|
|
5.
|
LONG-TERM DEBT AND COMMERCIAL PAPER
|
Long-term debt, net of debt issuance costs, consists of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
6.75% Senior Notes due 2018
|
$
|
398.3
|
|
|
$
|
397.5
|
|
5.5% Senior Notes due 2020
|
347.1
|
|
|
346.5
|
|
3.35% Senior Notes due 2021
|
297.9
|
|
|
297.6
|
|
4.5% Senior Notes due 2025
|
445.1
|
|
|
444.7
|
|
Revolving credit facility due 2019
|
—
|
|
|
—
|
|
Mortgage facility
(1)
|
168.0
|
|
|
175.7
|
|
Capital leases and other debt
|
126.4
|
|
|
95.0
|
|
|
1,782.8
|
|
|
1,757.0
|
|
Less: current maturities
|
(13.3
|
)
|
|
(11.7
|
)
|
Long-term debt, net of current maturities
|
$
|
1,769.5
|
|
|
$
|
1,745.3
|
|
(1)
The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As discussed in Note 1 above, the FASB issued an accounting standard update that requires debt issuance costs be presented on the balance sheet as a reduction from the carrying amount of the related debt liability. We adopted the accounting standard update retrospectively effective January 1, 2016, and have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction from the carrying amount of the related debt liability for both current and prior periods. We reclassified
$10.1 million
of debt issuance costs as a direct reduction from the carrying amount of debt as of December 31, 2015.
Senior Unsecured Notes and Credit Agreement
At
September 30, 2016
, we had outstanding
$398.6 million
of
6.75%
Senior Notes due 2018, net of debt discount. Interest is payable on
April 15
and
October 15
of each year. These notes will mature on
April 15, 2018
.
At
September 30, 2016
, we had outstanding
$350.0 million
of
5.5%
Senior Notes due 2020. Interest is payable on
February 1
and
August 1
of each year. These notes will mature on
February 1, 2020
.
At
September 30, 2016
, we had outstanding
$300.0 million
of
3.35%
Senior Notes due 2021, net of debt discount. Interest is payable on January 15 and July 15 of each year. These notes will mature on
January 15, 2021
.
At
September 30, 2016
, we had outstanding
$448.6 million
of
4.5%
Senior Notes due 2025, net of debt discount. Interest on the 2025 Notes is payable on April 1 and October 1 of each year. These notes will mature on
October 1, 2025
.
The interest rate payable on the 2021 Notes and 2025 Notes is subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.
Under our credit agreement, we have a
$1.8 billion
revolving credit facility that matures on
December 3, 2019
. The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to
$500.0 million
in the aggregate. As of
September 30, 2016
, we had
no
borrowings outstanding under our revolving credit facility. We have a
$200.0 million
letter of credit sublimit as part of our revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which was
$44.1 million
at
September 30, 2016
, leaving a borrowing capacity under the revolving credit facility of
$1.8 billion
at
September 30, 2016
. As of
September 30, 2016
, this borrowing capacity was limited under the maximum consolidated leverage ratio contained in our credit agreement to
$1.0 billion
.
Our revolving credit facility provides for a commitment fee on undrawn amounts ranging from
0.175%
to
0.25%
and interest on borrowings at
LIBOR
or the base rate, in each case plus an applicable margin. The applicable margin ranges from
1.25%
to
1.625%
for LIBOR borrowings and
0.25%
to
0.625%
for base rate borrowings. The interest rate charged for our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater than or equal to
2.0
x but less than
3.25
x to greater than or equal to
3.25
x would result in a 12.5 basis point increase in the applicable margin.
Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.
