NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of
December 31, 2016
, we owned and operated
371
new vehicle franchises from
260
stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores sell
35
different new vehicle brands. The core brands of new vehicles that we sell, representing approximately
94%
of the new vehicles that we sold in
2016
, are manufactured by
Toyota (including Lexus), Ford, Honda, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen (including Audi and Porsche)
.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service,” which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources.
For convenience, the terms “AutoNation,” “Company,” and “we” are used to refer collectively to AutoNation, Inc. and its subsidiaries, unless otherwise required by the context. Our dealership operations are conducted by our subsidiaries.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries. All of our automotive dealership subsidiaries are indirectly wholly owned by the parent company, AutoNation, Inc. Intercompany accounts and transactions have been eliminated in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. The significant estimates made in the accompanying Consolidated Financial Statements include certain assumptions related to goodwill, intangible assets, long-lived assets, assets held for sale, accruals for chargebacks against revenue recognized from the sale of finance and insurance products, accruals related to self-insurance programs, certain legal proceedings, estimated tax liabilities, and certain assumptions related to stock-based compensation.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less as of the date of purchase to be cash equivalents unless the investments are legally or contractually restricted for more than three months. Under our cash management system, outstanding checks that are in excess of the cash balances at certain banks are included in Accounts Payable in the Consolidated Balance Sheets and changes in these amounts are reflected in operating cash flows in the accompanying Consolidated Statements of Cash Flows.
Inventory
Inventory consists primarily of new and used vehicles held for sale, valued at the lower of cost or market using the specific identification method. Cost includes acquisition, reconditioning, dealer installed accessories, and transportation expenses. Our new vehicle inventory costs are generally reduced by manufacturer holdbacks (percentage of either the manufacturer’s suggested retail price or invoice price of a new vehicle that the manufacturer repays to the dealer),
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
incentives, floorplan assistance, and non-reimbursement-based manufacturer advertising assistance. Parts, accessories, and other inventory are valued at the lower of acquisition cost (first-in, first-out) or market. See Note
3
of the Notes to Consolidated Financial Statements for more detailed information about our inventory.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in current and/or long-term debt based on the lease term. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in Other Income, Net (within Operating Income) in the Consolidated Statements of Income. See Note
4
of the Notes to Consolidated Financial Statements for detailed information about our property and equipment.
Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows:
|
|
Buildings and improvements
|
5
to
40
years
|
|
|
Furniture, fixtures, and equipment
|
3
to
10
years
|
We continually evaluate property and equipment, including leasehold improvements, to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the remaining balance should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the remaining life of the property and equipment in assessing whether an asset has been impaired. We measure impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.
When property and equipment is identified as held for sale, we reclassify the held for sale assets to Other Current Assets and cease recording depreciation. Assets held for sale in both continuing operations and discontinued operations are reported in the “Corporate and other” category of our segment information.
We had assets held for sale of
$41.4 million
at December 31,
2016
, and
$47.1 million
at December 31,
2015
, included in continuing operations. We had assets held for sale of
$15.7 million
at December 31,
2016
, and
$22.3 million
at December 31,
2015
, included in discontinued operations.
See Note
16
of the Notes to Consolidated Financial Statements for information about our fair value measurement valuation process and impairment charges that were recorded during
2016
and
2015
.
Goodwill and Other Intangible Assets, net
Goodwill consists of the cost of acquired businesses in excess of the fair value of the net assets acquired. Additionally, other intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of our intent to do so.
Our principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost. The contractual terms of our franchise agreements provide for various durations, ranging from
one
year to no expiration date, and in certain cases, manufacturers have undertaken to renew such franchises upon expiration so long as the dealership is in compliance with
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the terms of the agreement. However, in general, the states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It is generally difficult, outside of bankruptcy, for a manufacturer to terminate or not renew a franchise under these franchise laws, which were designed to protect dealers. In addition, in our experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the manufacturer outside of bankruptcy. Accordingly, we believe that our franchise agreements will contribute to cash flows for the foreseeable future and have indefinite lives. Other intangible assets are amortized using a straight-line method over their useful lives, generally ranging from
five
to
thirty
years.
We do not amortize goodwill or franchise rights assets. Goodwill and franchise rights are tested for impairment annually or more frequently when events or changes in circumstances indicate that impairment may have occurred. We completed our annual impairment tests for both goodwill and franchise rights as of
April 30
,
2016
. Based on our qualitative assessment of potential goodwill impairment, we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts and we recorded
no
goodwill impairment charges during
2016
. Based on our qualitative assessment of potential franchise rights impairment, we determined that we should perform a quantitative test for certain franchise rights; however,
no
impairment charges resulted from these quantitative tests during
2016
.
We completed our annual impairment tests for both goodwill and franchise rights as of
April 30
,
2015
. Based on our qualitative assessment of potential goodwill impairment, we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts and we recorded
no
goodwill impairment charges during
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 the quantitative tests. As a result of the issues related to Volkswagen associated with certain of its diesel engine vehicles, during the fourth quarter of 2015, we performed a quantitative impairment test of the franchise rights recorded at our Volkswagen stores. As a result of this test, we recorded non-cash impairment charges of
$15.4 million
to reduce the carrying values of the Volkswagen franchise rights to their estimated fair values.
See Note
5
of the Notes to Consolidated Financial Statements for more information about our goodwill and other intangible assets and Note
16
of the Notes to Consolidated Financial Statements for information about our annual impairment tests of goodwill and franchise rights.
Other Current Assets
Other current assets consist of various items, including, among other items, property and equipment held for sale in continuing operations and discontinued operations and prepaid expenses.
Other Assets
Other assets consist of various items, including, among other items, service loaner and rental vehicle inventory, net, and the cash surrender value of corporate-owned life insurance held in a Rabbi Trust for deferred compensation plan participants.
Other Current Liabilities
Other current liabilities consist of various items payable within one year including, among other items, accruals for payroll and benefits, sales taxes, the current portions of finance and insurance chargeback liabilities, self-insurance liabilities, and deferred revenue, customer deposits, accrued interest payable, and accrued expenses.
Other Liabilities
Other liabilities consist of various items payable beyond one year including, among other items, the long-term portions of deferred compensation obligations, finance and insurance chargeback liabilities, self-insurance liabilities, and deferred revenue.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Employee Savings Plans
We offer a 401(k) plan to all of our employees and provide a matching contribution to certain employees that participate in the plan. We provided a matching contribution of
$6.8 million
in
2016
,
$6.8 million
in
2015
, and
$5.9 million
in
2014
. Employer matching contributions are subject to a
three
-year graded vesting period for employees hired subsequent to
January 1, 2011
, and are fully vested immediately upon contribution for employees hired prior to January 1, 2011.
We offer a deferred compensation plan (the “Plan”) to provide certain employees and non-employee directors with the opportunity to accumulate assets for retirement on a tax-deferred basis. Participants in the Plan are allowed to defer a portion of their compensation and are fully vested in their respective deferrals and earnings. Participants may choose from a variety of investment options, which determine their earnings credits. We provided a matching contribution to employee participants in the Plan of
$0.7 million
for
2016
,
$0.6 million
for
2015
, and
$0.6 million
for
2014
. One-third of the matching contribution is vested and credited to participants on the first business day of the subsequent calendar year, and an additional one-third vests and is credited on each of the first and second anniversaries of such date. We may also make discretionary contributions, which vest
three
years after the effective date of the discretionary contribution. Participants eligible for a matching contribution under the Plan are not eligible for a matching contribution in our 401(k) plan. The balances due to participants in the Plan were
$68.2 million
as of December 31,
2016
, and
$64.6 million
as of December 31,
2015
, and are included in Other Current Liabilities and Other Liabilities in the accompanying Consolidated Balance Sheets.
Stock-Based Compensation
In 2016, 2015, and 2014, we granted stock-based awards in the form of stock options, restricted stock, and restricted stock units (“RSUs”). Stock options granted under all plans are non-qualified. Upon exercise, shares of common stock are issued from our treasury stock. We use the Black-Scholes valuation model to determine compensation expense associated with our stock options. Restricted stock awards, which are considered nonvested share awards as defined under generally accepted accounting principles, and RSUs are issued from our treasury stock. Compensation cost for restricted stock awards and RSUs is based on the closing price of our common stock on the date of grant. Certain of our equity-based compensation plans contain provisions that provide for vesting of awards upon retirement. Accordingly, compensation cost for stock-based awards is recognized on a straight-line basis, net of estimated forfeitures, over the shorter of the stated vesting period or the period until employees become retirement-eligible. See Note
10
of the Notes to Consolidated Financial Statements for more information about our stock-based compensation arrangements.
