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Form 10-Q AUTONATION, INC. For: Mar 31

April 22, 2016 5:24 PM EDT

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 1-13107
AutoNation, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
73-1105145
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
200 SW 1st Avenue, Fort Lauderdale, Florida
 
33301
(Address of principal executive offices)
 
(Zip Code)
(954) 769-6000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   þ   No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
  
Accelerated filer   o
Non-accelerated filer o   (Do not check if a smaller reporting company)
  
Smaller reporting company   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  þ
As of April 21, 2016, the registrant had 103,103,606 shares of common stock outstanding.

 
 
 
 
 



AUTONATION, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1A.
Item 2.
Item 6.




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
 
 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
47.8

 
$
74.1

Receivables, net
767.6

 
908.2

Inventory
3,927.8

 
3,612.0

Other current assets
129.5

 
115.4

Total Current Assets
4,872.7

 
4,709.7

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.0 billion and $1.0 billion, respectively
2,768.1

 
2,667.4

GOODWILL
1,437.4

 
1,394.5

OTHER INTANGIBLE ASSETS, NET
554.7

 
439.9

OTHER ASSETS
364.7

 
336.7

Total Assets
$
9,997.6

 
$
9,548.2

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Vehicle floorplan payable - trade
$
2,572.1

 
$
2,565.8

Vehicle floorplan payable - non-trade
1,467.3

 
1,161.3

Accounts payable
310.5

 
299.9

Commercial paper
926.0

 
599.5

Current maturities of long-term debt
11.9

 
11.7

Other current liabilities
572.7

 
529.2

Total Current Liabilities
5,860.5

 
5,167.4

LONG-TERM DEBT, NET OF CURRENT MATURITIES
1,742.6

 
1,745.3

DEFERRED INCOME TAXES
91.5

 
78.6

OTHER LIABILITIES
212.4

 
207.6

COMMITMENTS AND CONTINGENCIES (Note 11)

 

SHAREHOLDERS’ EQUITY:
 
 
 
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued

 

Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 120,562,149 shares issued at March 31, 2016, and December 31, 2015, including shares held in treasury
1.2

 
1.2

Additional paid-in capital
15.2

 
5.2

Retained earnings
2,798.7

 
2,702.8

Treasury stock, at cost; 17,461,420 and 9,758,091 shares held, respectively
(724.5
)
 
(359.9
)
Total Shareholders’ Equity
2,090.6

 
2,349.3

Total Liabilities and Shareholders’ Equity
$
9,997.6

 
$
9,548.2


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


1


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenue:
 
 
 
New vehicle
$
2,800.2

 
$
2,769.6

Used vehicle
1,241.6

 
1,193.2

Parts and service
820.4

 
743.4

Finance and insurance, net
223.1

 
207.6

Other
34.3

 
30.4

TOTAL REVENUE
5,119.6

 
4,944.2

Cost of sales:
 
 
 
New vehicle
2,651.0

 
2,608.1

Used vehicle
1,150.6

 
1,089.5

Parts and service
465.7

 
423.4

Other
26.4

 
23.3

TOTAL COST OF SALES (excluding depreciation shown below)
4,293.7

 
4,144.3

Gross Profit:
 
 
 
New vehicle
149.2

 
161.5

Used vehicle
91.0

 
103.7

Parts and service
354.7

 
320.0

Finance and insurance
223.1

 
207.6

Other
7.9

 
7.1

TOTAL GROSS PROFIT
825.9

 
799.9

Selling, general, and administrative expenses
588.7

 
557.6

Depreciation and amortization
34.8

 
28.7

Other income, net
(5.0
)
 
(1.3
)
OPERATING INCOME
207.4

 
214.9

Non-operating income (expense) items:
 
 
 
Floorplan interest expense
(18.9
)
 
(13.2
)
Other interest expense
(28.3
)
 
(21.4
)
Interest income
0.1

 
0.1

Other income (loss), net
(3.4
)
 
1.1

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
156.9

 
181.5

Income tax provision
60.7

 
69.8

NET INCOME FROM CONTINUING OPERATIONS
96.2

 
111.7

Loss from discontinued operations, net of income taxes
(0.3
)
 
(0.2
)
NET INCOME
$
95.9

 
$
111.5

BASIC EARNINGS (LOSS) PER SHARE:
 
 
 
Continuing operations
$
0.90

 
$
0.98

Discontinued operations
$

 
$

Net income
$
0.90

 
$
0.98

Weighted average common shares outstanding
106.7

 
113.6

DILUTED EARNINGS (LOSS) PER SHARE:
 
 
 
Continuing operations
$
0.90

 
$
0.97

Discontinued operations
$

 
$

Net income
$
0.89

 
$
0.97

Weighted average common shares outstanding
107.4

 
115.1

COMMON SHARES OUTSTANDING, net of treasury stock, at period end
103.1

 
113.9


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


2


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In millions, except share data)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Total
 
Shares
 
Amount
 
 
 
 
BALANCE AT DECEMBER 31, 2015
120,562,149

 
$
1.2

 
$
5.2

 
$
2,702.8

 
$
(359.9
)
 
$
2,349.3

Net income

 

 

 
95.9

 

 
95.9

Repurchases of common stock

 

 

 

 
(371.1
)
 
(371.1
)
Stock-based compensation expense

 

 
15.3

 

 

 
15.3

Shares awarded under stock-based compensation plans, including income tax benefit of $0.6

 

 
(5.3
)
 

 
6.5

 
1.2

BALANCE AT MARCH 31, 2016
120,562,149

 
$
1.2

 
$
15.2

 
$
2,798.7

 
$
(724.5
)
 
$
2,090.6


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



3


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
 
 
Net income
$
95.9

 
$
111.5

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations
0.3

 
0.2

Depreciation and amortization
34.8

 
28.7

Amortization of debt issuance costs and accretion of debt discounts
1.3

 
1.1

Stock-based compensation expense
15.3

 
11.1

Deferred income tax provision
4.8

 
2.7

Net gain related to business/property dispositions
(6.1
)
 
(1.5
)
Non-cash impairment charges
0.9

 
0.2

Excess tax benefit from stock-based awards
(0.6
)
 
(8.1
)
Other
3.8

 
(0.8
)
(Increase) decrease, net of effects from business combinations and divestitures:
 
 
 
Receivables
161.2

 
38.5

Inventory
(146.5
)
 
(23.0
)
Other assets
(23.7
)
 
1.4

Increase (decrease), net of effects from business combinations and divestitures:
 
 
 
Vehicle floorplan payable - trade, net
13.7

 
(43.6
)
Accounts payable
2.5

 
26.6

Other liabilities
40.8

 
54.8

Net cash provided by continuing operations
198.4

 
199.8

Net cash used in discontinued operations
(0.2
)
 
(0.2
)
Net cash provided by operating activities
198.2

 
199.6

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(54.7
)
 
(66.4
)
Property operating lease buy-outs
(5.0
)
 

Proceeds from the sale of property and equipment

 
0.2

Cash received from business divestitures, net of cash relinquished
6.1

 
15.7

Cash used in business acquisitions, net of cash acquired
(256.6
)
 
(27.7
)
Other
(0.5
)
 
(1.4
)
Net cash used in continuing operations
(310.7
)
 
(79.6
)
Net cash used in discontinued operations

 

Net cash used in investing activities
(310.7
)
 
(79.6
)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


4


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Continued)
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
 
 
 
Repurchases of common stock
(371.1
)
 
(9.6
)
Proceeds from revolving credit facility
440.0

 
540.0

Payments of revolving credit facility
(440.0
)
 
(615.0
)
Net proceeds from commercial paper
326.5

 

Net proceeds from (payments of) vehicle floorplan payable - non-trade
132.8

 
(54.1
)
Payments of mortgage facility
(2.5
)
 
(2.4
)
Payments of capital leases and other debt obligations
(0.7
)
 
(0.7
)
Proceeds from the exercise of stock options
0.6

 
12.4

Excess tax benefit from stock-based awards
0.6

 
8.1

Net cash provided by (used in) continuing operations
86.2

 
(121.3
)
Net cash used in discontinued operations

 

Net cash provided by (used in) financing activities
86.2

 
(121.3
)
DECREASE IN CASH AND CASH EQUIVALENTS
(26.3
)
 
(1.3
)
CASH AND CASH EQUIVALENTS at beginning of period
74.1

 
75.4

CASH AND CASH EQUIVALENTS at end of period
$
47.8

 
$
74.1


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.




5


AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data)
 
1.
INTERIM FINANCIAL STATEMENTS
Business and Basis of Presentation
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2016, we owned and operated 375 new vehicle franchises from 265 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 during the three months ended March 31, 2016, are manufactured by Toyota (including Lexus), Ford, Honda, General Motors, Nissan, FCA US (formerly Chrysler), Mercedes-Benz, 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.
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. The Unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included within our most recent Annual Report on Form 10-K. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented.
The preparation of financial statements in conformity with GAAP 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, giving due consideration to materiality. 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 Unaudited Condensed 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.
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 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 to continue to be 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 are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. We adopted these accounting standard updates retrospectively effective January 1, 2016, and have reclassified all debt issuance costs, with the exception of those


6

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 5 of the Notes to Unaudited Condensed 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 update is effective for reporting periods beginning after December 15, 2017. Earlier application is permitted only as of reporting periods beginning after December 15, 2016. We are currently evaluating the method of adoption and the impact of the provisions of this accounting standard update.
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 are currently evaluating the impact of the provisions of this accounting standard update.
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. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of the provisions of this accounting standard update.

2.
RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, are as follows:
 
March 31,
2016
 
December 31,
2015
Trade receivables
$
137.2

 
$
133.6

Manufacturer receivables
189.4

 
221.4

Other
50.0

 
38.0

 
376.6

 
393.0

Less: allowances for doubtful accounts
(4.1
)
 
(4.5
)
 
372.5

 
388.5

Contracts-in-transit and vehicle receivables
395.1

 
508.0

Income tax refundable (see Note 6)

 
11.7

Receivables, net
$
767.6

 
$
908.2


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,


7

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 are as follows:
 
March 31,
2016
 
December 31,
2015
New vehicles
$
3,186.1

 
$
2,888.1

Used vehicles
551.3

 
539.7

Parts, accessories, and other
190.4

 
184.2

Inventory
$
3,927.8

 
$
3,612.0


The components of vehicle floorplan payable are as follows:
 
March 31,
2016
 
December 31,
2015
Vehicle floorplan payable - trade
$
2,572.1

 
$
2,565.8

Vehicle floorplan payable - non-trade
1,467.3

 
1,161.3

Vehicle floorplan payable
$
4,039.4

 
$
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 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 Unaudited Condensed 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 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% for the three months ended March 31, 2016, and 1.7% for the three months ended March 31, 2015. At March 31, 2016, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $4.6 billion, of which $3.7 billion had been borrowed.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.9% for the three months ended March 31, 2016, and 1.7% for the three months ended March 31, 2015. At March 31, 2016, the aggregate capacity under our used vehicle floorplan facilities with various lenders to finance a portion of our used vehicle inventory was $360.0 million, of which $318.5 million had been borrowed. The remaining borrowing capacity of $41.5 million was limited to $0.4 million based on the eligible used vehicle inventory that could have been pledged as collateral.



8

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4.
GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, consist of the following:
 
March 31,
2016
 
December 31,
2015
Goodwill
$
1,437.4

 
$
1,394.5

 
 
 
 
Franchise rights - indefinite-lived
$
546.8

 
$
432.4

Other intangibles
14.9

 
14.3

 
561.7

 
446.7

Less: accumulated amortization
(7.0
)
 
(6.8
)
Other intangible assets, net
$
554.7

 
$
439.9

Goodwill
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test as of April 30, 2016.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2016.

5.
LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt, net of debt issuance costs, consists of the following:
 
March 31,
2016
 
December 31,
2015
6.75% Senior Notes due 2018
$
397.8

 
$
397.5

5.5% Senior Notes due 2020
346.7

 
346.5

3.35% Senior Notes due 2021
297.7

 
297.6

4.5% Senior Notes due 2025
444.8

 
444.7

Revolving credit facility due 2019

 

Mortgage facility (1)
173.2

 
175.7

Capital leases and other debt
94.3

 
95.0

 
1,754.5

 
1,757.0

Less: current maturities
(11.9
)
 
(11.7
)
Long-term debt, net of current maturities
$
1,742.6

 
$
1,745.3

(1) The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
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.


9

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Senior Unsecured Notes and Credit Agreement
At March 31, 2016, we had outstanding $398.1 million of 6.75% Senior Notes due 2018, net of debt discount. Interest is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2018.
At March 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 March 31, 2016, we had outstanding $300.0 million of 3.35% Senior Notes due 2021, net of debt discount. Interest is payable on January 15 and July 15 of each year. These notes will mature on January 15, 2021.
At March 31, 2016, we had outstanding $448.5 million of 4.5% Senior Notes due 2025, net of debt discount. Interest on the 2025 Notes is payable on April 1 and October 1 of each year. These notes will mature on October 1, 2025.
The interest rate payable on the 2021 Notes and 2025 Notes is subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.
Under our credit agreement, we have a $1.8 billion revolving credit facility that matures on December 3, 2019. The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to $500.0 million in the aggregate. As of March 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 March 31, 2016, leaving a borrowing capacity under the revolving credit facility of $1.8 billion at March 31, 2016. As of March 31, 2016, this borrowing capacity was limited under the maximum consolidated leverage ratio contained in our credit agreement to $1.2 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 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the interest rate.
Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.
Other Long-Term Debt
At March 31, 2016, we had $173.2 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 $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At March 31, 2016, we had capital lease and other debt obligations of $94.3 million, which are due at various dates through 2034.
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


10

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 March 31, 2016, we had $926.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 1.23% and a weighted-average remaining term of 21 days.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. Under the credit agreement, the maximum leverage ratio is 3.75x and the maximum capitalization ratio is 70.0%. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of letters of credit in excess of $150.0 million). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus $1.53 billion.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions. Our mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.
Under the terms of our credit agreement, at March 31, 2016, our leverage ratio and capitalization ratio were as follows:
 
March 31, 2016
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.60x
Capitalization ratio
≤ 70.0%
 
64.9%
Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness and repurchase shares.

6.
INCOME TAXES
Income taxes payable included in Other Current Liabilities totaled $42.4 million at March 31, 2016. Income taxes refundable included in Receivables, net totaled $11.7 million at December 31, 2015.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently, no tax years are under examination by the IRS, and tax years from 2009 to 2014 are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes.
It is our policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated Financial Statements.



11

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

7.
SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares repurchased
7.9

 
0.2

Aggregate purchase price
$
370.6

 
$
9.1

Average purchase price per share
$
47.20

 
$
60.46


In February 2016, our Board of Directors authorized the repurchase of an additional $250.0 million of shares of our common stock. As of March 31, 2016, $175.0 million remained available for share repurchases under the program.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued (in actual number of shares)
26,261

 
617,760

Proceeds from the exercise of stock options
$
0.6

 
$
12.4

Average exercise price per share
$
22.94

 
$
20.15


The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued
138,424

 
155,328

Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
8,760

 
8,999


8.
EARNINGS 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.


12

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table presents the calculation of basic and diluted EPS:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income from continuing operations
$
96.2

 
$
111.7

Loss from discontinued operations, net of income taxes
(0.3
)
 
(0.2
)
Net income
$
95.9

 
$
111.5

 
 
 
 
Weighted average common shares outstanding used in calculating basic EPS
106.7

 
113.6

Effect of dilutive stock options
0.7

 
1.5

Weighted average common shares outstanding used in calculating diluted EPS
107.4

 
115.1

 
 
 
 
Basic EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.98

Discontinued operations
$

 
$

Net income
$
0.90

 
$
0.98

 
 
 
 
Diluted EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.97

Discontinued operations
$

 
$

Net income
$
0.89

 
$
0.97

(1) Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Anti-dilutive options excluded from the computation of diluted earnings per share
2.5

 
0.5


9.
DIVESTITURES
During the first quarter of 2016, we divested two Import stores and recorded a gain of $6.2 million. During the first quarter of 2015, we divested two Import stores and recorded a gain of $1.4 million. The gains on these divestitures are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.

10.
ACQUISITIONS
During the first quarter of 2016, we purchased 12 stores located in Texas, which include Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, and Sprinter franchises. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocation for this business combination is preliminary and subject to final adjustment. We purchased two stores during the three months ended March 31, 2015.
The acquisitions that occurred during the three months ended March 31, 2016 were not material to our financial condition or results of operations. Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire three month periods ended March 31, 2016 and 2015, revenue and net income would not have been materially different from our reported revenue and net income for these periods.



13

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

11.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter.
As of March 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 these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from 2016 to 2034 are approximately $28 million at March 31, 2016. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at March 31, 2016. There can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.
At March 31, 2016, surety bonds, letters of credit, and cash deposits totaled $99.3 million, including $44.1 million of letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.
In the ordinary course of business, we are subject to numerous laws and regulations, including automotive, environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of such compliance will have a material adverse effect on our business, consolidated results of operations, cash flows, or financial condition, although


14

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

such outcome is possible given the nature of our operations and the extensive legal and regulatory framework applicable to our business.
Further, we expect that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact our business. We do not have any material known environmental commitments or contingencies.

12.
SEGMENT INFORMATION
At March 31, 2016 and 2015, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
“Corporate and other” is comprised of our other businesses, including collision centers and an auction operation, each of which generates revenues, as well as unallocated corporate overhead expenses and retrospective commissions for certain financing and insurance transactions that we arrange under agreements with third parties.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
In the following tables of financial data, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated income from continuing operations before income taxes, respectively.
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenue:
 
 
 
Domestic
$
1,848.2

 
$
1,665.7

Import
1,675.0

 
1,678.7

Premium Luxury
1,540.3

 
1,563.2

Total
5,063.5

 
4,907.6

Corporate and other
56.1

 
36.6

Total consolidated revenue
$
5,119.6

 
$
4,944.2




15

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 
Three Months Ended
 
March 31,
 
2016
 
2015
Segment income(1):
 
 
 
Domestic
$
77.4

 
$
79.3

Import
76.1

 
75.0

Premium Luxury
83.0

 
94.1

Total
236.5

 
248.4

Corporate and other
(48.0
)
 
(46.7
)
Other interest expense
(28.3
)
 
(21.4
)
Interest income
0.1

 
0.1

Other income (loss), net
(3.4
)
 
1.1

Income from continuing operations before income taxes
$
156.9

 
$
181.5

(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
 
13.
BUSINESS AND CREDIT CONCENTRATIONS
We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately 94% of the new vehicles sold during the three months ended March 31, 2016, are manufactured by Toyota (including Lexus), Ford, Honda, General Motors, Nissan, FCA US (formerly Chrysler), Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
We had receivables from manufacturers or distributors of $189.4 million at March 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 Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at March 31, 2016, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.

14.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
 
 
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities


16

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
Cash and cash equivalents, accounts receivable, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, and variable rate debt: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
Fixed rate long-term debt: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes and mortgages. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). We estimate the fair value of our mortgages using a present value technique based on our current market interest rates for similar types of financial instruments (Level 2). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:
 
March 31,
2016
 
December 31,
2015
Carrying value
$
1,764.1

 
$
1,767.1

Fair value
$
1,856.5

 
$
1,858.6


Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.
Long-Lived Assets
The fair value measurement valuation process for our long-lived assets is established by our corporate real estate services group. Fair value measurements, which are based on Level 3 inputs, and changes in fair value measurements are reviewed and 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. 


17

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table presents long-lived assets measured and recorded at fair value on a nonrecurring basis during the three months ended March 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)
Long-lived assets held for sale:
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.0

 
$
(0.9
)
 
$
6.2

 
$
(0.2
)
Discontinued operations
 
13.2

 
(0.2
)
 

 

Total long-lived assets held for sale
 
$
18.2

 
$
(1.1
)
 
$
6.2

 
$
(0.2
)
Long-Lived Assets Held and Used in Continuing Operations
During the three months ended March 31, 2016 and March 31, 2015, there were no impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations.
Long-Lived Assets Held for Sale in Continuing Operations
We recorded non-cash impairment charges related to long-lived assets held for sale in continuing operations of $0.9 million during the three months ended March 31, 2016 and $0.2 million during the three months ended March 31, 2015. These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.
Long-Lived Assets Held for Sale in Discontinued Operations
We recorded a non-cash impairment charge related to long-lived assets held for sale in discontinued operations of $0.2 million during the three months ended March 31, 2016. The non-cash impairment charge is included in Loss from Discontinued Operations in our Unaudited Condensed Consolidated Statements of Income.
During the three months ended March 31, 2015, there were no impairment charges recorded for the carrying value of long-lived assets held for sale in discontinued operations.
As of March 31, 2016, we had long-lived assets held for sale of $52.1 million in continuing operations and $22.1 million in discontinued operations. Long-lived assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.

