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These excerpts taken from the GPI 10-Q filed May 8, 2009. Recent
Accounting Pronouncements
On October 10, 2008, the Financial Accounting Standards
Board (the “FASB”) issued FASB Staff Position
SFAS 157-3,
“Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active”
(“SFAS 157-3”),
which clarifies the application of SFAS No. 157, in a
market that is not active and provides guidance in determining
the fair value of financial assets when the market for that
financial asset is not active. The application of
SFAS 157-3
was effective upon issuance.
SFAS 157-3
permits the use of broker quotes when performing the valuation
of financial assets. However,
SFAS 157-3
requires management to utilize considerable judgment when market
circumstances surrounding such quotes are based upon inactive
market price quotes or trading activity levels which may not
reflect the true value of market transactions. The Company has
adopted
SFAS 157-3
and determined it did not have a material effect on its current
valuation methods and did not affect the Company’s results
of operations or financial position.
In November 2007, the FASB deferred for one year the
implementation of SFAS No. 157 for non-financial
assets and liabilities. In February 2008, the FASB issued FSP
FAS 157-2,
“Effective Date of FASB Statement No. 157”
(“SFAS 157-2”),
which defers the effective date of SFAS 157, as it related
to non-financial assets and
non-financial
liabilities, to fiscal years beginning after November 15,
2008 and interim periods within those fiscal years. The Company,
as of January 1, 2009, adopted the provisions of this
statement and will include the appropriate disclosures
surrounding non-financial assets and liabilities in future
periods, as applicable. The adoption did not have a material
impact on the Company’s results of operations, financial
position or current disclosures.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations”
(“SFAS 141(R)”), which significantly changes the
accounting for business acquisitions both during the period of
the acquisition and in subsequent periods. SFAS 141(R) was
effective on a prospective basis for all business combinations
for which the acquisition date is on or after the beginning of
the first annual period subsequent to December 31, 2008,
with an exception related to the accounting for valuation
allowances on deferred taxes and acquired contingencies related
to acquisitions completed before the effective date. Effective
January 1, 2009, the Company adopted SFAS 141(R). Such
adoption did not impact the Company’s financial position or
results of operations for the three months ended March 31,
2009.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS 161”), an amendment of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”
(“SFAS 133”), which requires disclosure of the
objectives of derivative instruments and hedging activities, the
method of accounting for such instruments and activities under
SFAS No. 133 and its related interpretations, and
disclosure of the effects of such instruments and related hedged
items on an entity’s financial position, financial
performance, and cash flows. The statement encouraged but did
not require comparative disclosures for earlier periods at
initial application. SFAS 161 was effective for financial
statements issued for years and interim periods beginning after
November 15, 2008, with early application encouraged. As of
January 1, 2009, the Company adopted this statement with no
financial impact. The Company enhanced its current disclosures
contained within its consolidated financial statements. See
qualitative and quantitative disclosures regarding our
derivative financial instruments and required tabular
presentation in Note 8.
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In April 2008, the FASB issued FASB Staff Position
SFAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“SFAS 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142.
SFAS 142-3
enhances the guidance over the consistency between the useful
life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value
of the asset under FASB Statement No. 141, “Business
Combinations.”
SFAS 142-3
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The measurement provision
of this standard will apply only to intangible assets acquired
after the effective date. On January 1, 2009, the Company
adopted the provisions of this statement with no impact on the
Company’s assessment of the appropriate useful life of its
intangible assets.
In May 2008, the FASB finalized FSP APB
14-1,
“Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion” (“APB
14-1”),
which specifies the accounting for certain convertible debt
instruments, including the Company’s 2.25% Convertible
Senior Notes, due 2036 (“2.25% Notes”). For
convertible debt instruments that may be settled entirely or
partially in cash upon conversion, APB
14-1
requires an entity to separately account for the liability and
equity components of the instrument in a manner that reflects
the issuer’s economic interest cost. The Company adopted
APB 14-1 on
January 1, 2009 and retrospectively restated all applicable
prior year financial information to comply with this standard.
The adoption of APB
14-1 for the
Company’s 2.25% Notes required the equity component of
the 2.25% Notes to be initially included in the
paid-in-capital
section of stockholders’ equity on the Company’s
Consolidated Balance Sheets and the value of the equity
component to be treated as an original issue discount for
purposes of accounting for the debt component of the
2.25% Notes. Adjustments were made for the implementation
of APB 14-1
impacting historically reported amounts for other interest
expense, gain on redemption of long-term debt, provision for
income taxes, long-term debt, deferred tax liabilities, retained
earnings and additional
paid-in-capital.
As of December 31, 2008, the impact of these adjustments
decreased long-term debt by $65.3 million, increased deferred
tax liabilities by $2.5 million, decreased retained
earnings by $23.2 million and increased additional paid in
capital by $64.0 million. For the three months ended
March 31, 2008, the impact of these adjustments decreased
income from continuing operations before income taxes by
$1.9 million, decreased net income by $1.2 million
and decreased diluted earnings per share by $0.05 per share. See
Note 7 for further details regarding this accounting
pronouncement and its impact on the Company.
In June 2008, the EITF reached a consensus on EITF
No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities.” EITF
No. 03-6-1
clarifies that when instruments granted in share-based payment
transactions are participating securities prior to vesting, the
impact of the shares should be included in the earnings
allocation in computing earnings per share (“EPS”)
under the two-class method described in SFAS No. 128,
“Earnings per Share.” EITF
No. 03-6-1
further specifies that the objective of EPS is to measure the
performance of an entity over the reporting period. The
consensus states all outstanding unvested share-based payment
awards that contain rights to non-forfeitable dividends, which
participate in undistributed earnings with common shareholders,
should be included in the calculation of basic and diluted EPS.
