2011 ANNUAL REPORT
AMERICA’S
LARGEST
AUTO
RETAILER
The Future of Auto Retailing
Letter to
“In the same way that AutoNation is
not your typical auto retailer, this report
is not your typical end-of-year recap.
We’re going to talk about what makes
AutoNation run - how we successfully
laid the groundwork for an industry-leading
company, how we’ve executed a strategy
that’s changing what it means to buy and own
vehicles. We continue to set standards that
all other retailers measure themselves by.
But even more than that, it’s about how a
talented team with vision and tenacity can
achieve unprecedented results on an
unprecedented scale.”
After 41 years in the automobile business, I’ve seen it all from every level – back shop, showroom
floor, Mercedes-Benz dealership, corner office – and I can say I have never been more optimistic
about where it is headed than I am today. The U.S. economy is improving, consumers are
becoming more confident, and sales are going up. The vehicles we sell are more reliable, enjoy
better fuel economy, and are made with higher quality than ever before; faster design changes, as
well as new safety and convenience electronics, are energizing customers. These are good times.
Shareholders
Luck is what happens when preparation meets opportunity, and thanks to strategic decisions we
have been implementing for over a decade, AutoNation – the nation’s largest auto retailer with
258 franchises in 215 stores at the end of 2011 – is uniquely positioned to benefit from the lifting
of the economic clouds by building on our extraordinary performance in 2011. We reported record
EPS (earnings per share) and made progress toward building the digital dealership of the future.
Barring unforeseen calamities, such as the earthquake and tsunami that struck Japan with such
tragic impacts a year ago, I am optimistic that when I write this letter a year from now, I will be
able to report an increasingly bright sales picture and the continued rollout of our industry-
leading efforts to make every phase of car and truck ownership a customer-pleasing experience.
Historically, the auto business has followed the ups and downs of the economy, but at AutoNation
we are not waiting around for the next wave of buyers to wash in; we are erecting a corporate
culture and technology infrastructure that is built to last. Our goal is to hire the best people, train
them in our own facilities, use best practices across all our dealerships, and make our interactions
with customers simpler and more transparent. It hasn’t always been easy, I can assure you. Auto
retailing is more than a century old and ingrained practices are hard to change. There is still hard
work ahead. But I am convinced that your company is developing a sustainable advantage that
will be difficult for any competitor to duplicate within the foreseeable future.
Why am I so confident? Part of it has to do with our record. Here’s one set of numbers that can
serve as a starting point. The best test of corporate success is long-term return to shareholders
and here your company has excelled. We calculated the cumulative total stockholder return on
our common stock for the last five years, from December 31, 2006 through December 31, 2011,
and compared it with the performance of the Standard & Poor’s 500 Index and our peer group
consisting of other public auto retailers. While the S&P declined slightly over that period and the
return of the peer group was essentially flat, AutoNation produced a return of 73%.
AutoWay Ford, St. Petersburg, FL
FIN ANCI AL HIGHLIGHTS
(in millions except units sold)
Total Assets
Long-term Debt
Shareholders’ Equity
Shares Outstanding
Revenue
Operating Income
FYE
2009
$5,407
$1,105
$2,303
172
$10,666
$408
FYE
2010
$5,974
$1,341
$2,079
148
$12,461
$497
Total Retail Units Sold (New & Used)
316,150
366,582
FYE
2011
$6,199
$1,634
$1,895
136
$13,832
$572
395,128
Audi Westmont, Westmont, IL
Despite partisan divisions, budget worries and threats from abroad, America is still a great place
to do business. To paraphrase Winston Churchill, the U.S. economy looks weak until you look at
all the others. Europe appears to be heading into a second recession and China is cooling off at
the same time that the U.S. is adding jobs and growing GDP. The Detroit Three are healthy again
and profitable despite historically low industry sales levels, and have wisely given up their self-
destructive practice of production push. Building more cars than they could sell without enormous
incentives, as I have stated many times, was like a vampire sucking blood out of the industry.
Regrettably, it took the bankruptcy of General Motors and Chrysler to bring them to their senses.
Based on the numbers, you can’t help but be excited about the prospects for the auto business.
We expect U.S. industry new vehicle sales to reach 14 million units in 2012, up from 12.7 million last
year, and even higher sales look likely in the following years. The average age of the auto fleet is
now 10.8 years old and even though cars and trucks last longer these days, they can’t go on forever.
Some 12 million to 13 million vehicles are scrapped every year and need to be replaced. Another one
to two million sales over the next few years will be driven by the expected formation of a million
new households each year. I expect changing fashions will also play a role in accelerating activity.
New models stimulate sales and automakers are making over their fleets more frequently – now at
the rate of 25% a year. A few years ago, the redesign rate was often at an average of 15%.
In addition, auto financing is more available than it has been in recent years. Capital is abundant,
money is available, and car buyers are a good credit risk. A little known fact is that people are more
likely to default on a mortgage than they are on a vehicle loan. The reason is they can usually
find another place to sleep but they always need transportation. Leasing has returned to more
responsible levels, and represents 20% or so of sales.
The results we reported for 2011 show that we are well-positioned to benefit from the rebounding
market. We retailed approximately 400,000 new and used vehicles through our stores in 2011 vs.
approximately 367,000 in 2010, and those sales were quite profitable. A new vehicle that we sold
in 2011 delivered an average of $33,472 in revenue and produced $2,445 in gross profit, up 12%
from the prior year. New car sales have a domino effect; they generate trade-ins we can resell as
The Future of Auto Retailing
used cars, purchases of financing plans and extended warranties, and service business. All helped
contribute to our record performance in 2011, as our EPS from continuing operations rose 30%.
AutoNation reported net income from continuing operations of $284 million, or $1.93 per share. We
also reported buying back 17.1 million shares of our own stock during the year.
AutoNation’s portfolio strategy has been consistent for a decade: We believe in market density.
Our goal is to represent every major brand in the markets where we operate. We are not looking
to move into new markets; we have a preference in maintaining our existing footprint, for reasons
that I will explain shortly. We also believe in brand balance. We want one-third of our business to
represent domestic brands, one-third leading import brands, and one-third premium luxury – mostly
German makes. We don’t want to tilt one way or the other.
I am pleased to say that a few established firms who share our long-term vision hold the majority of
our stock. This has been a tremendous benefit: to have long-term shareholders.
ESL Investments, Inc., the investment firm of Edward Lampert, became AutoNation’s largest
shareholder in 2001 when it established a 24% stake in the company, and today it owns 53% of
our common stock. William C. Crowley, president and COO of ESL Investments has served as a
director since January 2002. Michael Larson, another director, is Bill Gates’ chief investment officer.
Cascade Investment L.L.C., solely owned by Gates, currently holds 12% of our stock, while the Bill &
Melinda Gates Foundation Trust owns another 2%. These holdings combined with the holdings of
management and the board represent 68% of AutoNation common stock.
To the consumer who has lots of brands and stores to choose from, we make a straightforward
proposition: we provide added value. Our customers are time-constrained; we want them to enjoy
the process of buying and servicing a vehicle. Other retailers like Nordstrom and Target have
learned how to make shopping pleasant and it is time the auto business did, too. I don’t want to
hear any more comments that compare shopping for a new car with trips to the dentist. Auto
retailers like to think of themselves as different because their product is complicated and emotional
but their business isn’t an island. The customer has been empowered by the Internet and we
have to build on that. To do so, we are using best practices across all our stores and brands to put
control in the hands of the consumer and remove any variables. As Warren Buffett says, “We can
afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of
reputation.”
Honda of Dulles, Sterling, VA
AutoNation is now reaping a return on investments we began making 12 years ago. When I
joined the company as CEO in 1999, I had a vision for the kind of enterprise I wanted to build
– one that would use technology to create a new ownership experience for customers and
enable new efficiencies for our operations. It has been a long haul that requires work from the
ground up. You don’t build a new corporate culture with wall posters and pep rallies. With Mike
Maroone, my longtime partner and president and chief operating officer who grew up around
the auto business from the age of five, we redefined the car-buying business.
We spent my first three years on the road evaluating 350 of the company’s key executives.
We were looking for managers who combined the skill and energy of an entrepreneur with
the ability to operate within the structure of a publicly-owned corporation. Traditionally, auto
retailing has been populated by dealers who were good at cutting deals, but sometimes took
shortcuts and operated on the other side of the tracks. I wanted people with the highest
integrity and ethics who were more interested in processes than transactions, and wanted
to be part of something big. And oh, by the way, they had to be passionate about the auto
business. It’s demanding, competitive, and the hours are long – you have to love it to be the
best at it.
Back in 2000, as I dug into my personnel review, I discovered that only 50% of our managers
fit our profile or had the potential to change. 50% did not, including a few top producers. Most
of them had to be separated from the company, which produced a collective outcry from the
survivors. It was a moment of truth, but there is no room in our organization for solo acts. The
entire process took six years and has been the foundation of the culture we have today. One
thing in our favor was that AutoNation presented a unique opportunity for industry professionals
with the right skill set.
Our next big task was to change the relationship between manufacturers and retailers. Nobody
dictates to Wal-Mart how they are going to take orders, ship product, and collect payment, but
that’s how the automakers operated. Factories ran just-in-time production, but distribution was
order-and-wait. They wouldn’t allow us to integrate our inventory management and ordering
system with their production systems, so paperwork clogged the works and market intelligence
turned stale. We waited over three months to get some deliveries. That purple sedan with
whitewall tires parked in back of the lot? That came from a manufacturer who reacted too late to
changed customer preferences. The only way to bridge the gap between unsuitable product and
a resistant customer when that kind of mismatch occurs is by lowering the price. Today we have a
proprietary sales forecasting and inventory management system.
With our suppliers on board and our management team in place, we began a long-term effort
to put information technology to work enhancing customer relationships and improving
productivity. High on our list of goals is to enable a customer to buy a vehicle, make a trade,
and complete the process before taking delivery at a retailer. It has so far taken seven years
and it has been expensive – we have some 180 people working in IT – but we couldn’t have
afforded it without our scale. When we are done, we will have a capability that is enjoyed by no
one else, and because of our size, it will be very difficult to duplicate.
We have begun to develop AutoNation Direct, our vision for the future. Using a computer
or a smartphone, customers will be able to shop for a vehicle by make and model, lifestyle,
and functionality. With our Smart Choice program, they already get an easy-to-understand
sales menu that lists the purchase price, suggests financing options and calculates monthly
payments. Standardizing a process like this hasn’t been easy. Last year, we had to incorporate
tens of thousands of vehicle incentive programs into our pricing model.
The Future of Auto Retailing
Team Nissan, Marietta, GA
AutoNation’s strategy has been
consistent and it is one that we
have followed for a decade: We
believe in market density. Our goal
is to represent every major brand
in the markets where we operate.
The Future of Auto Retailing
House of Imports, Buena Park, CA
As they begin to narrow their choices, customers will be able to start to take advantage of
AutoNation’s unique scale. Customers today have begun to shop by vehicle type. They may want
to look at prices and features for half-a-dozen small crossovers from different manufacturers. In
most cases, that would require visiting multiple websites or multiple retailers. But AutoNation is
able to offer one-stop shopping. Remember what I said about market density? We concentrate
our stores in 15 selected markets where we represent as many as 32 brands. That means
customers can, say, compare a Toyota Camry with a Ford Fusion.
There’s more. With AutoNation Direct, buyers will be able to identify an actual vehicle on a
retailer lot, schedule a test drive, value a trade-in, and then negotiate a price. By utilizing
market price data from third party sources like Edmunds.com and Kelley Blue Book, we have
greatly narrowed the potential bandwidth for bargaining and simplified the process. After
the sale is completed, our digital connection with the customer will remain in place. Owners
will receive electronic reminders about scheduled service and get assistance in making
appointments. While their car or truck is in the shop, we can communicate with them on
work to be completed.