15.
CASH FLOW INFORMATION
We had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of $5.3 million for the three months ended March 31, 2015. We did not enter into any capital leases during the three months ended March 31, 2016. We also had accrued purchases of property and equipment of $16.4 million at March 31, 2016 and $12.8 million at March 31, 2015.
We made interest payments, including interest on vehicle inventory financing, of $36.6 million during the three months ended March 31, 2016, and $31.5 million during the three months ended March 31, 2015. We made income tax payments, net of income tax refunds, of $0.9 million during the three months ended March 31, 2016, and $18.4 million during the three months ended March 31, 2015.


18


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K.
Overview
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2016, we owned and operated 375 new vehicle franchises from 265 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, 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 during the three months ended March 31, 2016, are manufactured by Toyota (including Lexus), Ford, Honda, General Motors, Nissan, FCA US (formerly Chrysler), Mercedes-Benz, 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. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, leveraging the AutoNation retail brand and advertising, implementing standardized processes, and increasing productivity across all of our stores.
At March 31, 2016, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

Market Conditions
In the first quarter of 2016, U.S. industry new vehicle unit retail sales were relatively flat as compared to the first quarter of 2015, despite increases in manufacturer incentives, vehicle leasing, and retail inventory levels. While we anticipate that full-year U.S. industry new vehicle unit sales will be above 17 million in 2016, we expect that the industry selling rate will be relatively flat as compared to 2015. However, actual sales may materially differ. Based on industry data, vehicle leasing is at a historically-high level. To the extent that vehicle manufacturers reduce their support for leasing programs, U.S. industry and our new vehicle unit retail sales could be adversely impacted.
As discussed below in “Results of Operations,” our new and used vehicle gross profit on a per vehicle retailed (“PVR”) basis were compressed due to elevated inventory levels in certain vehicle models, particularly in the Domestic and Premium Luxury segments, changes in manufacturer incentive programs, and a competitive automotive retail environment. If new vehicle production exceeds the new vehicle industry selling rate in 2016, our new and used vehicle gross profit PVRs could continue to be adversely impacted by excess supply, as well as changes in incentive, marketing, and other programs put in place by the vehicle manufacturers.
After several years of decline, the number of recent-model-year vehicles in operation is growing due to increases in the annual rate of new vehicle sales in the United States since 2009. The growth in that portion of our service base, together with our customer retention efforts, has benefited the customer-pay service and warranty components of our parts and service business, and we believe that it will continue to benefit those components for the next several years. While the number of older vehicles in operation has declined and is expected to continue to decline over the next few years, we believe that overall our parts and service business will benefit from the mix shift in our service base toward newer vehicles.
Results of Operations
During the three months ended March 31, 2016, we had net income from continuing operations of $96.2 million or $0.90 per share on a diluted basis, as compared to net income from continuing operations of $111.7 million or $0.97 per share on a diluted basis during the same period in 2015.


19


For the three months ended March 31, 2016, new vehicle sales accounted for approximately 55% of our total revenue and approximately 18% of our total gross profit. Used vehicle sales accounted for approximately 24% of our total revenue and approximately 11% of our total gross profit. Our parts and service and finance and insurance operations, while comprising approximately 20% of our total revenue for the three months ended March 31, 2016, contributed approximately 70% of our total gross profit for the same period.
Our retail new vehicle unit sales were relatively flat in the first quarter of 2016, as compared to the first quarter of 2015. Elevated inventory levels in certain vehicle models, changes in manufacturer incentive programs, and a competitive automotive retail environment adversely impacted new and used vehicle gross profit PVR, particularly in the Domestic and Premium Luxury segments. New and used vehicle gross profit PVR compression was partially offset by continued strength in finance and insurance gross profit PVR. Our total gross profit for the first quarter of 2016 increased 3%, as compared to same period in the prior year, primarily due to an increase in parts and service gross profit. See “Parts and Service” below for further discussion.
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or market on our consolidated balance sheets. We monitor our vehicle inventory levels closely based on current economic conditions and seasonal sales trends.
We have generally not experienced losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We had 87,953 units in new vehicle inventory at March 31, 2016, 80,442 units at December 31, 2015, and 65,993 units at March 31, 2015. See “New Vehicle Inventories” below for more information.
We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. In general, used vehicles that are not sold on a retail basis are liquidated at wholesale auctions. We record estimated losses on used vehicle inventory, including units subject to our open safety recall policy. Our used vehicle inventory balance was net of cumulative write-downs of $5.0 million at March 31, 2016, and $4.5 million at December 31, 2015.
Parts, accessories, and other inventory are carried at the lower of acquisition cost (first-in, first-out method) or market. We estimate the amount of potential obsolete inventory based upon past experience and market trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $3.9 million at March 31, 2016, and $3.5 million at December 31, 2015.

Critical Accounting Policies and Estimates
We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, and we base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Unaudited Condensed Consolidated Financial Statements. For additional discussion of our critical accounting policies and estimates, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10‑K.
Goodwill
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test as of April 30, 2016.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2016.


20


Long-Lived Assets
We estimate the depreciable lives of our property and equipment, including leasehold improvements, and review them for impairment when events or changes in circumstances indicate that their carrying amounts may be impaired. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, a current expectation that more-likely-than-not a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, or a current-period operating or cash flow loss combined with historical losses or projected future losses.
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. We measure each long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell and recognize a loss for any initial adjustment of the long-lived asset’s or disposal group’s carrying amount to fair value less cost to sell in the period the “held for sale” criteria are met. We periodically evaluate the carrying value of assets held for sale to determine if, based on market conditions, the values of these assets should be adjusted.
As of March 31, 2016, we had long-lived assets held for sale of $52.1 million in continuing operations and $22.1 million in discontinued operations.
During the three months ended March 31, 2016, there were no impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations.
During the three months ended March 31, 2016, we recorded a non-cash impairment charge of $0.9 million related to long-lived assets held for sale in continuing operations. The non-cash impairment charge is included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and is reported in the “Corporate and other” category of our segment information.
During the three months ended March 31, 2016, we recorded a non-cash impairment charge of $0.2 million related to long-lived assets held for sale in discontinued operations. The non-cash impairment charge is included in Loss from Discontinued Operations in our Unaudited Condensed Consolidated Statements of Income.
The fair value measurements for our property and equipment and assets held for sale are based on Level 3 inputs, which considered information from third-party real estate valuation sources, or, in certain cases, pending agreements to sell the related assets. See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our fair value measurement valuation process. Although we believe our property and equipment and assets held for sale are appropriately valued, the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets.


21


Reported Operating Data
Historical operating results include the results of acquired businesses from the date of acquisition.
 
($ in millions, except per vehicle data)
Three Months Ended March 31,
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
New vehicle
$
2,800.2

 
$
2,769.6

 
$
30.6

 
1.1

Retail used vehicle
1,119.9

 
1,094.1

 
25.8

 
2.4

Wholesale
121.7

 
99.1

 
22.6

 
22.8

Used vehicle
1,241.6

 
1,193.2

 
48.4

 
4.1

Finance and insurance, net
223.1

 
207.6

 
15.5

 
7.5

Total variable operations(1)
4,264.9

 
4,170.4

 
94.5

 
2.3

Parts and service
820.4

 
743.4

 
77.0

 
10.4

Other
34.3

 
30.4

 
3.9

 
 
Total revenue
$
5,119.6

 
$
4,944.2

 
$
175.4

 
3.5

Gross profit:
 
 
 
 
 
 
 
New vehicle
$
149.2

 
$
161.5

 
$
(12.3
)
 
(7.6
)
Retail used vehicle
93.7

 
102.5

 
(8.8
)
 
(8.6
)
Wholesale
(2.7
)
 
1.2

 
(3.9
)
 
 
Used vehicle
91.0

 
103.7

 
(12.7
)
 
(12.2
)
Finance and insurance
223.1

 
207.6

 
15.5

 
7.5

Total variable operations(1)
463.3

 
472.8

 
(9.5
)
 
(2.0
)
Parts and service
354.7

 
320.0

 
34.7

 
10.8

Other
7.9

 
7.1

 
0.8

 
 
Total gross profit
825.9

 
799.9

 
26.0

 
3.3

Selling, general, and administrative expenses
588.7

 
557.6

 
(31.1
)
 
(5.6
)
Depreciation and amortization
34.8

 
28.7

 
(6.1
)
 
 
Other income, net
(5.0
)
 
(1.3
)
 
3.7

 
 
Operating income
207.4

 
214.9

 
(7.5
)
 
(3.5
)
Non-operating income (expense) items:
 
 
 
 
 
 
 
Floorplan interest expense
(18.9
)
 
(13.2
)
 
(5.7
)
 
 
Other interest expense
(28.3
)
 
(21.4
)
 
(6.9
)
 
 
Interest income
0.1

 
0.1

 

 
 
Other income (loss), net
(3.4
)
 
1.1

 
(4.5
)
 
 
Income from continuing operations before income taxes
$
156.9

 
$
181.5

 
$
(24.6
)
 
(13.6
)
Retail vehicle unit sales:
 
 
 
 
 
 
 
New vehicle
79,007

 
78,560

 
447

 
0.6

Used vehicle
58,103

 
58,624

 
(521
)
 
(0.9
)
 
137,110

 
137,184

 
(74
)
 
(0.1
)
Revenue per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
35,442

 
$
35,255

 
$
187

 
0.5

Used vehicle
$
19,274

 
$
18,663

 
$
611

 
3.3

Gross profit per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
1,888

 
$
2,056

 
$
(168
)
 
(8.2
)
Used vehicle
$
1,613

 
$
1,748

 
$
(135
)
 
(7.7
)
Finance and insurance
$
1,627

 
$
1,513

 
$
114

 
7.5

Total variable operations(2)
$
3,399

 
$
3,438

 
$
(39
)
 
(1.1
)
 
 
 
 
 
 
 
 
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.



22


 
Three Months Ended
 
March 31,
 
2016 (%)
 
2015 (%)
Revenue mix percentages:
 
 
 
New vehicle
54.7
 
56.0
Used vehicle
24.3
 
24.1
Parts and service
16.0
 
15.0
Finance and insurance, net
4.4
 
4.2
Other
0.6
 
0.7
Total
100.0
 
100.0
Gross profit mix percentages:
 
 
 
New vehicle
18.1
 
20.2
Used vehicle
11.0
 
13.0
Parts and service
42.9
 
40.0
Finance and insurance
27.0
 
26.0
Other
1.0
 
0.8
Total
100.0
 
100.0
Operating items as a percentage of revenue:
 
 
 
Gross profit:
 
 
 
New vehicle
5.3
 
5.8
Used vehicle - retail
8.4
 
9.4
Parts and service
43.2
 
43.0
Total
16.1
 
16.2
Selling, general, and administrative expenses
11.5
 
11.3
Operating income
4.1
 
4.3
Operating items as a percentage of total gross profit:
 
 
 
Selling, general, and administrative expenses
71.3
 
69.7
Operating income
25.1
 
26.9
 
 
 
March 31,
 
2016
 
2015
Days supply:
 
 
 
New vehicle (industry standard of selling days)
81 days
 
52 days
Used vehicle (trailing calendar month days)
39 days
 
34 days
 
 
 
 



23


Same Store Operating Data
We have presented below our operating results on a same store basis, which reflect the results of our stores for the identical months in each period presented in the comparison, commencing with the first full month in which the store was owned by us. Therefore, the amounts presented in the 2015 column may differ from the same store amounts presented for 2015 in the prior year.

 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
New vehicle
$
2,634.1

 
$
2,755.5

 
$
(121.4
)
 
(4.4
)
Retail used vehicle
1,045.9

 
1,085.2

 
(39.3
)
 
(3.6
)
Wholesale
118.1

 
98.7

 
19.4

 
19.7

Used vehicle
1,164.0

 
1,183.9

 
(19.9
)
 
(1.7
)
Finance and insurance, net
211.8

 
206.6

 
5.2

 
2.5

Total variable operations(1)
4,009.9

 
4,146.0

 
(136.1
)
 
(3.3
)
Parts and service
770.1

 
736.2

 
33.9

 
4.6

Other
34.0

 
30.3

 
3.7

 
 
Total revenue
$
4,814.0

 
$
4,912.5

 
$
(98.5
)
 
(2.0
)
Gross profit:
 
 
 
 
 
 
 
New vehicle
$
140.1

 
$
160.6

 
$
(20.5
)
 
(12.8
)
Retail used vehicle
88.0

 
101.6

 
(13.6
)
 
(13.4
)
Wholesale
(2.6
)
 
1.2

 
(3.8
)
 
 
Used vehicle
85.4

 
102.8

 
(17.4
)
 
(16.9
)
Finance and insurance
211.8

 
206.6

 
5.2

 
2.5

Total variable operations(1)
437.3

 
470.0

 
(32.7
)
 
(7.0
)
Parts and service
333.5

 
316.6

 
16.9

 
5.3

Other
7.3

 
7.1

 
0.2

 
 
Total gross profit
$
778.1

 
$
793.7

 
$
(15.6
)
 
(2.0
)
Retail vehicle unit sales:
 
 
 
 
 
 
 
New vehicle
74,323

 
78,027

 
(3,704
)
 
(4.7
)
Used vehicle
54,157

 
58,039

 
(3,882
)
 
(6.7
)
 
128,480

 
136,066

 
(7,586
)
 
(5.6
)
Revenue per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
35,441

 
$
35,315

 
$
126

 
0.4

Used vehicle
$
19,312

 
$
18,698

 
$
614

 
3.3

Gross profit per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
1,885

 
$
2,058

 
$
(173
)
 
(8.4
)
Used vehicle
$
1,625

 
$
1,751

 
$
(126
)
 
(7.2
)
Finance and insurance
$
1,649

 
$
1,518

 
$
131

 
8.6

Total variable operations(2)
$
3,424

 
$
3,445

 
$
(21
)
 
(0.6
)
 
 
 
 
 
 
 
 
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.



24


 
Three Months Ended
 
March 31,
 
2016 (%)
 
2015 (%)
Revenue mix percentages:
 
 
 
New vehicle
54.7
 
56.1
Used vehicle
24.2
 
24.1
Parts and service
16.0
 
15.0
Finance and insurance, net
4.4
 
4.2
Other
0.7
 
0.6
Total
100.0
 
100.0
Gross profit mix percentages:
 
 
 
New vehicle
18.0
 
20.2
Used vehicle
11.0
 
13.0
Parts and service
42.9
 
39.9
Finance and insurance
27.2
 
26.0
Other
0.9
 
0.9
Total
100.0
 
100.0
Operating items as a percentage of revenue:
 
 
 
Gross profit:
 
 
 
New vehicle
5.3
 
5.8
Used vehicle - retail
8.4
 
9.4
Parts and service
43.3
 
43.0
Total
16.2
 
16.2



25


New Vehicle
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue
$
2,800.2

 
$
2,769.6

 
$
30.6

 
1.1

Gross profit
$
149.2

 
$
161.5

 
$
(12.3
)
 
(7.6
)
Retail vehicle unit sales
79,007

 
78,560

 
447

 
0.6

Revenue per vehicle retailed
$
35,442

 
$
35,255

 
$
187

 
0.5

Gross profit per vehicle retailed
$
1,888

 
$
2,056

 
$
(168
)
 
(8.2
)
Gross profit as a percentage of revenue
5.3
%
 
5.8
%
 
 
 
 
Days supply (industry standard of selling days)
81 days

 
52 days

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Same Store:
 
 
 
 
 
 
 
Revenue
$
2,634.1

 
$
2,755.5

 
$
(121.4
)
 
(4.4
)
Gross profit
$
140.1

 
$
160.6

 
$
(20.5
)
 
(12.8
)
Retail vehicle unit sales
74,323

 
78,027

 
(3,704
)
 
(4.7
)
Revenue per vehicle retailed
$
35,441

 
$
35,315

 
$
126

 
0.4

Gross profit per vehicle retailed
$
1,885

 
$
2,058

 
$
(173
)
 
(8.4
)
Gross profit as a percentage of revenue
5.3
%
 
5.8
%
 
 
 
 

The following discussion of new vehicles is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $166.1 million and $14.1 million in new vehicle revenue and $9.1 million and $0.9 million in new vehicle gross profit for the three months ended March 31, 2016 and 2015, respectively, is related to acquisition and divestiture activity.

First Quarter 2016 compared to First Quarter 2015
Same store new vehicle revenue decreased during the three months ended March 31, 2016, as compared to the same period in 2015, as a result of a decrease in same store unit volume, partially offset by a slight increase in revenue PVR. The decrease in same store unit volume was primarily due to a competitive automotive retail environment, including a decrease in consumer confidence.
Same store revenue PVR during the three months ended March 31, 2016, benefited from an increase in the average selling prices for Domestic and Import vehicles, partially offset by a decrease in the average selling price for Premium Luxury vehicles. In addition, same store revenue PVR also benefited from lower average fuel prices, which caused a shift in mix toward larger vehicles, such as trucks and sport utility vehicles, that have relatively higher average selling prices.
Same store gross profit PVR decreased during the three months ended March 31, 2016, primarily due to decreases in gross profit PVR for vehicles at our Premium Luxury and Domestic stores due to increased inventory levels and changes in manufacturer incentive programs, as well as a competitive automotive retail environment.


26


Net New Vehicle Inventory Carrying Benefit
The following table details net new vehicle inventory carrying benefit, consisting of new vehicle floorplan interest expense, net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit.
 
 
Three Months Ended March 31,
(In millions)
2016
 
2015
 
Variance
Floorplan assistance
$
29.3

 
$
26.7

 
$
2.6

New vehicle floorplan interest expense
(17.9
)
 
(12.5
)
 
(5.4
)
Net new vehicle inventory carrying benefit
$
11.4

 
$
14.2

 
$
(2.8
)
First Quarter 2016 compared to First Quarter 2015
The net new vehicle inventory carrying benefit decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to an increase in floorplan interest expense, partially offset by an increase in floorplan assistance. Floorplan interest expense increased due to higher average vehicle floorplan payable balances and higher interest rates during the year. Floorplan assistance increased primarily due to an increase in the floorplan assistance rate per unit.
New Vehicle Inventories
Our new vehicle inventories were $3.2 billion or 81 days supply at March 31, 2016, as compared to new vehicle inventories of $2.9 billion or 68 days supply at December 31, 2015 and $2.3 billion or 52 days supply at March 31, 2015. We had 87,953 units in new vehicle inventory at March 31, 2016, 80,442 units at December 31, 2015, and 65,993 units at March 31, 2015. The increase in new vehicle inventory days supply at March 31, 2016, as compared to December 31, 2015, is primarily due to increases in Premium Luxury and Domestic days supply and a decline in our new vehicle retail selling rate at the end of the first quarter of 2016. We are taking steps to align our inventory in response to the current market conditions.


27


Used Vehicle
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Retail revenue
$
1,119.9

 
$
1,094.1

 
$
25.8

 
2.4

Wholesale revenue
121.7

 
99.1

 
22.6

 
22.8

Total revenue
$
1,241.6

 
$
1,193.2

 
$
48.4

 
4.1

Retail gross profit
$
93.7

 
$
102.5

 
$
(8.8
)
 
(8.6
)
Wholesale gross profit
(2.7
)
 
1.2

 
(3.9
)
 
 
Total gross profit
$
91.0

 
$
103.7

 
$
(12.7
)
 
(12.2
)
Retail vehicle unit sales
58,103

 
58,624

 
(521
)
 
(0.9
)
Revenue per vehicle retailed
$
19,274

 
$
18,663

 
$
611

 
3.3

Gross profit per vehicle retailed
$
1,613

 
$
1,748

 
$
(135
)
 
(7.7
)
Gross profit as a percentage of revenue
8.4
%
 
9.4
%
 
 
 
 
Days supply (trailing calendar month days)
39 days

 
34 days

 
 
 
 
 
 
 
Three Months Ended March 31,
 
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Same Store:
 
 
 
 
 
 
 
Retail revenue
$
1,045.9

 
$
1,085.2

 
$
(39.3
)
 
(3.6
)
Wholesale revenue
118.1

 
98.7

 
19.4

 
19.7

Total revenue
$
1,164.0

 
$
1,183.9

 
$
(19.9
)
 
(1.7
)
Retail gross profit
$
88.0

 
$
101.6

 
$
(13.6
)
 
(13.4
)
Wholesale gross profit
(2.6
)
 
1.2

 
(3.8
)
 
 
Total gross profit
$
85.4

 
$
102.8

 
$
(17.4
)
 
(16.9
)
Retail vehicle unit sales
54,157

 
58,039

 
(3,882
)
 
(6.7
)
Revenue per vehicle retailed
$
19,312

 
$
18,698

 
$
614

 
3.3

Gross profit per vehicle retailed
$
1,625

 
$
1,751

 
$
(126
)
 
(7.2
)
Gross profit as a percentage of revenue
8.4
%
 
9.4
%
 
 
 
 
The following discussion of used vehicles is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $74.0 million and $8.9 million in retail used vehicle revenue and $5.7 million and $0.9 million in retail used vehicle gross profit for the three months ended March 31, 2016 and 2015, respectively, is related to acquisition and divestiture activity.
First Quarter 2016 compared to First Quarter 2015
Same store retail used vehicle revenue decreased during the three months ended March 31, 2016, as a result of a decrease in same store unit volume, partially offset by an increase in revenue PVR. The decrease in same store unit volume was driven by a competitive automotive retail environment, as well as a decrease in trade-in volume associated with the decrease in new vehicle sales, partially offset by an increase in sales of certified pre-owned vehicles. Same store unit volume was also adversely impacted by manufacturer safety recalls and the application of our open safety recall policy which led to a decline in the number of used units available for sale.
Same store revenue PVR during the three months ended March 31, 2016, benefited primarily from an increase in the average selling price of used vehicles for all three segments and the increase in sales of certified pre-owned vehicles, which have relatively higher average selling prices.
Same store gross profit PVR decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily as a result of gross profit PVR compression for new vehicles during the same period combined with the application of our recall policy. In addition, we experienced compressed gross profit PVRs for certified pre-owned vehicles, particularly in our Premium Luxury segment.


