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EX-32.2 - SECTION 906 CFO CERTIFICATION - AUTONATION, INC.an10q63015ex322.htm
EX-10.1 - EXHIBIT 10.1 - AUTONATION, INC.an10q63015ex101.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - AUTONATION, INC.an10q63015ex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - AUTONATION, INC.an10q63015ex312.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - AUTONATION, INC.an10q63015ex321.htm

 
 
 
 
 
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 June 30, 2015
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 July 20, 2015, the registrant had 113,441,149 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 5.
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)
 
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
65.3

 
$
75.4

Receivables, net
770.6

 
817.8

Inventory
3,230.7

 
2,899.0

Other current assets
207.0

 
207.0

Total Current Assets
4,273.6

 
3,999.2

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $985.1 million and $930.5 million, respectively
2,489.2

 
2,422.0

GOODWILL
1,341.0

 
1,314.7

OTHER INTANGIBLE ASSETS, NET
392.4

 
354.7

OTHER ASSETS
343.2

 
309.1

Total Assets
$
8,839.4

 
$
8,399.7

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Vehicle floorplan payable - trade
$
2,289.8

 
$
2,090.7

Vehicle floorplan payable - non-trade
1,031.6

 
1,006.5

Accounts payable
264.4

 
264.7

Commercial paper
298.5

 

Current maturities of long-term debt
24.6

 
25.0

Other current liabilities
486.8

 
495.1

Total Current Liabilities
4,395.7

 
3,882.0

LONG-TERM DEBT, NET OF CURRENT MATURITIES
1,805.5

 
2,103.4

DEFERRED INCOME TAXES
146.0

 
137.9

OTHER LIABILITIES
206.9

 
204.3

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; 163,562,149 shares issued at June 30, 2015, and December 31, 2014, including shares held in treasury
1.6

 
1.6

Additional paid-in capital
73.9

 
61.8

Retained earnings
3,983.2

 
3,756.6

Treasury stock, at cost; 50,206,792 and 50,248,909 shares held, respectively
(1,773.4
)
 
(1,747.9
)
Total Shareholders’ Equity
2,285.3

 
2,072.1

Total Liabilities and Shareholders’ Equity
$
8,839.4

 
$
8,399.7


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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
New vehicle
$
2,967.8

 
$
2,736.9

 
$
5,737.4

 
$
5,165.5

Used vehicle
1,216.3

 
1,082.3

 
2,409.5

 
2,132.0

Parts and service
777.8

 
704.8

 
1,521.2

 
1,375.8

Finance and insurance, net
217.7

 
185.4

 
425.3

 
357.8

Other
44.7

 
79.1

 
75.1

 
120.9

TOTAL REVENUE
5,224.3

 
4,788.5

 
10,168.5

 
9,152.0

Cost of sales:
 
 
 
 
 
 
 
New vehicle
2,801.7

 
2,575.3

 
5,409.8

 
4,858.0

Used vehicle
1,125.2

 
993.0

 
2,214.7

 
1,948.4

Parts and service
440.6

 
404.0

 
864.0

 
788.3

Other
37.7

 
71.3

 
61.0

 
105.0

TOTAL COST OF SALES (excluding depreciation shown below)
4,405.2

 
4,043.6

 
8,549.5

 
7,699.7

Gross Profit:
 
 
 
 
 
 
 
New vehicle
166.1

 
161.6

 
327.6

 
307.5

Used vehicle
91.1

 
89.3

 
194.8

 
183.6

Parts and service
337.2

 
300.8

 
657.2

 
587.5

Finance and insurance
217.7

 
185.4

 
425.3

 
357.8

Other
7.0

 
7.8

 
14.1

 
15.9

TOTAL GROSS PROFIT
819.1

 
744.9

 
1,619.0

 
1,452.3

Selling, general, and administrative expenses
568.7

 
524.6

 
1,126.3

 
1,025.3

Depreciation and amortization
32.1

 
26.2

 
60.8

 
51.8

Other income, net
(3.8
)
 
(3.7
)
 
(5.1
)
 
(11.7
)
OPERATING INCOME
222.1

 
197.8

 
437.0

 
386.9

Non-operating income (expense) items:
 
 
 
 
 
 
 
Floorplan interest expense
(14.2
)
 
(13.3
)
 
(27.4
)
 
(26.5
)
Other interest expense
(21.6
)
 
(21.3
)
 
(43.0
)
 
(42.9
)
Interest income

 
0.1

 
0.1

 
0.1

Other income, net
0.5

 
0.9

 
1.6

 
2.4

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
186.8

 
164.2

 
368.3

 
320.0

Income tax provision
71.6

 
63.5

 
141.4

 
123.8

NET INCOME FROM CONTINUING OPERATIONS
115.2

 
100.7

 
226.9

 
196.2

Loss from discontinued operations, net of income taxes
(0.1
)
 