Traditional bazaar-style haggling has a limited future in the showroom of tomorrow. Deals will
no longer be taken into the back room for some sharp-pencil calculations. We would like to see
our sales associates follow the example of Apple stores and become our resident “geniuses.”
Digitizing the sales process will pay big dividends in the back office as well. We have already
centralized store level accounting at our Shared Services Center in Irving, Texas and lifted a heavy
burden of paperwork and data entry. Government regulations make buying a car complicated and
the average deal generates 65 different pages. Instead of the retailer inputting the data multiple
times, we can scan all of the forms and store the data in a central location. We started rolling out
Shared Services in the Texas region in 2004 and will have it in place for our entire network by 2013.
It has already provided us with a valuable cache of data and cut our accounting costs significantly.
Our new digital capabilities will also help us monitor activities at the retailer level. Individual
general managers will be able to watch all the critical functions of their stores – new and used
vehicle sales, finance and insurance, service and parts – on a real-time basis and compare their
performance to prior periods day-by-day. They can also measure individual employees on their
productivity. We call it the Daily Tracker, and it will be in place at all our stores by the end of 2013.
Our store-based system for cars and trucks has served us well over the years. But like
everything else, the system can be improved. We believe we have put in place an industry-
leading infrastructure for engaging and satisfying customers that will not only serve our
company well but also will be very difficult for our competitors to duplicate. We thank you for
your support over the past year and we hope to continue to deliver outstanding performance as
the largest and most profitable auto retailer in the United States.
Mike Jackson
Chairman and Chief Executive Officer
March 15, 2012
Dealership
Land Rover of Encino, Encino, CA
Operations
Success in the auto retail business means focusing on the big picture while not
losing sight of the details. We want to delight our customers and improve our
operating efficiency by using best practices across our industry-leading scale. That
means everything from replacing new model brochures on glossy paper with digital
ones to adopting a web-based customer relationship tool to facilitate a better
understanding of our showroom traffic activity.
Our efforts are paying off. In 2011 AutoNation customers got access to the largest
system-wide inventory of new cars anywhere – 44,000 at the end of 2011 – as
they shifted towards domestic and premium luxury brands in the wake of natural
disasters that disrupted the supply coming from Japan. U.S. new vehicle sales in
2011 remained historically low, reaching only 12.7 million. In 2011 we were able to
increase our unit sales of new vehicles over a year ago, as well as our new vehicle
revenue and gross profit.
Availability of low-mileage used vehicles tightened due to the depressed levels of
new vehicle sales over the last three years. We attacked the shortage by attracting
more trade-ins, as well as by accelerating our reconditioning processes to move
vehicles quickly to the front of the sales lot. Using our web-based vehicle inventory
management system, we optimized our supply, mix, and pricing on a market-by-
market basis. The combination of efforts enabled us to boost our used vehicle
revenue and gross profit over 2010.
Customers come to us for financing and insurance coverage because we make the
purchase process transparent and easy. The availability of funds for auto loans
increased in 2011 as rates declined and defaults remained low. The impact on our
business was favorable. Our finance and insurance revenue and gross profit per
vehicle retailed both increased, due in part to more customers financing vehicles
and an increase in the amounts they financed per transaction.
The improved quality of vehicles manufactured in recent years means that our
Customer Care service departments can focus less on making individual repairs
and more on building relationships. We want customers to stay with us through the
entire service life of their vehicles. We are encouraging them to come in for regular
maintenance items like oil changes and tire changes, and we are staying in touch by
digitizing our customer scheduling and record-keeping with our MyGarage online
tool. Our goal is to make the service appointment a pleasure, not a chore.
Company
AutoNation Executive Team
(from left):
Jon Ferrando, Executive Vice
President, General Counsel &
Secretary
Mike Short, Executive Vice
President & Chief Financial Officer
Mike Jackson, Chairman,
Chief Executive Officer
Michael E. Maroone, Director,
President & Chief Operating Officer
Mini of Dallas, TX
Mike Jackson and H. Wayne
Huizenga, AutoNation’s founder,
at Wayne’s induction to the
Automotive Hall of Fame.
History Through the Years
1996: AutoNation business founded, acquired first franchise.
1999: Mike Jackson becomes CEO and focuses on integrating new vehicle
franchises. AutoNation announces spin off of its rental business, closes
the used megastores, and streamlines corporate headquarters.
AutoNation ramps up its share buyback program. Over the next 13 years,
AutoNation will invest $6 billion and reduce its outstanding shares from
458 million shares to 136 million.
2001: ESL Investments, Inc. becomes AutoNation’s largest shareholder by
establishing a 24% stake. Within ten years, it will grow to 51%.
2003: AutoNation added to S&P 500 Index, confirming the important role
auto retailers play in the U.S. economy.
2004: Taking the lead among automotive retailers, AutoNation unveils
“The AutoNation Pledge,” which provides industry leading disclosures
to customers regarding financing products and extended warranties.
2006: AutoNation launches GM University, an industry-leading leadership
training and development program for general managers. Curricula
will later be developed for service and used vehicle managers.
After testing in South Florida, Smart Choice is rolled out nationwide.
AutoNation customers are provided with a one-page sales menu that
includes the vehicle price, trade-in value, financing options, and monthly
payments, thereby eliminating the necessity to negotiate all three
portions of the transaction separately.
2007: AutoNation introduces the fuel-efficient E-Vehicles Program.
2009: Mike Jackson, Mike Maroone and founder H. Wayne Huizenga named by
Automotive News as 3 of the 50 visionary dealers of all time.
2010: AutoNation becomes first auto retailer to publicly report monthly new
vehicle unit sales.
2011: AutoNation celebrates sale of its eight millionth vehicle.
After completing our most recent acquisition, a Toyota store in Fort Myers,
Florida, and opening six more dealerships awarded by manufacturers,
AutoNation now owns and operates 258 new vehicle franchises in
215 stores selling 32 different brands of new vehicles.
AutoNation stock closes at an all-time high of $40.93 on August 29, 2011.
Mike Jackson named one of Fortune Magazine’s Top 50 Global Business
Leaders.
AutoNation
Innovation
Direct
AutoNation Direct was started with a simple mission: create a means of researching,
locating, and purchasing a vehicle from your home or office without the usual
hassle. Buying a vehicle online is not like buying a book or DVD. Autos represent
an emotional purchase of a big, physical object with an average transaction price of
$32,000, and transactions have a lot of moving parts. AutoNation Direct is helping
us to learn how to manage all of this in a digital environment. Our goal is to create a
seamless buying experience for the customer, regardless of whether the customer is
shopping online or off. Customers like the process.
Today, AutoNation Direct is working primarily with affinity groups like credit unions
and employee groups. AutoNation Direct generated sales of 6,448 cars and trucks in
2011, up 24% from 2010. Two-thirds of the volume came from new vehicles and one-
third used. Nearly 40% of the transactions involved a trade, with a price that was
obtained through an online process. We expect volume in online shopping to continue
to grow because it is friendly and efficient.
When a potential buyer contacts AutoNation Direct, he or she typically gets a
follow-up phone call within minutes from a First Responder who directs the buyer
to a Personal Auto Consultant with access to our entire inventory of new and used
vehicles across all brands. Our consultants are service-oriented; some have been
managers in restaurant, banking or online businesses and most have no dealership
experience. Using our proprietary pricing tool, the consultant can negotiate an exact
price online for the vehicle the customer chooses. The customer can also secure
financing for the purchase, and even pull the vehicle from inventory and set it aside.
Most vehicle deliveries are made the same day. We get a lot of happy customers.
When we asked them how they liked AutoNation Direct, 98% of those responding
said they would recommend it to a friend.
Market Brands
Go
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2011
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
(State or other jurisdiction of
incorporation or organization)
200 SW 1st Ave
Fort Lauderdale, Florida
(Address of principal executive offices)
73-1105145
(I.R.S. Employer Identification No.)
33301
(Zip Code)
(954) 769-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $0.01 Per Share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
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
No
Indicated 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 new registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2011, the aggregate market value of the common stock of the registrant held by non-affiliates was approximately $1.4 billion based on
the closing price of the common stock on the New York Stock Exchange on such date (for the purpose of this calculation only, the registrant assumed
that each of its directors, executive officers, and greater than 10% stockholders was an affiliate of the registrant as of June 30, 2011).
As of February 8, 2012, the registrant had 131,921,417 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2012 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the
end of the fiscal year ended December 31, 2011 are incorporated herein by reference in Part III.
AUTONATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
INDEX
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits, Financial Statement Schedules
PART IV
Page
1
12
18
19
19
19
20
22
23
55
56
96
96
96
97
97
97
97
97
98
ITEM 1. BUSINESS
General
PART I
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31,
2011, we owned and operated 258 new vehicle franchises from 215 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. Our stores, which we believe are some of the most recognizable and
well-known stores in our key markets, sell 32 different brands of new vehicles. The core brands of vehicles that we sell,
representing approximately 90% of the new vehicles that we sold in 2011, are manufactured by Ford, Toyota, Nissan,
General Motors, Honda, Mercedes-Benz, BMW, and Chrysler.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, parts and
automotive repair and maintenance services (also referred to as “parts and service”), and automotive finance and insurance
products (also referred to as “finance and insurance”), which includes the arranging of financing for vehicle purchases
through third-party finance sources. The following charts present the contribution to total revenue and gross profit by each
of new vehicle sales, used vehicle sales, parts and service, and finance and insurance in 2011.
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 our market brands and advertising, improving asset
management, implementing standardized processes, and increasing productivity across all of our stores.
We were incorporated in Delaware in 1991. 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 store operations
are conducted by our subsidiaries.
Operating Segments
As of December 31, 2011, we had three operating segments: Domestic, Import, and Premium Luxury. Our Domestic
segment is comprised of retail automotive franchises that sell new vehicles manufactured by General Motors, Ford, and
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, and Lexus. The franchises in each segment also sell used
vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products. For the
year ended December 31, 2011, Domestic revenue represented 34% of total revenue, Import revenue represented 37% of
total revenue, and Premium Luxury revenue represented 28% of total revenue. For additional financial information
regarding our three operating segments, please refer to Note 20 of the Notes to Consolidated Financial Statements set forth
in Part II, Item 8 of this Form 10-K.
1
Except to the extent that differences among operating segments are material to an understanding of our business taken as
a whole, the description of our business in this report is presented on a consolidated basis.
Business Strategy
We seek to be the best-run, most profitable automotive retailer in the nation. The foundation of our business model is
operational excellence, with a focus on developing and maintaining satisfied relationships with our customers. In order to
achieve and sustain operational excellence, we are pursuing the following strategies:
•
•
•
•
Create an industry-leading automotive retail consumer experience
Leverage our significant scale and cost structure to improve our operating efficiency
Leverage information technology to enhance customer relationships and improve productivity
Build powerful local brands while also building consumer awareness of the AutoNation brand
We have a well-diversified brand portfolio. In 2011, approximately 39% of our new vehicle revenue was generated by
Import franchises, approximately 28% by Premium Luxury franchises, and approximately 33% was generated by Domestic
franchises. While we will continue to look for acquisition and new store opportunities that meet our market and brand
criteria and return on investment threshold, we do not expect significant shifts in our overall store mix in 2012.
A key component of our long-term strategy is to maximize the return on investment generated by the use of cash flow
that our business generates, while maintaining a strong balance sheet. We expect to use our cash flow to make capital
investments in our business, to complete dealership acquisitions, and to repurchase our common stock and/or debt. 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 acquisitions that meet our market and brand criteria and return on investment
threshold, and limitations set forth in our debt agreements. For additional information regarding our capital allocation
strategy, please refer to “Liquidity and Capital Resources – Capital Allocation” in Part II, Item 7 of this Form 10-K.
Finally, we believe that our business benefits from diverse revenue streams generated by our new and used vehicle sales,
parts and service business, and finance and insurance sales. Our higher-margin parts and service business has historically
been less sensitive to macroeconomic trends as compared to new vehicle sales.