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Used Vehicle Inventories
Used vehicle inventories were $551.3 million or 39 days supply at March 31, 2016, compared to $539.7 million or 43 days supply at December 31, 2015, and $470.6 million or 34 days supply at March 31, 2015. We had 34,256 units in used vehicle inventory at March 31, 2016, 36,299 units at December 31, 2015, and 29,002 units at March 31, 2015. As of March 31, 2016, approximately 15% of our units in used vehicle inventory were subject to our recall policy, compared to 17% as of December 31, 2015. This decline was due in part to the disposition of used vehicles that were previously subject to our recall policy through the wholesale auction process.


29


Parts and Service
  
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue
$
820.4

 
$
743.4

 
$
77.0

 
10.4
Gross Profit
$
354.7

 
$
320.0

 
$
34.7

 
10.8
Gross profit as a percentage of revenue
43.2
%
 
43.0
%
 
 
 
 
Same Store:
 
 
 
 
 
 
 
Revenue
$
770.1

 
$
736.2

 
$
33.9

 
4.6
Gross Profit
$
333.5

 
$
316.6

 
$
16.9

 
5.3
Gross profit as a percentage of revenue
43.3
%
 
43.0
%
 
 
 
 

Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales and collision businesses. The following discussion of parts and service is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $50.3 million and $7.2 million in parts and service revenue and $21.2 million and $3.4 million in parts and service gross profit for the three months ended March 31, 2016 and 2015, respectively, is related to acquisition and divestiture activity.
First Quarter 2016 compared to First Quarter 2015
During the three months ended March 31, 2016, same store parts and service gross profit increased as compared to the same period in 2015, primarily due to increases in gross profit associated with customer-pay service of $9.1 million, warranty of $4.9 million, and wholesale parts sales of $2.3 million.
Customer-pay service gross profit benefited from improved operational execution and margin performance, as well as increased volume due to the increase in units in operation in our primary service base. Warranty gross profit benefited from an increase in volume, driven by the increase in units in operation in our primary service base. Gross profit associated with the sale of wholesale parts benefited from improved margin performance overall and a shift in mix toward parts with higher margins.
 




30


Finance and Insurance
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue and gross profit
$
223.1

 
$
207.6

 
$
15.5

 
7.5
Gross profit per vehicle retailed
$
1,627

 
$
1,513

 
$
114

 
7.5
Same Store:
 
 
 
 
 
 
 
Revenue and gross profit
$
211.8

 
$
206.6

 
$
5.2

 
2.5
Gross profit per vehicle retailed
$
1,649

 
$
1,518

 
$
131

 
8.6

The following discussion of finance and insurance is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $11.3 million and $1.0 million in finance and insurance revenue and gross profit for the three months ended March 31, 2016 and 2015, respectively, is related to acquisition and divestiture activity.

First Quarter 2016 compared to First Quarter 2015
Same store finance and insurance revenue and gross profit increased during the three months ended March 31, 2016, as compared to the same period in 2015, due to an increase in same store finance and insurance revenue and gross profit PVR, partially offset by a decrease in new and used vehicle unit volume.
Same store finance and insurance revenue and gross profit PVR increased primarily due to an increase in profit on vehicle service contracts as a result of the sale in our Domestic and Import stores of the AutoNation Vehicle Protection Plan, which was rolled out during the second half of 2015. Same store finance and insurance revenue and gross profit PVR also benefited from an increase in product penetration and more customers financing vehicles through our stores.
 




31


Segment Results
In the following table, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income, respectively. The following discussions of segment results are on a reported basis.
 
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
Domestic
$
1,848.2

 
$
1,665.7

 
$
182.5

 
11.0

Import
1,675.0

 
1,678.7

 
(3.7
)
 
(0.2
)
Premium Luxury
1,540.3

 
1,563.2

 
(22.9
)
 
(1.5
)
Total
5,063.5

 
4,907.6

 
155.9

 
3.2

Corporate and other
56.1

 
36.6

 
19.5

 
53.3

Total consolidated revenue
$
5,119.6

 
$
4,944.2

 
$
175.4

 
3.5

Segment income(1):
 
 
 
 
 
 
 
Domestic
$
77.4

 
$
79.3

 
$
(1.9
)
 
(2.4
)
Import
76.1

 
75.0

 
1.1

 
1.5

Premium Luxury
83.0

 
94.1

 
(11.1
)
 
(11.8
)
Total
236.5

 
248.4

 
(11.9
)
 
(4.8
)
Corporate and other
(48.0
)
 
(46.7
)
 
(1.3
)
 
 
Floorplan interest expense
18.9

 
13.2

 
(5.7
)
 
 
Operating income
$
207.4

 
$
214.9

 
$
(7.5
)
 
(3.5
)
 
 
 
 
 
 
 
 
(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
 
Retail new vehicle unit sales:
Domestic
27,736

 
25,750

 
1,986

 
7.7

Import
35,781

 
36,914

 
(1,133
)
 
(3.1
)
Premium Luxury
15,490

 
15,896

 
(406
)
 
(2.6
)
 
79,007

 
78,560

 
447

 
0.6







32


Domestic
The Domestic segment operating results included the following:
 
 
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue
$
1,848.2

 
$
1,665.7

 
$
182.5

 
11.0

Segment income
$
77.4

 
$
79.3

 
$
(1.9
)
 
(2.4
)
Retail new vehicle unit sales
27,736

 
25,750

 
1,986

 
7.7

First Quarter 2016 compared to First Quarter 2015
Domestic revenue increased during the three months ended March 31, 2016 as compared to the same period in 2015, primarily due to increases in new and used vehicle unit volume and new and used vehicle revenue PVR. New and used vehicle unit volume benefited from the acquisitions we completed subsequent to the first quarter of 2015. New vehicle revenue PVR benefited from lower average fuel prices, which caused a shift in mix toward larger vehicles, such as trucks and sport utility vehicles, that have relatively higher average selling prices. Used vehicle revenue PVR benefited from the increase in sales of certified pre-owned vehicles, which have relatively higher average selling prices.
Domestic segment income decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to an increase in variable expenses and decreases in both new and used vehicle gross profit due to the competitive automotive retail environment. These decreases were partially offset by an increase in parts and service gross profit and an increase in finance and insurance revenue and gross profit, which benefited from an increase in finance and insurance revenue and gross profit PVR and higher vehicle unit volume.







33


Import
The Import segment operating results included the following:
 
 
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue
$
1,675.0

 
$
1,678.7

 
$
(3.7
)
 
(0.2
)
Segment income
$
76.1

 
$
75.0

 
$
1.1

 
1.5

Retail new vehicle unit sales
35,781

 
36,914

 
(1,133
)
 
(3.1
)
First Quarter 2016 compared to First Quarter 2015
Import revenue decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to decreases in new vehicle unit volume due to the competitive automotive retail environment, partially offset by increases in parts and service revenue and used vehicle revenue.
Import segment income increased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to an increase in parts and service gross profit and an increase in finance and insurance revenue and gross profit, which benefited from an increase in finance and insurance revenue and gross profit PVR. Increases in Import segment income were partially offset by a decrease in used vehicle gross profit due to the competitive automotive retail environment and an increase in variable expenses.




34


Premium Luxury
The Premium Luxury segment operating results included the following:
 
 
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue
$
1,540.3

 
$
1,563.2

 
$
(22.9
)
 
(1.5
)
Segment income
$
83.0

 
$
94.1

 
$
(11.1
)
 
(11.8
)
Retail new vehicle unit sales
15,490

 
15,896

 
(406
)
 
(2.6
)
First Quarter 2016 compared to First Quarter 2015
Premium Luxury revenue decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to decreases in new vehicle unit volume and new vehicle revenue PVR due to the competitive automotive retail environment. These decreases were partially offset by the impact of acquisitions we completed subsequent to the first quarter of 2015, as well as an increase in parts and service revenue.
Premium Luxury segment income decreased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to decreases in new and used vehicle gross PVRs as a result of increased inventory levels and changes in manufacturer incentive programs, as well as a competitive automotive retail environment. These decreases were partially offset by an increase in parts and service gross profit. Premium Luxury segment income was also adversely impacted by an increase in variable expenses.







35


Selling, General, and Administrative Expenses
Our Selling, General, and Administrative (“SG&A”) expenses consist primarily of compensation, including store and corporate salaries, commissions, and incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer advertising rebates), and store and corporate overhead expenses, which include occupancy costs, legal, accounting, and professional services, and general corporate expenses. The following table presents the major components of our SG&A expenses.
 
Three Months Ended March 31,
($ in millions)
2016
 
2015
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Compensation
$
373.1

 
$
369.3

 
$
(3.8
)
 
(1.0
)
Advertising
42.7

 
42.0

 
(0.7
)
 
(1.7
)
Store and corporate overhead
172.9

 
146.3

 
(26.6
)
 
(18.2
)
Total
$
588.7

 
$
557.6

 
$
(31.1
)
 
(5.6
)
 
 
 
 
 
 
 
 
SG&A as a % of total gross profit:
 
 
 
 
 
 
 
Compensation
45.2

 
46.2

 
100

 
bps
Advertising
5.2

 
5.3

 
10

 
bps
Store and corporate overhead
20.9

 
18.2

 
(270
)
 
bps
Total
71.3

 
69.7

 
(160
)
 
bps
First Quarter 2016 compared to First Quarter 2015
SG&A expenses increased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to an increase in store and corporate overhead expenses, which was largely a result of the acquisitions we completed subsequent to the first quarter of 2015. Store and corporate overhead expenses during the first quarter of 2016 were also negatively impacted by losses of approximately $6 million related to several severe hail storms that occurred during the quarter. SG&A expenses were also negatively impacted by a shift of approximately $5 million in stock-based compensation expense into the first quarter, due to a change from quarterly to annual employee stock option grants. As a percentage of total gross profit, SG&A expenses increased to 71.3% during the three months ended March 31, 2016, from 69.7% in the same period in 2015, primarily due to an increase in store and corporate overhead expenses as a percentage of total gross profit.
Other Income, Net (included in Operating Income)
During the first quarter of 2016, we recognized gains related to business divestitures of $6.2 million, partially offset by non-cash property impairments of $0.9 million.
Non-Operating Income (Expense)
Floorplan Interest Expense
First Quarter 2016 compared to First Quarter 2015
Floorplan interest expense was $18.9 million for the three months ended March 31, 2016, compared to $13.2 million for the same period in 2015. The increase in floorplan interest expense of $5.7 million is the result of higher average vehicle floorplan balances and higher interest rates during the year.
Other Interest Expense
Other interest expense was $28.3 million for the three months ended March 31, 2016, compared to $21.4 million for the same period in 2015. The increase in interest expense of $6.9 million was primarily due to increases of $7.6 million resulting from the September 2015 issuance of our 3.35% Senior Notes due 2021 and 4.5% Senior Notes due 2025, and $2.6 million resulting from borrowings under our commercial paper program established in May 2015. These increases were partially offset by a decrease in interest expense of $3.6 million due to a decrease in borrowings under our revolving credit facility.


36


Provision for Income Taxes
Income taxes are based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any other tax matters occurring during the period. As we operate in various states, our effective tax rate is also impacted by our geographic income mix.
Our effective income tax rate was 38.7% for the three months ended March 31, 2016, and 38.5% for the three months ended March 31, 2015.
Discontinued Operations
Discontinued operations are related to stores that were sold or terminated prior to January 1, 2014. Results from discontinued operations, net of income taxes, were primarily related to carrying costs for real estate we have not yet sold associated with stores that were closed prior to January 1, 2014.

Liquidity and Capital Resources
We manage our liquidity to ensure access to sufficient funding at acceptable costs to fund our ongoing operating requirements and future capital expenditures while continuing to meet our financial obligations. We believe that our cash and cash equivalents, funds generated through future operations, and amounts available under our revolving credit facility, commercial paper program, and secured used vehicle floorplan facilities will be sufficient to fund our working capital requirements, service our debt, pay our tax obligations and commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future.
Available Liquidity Resources
We had the following sources of liquidity available:
(In millions)
March 31,
2016
 
December 31,
2015
Cash and cash equivalents
$
47.8

 
$
74.1

Revolving credit facility (1)
$
1,195.1

(2) 
$
1,463.1

Secured used vehicle floorplan facilities (3)
$
0.4

 
$
127.1

 (1) 
As limited by the maximum consolidated leverage ratio contained in our credit agreement.
(2) 
At March 31, 2016, we had $44.1 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had $926.0 million of commercial paper notes outstanding at March 31, 2016, which in effect reduced the available liquidity under our revolving credit facility to $829.9 million at March 31, 2016. See “Long-Term Debt and Commercial Paper” below for additional information.
(3) 
Based on the eligible used vehicle inventory that could have been pledged as collateral. See “Vehicle Floorplan Payable” for additional information.
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 relating to insurance matters. At March 31, 2016, surety bonds, letters of credit, and cash deposits totaled $99.3 million, including $44.1 million of letters of credit. We do not currently provide cash collateral for outstanding letters of credit.
In February 2016, we filed an automatic shelf registration statement with the SEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, warrants, subscription rights, depositary shares, stock purchase contracts, units, and guarantees of debt securities.
Capital Allocation
Our capital allocation strategy is focused on maximizing stockholder returns. We invest capital in our business to maintain and upgrade our existing facilities and to build new facilities for existing franchises, as well as for other strategic and technology initiatives. We also deploy capital opportunistically to repurchase our common stock and/or debt or to complete dealership acquisitions and/or build facilities for newly awarded franchises. Our capital allocation decisions will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the market price of our debt, the potential impact on our capital structure, our ability to complete dealership


37


acquisitions that meet our market and vehicle brand criteria and return on investment threshold, and limitations set forth in our debt agreements.
Share Repurchases
Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain
monetary limit. A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
March 31,
(In millions, except per share data)
2016
 
2015
Shares repurchased
7.9

 
0.2

Aggregate purchase price
$
370.6

 
$
9.1

Average purchase price per share
$
47.20

 
$
60.46

The decision to repurchase shares at any given point in time is based on factors such as the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure (including compliance with our 3.75x maximum leverage ratio and other financial covenants in our debt agreements as well as our available liquidity), and the expected return on competing uses of capital such as dealership acquisitions, capital investments in our current businesses, or repurchases of our debt.
In February 2016, our Board of Directors authorized the repurchase of an additional $250.0 million of shares of our common stock. As of March 31, 2016, $175.0 million remained available for share repurchases under the program.
Capital Expenditures
The following table sets forth information regarding our capital expenditures:
 
Three Months Ended
 
March 31,
(In millions)
2016
 
2015
Purchases of property and equipment, including operating lease buy-outs (1)
$
50.7

 
$
62.9

(1) 
Includes accrued construction in progress and excludes property associated with capital leases entered into during the year.
Acquisitions and Divestitures
The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, and cash received from business divestitures, net of cash relinquished:
 
Three Months Ended
 
March 31,
(In millions)
2016
 
2015
Cash received from (used in) business acquisitions, net
$
(256.6
)
 
$
(27.7
)
Cash received from (used in) business divestitures, net
$
6.1

 
$
15.7

During the three months ended March 31, 2016, we purchased twelve stores located in Texas, which include Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, and Sprinter franchises. We purchased two stores during the three months ended March 31, 2015.
During the three months ended March 31, 2016, we divested two Import stores. During the three months ended March 31, 2015, we divested two Import stores.
Cash Dividends
We have not declared or paid any cash dividends on our common stock during our two most recent fiscal years. We do not currently anticipate paying cash dividends for the foreseeable future.


38


Long-Term Debt and Commercial Paper
The following table sets forth our non-vehicle long-term debt, net of debt issuance costs, as of March 31, 2016, and December 31, 2015.
(In millions)
March 31,
2016
 
December 31,
2015
6.75% Senior Notes due 2018
$
397.8

 
$
397.5

5.5% Senior Notes due 2020
346.7

 
346.5

3.35% Senior Notes due 2021
297.7

 
297.6

4.5% Senior Notes due 2025
444.8

 
444.7

Revolving credit facility due 2019

 

Mortgage facility (1)
173.2

 
175.7

Capital leases and other debt
94.3

 
95.0

 
1,754.5

 
1,757.0

Less: current maturities
(11.9
)
 
(11.7
)
Long-term debt, net of current maturities
$
1,742.6

 
$
1,745.3

 
 
 
 
(1) The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
Senior Unsecured Notes
At March 31, 2016, we had outstanding $398.1 million of 6.75% Senior Notes due 2018, net of debt discount. Interest is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2018.
At March 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 March 31, 2016, we had outstanding $300.0 million of 3.35% Senior Notes due 2021, net of debt discount. Interest is payable on January 15 and July 15 of each year. These notes will mature on January 15, 2021.
At March 31, 2016, we had outstanding $448.5 million of 4.5% Senior Notes due 2025, net of debt discount. 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 3.35% Senior Notes due 2021 and 4.5% Senior Notes due 2025 is subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.
Our senior unsecured notes are guaranteed by substantially all of our subsidiaries. The subsidiary guarantees for the
2021 Notes and the 2025 Notes may be released in certain circumstances as set forth in the indentures for such notes.
Credit Agreement
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 March 31, 2016, we had no borrowings outstanding under the 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 March 31, 2016, leaving a borrowing capacity under the revolving credit facility of $1.8 billion at March 31, 2016. As of March 31, 2016, this borrowing capacity was limited under the maximum consolidated leverage ratio contained in our credit agreement to $1.2 billion.
Funds borrowed under our credit agreement may be used to repay indebtedness, finance acquisitions, and for working capital, capital expenditures, share repurchases, and other general corporate purposes.
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


39


revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater than or equal to 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the interest rate.
Borrowings under the credit agreement are guaranteed by substantially all of our subsidiaries.
Other Long-Term Debt
At March 31, 2016, we had $173.2 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 $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At March 31, 2016, we had capital lease and other debt obligations of $94.3 million, which are due at various dates through 2034.
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. This program provides us with additional short-term financing flexibility and enhances our ability to take advantage of opportunities in the credit markets. 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 March 31, 2016, we had $926.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 1.23% and a weighted-average remaining term of 21 days.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. Under the credit agreement, the maximum leverage ratio is 3.75x and the maximum capitalization ratio is 70.0%. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of letters of credit in excess of $150.0 million). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus $1.53 billion. The specific terms of these covenants can be found in our credit agreement, which we filed with our Current Report on Form 8-K on December 4, 2014.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions, but do not contain a restricted payments covenant or a debt incurrence restriction. Our mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.