Other Long-Term Debt
At
September 30, 2016
, we had
$168.0 million
outstanding under a mortgage facility with an automotive manufacturer’s captive finance subsidiary that matures on
November 30, 2017
. The mortgage facility utilizes a fixed interest rate of
5.864%
and is secured by
10
-year mortgages on certain of our store properties. The mortgage facility requires monthly principal and interest payments of
$1.7 million
based on a fixed amortization schedule with a balloon payment of
$155.4 million
due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At
September 30, 2016
, we had capital lease and other debt obligations of
$126.4 million
, which are due at various dates through
2036
.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Commercial Paper
We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of
$1.0 billion
. The interest rate for the commercial paper notes varies based on duration and market conditions. The maturities of the commercial paper notes may vary, but may not exceed
397 days
from the date of issuance. The commercial paper notes are guaranteed by substantially all of our subsidiaries. Proceeds from the issuance of commercial paper notes are used to repay borrowings under the revolving credit facility, to finance acquisitions and for working capital, capital expenditures, share repurchases, and/or other general corporate purposes. We plan to use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper program. A downgrade in our credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper notes.
At
September 30, 2016
, we had
$975.0 million
of commercial paper notes outstanding with a weighted-average annual interest rate of
1.31%
and a weighted-average remaining term of
26 days
.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. Under the credit agreement, the maximum leverage ratio is
3.75
x and the maximum capitalization ratio is
70.0%
. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of letters of credit in excess of
$150.0 million
). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus
$1.53 billion
.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions. Our mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.
Under the terms of our credit agreement, at
September 30, 2016
, our leverage ratio and capitalization ratio were as follows:
|
|
|
|
|
|
September 30, 2016
|
|
Requirement
|
|
Actual
|
Leverage ratio
|
≤ 3.75x
|
|
2.75x
|
Capitalization ratio
|
≤ 70.0%
|
|
62.6%
|
Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness and repurchase shares.
Income taxes receivable included in Receivables, net totaled
$10.5 million
at
September 30, 2016
, and
$11.7 million
at
December 31, 2015
.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently,
no
tax years are under examination by the IRS, and tax years from
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2009
to
2015
are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes.
It is our policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated Financial Statements.
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Shares repurchased
|
1.0
|
|
|
2.5
|
|
|
9.9
|
|
|
3.5
|
|
Aggregate purchase price
|
$
|
50.0
|
|
|
$
|
150.0
|
|
|
$
|
470.6
|
|
|
$
|
209.1
|
|
Average purchase price per share
|
$
|
48.62
|
|
|
$
|
59.83
|
|
|
$
|
47.48
|
|
|
$
|
60.54
|
|
In October 2016, our Board of Directors authorized the repurchase of an additional
$250.0 million
of shares of our common stock. As of
October 26, 2016
,
$315.9 million
remained available for share repurchases under the program.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Shares issued
|
0.1
|
|
|
0.2
|
|
|
0.3
|
|
|
1.1
|
|
Proceeds from the exercise of stock options
|
$
|
4.6
|
|
|
$
|
5.4
|
|
|
$
|
7.8
|
|
|
$
|
24.1
|
|
Average exercise price per share
|
$
|
35.55
|
|
|
$
|
26.94
|
|
|
$
|
30.93
|
|
|
$
|
22.55
|
|
The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Shares issued
|
—
|
|
|
2,360
|
|
|
138,424
|
|
|
159,442
|
|
Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
|
4,788
|
|
|
500
|
|
|
37,673
|
|
|
36,427
|
|
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share (“EPS”) under the two-class method. Our restricted stock awards are considered participating securities because they contain non-forfeitable rights to dividends. As the number of shares granted under such awards is immaterial, all earnings per share amounts reflect such shares as if they were fully vested shares and the disclosures associated with the two-class method are not presented.