EITF
No. 03-6-1
is to be applied retrospectively to all prior-period EPS data
presented for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Effective
January 1, 2009, the Company adopted the provisions of this
guidance with no impact on its earnings allocation in computing
EPS as described by SFAS 128. The Company determined it did
not have any instrument which contained rights to
non-forfeitable dividends which were not already included in its
computation of EPS. The Company has no other instruments which
meet the criteria of this pronouncement.
The Company provides compensation benefits to employees and
non-employee directors pursuant to its 2007 Long Term Incentive
Plan, as amended, and 1998 Employee Stock Purchase Plan, as
amended.
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Recent
Accounting Pronouncements
On October 10, 2008, the Financial Accounting Standards
Board (the “FASB”) issued FASB Staff Position
SFAS 157-3,
“Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active”
(“SFAS 157-3”),
which clarifies the application of SFAS No. 157 in a
market that is not active and provides guidance in determining
the fair value of financial assets when the market for that
financial asset is not active. The application of
SFAS 157-3
was effective upon issuance.
SFAS 157-3
permits the use of broker quotes when performing the valuation
of financial assets. However,
SFAS 157-3
requires management to utilize considerable judgment when market
circumstances surrounding such quotes are based upon inactive
market price quotes or trading activity levels which may not
reflect the true value of market transactions. We have adopted
SFAS 157-3
and determined it did not have a material effect on its current
valuation methods and did not affect our results of operations
or financial position.
In November 2007, the FASB deferred for one year the
implementation of SFAS No. 157 for non-financial
assets and liabilities. In February 2008, the FASB issued FSP
FAS 157-2,
“Effective Date of FASB Statement No. 157”
(“SFAS 157-2”),
which defers the effective date of SFAS 157, as it related
to non-financial assets and non-financial liabilities, to fiscal
years beginning after November 15, 2008 and interim periods
within those fiscal years. As of January 1, 2009, we
adopted the provisions of this statement and will include the
appropriate disclosures surrounding nonfinancial assets and
liabilities in future periods, as applicable. The adoption did
not have a material impact on our financial position, results of
operations or current disclosures.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations”
(“SFAS 141(R)”), which significantly changes the
accounting for business acquisitions both during the period of
the acquisition and in subsequent periods. SFAS 141(R) was
effective on a prospective basis for all business combinations
for which the acquisition date is on or after the beginning of
the first annual period subsequent to December 31, 2008,
with an exception related to the accounting for valuation
allowances on deferred taxes and acquired contingencies related
to acquisitions completed before the effective date. Effective
January 1, 2009 we adopted SFAS 141(R). The adoption
did not impact our financial position or results of operations
for the three months ended March 31, 2009.
Table of Contents
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS 161”), an amendment of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”
(“SFAS 133”), which requires disclosure of the
objectives of derivative instruments and hedging activities, the
method of accounting for such instruments and activities under
SFAS No. 133 and its related interpretations, and
disclosure of the effects of such instruments and related hedged
items on an entity’s financial position, financial
performance, and cash flows. The statement encouraged but did
not require comparative disclosures for earlier periods at
initial application. SFAS 161 was effective for financial
statements issued for years and interim periods beginning after
November 15, 2008, with early application encouraged. As of
January 1, 2009 we adopted this statement with no financial
impact. We enhanced our current disclosures contained within our
consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position
SFAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“SFAS 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142.
SFAS 142-3
enhances the guidance over the consistency between the useful
life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value
of the asset under FASB Statement No. 141, “Business
Combinations.”
SFAS 142-3
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The measurement provision
of this standard will apply only to intangible assets acquired
after the effective date. On January 1, 2009, we adopted
the provisions of this statement with no impact on our
assessment of the appropriate useful life of our intangible
assets.
In May 2008, the FASB finalized FSP APB
14-1,
“Accounting for Convertible Debt Instruments that may be
Settled in Cash upon Conversion” (“APB
14-1”),
which specifies the accounting for certain convertible debt
instruments, including our 2.25% Notes, due 2036. For
convertible debt instruments that may be settled entirely or
partially in cash upon conversion, APB
14-1
requires an entity to separately account for the liability and
equity components of the instrument in a manner that reflects
the issuer’s economic interest cost. We adopted APB
14-1 on
January 1, 2009. The adoption of APB
14-1 for our
2.25% Notes required the equity component of the
2.25% Notes to be initially included in the
paid-in-capital
section of stockholders’ equity on our Consolidated Balance
Sheets and the value of the equity component to be treated as an
original issue discount for purposes of accounting for the debt
component of the 2.25% Notes. Adjustments were made for the
implementation of APB
14-1
impacting historically reported amounts for other interest
expense, gain on redemption of long-term debt, provision for
income taxes, long-term debt, deferred tax liabilities, retained
earnings and additional
paid-in-capital.
As of December 31, 2008, the impact of these adjustments
decreased long-term debt by $65.3 million, increased deferred
tax liabilities by $2.5 million, decreased retained
earnings by $23.2 million and increased additional paid in
capital by $64.0 million. For the three months ended
March 31, 2008, the impact of these adjustments decreased
income from continuing operations before income taxes by
$1.9 million, decreased net income by $1.2 million and
decreased diluted earnings per share by $0.05 per share.