Create an Industry-Leading Automotive Retail Consumer Experience
One of our goals is to provide an industry-leading retail consumer experience at our stores in order to build customer
loyalty to our brand. The following practices and initiatives support an enhanced customer retail experience:
•
•
Improving Customer Service: The success of our stores depends in significant part on our ability to deliver
positive experiences to our customers, which generate recurring and referral business. We have developed and
implemented standardized, customer-friendly sales and service processes, including a customer-friendly sales
menu designed to provide clear disclosure of purchase or lease transaction terms. We also offer our customers a
limited-mileage, money-back guarantee on both our new and used vehicles as an indication of our commitment to
their satisfaction. We believe these policies improve the sales and service experiences of our customers. We
emphasize the importance of customer satisfaction to our key store personnel by basing a portion of their
compensation on the quality of customer service they provide in connection with vehicle sales and service.
Increasing Parts and Service Sales: One of our goals is to have our customers bring their vehicles to our stores
for all of their vehicle service, maintenance, and collision needs. Our key initiatives for our parts and service
business are focused on optimizing our processes, pricing, and promotion, thus improving customer retention.
Across all of our stores, we have implemented standardized service processes and marketing communications,
which offer the complete range of vehicle maintenance and repair services and are focused on increasing our
customer-pay service, collision, and parts business. As a result of our significant scale, we can communicate
effectively with our customers. We optimize our pricing to maintain a competitive offering for commonly-
performed vehicle services and repairs for like-brand vehicles within each of our markets.
2
•
Increasing Finance, Insurance, and Other Aftermarket Product Sales: We continue to improve our finance and
insurance business by using our standardized processes across our store network. One of our goals is to improve
customer retention after the sale of the vehicle through our finance and insurance products. Our customers are
presented with the “AutoNation Pledge,” which provides clear disclosure relating to the finance and insurance
sales process, and with a customer-friendly finance and insurance menu, which is designed to ensure that we offer
our customers the complete range of finance, insurance, protection, and other aftermarket products in a transparent
manner. We offer our customers aftermarket products such as extended service contracts, maintenance programs,
theft deterrent systems, and various insurance products. We continue to focus on optimizing the mix of financing
sources available to promote vehicle sales and improve the customer experience.
Leverage Our Significant Scale and Cost Structure to Improve our Operating Efficiency
We leverage our scale as the largest automotive retailer in the United States to drive significant cost savings in our
business. The following practices and initiatives reflect our commitment to leveraging our scale and managing cost:
•
•
•
•
Managing New Vehicle Inventories and Optimizing New Vehicle Pricing: We manage our new vehicle
inventories to optimize our stores’ supply and mix of vehicle inventory. Through the use of our planning and
tracking systems in markets where our stores have critical mass in a particular brand, we view new vehicle
inventories at those same brand stores in the aggregate and coordinate vehicle ordering and inventories across
those stores. We manage our new vehicle inventory to achieve specific days supply targets in order to support
sales volumes. We also target our new vehicle inventory purchasing to our core, or highest-volume, model
packages. We are focused on maintaining appropriate inventory levels in order to minimize carrying costs. We
believe our inventory management enables us to (1) respond to customer requests better than independent
automotive retailers, (2) minimize carrying costs by optimizing days supply, and (3) better plan and forecast
inventory levels. See also “Inventory Management” in Part II, Item 7 of this Form 10-K. Further, during 2011 we
implemented a pricing strategy across our store portfolio that included the deployment of a proprietary pricing
tool to capture various market pricing metrics and establish target and floor prices.
Increasing Used Vehicle Sales and Managing Used Vehicle Inventories: Each of our stores offers a variety of
used vehicles. As the largest retailer of new vehicles, we believe that we have superior access to desirable used
vehicle inventory. We are also able to realize the benefits of vehicle manufacturer-supported certified pre-owned
vehicle programs, which are typically more profitable than our non-certified used vehicle sales. Our used vehicle
business strategy is focused on (1) utilizing our web-based vehicle inventory management system to optimize our
supply, mix, and pricing, (2) leveraging our used vehicle inventory to offer our customers a wide selection of
desirable lower-cost vehicles, which are often in high demand by consumers, and (3) leveraging our scale with
comprehensive used vehicle marketing programs, such as market-wide promotional events and standardized
approaches to advertising that we can implement more effectively than smaller automotive retailers because of our
size. We have deployed used vehicle specialists in each of our key markets to assist us in executing our strategy.
Centralizing Store Back-Office Operations in Our Shared Services Center: We have centralized key store-level
accounting and administrative activities in our Shared Services Center located in Irving, Texas. The initial or
“core” phase included the centralization of basic accounting functions. We have implemented the core phase in
substantially all of our stores. In the “extended” phase, we are transferring additional accounting responsibilities,
including the accounting for vehicle sales, lien payoffs, receipt of vehicles, floorplan transactions, and
manufacturer payables, as well as certain other reconciliation processes. We have substantially implemented the
extended phase in 156 of our 215 stores as of December 31, 2011, and we plan to implement the extended phase
in substantially all remaining stores in 2012. By shifting these functions from the stores to the Shared Services
Center, we have improved financial controls and lowered servicing costs. We also believe that the standardization
of these processes across our stores improves the customer experience.
Increasing Employee Productivity: Our compensation and employee training programs drive productivity
through standardized operating practices. Our standardized compensation guidelines and common element pay
plans at our stores take into account our sales volume, customer satisfaction, gross margin objectives, vehicle
brand, and store size. Our goals related to compensation are to improve employee productivity, to reward and
retain high-performing employees, and to ensure appropriate variability of our compensation expense. Further, our
customized comprehensive training program for key store employees facilitates standardized operating practices
3
and policies across all of our stores. Our training program educates our key store employees about their respective
job roles and responsibilities, applicable laws and regulations, and our standardized processes in all of our areas of
operation, including sales, finance and insurance, and parts and service. We also require all of our employees,
from our senior management to our technicians, to participate in our Business Ethics Program. In addition, we run
several AutoNation University programs for our general managers and sales and service managers and associates
to develop leadership skills and to ensure consistent execution of our practices and policies. We expect our
comprehensive training program to improve our productivity by ensuring that all of our employees consistently
execute our business strategy and manage our daily operations in accordance with our common processes and
policies, applicable laws and regulations, and our high standards of business ethics.
•
Managing Costs: We actively manage our business and leverage our scale to reduce costs. We continue to focus
on developing national vendor relationships to standardize our stores’ approach to purchasing certain equipment,
supplies, and services, and to improve our cost efficiencies. For example, we realize cost efficiencies with respect
to advertising and facilities maintenance that are generally not available to smaller automotive retailers.
Leverage Information Technology to Enhance Customer Relationships and Improve Productivity
We use a web-based customer relationship management tool across all of our stores, which enables us to promote and
sell our vehicles and other products more effectively by facilitating better understanding of our customer traffic flows and
better management of our showroom sales processes and customer relationships. We have developed a company-wide
customer database that captures information on our stores’ existing and potential customers. We believe our customer
database enables us to implement more effectively our vehicle sales and service marketing programs. We expect our
customer database and other tools to empower us to implement our customer relationship strategy more effectively and
improve our productivity.
We also use the Internet to acquire and develop customer leads and referrals. Our website facilitates consumer research
about vehicle purchases, including vehicle specifications and financing options. In addition, we are focused on connecting
with our customers through social media websites, such as Facebook, Twitter, and YouTube. See “Sales and Marketing”
below.
Build a Powerful Local Brand in Each of Our Markets While Also Building Consumer Awareness of the AutoNation
Brand
In many of our key markets where we have significant presence, we are marketing our non-premium luxury stores under
a local retail brand. We continue to position these local retail brands to communicate to customers the key features that we
believe differentiate our stores in our branded markets from our competitors, such as the large inventory available for
customers, our sales, service, and finance and insurance standardized processes, and the competitive pricing we offer for
widely available vehicle repair services. We believe that this consolidated local market strategy enables us to achieve
marketing and advertising cost savings and efficiencies that generally are not available to many of our local competitors.
We also believe that we can create strong retail brand awareness in our markets.
Further, through our website, store signage, and media presence, we are creating consumer awareness of the AutoNation
brand. Our goal is that our customers will increasingly associate their local dealership not only with the local-market brand,
but also with the national AutoNation brand.
We have fifteen local brands in our key markets, including “Maroone” in South Florida; “GO” in Denver, Colorado;
“AutoWay” in Tampa, Florida; “Bankston” in Dallas, Texas; “Courtesy” in Orlando, Florida; “Desert” in Las Vegas,
Nevada; “Team” in Atlanta, Georgia; “Mike Shad” in Jacksonville, Florida; “Dobbs” in Memphis, Tennessee; “Fox” in
Baltimore, Maryland; “Mullinax” in Cleveland, Ohio; “Appleway” in Spokane, Washington; “Champion” in South Texas;
“Power” in Southern California and Arizona; and “AutoWest” in Northern California. The stores we operate under these
local retail brands as of December 31, 2011, accounted for approximately 69% of our total revenue during 2011.
4
Operations
As of December 31, 2011, we operated stores in the following states:
State
Florida
Texas
California
Colorado
Arizona
Nevada
Georgia
Washington
Illinois
Tennessee
Ohio
Minnesota
Virginia
Maryland
Alabama
Total
Number of
Stores
Number of
Franchises
58
34
36
17
13
10
10
12
5
7
4
1
2
4
2
215
66
42
43
24
15
11
11
19
5
8
4
1
2
5
2
258
% of Total
Revenue (1)
27
20
19
7
5
4
4
3
3
3
1
1
1
1
1
100
(1) Revenue by state includes non-store activities, such as collision centers, e-commerce activities, and an
auction operation.
The following table sets forth information regarding new vehicle revenues and retail new vehicle unit sales for the year
ended, and the number of franchises owned as of, December 31, 2011:
New Vehicle
Revenues
(in millions)
Retail
New Vehicle
Unit Sales
% of Total
Retail New
Vehicle
Units Sold
Franchises
Owned
Domestic:
Ford, Lincoln
Chevrolet, Buick, Cadillac, GMC
Chrysler, Jeep, Dodge
Domestic Total
Import:
Honda
Toyota
Nissan
Other imports
Import Total
Premium Luxury:
Mercedes-Benz
BMW
Lexus
Other premium luxury (Land Rover, Porsche)
Premium Luxury Total
$
$
1,341.5
887.8
242.4
2,471.7
602.2
1,091.0
669.4
545.7
2,908.3
1,061.8
613.8
200.9
242.4
2,118.9
7,498.9
5
41,821
27,082
7,432
76,335
23,877
41,311
25,712
17,228
108,128
19,047
11,269
4,554
4,701
39,571
224,034
18.7
12.1
3.3
34.1
10.7
18.4
11.5
7.6
48.2
8.5
5.0
2.0
2.2
17.7
100.0
42
44
21
107
20
19
23
39
101
23
11
3
13
50
258
Each of our stores acquires new vehicles for retail sale either directly from the applicable automotive manufacturer or
distributor or through dealer trades with other stores of the same franchise. Accordingly, we depend in large part on the
automotive manufacturers and distributors to provide us with high-quality vehicles that customers desire and to supply us
with such vehicles at suitable quantities and prices and at the right times. Our operations, particularly our sales of new
vehicles, are also impacted by the sales incentive programs offered by the automotive manufacturers to spur consumer
demand for their vehicles. We generally acquire used vehicles from customer trade-ins, auctions, lease terminations, and
other sources. We generally recondition used vehicles acquired for retail sale at our stores’ service facilities and capitalize
costs related thereto as used vehicle inventory. We opened 27 Value Vehicle Outlets (“VVOs”) during 2010 and 2011 to
address industry supply constraints and meet market demand. Through our VVOs, which are located on existing store
facilities, we sell vehicles that we would have traditionally wholesaled with an average retail price lower than that of used
vehicles we typically retail. Used vehicles that we do not sell at our stores or VVOs generally are sold at wholesale prices
through auctions. See also “Inventory Management” in Part II, Item 7 of this Form 10-K.