(0.3
)
 
(0.3
)
 
(0.7
)
NET INCOME
$
115.1

 
$
100.4

 
$
226.6

 
$
195.5

BASIC EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
 
 
Continuing operations
$
1.01

 
$
0.85

 
$
2.00

 
$
1.64

Discontinued operations
$

 
$

 
$

 
$
(0.01
)
Net income
$
1.01

 
$
0.84

 
$
1.99

 
$
1.64

Weighted average common shares outstanding
113.8

 
119.1

 
113.7

 
119.3

DILUTED EARNINGS (LOSS) PER SHARE:
 
 
 
 
 
 
 
Continuing operations
$
1.00

 
$
0.83

 
$
1.97

 
$
1.62

Discontinued operations
$

 
$

 
$

 
$
(0.01
)
Net income
$
1.00

 
$
0.83

 
$
1.97

 
$
1.61

Weighted average common shares outstanding
115.1

 
120.8

 
115.1

 
121.1

COMMON SHARES OUTSTANDING, net of treasury stock, at period end
113.4

 
118.5

 
113.4

 
118.5


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, 2014
163,562,149

 
$
1.6

 
$
61.8

 
$
3,756.6

 
$
(1,747.9
)
 
$
2,072.1

Net income

 

 

 
226.6

 

 
226.6

Repurchases of common stock

 

 

 

 
(61.3
)
 
(61.3
)
Stock-based compensation expense

 

 
17.4

 

 

 
17.4

Shares awarded under stock-based compensation plans, including income tax benefit of $11.7

 

 
(5.3
)
 

 
35.8

 
30.5

BALANCE AT JUNE 30, 2015
163,562,149

 
$
1.6

 
$
73.9

 
$
3,983.2

 
$
(1,773.4
)
 
$
2,285.3


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



3


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Six Months Ended
 
June 30,
 
2015
 
2014
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
 
 
Net income
$
226.6

 
$
195.5

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

 
0.7

Depreciation and amortization
60.8

 
51.8

Amortization of debt issuance costs and accretion of debt discounts
2.2

 
2.9

Stock-based compensation expense
17.4

 
17.3

Deferred income tax provision
8.1

 
6.6

Net gain related to business/property dispositions
(7.1
)
 
(8.4
)
Non-cash impairment charges
2.5

 
0.3

Excess tax benefit from stock-based awards
(11.7
)
 
(10.7
)
Other
(1.8
)
 
(5.4
)
(Increase) decrease, net of effects from business combinations and divestitures:
 
 
 
Receivables
46.5

 
50.2

Inventory
(296.7
)
 
50.9

Other assets
(16.2
)
 
(19.0
)
Increase (decrease), net of effects from business combinations and divestitures:
 
 
 
Vehicle floorplan payable - trade, net
205.1

 
(152.4
)
Accounts payable
0.2

 
(4.6
)
Other liabilities
6.6

 
35.7

Net cash provided by continuing operations
242.8

 
211.4

Net cash used in discontinued operations
(0.5
)
 
(0.5
)
Net cash provided by operating activities
242.3

 
210.9

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(135.2
)
 
(101.7
)
Property operating lease buy-outs

 
(0.4
)
Proceeds from the sale of property and equipment
0.3

 
0.1

Proceeds from assets held for sale
8.7

 
2.4

Cash received from business divestitures, net of cash relinquished
15.7

 
9.8

Cash used in business acquisitions, net of cash acquired
(73.1
)
 

Net change in restricted cash
(2.6
)
 

Proceeds from the sale of restricted investments

 
0.5

Other
(3.8
)
 
(6.0
)
Net cash used in continuing operations
(190.0
)
 
(95.3
)
Net cash used in discontinued operations

 

Net cash used in investing activities
(190.0
)
 
(95.3
)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


4


AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Continued)
 
 
Six Months Ended
 
June 30,
 
2015
 
2014
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
 
 
 
Repurchases of common stock
(61.3
)
 
(182.2
)
Proceeds from revolving credit facility
1,080.0

 
610.0

Payments of revolving credit facility
(1,390.0
)
 
(545.0
)
Net proceeds from commercial paper
298.5

 

Net payments of vehicle floorplan payable - non-trade
(10.2
)
 
(7.8
)
Payments of mortgage facility
(4.8
)
 
(4.5
)
Payments of capital leases and other debt obligations
(5.1
)
 