40


As of March 31, 2016, we were in compliance with the requirements of the financial covenants under our debt agreements. Under the terms of our credit agreement, at March 31, 2016, our leverage ratio and capitalization ratio were as follows:
 
March 31, 2016
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.60x
Capitalization ratio
≤ 70.0%
 
64.9%

Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness and repurchase shares.
Vehicle Floorplan Payable
The components of vehicle floorplan payable are as follows:
 
March 31,
2016
 
December 31,
2015
Vehicle floorplan payable - trade
$
2,572.1

 
$
2,565.8

Vehicle floorplan payable - non-trade
1,467.3

 
1,161.3

Vehicle floorplan payable
$
4,039.4

 
$
3,727.1

Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new vehicle inventories with manufacturers’ captive finance subsidiaries. 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. Financing decisions for our used vehicle inventories are dependent on a combination of factors, such as liquidity needs and pricing considerations, among others.
At March 31, 2016, the aggregate capacity under our used vehicle floorplan facilities was $360.0 million. As of that date, $318.5 million had been borrowed under those facilities, and the remaining borrowing capacity of $41.5 million was limited to $0.4 million based on the eligible used vehicle inventory that could have been pledged as collateral.
At December 31, 2015, the aggregate capacity under our used vehicle floorplan facilities was $350.0 million. As of that date, $212.5 million had been borrowed under those facilities, and the remaining borrowing capacity of $137.5 million was limited to $127.1 million based on the eligible used vehicle inventory that could have been pledged as collateral.
All the floorplan facilities utilize LIBOR-based interest rates. 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 require that the manufacturer have the ability to draft against the new vehicle floorplan facilities so the lender funds the manufacturer directly for the purchase of new vehicle inventory. Floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Cash Flows
The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities:
 
Three Months Ended
 
March 31,
(In millions)
2016
 
2015
Net cash provided by operating activities
$
198.2

 
$
199.6

Net cash used in investing activities
$
(310.7
)
 
$
(79.6
)
Net cash provided by (used in) financing activities
$
86.2

 
$
(121.3
)
Cash Flows from Operating Activities
Our primary sources of operating cash flows are collections from contracts-in-transit and customers following the sale of vehicles, collections from customers for the sale of parts and services and finance and insurance products, and proceeds from


41


vehicle floorplan payable-trade. Our primary uses of cash from operating activities are repayments of vehicle floorplan payable-trade, purchases of parts inventory, personnel related expenditures, and payments related to taxes and leased properties.
Net cash provided by operating activities was relatively flat during the three months ended March 31, 2016, as compared to the same period in 2015, and was impacted by a decrease in earnings and a decrease in working capital requirements.
Cash Flows from Investing Activities
Net cash flows from investing activities consist primarily of cash used in capital additions, activity from business acquisitions, business divestitures, property dispositions, and other transactions.
Net cash used in investing activities increased during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to an increase in cash used in business acquisitions, net of cash acquired, and a decrease in cash received from business divestitures, partially offset by a decrease in purchases of property and equipment.
Cash Flows from Financing Activities
Net cash flows from financing activities primarily include repurchases of common stock, debt activity, and changes in vehicle floorplan payable-non-trade.
During the three months ended March 31, 2016, we repurchased 7.9 million shares of common stock for an aggregate purchase price of $370.6 million (average purchase price per share of $47.20). In addition, during the three months ended March 31, 2016, 8,760 shares were surrendered to us to satisfy tax withholding obligations in connection with the vesting of restricted stock.
During the three months ended March 31, 2015, we repurchased 0.2 million shares of common stock for an aggregate purchase price of $9.1 million (average purchase price per share of $60.46), including repurchases for which settlement occurred subsequent to September 30, 2014. In addition, during the three months ended March 31, 2015, 8,999 shares were surrendered to us to satisfy tax withholding obligations in connection with the vesting of restricted stock.
Cash flows from financing activities include changes in commercial paper notes outstanding totaling net proceeds of $326.5 million during the three months ended March 31, 2016.
During the three months ended March 31, 2016, we borrowed $440.0 million and repaid $440.0 million under our revolving credit facility. During the three months ended March 31, 2015, we borrowed $540.0 million and repaid $615.0 million under our revolving credit facility, for net repayments of $75.0 million.
Cash flows from financing activities also include changes in vehicle floorplan payable-non-trade totaling net proceeds of $132.8 million for the three months ended March 31, 2016, and net payments of $54.1 million for the three months ended March 31, 2015.
Recent Accounting Pronouncements
See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements.
Forward-Looking Statements
Our business, financial condition, results of operations, cash flows, and prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Quarterly Report on Form 10-Q, including without limitation statements regarding pending acquisitions, strategic initiatives, expected future investments in our business, and our expectations for the future performance of our franchises and the automotive retail industry, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “goal,” “plan,” “believe,” “continue,” “may,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include, but are not limited to, the following:


42


The automotive retail industry is sensitive to changing economic conditions and various other factors. Our business and results of operations are substantially dependent on new vehicle sales levels in the United States and in our particular geographic markets and the level of gross profit margins that we can achieve on our sales of new vehicles, all of which are very difficult to predict.
Our new vehicle sales are impacted by incentive, marketing, and other programs of vehicle manufacturers.
We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with which we hold franchises.
If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.
New laws, regulations, or governmental policies regarding fuel economy and greenhouse gas emission standards, or changes to existing standards, may affect vehicle manufacturers’ ability to produce cost-effective vehicles or vehicles that consumers demand, which could adversely impact our business, results of operations, financial condition, cash flow, and prospects.
Natural disasters and adverse weather events can disrupt our business.
We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores.
We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially adversely affect our business, results of operations, financial condition, cash flows, and prospects.
Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer.
A failure of our information systems or any security breach or unauthorized disclosure of confidential information could have a material adverse effect on our business.
Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business, and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from fulfilling our debt service obligations.
We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and commercial paper program that could have a material adverse effect on our profitability.
Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders’ equity.
Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders or Board of Directors. In addition, future share repurchases and fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our common stock.
Please refer to our most recent Annual Report on Form 10-K for additional discussion of the foregoing risks. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.
Additional Information
Investors and others should note that we announce material financial information using our company website (www.autonation.com), our investor relations website (investors.autonation.com), SEC filings, press releases, public conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be announced by posts on the following social media channels:


43


AutoNation’s Twitter feed (www.twitter.com/autonation)
Mike Jackson’s Twitter feed (www.twitter.com/CEOMikeJackson)
AutoNation’s Facebook page (www.facebook.com/autonation)
Mike Jackson’s Facebook page (www.facebook.com/CEOMikeJackson)
The information that we post on these social media channels could be deemed to be material information. As a result, we encourage investors, the media, and others interested in AutoNation to review the information that we post on these social media channels. These channels may be updated from time to time on AutoNation’s investor relations website. The information on or accessible through our websites and social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our primary market risk exposure is changing LIBOR-based interest rates. Interest rate derivatives may be used to hedge a portion of our variable rate debt, when appropriate, based on market conditions.
We had $4.0 billion of variable rate vehicle floorplan payable at March 31, 2016, and $3.7 billion at December 31, 2015. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change to our annual floorplan interest expense of $40.4 million at March 31, 2016, and $37.3 million at December 31, 2015. Our exposure to changes in interest rates with respect to total vehicle floorplan payable is partially mitigated by manufacturers’ floorplan assistance, which in some cases is based on variable interest rates.
We had $926.0 million of commercial paper notes outstanding at March 31, 2016. Based on the amounts outstanding, a 100 basis point change in interest rates would result in an approximate change to annual interest expense of $9.3 million at March 31, 2016.
Our fixed rate long-term debt, primarily consisting of amounts outstanding under our senior unsecured notes and mortgages, totaled $1.8 billion and had a fair value of $1.9 billion as of March 31, 2016, and totaled $1.8 billion and had a fair value of $1.9 billion as of December 31, 2015.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




44


PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our most recent Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information with respect to shares of common stock repurchased by AutoNation, Inc. during the three months ended March 31, 2016.

Period
Total Number of
Shares Purchased (1)
 
Avg. Price
Paid Per
Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar Value of
Shares That May Yet Be
Purchased  Under The
Programs (in millions)(1)
January 1, 2016 - January 31, 2016
442,384

 
$
42.88

 
442,384

 
$
276.6

February 1, 2016 - February 29, 2016
6,533,845

 
$
46.92

 
6,533,845

 
$
220.0

March 1, 2016 - March 31, 2016
883,469

 
$
51.47

 
874,709

 
$
175.0

Total
7,859,698

 
 
 
7,850,938

 
 
 
(1) 
Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. In February 2016, our Board of Directors authorized the repurchase of an additional $250.0 million of shares of our common stock. As of March 31, 2016, $175.0 million remained available under our stock repurchase authorization limit. The Board’s authorization has no expiration date. During the first quarter of 2016, all of the shares reflected in the table above were repurchased under our stock repurchase program, except for 8,760 shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock.



45


ITEM 6. EXHIBITS
Exhibit No.          
Description
 
 
4.1
Supplemental Indenture, dated as February 29, 2016, relating to the Company’s 6.75% Senior Notes due 2018, to the Indenture, dated April 14, 2010 (the “2010 Indenture”), among AutoNation, Inc. and Wells Fargo Bank, National Association.
4.2
Supplemental Indenture to 2010 Indenture, dated as February 29, 2016, relating to the Company’s 5.5% Senior Notes due 2020.
4.3
Supplemental Indenture to 2010 Indenture, dated as February 29, 2016, relating to the Company’s 3.35% Senior Notes due 2021.
4.4
Supplemental Indenture to 2010 Indenture, dated as February 29, 2016, relating to the Company’s 4.5% Senior Notes due 2025.
10.1
Form of Stock Option Agreement under the AutoNation, Inc. 2008 Employee Equity and Incentive Plan (the “2008 Plan”) for grants in 2016.
10.2
Form of Restricted Stock Agreement under the 2008 Plan for grants in 2016.
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
32.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350.
32.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


46


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
AUTONATION, INC.
 
 
 
 
Date:
April 22, 2016
By:
/s/ Christopher Cade
 
 
 
Christopher Cade
Vice President and Chief Accounting Officer
 
 
 
 
 
 
 
(Duly Authorized Officer and Principal Accounting Officer)



47


Exhibit 4.1


SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 29, 2016, among (i) AutoNation, Inc., a Delaware corporation (the “Company”), (ii) Allen Samuels Chevrolet of Corpus Christi, Inc., Allen Samuels Chevrolet of Waco, Inc., Allen Samuels Enterprises, Inc., Auto Company 2016-1, Inc., Auto Company 2016-2, Inc., Auto Company 2016-3, Inc., Auto Company 2016-4, Inc., Auto Company 2016-5, Inc., Auto Company 2016-6, Inc., Auto Company 2016-7, Inc., Auto Company 2016-8, Inc., Auto Company 2016-9, Inc., Auto Company 2016-10, Inc., Auto Company 2016-11, Inc., Auto Company 2016-12, Inc., Auto Company 2016-13, Inc., Auto Company 2016-14, Inc., Auto Company 2016-15, Inc., Auto Company 2016-16, Inc., Auto Company 2016-17, Inc., Auto Company 2016-18, Inc., Auto Company 2016-19, Inc., Auto Company 2016-20, Inc., Auto Dealership 2016-1, LLC, Auto Dealership 2016-2, LLC, Auto Dealership 2016-3, LLC, Auto Dealership 2016-4, LLC, Auto Dealership 2016-5, LLC, Auto Dealership 2016-6, LLC, Auto Dealership 2016-7, LLC, Auto Dealership 2016-8, LLC, Auto Dealership 2016-9, LLC, Auto Dealership 2016-10, LLC, TX Alliance Motors, Inc., TX Ennis Autoplex Motors, Inc., TX Motors of North Richland Hills, Inc., TX Motors on Katy Freeway, Inc., TX Motors on Southwest Loop, Inc. and TX West Houston Motors, Inc. (each a “Guaranteeing Subsidiary” and together, the “Guaranteeing Subsidiaries”), each an indirect subsidiary of the Company (or its permitted successor), and (iii) Wells Fargo Bank, National Association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors named therein have heretofore executed and delivered to the Trustee the Indenture, dated as of April 14, 2010 (the “Base Indenture”), as supplemented by that Supplemental Indenture dated as of April 14, 2010 (the “2010 Supplemental Indenture”), that Supplemental Indenture dated as of March 7, 2012 (the “2012 Supplemental Indenture”) and that Supplemental Indenture dated as of February 6, 2014 (together with the 2012 Supplemental Indenture, the 2010 Supplemental Indenture and the Base Indenture, the “Indenture”), providing for the issuance of 6.750% Senior Notes due 2018 (the “Notes”);
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Company’s obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Guarantee”); and
WHEREAS, pursuant to Section 8.01 of the 2010 Supplemental Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each Guaranteeing Subsidiary hereby agrees as follows:
(a)
To jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(i)
the principal of and interest on the Notes shall be promptly paid by the Company in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid by the Company in full or performed by the Company, all in accordance with the terms hereof and thereof; and
(ii)
in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid by the Company in full when due or performed by the Company in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed or any performance so guaranteed which failure continues for three days after demand therefor is made to the Company for





whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b)
The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.
(c)
The following is hereby waived: diligence, presentment, demand of payment (except as specifically provided in (a) above), filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands (except as specifically provided in (a) above) whatsoever.
(d)
This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. Each Guarantor also expressly waives, without any requirement of any notice to or further assent by such Guarantor, to the fullest extent permitted by applicable law, the benefit of all principles or provisions of applicable law which are or might be in conflict with the terms hereof, including, without limitation, Section 10-7-23 and Section 10-7-24 of the Official Code of Georgia Annotated.
(e)
If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
(f)
The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.
(g)
As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII of the Base Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article VII of the Base Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee, failing payment when due by the Company which failure continues for three days after demand therefor is made to the Company.
(h)
The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.
3. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. Each Guaranteeing Subsidiary agrees that, unless its Guarantee is being concurrently released in conformity with Section 9.04 of the 2010 Supplemental Indenture, it may not consolidate with or merge with or into any Person other than the Company or any other Guarantor unless (a) such Guaranteeing Subsidiary will be the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all of the obligations of such Guaranteeing Subsidiary on its Guarantee and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
4. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee.
5. Releases. The Guarantee of a Guaranteeing Subsidiary shall be released in accordance with the provisions set forth in the Indenture, including, without limitation, Section 9.04 of the 2010 Supplemental Indenture. The Trustee, at the expense and written direction of the Company, will execute proper instruments acknowledging the termination of such Subsidiary Guarantee as reasonably required by the representative of such Guarantor. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article IX of the 2010 Supplemental Indenture.
6. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or agent of a Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary





under the Notes, the Indenture, any Guarantees or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws.
7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. Waiver of Jury Trial. The Company, the Guaranteeing Subsidiaries and the Trustee each hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right it may have to a trial by jury in respect of any suit, action, or other proceeding arising out of or relating to this Supplemental Indenture, the Guarantee of a Guaranteeing Subsidiary or the transactions contemplated hereby.

9. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
10. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity, legality or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company.







IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
 
Allen Samuels Chevrolet of Corpus Christi, Inc.
Allen Samuels Chevrolet of Waco, Inc.
Allen Samuels Enterprises, Inc.
Auto Company 2016-1, Inc.
Auto Company 2016-2, Inc.
Auto Company 2016-3, Inc.
Auto Company 2016-4, Inc.
Auto Company 2016-5, Inc.
Auto Company 2016-6, Inc.
Auto Company 2016-7, Inc.
Auto Company 2016-8, Inc.
Auto Company 2016-9, Inc.
Auto Company 2016-10, Inc.
Auto Company 2016-11, Inc.
Auto Company 2016-12, Inc.
Auto Company 2016-13, Inc.
Auto Company 2016-14, Inc.
Auto Company 2016-15, Inc.
Auto Company 2016-16, Inc.
Auto Company 2016-17, Inc.
Auto Company 2016-18, Inc.
Auto Company 2016-19, Inc.
Auto Company 2016-20, Inc.
Auto Dealership 2016-1, LLC
Auto Dealership 2016-2, LLC
Auto Dealership 2016-3, LLC
Auto Dealership 2016-4, LLC
Auto Dealership 2016-5, LLC
Auto Dealership 2016-6, LLC
Auto Dealership 2016-7, LLC
Auto Dealership 2016-8, LLC
Auto Dealership 2016-9, LLC
Auto Dealership 2016-10, LLC
TX Alliance Motors, Inc.
TX Ennis Autoplex Motors, Inc.
TX Motors of North Richland Hills, Inc.
TX Motors on Katy Freeway, Inc.
TX Motors on Southwest Loop, Inc.
TX West Houston Motors, Inc.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Assistant Secretary






 
AUTONATION, INC.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Sr. Vice President, Deputy General
Counsel and Assistant Secretary

ATTEST:
 
 
By:
/s/ Jonathan P. Ferrando
 
Name: Jonathan P. Ferrando
 
Title: Executive Vice President - General
Counsel, Corporate Development and Human
Resources of AutoNation, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION, As Trustee
 
 
 
 
By:
/s/ Raymond Delli Colli
 
 
Name: Raymond Delli Colli
 
 
Title: Vice President






Exhibit 4.2

SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 29, 2016, among (i) AutoNation, Inc., a Delaware corporation (the “Company”), (ii) Allen Samuels Chevrolet of Corpus Christi, Inc., Allen Samuels Chevrolet of Waco, Inc., Allen Samuels Enterprises, Inc., Auto Company 2016-1, Inc., Auto Company 2016-2, Inc., Auto Company 2016-3, Inc., Auto Company 2016-4, Inc., Auto Company 2016-5, Inc., Auto Company 2016-6, Inc., Auto Company 2016-7, Inc., Auto Company 2016-8, Inc., Auto Company 2016-9, Inc., Auto Company 2016-10, Inc., Auto Company 2016-11, Inc., Auto Company 2016-12, Inc., Auto Company 2016-13, Inc., Auto Company 2016-14, Inc., Auto Company 2016-15, Inc., Auto Company 2016-16, Inc., Auto Company 2016-17, Inc., Auto Company 2016-18, Inc., Auto Company 2016-19, Inc., Auto Company 2016-20, Inc., Auto Dealership 2016-1, LLC, Auto Dealership 2016-2, LLC, Auto Dealership 2016-3, LLC, Auto Dealership 2016-4, LLC, Auto Dealership 2016-5, LLC, Auto Dealership 2016-6, LLC, Auto Dealership 2016-7, LLC, Auto Dealership 2016-8, LLC, Auto Dealership 2016-9, LLC, Auto Dealership 2016-10, LLC, TX Alliance Motors, Inc., TX Ennis Autoplex Motors, Inc., TX Motors of North Richland Hills, Inc., TX Motors on Katy Freeway, Inc., TX Motors on Southwest Loop, Inc. and TX West Houston Motors, Inc. (each a “Guaranteeing Subsidiary” and together, the “Guaranteeing Subsidiaries”), each an indirect subsidiary of the Company (or its permitted successor), and (iii) Wells Fargo Bank, National Association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors named therein have heretofore executed and delivered to the Trustee the Indenture, dated as of April 14, 2010 (the “Base Indenture”), as supplemented by that Supplemental Indenture dated as of February 1, 2012 (the “February 2012 Supplemental Indenture”), that Supplemental Indenture dated as of March 7, 2012 (the “March 2012 Supplemental Indenture”) and that Supplemental Indenture dated as of February 6, 2014 (together with the March 2012 Supplemental Indenture, the February 2012 Supplemental Indenture and the Base Indenture, the “Indenture”), providing for the issuance of 5.500% Senior Notes due 2020 (the “Notes”);
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Company’s obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Guarantee”); and
WHEREAS, pursuant to Section 8.01 of the February 2012 Supplemental Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each Guaranteeing Subsidiary hereby agrees as follows:

(a)
To jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(i)
the principal of and interest on the Notes shall be promptly paid by the Company in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid by the Company in full or performed by the Company, all in accordance with the terms hereof and thereof; and
(ii)
in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid by the Company in full when due or performed by the Company in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed or any performance so guaranteed which failure continues for three days after demand therefor is made to the Company for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.





(b)
The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.

(c)
The following is hereby waived: diligence, presentment, demand of payment (except as specifically provided in (a) above), filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands (except as specifically provided in (a) above) whatsoever.

(d)
This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. Each Guarantor also expressly waives, without any requirement of any notice to or further assent by such Guarantor, to the fullest extent permitted by applicable law, the benefit of all principles or provisions of applicable law which are or might be in conflict with the terms hereof, including, without limitation, Section 10-7-23 and Section 10-7-24 of the Official Code of Georgia Annotated.

(e)
If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

(f)
The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.

(g)
As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII of the Base Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article VII of the Base Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee, failing payment when due by the Company which failure continues for three days after demand therefor is made to the Company.

(h)
The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.
3. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. Each Guaranteeing Subsidiary agrees that, unless its Guarantee is being concurrently released in conformity with Section 9.04 of the February 2012 Supplemental Indenture, it may not consolidate with or merge with or into any Person other than the Company or any other Guarantor unless (a) such Guaranteeing Subsidiary will be the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all of the obligations of such Guaranteeing Subsidiary on its Guarantee and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
4. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee.
5. Releases. The Guarantee of a Guaranteeing Subsidiary shall be released in accordance with the provisions set forth in the Indenture, including, without limitation, Section 9.04 of the February 2012 Supplemental Indenture. The Trustee, at the expense and written direction of the Company, will execute proper instruments acknowledging the termination of such Subsidiary Guarantee as reasonably required by the representative of such Guarantor. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article IX of the February 2012 Supplemental Indenture.
6. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or agent of a Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, the Indenture, any Guarantees or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.





