rates at current levels throughout 2008 Tax rate of 38 to 38.5 percent Estimated average diluted shares outstanding of 22.8 million Guidance excludes the impact of future acquisitions and dispositions, as well as the potential related one-time costs estimated at $10 million to $15 million. In addition, Group 1 announced that it has lowered its 2008 full-year capital expenditure projection to approximately $55 million from $60 million. Second-Quarter Earnings Conference Call Group 1’s senior management will host a conference call today at 10 a.m. EDT to discuss the second-quarter financial results and the company’s outlook and strategy. The conference call will be simulcast live on the Internet at www.group1auto.com through the Investor Relations section. A replay will be available for 30 days. The conference call will also be available live by dialing in 10 minutes prior to the start of the call at: 800-257-3401 (domestic) or 303-275-2170 (international). A telephonic replay will be available following the call through Aug. 5 by dialing: 800-405-2236 (domestic) or 303-590-3000 (international) with passcode 11117356#. About Group 1 Automotive Inc. Group 1 owns and operates 100 automotive dealerships, 134 franchises, and 26 collision service centers in the United States and the United Kingdom that offer 31 brands of automobiles. Through its dealerships, the company sells new and used cars and light trucks; arranges related financing, vehicle service and insurance contracts; provides maintenance and repair services; and sells replacement parts. Group 1 Automotive can be reached on the Internet at www.group1auto.com. This press release contains "forward-looking statements," which are statements related to future, not past, events. In this context, the forward-looking statements often include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "expects,” "anticipates,” "intends,” "plans,” "believes,” "seeks” or "will.” Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic and business conditions, (b) the level of manufacturer incentives, (c) the future regulatory environment, (d) our ability to obtain an inventory of desirable new and used vehicles, (e) our relationship with our automobile manufacturers and the willingness of manufacturers to approve future acquisitions, (f) our cost of financing and the availability of credit for consumers, (g) our ability to complete acquisitions and dispositions and the risks associated therewith, (h) foreign exchange controls and currency fluctuations, and (i) our ability to retain key personnel. These factors, as well as additional factors that could affect our forward-looking statements, are described in our Form 10-K under the headings "Business—Risk Factors” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We urge you to carefully consider this information. We undertake no duty to update our forward-looking statements, including our earnings outlook. Group 1 Automotive, Inc. Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)                         Three Months Ended June 30, Six Months Ended June 30, 2008 2007 % Change 2008 2007 % Change REVENUES: New vehicle retail sales $ 971,281 $ 1,039,549 (6.6 ) % $ 1,860,062 $ 1,952,993 (4.8 ) % Used vehicle retail sales 298,593 296,650 0.7 602,588 576,651 4.5 Used vehicle wholesale sales 67,496 81,590 (17.3 ) 134,723 154,746 (12.9 ) Parts and service 192,753 176,437 9.2 383,589 349,200 9.8 Finance and insurance   52,992     52,051   1.8     105,416     101,088   4.3   Total revenues 1,583,115 1,646,277 (3.8 ) % 3,086,378 3,134,678 (1.5 ) %   COST OF SALES: New vehicle retail sales 908,262 970,248 (6.4 ) % 1,739,899 1,820,301 (4.4 ) % Used vehicle retail sales 266,192 261,684 1.7 536,605 506,507 5.9 Used vehicle wholesale sales 68,290 82,139 (16.9 ) 135,458 154,097 (12.1 ) Parts and service   88,960     80,029   11.2     175,426     160,451   9.3   Total cost of sales 1,331,704 1,394,100 (4.5 ) % 2,587,388 2,641,356 (2.0 ) %             GROSS PROFIT 251,411 252,177 (0.3 ) % 498,990 493,322 1.1 %   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 195,337 191,998 1.7 390,399 385,000 1.4   DEPRECIATION AND AMORTIZATION EXPENSE 6,497 5,103 27.3 12,315 9,838 25.2   ASSET IMPAIRMENTS - 356 (100.0 ) - 356 (100.0 )             OPERATING INCOME 49,577 54,720 (9.4 ) % 96,276 98,128 (1.9 ) %   OTHER INCOME (EXPENSE): Floorplan interest expense (12,392 ) (11,477 ) 8.0 (24,400 ) (23,388 ) 4.3 Other interest expense, net (7,066 ) (6,141 ) 15.1 (14,904 ) (10,661 ) 39.8 Gain on redemption of senior subordinated notes - - - 409 - 100.0 Other income (expense), net (36 ) 95 (137.9 ) 314 191 64.4               INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 30,083 37,197 (19.1 ) % 57,695 64,270 (10.2 ) %   PROVISION FOR INCOME TAXES 11,591 12,908 (10.2 ) 22,100 22,349 (1.1 )             INCOME FROM CONTINUING OPERATIONS 18,492 24,289 (23.9 ) % 35,595 41,921 (15.1 ) %   DISCONTINUED OPERATIONS: Loss related to discontinued operations (2,367 ) (106 ) 2,133.0 (3,481 ) (381 ) 813.6 Income tax benefit related to loss on discontinued operations   1,091     31   3,419.4     1,478     123   1,101.6   LOSS RELATED TO DISCONTINUED OPERATIONS (1,276 ) (75 ) 1,601.3 % (2,003 ) (258 ) 676.4 %             NET INCOME $ 17,216   $ 24,214   (28.9 ) % $ 33,592   $ 41,663   (19.4 ) %   DILUTED EARNINGS (LOSS) PER SHARE: Earnings per share from continuing operations $ 0.82 $ 1.02 (19.6 ) % $ 1.57 $ 1.75 (10.3 ) % Loss per share related to discontinued operations   (0.06 ) $ (0.01 ) (500.0 )   (0.09 )   (0.01 ) (800.0 ) Earnings per share $ 0.76   $ 1.01   (24.8 ) % $ 1.48   $ 1.74   (14.9 ) %   Weighted average diluted shares outstanding 22,661 23,888 (5.1 ) % 22,728 23,984 (5.2 ) % Group 1 Automotive, Inc.Consolidated Balance Sheets(Dollars in thousands)       June 30, December 31, 2008 2007 % Change ASSETS:   CURRENT ASSETS: Cash and cash equivalents $ 39,968 $ 34,248 16.7 % Contracts in transit and vehicle receivables, net 145,231 189,400 (23.3 ) Accounts and notes receivable, net 83,328 82,698 0.8 Inventories 933,469 878,168 6.3 Assets related to discontinued operations 10,812 30,531 (64.6 ) Deferred income taxes 18,933 18,287 3.5 Prepaid expenses and other current assets   15,362     29,651   (48.2 ) Total current assets 1,247,103 1,262,983 (1.3 ) PROPERTY AND EQUIPMENT, net 542,453 427,223 27.0 GOODWILL AND OTHER INTANGIBLES 807,692 787,245 2.6 OTHER ASSETS   25,538     28,730   (11.1 ) Total assets $ 2,622,786   $ 2,506,181   4.7   %   LIABILITIES AND STOCKHOLDERS' EQUITY:   CURRENT LIABILITIES: Floorplan notes payable - credit facility $ 753,760 $ 648,469 16.2 % Floorplan notes payable - manufacturer affiliates 168,901 170,911 (1.2 ) Current maturities of long-term debt 13,667 12,260 11.5 Accounts payable 107,258 111,458 (3.8 ) Liabilities related to discontinued operations 5,170 35,180 (85.3 ) Accrued expenses   100,902     100,000   0.9   Total current liabilities 1,149,658 1,078,278 6.6 2.25% CONVERTIBLE SENIOR NOTES 282,214 281,915 0.1 8.25% SENIOR SUBORDINATED NOTES 82,205 100,273 (18.0 ) MORTGAGE FACILITY, net of current maturities 173,291 124,633 39.0 OTHER REAL