Company: GPI
Filing Date: 2025-02-14
Form Type: 10-K
Source: 0001031203-25-000013
Chunk: 18

Company: GROUP 1 AUTOMOTIVE INC
Filing Date: 2025-02-14
Form: 10-K
Item: Item 8
Chunk 18
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 significant estimates and assumptions management makes related to forecasts of revenue growth rates, future EBITDA margins, weighted average cost of capital, and terminal growth rates. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists for the quantitative impairment assessments and acquired intangible franchise rights, when performing audit procedures to evaluate the reasonableness of management’s assumptions. 

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures for the acquisitions and the impairment assessments related to the forecasts of revenue growth rates, future EBITDA margins, weighted average cost of capital and terminal growth rates included the following, among others: 

•We tested the effectiveness of internal controls over the acquired intangible franchise rights and the intangible franchise rights impairment assessments, including those over the inputs, assumptions, and calculations used in determining fair value of the intangible franchise rights.

•We evaluated the reasonableness of management’s forecasts of revenue growth rates and future EBITDA margins by comparing the forecasts to:

◦The Company’s historical revenue and EBITDA margins.

◦Internal communications to management and the Board of Directors.

◦Current industry, market and economic trends. 

•We performed a sensitivity analysis of certain assumptions such as revenue growth rates, future EBITDA margins, weighted average cost of capital, and terminal growth rates to evaluate the potential change in the fair value resulting from changes in underlying assumptions.

•With the assistance of our fair value specialists, for acquired intangible franchise rights and those intangible franchise rights where a quantitative impairment assessment was performed, we evaluated the reasonableness of the weighted average cost of capital and terminal growth rates by:

◦Developing a range of independent estimates and comparing those to the weighted average cost of capital selected by management.

◦Testing the source information underlying the determination of the terminal growth rates and testing the mathematical accuracy of the calculations.

Goodwill Impairment Assessment — Refer to Notes 1 and 13 to the consolidated financial statements

Critical Audit Matter Description

The Company’s annual impairment assessment for goodwill is performed in the fourth quarter, or more frequently if events or circumstances indicate possible impairment. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The fair value is estimated using the income approach and market approach, weighted equally. The goodwill balance for the U.K. reporting unit was $275.7 million as of December 31, 2024. The fair value of the U