Revenue Recognition
Revenue consists of the sales of new and used vehicles, sales of parts and automotive services, commissions from finance and insurance products, and sales of other products. We recognize revenue (which excludes sales taxes) in the period in which products are sold or services are provided. The automotive services we provide include, but are not limited to, customer-paid repairs and maintenance, as well as repairs and maintenance under manufacturer warranties and extended service contracts. We recognize vehicle and finance and insurance revenue when a sales contract has been executed, the vehicle has been delivered, and payment has been received or financing has been arranged. Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other protection products with third-party providers.
We sell and receive a commission, which is recognized upon sale, on the following types of products: extended service contracts, maintenance programs, guaranteed auto protection (known as “GAP,” this protection covers the shortfall between a customer’s loan balance and insurance payoff in the event of a casualty), “tire and wheel” protection, and theft protection products. The products we offer include products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries. Pursuant to our arrangements with these third-party providers, we primarily sell the products on a straight commission basis; however, we may sell the product, recognize commission, and participate in future profit pursuant to retrospective commission arrangements with the issuers of those contracts, which is recognized as earned. Certain commissions earned from the sales of finance and insurance products are
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
subject to chargeback should the contracts be terminated prior to their expirations. An estimated liability for chargebacks against revenue recognized from sales of finance and insurance products is recorded in the period in which the related revenue is recognized. Our estimated liability for chargebacks is based primarily on our historical chargeback experience, and is influenced by the volume of vehicle sales in recent years, product penetration, product mix, and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other protection products, defaults, refinancings and payoffs before maturity, and other factors. Chargeback liabilities were
$116.8 million
at December 31,
2016
, and
$97.3 million
at December 31,
2015
. See Note
18
of the Notes to Consolidated Financial Statements for more information regarding chargeback liabilities.
Insurance
Under our self-insurance programs, we retain various levels of aggregate loss limits, per claim deductibles, and claims-handling expenses as part of our various insurance programs, including property and casualty, employee medical benefits, automobile, and workers’ compensation. Costs in excess of this retained risk per claim may be insured under various contracts with third-party insurance carriers. We review our claim and loss history on a periodic basis to assist in assessing our future liability. The ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial evaluation of historical claims experience, adjusted for current trends and changes in claims-handling procedures. See Note
6
of the Notes to Consolidated Financial Statements for more information on our self-insurance liabilities.
Manufacturer Incentives and Other Rebates
We receive various incentives from manufacturers based on achieving certain objectives, such as specified sales volume targets, as well as other objectives, including maintaining standards of a particular vehicle brand, which may include but are not limited to facility image and design requirements, customer satisfaction survey results, and training standards, among others. These incentives are typically based upon units purchased or sold. These manufacturer incentives are recognized as a reduction of new vehicle cost of sales when earned, generally at the time the related vehicles are sold or upon attainment of the particular program goals, whichever is later.
We also receive manufacturer rebates and assistance for holdbacks, floorplan interest, and non-reimbursement-based advertising expenses (described below), which are reflected as a reduction in the carrying value of each vehicle purchased by us. We recognize holdbacks, floorplan interest assistance, non-reimbursement-based advertising rebates, cash incentives, and other rebates received from manufacturers that are tied to specific vehicles as a reduction to cost of sales as the related vehicles are sold.
Advertising
We generally expense the cost of advertising as incurred, net of earned manufacturer reimbursements for specific advertising costs and other discounts. Advertising expense, net of manufacturer advertising reimbursements, was
$196.7 million
in
2016
,
$188.5 million
in
2015
, and
$164.9 million
in
2014
, and is reflected as a component of Selling, General, and Administrative Expenses in the accompanying Consolidated Statements of Income.
Manufacturer advertising rebates that are reimbursements of costs associated with specific advertising expenses are earned in accordance with the respective manufacturers’ reimbursement-based advertising assistance programs, which is typically after we have incurred the corresponding advertising expenses, and are reflected as a reduction of advertising expense. Manufacturer advertising reimbursements classified as an offset to advertising expenses were
$58.5 million
in
2016
,
$56.4 million
in
2015
, and
$47.1 million
in
2014
. All other non-reimbursement-based manufacturer advertising rebates that are not associated with specific advertising expenses are recorded as a reduction of inventory and recognized as a reduction of new vehicle cost of sales in the period the related vehicle is sold.
Parts and Service Internal Profit
Our parts and service departments recondition the majority of used vehicles acquired by our used vehicle departments and perform minor preparatory work on new vehicles acquired by our new vehicle departments. The parts and service
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
departments charge the new and used vehicle departments as if they were third parties in order to account for total activity performed by that department. Revenues and costs of sales associated with the internal work performed by our parts and service departments are reflected in our parts and service results in our Consolidated Statements of Income. New and used vehicle revenues and costs of sales are reduced by the amount of the intracompany charge. As a result, the revenues and costs of sales associated with the internal work performed by our parts and service departments are eliminated in consolidation. We also maintain an allowance for internal profit on vehicles that have not been sold.
Income Taxes
We file a consolidated federal income tax return. Deferred income taxes have been provided for temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. See Note
11
of the Notes to Consolidated Financial Statements for more detailed information related to income taxes.
Taxes Assessed by Governmental Authorities
Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue in our Consolidated Financial Statements.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including outstanding unvested restricted stock awards which contain rights to non-forfeitable dividends and vested restricted stock unit awards. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options. See Note
12
of the Notes to Consolidated Financial Statements for more information on the computation of earnings (loss) per share.
Recent Accounting Pronouncements
Presentation of Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update to simplify the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability. In August 2015, the FASB issued an accounting standard update that allows the presentation of debt issuance costs related to line-of-credit arrangements as an asset on the balance sheet under the simplified guidance, regardless of whether there are any outstanding borrowings on the related arrangements. The amendments in these accounting standard updates were to be applied retrospectively and were effective for interim and annual reporting periods beginning after December 15, 2015. We adopted this 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. See Note 7 of the Notes to Consolidated Financial Statements for additional information.
Revenue Recognition
In May 2014, the FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update will be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which requires additional footnote disclosures). This accounting standard
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
update is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted only as of reporting periods beginning after December 31, 2016. We will adopt this accounting standard update effective January 1, 2018. While we are currently evaluating the method of adoption and the impact of the provisions of this accounting standard update, we expect similar performance obligations to result under this update as compared with deliverables and separate units of accounting currently identified. As a result, we expect the timing of our revenue recognition to generally remain the same.
Accounting for Leases
In February 2016, the FASB issued an accounting standard update that amends the accounting guidance on leases. The primary change in this accounting standard update requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this accounting standard update are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2018. We will adopt this accounting standard update effective January 1, 2019. While we are still evaluating the impact of adopting this update on our consolidated financial statements, we expect that upon adoption the right-of-use assets and lease liabilities recorded could be material to our consolidated balance sheets. However, we do not expect a material impact to our consolidated statements of income.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued an accounting standard update that amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification within the statement of cash flows. Certain of the amendments in this accounting standard update are to be applied using a modified retrospective approach by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, while other amendments can be applied prospectively or retrospectively. The amendments in this accounting standard update are effective for periods beginning after December 15, 2016. We adopted this accounting standard update effective January 1, 2017, and the cumulative-effect adjustment to equity was not material.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued an accounting standard update that provides classification guidance on eight specific cash flow issues, for which guidance previously did not exist or was unclear. The amendments in this accounting standard update are effective for periods beginning after December 15, 2017. Early adoption is permitted for any entity in any interim or annual period. We will adopt this accounting standard update effective January 1, 2018. The provisions of this accounting standard update will not have a material impact on our consolidated statements of cash flows.
2. RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Trade receivables
|
$
|
147.6
|
|
|
$
|
133.6
|
|
Manufacturer receivables
|
234.9
|
|
|
221.4
|
|
Other
|
48.7
|
|
|
38.0
|
|
|
431.2
|
|
|
393.0
|
|
Less: allowances for doubtful accounts
|
(5.8
|
)
|
|
(4.5
|
)
|
|
425.4
|
|
|
388.5
|
|
Contracts-in-transit and vehicle receivables
|
595.9
|
|
|
508.0
|
|
Income taxes receivable (See Note 11)
|
11.6
|
|
|
11.7
|
|
Receivables, net
|
$
|
1,032.9
|
|
|
$
|
908.2
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Trade receivables represent amounts due for parts and services that have been delivered or sold, excluding amounts due from manufacturers, as well as receivables from finance organizations for commissions on the sale of financing products. Manufacturer receivables represent amounts due from manufacturers for holdbacks, rebates, incentives, floorplan assistance, and warranty claims. Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by our customers.
We evaluate our receivables for collectability based on the age of receivables and past collection experience.
3. INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
New vehicles
|
$
|
2,761.5
|
|
|
$
|
2,888.1
|
|
Used vehicles
|
559.1
|
|
|
539.7
|
|
Parts, accessories, and other
|
199.5
|
|
|
184.2
|
|
Inventory
|
$
|
3,520.1
|
|
|
$
|
3,612.0
|
|
The components of vehicle floorplan payables at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Vehicle floorplan payable - trade
|
$
|
2,308.8
|
|
|
$
|
2,565.8
|
|
Vehicle floorplan payable - non-trade
|
1,540.4
|
|
|
1,161.3
|
|
Vehicle floorplan payable
|
$
|
3,849.2
|
|
|
$
|
3,727.1
|
|
Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle floorplan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under our secured used vehicle floorplan facilities. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle floorplan payable-non-trade are reported as financing cash flows in the accompanying Consolidated Statements of Cash Flows.
Our inventory costs are generally reduced by manufacturer holdbacks, incentives, floorplan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floorplan payables are reflective of the gross cost of the vehicle. The vehicle floorplan payables, as shown in the above table, will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability.
Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Our manufacturer agreements generally allow the manufacturer to draft against the new vehicle floorplan facilities so the lender funds the manufacturer directly for the purchase of new vehicle inventory. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged
2.0%
during
2016
and
1.8%
during
2015
. At
December 31, 2016
, the aggregate capacity under our floorplan credit agreements with various lenders to finance our new vehicle inventory was approximately
$4.7 billion
, of which
$3.5 billion
had been borrowed.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged
2.1%
during
2016
and
1.7%
during
2015
. At
December 31, 2016
, the aggregate capacity under our floorplan credit agreements with various lenders to finance a portion of our used vehicle inventory was
$430.0 million
, of which
$377.8 million
had been borrowed. The remaining borrowing capacity of
$52.2 million
was limited to
$0.3 million
based on the eligible used vehicle inventory that could have been pledged as collateral.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. PROPERTY AND EQUIPMENT, NET
A summary of property and equipment, net, at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Land
|
$
|
1,267.4
|
|
|
$
|
1,178.4
|
|
Buildings and improvements
|
2,009.6
|
|
|
1,856.6
|
|
Furniture, fixtures, and equipment
|
659.4
|
|
|
642.2
|
|
|
3,936.4
|
|
|
3,677.2
|
|
Less: accumulated depreciation and amortization
|
(1,093.2
|
)
|
|
(1,009.8
|
)
|
Property and equipment, net
|
$
|
2,843.2
|
|
|
$
|
2,667.4
|
|
We capitalized interest in connection with various construction projects to build, upgrade, or remodel our facilities of
$0.5 million
in
2016
,
$0.9 million
in
2015
, and
$1.2 million
in
2014
.
5. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Goodwill
|
$
|
1,511.3
|
|
|
$
|
1,394.5
|
|
|
|
|
|
Franchise rights - indefinite-lived
|
$
|
589.4
|
|
|
$
|
432.4
|
|
Other intangible assets
|
16.3
|
|
|
14.3
|
|
|
605.7
|
|
|
446.7
|
|
Less: accumulated amortization
|
(7.5
|
)
|
|
(6.8
|
)
|
Intangible assets, net
|
$
|
598.2
|
|
|
$
|
439.9
|
|
Goodwill
Goodwill allocated to our reporting units and changes in the carrying amount of goodwill for the years ended December 31,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Import
|
|
Premium
Luxury
|
|
Corporate
and other
|
|
Consolidated
|
Goodwill at January 1, 2015
(1)
|
$
|
175.1
|
|
|
$
|
551.6
|
|
|
$
|
588.0
|
|
|
$
|
—
|
|
|
$
|
1,314.7
|
|
Acquisitions, dispositions, and other adjustments
|
28.0
|
|
|
19.3
|
|
|
32.5
|
|
|
—
|
|
|
79.8
|
|
Goodwill at December 31, 2015
(1)
|
203.1
|
|
|
570.9
|
|
|
620.5
|
|
|
—
|
|
|
1,394.5
|
|
Acquisitions, dispositions, and other adjustments
|
49.0
|
|
|
(12.7
|
)
|
|
76.9
|
|
|
3.6
|
|
|
116.8
|
|
Goodwill at December 31, 2016
(1)
|
$
|
252.1
|
|
|
$
|
558.2
|
|
|
$
|
697.4
|
|
|
$
|
3.6
|
|
|
$
|
1,511.3
|
|
|
|
(1)
|
Net of accumulated impairment losses of
$1.47 billion
associated with our single reporting unit (prior to September 30, 2008, our reporting unit structure was comprised of a single reporting unit) and
$140.0 million
associated with our Domestic reporting unit, both of which were recorded during the year ended December 31, 2008.
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers. As of
December 31, 2016
, we had
$589.4 million
of franchise rights recorded on our Consolidated Balance Sheet, of which
$198.0 million
was related to Domestic stores,
$110.4 million
was related to Import stores, and
$281.0 million
was related to Premium Luxury stores.
See Note
16
of the Notes to Consolidated Financial Statements for more information about our annual impairment tests of goodwill and franchise rights.
6. SELF-INSURANCE
At December 31,
2016
and
2015
, current and long-term self-insurance liabilities were included in Other Current Liabilities and Other Liabilities, respectively, in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Self-insurance - current portion
|
$
|
27.2
|
|
|
$
|
27.2
|
|
Self-insurance - long-term portion
|
48.7
|
|
|
47.6
|
|
Total self-insurance liabilities
|
$
|
75.9
|
|
|
$
|
74.8
|
|
7. LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
6.75% Senior Notes due 2018
|
$
|
400.0
|
|
|
$
|
400.0
|
|
5.5% Senior Notes due 2020
|
350.0
|
|
|
350.0
|
|
3.35% Senior Notes due 2021
|
300.0
|
|
|
300.0
|
|
4.5% Senior Notes due 2025
|
450.0
|
|
|
450.0
|
|
Revolving credit facility due 2019
|
—
|
|
|
—
|
|
Mortgage facility
(1)
|
153.2
|
|
|
175.7
|
|
Capital leases and other debt
|
136.2
|
|
|
95.0
|
|
|
1,789.4
|
|
|
1,770.7
|
|
Less: unamortized debt discounts and debt issuance costs
|
(10.8
|
)
|
|
(13.7
|
)
|
Less: current maturities
|
(167.5
|
)
|
|
(11.7
|
)
|
Long-term debt, net of current maturities
|
$
|
1,611.1
|
|
|
$
|
1,745.3
|
|
|
|
(1)
|
The mortgage facility requires monthly principal and interest payments of
$1.6 million
based on a fixed amortization schedule with a balloon payment of
$143.9 million
due November 2017.
|
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.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31,
2016
, aggregate maturities of non-vehicle long-term debt were as follows:
|
|
|
|
|
Year Ending December 31:
|
|
2017
|
$
|
167.5
|
|
2018
|
411.4
|
|
2019
|
43.0
|
|
2020
|
353.5
|
|
2021
|
303.4
|
|
Thereafter
|
510.6
|
|
|
$
|
1,789.4
|
|
Senior Unsecured Notes and Credit Agreement
At December 31,
2016
, we had outstanding
$400.0 million
of
6.75%
Senior Notes due 2018. Interest is payable on
April 15
and
October 15
of each year. These notes will mature on
April 15, 2018
.