ESTATE RELATED AND LONG-TERM DEBT, net of current maturities 37,296 6,104 511.0 CAPITAL LEASE OBLIGATIONS RELATED TO REAL ESTATE, net of current maturities 40,225 26,913 49.5 ACQUISITION LINE 50,000 135,000 (63.0 ) DEFERRED INCOME TAXES 29,562 6,849 331.6 LIABILITIES FROM INTEREST RISK MANAGEMENT ACTIVITIES 15,395 16,188 (4.9 ) OTHER LIABILITIES   32,089     29,016   10.6   Total liabilities before deferred revenues   1,891,935     1,805,169   4.8     DEFERRED REVENUES 13,693 16,531 (17.2 )   STOCKHOLDERS' EQUITY: Common stock 256 255 0.4 Additional paid-in capital 292,807 293,675 (0.3 ) Retained earnings 529,892 502,783 5.4 Accumulated other comprehensive loss (9,097 ) (9,560 ) (4.8 ) Treasury stock   (96,700 )   (102,672 ) (5.8 ) Total stockholders' equity   717,158     684,481   4.8   Total liabilities and stockholders' equity $ 2,622,786   $ 2,506,181   4.7   %   BALANCE SHEET DATA: Working capital $ 97,445 $ 184,705 Current ratio 1.08 1.17   Long-term debt to capitalization 49 % 50 % Excluding real estate related debt 39 % 45 %   Inventory days supply: (1) New vehicle 66 62 Used vehicle 28 35   (1) Inventory days supply equals units in inventory as of the end of the period, divided by unit sales for the month then ended, times 30 days. Group 1 Automotive, Inc.Additional Information - Consolidated(Unaudited)     Three Months Ended   Six Months Ended, June 30, June 30, 2008   2007 2008   2007 NEW VEHICLE UNIT SALES GEOGRAPHIC MIX: Region Geographic Market Eastern Massachusetts 11.8 % 12.4 % 11.7 % 12.0 % New Jersey 7.1 5.5 6.8 5.5 New York 4.3 2.5 4.2 2.4 New Hampshire 3.7 4.0 3.5 3.7 Louisiana 3.1 4.0 3.4 3.9 Georgia 3.3 3.6 3.4 3.6 Florida 2.3 3.6 2.6 3.7 Mississippi 1.7 1.5 1.6 1.6 Alabama 0.9 0.9 0.9 1.0 Maryland 0.6 - 0.3 - South Carolina 0.3 - 0.3 - 39.1 38.0 38.7 37.4   Central Texas 32.2 31.4 32.6 31.6 Oklahoma 9.6 10.3 9.4 9.9 Kansas 1.4 1.1 1.3 1.0 43.2 42.8 43.3 42.5   Western California 16.0 17.6 16.3 18.7   International United Kingdom 1.7 1.6 1.7 1.4 100.0 % 100.0 % 100.0 % 100.0 %   NEW VEHICLE UNIT SALES BRAND MIX: Toyota/Scion/Lexus 35.5 % 36.8 % 35.2 % 36.3 % Honda/Acura 14.9 12.4 14.0 12.2 Nissan/Infiniti 12.7 12.0 12.9 12.8 Ford 9.5 12.9 10.6 13.2 BMW/Mini 9.0 6.9 8.2 6.3 Chrysler 5.7 7.9 6.3 7.7 Mercedes-Benz 5.7 2.8 5.6 3.0 GM 4.5 5.5 4.7 5.7 Other 2.5   2.8   2.5   2.8   100.0 % 100.0 % 100.0 % 100.0 %   NEW VEHICLE UNIT OTHER MIX: Import 58.0 % 55.9 % 56.8 % 55.9 % Luxury 24.3 19.9 23.8 19.8 Domestic 17.7   24.2   19.4   24.3   100.0 % 100.0 % 100.0 % 100.0 %   Car 61.8 % 55.0 % 58.7 % 53.6 % Truck 38.2   45.0   41.3   46.4   100.0 % 100.0 % 100.0 % 100.0 % Group 1 Automotive, Inc.Additional Information - Consolidated(Unaudited)(Dollars in thousands, except per unit amounts)     Three Months Ended June 30,   Six Months Ended June 30, 2008   2007   % Change 2008   2007   % Change REVENUES: New vehicle retail sales $ 971,281 $ 1,039,549 (6.6 ) % $ 1,860,062 $ 1,952,993 (4.8 ) % Used vehicle retail sales 298,593 296,650 0.7 602,588 576,651 4.5 Used vehicle wholesale sales   67,496     81,590   (17.3 )   134,723     154,746   (12.9 ) Total used 366,089 378,240 (3.2 ) 737,311 731,397 0.8 Parts and service 192,753 176,437 9.2 383,589 349,200 9.8 Finance and insurance   52,992     52,051   1.8   105,416     101,088   4.3 Total $ 1,583,115 $ 1,646,277 (3.8 ) % $ 3,086,378 $ 3,134,678 (1.5 ) %   GROSS MARGIN: New vehicle retail sales 6.5 % 6.7 % 6.5 % 6.8 % Used vehicle retail sales 10.9 11.8 10.9 12.2 Used vehicle wholesale sales (1.2 ) (0.7 ) (0.5 ) 0.4 Total used 8.6 9.1 8.8 9.7 Parts and service 53.8 