We offer a wide variety of automotive finance and insurance products to our customers. We arrange for our customers to
finance vehicles through installment loans or leases with third-party lenders, including the vehicle manufacturers’ and
distributors’ captive finance subsidiaries, in exchange for a commission payable to us. Commissions that we receive may
be subject to chargeback, in full or in part, if loans that we arrange default or are prepaid or upon other specified
circumstances. However, our exposure to loss in connection with these financing arrangements generally is limited to the
commissions that we receive. We do not directly finance our customers’ vehicle leases or purchases.
We also offer our customers various vehicle protection products, including extended service contracts, maintenance
programs, guaranteed auto protection (known as “GAP,” this protection covers the shortfall between a customer’s loan
balance and insurance payoff in the event of a casualty), “tire and wheel” protection, and theft protection products. The
vehicle protection products that our stores currently offer to customers are underwritten and administered by independent
third parties, including the vehicle manufacturers’ and distributors’ captive finance subsidiaries. We primarily sell the
products on a straight commission basis; however, we also participate in future underwriting profit for certain products
pursuant to retrospective commission arrangements. Commissions that we receive from these third-party providers may be
subject to chargeback, in full or in part, if products that we sell, such as extended service contracts, are cancelled. See also
“Critical Accounting Policies and Estimates – Chargeback Reserve” in Part II, Item 7 of this Form 10-K.
Our stores also provide a wide range of vehicle maintenance, repair, paint, and collision repair services, including
warranty work that can be performed only at franchised dealerships and customer-pay service work.
Sales and Marketing
We retailed approximately 400,000 new and used vehicles through our stores in 2011. We sell a broad range of well-
known vehicle brands within each of our markets.
We have been able to use our significant scale to market our stores and vehicle inventory via the Internet. We believe
that the majority of new car buyers research new car information online, which is resulting in better-informed customers
and a more efficient sales process. As part of our e-commerce marketing strategy, we are focused on (1) developing
websites and an Internet sales process that appeal to online automobile shoppers, (2) obtaining high visibility on the
Internet through search engines such as Google, through our own websites, through social media websites such as
Facebook, and through strategic partnerships and alliances with e-commerce companies, and (3) developing and
maintaining a cost structure that permits us to operate efficiently.
Our marketing efforts are designed to build our business with a broad base of repeat, referral, and new customers. In
addition to our online efforts, we engage in marketing and advertising through newspapers, radio, television, direct mail,
and outdoor billboards in our local markets. As we have consolidated our operations in certain of our key markets under
one local retail brand, we have been able to focus our efforts on building consumer awareness of the selected local retail
brand rather than on the individual legacy names under which many of our stores operated prior to their acquisition by us.
We also continue to develop advertising campaigns that we can modify for use in multiple local markets. We realize cost
efficiencies with respect to advertising expenses that are not generally available to smaller retailers due to our ability to
obtain efficiencies in developing advertising campaigns and our ability to gain volume discounts and other concessions as
we increase our presence within our key markets and operate our non-premium luxury stores under a single retail brand
name in our local markets.
6
Agreements with Vehicle Manufacturers
Framework Agreements
We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements,
which are in addition to the franchise agreements described below, contain provisions relating to our management,
operation, advertising and marketing, and acquisition and ownership structure of automotive stores franchised by such
manufacturers. These agreements contain certain requirements pertaining to our operating performance (with respect to
matters such as sales volume, sales effectiveness, and customer satisfaction), which, if we do not satisfy, adversely impact
our ability to make further acquisitions of such manufacturers’ stores or could result in us being compelled to take certain
actions, such as divesting a significantly underperforming store, subject to applicable state franchise laws. Additionally,
these agreements set limits (nationally, regionally, and in local markets) on the number of stores that we may acquire of the
particular manufacturer and contain certain restrictions on our ability to name and brand our stores. Some of these
framework agreements give the manufacturer or distributor the right to acquire at fair market value, or the right to compel
us to sell, the automotive stores franchised by that manufacturer or distributor under specified circumstances in the event of
a change in control of our company (generally including certain material changes in the composition of our Board of
Directors during a specified time period, the acquisition of 20% or more of the voting stock of our Company by another
vehicle manufacturer or distributor, or the acquisition of 50% or more of our voting stock by a person, entity, or group not
affiliated with a vehicle manufacturer or distributor) or other extraordinary corporate transactions such as a merger or sale
of all or substantially all of our assets. In addition, we have granted certain manufacturers the right to acquire, at fair
market value, our automotive dealerships franchised by such manufacturers in specified circumstances in the event of our
default under certain of our debt agreements.
In January 2009, our Board of Directors authorized and approved letter agreements with certain automotive
manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework
agreements with those manufacturers in the event that ESL Investments, Inc. and certain of its investment affiliates
(together, “ESL”) acquire 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc.
(“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as
described below. ESL is also a party to both the Honda and Toyota Agreements. As of February 8, 2012, ESL beneficially
owned approximately 51% of the outstanding shares of our common stock.
Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura
franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the
event that ESL acquires 50% or more of our common stock. ESL has agreed to vote all shares in excess of 50% in the same
proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is
independent of both the Company and ESL under existing New York Stock Exchange (“NYSE”) listing standards for so
long as ESL owns more than 50% of our common stock. The Honda Agreement provides that Honda’s consent does not
apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934.
Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus
franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the
event that ESL acquires 50% or more of our common stock. ESL has agreed to vote all shares in excess of 50% in the same
proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be
independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to
merge, consolidate, or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the
Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of
our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and
extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within nine
(9) months or its voting interest will be limited to 25%, and if ESL does not divest such shares within eighteen
(18) months, it will lose all voting rights until it divests such shares. The Toyota Agreement will terminate in the event that
ESL’s ownership of our common stock falls to 40% or lower. In addition, the Toyota Agreement will terminate on
December 31, 2012 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-
year extensions. The description of the Toyota Agreement set forth above reflects all amendments thereto, including the
most recent extension and amendment dated as of November 29, 2011, which we filed with a Current Report on Form 8-K
on November 30, 2011.
7
We have also entered into separate letter agreements with certain other manufacturers that eliminate any potential
adverse consequences under our framework agreements with those manufacturers in the event that ESL acquires 50% or
more of our common stock. ESL is not a party to any of those agreements.
Franchise Agreements
We operate each of our new vehicle stores under a franchise agreement with a vehicle manufacturer or distributor. The
franchise agreements grant the franchised automotive store a non-exclusive right to sell the manufacturer’s or distributor’s
brand of vehicles and offer related parts and service within a specified market area. These franchise agreements grant our
stores the right to use the relevant manufacturer’s or distributor’s trademarks in connection with their operations, and they
also impose numerous operational requirements and restrictions relating to inventory levels, working capital levels, the
sales process, marketing and branding, showroom and service facilities, signage, personnel, changes in management, and
monthly financial reporting, among other things. The contractual terms of our stores’ franchise agreements provide for
various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to
renew such franchises upon expiration so long as the store is in compliance with the terms of the agreement. We generally
expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite
terms, anticipate routine renewals of the agreements without substantial cost or modification. Our stores’ franchise
agreements provide for termination of the agreement by the manufacturer or non-renewal for a variety of causes (including
performance deficiencies in such areas as sales volume, sales effectiveness, and customer satisfaction). However, in
general, the states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the
terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good
cause” exists. It generally is difficult, outside of bankruptcy, for a manufacturer to terminate, or not renew, a franchise
under these laws, which were designed to protect dealers. In addition, in our experience and historically in the automotive
retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the manufacturer
outside of bankruptcy. From time to time, certain manufacturers assert sales and customer satisfaction performance
deficiencies under the terms of our framework and franchise agreements. We generally work with these manufacturers to
address the asserted performance issues. For additional information, please refer to the risk factor captioned “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” in Part I, Item 1A of this Form 10-K.
Regulations
We operate in a highly regulated industry. A number of state and federal laws and regulations affect our business. In
every state in which we operate, we must obtain various licenses in order to operate our businesses, including dealer, sales
and finance, and insurance licenses issued by state regulatory authorities. Numerous laws and regulations govern our
conduct of business, including those relating to our sales, operations, financing, insurance, advertising, and employment
practices. These laws and regulations include state franchise laws and regulations, consumer protection laws, privacy laws,
escheatment laws, anti-money laundering laws, and other extensive laws and regulations applicable to new and used motor
vehicle dealers, as well as a variety of other laws and regulations. These laws also include federal and state wage-hour,
anti-discrimination, and other employment practices laws. Furthermore, we expect that new laws and regulations,
particularly at the federal level, may be enacted that could also affect our business. See the risk factor “Our operations are
subject to extensive governmental laws and regulations. If we are found to be in 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” in Part I, Item 1A of this Form 10-K.
Automotive and Other Laws and Regulations
Our operations are subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety Standards
promulgated by the United States Department of Transportation, and the rules and regulations of various state motor
vehicle regulatory agencies. The imported automobiles we purchase are subject to United States customs duties and, in the
ordinary course of our business we may, from time to time, be subject to claims for duties, penalties, liquidated damages,
or other charges.
Our financing activities with customers are subject to federal truth-in-lending, consumer leasing, and equal credit
opportunity laws and regulations as well as state and local motor vehicle finance laws, leasing laws, installment finance
laws, usury laws, and other installment sales and leasing laws and regulations, some of which regulate finance and other
8
fees and charges that may be imposed or received in connection with motor vehicle retail installment sales and leasing.
Claims arising out of actual or alleged violations of law may be asserted against us or our stores by individuals, a class of
individuals, or governmental entities and may expose us to significant damages or other penalties, including revocation or
suspension of our licenses to conduct store operations and fines.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010,
established a new consumer financial protection agency with broad regulatory powers. Although automotive dealers are
generally excluded, the Dodd-Frank Act could lead to additional, indirect regulation of automotive dealers through its
regulation of automotive finance companies and other financial institutions.
Environmental, Health, and Safety Laws and Regulations
Our operations involve the use, handling, storage, and contracting for recycling and/or disposal of materials such as
motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants,
degreasing agents, tires, and fuel. Consequently, our business is subject to a complex variety of federal, state, and local
requirements that regulate the environment and public health and safety.
Most of our stores utilize aboveground storage tanks, and to a lesser extent underground storage tanks, primarily for
petroleum-based products. Storage tanks are subject to periodic testing, containment, upgrading, and removal under the
Resource Conservation and Recovery Act and its state law counterparts. Clean-up or other remedial action may be
necessary in the event of leaks or other discharges from storage tanks or other sources. In addition, water quality protection
programs under the federal Water Pollution Control Act (commonly known as the Clean Water Act), the Safe Drinking
Water Act, and comparable state and local programs govern certain discharges from some of our operations. Similarly,
certain air emissions from operations, such as auto body painting, may be subject to the federal Clean Air Act and related
state and local laws. Certain health and safety standards promulgated by the Occupational Safety and Health
Administration of the United States Department of Labor and related state agencies also apply.
Some of our stores are parties to proceedings under the Comprehensive Environmental Response, Compensation, and
Liability Act, or CERCLA, typically in connection with materials that were sent to former recycling, treatment, and/or
disposal facilities owned and operated by independent businesses. The remediation or clean-up of facilities where the
release of a regulated hazardous substance occurred is required under CERCLA and other laws.
We have a proactive strategy related to environmental, health, and safety laws and regulations, which includes
contracting with third-party vendors to inspect our facilities periodically in an effort to ensure compliance. We incur
significant costs to comply with applicable environmental, health, and safety laws and regulations in the ordinary course of
our business. We do not anticipate, however, that the costs of such compliance will have a material adverse effect on our
business, results of operations, cash flows, or financial condition, although such outcome is possible given the nature of our
operations and the extensive environmental, health, and safety regulatory framework. We do not have any material known
environmental commitments or contingencies.