(19.6
)
Proceeds from the exercise of stock options
18.8

 
22.1

Excess tax benefit from stock-based awards
11.7

 
10.7

Net cash used in continuing operations
(62.4
)
 
(116.3
)
Net cash used in discontinued operations

 

Net cash used in financing activities
(62.4
)
 
(116.3
)
DECREASE IN CASH AND CASH EQUIVALENTS
(10.1
)
 
(0.7
)
CASH AND CASH EQUIVALENTS at beginning of period
75.4

 
69.2

CASH AND CASH EQUIVALENTS at end of period
$
65.3

 
$
68.5


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 June 30, 2015, we owned and operated 293 new vehicle franchises from 237 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 95% of the new vehicles that we sold during the six months ended June 30, 2015, are manufactured by Toyota (including Lexus), Ford, Honda, Nissan, General Motors, Mercedes-Benz, FCA US (formerly Chrysler), 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 by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information related to our organization, significant accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, 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. Significant estimates made by AutoNation 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.
Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“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 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


6

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

update was originally effective for interim and annual reporting periods beginning after December 15, 2016, with no early adoption permitted. However, the FASB recently decided to delay the effective date by one year for all entities with the option to adopt the standard as of the original effective date. We are currently evaluating the method of adoption and the impact of the provisions of the accounting standard update.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued an accounting standard update to simplify the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability. The amendments in this accounting standard update are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this accounting standard update will not have a material impact on our balance sheet.

2.
RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, are as follows:
 
June 30,
2015
 
December 31,
2014
Trade receivables
$
125.8

 
$
125.0

Manufacturer receivables
180.5

 
198.3

Other
40.4

 
37.9

 
346.7

 
361.2

Less: Allowances
(3.8
)
 
(3.7
)
 
342.9

 
357.5

Contracts-in-transit and vehicle receivables
405.3

 
460.3

Income tax refundable (see Note 6)
22.4

 

Receivables, net
$
770.6

 
$
817.8


Trade receivables represent amounts due for parts and services that have been sold or delivered, excluding amounts due from manufacturers, as well as receivables from finance organizations for commissions on the sale of financing products. Manufacturer receivables represent receivables from manufacturers including amounts due for holdbacks, rebates, incentives, floorplan assistance, and warranty claims. Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by our customers.
We evaluate our receivables for collectability based on the age of receivables and past collection experience.

3.
INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory are as follows:
 
June 30,
2015
 
December 31,
2014
New vehicles
$
2,565.0

 
$
2,294.3

Used vehicles
494.7

 
437.6

Parts, accessories, and other
171.0

 
167.1

Inventory
$
3,230.7

 
$
2,899.0




7

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

The components of vehicle floorplan payable are as follows:
 
June 30,
2015
 
December 31,
2014
Vehicle floorplan payable - trade
$
2,289.8

 
$
2,090.7

Vehicle floorplan payable - non-trade
1,031.6

 
1,006.5

Vehicle floorplan payable
$
3,321.4

 
$
3,097.2

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, which are primarily collateralized by used vehicle inventories and related receivables. 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, and floorplan assistance, 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 directly funds the manufacturer for the purchase of new vehicle inventory. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.7% for the six months ended June 30, 2015, and 1.7% for the six months ended June 30, 2014. At June 30, 2015, the aggregate capacity under our used vehicle floorplan facilities with various lenders to finance a portion of our used vehicle inventory was $335.0 million, of which $232.7 million had been borrowed. The remaining borrowing capacity of $102.3 million was limited to $85.5 million based on the eligible used vehicle inventory that could have been pledged as collateral.
Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.7% for the six months ended June 30, 2015, and 1.8% for the six months ended June 30, 2014. At June 30, 2015, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $3.9 billion, of which $3.1 billion had been borrowed.

4.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net, consist of the following:
 
June 30,
2015
 
December 31,
2014
Goodwill
$
1,341.0

 
$
1,314.7

 
 
 
 
Franchise rights - indefinite-lived
$
385.7

 
$
348.1

Other intangibles
13.1

 
12.6

 
398.8

 
360.7

Less: accumulated amortization
(6.4
)
 
(6.0
)
Other intangible assets, net
$
392.4

 
$
354.7



8

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

Goodwill
We test goodwill of our Domestic, Import, and Premium Luxury reporting units for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. Under accounting standards, an entity is permitted to first make a qualitative assessment of any potential goodwill impairment to determine whether it is necessary to calculate the fair value of a reporting unit under the quantitative two-step goodwill impairment test.
We completed our qualitative assessment of any potential goodwill impairment as of April 30, 2015. Based on our qualitative assessment, we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts and we were therefore not required to perform the two-step goodwill impairment test for any of our reporting units.
Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested at least annually as of April 30 for impairment. Under accounting standards, an entity is permitted to first make a qualitative evaluation about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it is necessary to perform a quantitative impairment test.
We completed our qualitative assessment of any potential franchise rights impairment as of April 30, 2015. Based on our qualitative assessment, we determined that we should perform a quantitative test for certain franchise rights, and no impairment charges resulted from these quantitative tests.