54.6 54.3 54.1 Finance and insurance 100.0 100.0 100.0 100.0 Total 15.9 % 15.3 % 16.2 % 15.7 %   GROSS PROFIT: New vehicle retail sales $ 63,019 $ 69,301 (9.1 ) % $ 120,163 $ 132,692 (9.4 ) % Used vehicle retail sales 32,401 34,966 (7.3 ) 65,983 70,144 (5.9 ) Used vehicle wholesale sales   (794 )   (549 ) (44.6 )   (735 )   649   (213.3 ) Total used 31,607 34,417 (8.2 ) 65,248 70,793 (7.8 ) Parts and service 103,793 96,408 7.7 208,163 188,749 10.3 Finance and insurance   52,992     52,051   1.8   105,416     101,088   4.3 Total $ 251,411 $ 252,177 (0.3 ) % $ 498,990 $ 493,322 1.1 %   UNITS SOLD: Retail new vehicles sold 32,368 34,706 (6.7 ) % 60,887 65,270 (6.7 ) % Retail used vehicles sold 16,783 17,115 (1.9 ) 33,888 33,860 0.1 Wholesale used vehicles sold   10,304     11,842   (13.0 )   20,252     22,303   (9.2 ) Total used 27,087 28,957 (6.5 ) % 54,140 56,163 (3.6 ) %   GROSS PROFIT PER UNIT SOLD: New vehicle retail sales $ 1,947 $ 1,997 (2.5 ) % $ 1,974 $ 2,033 (2.9 ) % Used vehicle retail sales 1,931 2,043 (5.5 ) 1,947 2,072 (6.0 ) Used vehicle wholesale sales (77 ) (46 ) (67.4 ) (36 ) 29 (224.1 ) Total used 1,167 1,189 (1.9 ) 1,205 1,260 (4.4 ) Finance and insurance (per retail unit) $ 1,078 $ 1,004 7.4 % $ 1,112 $ 1,020 9.0 %   OTHER: SG&A expenses $ 195,337 $ 191,998 1.7 % $ 390,399 $ 385,000 1.4 % SG&A as % revenues 12.3 % 11.7 % 12.6 % 12.3 % SG&A as % gross profit 77.7 % 76.1 % 78.2 % 78.0 % Operating margin 3.1 % 3.3 % 3.1 % 3.1 % Pretax income margin 1.9 % 2.3 % 1.9 % 2.1 %   Floorplan interest (12,392 ) (11,477 ) 8.0 (24,400 ) (23,388 ) 4.3 Floorplan assistance   7,839     9,713   (19.3 )   15,565     18,491   (15.8 ) Net floorplan (expense) income $ (4,553 ) $ (1,764 ) 158.1 % $ (8,835 ) $ (4,897 ) 80.4 % Group 1 Automotive, Inc. Additional Information - Same Store(1) (Unaudited) (Dollars in thousands, except per unit amounts)                 Three Months Ended June 30, Six Months Ended June 30, 2008 2007 % Change 2008 2007 % Change REVENUES: New vehicle retail sales $ 925,082 $ 1,027,177 (9.9 ) % $ 1,764,524 $ 1,925,178 (8.3 ) % Used vehicle retail sales 284,975 290,730 (2.0 ) 566,337 563,376 0.5 Used vehicle wholesale sales   64,403     80,162   (19.7 )   125,534     150,945   (16.8 ) Total used 349,378 370,892 (5.8 ) 691,871 714,321 (3.1 ) Parts and service 181,550 173,294 4.8 357,557 341,153 4.8 Finance and insurance   51,802     51,518   0.6   102,902     100,004   2.9 Total $ 1,507,812 $ 1,622,881 (7.1 ) % $ 2,916,854 $ 3,080,656 (5.3 ) %   GROSS MARGIN: New vehicle retail sales 6.4 % 6.6 % 6.4 % 6.8 % Used vehicle retail sales 10.9 11.7 11.1 12.1 Used vehicle wholesale sales (1.2 ) (0.5 ) (0.6 ) 0.6 Total used 8.7 9.1 9.0 9.7 Parts and service 53.9 54.6 54.3 54.0 Finance and insurance 100.0 100.0 100.0 100.0 Total 15.9 % 15.3 % 16.2 % 15.7 %   GROSS PROFIT: New vehicle retail sales $ 59,068 $ 68,217 (13.4 ) % $ 112,894 $ 130,416 (13.4 ) % Used vehicle retail sales 31,193 34,147 (8.7 ) 63,089 68,187 (7.5 ) Used vehicle wholesale sales   (757 )   (420 ) (80.2 )   (756 )   899   (184.1 ) Total used 30,436 33,727 (9.8 ) 62,333 69,086 (9.8 ) Parts and service 97,794 94,698 3.3 194,009 184,384 5.2 Finance and insurance   51,802     51,518   0.6   102,902     100,004   2.9 Total $ 239,100 $ 248,160 (3.7 ) % $ 472,138 $ 483,890 (2.4 ) %   UNITS SOLD: Retail new vehicles sold 31,466 34,292 (8.2 ) % 59,048 64,372 (8.3 ) % Retail used vehicles sold 16,356 16,759 (2.4 ) 32,756 33,013 (0.8 ) Wholesale used vehicles sold   10,068     11,632   (13.4 )   19,608     21,773   (9.9 ) Total used 26,424 28,391 (6.9 ) % 