In June 2008, the EITF reached a consensus on EITF
No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities.” EITF
No. 03-6-1
clarifies that when instruments granted in share-based payment
transactions are participating securities prior to vesting, the
impact of the shares should be included in the earnings
allocation in computing earnings per share (“EPS”)
under the two-class method described in SFAS No. 128,
“Earnings per Share.” EITF
No. 03-6-1
further specifies that the objective of EPS is to measure the
performance of an entity over the reporting period. The
consensus states all outstanding unvested share-based payment
awards that contain rights to non-forfeitable dividends, which
participate in undistributed earnings with common shareholders,
should be included in the calculation of basic and diluted EPS.
EITF
No. 03-6-1
is to be applied retrospectively to all prior-period EPS data
presented for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Effective
January 1, 2009, we adopted the provisions of this guidance
with no impact on our earnings allocation in computing EPS as
described by SFAS 128. We determined that we did not have
any instrument that contained rights to non-forfeitable
dividends that were not already included in our computation of
EPS. We have no other instruments which meet the criteria of
this pronouncement.
Table of Contents
These excerpts taken from the GPI 10-K filed Mar 13, 2009. Recent
Accounting Pronouncements
Effective January 1, 2008, the Company adopted
SFAS No. 157, “Fair Value Measurements,”
(“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements, for all of its financial assets and
liabilities. The statement does not require new fair value
measurements, but emphasizes that fair value is a market-based
measurement that should be determined based on the assumptions
that market participants would use in pricing an asset or
liability and provides guidance on how to measure fair value by
providing a fair value hierarchy for classification of financial
assets or liabilities based upon measurement inputs.
SFAS 157 applies to other accounting pronouncements that
require or permit fair value measurements. The adoption of
SFAS 157 did not have a material effect on the
Company’s results of operations or financial position. See
Note 16 for the application of SFAS 157 and further
details regarding fair value measurement of the Company’s
financial assets and liabilities as of December 31, 2008.
In November 2007, the FASB deferred for one year the
implementation of SFAS No. 157 for non-financial
assets and liabilities. In February 2008 the FASB issued FSP
FAS 157-2,
“Effective Date of FASB Statement No. 157”,
(SFAS 157-2),
which defers the effective date of SFAS 157, as it related
to non-financial assets and non-financial liabilities, to fiscal
years beginning after November 15, 2008 and interim periods
within those fiscal years. The Company has evaluated its
financial statements and has determined the adoption of this
pronouncement upon its existing nonfinancial assets, such as
goodwill and intangible assets, will not materially impact the
Company as the Company already utilizes an income approach in
measuring the fair value of its nonfinancial assets as
prescribed by SFAS 157. Upon adoption the Company
anticipates enhancing its current disclosures surrounding its
nonfinancial assets and liabilities to meet the requirements of
SFAS 157 similarly to those already provided for its
financial assets and liabilities in Note 16. The Company
determined it currently does not hold any nonfinancial
liabilities for which this pronouncement is applicable.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115” (“SFAS 159”). SFAS 159
expands the use of fair value accounting but does not affect
existing standards, which require assets or liabilities to be
carried at fair value. Under SFAS 159, a company may elect
to use a fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity
method investments, accounts payable, guarantees and issued
debt. The Company adopted SFAS 159 effective
January 1, 2008, and elected not to measure any of its
currently eligible financial assets and liabilities at fair
value.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations”
(“SFAS 141(R)”), which significantly changes the
accounting for business acquisitions both during the period of
the acquisition and in subsequent periods. The more significant
changes in the accounting for acquisitions which could impact
the Company are:
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or
after the beginning of the first annual period subsequent to
December 31, 2008, with an exception related to the
accounting for valuation allowances on deferred taxes and
acquired contingencies related to acquisitions completed before
the effective date. The Company did not execute any business
combinations on or subsequent to December 31, 2008 for the
2009 annual period. The Company does not anticipate a material
impact from this pronouncement on its financial position or
results from operations upon adoption.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS 161”), an amendment of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”
(“SFAS 133”), which requires disclosures of the
objectives of derivative instruments and hedging activities, the
method of accounting for such instruments and activities under
SFAS No. 133 and its related interpretations, and
disclosure of the affects of such instruments and related hedged
items on an entity’s financial position, financial
performance, and cash flows. The statement encourages but does
not require comparative disclosures for earlier periods at
initial application. SFAS 161 is effective for financial
statements issued for years and interim periods beginning after
November 15, 2008, with early application encouraged. The
Company does not believe this statement will have a material
financial impact on the Company but only enhance it’s
current disclosures contained within its consolidated financial
statements.
In April 2008, the FASB issued FASB Staff Position
SFAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“SFAS 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142.
SFAS 142-3
enhances the guidance over the consistency between the useful
life of a recognized intangible asset under Statement 142 and
the period of expected cash flows used to measure the fair value
of the asset under FASB Statement No. 141, “Business
Combinations” (“SFAS 141”).
SFAS 142-3
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The measurement provision
of this standard will apply only to intangible assets acquired
after the effective date. The Company is currently evaluating
the impact of this pronouncement on its processes for
determining and evaluating the useful life of its intangible
assets.