Competition
We operate in a highly competitive industry. We believe that the principal competitive factors in the automotive retail
business are location, service, price, and selection. Each of our markets includes a large number of well-capitalized
competitors that have extensive automotive retail managerial experience and strong retail locations and facilities.
According to CNW Marketing Research, Inc., the total number of U.S. franchised automotive dealerships was
approximately 15,600 and 15,500 at the end of 2011 and 2010, respectively, and the total number of U.S. independent used
vehicle dealers was approximately 37,600 and 37,700 at the end of 2011 and 2010, respectively. We face competition from
(i) several public companies that operate numerous automotive retail stores on a regional or national basis, including
franchised dealers that sell new and used vehicles as well as non-franchised dealers that sell only used vehicles, (ii) private
companies that operate automotive retail stores in our markets, and (iii) online marketplaces. We compete with dealers that
sell the same brands of new vehicles that we sell, as well as those that sell other brands of new vehicles that we do not
represent in a particular market. Our new vehicle store competitors have franchise agreements with the various vehicle
manufacturers and, as such, generally have access to new vehicles on the same terms as we have. We also compete with
other dealers for qualified employees, particularly for general managers and sales and service personnel.
9
In general, the vehicle manufacturers have designated marketing and sales areas within which only one franchised
dealer of a given vehicle brand may operate. Under most of our framework agreements with the vehicle manufacturers, our
ability to acquire multiple dealers of a given brand within a particular market is limited. We are also restricted by various
state franchise laws from relocating our stores or establishing new stores of a particular brand within any area that is served
by another dealer of the same brand, and we generally need the manufacturer to approve the relocation or grant a new
franchise in order to relocate or establish a store. However, to the extent that a market has multiple dealers of a particular
brand, as most of our key markets do with respect to most vehicle brands we sell, we face significant intra-brand
competition.
We also compete with independent automobile service shops and service center chains. We believe that the principal
competitive factors in the parts and service business are price, location, the use of factory-approved replacement parts,
expertise with the particular vehicle lines, and customer service. We also compete with a broad range of financial
institutions in our finance and insurance business. We believe that the principal competitive factors in the finance and
insurance business are product selection, convenience, price, contract terms, and the ability to finance vehicle protection
and aftermarket products.
Insurance and Bonding
Our business exposes us to the risk of liabilities arising out of our operations. For example, liabilities may arise out of
claims of employees, customers, or other third parties for personal injury or property damage occurring in the course of our
operations. We could also be subject to fines and civil and criminal penalties in connection with alleged violations of
federal and state laws or regulatory requirements.
The automotive retail business is also subject to substantial risk of property loss due to the significant concentration of
property values at store locations. In our case in particular, our operations are concentrated in states and regions in which
natural disasters and severe weather events (such as hurricanes, earthquakes, fires, landslides, and hail storms) may subject
us to substantial risk of property loss and operational disruption. Under self-insurance programs, we retain various levels of
aggregate loss limits, per claim deductibles, and claims-handling expenses as part of our various insurance programs,
including property and casualty, workers’ compensation, and employee medical benefits. Costs in excess of this retained
risk per claim may be insured under various contracts with third-party insurance carriers. We estimate the ultimate costs of
these retained insurance risks based on actuarial evaluation and historical claims experience, adjusted for current trends and
changes in claims-handling procedures. The level of risk we retain may change in the future as insurance market conditions
or other factors affecting the economics of our insurance purchasing change. Although we have, subject to certain
limitations and exclusions, substantial insurance, we cannot assure you that we will not be exposed to uninsured or
underinsured losses that could have a material adverse effect on our business, financial condition, results of operations, or
cash flows.
Provisions for retained losses and deductibles are made by charges to expense based upon periodic evaluations of the
estimated ultimate liabilities on reported and unreported claims. The insurance companies that underwrite our insurance
require that we secure certain of our obligations for deductible reimbursements with collateral. Our collateral requirements
are set by the insurance companies and, to date, have been satisfied by posting surety bonds, letters of credit, and/or cash
deposits. Our collateral requirements may change from time to time based on, among other things, our claims experience.
Employees
As of December 31, 2011, we employed approximately 19,400 full-time employees, approximately 190 of whom were
covered by collective bargaining agreements. We believe that we have good relations with our employees.
Seasonality
Our operations generally experience higher volumes of vehicle sales and service in the second and third quarters of each
year due in part to consumer buying trends and the introduction of new vehicle models. Also, demand for vehicles and light
trucks is generally lower during the winter months than in other seasons, particularly in regions of the United States where
stores may be subject to adverse winter conditions. Accordingly, we expect our revenue and operating results generally to
be lower in the first and fourth quarters as compared to the second and third quarters. However, revenue may be impacted
significantly from quarter to quarter by changing economic conditions, vehicle manufacturer incentive programs, and
actual or threatened severe weather events.
10
Trademarks
We own a number of registered service marks and trademarks, including, among other marks, AutoNation®. Pursuant to
agreements with vehicle manufacturers, we have the right to use and display manufacturers’ trademarks, logos, and designs
at our stores and in our advertising and promotional materials, subject to certain restrictions. We also have licenses
pursuant to various agreements with third parties authorizing the use and display of the marks and/or logos of such third
parties, subject to certain restrictions. The current registrations of our service marks and trademarks in the United States
and foreign countries are effective for varying periods of time, which we may renew periodically, provided that we comply
with all applicable laws.
Executive Officers of AutoNation
The following sets forth certain information regarding our executive officers as of February 8, 2012. Amounts reported
under “Number of Shares of Common Stock Beneficially Owned” include shares subject to stock options that become
exercisable within 60 days of February 8, 2012.
Name
Mike Jackson
Michael E. Maroone
Michael J. Short
Jonathan P. Ferrando
David L. Koehler
Alan J. McLaren
Age
63
58
50
46
43
45
Position
Chairman of the Board and
Chief Executive Officer
Director, President and Chief
Operating Officer
Executive Vice President and
Chief Financial Officer
Executive Vice President,
General Counsel and Secretary
Senior Vice President, Sales
Senior Vice President, Customer
Care
Years with
AutoNation
12
Years in
Automotive
Industry
41
Number of
Shares of
Common Stock
Beneficially Owned
793,837
15
5
15
< 1
< 1
37
5
15
23
28
3,648,050
280,638
372,146
—
—
Mike Jackson has served as our Chairman of the Board since January 2003, and as our Chief Executive Officer and
Director since September 1999. From October 1998 until September 1999, Mr. Jackson served as Chief Executive Officer
of Mercedes-Benz USA, LLC, a North American operating unit of DaimlerChrysler AG, a multinational automotive
manufacturing company. From April 1997 until September 1999, Mr. Jackson also served as President of Mercedes-Benz
USA. From July 1990 until March 1997, Mr. Jackson served in various capacities at Mercedes-Benz USA, including as
Executive Vice President immediately prior to his appointment as President of Mercedes-Benz USA. Mr. Jackson was also
the managing partner from March 1979 to July 1990 of Euro Motorcars of Bethesda, Maryland, a regional group that
owned and operated eleven automotive dealership franchises, including Mercedes-Benz and other brands of automobiles.
In January 2011, Mr. Jackson was appointed to the Board of Directors of the Federal Reserve Bank of Atlanta’s Miami
Branch.
Michael E. Maroone has served as a director since July 2005 and as our President and Chief Operating Officer since
August 1999. Following our acquisition of the Maroone Automotive Group in January 1997, Mr. Maroone served as
President of our New Vehicle Dealer Division. In January 1998, Mr. Maroone was named President of our Automotive
Retail Group with responsibility for our new and used vehicle operations. Prior to joining AutoNation, Mr. Maroone was
President and Chief Executive Officer of the Maroone Automotive Group, one of the country’s largest privately-held
automotive retail groups prior to its acquisition by us.
Michael J. Short has served as our Executive Vice President and Chief Financial Officer since January 2007. From
2000 to January 2007, Mr. Short served as Executive Vice President and Chief Financial Officer of Universal City
Development Partners, Ltd. (dba Universal Orlando) (“Universal Orlando”). From 2005 until January 2007, he also served
as Treasurer and Chief Financial Officer of Universal City Florida Holding Co. I, the limited partner of Universal Orlando,
and Universal City Florida Holding Co. II, the general partner of Universal Orlando. From 1991 to 2000, Mr. Short held
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various finance positions at Universal Orlando, Joseph E. Seagram & Sons, Inc., and IBM Corporation. Prior to that, he
was a helicopter pilot and tactics instructor for the United States Navy, based out of Norfolk, Virginia.
Jonathan P. Ferrando has served as our Executive Vice President, General Counsel and Secretary since March 2005.
Prior thereto, he served as Senior Vice President, General Counsel and Secretary from January 2000 until March 2005. In
addition to his role as General Counsel, in September 2004, Mr. Ferrando assumed responsibility for our human resources
and labor relations functions, and in March 2011, he assumed responsibility for our corporate development function.
Mr. Ferrando joined our Company in July 1996 and served in various capacities within our Company, including as Senior
Vice President and General Counsel of our Automotive Retail Group from March 1998 until January 2000. Prior to joining
our company, Mr. Ferrando was a corporate attorney with Skadden, Arps, Slate, Meagher & Flom from 1991 until 1996.
David L. Koehler has served as our Senior Vice President, Sales, with responsibility for corporate initiatives in the areas
of new and used vehicles and finance and insurance, since November 2011. Mr. Koehler joined our Company in April 2011
as a Market President in Florida. From May 2006 until April 2011, he served as a Region Vice President for Sonic
Automotive. Prior to joining Sonic Automotive, he worked for Germain Motor Company, based in Columbus, Ohio.
Alan J. McLaren has served as our Senior Vice President, Customer Care, with responsibility for corporate initiatives in
the area of parts and service, since January 2012. From February 2007 until December 2011, he was a senior executive
with Mercedes-Benz USA, where he served as Vice President, Customer Services and President of Mercedes-Benz
Manhattan. From June 2001 until February 2007, he was a senior executive with DaimlerChrysler Australia/Pacific.
Available Information
Our website is located at www.autonation.com, and our Investor Relations website is located at
investors.autonation.com. The information on or accessible through our websites is not incorporated by reference in this
Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange
Act of 1934, as amended, are available, free of charge, on our Investor Relations website as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
ITEM 1A. RISK FACTORS
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 Annual Report on Form 10-K, including statements regarding
our expectations for 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. Forward-looking statements generally can be identified by
the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,”
“will,” or other similar words or phrases. 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. These forward-looking statements speak only as
of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect
subsequent events or circumstances. The risks, uncertainties, and other factors that our stockholders and prospective
investors should consider include the following:
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.
We believe that many factors affect sales of new vehicles and automotive retailers’ gross profit margins in the United
States and in our particular geographic markets, including the economy, fuel prices, credit availability, interest rates,
consumer confidence, the level of personal discretionary spending, unemployment rates, the state of housing markets, auto
12
emission and fuel economy standards, the rate of inflation, currency exchange rates, the level of manufacturers’ production
capacity, manufacturer incentives (and consumers’ reaction to such offers), intense industry competition, the prospects of
war, other international conflicts or terrorist attacks, severe weather events, product quality, affordability and innovation,
the number of consumers whose vehicle leases are expiring, and the length of consumer loans on existing vehicles.