At December 31,
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 December 31,
2016
, we had outstanding
$300.0 million
of
3.35%
Senior Notes due 2021. Interest is payable on
January 15
and
July 15
of each year. These notes will mature on
January 15, 2021
.
At December 31,
2016
, we had outstanding
$450.0 million
of
4.5%
Senior Notes due 2025. Interest 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 December 31,
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 December 31,
2016
, leaving an additional borrowing capacity under the revolving credit facility of
$1.8 billion
at December 31,
2016
. As of
December 31, 2016
, this borrowing capacity was limited under the maximum consolidated leverage ratio contained in our credit agreement to
$1.1 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.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other Long-Term Debt
At December 31,
2016
, we had
$153.2 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
$1.6 million
based on a fixed amortization schedule with a balloon payment of
$143.9 million
due November 2017. We are subject to make-whole payments if the mortgage facility is prepaid prior to its maturity date. During the fourth quarter of 2016, in connection with the divestiture of a property included in the facility, we repaid
$12.1 million
of the mortgage facility and made a make-whole payment of
$0.5 million
.
At December 31,
2016
, we had capital lease and other debt obligations of
$136.2 million
, which are due at various dates through
2036
. See Note
8
of the Notes to Consolidated Financial Statements for more information related to capital lease obligations.
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 December 31,
2016
, we had
$942.0 million
of commercial paper notes outstanding with a weighted-average annual interest rate of
1.26%
and a weighted-average remaining term of
24 days
.
8. 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 December 31,
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 any 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.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Lease Commitments
We lease real property, equipment, and software under various operating leases, most of which have terms from
one
to
twenty-five
years.
Expenses under real property, equipment, and software leases were
$52.8 million
in
2016
,
$51.4 million
in
2015
, and
$49.0 million
in
2014
. The leases require payment of real estate taxes, insurance, and maintenance in addition to rent. Most of the leases contain renewal options, rent abatements, and rent escalation clauses. Lease expense is recognized on a straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements, and the estimation of future lease commitments.
Future minimum lease obligations under non-cancelable real property, equipment, and software leases with initial terms in excess of one year at December 31,
2016
, are as follows:
|
|
|
|
|
|
|
|
|
Noncancelable Lease Commitments
|
Capital
(1)
|
|
Operating
(1) (2)
|
2017
|
$
|
20.0
|
|
|
$
|
45.6
|
|
2018
|
16.2
|
|
|
42.7
|
|
2019
|
32.4
|
|
|
39.2
|
|
2020
|
7.0
|
|
|
37.8
|
|
2021
|
6.7
|
|
|
31.2
|
|
Thereafter
|
82.5
|
|
|
236.8
|
|
Total minimum lease payments
|
$
|
164.8
|
|
|
$
|
433.3
|
|
Less: Amounts representing interest
|
(46.7
|
)
|
|
|
|
$
|
118.1
|
|
|
|
|
|
(1)
|
Amounts for capital and operating lease commitments do not include certain operating expenses such as maintenance, insurance, and real estate taxes. In
2016
, these charges totaled approximately
$24 million
.
|
|
|
(2)
|
Future minimum operating lease payments do not reflect future minimum sublease income of
$1.1 million
.
Additionally, operating leases that are on a month-to-month basis are not included.
|
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 dealership 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 dealership 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 in connection with such leases. We generally have indemnification rights against the assignee or sublessee in the event of
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
non-performance under these leases, as well as certain defenses. We presently have no reason to believe that we or our subsidiaries will be called on to perform under any such remaining assigned leases or subleases. We estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from
2017
to
2034
are approximately
$24 million
at
December 31, 2016
. There can be no assurance that any performance of AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.
At
December 31, 2016
, surety bonds, letters of credit, and cash deposits totaled
$102.7 million
, of which
$44.1 million
represented 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. We do not have any material known environmental commitments or contingencies.
9. SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our share repurchase program authorized by our Board of Directors follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Shares repurchased
|
10.5
|
|
|
3.9
|
|
|
9.4
|
|
Aggregate purchase price
|
$
|
497.0
|
|
|
$
|
235.1
|
|
|
$
|
485.1
|
|
Average purchase price per share
|
$
|
47.30
|
|
|
$
|
60.49
|
|
|
$
|
51.59
|
|
As of
December 31, 2016
,
$298.6 million
remained available under our stock repurchase limit most recently authorized by our Board of Directors.
Our Board of Directors authorized the retirement of
43.0 million
shares of our treasury stock in October 2015, which assumed the status of authorized but unissued shares. Upon the retirement of treasury stock, it is our policy to charge the excess of the cost of the treasury stock over its par value entirely to additional paid-in capital. Any amounts exceeding additional paid-in capital are charged to retained earnings. This retirement had the effect of reducing treasury stock and issued common stock, which includes treasury stock. Our common stock, additional paid-in capital, retained earnings, and treasury stock accounts were adjusted accordingly. There was no impact to shareholders’ equity or outstanding common stock.
We have
5.0 million
authorized shares of preferred stock, par value
$0.01
per share,
none
of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences, and dividends.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Shares issued
|
0.3
|
|
|
1.3
|
|
|
1.7
|
|
Proceeds from the exercise of stock options
|
$
|
8.4
|
|
|
$
|
30.0
|
|
|
$
|
35.1
|
|
Average exercise price per share
|
$
|
31.21
|
|
|
$
|
23.33
|
|
|
$
|
20.50
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Shares issued
|
143,424
|
|
|
159,442
|
|
|
154,540
|
|
Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
|
38,906
|
|
|
36,712
|
|
|
46,752
|
|
10. STOCK-BASED COMPENSATION
The AutoNation, Inc. 2008 Equity and Incentive Plan (the “2008 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards to employees. A maximum of
12.0 million
shares may be issued under the 2008 Plan, provided that no more than
2.0 million
shares may be issued pursuant to the grant of awards, other than options or stock appreciation rights, that are settled in shares. The exercise price of all stock options granted in
2016
under the 2008 Plan, is equal to the closing price of our common stock on the date such awards were granted.
In January 2017, our Board, upon the recommendation of its Compensation Committee, discontinued the 2008 Plan and approved the AutoNation, Inc. 2017 Employee Equity and Incentive Plan (the “2017 Plan”), in each case subject to stockholder approval of the 2017 Plan at our 2017 Annual Meeting of Stockholders. The 2017 Plan provides for the grant of time-based and performance-based restricted stock units and restricted stock, stock options, stock appreciation rights, and other stock-based and cash-based awards to employees. A maximum of
5.5 million
shares may be issued under the 2017 Plan.
The AutoNation, Inc. 2014 Non-Employee Director Equity Plan (the “2014 Director Plan”) provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards to our non-employee directors. As of December 31, 2016, the total number of shares authorized for issuance under the 2014 Director Plan was
1.0 million
. In January 2017, our Board reduced such number to
600,000
. No director may be granted awards in any calendar year with an aggregate grant date fair market value (determined, with respect to options and stock appreciation rights, based on a Black-Scholes or other option valuation methodology approved by the Compensation Committee) in excess of
$750,000
per director.
Stock Options
In
2016
, the Compensation Committee of our Board of Directors approved the grant of
0.9 million
employee stock options. The employee stock option awards were granted on March 1, 2016 and have an exercise price equal to the closing price per share on the grant date (
$52.53
).
Stock options granted under all plans are non-qualified. Upon exercise, shares of common stock are issued from our treasury stock. Employee stock options granted in 2016 have a term of
10
years from the date of grant and vest in equal installments over
four
years on the anniversary of the grant date. Employee stock options granted in 2015 and 2014 were granted quarterly, have a term of
10
years from the first date of grant, and vest in equal installments over
four
years commencing on June 1 of the year following the grant date.
We use the Black-Scholes valuation model to determine compensation expense and amortize compensation expense on a straight-line basis, net of estimated forfeitures, over the requisite service period of the grants. Certain of our equity-based compensation plans contain provisions that provide for vesting of awards upon retirement. Accordingly, compensation cost is recognized over the shorter of the stated vesting period or the period until employees become retirement-eligible.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the assumptions used related to the valuation of our stock options during
2016
,
2015
, and
2014
:
|
|
|
|
|
|
|
|
|
|
|
Grant Year
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1.16% - 1.55%
|
|
|
0.76% - 1.86%
|
|
|
1.11% - 2.04%
|
|
Expected dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
Expected term
|
4 - 7 years
|
|
|
2 - 7 years
|
|
|
4 - 7 years
|
|
Expected volatility
|
29% - 31%
|
|
|
24% - 34%
|
|
|
25% - 36%
|
|
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant with a remaining term equal to the expected term used for stock options granted. The expected term of stock options granted is derived from historical data and represents the period of time that stock options are expected to be outstanding. The expected volatility is based on historical volatility, implied volatility, and other factors.