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period, including outstanding unvested restricted stock awards and vested restricted stock unit awards. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income from continuing operations
|
$
|
107.8
|
|
|
$
|
119.0
|
|
|
$
|
316.1
|
|
|
$
|
345.9
|
|
Loss from discontinued operations, net of income taxes
|
(0.5
|
)
|
|
(0.5
|
)
|
|
(0.9
|
)
|
|
(0.8
|
)
|
Net income
|
$
|
107.3
|
|
|
$
|
118.5
|
|
|
$
|
315.2
|
|
|
$
|
345.1
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in calculating basic EPS
|
101.9
|
|
|
112.4
|
|
|
103.8
|
|
|
113.3
|
|
Effect of dilutive stock options
|
0.7
|
|
|
1.2
|
|
|
0.7
|
|
|
1.3
|
|
Weighted average common shares outstanding used in calculating diluted EPS
|
102.6
|
|
|
113.6
|
|
|
104.5
|
|
|
114.6
|
|
|
|
|
|
|
|
|
|
Basic EPS amounts
(1)
:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.06
|
|
|
$
|
1.06
|
|
|
$
|
3.05
|
|
|
$
|
3.05
|
|
Discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Net income
|
$
|
1.05
|
|
|
$
|
1.05
|
|
|
$
|
3.04
|
|
|
$
|
3.05
|
|
|
|
|
|
|
|
|
|
Diluted EPS amounts
(1)
:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.05
|
|
|
$
|
1.05
|
|
|
$
|
3.02
|
|
|
$
|
3.02
|
|
Discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Net income
|
$
|
1.05
|
|
|
$
|
1.04
|
|
|
$
|
3.02
|
|
|
$
|
3.01
|
|
(1)
Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
|
A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Anti-dilutive options excluded from the computation of diluted earnings per share
|
3.0
|
|
|
0.9
|
|
|
2.9
|
|
|
0.7
|
|
During the
third
quarter of
2016
, we divested
one
Domestic store and
one
Import store and recorded a net gain and other related adjustments of
$11.8 million
. During the second quarter of
2016
, we divested
one
Domestic store and
six
Import stores and recorded a net gain and other related adjustments of
$11.5 million
. During the first quarter of
2016
, we divested
two
Import stores and recorded a gain of
$6.2 million
. During the first quarter of
2015
, we divested
two
Import stores and recorded a gain of
$1.4 million
.
The gains on these divestitures are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.
During the
nine
months ended
September 30, 2016
, we purchased
18
stores located in Texas, New York, Colorado, and California, which include Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, Sprinter, Jaguar, Land Rover, and BMW franchises. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocation for these business combinations are preliminary and subject to final adjustment. We purchased
eight
stores during the
nine
months ended
September 30, 2015
.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The acquisitions that occurred during the
nine
months ended
September 30, 2016
were not material to our financial condition or results of operations. Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire
nine
month periods ended
September 30, 2016
and
2015
, revenue and net income would not have been materially different from our reported revenue and net income for these periods.
In October 2016, we purchased a BMW store in the San Diego, California market, and a collision center in the Chicago, Illinois market.
|
|
11.
|
COMMITMENTS AND CONTINGENCIES
|
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter.
As of
September 30, 2016
and
2015
, we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable, and there was no indication of a reasonable possibility that a material loss, or additional material loss, may have been incurred. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from
2017
to
2034
are approximately
$25 million
at
September 30, 2016
. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at
September 30, 2016
. There can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At
September 30, 2016
, surety bonds, letters of credit, and cash deposits totaled
$99.2 million
, including
$44.1 million
of letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.
In the ordinary course of business, we are subject to numerous laws and regulations, including automotive, environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of such compliance will have a material adverse effect on our business, consolidated results of operations, cash flows, or financial condition, although such outcome is possible given the nature of our operations and the extensive legal and regulatory framework applicable to our business.
Further, we expect that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact our business. We do not have any material known environmental commitments or contingencies.