Changes in interest rates can significantly impact industry new vehicle sales and vehicle affordability due to the direct
relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact
interest rates have on customers’ borrowing capacity and disposable income. Sales of certain new vehicles, particularly
larger trucks and sport utility vehicles that historically have provided us with higher gross margins, are sensitive to fuel
prices and the level of construction activity. In addition, volatility in fuel prices can cause rapid shifts in consumer
preferences which are difficult to accommodate given the long-lead time of inventory acquisition. In 2011, new vehicle
sales were impacted by unfavorable economic conditions in the United States, including low economic growth, high
unemployment, and a decline in wealth resulting from depressed housing and equity markets, and the annual rate of new
vehicle sales remained below pre-recession levels.
Approximately 12.7 million, 11.5 million, and 10.4 million new vehicles were sold in the United States in 2011, 2010,
and 2009, respectively. While we expect that the annual rate of U.S. new vehicle unit sales will improve in 2012 as
compared to 2011, there can be no assurance that it will. Further, our performance may differ from the performance of the
automotive retail industry due to particular economic conditions and other factors in the geographic markets in which we
operate. Economic conditions and the other factors described above may also materially adversely impact our sales of used
vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
Our results of operations and financial condition have been and could continue to be adversely affected by the
unfavorable economic conditions in the United States and/or Europe.
The unfavorable economic conditions that have affected the United States for the past few years, including low
economic growth, high unemployment, and the decline in wealth resulting from depressed housing and equity markets,
have adversely impacted the automotive retail market. These conditions continued to adversely impact consumer demand
in 2011. Concerns over sovereign debt levels in the United States and/or Europe, and the possible negative implications to
banks and the global economy arising out of the European debt crisis, could adversely impact the U.S. economy, credit
availability, consumer confidence, and demand for new and used vehicles. Continuing or worsened unfavorable economic
conditions in the United States or elsewhere could continue to adversely impact our business and results of operations.
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.
The credit agreement governing our term loan and revolving credit facilities, our mortgage facility, and the indentures
relating to our 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020 contain covenants that limit the discretion of
our management with respect to various business matters. These covenants place restrictions on, among other things, our
ability to incur additional indebtedness, to create liens or other encumbrances, and to sell or otherwise dispose of assets and
to merge or consolidate with other entities. A failure by us to comply with the obligations contained in any of our debt
agreements could result in an event of default, which could permit acceleration of the related debt as well as acceleration of
debt under other debt agreements that contain cross-acceleration or cross-default provisions. If any debt is accelerated, our
liquid assets may not be sufficient to repay in full such indebtedness and our other indebtedness. Additionally, we have
granted certain manufacturers the right to acquire, at fair market value, our automotive stores franchised by those
manufacturers in specified circumstances in the event of our default under our debt agreements.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and a maximum
capitalization ratio. See “Liquidity and Capital Resources — Restrictions and Covenants” in Part II, Item 7 of this Form
10-K. If our earnings decline, we may be unable to comply with the financial ratios required by our credit agreement. In
such case, we would seek an amendment or waiver of our credit agreement or consider other options, such as raising
capital through an equity issuance to pay down debt, which could be dilutive to stockholders. There can be no assurance
that our lenders would agree to an amendment or waiver of our credit agreement. In the event we obtain an amendment or
waiver of our credit agreement, we would likely incur additional fees and higher interest expense.
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As of December 31, 2011, we had approximately $1.6 billion of total indebtedness (including amounts outstanding
under our mortgage facility and capital leases but excluding floorplan financing), and our subsidiaries also had $1.9 billion
of floorplan financing. Our substantial indebtedness could have important consequences. For example:
• We may have difficulty satisfying our debt service obligations and, if we fail to comply with these requirements,
an event of default could result;
• We may be required to dedicate a substantial portion of our cash flow from operations to make required payments
on indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures,
acquisitions, and other general corporate activities;
•
•
Covenants relating to our indebtedness may limit our ability to obtain financing for working capital, capital
expenditures, acquisitions, and other general corporate activities;
Covenants relating to our indebtedness may limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
• We may be more vulnerable to the impact of economic downturns and adverse developments in our business;
• We may be placed at a competitive disadvantage against any less leveraged competitors;
•
•
Our variable interest rate debt will fluctuate with changing market conditions and, accordingly, our interest
expense will increase if interest rates rise; and
Future share repurchases may be limited by the maximum leverage ratio described above.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition,
results of operations, prospects, and ability to satisfy our debt service obligations.
We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with
which we hold franchises.
The success of our stores is dependent on vehicle manufacturers in several key respects. First, we rely exclusively on the
various vehicle manufacturers for our new vehicle inventory. Our ability to sell new vehicles is dependent on a vehicle
manufacturer’s ability to produce and allocate to our stores an attractive, high-quality, and desirable product mix at the
right time in order to satisfy customer demand. Second, manufacturers generally support their franchisees by providing
direct financial assistance in various areas, including, among others, floorplan assistance and advertising assistance. Third,
manufacturers provide product warranties and, in some cases, service contracts to customers. Our stores perform warranty
and service contract work for vehicles under manufacturer product warranties and service contracts, and direct bill the
manufacturer as opposed to invoicing the store customer. At any particular time, we have significant receivables from
manufacturers for warranty and service work performed for customers. In addition, we rely on manufacturers to varying
extents for original equipment manufactured replacement parts, training, product brochures and point of sale materials, and
other items for our stores. Our business, results of operations, and financial condition could be materially adversely
affected as a result of any event that has a material adverse effect on the vehicle manufacturers or distributors that are our
primary franchisors.
Vehicle manufacturers may be adversely impacted by economic downturns or recessions, significant declines in the
sales of their new vehicles, natural disasters, increases in interest rates, adverse fluctuations in currency exchange rates,
declines in their credit ratings, labor strikes or similar disruptions (including within their major suppliers), supply shortages
or rising raw material costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their
products (including due to bankruptcy), product defects, vehicle recall campaigns, litigation, poor product mix or
unappealing vehicle design, governmental laws and regulations, import product restrictions, or other adverse events.
Vehicle manufacturers are subject to federal fuel economy requirements, which will increase substantially as a result of
a new national program being implemented by the U.S. government to regulate greenhouse gases and fuel economy
standards. These new requirements could materially adversely affect the ability of manufacturers to produce, and our
ability to sell, vehicles in demand by consumers at affordable prices, which could materially adversely impact our business.
These and other risks could materially adversely affect any manufacturer and impact its ability to profitably design, market,
produce, or distribute new vehicles, which in turn could materially adversely affect our ability to obtain or finance our
14
desired new vehicle inventories, our ability to take advantage of manufacturer financial assistance programs, our ability to
collect in full or on a timely basis our manufacturer warranty and other receivables, and/or our ability to obtain other goods
and services provided by the impacted manufacturer.
The core brands of vehicles that we sell are manufactured by Ford, Toyota, Nissan, General Motors, Honda, Mercedes-
Benz, BMW, and Chrysler. These manufacturers have been adversely impacted by the unfavorable economic conditions in
the United States and elsewhere. In the second quarter of 2009, each of Chrysler and General Motors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. In connection with the Chrysler bankruptcy,
franchise agreements relating to seven of our Chrysler dealerships were terminated (one of which was subsequently
reinstated). In connection with the General Motors bankruptcy, we entered into wind-down agreements pursuant to which
we agreed to close four of our General Motors dealerships and participation agreements under which our remaining
General Motors dealerships will continue to operate.
Our business could be materially adversely impacted by another bankruptcy of a major vehicle manufacturer or related
lender. For example, (i) a manufacturer in bankruptcy could attempt to terminate all or certain of our franchises, in which
case we may not receive adequate compensation for our franchises, (ii) consumer demand for such manufacturer’s products
could be materially adversely affected, (iii) a lender in bankruptcy could attempt to terminate our floorplan financing and
demand repayment of any amounts outstanding, (iv) we may be unable to arrange financing for our customers for their
vehicle purchases and leases through such lender, in which case we would be required to seek financing with alternate
financing sources, which may be difficult to obtain on similar terms, if at all, (v) we may be unable to collect some or all of
our significant receivables that are due from such manufacturer or lender, and we may be subject to preference claims
relating to payments made by such manufacturer or lender prior to bankruptcy, and (vi) such manufacturer may be relieved
of its indemnification obligations with respect to product liability claims. Additionally, any such bankruptcy may result in
us being required to incur impairment charges with respect to the inventory, fixed assets, and intangible assets related to
certain franchises, which could adversely impact our results of operations, financial condition, and our ability to remain in
compliance with the financial ratios contained in our debt agreements. Tens of billions of dollars of U.S. government
support were provided to Chrysler, General Motors, and Ally Financial (formerly known as GMAC), and we believe that
this support mitigated the potential adverse impacts to us resulting from the Chrysler and General Motors bankruptcies.
There can be no assurance that U.S. government support will be provided to the same extent or at all in the event of another
bankruptcy of a major vehicle manufacturer or related lender. As a result, the potential adverse impact on our financial
condition and results of operations could be relatively worse in a manufacturer or related lender bankruptcy which is not
financially supported by the U.S. government.
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.
Goodwill and indefinite-lived intangible assets are subject to impairment assessments at least annually (or more
frequently when events or circumstances indicate that an impairment may have occurred) by applying a fair-value based
test. See “Critical Accounting Policies and Estimates – Goodwill and Other Intangible Assets” in Part II, Item 7 of this
Form 10-K for additional information regarding our impairment testing. Our principal intangible assets are goodwill and
our rights under our franchise agreements with vehicle manufacturers. An impairment loss could have a material adverse
impact on our results of operations and shareholders’ equity.
Our new vehicle sales are impacted by the consumer incentive and marketing programs of vehicle manufacturers.
Most vehicle manufacturers from time to time establish various incentive and marketing programs designed to spur
consumer demand for their vehicles. These programs impact our operations, particularly our sales of new vehicles. Since
these programs are often not announced in advance, they can be difficult to plan for when ordering inventory. Additionally,
manufacturers may modify and discontinue these incentive and marketing programs from time to time, which could have a
material adverse effect on our results of operations and cash flows.
Natural disasters and adverse weather events can disrupt our business.
Our stores are concentrated in states and regions in the United States, including primarily Florida, Texas, and California,
in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, fires, landslides,
15
and hail storms) may disrupt our store operations, which may adversely impact our business, results of operations, financial
condition, and cash flows. In addition to business interruption, the automotive retail business is subject to substantial risk
of property loss due to the significant concentration of property values at store locations. Although we have, subject to
certain deductibles, limitations, and exclusions, substantial insurance, we cannot assure you that we will not be exposed to
uninsured or underinsured losses that could have a material adverse effect on our business, financial condition, results of
operations, or cash flows.
In addition, natural disasters may adversely impact new vehicle production and the global automotive supply chain. In
2011, the earthquake and tsunami that struck Japan and the flooding in Thailand caused significant production and supply
chain disruptions that resulted in significantly reduced new vehicle production and lower new vehicle shipments by
Japanese manufacturers. These disruptions also impacted non-Japanese manufacturers that rely on components produced
in Japan and/or Thailand. In 2011, our unit sales of new vehicles were adversely impacted by these disruptions.
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.
Vehicle manufacturers and distributors with whom we hold franchises have significant influence over the operations of
our stores. The terms and conditions of our framework, franchise, and related agreements and the manufacturers’ interests
and objectives may, in certain circumstances, conflict with our interests and objectives. For example, manufacturers can set
performance standards with respect to sales volume, sales effectiveness, and customer satisfaction, and can influence our
ability to acquire additional stores, the naming and marketing of our stores, the operations of our e-commerce sites, our
selection of store management, product stocking and advertising spending levels, and the level at which we capitalize our
stores. Manufacturers also impose minimum facility requirements that can require significant capital expenditures.
Manufacturers may also have certain rights to restrict our ability to provide guaranties of our operating companies, pledges
of the capital stock of our subsidiaries, and liens on our assets, which could adversely impact our ability to obtain financing
for our business and operations on favorable terms or at desired levels. From time to time, we are precluded under
agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the
extent we are not meeting certain performance criteria at our existing stores (with respect to matters such as sales volume,
sales effectiveness, and customer satisfaction) until our performance improves in accordance with the agreements, subject
to applicable state franchise laws.