The following table summarizes stock option activity during
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
(in millions)
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic Value
(in millions)
|
Options outstanding at January 1
|
4.6
|
|
|
$
|
45.07
|
|
|
|
|
|
Granted
(1)
|
0.9
|
|
|
$
|
52.53
|
|
|
|
|
|
Exercised
|
(0.3
|
)
|
|
$
|
31.21
|
|
|
|
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Options outstanding as of December 31
|
5.2
|
|
|
$
|
46.99
|
|
|
6.54
|
|
$
|
31.8
|
|
Options exercisable at December 31
|
2.9
|
|
|
$
|
40.33
|
|
|
5.27
|
|
$
|
31.4
|
|
Options exercisable at December 31 and expected to vest thereafter
|
5.2
|
|
|
$
|
46.92
|
|
|
6.53
|
|
$
|
31.8
|
|
Options available for future grants at December 31
|
3.3
|
|
(2)
|
|
|
|
|
|
|
|
(1)
|
The options granted during
2016
are related to our annual employee stock option award grant on March 1, 2016
|
|
|
(2)
|
Includes
2.5 million
shares available under the 2008 Plan and
0.9 million
shares available under the 2014 Director Plan. As noted above, the number of shares available under the 2014 Director Plan was reduced by
0.4 million
shares in January 2017. If our stockholders approve the 2017 Plan, under which
5.5 million
shares would be available for issuance, then
no
additional awards will be granted under the 2008 Plan, and the
2.5 million
shares available under the 2008 Plan will no longer be available for issuance.
|
The weighted average grant-date fair value of stock options granted and total intrinsic value of stock options exercised are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant-date fair value of stock options granted
|
$
|
17.96
|
|
|
$
|
19.38
|
|
|
$
|
20.56
|
|
Total intrinsic value of stock options exercised (in millions)
|
$
|
5.3
|
|
|
$
|
51.9
|
|
|
$
|
56.2
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Restricted Stock
In
2016
, the Compensation Committee of our Board of Directors approved the grant of
0.1 million
shares of restricted stock. Restricted stock awards are granted to restricted stock-eligible employees generally on the first trading day of March.
Restricted stock awards are considered nonvested share awards as defined under generally accepted accounting principles and are issued from our treasury stock. Restricted stock awards granted in 2016 vest in equal installments over
four
years on the anniversary date of the grant. Restricted stock awards granted in 2015 and 2014 vest in equal installments over
four
years commencing on June 1 of the year following the grant date. Compensation cost for restricted stock awards is based on the closing price of our common stock on the date of grant and is recognized on a straight-line basis, net of estimated forfeitures, over the shorter of the stated vesting period or the period until employees become retirement-eligible.
The following table summarizes information about vested and unvested restricted stock for
2016
:
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Shares
(in actual number of shares)
|
|
Weighted-Average
Grant Date
Fair Value
|
Nonvested at January 1
|
284,284
|
|
|
$
|
53.11
|
|
Granted
(1)
|
143,424
|
|
|
$
|
52.23
|
|
Vested
|
(128,640
|
)
|
|
$
|
49.26
|
|
Forfeited
|
(32,162
|
)
|
|
$
|
55.23
|
|
Nonvested at December 31
|
266,906
|
|
|
$
|
54.23
|
|
|
|
(1)
|
The restricted stock awards granted during
2016
are primarily related to our employee annual restricted stock award grant in March
2016
.
|
The weighted average grant-date fair value of restricted stock awards granted and total fair value of restricted stock awards vested are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant-date fair value of restricted stock awards granted
|
$
|
52.23
|
|
|
$
|
62.54
|
|
|
$
|
52.87
|
|
Total fair value of restricted stock awards vested (in millions)
|
$
|
6.4
|
|
|
$
|
8.8
|
|
|
$
|
8.1
|
|
Restricted Stock Units
On January 4, 2016, each of our non-employee directors received a grant of
4,259
restricted stock units (“RSUs”) under the 2014 Director Plan. RSUs granted to our non-employee directors are fully vested on the grant date and are settled in shares of the Company’s common stock on the first trading day of February in the third year following the grant date, unless the non-employee director elects to defer delivery in accordance with the terms of the award and the 2014 Director Plan. Settlement of the RSUs will be accelerated in certain circumstances as provided in the terms of the award and the 2014 Director Plan, including in the event the non-employee director ceases to serve as a non-employee director of the Company. Compensation cost is recognized on the grant date and is based on the closing price of our common stock on the grant date.
The weighted average grant-date fair value and total grant-date fair value of RSUs granted (and vested) are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant-date fair value of RSUs granted
|
$
|
58.69
|
|
|
$
|
60.04
|
|
|
$
|
53.57
|
|
Total fair value of RSUs granted (in millions)
|
$
|
2.3
|
|
|
$
|
2.7
|
|
|
$
|
2.1
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Compensation Expense
The following table summarizes the total stock-based compensation expense recognized in Selling, General, and Administrative Expenses in the Consolidated Statements of Income and the total recognized tax benefit related thereto:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
$
|
16.2
|
|
|
$
|
14.8
|
|
|
$
|
18.4
|
|
Restricted stock
|
6.6
|
|
|
6.5
|
|
|
5.8
|
|
RSUs
|
2.3
|
|
|
2.7
|
|
|
2.1
|
|
Total stock-based compensation expense
|
$
|
25.1
|
|
|
$
|
24.0
|
|
|
$
|
26.3
|
|
|
|
|
|
|
|
Tax benefit related to stock-based compensation expense
|
$
|
9.6
|
|
|
$
|
9.2
|
|
|
$
|
10.0
|
|
As of
December 31, 2016
, there was
$22.7 million
of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, of which
$14.0 million
relates to stock options and
$8.7 million
relates to restricted stock. These amounts are expected to be recognized over a weighted average period of
1.68
years.
We realized tax benefits related to stock options exercised and vesting of restricted stock of
$4.8 million
in
2016
,
$23.3 million
in
2015
, and
$24.1 million
in
2014
.