In May 2008, the FASB finalized FSP APB
14-1,
“Accounting for Convertible Debt Instruments that may be
Settled in Cash upon Conversion” (“APB
14-1”),
which specifies the accounting for certain convertible debt
instruments, including the Company’s 2.25% Convertible
Senior Notes due 2036 (“2.25% Notes”). For
convertible debt instruments that may be settled entirely or
partially in cash upon conversion, APB
14-1
requires an entity to separately account for the liability and
equity components of the instrument in a manner that reflects
the issuer’s economic interest cost. The adoption of APB
14-1 for the
Company’s 2.25% Notes will require the equity
component of the 2.25% Notes to be initially included in
the
paid-in-capital
section of stockholders’ equity on the Company’s
Consolidated Balance Sheets and the value of the equity
component to be treated as an original issue discount for
purposes of accounting for the debt component of the
2.25% Notes. Higher interest expense will result by
recognizing the accretion of the discounted carrying value of
the 2.25% Notes to their face amount as interest expense
over the expected term of the 2.25% Notes using an
effective interest rate method of amortization. APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. APB
14-1 is not
permitted to be adopted early and will be applied
retrospectively to all periods presented. The Company continues
to evaluate the impact that the adoption of APB
14-1 will
have on its financial position and results of operations, but
has preliminarily estimated that the Company’s Other
Long-Term Debt will be initially reduced by approximately
$104.9 million with a corresponding increase in Additional
Paid In Capital, which will be
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortized as an accretion to the value of the 2.25% Notes.
Based upon the original amount outstanding, Other Interest
Expense will increase an average of approximately
$10.5 million per year, before income taxes, through the
estimated redemption date of the 2.25% Notes. However,
repurchases of the 2.25% Notes, including those executed during
the fourth quarter of 2008, will reduce this additional interest
charge on a prospective basis. Additionally, gains recognized
during 2008 as a result of the repurchase of the 2.25% Notes
will be reduced in the retrospective application of
APB14-1.
Recent
Accounting Pronouncements
Effective January 1, 2008, the Company adopted
SFAS No. 157, “Fair Value Measurements,”
(“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements, for all of its financial assets and
liabilities. The statement does not require new fair value
measurements, but emphasizes that fair value is a market-based
measurement that should be determined based on the assumptions
that market participants would use in pricing an asset or
liability and provides guidance on how to measure fair value by
providing a fair value hierarchy for classification of financial
assets or liabilities based upon measurement inputs.
SFAS 157 applies to other accounting pronouncements that
require or permit fair value measurements. The adoption of
SFAS 157 did not have a material effect on the
Company’s results of operations or financial position. See
Note 16 for the application of SFAS 157 and further
details regarding fair value measurement of the Company’s
financial assets and liabilities as of December 31, 2008.
In November 2007, the FASB deferred for one year the
implementation of SFAS No. 157 for non-financial
assets and liabilities. In February 2008 the FASB issued FSP
FAS 157-2,
“Effective Date of FASB Statement No. 157”,
(SFAS 157-2),
which defers the effective date of SFAS 157, as it related
to non-financial assets and non-financial liabilities, to fiscal
years beginning after November 15, 2008 and interim periods
within those fiscal years. The Company has evaluated its
financial statements and has determined the adoption of this
pronouncement upon its existing nonfinancial assets, such as
goodwill and intangible assets, will not materially impact the
Company as the Company already utilizes an income approach in
measuring the fair value of its nonfinancial assets as
prescribed by SFAS 157. Upon adoption the Company
anticipates enhancing its current disclosures surrounding its
nonfinancial assets and liabilities to meet the requirements of
SFAS 157 similarly to those already provided for its
financial assets and liabilities in Note 16. The Company
determined it currently does not hold any nonfinancial
liabilities for which this pronouncement is applicable.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115” (“SFAS 159”). SFAS 159
expands the use of fair value accounting but does not affect
existing standards, which require assets or liabilities to be
carried at fair value. Under SFAS 159, a company may elect
to use a fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity
method investments, accounts payable, guarantees and issued
debt. The Company adopted SFAS 159 effective
January 1, 2008, and elected not to measure any of its
currently eligible financial assets and liabilities at fair
value.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations”
(“SFAS 141(R)”), which significantly changes the
accounting for business acquisitions both during the period of
the acquisition and in subsequent periods. The more significant
changes in the accounting for acquisitions which could impact
the Company are:
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or
after the beginning of the first annual period subsequent to
December 31, 2008, with an exception related to the
accounting for valuation allowances on deferred taxes and
acquired contingencies related to acquisitions completed before
the effective date. The Company did not execute any business
combinations on or subsequent to December 31, 2008 for the
2009 annual period. The Company does not anticipate a material
impact from this pronouncement on its financial position or
results from operations upon adoption.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS 161”), an amendment of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”
(“SFAS 133”), which requires disclosures of the
objectives of derivative instruments and hedging activities, the
method of accounting for such instruments and activities under
SFAS No. 133 and its related interpretations, and
disclosure of the affects of such instruments and related hedged
items on an entity’s financial position, financial
performance, and cash flows. The statement encourages but does
not require comparative disclosures for earlier periods at
initial application. SFAS 161 is effective for financial
statements issued for years and interim periods beginning after
November 15, 2008, with early application encouraged. The
Company does not believe this statement will have a material
financial impact on the Company but only enhance it’s
current disclosures contained within its consolidated financial
statements.
In April 2008, the FASB issued FASB Staff Position
SFAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“SFAS 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142.