Manufacturers also have the right to establish new franchises or relocate existing franchises, subject to applicable state
franchise laws. The establishment or relocation of franchises in our markets could have a material adverse effect on the
financial condition, results of operations, cash flows, and prospects of our stores in the market in which the franchise action
is taken.
Our framework, franchise, and related agreements also grant the manufacturer the right to terminate or compel us to sell
our franchise for a variety of reasons (including uncured performance deficiencies, any unapproved change of ownership or
management, or any unapproved transfer of franchise rights or impairment of financial standing or failure to meet capital
requirements), subject to applicable state franchise laws. From time to time, certain major manufacturers assert sales and
customer satisfaction performance deficiencies under the terms of our framework and franchise agreements. Additionally,
our framework agreements contain restrictions regarding a change in control, which may be outside of our control. See
“Agreements with Vehicle Manufacturers” in Part I, Item 1 of this Form 10-K. While we believe that we will be able to
renew all of our franchise agreements, we cannot guarantee that all of our franchise agreements will be renewed or that the
terms of the renewals will be favorable to us. We cannot assure you that our stores will be able to comply with
manufacturers’ sales, customer satisfaction performance, facility and other requirements in the future, which may affect our
ability to acquire new stores or renew our franchise agreements, or subject us to other adverse actions, including
termination or compelled sale of a franchise, any of which could have a material adverse effect on our financial condition,
results of operations, cash flows, and prospects. Furthermore, we rely on the protection of state franchise laws in the states
in which we operate and if those laws are repealed or weakened, our framework, franchise, and related agreements may
become more susceptible to termination, non-renewal, or renegotiation.
In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships
franchised by that manufacturer in specified circumstances in the event of our default under certain of our debt agreements.
16
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.
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, employment-related lawsuits, class actions, purported class actions, and
actions brought by governmental authorities. We do not believe that the ultimate resolution of these matters will have a
material adverse effect on our business, 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 business, results of operations, financial condition, cash flow, and prospects.
Our operations are subject to extensive governmental laws and regulations. If we are found to be in 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.
The automotive retail industry, including our facilities and operations, is subject to a wide range of federal, state, and
local laws and regulations, such as those relating to motor vehicle sales, retail installment sales, leasing, sales of finance,
insurance, and vehicle protection products, licensing, consumer protection, consumer privacy, escheatment, anti-money
laundering, environmental, vehicle emissions and fuel economy, health and safety, wage-hour, anti-discrimination, and
other employment practices. With respect to motor vehicle sales, retail installment sales, leasing, and the sale of finance,
insurance, and vehicle protection products at our stores, we are subject to various laws and regulations, the violation of
which could subject us to consumer class action or other lawsuits or governmental investigations and adverse publicity, in
addition to administrative, civil, or criminal sanctions. The violation of other laws and regulations to which we are subject
also can result in administrative, civil, or criminal sanctions against us, which may include a cease and desist order against
the subject operations or even revocation or suspension of our license to operate the subject business, as well as significant
fines and penalties. We currently devote significant resources to comply with applicable federal, state, and local regulation
of health, safety, environmental, zoning, and land use regulations, and we may need to spend additional time, effort, and
money to keep our operations and existing or acquired facilities in compliance therewith. In addition, we may be subject to
broad liabilities arising out of contamination at our currently and formerly owned or operated facilities, at locations to
which hazardous substances were transported from such facilities, and at such locations related to entities formerly
affiliated with us. Although for some such liabilities we believe we are entitled to indemnification from other entities, we
cannot assure you that such entities will view their obligations as we do or will be able to satisfy them. Failure to comply
with applicable laws and regulations may have an adverse effect on our business, results of operations, financial condition,
cash flows, and prospects.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010,
established a new consumer financial protection agency with broad regulatory powers. Although automotive dealers are
generally excluded, the Dodd-Frank Act could lead to additional, indirect regulation of automotive dealers through its
regulation of automotive finance companies and other financial institutions. In addition, we expect that the Patient
Protection and Affordable Care Act, which was signed into law on March 23, 2010, will increase our annual employee
health care costs that we fund, with the most significant increases commencing in 2014.
Furthermore, 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. The labor policy of the current administration could lead to
increased unionization efforts, which could lead to higher labor costs, disrupt our store operations, and reduce our
profitability. In addition, a recently enacted federal law that enables dealers to seek reinstatement through arbitration of
automotive franchises that were terminated in connection with the Chrysler and General Motors bankruptcies could
adversely impact us by increasing our competition and causing Chrysler and General Motors to be less efficient.
We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and term
loan facility that could have a material adverse effect on our profitability.
Most of our debt, including our vehicle floorplan payable, is subject to variable interest rates. Our variable interest rate
debt will fluctuate with changing market conditions and, accordingly, our interest expense will increase if interest rates rise.
In addition, our net inventory carrying cost (new vehicle floorplan interest expense net of floorplan assistance that we
receive from automotive manufacturers) may increase due to changes in interest rates, inventory levels, and manufacturer
assistance. We cannot assure you that a significant increase in interest rates would not have a material adverse effect on our
business, financial condition, results of operations, or cash flows.
17
Our largest stockholders, as a result of their ownership stakes in us, have the ability to exert substantial influence over
actions to be taken or approved by our stockholders. These stockholders are represented on our Board of Directors and,
therefore, may also have the ability to exert substantial influence over actions to be taken or approved by our Board. In
addition, future share repurchases and purchases by our affiliates could further reduce our public float and could
adversely impact the liquidity of our common stock.
As of February 8, 2012, ESL Investments, Inc. together with certain of its investment affiliates (collectively, “ESL”)
beneficially owns approximately 51% of the outstanding shares of our common stock. As a result, ESL has the ability to
exert substantial influence over actions to be taken or approved by our stockholders, including the election of directors and
any transactions involving a change of control. In addition, William C. Crowley, the President and Chief Operating Officer
of ESL, is one of our directors. ESL, therefore, may also have the ability to exert substantial influence over actions to be
taken or approved by our Board.
As of February 8, 2012, Cascade Investment, L.L.C. (“Cascade”), which is solely owned by William H. Gates III,
beneficially owns approximately 10% of the outstanding shares of our common stock, and the Bill & Melinda Gates
Foundation Trust (the “Trust”), of which William H. Gates III is a co-trustee, beneficially owns approximately 3% of the
outstanding shares of our common stock. As a result, Cascade and the Trust may have the ability to exert substantial
influence over actions to be taken or approved by our stockholders. In addition, Michael Larson, the chief investment
officer for William H. Gates III and Business Manager for Cascade, is one of our directors. Cascade and the Trust,
therefore, may also have the ability to exert substantial influence over actions to be taken or approved by our Board.
In the future, our largest stockholders may acquire or dispose of shares of our common stock and thereby increase or
decrease their ownership stake in us. Based on public filings made with the SEC, in the fourth quarter of 2011, ESL and the
Trust disposed of approximately 7.3 million and 5.7 million shares of our common stock, respectively, and from January 1,
2012 through February 8, 2012, ESL and the Trust disposed of approximately 6.3 million and 1.1 million shares of our
common stock, respectively. The Trust has publicly disclosed an intent to reduce its ownership to below 2% of our
common stock. Significant fluctuations in the levels of ownership of our largest stockholders could impact the volume of
trading, liquidity, and market price of our common stock.
In the aggregate, ESL, Cascade, the Trust, our executive officers, and our directors beneficially own approximately 67%
of our outstanding shares as of February 8, 2012. Future share repurchases by the Company, together with any future share
purchases by our affiliates, will further reduce our “public float” (shares owned by non-affiliate stockholders and available
for trading). Such reduction in our public float could decrease the volume of trading and liquidity of our common stock,
could lead to increased volatility in the market price of our common stock, or could adversely impact the market price of
our common stock.
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 business is dependent upon the efficient operation of our information systems. In particular, we rely on our
information systems to effectively manage our pricing strategy and tools, sales, inventory, and service efforts, the
preparation of our consolidated financial and operating data, consumer financing, and customer information. The failure of
our information systems to perform as designed or the failure to maintain and enhance or protect the integrity of these
systems could disrupt our business operations, impact sales and results of operations, expose us to customer or third-party
claims, or result in adverse publicity. Additionally, we collect, process, and retain sensitive and confidential customer
information in the normal course of our business. Despite the security measures we have in place and any additional
measures we may implement in the future, our facilities and systems, and those of our third-party service providers, could
be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of
vandalism, or other events. Any security breach or event resulting in the misappropriation, loss, or other unauthorized
disclosure of confidential information, whether by us directly or our third-party service providers, could damage our
reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise affect our results of
operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
18
ITEM 2. PROPERTIES
We lease our current corporate headquarters facility in Fort Lauderdale, Florida, pursuant to a lease expiring on
December 31, 2020. As of February 2012, we also own or lease numerous facilities relating to our operations under each of
our operating segments. These facilities are located in the following 15 states: Alabama, Arizona, California, Colorado,
Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, Ohio, Tennessee, Texas, Virginia, and Washington. These
facilities consist primarily of automobile showrooms, display lots, service facilities, collision repair centers, supply
facilities, automobile storage lots, parking lots, and offices. We believe that our facilities are sufficient for our current needs
and are in good condition in all material respects.
ITEM 3. 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, employment-related lawsuits, class actions, purported class actions, and
actions brought by governmental authorities. We do not believe that the ultimate resolution of these matters will have a
material adverse effect on our business, 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 business, results of operations, financial condition, cash flow, and prospects.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders, and Dividends
Our common stock is traded on the New York Stock Exchange under the symbol “AN.” The following table sets forth
the high and low sales prices of our common stock for the periods indicated.
2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$
$
$
$
$
$
$
$
41.51
41.55
37.30
36.07
28.50
25.05
21.96
20.87
$
$
$
$
$
$
$
$
30.46
32.18
31.07
27.32
22.22
18.08
17.99
17.18
As of February 8, 2012, there were approximately 2,053 holders of record of our common stock. A substantially greater
number of holders of our common stock are “street name” or beneficial holders, whose shares are held of record by banks,
brokers, and other financial institutions.
We have not declared or paid any cash dividends on our common stock during our two most recent fiscal years. We do
not anticipate paying cash dividends in the foreseeable future.
Issuer Purchases of Equity Securities
The table below sets forth information with respect to shares of common stock repurchased by AutoNation, Inc. during
2011.
Period
October 1, 2011 – October 31, 2011
November 1, 2011 – November 30, 2011
December 1, 2011 – December 31, 2011
Total for three months ended
December 31, 2011
Total for twelve months ended
December 31, 2011
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
1,584,800
3,465,843
1,255,299
$
$
$
33.79
34.49
36.17
6,305,942
17,147,153
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
(in millions) (1)
314.7
195.2
149.8
1,568,333
3,465,843
1,255,299
$
$
$
6,289,475
17,087,701
(1) On October 23, 2007, our Board of Directors approved a stock repurchase program that authorized us to repurchase
up to $250 million in shares of our common stock. In each of October 2009, May 2010, July 2010, May 2011,
October 2011, and January 2012, our Board increased the amount authorized under the program by $250 million. Our
stock repurchase program does not have an expiration date. In 2011, all of our shares were repurchased under our
stock repurchase program, except for 59,452 shares that were surrendered to AutoNation to satisfy tax withholding
20
obligations in connection with the vesting of restricted stock or pay for an option exercise (8,289 shares in the first
quarter of 2011, 23,008 shares in the second quarter of 2011, 11,688 shares in the third quarter of 2011, and 16,467
shares in the fourth quarter 2011).