5.
LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt consists of the following:
 
June 30,
2015
 
December 31,
2014
6.75% Senior Notes due 2018
$
397.5

 
$
397.1

5.5% Senior Notes due 2020
350.0

 
350.0

Revolving credit facility due 2019
800.0

 
1,110.0

Mortgage facility (1)
180.7

 
185.5

Capital leases and other debt
101.9

 
85.8

 
1,830.1

 
2,128.4

Less: current maturities
(24.6
)
 
(25.0
)
Long-term debt, net of current maturities
$
1,805.5

 
$
2,103.4

(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.
Senior Unsecured Notes and Credit Agreement
At June 30, 2015, we had outstanding $397.5 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 June 30, 2015, 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.
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 June 30, 2015, we had borrowings outstanding of $800.0 million 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,


9

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

which was $45.9 million at June 30, 2015, leaving an additional borrowing capacity under the revolving credit facility of $954.1 million at June 30, 2015.
Our revolving credit facility provides for a commitment fee on undrawn amounts of 0.20% and various interest rates on borrowings generally at LIBOR plus 1.50%. 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 June 30, 2015, we had $180.7 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 June 30, 2015, we had capital lease and other debt obligations of $101.9 million, which are due at various dates through 2034.
Commercial Paper
On May 22, 2015, we established 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 $300.0 million. The interest rate for the commercial paper notes varies based on 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 will be 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.
At June 30, 2015, we had $298.5 million of commercial paper notes outstanding with a weighted-average annual interest rate of 0.85% and a weighted-average remaining term of 13 days.
Restrictions and Covenants
Our credit agreement, the indentures for our 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020, 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 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020 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.


10

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

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 June 30, 2015, our leverage ratio and capitalization ratio were as follows:
 
June 30, 2015
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.18x
Capitalization ratio
≤ 70.0%
 
58.8%
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.
In the event of a downgrade in our credit ratings, neither the covenants described above nor availability under our credit agreement would be impacted. However, a downgrade in our credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper notes.

6.
INCOME TAXES
Income taxes refundable included in Receivables, Net totaled $22.4 million at June 30, 2015. Income taxes payable included in Other Current Liabilities totaled $17.5 million at December 31, 2014.
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 2013 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. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters.
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.

7.
SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Shares repurchased
0.8

 
1.1

 
0.9

 
3.6

Aggregate purchase price
$
50.0

 
$
64.1

 
$
59.1

 
$
179.8

Average purchase price per share
$
62.78

 
$
56.05

 
$
62.41

 
$
50.53


As of June 30, 2015, $221.6 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Shares issued
0.3

 
0.3

 
0.9

 
1.1

Proceeds from the exercise of stock options
$
6.3

 
$
6.8

 
$
18.8

 
$
22.1

Average exercise price per share
$
24.96

 
$
19.44

 
$
21.55

 
$
20.39




11

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

The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Shares issued
1,754

 
4,692

 
157,082

 
149,880

Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
26,928

 
33,274

 
35,927

 
44,477


8.
EARNINGS PER SHARE
Basic earnings per share (“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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income from continuing operations
$
115.2

 
$
100.7

 
$
226.9

 
$
196.2

Loss from discontinued operations, net of income taxes
(0.1
)
 
(0.3
)
 
(0.3
)
 
(0.7
)
Net income
$
115.1

 
$
100.4

 
$
226.6

 
$
195.5

 
 
 
 
 
 
 
 
Weighted average common shares outstanding used in calculating basic EPS
113.8

 
119.1

 
113.7

 
119.3

Effect of dilutive stock options
1.3

 
1.7

 
1.4

 
1.8

Weighted average common shares outstanding used in calculating diluted EPS
115.1

 
120.8

 
115.1

 
121.1

 
 
 
 
 
 
 
 
Basic EPS amounts:
 
 
 
 
 
 
 
Continuing operations
$
1.01

 
$
0.85

 
$
2.00

 
$
1.64

Discontinued operations
$

 
$

 
$

 
$
(0.01
)
Net income
$
1.01

 
$
0.84

 
$
1.99

 
$
1.64

 
 
 
 
 
 
 
 
Diluted EPS amounts:
 
 
 
 
 
 
 