The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws.
7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. Waiver of Jury Trial. The Company, the Guaranteeing Subsidiaries and the Trustee each hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right it may have to a trial by jury in respect of any suit, action, or other proceeding arising out of or relating to this Supplemental Indenture, the Guarantee of a Guaranteeing Subsidiary or the transactions contemplated hereby.

9. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
10. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity, legality or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company.





IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
 
Allen Samuels Chevrolet of Corpus Christi, Inc.
Allen Samuels Chevrolet of Waco, Inc.
Allen Samuels Enterprises, Inc.
Auto Company 2016-1, Inc.
Auto Company 2016-2, Inc.
Auto Company 2016-3, Inc.
Auto Company 2016-4, Inc.
Auto Company 2016-5, Inc.
Auto Company 2016-6, Inc.
Auto Company 2016-7, Inc.
Auto Company 2016-8, Inc.
Auto Company 2016-9, Inc.
Auto Company 2016-10, Inc.
Auto Company 2016-11, Inc.
Auto Company 2016-12, Inc.
Auto Company 2016-13, Inc.
Auto Company 2016-14, Inc.
Auto Company 2016-15, Inc.
Auto Company 2016-16, Inc.
Auto Company 2016-17, Inc.
Auto Company 2016-18, Inc.
Auto Company 2016-19, Inc.
Auto Company 2016-20, Inc.
Auto Dealership 2016-1, LLC
Auto Dealership 2016-2, LLC
Auto Dealership 2016-3, LLC
Auto Dealership 2016-4, LLC
Auto Dealership 2016-5, LLC
Auto Dealership 2016-6, LLC
Auto Dealership 2016-7, LLC
Auto Dealership 2016-8, LLC
Auto Dealership 2016-9, LLC
Auto Dealership 2016-10, LLC
TX Alliance Motors, Inc.
TX Ennis Autoplex Motors, Inc.
TX Motors of North Richland Hills, Inc.
TX Motors on Katy Freeway, Inc.
TX Motors on Southwest Loop, Inc.
TX West Houston Motors, Inc.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Assistant Secretary






 
AUTONATION, INC.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Sr. Vice President, Deputy General
Counsel and Assistant Secretary

ATTEST:
 
 
By:
/s/ Jonathan P. Ferrando
 
Name: Jonathan P. Ferrando
 
Title: Executive Vice President - General
Counsel, Corporate Development and Human
Resources of AutoNation, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION, As Trustee
 
 
 
 
By:
/s/ Raymond Delli Colli
 
 
Name: Raymond Delli Colli
 
 
Title: Vice President







Exhibit 4.3

SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 29, 2016, among (i) AutoNation, Inc., a Delaware corporation (the “Company”), (ii) Allen Samuels Chevrolet of Corpus Christi, Inc., Allen Samuels Chevrolet of Waco, Inc., Allen Samuels Enterprises, Inc., Auto Company 2016-1, Inc., Auto Company 2016-2, Inc., Auto Company 2016-3, Inc., Auto Company 2016-4, Inc., Auto Company 2016-5, Inc., Auto Company 2016-6, Inc., Auto Company 2016-7, Inc., Auto Company 2016-8, Inc., Auto Company 2016-9, Inc., Auto Company 2016-10, Inc., Auto Company 2016-11, Inc., Auto Company 2016-12, Inc., Auto Company 2016-13, Inc., Auto Company 2016-14, Inc., Auto Company 2016-15, Inc., Auto Company 2016-16, Inc., Auto Company 2016-17, Inc., Auto Company 2016-18, Inc., Auto Company 2016-19, Inc., Auto Company 2016-20, Inc., Auto Dealership 2016-1, LLC, Auto Dealership 2016-2, LLC, Auto Dealership 2016-3, LLC, Auto Dealership 2016-4, LLC, Auto Dealership 2016-5, LLC, Auto Dealership 2016-6, LLC, Auto Dealership 2016-7, LLC, Auto Dealership 2016-8, LLC, Auto Dealership 2016-9, LLC, Auto Dealership 2016-10, LLC, TX Alliance Motors, Inc., TX Ennis Autoplex Motors, Inc., TX Motors of North Richland Hills, Inc., TX Motors on Katy Freeway, Inc., TX Motors on Southwest Loop, Inc. and TX West Houston Motors, Inc. (each a “Guaranteeing Subsidiary” and together, the “Guaranteeing Subsidiaries”), each an indirect subsidiary of the Company (or its permitted successor), and (iii) Wells Fargo Bank, National Association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors named therein have heretofore executed and delivered to the Trustee the Indenture, dated as of April 14, 2010 (the “Base Indenture”), as supplemented by that Supplemental Indenture dated as of September 21, 2015 (the “2015 Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), providing for the issuance of 3.350% Senior Notes due 2021 (the “Notes”);
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Company’s obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Guarantee”); and
WHEREAS, pursuant to Section 8.01 of the 2015 Supplemental Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each Guaranteeing Subsidiary hereby agrees as follows:

(a)
To jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(i)
the principal of and interest on the Notes shall be promptly paid by the Company in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid by the Company in full or performed by the Company, all in accordance with the terms hereof and thereof; and
(ii)
in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid by the Company in full when due or performed by the Company in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed or any performance so guaranteed which failure continues for three days after demand therefor is made to the Company for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.






(b)
The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.

(c)
The following is hereby waived: diligence, presentment, demand of payment (except as specifically provided in (a) above), filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands (except as specifically provided in (a) above) whatsoever.

(d)
This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. Each Guarantor also expressly waives, without any requirement of any notice to or further assent by such Guarantor, to the fullest extent permitted by applicable law, the benefit of all principles or provisions of applicable law which are or might be in conflict with the terms hereof, including, without limitation, Section 10-7-23 and Section 10-7-24 of the Official Code of Georgia Annotated.

(e)
If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

(f)
The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.

(g)
As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII of the Base Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article VII of the Base Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee, failing payment when due by the Company which failure continues for three days after demand therefor is made to the Company.

(h)
The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.
3. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. Each Guaranteeing Subsidiary agrees that, unless its Guarantee is being concurrently released in conformity with Section 9.04 of the 2015 Supplemental Indenture, it may not consolidate with or merge with or into any Person other than the Company or any other Guarantor unless (a) such Guaranteeing Subsidiary will be the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all of the obligations of such Guaranteeing Subsidiary on its Guarantee and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
4. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee.
5. Releases. The Guarantee of a Guaranteeing Subsidiary shall be released in accordance with the provisions set forth in the Indenture, including, without limitation, Section 9.04 of the 2015 Supplemental Indenture. The Trustee, at the expense and written direction of the Company, will execute proper instruments acknowledging the termination of such Subsidiary Guarantee as reasonably required by the representative of such Guarantor. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article IX of the 2015 Supplemental Indenture.
6. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or agent of a Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, the Indenture, any Guarantees or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.





The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. WAIVER OF JURY TRIAL. THE COMPANY, THE GUARANTEEING SUBSIDIARIES AND THE TRUSTEE EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE GUARANTEE OF A GUARANTEEING SUBSIDIARY OR THE TRANSACTIONS CONTEMPLATED HEREBY.

9. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
10. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity, legality or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company.





IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
 
Allen Samuels Chevrolet of Corpus Christi, Inc.
Allen Samuels Chevrolet of Waco, Inc.
Allen Samuels Enterprises, Inc.
Auto Company 2016-1, Inc.
Auto Company 2016-2, Inc.
Auto Company 2016-3, Inc.
Auto Company 2016-4, Inc.
Auto Company 2016-5, Inc.
Auto Company 2016-6, Inc.
Auto Company 2016-7, Inc.
Auto Company 2016-8, Inc.
Auto Company 2016-9, Inc.
Auto Company 2016-10, Inc.
Auto Company 2016-11, Inc.
Auto Company 2016-12, Inc.
Auto Company 2016-13, Inc.
Auto Company 2016-14, Inc.
Auto Company 2016-15, Inc.
Auto Company 2016-16, Inc.
Auto Company 2016-17, Inc.
Auto Company 2016-18, Inc.
Auto Company 2016-19, Inc.
Auto Company 2016-20, Inc.
Auto Dealership 2016-1, LLC
Auto Dealership 2016-2, LLC
Auto Dealership 2016-3, LLC
Auto Dealership 2016-4, LLC
Auto Dealership 2016-5, LLC
Auto Dealership 2016-6, LLC
Auto Dealership 2016-7, LLC
Auto Dealership 2016-8, LLC
Auto Dealership 2016-9, LLC
Auto Dealership 2016-10, LLC
TX Alliance Motors, Inc.
TX Ennis Autoplex Motors, Inc.
TX Motors of North Richland Hills, Inc.
TX Motors on Katy Freeway, Inc.
TX Motors on Southwest Loop, Inc.
TX West Houston Motors, Inc.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Assistant Secretary






 
AUTONATION, INC.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Sr. Vice President, Deputy General
Counsel and Assistant Secretary

ATTEST:
 
 
By:
/s/ Jonathan P. Ferrando
 
Name: Jonathan P. Ferrando
 
Title: Executive Vice President - General
Counsel, Corporate Development and Human
Resources of AutoNation, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION, As Trustee
 
 
 
 
By:
/s/ Raymond Delli Colli
 
 
Name: Raymond Delli Colli
 
 
Title: Vice President






Exhibit 4.4

SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 29, 2016, among (i) AutoNation, Inc., a Delaware corporation (the “Company”), (ii) Allen Samuels Chevrolet of Corpus Christi, Inc., Allen Samuels Chevrolet of Waco, Inc., Allen Samuels Enterprises, Inc., Auto Company 2016-1, Inc., Auto Company 2016-2, Inc., Auto Company 2016-3, Inc., Auto Company 2016-4, Inc., Auto Company 2016-5, Inc., Auto Company 2016-6, Inc., Auto Company 2016-7, Inc., Auto Company 2016-8, Inc., Auto Company 2016-9, Inc., Auto Company 2016-10, Inc., Auto Company 2016-11, Inc., Auto Company 2016-12, Inc., Auto Company 2016-13, Inc., Auto Company 2016-14, Inc., Auto Company 2016-15, Inc., Auto Company 2016-16, Inc., Auto Company 2016-17, Inc., Auto Company 2016-18, Inc., Auto Company 2016-19, Inc., Auto Company 2016-20, Inc., Auto Dealership 2016-1, LLC, Auto Dealership 2016-2, LLC, Auto Dealership 2016-3, LLC, Auto Dealership 2016-4, LLC, Auto Dealership 2016-5, LLC, Auto Dealership 2016-6, LLC, Auto Dealership 2016-7, LLC, Auto Dealership 2016-8, LLC, Auto Dealership 2016-9, LLC, Auto Dealership 2016-10, LLC, TX Alliance Motors, Inc., TX Ennis Autoplex Motors, Inc., TX Motors of North Richland Hills, Inc., TX Motors on Katy Freeway, Inc., TX Motors on Southwest Loop, Inc. and TX West Houston Motors, Inc. (each a “Guaranteeing Subsidiary” and together, the “Guaranteeing Subsidiaries”), each an indirect subsidiary of the Company (or its permitted successor), and (iii) Wells Fargo Bank, National Association, as trustee under the indenture referred to below (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors named therein have heretofore executed and delivered to the Trustee the Indenture, dated as of April 14, 2010 (the “Base Indenture”), as supplemented by that Supplemental Indenture dated as of September 21, 2015 (the “2015 Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), providing for the issuance of 4.500% Senior Notes due 2025 (the “Notes”);
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Company’s obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Guarantee”); and
WHEREAS, pursuant to Section 8.01 of the 2015 Supplemental Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each Guaranteeing Subsidiary hereby agrees as follows:

(a)
To jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(i)
the principal of and interest on the Notes shall be promptly paid by the Company in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid by the Company in full or performed by the Company, all in accordance with the terms hereof and thereof; and
(ii)
in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid by the Company in full when due or performed by the Company in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed or any performance so guaranteed which failure continues for three days after demand therefor is made to the Company for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.






(b)
The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.

(c)
The following is hereby waived: diligence, presentment, demand of payment (except as specifically provided in (a) above), filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands (except as specifically provided in (a) above) whatsoever.

(d)
This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. Each Guarantor also expressly waives, without any requirement of any notice to or further assent by such Guarantor, to the fullest extent permitted by applicable law, the benefit of all principles or provisions of applicable law which are or might be in conflict with the terms hereof, including, without limitation, Section 10-7-23 and Section 10-7-24 of the Official Code of Georgia Annotated.

(e)
If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

(f)
The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.

(g)
As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII of the Base Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article VII of the Base Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee, failing payment when due by the Company which failure continues for three days after demand therefor is made to the Company.

(h)
The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.
3. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. Each Guaranteeing Subsidiary agrees that, unless its Guarantee is being concurrently released in conformity with Section 9.04 of the 2015 Supplemental Indenture, it may not consolidate with or merge with or into any Person other than the Company or any other Guarantor unless (a) such Guaranteeing Subsidiary will be the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all of the obligations of such Guaranteeing Subsidiary on its Guarantee and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
4. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee.
5. Releases. The Guarantee of a Guaranteeing Subsidiary shall be released in accordance with the provisions set forth in the Indenture, including, without limitation, Section 9.04 of the 2015 Supplemental Indenture. The Trustee, at the expense and written direction of the Company, will execute proper instruments acknowledging the termination of such Subsidiary Guarantee as reasonably required by the representative of such Guarantor. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article IX of the 2015 Supplemental Indenture.
6. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or agent of a Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, the Indenture, any Guarantees or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.





The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. WAIVER OF JURY TRIAL. THE COMPANY, THE GUARANTEEING SUBSIDIARIES AND THE TRUSTEE EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE GUARANTEE OF A GUARANTEEING SUBSIDIARY OR THE TRANSACTIONS CONTEMPLATED HEREBY.

9. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
10. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity, legality or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company.





IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
 
Allen Samuels Chevrolet of Corpus Christi, Inc.
Allen Samuels Chevrolet of Waco, Inc.
Allen Samuels Enterprises, Inc.
Auto Company 2016-1, Inc.
Auto Company 2016-2, Inc.
Auto Company 2016-3, Inc.
Auto Company 2016-4, Inc.
Auto Company 2016-5, Inc.
Auto Company 2016-6, Inc.
Auto Company 2016-7, Inc.
Auto Company 2016-8, Inc.
Auto Company 2016-9, Inc.
Auto Company 2016-10, Inc.
Auto Company 2016-11, Inc.
Auto Company 2016-12, Inc.
Auto Company 2016-13, Inc.
Auto Company 2016-14, Inc.
Auto Company 2016-15, Inc.
Auto Company 2016-16, Inc.
Auto Company 2016-17, Inc.
Auto Company 2016-18, Inc.
Auto Company 2016-19, Inc.
Auto Company 2016-20, Inc.
Auto Dealership 2016-1, LLC
Auto Dealership 2016-2, LLC
Auto Dealership 2016-3, LLC
Auto Dealership 2016-4, LLC
Auto Dealership 2016-5, LLC
Auto Dealership 2016-6, LLC
Auto Dealership 2016-7, LLC
Auto Dealership 2016-8, LLC
Auto Dealership 2016-9, LLC
Auto Dealership 2016-10, LLC
TX Alliance Motors, Inc.
TX Ennis Autoplex Motors, Inc.
TX Motors of North Richland Hills, Inc.
TX Motors on Katy Freeway, Inc.
TX Motors on Southwest Loop, Inc.
TX West Houston Motors, Inc.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Assistant Secretary






 
AUTONATION, INC.
 
 
 
 
By:
/s/ C. Coleman G. Edmunds
 
 
Name: C. Coleman G. Edmunds
 
 
Title: Sr. Vice President, Deputy General
Counsel and Assistant Secretary

ATTEST:
 
 
By:
/s/ Jonathan P. Ferrando
 
Name: Jonathan P. Ferrando
 
Title: Executive Vice President - General
Counsel, Corporate Development and Human
Resources of AutoNation, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION, As Trustee
 
 
 
 
By:
/s/ Raymond Delli Colli
 
 
Name: Raymond Delli Colli
 
 
Title: Vice President






Exhibit 10.1


FORM OF AUTONATION, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this “Agreement”) is entered into as of March __, ____, by and between AUTONATION, INC., a Delaware corporation (together with its subsidiaries and affiliates, the “Company”), and ____________ (“Optionee”) who accepts the award of the Option (as defined below) made hereby, and agrees to be bound by this Agreement.

RECITALS

A.The Company has established the AutoNation, Inc. 2008 Employee Equity and Incentive Plan (the “Plan”) in order to provide valued employees of the Company incentives to create and maintain long-term stockholder value; and

B.The Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company has approved the grant to Optionee of a non-qualified employee stock option to purchase from the Company shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), on the terms and conditions set forth in this Agreement.

TERMS OF AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:

1.Definitions. Capitalized terms used herein which are defined in this Section 1 have the respective meanings assigned hereto in this Section 1. All other capitalized terms used but not defined in this Agreement shall have the meanings given to them in the Plan.

“Affiliate” shall mean a Subsidiary or any other entity of which on the relevant date at least a majority of the Voting Securities are at the time owned directly or indirectly by the Company or any Subsidiary.

“Change in Ownership” A Change in Ownership shall be deemed to have occurred with respect to an Optionee if (i) as a result of a merger, consolidation, reorganization, business combination, sale, exchange or other disposition of Voting Securities or other transaction, the corporation or other entity by which Optionee is employed ceases to be a Subsidiary or Affiliate of the Company and, immediately after such transaction, the persons who were stockholders of the Company immediately before such transaction do not own at least a majority of the Voting Securities of such corporation or other entity, or (ii) there is a sale or other disposition of all or substantially all of the assets of the trade, business, corporation or other entity by which Optionee is employed and, immediately after such transaction, the Company or the persons who were stockholders of the Company immediately before such transaction do not own at least a majority of the Voting Securities of a corporation or other entity that acquires such assets or engages in such trade or business. Notwithstanding the foregoing, a Change in Ownership shall not include a Change in Control (as defined in the Plan) of the Company.

“Spin-Off” A Spin-Off shall be deemed to have occurred with respect to an Optionee if the corporation or other entity by which Optionee was employed, or the entity that succeeds to the business unit or trade by which Optionee was employed, is not a Subsidiary or Affiliate of the Company following a pro rata distribution or dividend of its capital stock to the persons who were stockholders of the Company immediately before such transaction and, immediately after such transaction, such corporation or other entity has a class of Voting Securities that is traded publicly on a national securities exchange.

“Subsidiary” shall have the meaning given to it in Section 424(f) of the Internal Revenue Code of 1986, as amended.

“Voting Securities” shall mean securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions.






2.Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, Optionee shall be granted under the Plan as of the date hereof the right and option (the “Option”) to purchase from the Company _________ shares of Common Stock at an exercise price equal to $______ per share. The Option shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.

3.Term. The term of the Option shall commence on the date of this Agreement and expire on March __, ____, subject to the terms and conditions set forth herein and in the Plan, as may be amended from time to time.

4.Vesting. Except as otherwise provided herein or in the Plan, the Option shall vest and become exercisable in four equal annual installments, 25% on March 1, ____, 25% on March 1, ____, 25% on March 1, ____, and 25% on March 1, ____, subject to continuous employment by Optionee with the Company from the date hereof until such date. Any portion of the Option may be exercised only to purchase whole shares of Common Stock, and in no case may a fraction of a share be purchased. If any fractional share of Common Stock would be deliverable upon exercise, such fraction shall be rounded down to the nearest whole number.

5.Termination of Option if Employment is Terminated Due to a Change in Ownership of Subsidiary or Affiliate or Spin-Off. For the purpose of clarification, if Optionee ceases to be an employee of the Company or any Subsidiary or Affiliate of the Company following a Change in Ownership or Spin-Off of the Subsidiary, Affiliate or business unit by which Optionee is employed (whether because of the termination of employment of Optionee or because the corporation or other entity by which Optionee was employed ceases to be a Subsidiary or Affiliate of the Company or otherwise), such cessation shall be deemed to be a termination of employment or other service and Sections 12 and 13 of the Plan shall apply.

6.Optionee Bound by Terms of Plan. Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms, conditions and provisions thereof (including, without limitation, the termination of the Option in the event of a termination of the Optionee’s employment with the Company for Cause). For the purpose of clarification, the Optionee hereby acknowledges that in the event of a termination of the Optionee’s employment with the Company for Cause at a time when the Optionee is eligible for Retirement (as such term is defined in the Plan), both the Option and any other stock options to acquire shares of Company stock previously granted to the Optionee shall be forfeited and terminate immediately.