At
September 30, 2016
and
2015
, we had
three
reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
“Corporate and other” is comprised of our other businesses, including certain collision centers and an auction operation, each of which generates revenues, as well as unallocated corporate overhead expenses and retrospective commissions for certain financing and insurance transactions that we arrange under agreements with third parties.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
In the following tables of financial data, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated income from continuing operations before income taxes, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
|
|
Domestic
|
$
|
2,044.9
|
|
|
$
|
1,869.1
|
|
|
$
|
5,888.2
|
|
|
$
|
5,299.0
|
|
Import
|
1,779.0
|
|
|
1,837.4
|
|
|
5,202.1
|
|
|
5,311.1
|
|
Premium Luxury
|
1,680.6
|
|
|
1,607.0
|
|
|
4,865.6
|
|
|
4,803.2
|
|
Total
|
5,504.5
|
|
|
5,313.5
|
|
|
15,955.9
|
|
|
15,413.3
|
|
Corporate and other
|
63.0
|
|
|
40.2
|
|
|
172.6
|
|
|
108.9
|
|
Total consolidated revenue
|
$
|
5,567.5
|
|
|
$
|
5,353.7
|
|
|
$
|
16,128.5
|
|
|
$
|
15,522.2
|
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment income
(1)
:
|
|
|
|
|
|
|
|
Domestic
|
$
|
83.9
|
|
|
$
|
94.6
|
|
|
$
|
246.9
|
|
|
$
|
258.8
|
|
Import
|
79.3
|
|
|
85.5
|
|
|
230.0
|
|
|
240.6
|
|
Premium Luxury
|
80.9
|
|
|
85.4
|
|
|
256.8
|
|
|
273.9
|
|
Total
|
244.1
|
|
|
265.5
|
|
|
733.7
|
|
|
773.3
|
|
Corporate and other
|
(43.3
|
)
|
|
(44.5
|
)
|
|
(137.2
|
)
|
|
(142.7
|
)
|
Other interest expense
|
(28.9
|
)
|
|
(21.4
|
)
|
|
(85.9
|
)
|
|
(64.4
|
)
|
Interest income
|
0.3
|
|
|
—
|
|
|
0.8
|
|
|
0.1
|
|
Other income (loss), net
|
2.6
|
|
|
(4.3
|
)
|
|
3.4
|
|
|
(2.7
|
)
|
Income from continuing operations before income taxes
|
$
|
174.8
|
|
|
$
|
195.3
|
|
|
$
|
514.8
|
|
|
$
|
563.6
|
|
(1)
Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
|
|
|
13.
|
BUSINESS AND CREDIT CONCENTRATIONS
|
We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately
94%
of the new vehicles sold during the
nine
months ended
September 30, 2016
, are manufactured by
Toyota (including Lexus), Ford, Honda, General Motors, FCA US (formerly Chrysler), Nissan, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche)
. Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
We had receivables from manufacturers or distributors of
$213.2 million
at
September 30, 2016
, and
$221.4 million
at
December 31, 2015
. Additionally, a large portion of our Contracts-in-Transit included in Receivables, Net, in the accompanying Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at
September 30, 2016
, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.
|
|
14.
|
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
|
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities
|
|
|
Level 2
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
|
|
•
|
Cash and cash equivalents, accounts receivable, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, and variable rate debt
: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
|
|
|
•
|
Fixed rate long-term debt
: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes and mortgages. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). We estimate the fair value of our mortgages using a present value technique based on our current market interest rates for similar types of financial instruments (Level 2). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Carrying value
|
$
|
1,791.6
|
|
|
$
|
1,767.1
|
|
Fair value
|
$
|
1,898.8
|
|
|
$
|
1,858.6
|
|
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.
Goodwill and Other Intangible Assets
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of
April 30
or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting units under the two-step goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment as of
April 30
,
2016
and
2015
, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of
April 30
or more frequently when events or changes in circumstances indicate that impairment may have occurred.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of franchise rights impairment to determine whether it was necessary to perform a quantitative impairment test. We completed our qualitative assessment of any potential franchise rights impairment as of
April 30
,
2016
and
2015
. Based on our qualitative assessment of potential franchise rights impairment, we determined that we should perform a quantitative test for certain franchise rights, and no impairment charges resulted from these quantitative tests.
The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using Level 3 inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable. The development of the assumptions used in our annual impairment tests are coordinated by our financial planning and analysis group, and the assumptions are reviewed by management.