SFAS 142-3
enhances the guidance over the consistency between the useful
life of a recognized intangible asset under Statement 142 and
the period of expected cash flows used to measure the fair value
of the asset under FASB Statement No. 141, “Business
Combinations” (“SFAS 141”).
SFAS 142-3
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The measurement provision
of this standard will apply only to intangible assets acquired
after the effective date. The Company is currently evaluating
the impact of this pronouncement on its processes for
determining and evaluating the useful life of its intangible
assets.
In May 2008, the FASB finalized FSP APB
14-1,
“Accounting for Convertible Debt Instruments that may be
Settled in Cash upon Conversion” (“APB
14-1”),
which specifies the accounting for certain convertible debt
instruments, including the Company’s 2.25% Convertible
Senior Notes due 2036 (“2.25% Notes”). For
convertible debt instruments that may be settled entirely or
partially in cash upon conversion, APB
14-1
requires an entity to separately account for the liability and
equity components of the instrument in a manner that reflects
the issuer’s economic interest cost. The adoption of APB
14-1 for the
Company’s 2.25% Notes will require the equity
component of the 2.25% Notes to be initially included in
the
paid-in-capital
section of stockholders’ equity on the Company’s
Consolidated Balance Sheets and the value of the equity
component to be treated as an original issue discount for
purposes of accounting for the debt component of the
2.25% Notes. Higher interest expense will result by
recognizing the accretion of the discounted carrying value of
the 2.25% Notes to their face amount as interest expense
over the expected term of the 2.25% Notes using an
effective interest rate method of amortization. APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. APB
14-1 is not
permitted to be adopted early and will be applied
retrospectively to all periods presented. The Company continues
to evaluate the impact that the adoption of APB
14-1 will
have on its financial position and results of operations, but
has preliminarily estimated that the Company’s Other
Long-Term Debt will be initially reduced by approximately
$104.9 million with a corresponding increase in Additional
Paid In Capital, which will be
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortized as an accretion to the value of the 2.25% Notes.
Based upon the original amount outstanding, Other Interest
Expense will increase an average of approximately
$10.5 million per year, before income taxes, through the
estimated redemption date of the 2.25% Notes. However,
repurchases of the 2.25% Notes, including those executed during
the fourth quarter of 2008, will reduce this additional interest
charge on a prospective basis. Additionally, gains recognized
during 2008 as a result of the repurchase of the 2.25% Notes
will be reduced in the retrospective application of
APB14-1.
Recent
Accounting Pronouncements
Effective January 1, 2008, the Company adopted
SFAS No. 157, “Fair Value Measurements,”
(“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements, for all of its financial assets and
liabilities. The statement does not require new fair value
measurements, but emphasizes that fair value is a market-based
measurement that should be determined based on the assumptions
that market participants would use in pricing an asset or
liability and provides guidance on how to measure fair value by
providing a fair value hierarchy for classification of financial
assets or liabilities based upon measurement inputs.
SFAS 157 applies to other accounting pronouncements that
require or permit fair value measurements. The adoption of
SFAS 157 did not have a material effect on the
Company’s results of operations or financial position. See
Note 16 for the application of SFAS 157 and further
details regarding fair value measurement of the Company’s
financial assets and liabilities as of December 31, 2008.
In November 2007, the FASB deferred for one year the
implementation of SFAS No. 157 for non-financial
assets and liabilities. In February 2008 the FASB issued FSP
FAS 157-2,
“Effective Date of FASB Statement No. 157”,
(SFAS 157-2),
which defers the effective date of SFAS 157, as it related
to non-financial assets and non-financial liabilities, to fiscal
years beginning after November 15, 2008 and interim periods
within those fiscal years. The Company has evaluated its
financial statements and has determined the adoption of this
pronouncement upon its existing nonfinancial assets, such as
goodwill and intangible assets, will not materially impact the
Company as the Company already utilizes an income approach in
measuring the fair value of its nonfinancial assets as
prescribed by SFAS 157. Upon adoption the Company
anticipates enhancing its current disclosures surrounding its
nonfinancial assets and liabilities to meet the requirements of
SFAS 157 similarly to those already provided for its
financial assets and liabilities in Note 16. The Company
determined it currently does not hold any nonfinancial
liabilities for which this pronouncement is applicable.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115” (“SFAS 159”). SFAS 159
expands the use of fair value accounting but does not affect
existing standards, which require assets or liabilities to be
carried at fair value. Under SFAS 159, a company may elect
to use a fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity
method investments, accounts payable, guarantees and issued
debt. The Company adopted SFAS 159 effective
January 1, 2008, and elected not to measure any of its
currently eligible financial assets and liabilities at fair
value.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations”
(“SFAS 141(R)”), which significantly changes the
accounting for business acquisitions both during the period of
the acquisition and in subsequent periods. The more significant
changes in the accounting for acquisitions which could impact
the Company are:
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or
after the beginning of the first annual period subsequent to
December 31, 2008, with an exception related to the
accounting for valuation allowances on deferred taxes and
acquired contingencies related to acquisitions completed before
the effective date. The Company did not execute any business
combinations on or subsequent to December 31, 2008 for the
2009 annual period. The Company does not anticipate a material
impact from this pronouncement on its financial position or
results from operations upon adoption.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities” (“SFAS 161”), an amendment of
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”
(“SFAS 133”), which requires disclosures of the
objectives of derivative instruments and hedging activities, the
method of accounting for such instruments and activities under
SFAS No. 133 and its related interpretations, and
disclosure of the affects of such instruments and related hedged
items on an entity’s financial position, financial
performance, and cash flows. The statement encourages but does
not require comparative disclosures for earlier periods at
initial application. SFAS 161 is effective for financial
statements issued for years and interim periods beginning after
November 15, 2008, with early application encouraged. The
Company does not believe this statement will have a material
financial impact on the Company but only enhance it’s
current disclosures contained within its consolidated financial
statements.