Continuing operations
$
1.00

 
$
0.83

 
$
1.97

 
$
1.62

Discontinued operations
$

 
$

 
$

 
$
(0.01
)
Net income
$
1.00

 
$
0.83

 
$
1.97

 
$
1.61


A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Anti-dilutive options excluded from the computation of diluted earnings per share
0.5

 
0.5

 
0.5

 
0.5




12

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

9.
DIVESTITURES
During the first quarter of 2015, we divested two Import stores and recorded a gain of $1.4 million ($0.9 million after-tax). During the first quarter of 2014, we divested our customer lead distribution business and recorded a gain of $8.4 million ($5.2 million after-tax). This business was reported in the “Corporate and other” category of our segment information. The gains on these divestitures are included in Other Income, Net (within Operating Income) in our 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
We purchased five stores during the six months ended June 30, 2015. During the second quarter of 2015, we purchased a Mercedes-Benz store in San Jose, California, a Chrysler Dodge Jeep Ram store in Valencia, California, and a Jaguar, Land Rover, and Volvo store in Spokane, Washington. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocation for these business combinations are preliminary and subject to final adjustment. We did not purchase any stores during the six months ended June 30, 2014.
The acquisitions that occurred during the six months ended June 30, 2015 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 and six month periods ended June 30, 2015 and 2014, revenue and net income would not have been materially different from our reported revenue and net income for these periods.

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 are currently defending several purported class action lawsuits in California arising out of alleged violations of state wage and hour laws relating to compensation of automotive technicians. 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 June 30, 2015 and 2014, we believe we have adequately 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.


13

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

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 2015 to 2034 are approximately $31 million at June 30, 2015. 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 June 30, 2015. Our exposure under these leases is difficult to estimate and 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 June 30, 2015, surety bonds, letters of credit, and cash deposits totaled $94.8 million, including $45.9 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.

12.
SEGMENT INFORMATION
At June 30, 2015 and 2014, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by 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.
Reportable segment revenue and segment income are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Domestic
$
1,764.2

 
$
1,604.9

 
$
3,429.9

 
$
3,077.9

Import
1,795.0

 
1,717.8

 
3,473.7

 
3,267.2

Premium Luxury
1,633.0

 
1,431.9

 
3,196.2

 
2,738.3

Total
5,192.2

 
4,754.6

 
10,099.8

 
9,083.4

Corporate and other
32.1

 
33.9

 
68.7

 
68.6

Total consolidated revenue
$
5,224.3

 
$
4,788.5

 
$
10,168.5

 
$
9,152.0



14

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


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Segment income(1):
 
 
 
 
 
 
 
Domestic
$
84.9

 
$
70.5

 
$
164.2

 
$
134.3

Import
80.1

 
77.5

 
155.1

 
142.9

Premium Luxury
94.4

 
85.8

 
188.5

 
169.1

Total
259.4

 
233.8

 
507.8

 
446.3

Corporate and other
(51.5
)
 
(49.3
)
 
(98.2
)
 
(85.9
)
Other interest expense
(21.6
)
 
(21.3
)
 
(43.0
)
 
(42.9
)
Interest income

 
0.1

 
0.1

 
0.1

Other income, net
0.5

 
0.9

 
1.6

 
2.4

Income from continuing operations before income taxes
$
186.8

 
$
164.2

 
$
368.3

 
$
320.0

(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 95% of the new vehicles that we sold during the six months ended June 30, 2015, are manufactured by Toyota (including Lexus), Ford, Honda, Nissan, General Motors, Mercedes-Benz, FCA US (formerly Chrysler), 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 $180.5 million at June 30, 2015, and $198.3 million at December 31, 2014. 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 June 30, 2015, 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


15

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 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 debt is as follows:
 
June 30,
2015
 
December 31,
2014
Carrying value
$
1,030.1

 
$
1,018.4

Fair value
$
1,118.4

 
$
1,109.9


Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.

Goodwill and Other Intangible Assets
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting units under the two-step goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment as of April 30, 2015 and 2014, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts. Accordingly, no impairment charges were recorded for the carrying value of goodwill during the three and six months ended June 30, 2015 and 2014.
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of franchise rights impairment to determine whether it was necessary to perform a quantitative impairment test. We completed our qualitative assessment of any potential franchise rights impairment as of April 30, 2015 and 2014. Based on our qualitative assessments, we determined that we should perform a quantitative test for certain franchise rights, and no impairment charges resulted from these quantitative tests.
The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using Level 3 inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable. The development of the assumptions used in our annual impairment tests are coordinated by our financial planning and analysis group, and the assumptions are reviewed by management.