11. INCOME TAXES
The components of the income tax provision from continuing operations for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal
|
$
|
234.9
|
|
|
$
|
235.0
|
|
|
$
|
220.9
|
|
State
|
31.4
|
|
|
34.1
|
|
|
32.2
|
|
Federal and state deferred
|
3.7
|
|
|
10.3
|
|
|
9.5
|
|
Change in valuation allowance, net
|
0.3
|
|
|
0.1
|
|
|
—
|
|
Adjustments and settlements
|
0.3
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
Income tax provision
|
$
|
270.6
|
|
|
$
|
279.0
|
|
|
$
|
262.5
|
|
A reconciliation of the income tax provision calculated using the statutory federal income tax rate to our income tax provision from continuing operations for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
|
2014
|
|
%
|
Income tax provision at statutory rate
|
$
|
245.8
|
|
|
35.0
|
|
|
$
|
253.0
|
|
|
35.0
|
|
|
$
|
238.8
|
|
|
35.0
|
|
Non-deductible expenses (income), net
|
4.6
|
|
|
0.7
|
|
|
3.5
|
|
|
0.5
|
|
|
1.3
|
|
|
0.2
|
|
State income taxes, net of federal benefit
|
21.7
|
|
|
3.1
|
|
|
23.6
|
|
|
3.3
|
|
|
23.2
|
|
|
3.4
|
|
|
272.1
|
|
|
38.8
|
|
|
280.1
|
|
|
38.8
|
|
|
263.3
|
|
|
38.6
|
|
Change in valuation allowance, net
|
0.3
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjustments and settlements
|
0.3
|
|
|
—
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
—
|
|
Other, net
|
(2.1
|
)
|
|
(0.3
|
)
|
|
(0.7
|
)
|
|
(0.1
|
)
|
|
(0.7
|
)
|
|
(0.1
|
)
|
Income tax provision
|
$
|
270.6
|
|
|
38.5
|
|
|
$
|
279.0
|
|
|
38.6
|
|
|
$
|
262.5
|
|
|
38.5
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Deferred income tax asset and liability components at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred income tax assets:
|
|
|
|
Inventory
|
$
|
36.8
|
|
|
$
|
35.1
|
|
Receivable allowances
|
3.3
|
|
|
2.9
|
|
Warranty, chargeback, and self-insurance liabilities
|
71.2
|
|
|
63.5
|
|
Other accrued liabilities
|
33.1
|
|
|
32.6
|
|
Deferred compensation
|
31.8
|
|
|
28.5
|
|
Stock-based compensation
|
25.7
|
|
|
24.3
|
|
Loss carryforwards—federal and state
|
5.4
|
|
|
13.3
|
|
Other, net
|
17.1
|
|
|
6.8
|
|
Total deferred income tax assets
|
224.4
|
|
|
207.0
|
|
Valuation allowance
|
(2.5
|
)
|
|
(2.4
|
)
|
Deferred income tax assets, net of valuation allowance
|
221.9
|
|
|
204.6
|
|
Deferred income tax liabilities:
|
|
|
|
Long-lived assets (intangible assets and property)
|
(293.3
|
)
|
|
(263.8
|
)
|
Other, net
|
(20.1
|
)
|
|
(19.4
|
)
|
Total deferred income tax liabilities
|
(313.4
|
)
|
|
(283.2
|
)
|
Net deferred income tax liabilities
|
$
|
(91.5
|
)
|
|
$
|
(78.6
|
)
|
Our net deferred tax liability of
$91.5 million
as of
December 31, 2016
and
$78.6 million
as of
December 31, 2015
is classified as Deferred Income Taxes in the accompanying Consolidated Balance Sheets.
Income taxes receivable included in Receivables, net totaled
$11.6 million
at December 31,
2016
and
$11.7 million
at
December 31, 2015
.
At December 31,
2016
, we had
$80.8 million
of gross domestic state net operating loss carryforwards and capital loss carryforwards, and
$4.1 million
of state tax credits, all of which result in a deferred tax asset of
$6.0 million
and expire from
2017
through
2036
. At December 31,
2016
, we had
$2.5 million
of valuation allowance related to these loss carryforwards. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We provide valuation allowances to offset portions of deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
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. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes. Currently,
no
tax years are under examination by the IRS and tax years from
2009
to
2015
are under examination by U.S. state jurisdictions. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at January 1
|
$
|
5.6
|
|
|
$
|
4.9
|
|
|
$
|
4.8
|
|
Additions based on tax positions related to the current year
|
—
|
|
|
—
|
|
|
—
|
|
Additions for tax positions of prior years
|
0.8
|
|
|
0.7
|
|
|
0.9
|
|
Reductions for tax positions of prior years
|
(0.4
|
)
|
|
—
|
|
|
(0.1
|
)
|
Reductions for expirations of statute of limitations
|
(0.2
|
)
|
|
—
|
|
|
(0.4
|
)
|
Settlements
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
Balance at December 31
|
$
|
5.8
|
|
|
$
|
5.6
|
|
|
$
|
4.9
|
|
We had accumulated interest and penalties associated with these unrecognized tax benefits of
$6.1 million
at December 31,
2016
,
$5.5 million
at December 31,
2015
, and
$5.3 million
at December 31,
2014
. We additionally had a deferred tax asset of
$4.2 million
at December 31,
2016
,
$4.0 million
at December 31,
2015
, and
$3.6 million
at December 31,
2014
, related to these balances. The net of the unrecognized tax benefits, associated interest, penalties, and deferred tax asset was
$7.7 million
at December 31,
2016
,
$7.1 million
at December 31,
2015
, and
$6.6 million
at December 31,
2014
, which if resolved favorably (in whole or in part) would reduce our effective tax rate. The unrecognized tax benefits, associated interest, penalties, and deferred tax asset are included as components of Other Liabilities and Deferred Income Taxes in the Consolidated Balance Sheets.
It is our policy to account for interest and penalties associated with income tax obligations as a component of income tax expense. We recognized
$0.4 million
during
2016
,
$0.4 million
during
2015
, and
$0.3 million
during
2014
(each net of tax effect), of interest and penalties as part of the provision for income taxes in the Consolidated Statements of Income.
We do not expect that our unrecognized tax benefits will significantly increase or decrease during the twelve months beginning January 1,
2017
.
12. EARNINGS (LOSS) PER SHARE
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 CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net income from continuing operations
|
$
|
431.7
|
|
|
$
|
443.7
|
|
|
$
|
419.8
|
|
Loss from discontinued operations, net of income taxes
|
(1.2
|
)
|
|
(1.1
|
)
|
|
(1.1
|
)
|
Net income
|
$
|
430.5
|
|
|
$
|
442.6
|
|
|
$
|
418.7
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in calculating basic EPS
|
103.1
|
|
|
112.7
|
|
|
117.3
|
|
Effect of dilutive stock options
|
0.7
|
|
|
1.2
|
|
|
1.6
|
|
Weighted average common shares outstanding used in calculating diluted EPS
|
103.8
|
|
|
113.9
|
|
|
118.9
|
|
|
|
|
|
|
|
Basic EPS amounts:
|
|
|
|
|
|
Continuing operations
|
$
|
4.19
|
|
|
$
|
3.94
|
|
|
$
|
3.58
|
|
Discontinued operations
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Net income
|
$
|
4.18
|
|
|
$
|
3.93
|
|
|
$
|
3.57
|
|
|
|
|
|
|
|
Diluted EPS amounts:
|
|
|
|
|
|
Continuing operations
|
$
|
4.16
|
|
|
$
|
3.90
|
|
|
$
|
3.53
|
|
Discontinued operations
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Net income
|
$
|
4.15
|
|
|
$
|
3.89
|
|
|
$
|
3.52
|
|
A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Anti-dilutive options excluded from the computation of diluted earnings per share
|
3.0
|
|
|
0.7
|
|
|
0.6
|
|
13. DIVESTITURES
During
2016
, we divested
five
Domestic stores and
nine
Import stores and recorded a net gain of
$61.8 million
. During
2015
, we divested
three
Import stores and recorded a gain of
$7.4 million
. During
2014
, we divested
two
Import stores and recorded a gain of
$4.4 million
. We also divested our customer lead distribution business and recorded a gain of
$8.4 million
during 2014. This business was reported in the “Corporate and other” category of our segment information.
The gains on these divestitures are included in Other Income, Net (within Operating Income) in our Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.
14. ACQUISITIONS
During
2016
, we purchased
20
stores located in Texas, New York, Colorado, California, and Maryland, which include
Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, Sprinter, Jaguar, Land Rover, and BMW franchises
. We also purchased a collision center in Illinois in 2016. Acquisitions are included in the Consolidated Financial Statements from the date of acquisition. The purchase price allocations for the business combinations in
2016
are preliminary and subject to final adjustment. We purchased
22
stores in
2015
and
five
stores in
2014
.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the consideration paid and estimated fair values of the assets acquired and liabilities assumed at the acquisition dates for the stores acquired during
2016
:
|
|
|
|
|
|
Receivables, net
|
|
$
|
19.9
|
|
Inventory
|
|
272.4
|
|
Property and equipment
|
|
130.4
|
|
Goodwill
|
|
140.4
|
|
Franchise rights - indefinite-lived
|
|
169.2
|
|
Other assets
|
|
9.4
|
|
Accounts payable
|
|
(9.0
|
)
|
Vehicle floorplan payable - non-trade
|
|
(264.4
|
)
|
Deferred income taxes
|
|
(7.5
|
)
|
Other liabilities
|
|
(13.0
|
)
|
Aggregate purchase price
|
|
447.8
|
|
Capital leases and other obligations
|
|
(37.4
|
)
|
Cash used in business acquisitions, net of cash acquired
|
|
$
|
410.4
|
|
The goodwill was assigned to the Domestic, Import, Premium Luxury, and “Corporate and other” reporting units in the amount of
$57.9 million
,
$2.0 million
,
$76.9 million
, and
$3.6 million
, respectively. We anticipate that substantially all of the goodwill recorded in 2016 will be deductible for federal income tax purposes.