In April 2008, the FASB issued FASB Staff Position
SFAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“SFAS 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142.
SFAS 142-3
enhances the guidance over the consistency between the useful
life of a recognized intangible asset under Statement 142 and
the period of expected cash flows used to measure the fair value
of the asset under FASB Statement No. 141, “Business
Combinations” (“SFAS 141”).
SFAS 142-3
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The measurement provision
of this standard will apply only to intangible assets acquired
after the effective date. The Company is currently evaluating
the impact of this pronouncement on its processes for
determining and evaluating the useful life of its intangible
assets.
In May 2008, the FASB finalized FSP APB
14-1,
“Accounting for Convertible Debt Instruments that may be
Settled in Cash upon Conversion” (“APB
14-1”),
which specifies the accounting for certain convertible debt
instruments, including the Company’s 2.25% Convertible
Senior Notes due 2036 (“2.25% Notes”). For
convertible debt instruments that may be settled entirely or
partially in cash upon conversion, APB
14-1
requires an entity to separately account for the liability and
equity components of the instrument in a manner that reflects
the issuer’s economic interest cost. The adoption of APB
14-1 for the
Company’s 2.25% Notes will require the equity
component of the 2.25% Notes to be initially included in
the
paid-in-capital
section of stockholders’ equity on the Company’s
Consolidated Balance Sheets and the value of the equity
component to be treated as an original issue discount for
purposes of accounting for the debt component of the
2.25% Notes. Higher interest expense will result by
recognizing the accretion of the discounted carrying value of
the 2.25% Notes to their face amount as interest expense
over the expected term of the 2.25% Notes using an
effective interest rate method of amortization. APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. APB
14-1 is not
permitted to be adopted early and will be applied
retrospectively to all periods presented. The Company continues
to evaluate the impact that the adoption of APB
14-1 will
have on its financial position and results of operations, but
has preliminarily estimated that the Company’s Other
Long-Term Debt will be initially reduced by approximately
$104.9 million with a corresponding increase in Additional
Paid In Capital, which will be
Table of Contents
GROUP 1
AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortized as an accretion to the value of the 2.25% Notes.
Based upon the original amount outstanding, Other Interest
Expense will increase an average of approximately
$10.5 million per year, before income taxes, through the
estimated redemption date of the 2.25% Notes. However,
repurchases of the 2.25% Notes, including those executed during
the fourth quarter of 2008, will reduce this additional interest
charge on a prospective basis. Additionally, gains recognized
during 2008 as a result of the repurchase of the 2.25% Notes
will be reduced in the retrospective application of
APB14-1.
Recent Accounting Pronouncements Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, for all of its financial assets and liabilities. The statement does not require new fair value measurements, but emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability and provides guidance on how to measure fair value by providing a fair value hierarchy for classification of financial assets or liabilities based upon measurement inputs. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The adoption of SFAS 157 did not have a material effect on the Company’s results of operations or financial position. See Note 16 for the application of SFAS 157 and further details regarding fair value measurement of the Company’s financial assets and liabilities as of December 31, 2008. In November 2007, the FASB deferred for one year the implementation of SFAS No. 157 for non-financial assets and liabilities. In February 2008 the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, (SFAS 157-2), which defers the effective date of SFAS 157, as it related to non-financial assets and non-financial liabilities, to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company has evaluated its financial statements and has determined the adoption of this pronouncement upon its existing nonfinancial assets, such as goodwill and intangible assets, will not materially impact the Company as the Company already utilizes an income approach in measuring the fair value of its nonfinancial assets as prescribed by SFAS 157. Upon adoption the Company anticipates enhancing its current disclosures surrounding its nonfinancial assets and liabilities to meet the requirements of SFAS 157 similarly to those already provided for its financial assets and liabilities in Note 16. The Company determined it currently does not hold any nonfinancial liabilities for which this pronouncement is applicable. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards, which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use a fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. The Company adopted SFAS 159 effective January 1, 2008, and elected not to measure any of its currently eligible financial assets and liabilities at fair value. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which significantly changes the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. The more significant changes in the accounting for acquisitions which could impact the Company are:
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 31, 2008, with an exception related to the accounting for valuation allowances on deferred taxes and acquired contingencies related to acquisitions completed before the effective date. The Company did not execute any business combinations on or subsequent to December 31, 2008 for the 2009 annual period. The Company does not anticipate a material impact from this pronouncement on its financial position or results from operations upon adoption. In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”), an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), which requires disclosures of the objectives of derivative instruments and hedging activities, the method of accounting for such instruments and activities under SFAS No. 133 and its related interpretations, and disclosure of the affects of such instruments and related hedged items on an entity’s financial position, financial performance, and cash flows. The statement encourages but does not require comparative disclosures for earlier periods at initial application. SFAS 161 is effective for financial statements issued for years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not believe this statement will have a material financial impact on the Company but only enhance it’s current disclosures contained within its consolidated financial statements. In April 2008, the FASB issued FASB Staff Position SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“SFAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. SFAS 142-3 enhances the guidance over the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141, “Business Combinations” (“SFAS 141”). SFAS 142-3 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The measurement provision of this standard will apply only to intangible assets acquired after the effective date. The Company is currently evaluating the impact of this pronouncement on its processes for determining and evaluating the useful life of its intangible assets. In May 2008, the FASB finalized FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion” (“APB 14-1”), which specifies the accounting for certain