16

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

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. 
During the three and six months ended June 30, 2015, we recorded an impairment charge of $1.7 million related to long-lived assets held and used in continuing operations. The non-cash impairment charge is included in Other Expenses (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 and six months ended June 30, 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations.
During the three and six months ended June 30, 2015 and 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held for sale in continuing or discontinued operations. As of June 30, 2015, we had long-lived assets held for sale of $63.0 million in continuing operations and $23.2 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 consider all highly liquid investments with a maturity of three months or less as of the date of purchase to be cash equivalents unless the investments are legally or contractually restricted for more than three months. We had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of $21.2 million for the six months ended June 30, 2015, and $2.0 million for the six months ended June 30, 2014. We also had accrued purchases of property and equipment of $15.2 million at June 30, 2015 and $13.8 million at June 30, 2014. The effect of non-cash transactions is excluded from the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.
We made interest payments, including interest on vehicle inventory financing, of $68.2 million during the six months ended June 30, 2015, and $67.8 million during the six months ended June 30, 2014. We made income tax payments, net of income tax refunds, of $161.0 million during the six months ended June 30, 2015, and $140.6 million during the six months ended June 30, 2014.


17


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 June 30, 2015, we owned and operated 293 new vehicle franchises from 237 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 95% of the new vehicles that we sold during the six months ended June 30, 2015, are manufactured by Toyota (including Lexus), Ford, Honda, Nissan, General Motors, Mercedes-Benz, FCA US (formerly Chrysler), 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 June 30, 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.
For the six months ended June 30, 2015, new vehicle sales accounted for approximately 56% of our total revenue and approximately 20% of our total gross profit. Used vehicle sales accounted for approximately 24% of our total revenue and approximately 12% of our total gross profit. Our parts and service and finance and insurance operations, while comprising approximately 19% of our total revenue for the six months ended June 30, 2015, contributed approximately 67% of our total gross profit for the same period.

Results of Operations
Second Quarter 2015 compared to Second Quarter 2014
During the three months ended June 30, 2015, we had net income from continuing operations of $115.2 million or $1.00 per share on a diluted basis, as compared to net income from continuing operations of $100.7 million or $0.83 per share on a diluted basis during the same period in 2014.
First Six Months 2015 compared to First Six Months 2014
During the six months ended June 30, 2015, we had net income from continuing operations of $226.9 million or $1.97 per share on a diluted basis, as compared to net income from continuing operations of $196.2 million or $1.62 per share on a diluted basis during the same period in 2014. Results for the six months ended June 30, 2014, were favorably impacted by a net gain related to business/property dispositions of $8.1 million ($5.0 million after-tax), primarily related to the divestiture of our customer lead distribution business.
Market Conditions
In the second quarter of 2015, U.S. industry new vehicle unit sales increased 3.3% as compared to the second quarter of 2014, primarily driven by replacement demand. Based on industry data, the average age of cars and trucks in the United States is at a record high of 11.5 years compared to an average age of 9.8 years during the period from 2002 to 2007. Attractive products, continued access to affordable credit, and lower average fuel prices were also supportive of a strong selling


18


environment. We expect continued growth in new vehicle unit sales in 2015, with full-year 2015 U.S. industry new vehicle unit sales above 17 million. However, actual sales may materially differ.
During the three and six months ended June 30, 2015, the warranty component of our parts and service business continued to benefit from elevated manufacturer recall activity. Additionally, 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 is expected 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.
Strategic Initiatives
We have invested and will continue to invest significantly in the AutoNation retail brand with the goals of enhancing our strong customer satisfaction and expanding our market share. We are also investing significantly to build a seamless, end-to-end customer experience in our stores and through our digital channels, as well as to improve our ability to generate business through those channels. A portion of the expenses associated with these strategic initiatives have been and will be capitalized and amortized over future periods.
During the second quarter of 2015, we launched the sale of an AutoNation-branded extended service contract, the AutoNation Vehicle Protection Plan (the “AutoNation VPP”), in our Domestic and Import stores in certain markets. We expect that the rollout of the AutoNation VPP will be completed during the second half of 2015 and that finance and insurance revenue and gross profit will benefit from sales of the AutoNation VPP.
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 71,733 units in new vehicle inventory at June 30, 2015, 67,424 units at December 31, 2014, and 65,244 units at June 30, 2014
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. Our used vehicle inventory balance was net of cumulative write-downs of $3.3 million at June 30, 2015, and $3.3 million at December 31, 2014.
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 $3.7 million at June 30, 2015, and $3.5 million at December 31, 2014.

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.