7.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its principles of conflict of laws. The parties agree that any action, suit or proceeding arising out of or relative to this Agreement or the relationship of Optionee and the Company shall be instituted only in the State or federal courts located in Broward County in the State of Florida, and each party waives any objection that such party may now or hereafter have to such venue or jurisdiction in any action, suit or proceeding brought in any State or federal court located in Broward County, Florida. Optionee affirms that he or she has sufficient contact with Florida such that Optionee would reasonably anticipate being hailed into said courts in Florida regarding this Agreement or any other contract or issues arising between the parties hereto. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against Optionee if given by mail (registered or certified where possible, return receipt requested), postage prepaid, mailed to Optionee at the address set forth in the Company’s records, or shall be effective against the Company if given in accordance with Paragraph 10 hereof.

8.No Right to Continued Employment. Nothing contained in this Agreement shall confer on Optionee the right to continue in the employment of the Company or otherwise shall impede the Company’s ability to terminate Optionee’s employment.

9.Severability. The invalidity or enforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

10.Notices. All notices, requests, demands, claims and other communications by Optionee with respect to the Option shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage prepaid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage prepaid) or guaranteed overnight delivery, to the following address (or to such other addresses or telecopy numbers which the Company shall designate in writing to Optionee from time to time):
AutoNation, Inc.
200 SW 1st Avenue
Fort Lauderdale, Florida 33301
Attention: Human Resources, Suite 1400
Telecopy: (954) xxx-xxxx






with a copy to:
AutoNation, Inc.
200 SW 1st Avenue
Fort Lauderdale, Florida 33301
Attention: General Counsel, Suite 1600
Telecopy: (954) xxx-xxxx
(no copy required for notice of Option exercise)

11.Binding Effect. This Agreement shall not constitute a binding obligation of the Company or the Optionee until it is signed by the Vice President, Human Resources of the Company and the Optionee. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company and to Optionee’s heirs, legatees, distributees and personal representatives. No handmarked or interlineated modifications shall constitute a part of this Agreement.

12.Method of Option Exercise. To the extent permitted by the Company, the Option may be exercised by electronic submission of an exercise order in accordance with the instructions set forth thereon or otherwise in accordance with Section 9(d) of the Plan.

13.Conflict with Terms of the Plan. In the event that any provision of this Agreement conflicts with any provision of the Plan and cannot reasonably be interpreted to be a clarification of such provision of the Plan or an exercise of the authority granted to the Plan’s administrator pursuant to the Plan, the provision of the Plan shall govern and be controlling. For the purpose of clarification, Paragraph 4 and the last sentence of Paragraph 6 hereof shall govern notwithstanding any contrary provisions of the Plan.

14.Integration. This Agreement supersedes all prior agreements and understandings between the Company and Optionee relating to the grant of the Option, whether oral or otherwise, provided however that this Agreement shall not supersede any agreement (including any employment agreement) with the Company or policy of the Company relating to confidentiality, no-solicitation, no-hire, non-competition, non-disparagement or recoupment of compensation, including but not limited to that certain Restrictive Covenants and Confidentiality Agreement of even date herewith by and between the Company and Optionee.






IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

By:
AUTONATION, INC.
 
OPTIONEE:
 
 
 
 
 
Name:
Title:
 
 






Exhibit 10.2

FORM OF AUTONATION, INC.
RESTRICTED STOCK AGREEMENT


THIS RESTRICTED STOCK AGREEMENT (this “Agreement”) is entered into as of March __, ____ (the “Date of Grant”), by and between AUTONATION, INC., a Delaware corporation (together with its subsidiaries and affiliates, the “Company”), and ______________ (“Grantee”) who accepts the award of Restricted Stock (as defined in Paragraph 2 below) made hereby, and agrees to be bound by this Agreement.

RECITALS

A.    The Company has established the AutoNation, Inc. 2008 Employee Equity and Incentive Plan (the “Plan”) in order to provide valued employees of the Company incentives to create and maintain long-term stockholder value; and

B.    The Compensation Committee of the Board of Directors (the “Board”) of the Company has approved the grant to the Grantee of Restricted Stock on the terms and conditions set forth in this Agreement.

TERMS OF AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:
1.    Definitions. Capitalized terms used herein which are defined in this Section 1 have the respective meanings assigned hereto in this Section 1. All other capitalized terms used but not defined in this Agreement shall have the meanings given to them the Plan.
“Affiliate” shall mean a Subsidiary or any other entity of which on the relevant date at least a majority of the Voting Securities are at the time owned directly or indirectly by the Company or any Subsidiary.
“Change in Ownership” A Change in Ownership shall be deemed to have occurred with respect to a Grantee if (i) as a result of a merger, consolidation, reorganization, business combination, sale, exchange or other disposition of Voting Securities or other transaction, the corporation or other entity by which Grantee is employed ceases to be a Subsidiary or Affiliate of the Company and, immediately after such transaction, the persons who were stockholders of the Company immediately before such transaction do not own at least a majority of the Voting Securities of such corporation or other entity, or (ii) there is a sale or other disposition of all or substantially all of the assets of the trade, business, corporation or other entity by which Grantee is employed and, immediately after such transaction, the Company or the persons who were stockholders of the Company immediately before such transaction do not own at least a majority of the Voting Securities of a corporation or other entity that acquires such assets or engages in such trade or business. Notwithstanding the foregoing, a Change in Ownership shall not include a Change in Control (as defined in the Plan) of the Company.
“Spin-Off” A Spin-Off shall be deemed to have occurred with respect to a Grantee if the corporation or other entity by which Grantee was employed, or the entity that succeeds to the business unit or trade by which Grantee was employed, is not a Subsidiary or Affiliate of the Company following a pro rata distribution or dividend of its capital stock to the persons who were stockholders of the Company immediately before such transaction and, immediately after such transaction, such corporation or other entity has a class of Voting Securities that is traded publicly on a national securities exchange.
“Subsidiary” shall have the meaning given to it in Section 424(f) of the Internal Revenue Code of 1986, as amended.
“Voting Securities” shall mean securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions.
2.    Award of Restricted Stock Pursuant to Plan. Subject to the terms and conditions, including the restrictions and risk of forfeiture, set forth herein and in the Plan, Grantee is hereby granted under the Plan, as of the Date of Grant, an award (“Award”) of _______ shares of common stock, $0.01 per share, of the Company (the “Shares” or “Restricted Stock”).





3.     Certificate. Reasonably promptly after Grantee accepts the Award, the Company, in its sole discretion, shall either (i) issue a stock certificate, registered in the name of the Grantee evidencing the Shares and bearing an appropriate legend specifying that such Shares are not transferable and are subject to the provisions of the Plan and this Agreement, or (ii) establish and maintain, or cause a representative to establish and maintain, an account to record the Shares until such Shares become vested or are forfeited.
4.    Withholding of Shares for Taxes. The Company shall withhold an amount equal to the federal, state and local taxes required by law to be withheld at the time the Grantee has taxable income in respect of the Shares (or, if the Grantee makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”) in connection with the Award, on or about the Date of Grant). Unless otherwise determined by the Company, such withholding shall be satisfied by the Company withholding Shares having a fair market value (as determined by the Company) equal to the amount of tax required to be withheld. The Grantee understands that the Grantee (and not the Company) shall be responsible for any tax liability of the Grantee that may arise as a result of the transactions contemplated by this Agreement.
5.    Rights of Ownership and Restrictions on Transfer. Unless and until the Shares are forfeited, notwithstanding the restrictions and risk of forfeiture set forth herein and in the Plan, the Grantee shall have the right to vote the Shares and, provided Grantee has accepted the Award, to receive dividends on the Shares. The Shares granted hereby shall not be transferable until vesting as set forth in Paragraph 6 below, except as permitted under the Plan.
6.    Vesting. Except as otherwise provided herein or in the Plan, the Shares shall become non-forfeitable and fully transferable (shall “vest”) in four equal annual installments, 25% on March 1, ____, 25% on March 1, ____, 25% on March 1, ____, and 25% on March 1, ____ (the “Vesting Dates”), subject to the Grantee remaining continuously employed with the Company on such dates.
7.    Forfeiture of Unvested Stock on Termination of Employment. Except as otherwise provided herein or in the Plan, upon the termination of employment of the Grantee with the Company for any reason, all outstanding unvested Shares held by the Grantee at the time of such termination shall be immediately forfeited and surrendered to the Company, and any stock certificates issued with respect to such unvested Shares shall be cancelled and such unvested Shares shall cease to remain outstanding.
8.    Termination of Restricted Stock if Employment is Terminated Due to a Change in Ownership of Subsidiary or Affiliate or Spin-Off. For the purpose of clarification, if Grantee ceases to be an employee of the Company or any Subsidiary or Affiliate of the Company following a Change in Ownership or Spin-Off of the Subsidiary, Affiliate or business unit by which Grantee is employed (whether because of the termination of employment of Grantee or because the corporation or other entity by which Grantee was employed ceases to be a Subsidiary or Affiliate of the Company or otherwise), then such cessation shall be deemed to be a termination of employment or other service and Sections 12 and 13 of the Plan shall apply.
9.    Retirement. Upon the Grantee attaining age 55 and completion of 6 years of service with the Company or a Subsidiary or an Affiliate as set forth in Section 13 of the Plan (“Retirement Eligibility”) or if the Grantee has attained Retirement Eligibility as of the Date of Grant, all Shares granted hereunder to the Grantee shall become immediately vested (and, accordingly, shall become subject to share withholding under Paragraph 4 of this Agreement), although such Shares (except for Shares to be withheld in accordance with Paragraph 4) shall remain non-transferable until the earliest of (a) the Grantee’s termination of employment, (b) the Vesting Date on which such Shares would otherwise have become vested, or (c) the occurrence of any event that would have caused acceleration of vesting under the terms of the Plan or this Agreement. For the purpose of clarification, in the event the Grantee has attained Retirement Eligibility, the vesting schedule set forth in Paragraph 6 shall apply to the number of Shares remaining after Company withholding in accordance with Paragraph 4. Notwithstanding the foregoing, for the purpose of clarification, upon a termination of the Grantee’s employment by the Company for Cause after Retirement Eligibility and prior to the earlier of the Vesting Date on which such Shares would otherwise have become vested or the occurrence of any event that would have caused acceleration of vesting under the terms of the Plan or this Agreement, the Shares that have not yet become transferable pursuant to this Paragraph shall be forfeited and surrendered to the Company, and any stock certificates issued with respect to such Shares shall be cancelled and such Shares shall cease to remain outstanding.
10.    Grantee Bound by Terms of Plan. Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms, conditions and provisions thereof.
11.    Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its principles of conflict of laws. The parties agree that any action, suit or proceeding arising out of or relative to this Agreement or the relationship of the Grantee and the Company shall be instituted only in the State or federal courts located in Broward County in the State of Florida, and each party waives any objection that such party may now





or hereafter have to such venue or jurisdiction in any action, suit or proceeding brought in any State or federal court located in Broward County, Florida. The Grantee affirms that he or she has sufficient contact with Florida such that Grantee would reasonably anticipate being hailed into said courts in Florida regarding this Agreement or any other contract or issues arising between the parties hereto. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against the Grantee if given by mail (registered or certified where possible, return receipt requested), postage prepaid, mailed to Grantee at the address set forth in the Company’s records, or shall be effective against the Company if given in accordance with Paragraph 14 hereof.
12.    No Right to Continued Employment. Nothing contained in this Agreement shall confer on Grantee the right to continue in the employment of the Company or otherwise shall impede the Company’s ability to terminate Grantee’s employment.
13.     Severability. The invalidity or enforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14.    Notices. All notices, requests, demands, claims and other communications by Grantee with respect to this award of Restricted Stock shall be in writing and shall be deemed given if delivered by certified or registered mail (first class postage prepaid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage prepaid) or guaranteed overnight delivery, to the following address (or to such other addresses or telecopy numbers which the Company shall designate in writing to the Grantee from time to time):
AutoNation, Inc.
200 SW 1st Avenue
Fort Lauderdale, Florida 33301
Attention: Human Resources, Suite 1400
Telecopy: (954) xxx-xxxx


with a copy to:
AutoNation, Inc.
200 SW 1st Avenue
Fort Lauderdale, Florida 33301
Attention: General Counsel, Suite 1600
Telecopy: (954) xxx-xxxx

15.    Binding Effect. This Agreement shall not constitute a binding obligation of the Company or the Grantee until it is signed by the Vice President, Human Resources of the Company and the Grantee. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company and to Grantee’s heirs, legatees, distributees and personal representatives. No handmarked or interlineated modifications shall constitute a part of this Agreement.
16.    Conflict with Terms of the Plan. In the event that any provision of this Agreement conflicts with any provision of the Plan and cannot reasonably be interpreted to be a clarification of such provision of the Plan or an exercise of the authority granted to the Plan’s administrator pursuant to the Plan, the provision of the Plan shall govern and be controlling. For the purpose of clarification, Paragraph 9 hereof shall govern notwithstanding any contrary provisions of the Plan.
17.    Integration. This Agreement supersedes all prior agreements and understandings between the Company and Grantee relating to the grant of the Restricted Stock, whether oral or otherwise, provided however that this Agreement shall not supersede any agreement (including any employment agreement) with the Company or policy of the Company relating to confidentiality, no-solicitation, no-hire, non-competition, non-disparagement or recoupment of compensation, including but not limited to that certain Restrictive Covenants and Confidentiality Agreement of even date herewith by and between the Company and Grantee.






IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.
By:
AUTONATION, INC.
 
GRANTEE:
 
 
 
 
 
Name:
Title:
 
 





Exhibit 31.1
CERTIFICATION
I, Michael J. Jackson, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of AutoNation, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael J. Jackson
Michael J. Jackson
Chairman, Chief Executive Officer and President
Date: April 22, 2016




Exhibit 31.2
CERTIFICATION
I, Cheryl Miller, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of AutoNation, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Cheryl Miller
Cheryl Miller
Executive Vice President and Chief Financial Officer
Date: April 22, 2016





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AutoNation, Inc. (the “Company”) for the quarter ended March 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Michael J. Jackson, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Jackson
Michael J. Jackson
Chairman, Chief Executive Officer and President
Date: April 22, 2016




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AutoNation, Inc. (the “Company”) for the quarter ended March 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Cheryl Miller, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Cheryl Miller
Cheryl Miller
Executive Vice President and Chief Financial Officer
Date: April 22, 2016



v3.3.1.900
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
Apr. 21, 2016
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
Trading Symbol AN  
Entity Registrant Name AUTONATION, INC.  
Entity Central Index Key 0000350698  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   103,103,606
v3.3.1.900
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
ASSETS    
Cash and cash equivalents $ 47.8 $ 74.1
Receivables, net 767.6 908.2
Inventory 3,927.8 3,612.0
Other current assets 129.5 115.4
Total Current Assets 4,872.7 4,709.7
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1.0 billion and $1.0 billion, respectively 2,768.1 2,667.4
GOODWILL 1,437.4 1,394.5
OTHER INTANGIBLE ASSETS, NET 554.7 439.9
OTHER ASSETS 364.7 336.7
Total Assets 9,997.6 9,548.2
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Vehicle floorplan payable 4,039.4 3,727.1
Accounts payable 310.5 299.9
Commercial paper 926.0 599.5
Current maturities of long-term debt 11.9 11.7
Other current liabilities 572.7 529.2
Total Current Liabilities 5,860.5 5,167.4
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,742.6 1,745.3
DEFERRED INCOME TAXES 91.5 78.6
OTHER LIABILITIES $ 212.4 $ 207.6
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS’ EQUITY:    
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued $ 0.0 $ 0.0
Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 120,562,149 shares issued at March 31, 2016, and December 31, 2015, including shares held in treasury 1.2 1.2
Additional paid-in capital 15.2 5.2
Retained earnings 2,798.7 2,702.8
Treasury stock, at cost; 17,461,420 and 9,758,091 shares held, respectively (724.5) (359.9)
Total Shareholders’ Equity 2,090.6 2,349.3
Total Liabilities and Shareholders’ Equity 9,997.6 9,548.2
Trade [Member]    
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Vehicle floorplan payable 2,572.1 2,565.8
Non-Trade [Member]    
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Vehicle floorplan payable $ 1,467.3 $ 1,161.3
v3.3.1.900
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
PROPERTY AND EQUIPMENT, accumulated depreciation $ 1,040.8 $ 1,009.8
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 1,500,000,000 1,500,000,000
Common stock, shares issued 120,562,149 120,562,149
Treasury stock, shares 17,461,420 9,758,091
v3.3.1.900
Unaudited Condensed Consolidated Income Statements - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
TOTAL REVENUE $ 5,119.6 $ 4,944.2
TOTAL COST OF SALES (excluding depreciation shown below) 4,293.7 4,144.3
TOTAL GROSS PROFIT 825.9 799.9
Selling, general, and administrative expenses 588.7 557.6
Depreciation and amortization 34.8 28.7
Other income, net (5.0) (1.3)
OPERATING INCOME 207.4 214.9
Non-operating income (expense) items:    
Floorplan interest expense (18.9) (13.2)
Other interest expense (28.3) (21.4)
Interest income 0.1 0.1
Other income (loss), net (3.4) 1.1
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 156.9 181.5
Income tax provision 60.7 69.8
NET INCOME FROM CONTINUING OPERATIONS 96.2 111.7
Loss from discontinued operations, net of income taxes (0.3) (0.2)
NET INCOME $ 95.9 $ 111.5
BASIC EARNINGS (LOSS) PER SHARE:    
Continuing operations (in dollars per share) $ 0.90 $ 0.98
Discontinued operations (in dollars per share) 0.00 0.00
Net income (in dollars per share) $ 0.90 $ 0.98
Weighted average common shares outstanding (in shares) 106.7 113.6
DILUTED EARNINGS (LOSS) PER SHARE:    
Continuing operations (in dollars per share) $ 0.90 $ 0.97
Discontinued operations (in dollars per share) 0.00 0.00
Net income (in dollars per share) $ 0.89 $ 0.97
Weighted average common shares outstanding (in shares) 107.4 115.1
COMMON SHARES OUTSTANDING, net of treasury stock, at period end (in shares) 103.1 113.9
New Vehicle [Member]    
TOTAL REVENUE $ 2,800.2 $ 2,769.6
TOTAL COST OF SALES (excluding depreciation shown below) 2,651.0 2,608.1
TOTAL GROSS PROFIT 149.2 161.5
Used Vehicle [Member]    
TOTAL REVENUE 1,241.6 1,193.2
TOTAL COST OF SALES (excluding depreciation shown below) 1,150.6 1,089.5
TOTAL GROSS PROFIT 91.0 103.7
Parts and Service [Member]    
TOTAL REVENUE 820.4 743.4
TOTAL COST OF SALES (excluding depreciation shown below) 465.7 423.4
TOTAL GROSS PROFIT 354.7 320.0
Finance and Insurance, Net [Member]    
TOTAL REVENUE 223.1 207.6
TOTAL GROSS PROFIT 223.1 207.6
Other Goods and Services [Member]    
TOTAL REVENUE 34.3 30.4
TOTAL COST OF SALES (excluding depreciation shown below) 26.4 23.3
TOTAL GROSS PROFIT $ 7.9 $ 7.1
v3.3.1.900
Unaudited Condensed Consolidated Statement Of Shareholders' Equity - 3 months ended Mar. 31, 2016 - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
BALANCE, shares at Dec. 31, 2015   120,562,149      
BALANCE at Dec. 31, 2015 $ 2,349.3 $ 1.2 $ 5.2 $ 2,702.8 $ (359.9)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income 95.9     95.9  
Repurchases of common stock (371.1)       (371.1)
Stock-based compensation expense 15.3   15.3    
Shares awarded under stock-based compensation plans, including income tax benefit of $0.6 1.2   (5.3)   6.5
BALANCE, shares at Mar. 31, 2016   120,562,149      
BALANCE at Mar. 31, 2016 $ 2,090.6 $ 1.2 $ 15.2 $ 2,798.7 $ (724.5)
v3.3.1.900
Unaudited Condensed Consolidated Statement of Shareholders' Equity (Parenthetical)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Statement of Stockholders' Equity [Abstract]  
Shares awarded under stock-based compensation plans, income tax benefit $ 0.6
v3.3.1.900
Unaudited Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:    
Net income $ 95.9 $ 111.5
Adjustments to reconcile net income to net cash provided by operating activities:    
Loss from discontinued operations 0.3 0.2
Depreciation and amortization 34.8 28.7
Amortization of debt issuance costs and accretion of debt discounts 1.3 1.1
Stock-based compensation expense 15.3 11.1
Deferred income tax provision 4.8 2.7
Net gain related to business/property dispositions (6.1) (1.5)
Non-cash impairment charges 0.9 0.2
Excess tax benefit from stock-based awards (0.6) (8.1)
Other 3.8 (0.8)
(Increase) decrease, net of effects from business combinations and divestitures:    
Receivables 161.2 38.5
Inventory (146.5) (23.0)
Other assets (23.7) 1.4
Increase (decrease), net of effects from business combinations and divestitures:    
Vehicle floorplan payable - trade, net 13.7 (43.6)
Accounts payable 2.5 26.6
Other liabilities 40.8 54.8
Net cash provided by continuing operations 198.4 199.8
Net cash used in discontinued operations (0.2) (0.2)
Net cash provided by operating activities 198.2 199.6
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:    
Purchases of property and equipment (54.7) (66.4)
Property operating lease buy-outs (5.0) 0.0
Proceeds from the sale of property and equipment 0.0 0.2
Cash received from business divestitures, net of cash relinquished 6.1 15.7
Cash used in business acquisitions, net of cash acquired (256.6) (27.7)
Other (0.5) (1.4)
Net cash used in continuing operations (310.7) (79.6)
Net cash used in discontinued operations 0.0 0.0
Net cash used in investing activities (310.7) (79.6)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:    
Repurchases of common stock (371.1) (9.6)
Proceeds from revolving credit facility 440.0 540.0
Payments of revolving credit facility (440.0) (615.0)
Net proceeds from commercial paper 326.5 0.0
Net proceeds from (payments of) vehicle floorplan payable - non-trade 132.8 (54.1)
Payments of mortgage facility (2.5) (2.4)
Payments of capital leases and other debt obligations (0.7) (0.7)
Proceeds from the exercise of stock options 0.6 12.4
Excess tax benefit from stock-based awards 0.6 8.1
Net cash provided by (used in) continuing operations 86.2 (121.3)
Net cash used in discontinued operations 0.0 0.0
Net cash provided by (used in) financing activities 86.2 (121.3)
DECREASE IN CASH AND CASH EQUIVALENTS (26.3) (1.3)
CASH AND CASH EQUIVALENTS at beginning of period 74.1 75.4
CASH AND CASH EQUIVALENTS at end of period $ 47.8 $ 74.1
v3.3.1.900
Interim Financial Statements
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Interim Financial Statements
INTERIM FINANCIAL STATEMENTS
Business and Basis of Presentation
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2016, we owned and operated 375 new vehicle franchises from 265 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 during the three months ended March 31, 2016, are manufactured by Toyota (including Lexus), Ford, Honda, General Motors, Nissan, FCA US (formerly Chrysler), Mercedes-Benz, 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.
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. The Unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included within our most recent Annual Report on Form 10-K. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented.
The preparation of financial statements in conformity with GAAP 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, giving due consideration to materiality. 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 Unaudited Condensed 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.
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 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 to continue to be 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 are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. We adopted these accounting standard updates retrospectively effective January 1, 2016, and have reclassified 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 5 of the Notes to Unaudited Condensed 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 update is effective for reporting periods beginning after December 15, 2017. Earlier application is permitted only as of reporting periods beginning after December 15, 2016. We are currently evaluating the method of adoption and the impact of the provisions of this accounting standard update.
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 are currently evaluating the impact of the provisions of this accounting standard update.
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. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of the provisions of this accounting standard update.
v3.3.1.900
Receivables, Net
3 Months Ended
Mar. 31, 2016
Receivables [Abstract]  
Receivables, Net
RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, are as follows:
 