From each acquisition date of the
2016
acquisitions to December 31,
2016
, the amounts of revenue and earnings of the
20
stores and the collision center acquired included in our Consolidated Statement of Income for the year ended December 31,
2016
, were
$790.5 million
and
$21.7 million
, respectively. Our unaudited supplemental pro forma revenue and net income from continuing operations had the acquisition dates been January 1,
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Supplemental pro forma:
|
2016
|
|
2015
|
Revenue
|
$
|
21,945.6
|
|
|
$
|
22,169.9
|
|
Net income from continuing operations
|
$
|
434.1
|
|
|
$
|
469.4
|
|
The unaudited supplemental pro forma revenue and net income from continuing operations are presented for information purposes only and may not necessarily reflect the future results of operations of AutoNation or what the results of operations would have been had we owned and operated these businesses as of January 1,
2015
.
15. CASH FLOW INFORMATION
We had non-cash investing and financing activities of
$47.2 million
related to capital leases and deferred purchase price commitments associated with our
2016
acquisitions. We had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of
$27.3 million
during
2015
and
$11.6 million
during
2014
. We also had accrued purchases of property and equipment of
$29.1 million
at
December 31, 2016
,
$25.3 million
at
December 31, 2015
, and
$16.3 million
at
December 31, 2014
.
We made interest payments, net of amounts capitalized and including interest on vehicle inventory financing, of
$183.9 million
in
2016
,
$135.3 million
in
2015
, and
$136.4 million
in
2014
. We made income tax payments, net of income tax refunds, of
$265.5 million
in
2016
,
$278.8 million
in
2015
, and
$225.0 million
in
2014
.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. 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
|
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 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 consists primarily 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:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Carrying value
|
$
|
1,778.6
|
|
|
$
|
1,757.0
|
|
Fair value
|
$
|
1,862.2
|
|
|
$
|
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 or disposal groups 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 or disposal group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents nonfinancial assets measured and recorded at fair value on a nonrecurring basis during the years ended December 31,
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)
|
Franchise rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
Long-lived assets held and used
|
$
|
5.9
|
|
|
$
|
(1.9
|
)
|
|
$
|
24.9
|
|
|
$
|
(3.1
|
)
|
Long-lived assets held for sale:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
19.4
|
|
|
$
|
(12.1
|
)
|
|
$
|
17.6
|
|
|
$
|
(3.0
|
)
|
Discontinued operations
|
12.7
|
|
|
(0.7
|
)
|
|
5.3
|
|
|
(0.8
|
)
|
Total long-lived assets held for sale
|
32.1
|
|
|
(12.8
|
)
|
|
22.9
|
|
|
(3.8
|
)
|
Goodwill and Other Intangible Assets
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 annual assessments 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. Accordingly,
no
impairment charges were recorded for the carrying value of goodwill during
2016
or
2015
.
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives. 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 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.
As a result of the issues related to Volkswagen associated with certain of its diesel engine vehicles, during the fourth quarter of 2015, we performed a quantitative impairment test of the franchise rights recorded at our Volkswagen stores. As a result of this test, we recorded non-cash impairment charges during 2015 of
$15.4 million
to reduce the carrying values of the Volkswagen franchise rights to their estimated fair values. The non-cash impairment charges are reflected as Franchise Rights Impairment in the accompanying Consolidated Statements of Income.
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
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
reviewed and 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.
Long-lived Assets Held and Used in Continuing Operations
We recorded non-cash impairment charges of
$1.9 million
in
2016
and
$3.1 million
in 2015 related to our long-lived assets held and used in continuing operations. These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our 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
We recorded non-cash impairment charges of
$12.1 million
in
2016
and
$3.0 million
in
2015
related to our long-lived assets held for sale in continuing operations. These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our 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
We recorded non-cash impairment charges of
$0.7 million
in
2016
and
$0.8 million
in
2015
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 Consolidated Statements of Income.
As of
December 31, 2016
, we had assets held for sale of
$41.4 million
in continuing operations and
$15.7 million
in discontinued operations. As of
December 31, 2015
, we had assets held for sale of
$47.1 million
in continuing operations and
$22.3 million
in discontinued operations.
17. BUSINESS AND CREDIT CONCENTRATIONS
We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle manufacturers. In
2016
, approximately
64%
of our total revenue was generated by our stores in Florida, Texas, and California. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the operations of the store. The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management, marketing, production, and distribution capabilities of the vehicle manufacturers or distributors of which we hold franchises. We had receivables from manufacturers or distributors of
$234.9 million
at December 31,
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 Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries which provide financing directly to our new and used vehicle customers.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We purchase substantially all of our new vehicles from various manufacturers or distributors at the prevailing prices available to all franchised dealers. Additionally, we finance our new vehicle inventory primarily with automotive manufacturers’ captive finance subsidiaries. Our sales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the stores with an adequate supply of vehicles and related financing.
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 that we sold in
2016
, are manufactured by
Toyota (including Lexus), Ford, Honda, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen (including Audi and Porsche)
. Our business could be materially adversely impacted by another bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
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 December 31,
2016
, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.
18. CHARGEBACK LIABILITY
We may be charged back for commissions related to financing, vehicle service, or protection products in the event of early termination, default, or prepayment of the contracts by customers (“chargebacks”). However, our exposure to loss generally is limited to the commissions that we receive. These commissions are recorded at the time of the sale of the vehicles, net of an estimated liability for chargebacks. The following is a rollforward of our estimated chargeback liability for each of the three years presented in our Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance - January 1
|
$
|
97.3
|
|
|
$
|
84.9
|
|
|
$
|
67.6
|
|
Add: Provisions
|
106.6
|
|
|
90.0
|
|
|
79.4
|
|
Deduct: Chargebacks
|
(87.1
|
)
|
|
(77.6
|
)
|
|
(62.1
|
)
|
Balance - December 31
|
$
|
116.8
|
|
|
$
|
97.3
|
|
|
$
|
84.9
|
|
19. SEGMENT INFORMATION
At December 31,
2016
,
2015
, and
2014
, 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 General Motors, Ford, and FCA US. 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 services, and automotive finance and insurance products.
“Corporate and other” is comprised of our other businesses, including collision centers and an auction operation, each of which generates revenues, as well as unallocated corporate overhead expenses and retrospective commissions for certain finance 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.