19


Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it was necessary to calculate the fair values of our reporting units under the two-step goodwill impairment test. We completed our qualitative assessment of potential goodwill impairment as of April 30, 2015, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.
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.
Our franchise rights, which related to 46 stores and totaled $385.7 million at April 30, 2015, are evaluated for impairment on a franchise-by-franchise basis annually. We completed our annual qualitative assessment of potential franchise rights impairment as of April 30, 2015. Based on our qualitative assessment, we determined that we should perform a quantitative test for franchise rights related to seven stores, and no impairment charges resulted from these quantitative tests. Fair values of franchise rights are estimated by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable. If, hypothetically, the fair value of each of the franchise rights for these seven stores had been determined to be 10% lower as of the valuation date, the resulting aggregate pre-tax impairment charge would have been approximately $2.5 million (approximately $1.5 million after-tax). The quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store's franchise rights. Please see Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome.
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 June 30, 2015, we had long-lived assets held for sale of $63.0 million in continuing operations and $23.2 million in discontinued operations.
During the three and six months ended June 30, 2015, we recorded an impairment charge of $1.7 million related to long-lived assets held and used in continuing operations. The non-cash impairment charge is included in Other Expenses (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 and six months ended June 30, 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations.
During the three and six months ended June 30, 2015 and 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held for sale in continuing or discontinued operations.
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.


20


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 June 30,
 
Six Months Ended June 30,
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
 
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
$
2,967.8

 
$
2,736.9

 
$
230.9

 
8.4

 
$
5,737.4

 
$
5,165.5

 
$
571.9

 
11.1

Retail used vehicle
1,109.1

 
989.1

 
120.0

 
12.1

 
2,203.2

 
1,934.9

 
268.3

 
13.9

Wholesale
107.2

 
93.2

 
14.0

 
15.0

 
206.3

 
197.1

 
9.2

 
4.7

Used vehicle
1,216.3

 
1,082.3

 
134.0

 
12.4

 
2,409.5

 
2,132.0

 
277.5

 
13.0

Finance and insurance, net
217.7

 
185.4

 
32.3

 
17.4

 
425.3

 
357.8

 
67.5

 
18.9

Total variable operations(1)
4,401.8

 
4,004.6

 
397.2

 
9.9

 
8,572.2

 
7,655.3

 
916.9

 
12.0

Parts and service
777.8

 
704.8

 
73.0

 
10.4

 
1,521.2

 
1,375.8

 
145.4

 
10.6

Other
44.7

 
79.1

 
(34.4
)
 
 
 
75.1

 
120.9

 
(45.8
)
 
 
Total revenue
$
5,224.3

 
$
4,788.5

 
$
435.8

 
9.1

 
$
10,168.5

 
$
9,152.0

 
$
1,016.5

 
11.1

Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
$
166.1

 
$
161.6

 
$
4.5

 
2.8

 
$
327.6

 
$
307.5

 
$
20.1

 
6.5

Retail used vehicle
91.4

 
88.7

 
2.7

 
3.0

 
193.9

 
181.5

 
12.4

 
6.8

Wholesale
(0.3
)
 
0.6

 
(0.9
)
 
 
 
0.9

 
2.1

 
(1.2
)
 
 
Used vehicle
91.1

 
89.3

 
1.8

 
2.0

 
194.8

 
183.6

 
11.2

 
6.1

Finance and insurance
217.7

 
185.4

 
32.3

 
17.4

 
425.3

 
357.8

 
67.5

 
18.9

Total variable operations(1)
474.9

 
436.3

 
38.6

 
8.8

 
947.7

 
848.9

 
98.8

 
11.6

Parts and service
337.2

 
300.8

 
36.4

 
12.1

 
657.2

 
587.5

 
69.7

 
11.9

Other
7.0

 
7.8

 
(0.8
)
 
 
 
14.1

 
15.9

 
(1.8
)
 
 
Total gross profit
819.1

 
744.9

 
74.2

 
10.0

 
1,619.0

 
1,452.3

 
166.7

 
11.5

Selling, general, and administrative expenses
568.7

 
524.6

 
(44.1
)
 
(8.4
)
 
1,126.3

 
1,025.3

 
(101.0
)
 
(9.9
)
Depreciation and amortization
32.1

 
26.2

 
(5.9
)
 
 
 
60.8

 
51.8

 
(9.0
)
 
 
Other income, net
(3.8
)
 
(3.7
)
 
0.1

 
 
 
(5.1
)
 
(11.7
)
 
(6.6
)
 
 
Operating income
222.1

 
197.8

 
24.3

 
12.3

 
437.0

 
386.9

 
50.1

 
12.9

Non-operating income (expense) items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floorplan interest expense
(14.2
)
 
(13.3
)
 
(0.9
)
 
 
 
(27.4
)
 
(26.5
)
 
(0.9
)
 