March 31,
2016
 
December 31,
2015
Trade receivables
$
137.2

 
$
133.6

Manufacturer receivables
189.4

 
221.4

Other
50.0

 
38.0

 
376.6

 
393.0

Less: allowances for doubtful accounts
(4.1
)
 
(4.5
)
 
372.5

 
388.5

Contracts-in-transit and vehicle receivables
395.1

 
508.0

Income tax refundable (see Note 6)

 
11.7

Receivables, net
$
767.6

 
$
908.2



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.
v3.3.1.900
Inventory And Vehicle Floorplan Payable
3 Months Ended
Mar. 31, 2016
Inventory And Vehicle Floorplan Payable [Abstract]  
Inventory And Vehicle Floorplan Payable
INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory are as follows:
 
March 31,
2016
 
December 31,
2015
New vehicles
$
3,186.1

 
$
2,888.1

Used vehicles
551.3

 
539.7

Parts, accessories, and other
190.4

 
184.2

Inventory
$
3,927.8

 
$
3,612.0



The components of vehicle floorplan payable are as follows:
 
March 31,
2016
 
December 31,
2015
Vehicle floorplan payable - trade
$
2,572.1

 
$
2,565.8

Vehicle floorplan payable - non-trade
1,467.3

 
1,161.3

Vehicle floorplan payable
$
4,039.4

 
$
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 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 Unaudited Condensed 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 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% for the three months ended March 31, 2016, and 1.7% for the three months ended March 31, 2015. At March 31, 2016, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $4.6 billion, of which $3.7 billion had been borrowed.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.9% for the three months ended March 31, 2016, and 1.7% for the three months ended March 31, 2015. At March 31, 2016, the aggregate capacity under our used vehicle floorplan facilities with various lenders to finance a portion of our used vehicle inventory was $360.0 million, of which $318.5 million had been borrowed. The remaining borrowing capacity of $41.5 million was limited to $0.4 million based on the eligible used vehicle inventory that could have been pledged as collateral.
v3.3.1.900
Goodwill And Intangible Assets, Net
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill And Intangible Assets
GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, consist of the following:
 
March 31,
2016
 
December 31,
2015
Goodwill
$
1,437.4

 
$
1,394.5

 
 
 
 
Franchise rights - indefinite-lived
$
546.8

 
$
432.4

Other intangibles
14.9

 
14.3

 
561.7

 
446.7

Less: accumulated amortization
(7.0
)
 
(6.8
)
Other intangible assets, net
$
554.7

 
$
439.9


Goodwill
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test as of April 30, 2016.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2016.
v3.3.1.900
Long-Term Debt and Commercial Paper
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Long-Term Debt and Commercial Paper
LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt, net of debt issuance costs, consists of the following:
 
March 31,
2016
 
December 31,
2015
6.75% Senior Notes due 2018
$
397.8

 
$
397.5

5.5% Senior Notes due 2020
346.7

 
346.5

3.35% Senior Notes due 2021
297.7

 
297.6

4.5% Senior Notes due 2025
444.8

 
444.7

Revolving credit facility due 2019

 

Mortgage facility (1)
173.2

 
175.7

Capital leases and other debt
94.3

 
95.0

 
1,754.5

 
1,757.0

Less: current maturities
(11.9
)
 
(11.7
)
Long-term debt, net of current maturities
$
1,742.6

 
$
1,745.3

(1) The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
As discussed in Note 1 above, the FASB issued an accounting standard update that requires debt issuance costs be presented on the balance sheet as a reduction from the carrying amount of the related debt liability. We adopted the accounting standard update retrospectively effective January 1, 2016, and have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction from the carrying amount of the related debt liability for both current and prior periods. We reclassified $10.1 million of debt issuance costs as a direct reduction from the carrying amount of debt as of December 31, 2015.
Senior Unsecured Notes and Credit Agreement
At March 31, 2016, we had outstanding $398.1 million of 6.75% Senior Notes due 2018, net of debt discount. Interest is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2018.
At March 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 March 31, 2016, we had outstanding $300.0 million of 3.35% Senior Notes due 2021, net of debt discount. Interest is payable on January 15 and July 15 of each year. These notes will mature on January 15, 2021.
At March 31, 2016, we had outstanding $448.5 million of 4.5% Senior Notes due 2025, net of debt discount. Interest on the 2025 Notes is payable on April 1 and October 1 of each year. These notes will mature on October 1, 2025.
The interest rate payable on the 2021 Notes and 2025 Notes is subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes.
Under our credit agreement, we have a $1.8 billion revolving credit facility that matures on December 3, 2019. The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to $500.0 million in the aggregate. As of March 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 March 31, 2016, leaving a borrowing capacity under the revolving credit facility of $1.8 billion at March 31, 2016. As of March 31, 2016, this borrowing capacity was limited under the maximum consolidated leverage ratio contained in our credit agreement to $1.2 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 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the interest rate.
Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.
Other Long-Term Debt
At March 31, 2016, we had $173.2 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 $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At March 31, 2016, we had capital lease and other debt obligations of $94.3 million, which are due at various dates through 2034.
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 March 31, 2016, we had $926.0 million of commercial paper notes outstanding with a weighted-average annual interest rate of 1.23% and a weighted-average remaining term of 21 days.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. Under the credit agreement, the maximum leverage ratio is 3.75x and the maximum capitalization ratio is 70.0%. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of letters of credit in excess of $150.0 million). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus $1.53 billion.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions. Our mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.
Under the terms of our credit agreement, at March 31, 2016, our leverage ratio and capitalization ratio were as follows:
 
March 31, 2016
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.60x
Capitalization ratio
≤ 70.0%
 
64.9%

Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness and repurchase shares.
v3.3.1.900
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
Income taxes payable included in Other Current Liabilities totaled $42.4 million at March 31, 2016. Income taxes refundable included in Receivables, net totaled $11.7 million at December 31, 2015.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently, no tax years are under examination by the IRS, and tax years from 2009 to 2014 are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes.
It is our policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated Financial Statements.
v3.3.1.900
Shareholders' Equity
3 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
Shareholders' Equity
SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares repurchased
7.9

 
0.2

Aggregate purchase price
$
370.6

 
$
9.1

Average purchase price per share
$
47.20

 
$
60.46



In February 2016, our Board of Directors authorized the repurchase of an additional $250.0 million of shares of our common stock. As of March 31, 2016, $175.0 million remained available for share repurchases under the program.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued (in actual number of shares)
26,261

 
617,760

Proceeds from the exercise of stock options
$
0.6

 
$
12.4

Average exercise price per share
$
22.94

 
$
20.15



The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued
138,424

 
155,328

Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
8,760

 
8,999

v3.3.1.900
Earnings Per Share
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Earnings Per Share
EARNINGS 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.
The following table presents the calculation of basic and diluted EPS:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income from continuing operations
$
96.2

 
$
111.7

Loss from discontinued operations, net of income taxes
(0.3
)
 
(0.2
)
Net income
$
95.9

 
$
111.5

 
 
 
 
Weighted average common shares outstanding used in calculating basic EPS
106.7

 
113.6

Effect of dilutive stock options
0.7

 
1.5

Weighted average common shares outstanding used in calculating diluted EPS
107.4

 
115.1

 
 
 
 
Basic EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.98

Discontinued operations
$

 
$

Net income
$
0.90

 
$
0.98

 
 
 
 
Diluted EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.97

Discontinued operations
$

 
$

Net income
$
0.89

 
$
0.97

(1) Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Anti-dilutive options excluded from the computation of diluted earnings per share
2.5

 
0.5

v3.3.1.900
Divestitures
3 Months Ended
Mar. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Divestitures
DIVESTITURES
During the first quarter of 2016, we divested two Import stores and recorded a gain of $6.2 million. During the first quarter of 2015, we divested two Import stores and recorded a gain of $1.4 million. The gains on these divestitures are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.
v3.3.1.900
Acquisitions
3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
Acquisitions
ACQUISITIONS
During the first quarter of 2016, we purchased 12 stores located in Texas, which include Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, and Sprinter franchises. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocation for this business combination is preliminary and subject to final adjustment. We purchased two stores during the three months ended March 31, 2015.
The acquisitions that occurred during the three months ended March 31, 2016 were not material to our financial condition or results of operations. Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire three month periods ended March 31, 2016 and 2015, revenue and net income would not have been materially different from our reported revenue and net income for these periods.
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Commitments And Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies
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 March 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 these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from 2016 to 2034 are approximately $28 million at March 31, 2016. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at March 31, 2016. There can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.
At March 31, 2016, surety bonds, letters of credit, and cash deposits totaled $99.3 million, including $44.1 million of letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.
In the ordinary course of business, we are subject to numerous laws and regulations, including automotive, environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of such compliance will have a material adverse effect on our business, consolidated results of operations, cash flows, or financial condition, although such outcome is possible given the nature of our operations and the extensive legal and regulatory framework applicable to our business.
Further, we expect that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact our business. We do not have any material known environmental commitments or contingencies.
v3.3.1.900
Segment Information
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Segment Information
SEGMENT INFORMATION
At March 31, 2016 and 2015, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
“Corporate and other” is comprised of our other businesses, including collision centers and an auction operation, each of which generates revenues, as well as unallocated corporate overhead expenses and retrospective commissions for certain financing and insurance transactions that we arrange under agreements with third parties.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
In the following tables of financial data, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated income from continuing operations before income taxes, respectively.
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenue:
 
 
 
Domestic
$
1,848.2

 
$
1,665.7

Import
1,675.0

 
1,678.7

Premium Luxury
1,540.3

 
1,563.2

Total
5,063.5

 
4,907.6

Corporate and other
56.1

 
36.6

Total consolidated revenue
$
5,119.6

 
$
4,944.2



 
Three Months Ended
 
March 31,
 
2016
 
2015
Segment income(1):
 
 
 
Domestic
$
77.4

 
$
79.3

Import
76.1

 
75.0

Premium Luxury
83.0

 
94.1

Total
236.5

 
248.4

Corporate and other
(48.0
)
 
(46.7
)
Other interest expense
(28.3
)
 
(21.4
)
Interest income
0.1

 
0.1

Other income (loss), net
(3.4
)
 
1.1

Income from continuing operations before income taxes
$
156.9

 
$
181.5

(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
v3.3.1.900
Business And Credit Concentrations
3 Months Ended
Mar. 31, 2016
Risks and Uncertainties [Abstract]  
Business And Credit Concentrations
BUSINESS AND CREDIT CONCENTRATIONS
We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately 94% of the new vehicles sold during the three months ended March 31, 2016, are manufactured by Toyota (including Lexus), Ford, Honda, General Motors, Nissan, FCA US (formerly Chrysler), Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
We had receivables from manufacturers or distributors of $189.4 million at March 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 Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at March 31, 2016, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.
v3.3.1.900
Financial Instruments And Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Measurements
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 Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
Fixed rate long-term debt: Our fixed rate long-term debt primarily consists of amounts outstanding under our senior unsecured notes and mortgages. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). We estimate the fair value of our mortgages using a present value technique based on our current market interest rates for similar types of financial instruments (Level 2). A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:
 
March 31,
2016
 
December 31,
2015
Carrying value
$
1,764.1

 
$
1,767.1

Fair value
$
1,856.5

 
$
1,858.6



Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.
Long-Lived Assets
The fair value measurement valuation process for our long-lived assets is established by our corporate real estate services group. Fair value measurements, which are based on Level 3 inputs, and changes in fair value measurements are reviewed and assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for properties classified as held and used, by the corporate real estate services group. Our corporate real estate services group utilizes its knowledge of the automotive industry and historical experience in real estate markets and transactions in establishing the valuation process, which is generally based on a combination of the market and replacement cost approaches.
In a market approach, the corporate real estate services group uses transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. The corporate real estate services group also evaluates changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.
To validate the fair values determined under the valuation process noted above, our corporate real estate services group also obtains independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and evaluates any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market. 
The following table presents long-lived assets measured and recorded at fair value on a nonrecurring basis during the three months ended March 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)
Long-lived assets held for sale:
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.0

 
$
(0.9
)
 
$
6.2

 
$
(0.2
)
Discontinued operations
 
13.2

 
(0.2
)
 

 

Total long-lived assets held for sale
 
$
18.2

 
$
(1.1
)
 
$
6.2

 
$
(0.2
)

Long-Lived Assets Held and Used in Continuing Operations
During the three months ended March 31, 2016 and March 31, 2015, there were no impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations.
Long-Lived Assets Held for Sale in Continuing Operations
We recorded non-cash impairment charges related to long-lived assets held for sale in continuing operations of $0.9 million during the three months ended March 31, 2016 and $0.2 million during the three months ended March 31, 2015. These non-cash impairment charges are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.
Long-Lived Assets Held for Sale in Discontinued Operations
We recorded a non-cash impairment charge related to long-lived assets held for sale in discontinued operations of $0.2 million during the three months ended March 31, 2016. The non-cash impairment charge is included in Loss from Discontinued Operations in our Unaudited Condensed Consolidated Statements of Income.
During the three months ended March 31, 2015, there were no impairment charges recorded for the carrying value of long-lived assets held for sale in discontinued operations.
As of March 31, 2016, we had long-lived assets held for sale of $52.1 million in continuing operations and $22.1 million in discontinued operations. Long-lived assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.
v3.3.1.900
Cash Flow Information
3 Months Ended
Mar. 31, 2016
Supplemental Cash Flow Information [Abstract]  
Cash Flow Information
CASH FLOW INFORMATION
We had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of $5.3 million for the three months ended March 31, 2015. We did not enter into any capital leases during the three months ended March 31, 2016. We also had accrued purchases of property and equipment of $16.4 million at March 31, 2016 and $12.8 million at March 31, 2015.
We made interest payments, including interest on vehicle inventory financing, of $36.6 million during the three months ended March 31, 2016, and $31.5 million during the three months ended March 31, 2015. We made income tax payments, net of income tax refunds, of $0.9 million during the three months ended March 31, 2016, and $18.4 million during the three months ended March 31, 2015.
v3.3.1.900
Interim Financial Statements (Policies)
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. The Unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included within our most recent Annual Report on Form 10-K. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented.
The preparation of financial statements in conformity with GAAP 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, giving due consideration to materiality. 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 Unaudited Condensed 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.
Recent Accounting Pronouncements
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 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 to continue to be 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 are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. We adopted these accounting standard updates retrospectively effective January 1, 2016, and have reclassified 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 5 of the Notes to Unaudited Condensed 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 update is effective for reporting periods beginning after December 15, 2017. Earlier application is permitted only as of reporting periods beginning after December 15, 2016. We are currently evaluating the method of adoption and the impact of the provisions of this accounting standard update.
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 are currently evaluating the impact of the provisions of this accounting standard update.
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. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of the provisions of this accounting standard update.
v3.3.1.900
Earnings Per Share (Policies)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share
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.
v3.3.1.900
Financial Instruments And Fair Value Measurements (Policies)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Impairment Of Long-Lived Assets
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.
v3.3.1.900
Receivables, Net (Tables)
3 Months Ended
Mar. 31, 2016
Receivables [Abstract]  
Components Of Receivables, Net Of Allowance For Doubtful Accounts
The components of receivables, net of allowance for doubtful accounts, are as follows:
 
March 31,
2016
 
December 31,
2015
Trade receivables
$
137.2

 
$
133.6

Manufacturer receivables
189.4

 
221.4

Other
50.0

 
38.0

 
376.6

 
393.0

Less: allowances for doubtful accounts
(4.1
)
 
(4.5
)
 
372.5

 
388.5

Contracts-in-transit and vehicle receivables
395.1

 
508.0

Income tax refundable (see Note 6)

 
11.7

Receivables, net
$
767.6

 
$
908.2

v3.3.1.900
Inventory And Vehicle Floorplan Payable (Tables)
3 Months Ended
Mar. 31, 2016
Inventory And Vehicle Floorplan Payable [Abstract]  
Components Of Inventory
The components of inventory are as follows:
 
March 31,
2016
 
December 31,
2015
New vehicles
$
3,186.1

 
$
2,888.1

Used vehicles
551.3

 
539.7

Parts, accessories, and other
190.4

 
184.2

Inventory
$
3,927.8

 
$
3,612.0

Components Of Vehicle Floorplan Payable
The components of vehicle floorplan payable are as follows:
 
March 31,
2016
 
December 31,
2015
Vehicle floorplan payable - trade
$
2,572.1

 
$
2,565.8

Vehicle floorplan payable - non-trade
1,467.3

 
1,161.3

Vehicle floorplan payable
$
4,039.4

 
$
3,727.1

v3.3.1.900
Goodwill And Intangible Assets, Net (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill And Intangible Assets, Net
Goodwill and intangible assets, net, consist of the following:
 
March 31,
2016
 
December 31,
2015
Goodwill
$
1,437.4

 
$
1,394.5

 
 
 
 
Franchise rights - indefinite-lived
$
546.8

 
$
432.4

Other intangibles
14.9

 
14.3

 
561.7

 
446.7

Less: accumulated amortization
(7.0
)
 
(6.8
)
Other intangible assets, net
$
554.7

 
$
439.9

v3.3.1.900
Long-Term Debt and Commercial Paper (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Long-Term Debt
Long-term debt, net of debt issuance costs, consists of the following:
 
March 31,
2016
 
December 31,
2015
6.75% Senior Notes due 2018
$
397.8

 
$
397.5

5.5% Senior Notes due 2020
346.7

 
346.5

3.35% Senior Notes due 2021
297.7

 
297.6

4.5% Senior Notes due 2025
444.8

 
444.7

Revolving credit facility due 2019

 

Mortgage facility (1)
173.2

 
175.7

Capital leases and other debt
94.3

 
95.0

 
1,754.5

 
1,757.0

Less: current maturities
(11.9
)
 