Long-Lived Assets
The fair value measurement valuation process for our long-lived assets is established by our corporate real estate services group. Fair value measurements, which are based on Level 3 inputs, and changes in fair value measurements are reviewed and
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for properties classified as held and used, by the corporate real estate services group. Our corporate real estate services group utilizes its knowledge of the automotive industry and historical experience in real estate markets and transactions in establishing the valuation process, which is generally based on a combination of the market and replacement cost approaches.
In a market approach, the corporate real estate services group uses transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. The corporate real estate services group also evaluates changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.
To validate the fair values determined under the valuation process noted above, our corporate real estate services group also obtains independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and evaluates any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market.
The following table presents long-lived assets measured and recorded at fair value on a nonrecurring basis during the
nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Description
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
|
|
Gain/(Loss)
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
|
|
Gain/(Loss)
|
Long-lived assets held and used
|
|
$
|
5.9
|
|
|
$
|
(1.9
|
)
|
|
$
|
15.1
|
|
|
$
|
(2.3
|
)
|
Long-lived assets held for sale:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
19.4
|
|
|
$
|
(12.1
|
)
|
|
$
|
13.7
|
|
|
$
|
(2.8
|
)
|
Discontinued operations
|
|
12.7
|
|
|
(0.7
|
)
|
|
5.3
|
|
|
(0.8
|
)
|
Total long-lived assets held for sale
|
|
$
|
32.1
|
|
|
$
|
(12.8
|
)
|
|
$
|
19.0
|
|
|
$
|
(3.6
|
)
|
Long-Lived Assets Held and Used in Continuing Operations
During the
nine
months ended
September 30, 2016
, we recorded non-cash impairment charges related to long-lived assets held and used in continuing operations of
$1.9 million
, of which
$0.1 million
was recorded during the three months ended
September 30, 2016
.
During the
nine
months ended
September 30, 2015
, we recorded non-cash impairment charges related to long-lived assets held and used in continuing operations of
$2.3 million
. We recorded no impairment charges during the three months ended
September 30, 2015
.
These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.
Long-Lived Assets Held for Sale in Continuing Operations
During the
nine
months ended
September 30, 2016
, we recorded non-cash impairment charges related to long-lived assets held for sale in continuing operations of
$12.1 million
, of which
$6.4 million
was recorded during the three months ended
September 30, 2016
.
During the
nine
months ended
September 30, 2015
, we recorded non-cash impairment charges related to long-lived assets held for sale in continuing operations of
$2.8 million
, of which
$2.7 million
was recorded during the three months ended
September 30, 2015
.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.
Long-Lived Assets Held for Sale in Discontinued Operations
During the
nine
months ended
September 30, 2016
, we recorded non-cash impairment charges related to long-lived assets held for sale in discontinued operations of
$0.7 million
, of which
$0.5 million
was recorded during the three months ended
September 30, 2016
.
During the three and
nine
months ended
September 30, 2015
, we recorded a non-cash impairment charge of
$0.8 million
related to long-lived assets held for sale in discontinued operations.
These non-cash impairment charges are included in Loss from Discontinued Operations in our Unaudited Condensed Consolidated Statements of Income.
As of
September 30, 2016
, we had long-lived assets held for sale of
$56.1 million
in continuing operations and
$15.7 million
in discontinued operations. Long-lived assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.
|
|
15.
|
CASH FLOW INFORMATION
|
During the nine months ended
September 30, 2016
, we had non-cash investing and financing activities of
$36.3 million
related to capital leases and deferred purchase price commitments associated with our 2016 acquisitions. During the
nine
months ended
September 30, 2015
, we had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of
$18.1 million
. We also had accrued purchases of property and equipment of
$14.5 million
at
September 30, 2016
and
$16.5 million
at
September 30, 2015
.
We made interest payments, including interest on vehicle inventory financing, of
$133.0 million
during the
nine
months ended
September 30, 2016
, and
$101.0 million
during the
nine
months ended
September 30, 2015
. We made income tax payments, net of income tax refunds, of
$193.3 million
during the
nine
months ended
September 30, 2016
, and
$218.1 million
during the
nine
months ended
September 30, 2015
.