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
Domestic
|
$
|
7,810.0
|
|
|
$
|
7,069.8
|
|
|
$
|
6,359.5
|
|
Import
|
6,886.1
|
|
|
7,037.2
|
|
|
6,717.8
|
|
Premium Luxury
|
6,665.3
|
|
|
6,607.8
|
|
|
5,889.3
|
|
Total
|
21,361.4
|
|
|
20,714.8
|
|
|
18,966.6
|
|
Corporate and other
|
247.6
|
|
|
147.2
|
|
|
142.2
|
|
Total consolidated revenue
|
$
|
21,609.0
|
|
|
$
|
20,862.0
|
|
|
$
|
19,108.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Segment income
(1)
:
|
|
|
|
|
|
Domestic
|
$
|
311.1
|
|
|
$
|
336.9
|
|
|
$
|
285.0
|
|
Import
|
296.8
|
|
|
311.4
|
|
|
291.3
|
|
Premium Luxury
|
350.2
|
|
|
376.2
|
|
|
366.1
|
|
Total
|
958.1
|
|
|
1,024.5
|
|
|
942.4
|
|
Corporate and other
|
(145.1
|
)
|
|
(209.7
|
)
|
|
(174.9
|
)
|
Other interest expense
|
(115.5
|
)
|
|
(90.9
|
)
|
|
(86.7
|
)
|
Loss on debt extinguishment
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
Interest income
|
1.1
|
|
|
0.1
|
|
|
0.2
|
|
Other income (loss), net
|
3.7
|
|
|
(1.3
|
)
|
|
2.9
|
|
Income from continuing operations before income taxes
|
$
|
702.3
|
|
|
$
|
722.7
|
|
|
$
|
682.3
|
|
|
|
(1)
|
Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In the following tables of financial data, floorplan interest expense, depreciation and amortization, total assets, and capital expenditures are reconciled to the consolidated totals as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Floorplan interest expense:
|
|
|
|
|
|
Domestic
|
$
|
33.7
|
|
|
$
|
24.1
|
|
|
$
|
24.4
|
|
Import
|
17.4
|
|
|
15.0
|
|
|
14.5
|
|
Premium Luxury
|
22.7
|
|
|
18.0
|
|
|
13.1
|
|
Corporate and other
|
2.7
|
|
|
1.2
|
|
|
1.3
|
|
Total floorplan interest expense
|
$
|
76.5
|
|
|
$
|
58.3
|
|
|
$
|
53.3
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization:
|
|
|
|
|
|
Domestic
|
$
|
37.5
|
|
|
$
|
31.0
|
|
|
$
|
27.3
|
|
Import
|
35.4
|
|
|
32.9
|
|
|
31.0
|
|
Premium Luxury
|
40.7
|
|
|
35.0
|
|
|
28.3
|
|
Corporate and other
|
29.8
|
|
|
28.5
|
|
|
20.3
|
|
Total depreciation and amortization
|
$
|
143.4
|
|
|
$
|
127.4
|
|
|
$
|
106.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Capital expenditures:
|
|
|
|
|
|
Domestic
|
$
|
62.5
|
|
|
$
|
61.4
|
|
|
$
|
61.7
|
|
Import
|
28.0
|
|
|
34.0
|
|
|
47.0
|
|
Premium Luxury
|
95.6
|
|
|
101.9
|
|
|
68.3
|
|
Corporate and other
|
67.1
|
|
|
69.6
|
|
|
20.8
|
|
Total capital expenditures
|
$
|
253.2
|
|
|
$
|
266.9
|
|
|
$
|
197.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Assets:
|
|
|
|
|
|
Domestic
|
$
|
2,742.8
|
|
|
$
|
2,573.9
|
|
|
$
|
2,187.3
|
|
Import
|
2,065.5
|
|
|
2,145.2
|
|
|
1,997.7
|
|
Premium Luxury
|
2,603.4
|
|
|
2,554.6
|
|
|
2,051.0
|
|
Corporate and other:
|
|
|
|
|
|
Goodwill
|
1,511.3
|
|
|
1,394.5
|
|
|
1,314.7
|
|
Franchise rights
|
589.4
|
|
|
432.4
|
|
|
348.1
|
|
Other Corporate and other assets
|
547.6
|
|
|
447.6
|
|
|
496.2
|
|
Total assets
|
$
|
10,060.0
|
|
|
$
|
9,548.2
|
|
|
$
|
8,395.0
|
|
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. MULTIEMPLOYER PENSION PLANS
Five
of our
260
stores participate in multiemployer pension plans. We contribute to these multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
|
|
a.
|
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
|
b.
|
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be assumed by the remaining participating employers.
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c.
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If we choose to stop participating in a multiemployer plan, we may be required to pay the plan an amount based on the underfunded status of the plan, subject to certain limits, referred to as a withdrawal liability.
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One of the multiemployer pension plans in which we participate is designated as being in “red zone” status, as defined by the Pension Protection Act (PPA) of 2006. Our participation in this plan for the year ended December 31,
2016
, is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (EIN) and the three-digit plan number. The most recent PPA zone status available in
2016
and
2015
is for the plan’s year end at December 31,
2015
, and December 31,
2014
, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally
less than 65 percent
funded. The last column lists the expiration date of the collective-bargaining agreements to which the plan is subject. A rehabilitation plan has been implemented for this plan. There have been no significant changes that affect the comparability of
2016
,
2015
, and
2014
contributions.
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Pension Protection Act Zone Status
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|
Contributions of AutoNation
($ in millions)
(1)
|
|
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|
Expiration Date of Collective-Bargaining Agreement
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Pension Fund
|
|
EIN/Pension PlanNumber
|
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2016
|
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2015
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2016
|
|
2015
|
|
2014
|
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Surcharge Imposed
|
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Automotive Industries Pension Plan
|
|
94-1133245 - 001
|
|
Red
|
|
Red
|
|
$
|
1.1
|
|
|
$
|
1.0
|
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|
$
|
0.8
|
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Yes
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(2)
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Other funds
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|
|
|
|
|
0.4
|
|
|
0.4
|
|
|
0.3
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Total contributions
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|
|
|
|
|
|
|
$
|
1.5
|
|
|
$
|
1.4
|
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|
$
|
1.1
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(1)
|
Our stores were not listed in the Automotive Industries Pension Plan’s Form 5500 as providing more than 5% of the total contributions for the plan years ended December 31,
2015
or
2014
.
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(2)
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We are party to
two
collective-bargaining agreements that require contributions to the Automotive Industries Pension Plan.
One
expired May 31, 2011, and
one
expired June 30, 2011, and both are currently extended during collective bargaining for new agreements.
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In the event that we cease participating in this plan, we could be assessed a withdrawal liability. We currently do not have any plans that would trigger the withdrawal liability under this multiemployer pension plan.
AUTONATION, INC.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements of Income by quarter for
2016
and
2015
:
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First
Quarter
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Second
Quarter
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Third
Quarter
|
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Fourth
Quarter
|
Revenue
|
2016
|
|
$
|
5,119.6
|
|
|
$
|
5,441.4
|
|
|
$
|
5,567.5
|
|
|
$
|
5,480.5
|
|
|
2015
|
|
$
|
4,944.2
|
|
|
$
|
5,224.3
|
|
|
$
|
5,353.7
|
|
|
$
|
5,339.8
|
|
|
|
|
|
|
|
|
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|
Gross profit
|
2016
|
|
$
|
825.9
|
|
|
$
|
841.8
|
|
|
$
|
836.4
|
|
|
$
|
809.1
|
|
|
2015
|
|
$
|
799.9
|
|
|
$
|
819.1
|
|
|
$
|
830.3
|
|
|
$
|
812.2
|
|
|
|
|
|
|
|
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Operating income
(1) (2)
|
2016
|
|
$
|
207.4
|
|
|
$
|
226.5
|
|
|
$
|
219.0
|
|
|
$
|
236.6
|
|
|
2015
|
|
$
|
214.9
|
|
|
$
|
222.1
|
|
|
$
|
235.7
|
|
|
$
|
200.4
|
|
|
|
|
|
|
|
|
|
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Income from continuing operations
(1) (2)
|
2016
|
|
$
|
96.2
|
|
|
$
|
112.1
|
|
|
$
|
107.8
|
|
|
$
|
115.6
|
|
|
2015
|
|
$
|
111.7
|
|
|
$
|
115.2
|
|
|
$
|
119.0
|
|
|
$
|
97.8
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(1) (2)
|
2016
|
|
$
|
95.9
|
|
|
$
|
112.0
|
|
|
$
|
107.3
|
|
|
$
|
115.3
|
|
|
2015
|
|
$
|
111.5
|
|
|
$
|
115.1
|
|
|
$
|
118.5
|
|
|
$
|
97.5
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
(1) (2) (3)
|
2016
|
|
$
|
0.90
|
|
|
$
|
1.09
|
|
|
$
|
1.06
|
|
|
$
|
1.15
|
|
|
2015
|
|
$
|
0.98
|
|
|
$
|
1.01
|
|
|
$
|
1.06
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
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Diluted earnings per share from continuing operations
(1) (2) (3)
|
2016
|
|
$
|
0.90
|
|
|
$
|
1.08
|
|
|
$
|
1.05
|
|
|
$
|
1.14
|
|
|
2015
|
|
$
|
0.97
|
|
|
$
|
1.00
|
|
|
$
|
1.05
|
|
|
$
|
0.87
|
|
|
|
(1)
|
During the fourth quarter of 2016, we recorded gains of $31.7 million ($19.6 million after-tax) related to a business divestiture and $14.4 million ($8.9 million after-tax) related to a legal settlement.
|
|
|
(2)
|
During the fourth quarter of 2015, we recorded
$15.4 million
(
$9.6 million
after-tax) of non-cash impairment charges related to rights under certain of our Volkswagen stores’ franchise agreements to reduce the carrying values of the Volkswagen franchise rights to their estimated fair values.
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(3)
|
The sum of quarterly basic and diluted earnings per share from continuing operations may not equal full year amounts as reported in the Consolidated Statements of Income due to the effect of the calculation of weighted average common stock equivalents on a quarterly basis.
|