 
Other interest expense
(21.6
)
 
(21.3
)
 
(0.3
)
 
 
 
(43.0
)
 
(42.9
)
 
(0.1
)
 
 
Interest income

 
0.1

 
(0.1
)
 
 
 
0.1

 
0.1

 

 
 
Other income, net
0.5

 
0.9

 
(0.4
)
 
 
 
1.6

 
2.4

 
(0.8
)
 
 
Income from continuing operations before income taxes
$
186.8

 
$
164.2

 
$
22.6

 
13.8

 
$
368.3

 
$
320.0

 
$
48.3

 
15.1

Retail vehicle unit sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
85,245

 
80,554

 
4,691

 
5.8

 
163,805

 
151,777

 
12,028

 
7.9

Used vehicle
57,370

 
52,656

 
4,714

 
9.0

 
115,994

 
104,792

 
11,202

 
10.7

 
142,615

 
133,210

 
9,405

 
7.1

 
279,799

 
256,569

 
23,230

 
9.1

Revenue per vehicle retailed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
$
34,815

 
$
33,976

 
$
839

 
2.5

 
$
35,026

 
$
34,033

 
$
993

 
2.9

Used vehicle
$
19,332

 
$
18,784

 
$
548

 
2.9

 
$
18,994

 
$
18,464

 
$
530

 
2.9

Gross profit per vehicle retailed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
$
1,949

 
$
2,006

 
$
(57
)
 
(2.8
)
 
$
2,000

 
$
2,026

 
$
(26
)
 
(1.3
)
Used vehicle
$
1,593

 
$
1,685

 
$
(92
)
 
(5.5
)
 
$
1,672

 
$
1,732

 
$
(60
)
 
(3.5
)
Finance and insurance
$
1,526

 
$
1,392

 
$
134

 
9.6

 
$
1,520

 
$
1,395

 
$
125

 
9.0

Total variable operations(2)
$
3,332

 
$
3,271

 
$
61

 
1.9

 
$
3,384

 
$
3,300

 
$
84

 
2.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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.



21


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015 (%)
 
2014 (%)
 
2015 (%)
 
2014 (%)
Revenue mix percentages:
 
 
 
 
 
 
 
New vehicle
56.8
 
57.2
 
56.4
 
56.4
Used vehicle
23.3
 
22.6
 
23.7
 
23.3
Parts and service
14.9
 
14.7
 
15.0
 
15.0
Finance and insurance, net
4.2
 
3.9
 
4.2
 
3.9
Other
0.8
 
1.6
 
0.7
 
1.4
Total
100.0
 
100.0
 
100.0
 
100.0
Gross profit mix percentages:
 
 
 
 
 
 
 
New vehicle
20.3
 
21.7
 
20.2
 
21.2
Used vehicle
11.1
 
12.0
 
12.0
 
12.6
Parts and service
41.2
 
40.4
 
40.6
 
40.5
Finance and insurance
26.6
 
24.9
 
26.3
 
24.6
Other
0.8
 
1.0
 
0.9
 
1.1
Total
100.0
 
100.0
 
100.0
 
100.0
Operating items as a percentage of revenue:
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
New vehicle
5.6
 
5.9
 
5.7
 
6.0
Used vehicle - retail
8.2
 
9.0
 
8.8
 
9.4
Parts and service
43.4
 
42.7
 
43.2
 
42.7
Total
15.7
 
15.6
 
15.9
 
15.9
Selling, general, and administrative expenses
10.9
 
11.0
 
11.1
 
11.2
Operating income
4.3
 
4.1
 
4.3
 
4.2
Operating items as a percentage of total gross profit:
 
 
 
 
 
 
 
Selling, general, and administrative expenses
69.4
 
70.4
 
69.6
 
70.6
Operating income
27.1
 
26.6
 
27.0
 
26.6
 
 
 
 
 
 
 
June 30,
 
 
 
2015
 
2014
 
 
 
 
Days supply:
 
 
 
 
 
 
 
New vehicle (industry standard of selling days)
63 days
 
59 days
 
 
 
 
Used vehicle (trailing calendar month days)
36 days
 
36 days
 
 
 
 
 
 
 
 
 
 
 
 



22


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.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions, except per vehicle data)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
 
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle
$
2,866.7

 
$
2,723.2

 
$
143.5

 
5.3

 
$
5,558.7

 
$
5,138.2

 
$
420.5

 
8.2

Retail used vehicle
1,069.0

 
982.9

 
86.1

 
8.8

 
2,129.8

 
1,922.5

 
207.3

 
10.8

Wholesale
105.1

 
92.9

 
12.2

 
13.1

 
202.5

 
196.6

 
5.9