52,364 54,786 (4.4 ) %   GROSS PROFIT PER UNIT SOLD: New vehicle retail sales $ 1,877 $ 1,989 (5.6 ) % $ 1,912 $ 2,026 (5.6 ) % Used vehicle retail sales 1,907 2,038 (6.4 ) 1,926 2,065 (6.7 ) Used vehicle wholesale sales (75 ) (36 ) (108.3 ) (39 ) 41 (195.1 ) Total used 1,152 1,188 (3.0 ) 1,190 1,261 (5.6 ) Finance and insurance (per retail unit) $ 1,083 $ 1,009 7.3 % $ 1,121 $ 1,027 9.2 %   OTHER: SG&A expenses $ 186,513 $ 187,309 (0.4 ) % $ 369,546 $ 370,842 (0.3 ) % SG&A as % revenues 12.4 % 11.5 % 12.7 % 12.0 % SG&A as % gross profit 78.0 % 75.5 % 78.3 % 76.6 % Operating margin 3.1 % 3.5 % 3.1 % 3.4 %   Floorplan interest (11,872 ) (11,134 ) (6.6 ) (23,079 ) (22,630 ) (2.0 ) Floorplan assistance   7,839     9,454   (17.1 )   15,564     17,965   (13.4 ) Net floorplan (expense) income $ (4,033 ) $ (1,680 ) (140.1 ) % $ (7,515 ) $ (4,665 ) (61.1 ) %   (1)   Same store amounts include the results for the identical months in each period presented in the comparison, commencing with the first full month we owned the dealership and, in the case of dispositions, ending with the last full month we owned it. Same store results also include the activities of our corporate office. Group 1 Automotive, Inc.Reconciliation of Certain Non-GAAP Financial Measures(Unaudited)(Dollars in thousands, except per share amounts)               NET INCOME FROM CONTINUING OPERATIONS RECONCILIATION:   Three Months Ended June 30, Six Months Ended June 30, 2008 2007 % Change 2008 2007 % Change   As reported $ 18,492 $ 24,289 (23.9 ) % $ 35,595 $ 41,921 (15.1 ) % Adjustments: Lease Terminations 535 326 535 2,809 Asset impairments   -   232   -   232   Adjusted (1) $ 19,027 $ 24,847 (23.4 ) % $ 36,130 $ 44,962 (19.6 ) %   DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS RECONCILIATION:   Three Months Ended June 30, Six Months Ended June 30, 2008 2007 % Change 2008 2007 % Change   Earnings per share from continuing operations $ 0.82 $ 1.02 (19.6 ) % $ 1.57 $ 1.75 (10.3 ) % Adjustments: Lease Terminations 0.02 0.01 0.02 0.12 Asset impairments   -   0.01   -   0.01   Adjusted (1) $ 0.84 $ 1.04 (19.2 ) % $ 1.59 $ 1.88 (15.4 ) %   (1) Adjusted net income from continuing operations and adjusted diluted earnings per share from continuing operations means net income from continuing operations or diluted earnings per share from continuing operations, as the case may be, plus the adjustments noted above. We use adjusted net income from continuing operations and adjusted diluted earnings per share from continuing operations in our evaluation of the performance of the company, as we believe that they provide additional information regarding the performance of our operations. We believe the presentation of these measures is relevant and useful to investors because they improve period-to-period comparability and are more reflective of our operating performance. Neither of these measures is a measure of financial performance under GAAP. Accordingly, they should not be considered as substitutes for net income from continuing operations or diluted earnings per share from continuing operations prepared in accordance with GAAP. Although we find these non-GAAP results useful in evaluating the performance of our business, our reliance on these measures is limited because the adjustments often have a material impact on our net income from continuing operations and diluted earnings per share from continuing operations calculated in accordance with GAAP. Therefore, we typically use these adjusted numbers in conjunction with our GAAP results to address these limitations.