convertible debt instruments, including the Company’s 2.25% Convertible Senior Notes due 2036 (“2.25% Notes”). For convertible debt instruments that may be settled entirely or partially in cash upon conversion, APB 14-1 requires an entity to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The adoption of APB 14-1 for the Company’s 2.25% Notes will require the equity component of the 2.25% Notes to be initially included in the paid-in-capital section of stockholders’ equity on the Company’s Consolidated Balance Sheets and the value of the equity component to be treated as an original issue discount for purposes of accounting for the debt component of the 2.25% Notes. Higher interest expense will result by recognizing the accretion of the discounted carrying value of the 2.25% Notes to their face amount as interest expense over the expected term of the 2.25% Notes using an effective interest rate method of amortization. APB 14-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. APB 14-1 is not permitted to be adopted early and will be applied retrospectively to all periods presented. The Company continues to evaluate the impact that the adoption of APB 14-1 will have on its financial position and results of operations, but has preliminarily estimated that the Company’s Other Long-Term Debt will be initially reduced by approximately $104.9 million with a corresponding increase in Additional Paid In Capital, which will be
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) amortized as an accretion to the value of the 2.25% Notes. Based upon the original amount outstanding, Other Interest Expense will increase an average of approximately $10.5 million per year, before income taxes, through the estimated redemption date of the 2.25% Notes. However, repurchases of the 2.25% Notes, including those executed during the fourth quarter of 2008, will reduce this additional interest charge on a prospective basis. Additionally, gains recognized during 2008 as a result of the repurchase of the 2.25% Notes will be reduced in the retrospective application of APB14-1. Recent Accounting Pronouncements Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, for all of its financial assets and liabilities. The statement does not require new fair value measurements, but emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability and provides guidance on how to measure fair value by providing a fair value hierarchy for classification of financial assets or liabilities based upon measurement inputs. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The adoption of SFAS 157 did not have a material effect on the Company’s results of operations or financial position. See Note 16 for the application of SFAS 157 and further details regarding fair value measurement of the Company’s financial assets and liabilities as of December 31, 2008. In November 2007, the FASB deferred for one year the implementation of SFAS No. 157 for non-financial assets and liabilities. In February 2008 the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, (SFAS 157-2), which defers the effective date of SFAS 157, as it related to non-financial assets and non-financial liabilities, to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company has evaluated its financial statements and has determined the adoption of this pronouncement upon its existing nonfinancial assets, such as goodwill and intangible assets, will not materially impact the Company as the Company already utilizes an income approach in measuring the fair value of its nonfinancial assets as prescribed by SFAS 157. Upon adoption the Company anticipates enhancing its current disclosures surrounding its nonfinancial assets and liabilities to meet the requirements of SFAS 157 similarly to those already provided for its financial assets and liabilities in Note 16. The Company determined it currently does not hold any nonfinancial liabilities for which this pronouncement is applicable. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards, which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use a fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. The Company adopted SFAS 159 effective January 1, 2008, and elected not to measure any of its currently eligible financial assets and liabilities at fair value. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which significantly changes the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. The more significant changes in the accounting for acquisitions which could impact the Company are:
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 31, 2008, with an exception related to the accounting for valuation allowances on deferred taxes and acquired contingencies related to acquisitions completed before the effective date. The Company did not execute any business combinations on or subsequent to December 31, 2008 for the 2009 annual period. The Company does not anticipate a material impact from this pronouncement on its financial position or results from operations upon adoption. In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”), an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), which requires disclosures of the objectives of derivative instruments and hedging activities, the method of accounting for such instruments and activities under SFAS No. 133 and its related interpretations, and disclosure of the affects of such instruments and related hedged items on an entity’s financial position, financial performance, and cash flows. The statement encourages but does not require comparative disclosures for earlier periods at initial application. SFAS 161 is effective for financial statements issued for years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not believe this statement will have a material financial impact on the Company but only enhance it’s current disclosures contained within its consolidated financial statements. In April 2008, the FASB issued FASB Staff Position SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“SFAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. SFAS 142-3 enhances the guidance over the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141, “Business Combinations” (“SFAS 141”). SFAS 142-3 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The measurement provision of this standard will apply only to intangible assets acquired after the effective date. The Company is currently evaluating the impact of this pronouncement on its processes for determining and evaluating the useful life of its intangible assets. In May 2008, the FASB finalized FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion” (“APB 14-1”), which specifies the accounting for certain convertible debt instruments, including the Company’s 2.25% Convertible Senior Notes due 2036 (“2.25% Notes”). For convertible debt instruments that may be settled entirely or partially in cash upon conversion, APB 14-1 requires an entity to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The adoption of APB 14-1 for the Company’s 2.25% Notes will require the equity component of the 2.25% Notes to be initially included in the paid-in-capital section of stockholders’ equity on the Company’s Consolidated Balance Sheets and the value of the equity component to be treated as an original issue discount for purposes of accounting for the debt component of the 2.25% Notes. Higher interest expense will result by recognizing the accretion of the discounted carrying value of the 2.25% Notes to their face amount as interest expense over the expected term of the 2.25% Notes using an effective interest rate method of amortization. APB 14-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. APB 14-1 is not permitted to be adopted early and will be applied retrospectively to all periods presented. The Company continues to evaluate the impact that the adoption of APB 14-1 will have on its financial position and results of operations, but has preliminarily estimated that the Company’s Other Long-Term Debt will be initially reduced by approximately $104.9 million with a corresponding increase in Additional Paid In Capital, which will be