(11.7
)
Long-term debt, net of current maturities
$
1,742.6

 
$
1,745.3

(1) The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
Leverage Ratio And Capitalization Ratio Under The Terms Of Our Credit Agreement
Under the terms of our credit agreement, at March 31, 2016, our leverage ratio and capitalization ratio were as follows:
 
March 31, 2016
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.60x
Capitalization ratio
≤ 70.0%
 
64.9%
v3.3.1.900
Shareholders' Equity (Tables)
3 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
Shares Repurchased Under Share Repurchase Program
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares repurchased
7.9

 
0.2

Aggregate purchase price
$
370.6

 
$
9.1

Average purchase price per share
$
47.20

 
$
60.46

Common Stock Issued With The Exercise Of Stock Options
A summary of shares of common stock issued in connection with the exercise of stock options follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued (in actual number of shares)
26,261

 
617,760

Proceeds from the exercise of stock options
$
0.6

 
$
12.4

Average exercise price per share
$
22.94

 
$
20.15

Restricted Stock Grants And Shares Surrendered to Satisfy Tax Withholdings
The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Shares issued
138,424

 
155,328

Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
8,760

 
8,999

v3.3.1.900
Earnings Per Share (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Basic and Diluted EPS
The following table presents the calculation of basic and diluted EPS:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income from continuing operations
$
96.2

 
$
111.7

Loss from discontinued operations, net of income taxes
(0.3
)
 
(0.2
)
Net income
$
95.9

 
$
111.5

 
 
 
 
Weighted average common shares outstanding used in calculating basic EPS
106.7

 
113.6

Effect of dilutive stock options
0.7

 
1.5

Weighted average common shares outstanding used in calculating diluted EPS
107.4

 
115.1

 
 
 
 
Basic EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.98

Discontinued operations
$

 
$

Net income
$
0.90

 
$
0.98

 
 
 
 
Diluted EPS amounts(1):
 
 
 
Continuing operations
$
0.90

 
$
0.97

Discontinued operations
$

 
$

Net income
$
0.89

 
$
0.97

(1) Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
Anti-Dilutive Options Excluded From The Computation Of Diluted Earnings Per Share
A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
 
Three Months Ended
 
March 31,
 
2016
 
2015
Anti-dilutive options excluded from the computation of diluted earnings per share
2.5

 
0.5

v3.3.1.900
Segment Information (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Reportable Segment Revenue
revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated income from continuing operations before income taxes, respectively.
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenue:
 
 
 
Domestic
$
1,848.2

 
$
1,665.7

Import
1,675.0

 
1,678.7

Premium Luxury
1,540.3

 
1,563.2

Total
5,063.5

 
4,907.6

Corporate and other
56.1

 
36.6

Total consolidated revenue
$
5,119.6

 
$
4,944.2

Reportable Segment Income
 
Three Months Ended
 
March 31,
 
2016
 
2015
Segment income(1):
 
 
 
Domestic
$
77.4

 
$
79.3

Import
76.1

 
75.0

Premium Luxury
83.0

 
94.1

Total
236.5

 
248.4

Corporate and other
(48.0
)
 
(46.7
)
Other interest expense
(28.3
)
 
(21.4
)
Interest income
0.1

 
0.1

Other income (loss), net
(3.4
)
 
1.1

Income from continuing operations before income taxes
$
156.9

 
$
181.5

(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.

v3.3.1.900
Financial Instruments And Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Summary Of Carrying Values And Fair Values Of Fixed Rate Debt
A summary of the aggregate carrying values and fair values of our fixed rate long-term debt is as follows:
 
March 31,
2016
 
December 31,
2015
Carrying value
$
1,764.1

 
$
1,767.1

Fair value
$
1,856.5

 
$
1,858.6

Nonfinancial Assets Measured and Recorded At Fair Value On A Nonrecurring Basis
The following table presents long-lived assets measured and recorded at fair value on a nonrecurring basis during the three months ended March 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)
Long-lived assets held for sale:
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.0

 
$
(0.9
)
 
$
6.2

 
$
(0.2
)
Discontinued operations
 
13.2

 
(0.2
)
 

 

Total long-lived assets held for sale
 
$
18.2

 
$
(1.1
)
 
$
6.2

 
$
(0.2
)
v3.3.1.900
Interim Financial Statements (Details)
3 Months Ended
Mar. 31, 2016
brand
stores
franchises
Segment Reporting Information [Line Items]  
Percentage of new vehicle sales from core brands 94.00%
Number of brands | brand 35
Number of stores | stores 265
Owned and operated new vehicle franchises | franchises 375
v3.3.1.900
Receivables, Net (Components Of Receivables, Net Of Allowance For Doubtful Accounts) (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Receivables [Abstract]    
Trade receivables $ 137.2 $ 133.6
Manufacturer receivables 189.4 221.4
Other 50.0 38.0
Trade, manufacturer and other receivables, gross 376.6 393.0
Less: allowances for doubtful accounts (4.1) (4.5)
Trade, manufacturer and other receivables, net 372.5 388.5
Contracts-in-transit and vehicle receivables 395.1 508.0
Income tax refundable (see Note 6) 0.0 11.7
Receivables, net $ 767.6 $ 908.2
v3.3.1.900
Inventory And Vehicle Floorplan Payable (Components Of Inventory) (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Inventory [Line Items]    
Inventory $ 3,927.8 $ 3,612.0
New Vehicle [Member]    
Inventory [Line Items]    
Inventory 3,186.1 2,888.1
Used Vehicle [Member]    
Inventory [Line Items]    
Inventory 551.3 539.7
Parts and Service [Member]    
Inventory [Line Items]    
Inventory $ 190.4 $ 184.2
v3.3.1.900
Inventory And Vehicle Floorplan Payable (Components Of Vehicle Floorplan Payable) (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Floorplan Payable [Line Items]    
Vehicle floorplan payable $ 4,039.4 $ 3,727.1
Trade [Member]    
Floorplan Payable [Line Items]    
Vehicle floorplan payable 2,572.1 2,565.8
Non-Trade [Member]    
Floorplan Payable [Line Items]    
Vehicle floorplan payable $ 1,467.3 $ 1,161.3
v3.3.1.900
Inventory And Vehicle Floorplan Payable (Narrative) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Floorplan Payable [Line Items]      
Vehicle floorplan facilities, amount outstanding $ 4,039.4   $ 3,727.1
Used vehicle floorplan facilities, remaining borrowing capacity 41.5    
Used vehicle floorplan facilities, current borrowing capacity $ 0.4    
Used Vehicle Floorplan Facilities [Member]      
Floorplan Payable [Line Items]      
Vehicle floorplan facilities, average LIBOR-based interest rates 1.90% 1.70%  
Vehicle floorplan facilities, maximum borrowing capacity $ 360.0    
Vehicle floorplan facilities, amount outstanding $ 318.5    
New Vehicle Floorplan Facilities [Member]      
Floorplan Payable [Line Items]      
Vehicle floorplan facilities, average LIBOR-based interest rates 2.00% 1.70%  
Vehicle floorplan facilities, maximum borrowing capacity $ 4,600.0    
Vehicle floorplan facilities, amount outstanding $ 3,700.0    
v3.3.1.900
Goodwill And Intangible Assets, Net (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Goodwill and Intangible Assets [Line Items]      
Goodwill $ 1,437.4   $ 1,394.5
Franchise rights - indefinite-lived 546.8   432.4
Other intangibles 14.9   14.3
Intangible assets, gross 561.7   446.7
Less: accumulated amortization (7.0)   (6.8)
Other intangible assets, net $ 554.7   $ 439.9
Goodwill [Member]      
Goodwill and Intangible Assets [Line Items]      
Date of Annual Goodwill and Indefinite Lived Intangible Assets Impairment Test April 30 April 30  
Franchise Rights [Member]      
Goodwill and Intangible Assets [Line Items]      
Date of Annual Goodwill and Indefinite Lived Intangible Assets Impairment Test April 30 April 30  
v3.3.1.900
Long-Term Debt and Commercial Paper (Long-Term Debt) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Long-term debt $ 1,754.5 $ 1,757.0
Less: current maturities (11.9) (11.7)
Long-term debt, net of current maturities 1,742.6 1,745.3
6.75% Senior Notes Due 2018 [Member]    
Senior notes 397.8 397.5
5.5% Senior Notes Due 2020 [Member]    
Senior notes 346.7 346.5
3.35% Senior Notes due 2021 [Member]    
Senior notes 297.7 297.6
4.5% Senior Notes due 2025 [Member]    
Senior notes 444.8 444.7
Revolving Credit Facility Due 2019 [Member]    
Revolving credit facility 0.0 0.0
Mortgage Facility [Member]    
Mortgage facility [1] 173.2 175.7
Capital Leases and Other Debt [Member]    
Capital leases and other debt 94.3 $ 95.0
Secured Debt [Member] | Mortgage Facility [Member]    
Monthly principal and interest payments on mortgage facility 1.7  
Balloon payment for mortgage $ 155.4  
[1] The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
v3.3.1.900
Long-Term Debt and Commercial Paper (Narrative) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Aug. 04, 2015
Debt Instrument [Line Items]      
Unamortized Debt Issuance Expense   $ 10.1  
Letters of credit, amount outstanding $ 44.1    
Commercial paper, maximum aggregate amount outstanding permitted     $ 1,000.0
Commercial paper, amount outstanding 926.0 599.5  
3.35% Senior Notes due 2021 [Member] | Senior Notes [Member]      
Debt Instrument [Line Items]      
Senior Notes Amount Outstanding $ 300.0    
Percentage interest on debt instrument 3.35%    
Debt instrument, maturity date Jan. 15, 2021    
4.5% Senior Notes due 2025 [Member] | Senior Notes [Member]      
Debt Instrument [Line Items]      
Senior Notes Amount Outstanding $ 448.5    
Percentage interest on debt instrument 4.50%    
Debt instrument, maturity date Oct. 01, 2025    
6.75% Senior Notes Due 2018 [Member] | Senior Notes [Member]      
Debt Instrument [Line Items]      
Senior Notes Amount Outstanding $ 398.1    
Percentage interest on debt instrument 6.75%    
Debt instrument, maturity date Apr. 15, 2018    
5.5% Senior Notes Due 2020 [Member] | Senior Notes [Member]      
Debt Instrument [Line Items]      
Senior Notes Amount Outstanding $ 350.0    
Percentage interest on debt instrument 5.50%    
Debt instrument, maturity date Feb. 01, 2020    
Revolving Credit Facility Due 2019 [Member]      
Debt Instrument [Line Items]      
Maximum borrowing capacity under revolving credit facility $ 1,800.0    
Additional borrowing capacity under accordion feature of revolving credit facility 500.0    
Revolving credit facility, amount outstanding 0.0 0.0  
Revolving credit facilities letter of credit sublimit 200.0    
Additional borrowing capacity under the revolving credit facility 1,800.0    
Borrowing capacity limited under the maximum consolidated leverage ratio $ 1,200.0    
Leverage ratio, minimum threshold, current credit spread 2.0    
Leverage ratio, maximum threshold, current credit spread 3.25    
Leverage ratio, minimum threshold, increase in credit spread 3.25    
Impact on credit spread from increase in leverage ratio 0.125%    
Revolving Credit Facility Due 2019 [Member] | Line of Credit [Member]      
Debt Instrument [Line Items]      
Debt instrument, maturity date Dec. 03, 2019    
Mortgage Facility [Member]      
Debt Instrument [Line Items]      
Mortgage facility [1] $ 173.2 175.7  
Mortgage Facility [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Debt instrument, maturity date Nov. 30, 2017    
Mortgage facility, fixed interest rate 5.864%    
Number of years of mortgage loans 10 years    
Monthly principal and interest payments on mortgage facility $ 1.7    
Balloon payment for mortgage 155.4    
Capital Leases and Other Debt [Member]      
Debt Instrument [Line Items]      
Capital leases and other debt $ 94.3 $ 95.0  
Minimum [Member] | Revolving Credit Facility Due 2019 [Member]      
Debt Instrument [Line Items]      
Commitment fee on undrawn amounts 0.175%    
Maximum [Member] | Revolving Credit Facility Due 2019 [Member]      
Debt Instrument [Line Items]      
Commitment fee on undrawn amounts 0.25%    
Commercial Paper [Member]      
Debt Instrument [Line Items]      
Weighted-average annual interest rate 1.23%    
Commercial Paper [Member] | Maximum [Member]      
Debt Instrument [Line Items]      
Maturity period of debt 397 days    
Commercial Paper [Member] | Weighted Average [Member]      
Debt Instrument [Line Items]      
Maturity period of debt 21 days    
London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member] | Revolving Credit Facility Due 2019 [Member] | Line of Credit [Member]      
Debt Instrument [Line Items]      
Basis spread on variable interest rates 1.25%    
London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | Revolving Credit Facility Due 2019 [Member] | Line of Credit [Member]      
Debt Instrument [Line Items]      
Basis spread on variable interest rates 1.625%    
Base Rate [Member] | Minimum [Member] | Revolving Credit Facility Due 2019 [Member] | Line of Credit [Member]      
Debt Instrument [Line Items]      
Basis spread on variable interest rates 0.25%    
Base Rate [Member] | Maximum [Member] | Revolving Credit Facility Due 2019 [Member] | Line of Credit [Member]      
Debt Instrument [Line Items]      
Basis spread on variable interest rates 0.625%    
[1] The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
v3.3.1.900
Long-Term Debt and Commercial Paper (Restrictions And Covenants) (Details) - Credit Facility Due 2019 [Member]
$ in Millions
Mar. 31, 2016
USD ($)
Debt Instrument [Line Items]  
Capitalization ratio, requirement 70.00%
Leverage ratio, requirement 3.75
The maximum threshold of letters of credit excluded from the leverage ratio calculation $ 150.0
Capitalization ratio calculation, additions to shareholders' equity $ 1,530.0
v3.3.1.900
Long-Term Debt and Commercial Paper (Leverage Ratio And Capitalization Ratio Under The Terms Of The Amended Credit Agreement) (Details) - Credit Facility Due 2019 [Member]
Mar. 31, 2016
Debt Instrument [Line Items]  
Leverage ratio, requirement 3.75
Leverage ratio, actual 2.60
Capitalization ratio, requirement 70.00%
Capitalization ratio, actual 64.90%
v3.3.1.900
Income Taxes (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Income Tax Disclosure [Abstract]    
Income tax refundable $ 0.0 $ 11.7
Income taxes payable $ 42.4  
v3.3.1.900
Shareholders' Equity (Shares Repurchased Under Share Repurchase Program) (Details) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Class of Stock [Line Items]    
Aggregate purchase price $ 371.1  
Treasury Stock [Member]    
Class of Stock [Line Items]    
Aggregate purchase price 371.1  
Stock Repurchase Program Board Authorized Repurchases [Member]    
Class of Stock [Line Items]    
Stock Repurchase Program, Authorized Amount $ 250.0  
Shares repurchased (in shares) 7.9 0.2
Aggregate purchase price $ 370.6 $ 9.1
Average purchase price per share (in dollars per share) $ 47.20 $ 60.46
Remaining amount available for share repurchase $ 175.0  
v3.3.1.900
Shareholders' Equity (Common Stock Issued With The Exercise Of Stock Options) (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Stockholders' Equity Note [Abstract]    
Shares issued (in shares) 26,261 617,760
Proceeds from the exercise of stock options $ 0.6 $ 12.4
Average exercise price per share (in dollars per share) $ 22.94 $ 20.15
v3.3.1.900
Shareholders' Equity (Restricted Stock Grants And Shares Surrendered To Satisfy Tax Withholdings) (Details) - shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Stockholders' Equity Note [Abstract]    
Shares issued 138,424 155,328
Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock 8,760 8,999
v3.3.1.900
Earnings Per Share (Basic and Diluted) (Details) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share [Abstract]    
Net income from continuing operations $ 96.2 $ 111.7
Loss from discontinued operations, net of income taxes (0.3) (0.2)
NET INCOME $ 95.9 $ 111.5
Weighted average common shares outstanding used in calculating basic EPS (in shares) 106.7 113.6
Effect of dilutive stock options (in shares) 0.7 1.5
Weighted average common shares outstanding used in calculating diluted EPS (in shares) 107.4 115.1
Basic EPS amounts(1):    
Continuing operations (in dollars per share) $ 0.90 $ 0.98
Discontinued operations (in dollars per share) 0.00 0.00
Net income (in dollars per share) 0.90 0.98
Diluted EPS amounts(1):    
Continuing operations (in dollars per share) 0.90 0.97
Discontinued operations (in dollars per share) 0.00 0.00
Net income (in dollars per share) $ 0.89 $ 0.97
v3.3.1.900
Earnings Per Share (Anti-Dilutive Options Excluded From The Computation Of Diluted Earnings Per Share) (Details) - shares
shares in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share [Abstract]    
Anti-dilutive options excluded from the computation of diluted earnings per share (in shares) 2.5 0.5
v3.3.1.900
Divestitures (Details) - Import Stores Divested [Member]
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
stores
Mar. 31, 2015
USD ($)
stores
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]    
Number of stores divested | stores 2 2
Gain on disposal | $ $ 6.2 $ 1.4
v3.3.1.900
Acquisitions (Details) - stores
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Subsequent Event [Line Items]    
Number of stores purchased 12 2
v3.3.1.900
Commitments And Contingencies (Details)
$ in Millions
Mar. 31, 2016
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Guarantor obligations, maximum exposure $ 28.0
Total surety bonds, letters of credit, and cash deposits 99.3
Letters of credit, amount outstanding $ 44.1
v3.3.1.900
Segment Information (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
segments
Mar. 31, 2015
USD ($)
segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Number of reportable segments | segments 3 3
Total consolidated revenue $ 5,119.6 $ 4,944.2
Total segment income [1] 236.5 248.4
Corporate and other (48.0) (46.7)
Other interest expense (28.3) (21.4)
Interest income 0.1 0.1
Other income (loss), net (3.4) 1.1
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 156.9 181.5
AN Reportable Segments [Member]    
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Total consolidated revenue 5,063.5 4,907.6
AN Reportable Segment, Domestic [Member]    
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Total consolidated revenue 1,848.2 1,665.7
Total segment income [1] 77.4 79.3
AN Reportable Segment, Import [Member]    
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Total consolidated revenue 1,675.0 1,678.7
Total segment income [1] 76.1 75.0
AN Reportable Segment, Premium Luxury [Member]    
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Total consolidated revenue 1,540.3 1,563.2
Total segment income [1] 83.0 94.1
Corporate and Other [Member]    
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]    
Total consolidated revenue $ 56.1 $ 36.6
[1] Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
v3.3.1.900
Business And Credit Concentrations (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Risks and Uncertainties [Abstract]    
Percentage of new vehicle sales from core brands 94.00%  
Manufacturer receivables $ 189.4 $ 221.4
v3.3.1.900
Financial Instruments And Fair Value Measurements (Summary Of Carrying Values And Fair Values Of Fixed Rate Debt) (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Reported Value Measurement [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Fixed rate debt $ 1,764.1 $ 1,767.1
Fair Value [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Fixed rate debt $ 1,856.5 $ 1,858.6
v3.3.1.900
Financial Instruments And Fair Value Measurements (Nonfinancial Assets Measured on a Nonrecurring Basis) (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of long-lived assets held for sale $ (1.1) $ (0.2)
Fair Value, Inputs, Level 3 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Long-lived assets held for sale 18.2 6.2
Continuing Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of long-lived assets held and used 0.0 0.0
Impairment of long-lived assets held for sale (0.9) (0.2)
Continuing Operations [Member] | Fair Value, Inputs, Level 3 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Long-lived assets held for sale 5.0 6.2
Discontinued Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of long-lived assets held for sale (0.2) 0.0
Discontinued Operations [Member] | Fair Value, Inputs, Level 3 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Long-lived assets held for sale $ 13.2 $ 0.0
v3.3.1.900
Financial Instruments And Fair Value Measurements (Narrative) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Reported Value Measurement [Member] | Continuing Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Long-lived assets held for sale $ 52.1  
Reported Value Measurement [Member] | Discontinued Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Long-lived assets held for sale 22.1  
Fair Value, Measurements, Nonrecurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of long-lived assets held for sale 1.1 $ 0.2
Fair Value, Measurements, Nonrecurring [Member] | Continuing Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of Long-Lived Assets Held-for-use 0.0 0.0
Impairment of long-lived assets held for sale 0.9 0.2
Fair Value, Measurements, Nonrecurring [Member] | Discontinued Operations [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of long-lived assets held for sale $ 0.2 $ 0.0
v3.3.1.900
Cash Flow Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Supplemental Cash Flow Information [Abstract]    
Non-cash investing and financing activities primarily related to capital leases $ 0 $ 5,300,000
Accrued purchases of property and equipment 16,400,000 12,800,000
Interest payments including interest on vehicle inventory financing 36,600,000 31,500,000
Income tax payments, net of income tax refunds $ 900,000 $ 18,400,000
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