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) amortized as an accretion to the value of the 2.25% Notes. Based upon the original amount outstanding, Other Interest Expense will increase an average of approximately $10.5 million per year, before income taxes, through the estimated redemption date of the 2.25% Notes. However, repurchases of the 2.25% Notes, including those executed during the fourth quarter of 2008, will reduce this additional interest charge on a prospective basis. Additionally, gains recognized during 2008 as a result of the repurchase of the 2.25% Notes will be reduced in the retrospective application of APB14-1. Recent Accounting Pronouncements Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, for all of its financial assets and liabilities. The statement does not require new fair value measurements, but emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability and provides guidance on how to measure fair value by providing a fair value hierarchy for classification of financial assets or liabilities based upon measurement inputs. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The adoption of SFAS 157 did not have a material effect on the Company’s results of operations or financial position. See Note 16 for the application of SFAS 157 and further details regarding fair value measurement of the Company’s financial assets and liabilities as of December 31, 2008. In November 2007, the FASB deferred for one year the implementation of SFAS No. 157 for non-financial assets and liabilities. In February 2008 the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, (SFAS 157-2), which defers the effective date of SFAS 157, as it related to non-financial assets and non-financial liabilities, to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company has evaluated its financial statements and has determined the adoption of this pronouncement upon its existing nonfinancial assets, such as goodwill and intangible assets, will not materially impact the Company as the Company already utilizes an income approach in measuring the fair value of its nonfinancial assets as prescribed by SFAS 157. Upon adoption the Company anticipates enhancing its current disclosures surrounding its nonfinancial assets and liabilities to meet the requirements of SFAS 157 similarly to those already provided for its financial assets and liabilities in Note 16. The Company determined it currently does not hold any nonfinancial liabilities for which this pronouncement is applicable. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards, which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use a fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. The Company adopted SFAS 159 effective January 1, 2008, and elected not to measure any of its currently eligible financial assets and liabilities at fair value. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which significantly changes the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. The more significant changes in the accounting for acquisitions which could impact the Company are:
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 31, 2008, with an exception related to the accounting for valuation allowances on deferred taxes and acquired contingencies related to acquisitions completed before the effective date. The Company did not execute any business combinations on or subsequent to December 31, 2008 for the 2009 annual period. The Company does not anticipate a material impact from this pronouncement on its financial position or results from operations upon adoption. In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”), an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), which requires disclosures of the objectives of derivative instruments and hedging activities, the method of accounting for such instruments and activities under SFAS No. 133 and its related interpretations, and disclosure of the affects of such instruments and related hedged items on an entity’s financial position, financial performance, and cash flows. The statement encourages but does not require comparative disclosures for earlier periods at initial application. SFAS 161 is effective for financial statements issued for years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not believe this statement will have a material financial impact on the Company but only enhance it’s current disclosures contained within its consolidated financial statements. In April 2008, the FASB issued FASB Staff Position SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“SFAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. SFAS 142-3 enhances the guidance over the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141, “Business Combinations” (“SFAS 141”). SFAS 142-3 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The measurement provision of this standard will apply only to intangible assets acquired after the effective date. The Company is currently evaluating the impact of this pronouncement on its processes for determining and evaluating the useful life of its intangible assets. In May 2008, the FASB finalized FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion” (“APB 14-1”), which specifies the accounting for certain convertible debt instruments, including the Company’s 2.25% Convertible Senior Notes due 2036 (“2.25% Notes”). For convertible debt instruments that may be settled entirely or partially in cash upon conversion, APB 14-1 requires an entity to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The adoption of APB 14-1 for the Company’s 2.25% Notes will require the equity component of the 2.25% Notes to be initially included in the paid-in-capital section of stockholders’ equity on the Company’s Consolidated Balance Sheets and the value of the equity component to be treated as an original issue discount for purposes of accounting for the debt component of the 2.25% Notes. Higher interest expense will result by recognizing the accretion of the discounted carrying value of the 2.25% Notes to their face amount as interest expense over the expected term of the 2.25% Notes using an effective interest rate method of amortization. APB 14-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. APB 14-1 is not permitted to be adopted early and will be applied retrospectively to all periods presented. The Company continues to evaluate the impact that the adoption of APB 14-1 will have on its financial position and results of operations, but has preliminarily estimated that the Company’s Other Long-Term Debt will be initially reduced by approximately $104.9 million with a corresponding increase in Additional Paid In Capital, which will be
Table of ContentsGROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) amortized as an accretion to the value of the 2.25% Notes. Based upon the original amount outstanding, Other Interest Expense will increase an average of approximately $10.5 million per year, before income taxes, through the estimated redemption date of the 2.25% Notes. However, repurchases of the 2.25% Notes, including those executed during the fourth quarter of 2008, will reduce this additional interest charge on a prospective basis. Additionally, gains recognized during 2008 as a result of the repurchase of the 2.25% Notes will be reduced in the retrospective application of APB14-1. | EXCERPTS ON THIS PAGE:
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