Stock Performance Graph
The following graph and table compare the cumulative total stockholder return on our common stock from
December 31, 2006 through December 31, 2011 with the performance of: (i) the Standard & Poor’s (“S&P”) 500 Index and
(ii) a self-constructed peer group consisting of other public companies in the automotive retail market, referred to as the
“Public Auto Retail Peer Group.” The Public Auto Retail Peer Group consists of Asbury Automotive Group, Inc., CarMax,
Inc., Group 1 Automotive, Inc., Lithia Motors, Inc., Penske Automotive Group, Inc., and Sonic Automotive, Inc., and these
companies are weighted by market capitalization. We have created these comparisons using data supplied by Research
Data Group, Inc. The comparisons reflected in the graph and table are not intended to forecast the future performance of
our stock and may not be indicative of future performance. The graph and table assume that $100 was invested on
December 31, 2006 in each of our common stock, the S&P 500 Index, and the Public Auto Retail Peer Group and that any
dividends were reinvested.
Comparison of Five-Year Cumulative Return for AutoNation, Inc.,
the S&P 500 Index, and the Public Auto Retail Peer Group
Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
AutoNation Inc.
S&P 500
Public Auto Retail Peer Group
12/06
12/07
12/08
12/09
12/10
12/11
100.00
100.00
100.00
73.45
105.49
69.02
46.34
66.46
26.73
89.82
84.05
72.91
132.27
96.71
96.31
172.94
98.75
100.37
21
ITEM 6. SELECTED FINANCIAL DATA
You should read the following Selected Financial Data in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” our Consolidated Financial Statements and Notes thereto, and other
financial information included elsewhere in this Form 10-K.
(In millions, except per share data and unit sales)
Consolidated Income Statements Data:
Revenue
Total segment income (loss) (1) (2)
Income (loss) from continuing operations before income
taxes(2)
Net income (loss)(2)
Basic earnings (loss) per share:
Continuing operations(2)
Discontinued operations(2)
Net income (loss)
Weighted average common shares outstanding
Diluted earnings (loss) per share:
Continuing operations(2)
Discontinued operations(2)
Net income (loss)
Weighted average common shares outstanding
Common shares outstanding, net of treasury stock
Consolidated Balance Sheets Data:
Total assets
Long-term debt, net of current maturities
Shareholders’ equity
Retail vehicle unit sales (continuing operations):
New vehicle
Used vehicle
Total
As of and for the Years Ended December 31,
2009
2008
2010
2007
2011
$ 13,832.3
$ 12,461.0
$ 10,666.0
$ 13,238.7
$ 16,190.8
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
529.3
461.3
281.4
1.96
(0.02)
1.94
144.8
1.93
(0.02)
1.91
147.3
135.8
6,198.8
1,634.4
1,894.6
224,034
171,094
395,128
$
$
$
$
$
$
$
$
$
$
$
$
454.1
381.3
226.6
1.50
(0.06)
1.44
156.9
1.48
(0.05)
1.43
158.6
148.4
5,974.2
1,340.6
2,078.9
206,456
160,126
366,582
$
$
$
$
$
$
$
$
$
$
$
$
372.3
349.2
198.0
1.32
(0.20)
1.12
176.5
1.31
(0.20)
1.12
177.3
171.7
5,407.3
1,105.0
2,303.2
182,160
133,990
316,150
$
$
$
$
$
$
$
$
$
$
$
$
(1,360.9)
(1,401.5)
(1,243.1)
(6.82)
(0.17)
(6.99)
177.8
(6.82)
(0.17)
(6.99)
177.8
176.9
6,014.1
1,225.6
2,198.1
241,625
166,897
408,522
563.0
450.8
278.7
1.43
(0.02)
1.41
198.3
1.41
(0.02)
1.39
200.0
180.4
8,479.6
1,751.9
3,473.5
303,007
185,255
488,262
(1) Total segment income (loss), as presented in our segment information in Note 20 to the Notes to Consolidated
Financial Statements, is calculated by subtracting floorplan interest expense from operating income (loss), and is used
as a key measure of profitability by management. Operating income (loss) and floorplan interest expense are each
presented in our financial statements.
(2) During 2008, we recorded impairment charges of $1.76 billion ($1.46 billion after-tax) associated with goodwill and
franchise rights. During 2009, we reclassified impairment charges related to franchise rights of $19.1 million ($11.7
million after-tax) that were recorded during 2008 to Loss from Discontinued Operations in our Consolidated Income
Statements for the year ended December 31, 2008, as the stores associated with these impairment charges were
reclassified to discontinued operations during 2009.
See the Notes to Consolidated Financial Statements for discussion of Shareholders’ Equity (Note 9), Income Taxes
(Note 11), Earnings (Loss) Per Share (Note 12), Discontinued Operations (Note 13), Acquisitions (Note 14), and Segment
Information (Note 20), and the effect on comparability of year-to-year data. See Part II, Item 5 of this Form 10-K for a
discussion of our dividend policy.
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with Part I, including matters set forth in the “Risk Factors”
section of this Form 10-K, and our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this
Form 10-K.
Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial
Statements in order to maintain consistency and comparability between periods presented.
Except to the extent that differences among operating segments are material to an understanding of our business taken as
a whole, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of
Operations on a consolidated basis.
Overview
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31,
2011, we owned and operated 258 new vehicle franchises from 215 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 32 different brands of new vehicles. The core brands of vehicles that we sell,
representing approximately 90% of the new vehicles that we sold in 2011, are manufactured by Ford, Toyota, Nissan,
General Motors, Honda, Mercedes-Benz, BMW, and Chrysler.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, parts and
automotive repair and maintenance services (also referred to as “parts and service”), and automotive finance and insurance
products (also referred to as “finance and insurance”), which includes 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 our market brands
and advertising, improving asset management, implementing standardized processes, and increasing productivity across all
of our stores.
As of December 31, 2011, we had three operating segments: Domestic, Import, and Premium Luxury. Our Domestic
segment is comprised of retail automotive franchises that sell new vehicles manufactured by General Motors, Ford, and
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, and Lexus. The franchises in each segment also sell used
vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
For the year ended December 31, 2011, new vehicle sales accounted for approximately 54% of our total revenue, but
approximately 24% of our total gross profit. Used vehicle sales accounted for approximately 25% of our total revenue, and
approximately 12% of our total gross profit. Our parts and service and finance and insurance operations, while comprising
approximately 20% of total revenue, contributed approximately 63% of our gross profit.
Results of Operations
We had net income from continuing operations of $284.2 million and diluted earnings per share of $1.93 in 2011, as
compared to net income from continuing operations of $235.3 million and diluted earnings per share of $1.48 in 2010, and
net income from continuing operations of $233.1 million and diluted earnings per share of $1.31 in 2009.
The 2011 results were impacted by a loss on debt extinguishment, including debt refinancing costs and the write-off of
previously deferred debt issuance costs, of $2.2 million ($1.4 million after-tax).
The 2010 results were impacted by a loss on debt extinguishment, including debt refinancing costs and the write-off of
previously deferred debt issuance costs, of $19.6 million ($12.1 million after-tax).
The 2009 results were impacted by a favorable tax adjustment of approximately $12.7 million, a net gain on asset sales
and dispositions of $16.8 million ($10.4 million after-tax), and a gain on senior note repurchases of $13.0 million ($8.1
million after-tax). See Notes 7 and 11 of the Notes to Consolidated Financial Statements for additional information. Our
results of operations for 2009 were also favorably impacted by the Consumer Assistance to Recycle and Save Act of 2009,
23
commonly referred to as “cash for clunkers,” that officially began in July 2009 and ended in August 2009. Cash for
clunkers stimulated consumer demand for new vehicles, and we sold approximately 12,500 new vehicles under the
program.
Market Conditions
Full-year U.S. industry new vehicle unit sales were 12.7 million in 2011, as compared to 11.5 million in 2010 and 10.4
million in 2009. While unemployment in the United States remained high, housing markets remained depressed, and the
SAAR remained below pre-recession levels, we saw an improving automotive retail market during 2011 as compared to
the past few years, and we expect continued improvement over the next several years. We currently anticipate full-year
U.S. industry new vehicle unit sales will increase to approximately 14.0 million in 2012. However, actual sales may
materially differ.
In 2011, the earthquake and tsunami that struck Japan and the flooding in Thailand caused significant production and
supply chain disruptions that resulted in significantly reduced new vehicle production and lower new vehicle shipments by
Japanese manufacturers. These disruptions also impacted non-Japanese manufacturers that rely on components produced
in Japan and/or Thailand. In 2011, our unit sales of new vehicles were adversely impacted by these disruptions; however,
gross profit per vehicle retailed benefited significantly from constrained supply. Shipments from Japanese manufacturers
began to improve at the end of the third quarter and continued to improve in the fourth quarter of 2011. We expect that the
improving supply environment will result in lower gross profit per vehicle retailed in 2012.
While we believe that new vehicle unit sales will improve in 2012 and over the next several years, we also believe that
the automotive retail market will remain challenging and that the annual rate of new vehicle unit sales will remain below
pre-recession levels in 2012. The rate of industry new vehicle unit sales over the past few years has led to a decline in the
number of recent-model-year vehicles in operation, our primary service base, and it may take several years for this service
base to return to pre-recession levels.
Debt Refinancing
Please refer to “Liquidity and Capital Resources – Debt Refinancing Transactions” below for a discussion of certain
refinancing transactions that we completed during the second quarter of 2010, the fourth quarter of 2011, and the first
quarter of 2012.
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or market in our Consolidated Balance Sheets.
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 43,906 units in new
vehicle inventory at December 31, 2011, and 48,499 units at December 31, 2010. We continue to monitor our new vehicle
inventory levels closely based on current economic conditions and will adjust them as appropriate.
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 expected to be liquidated at wholesale auctions at a loss. Our used vehicle inventory
balance was net of cumulative write-downs of $0.9 million at December 31, 2011, and $0.4 million at December 31, 2010.
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 $2.8 million at December 31, 2011, and
$3.4 million at December 31, 2010.
Critical Accounting Policies and Estimates
We prepare our 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 at 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 Consolidated Financial Statements. Set
24
forth below are the policies and estimates that we have identified as critical to our business operations and an
understanding of our results of operations, based on the high degree of judgment or complexity in their application.
Goodwill
Goodwill is tested for impairment annually on April 30 or more frequently when events or changes in circumstances
indicate that impairment may have occurred.
We completed our annual test for impairment of goodwill as of April 30, 2011, and no goodwill impairment charges
resulted from the required impairment test. The goodwill impairment analysis is dependent on many variables used to
determine the fair value of our reporting units.
As discussed in Note 5 of the Notes to Consolidated Financial Statements, we estimate the fair value of our reporting
units using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed
weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant
estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected
future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this
process, we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization, including
consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to
obtain a controlling interest. We believe this reconciliation process is consistent with a market participant perspective. We
base our cash flow forecasts on our knowledge of the automotive industry, our recent performance, our expectations of our
future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
Actual future results may differ from those estimates. We also make certain judgments and assumptions in allocating
shared assets and liabilities to determine the carrying values for each of our reporting units.
The test for goodwill impairment is a two-step approach. A first step failure would have required us to perform the
second step of the goodwill impairment test to measure the amount of implied fair value of goodwill and, if required, the
recognition of a non-cash goodwill impairment charge. As of December 31, 2011, we have $156.4 million of goodwill
related to the Domestic reporting unit, $531.6 million related to the Import reporting unit, and $484.2 million related to the
Premium Luxury reporting unit. A significant change in the assumptions used to estimate fair value could result in a
material impairment charge to the goodwill associated with our reporting units.
The fair values of the Domestic, Import, and Premium Luxury reporting units were substantially in excess of their
carrying values as of April 30, 2011, the date of our most recent annual impairment test.
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 at least annually on April 30 for impairment. The impairment test
for intangibles with indefinite lives requires the comparison of estimated fair value to its carrying value by store. Fair
values of rights under franchise agreements 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.
We completed our annual impairment test for intangible assets with indefinite lives as of April 30, 2011, and no
impairment charges resulted from the required impairment tests. Our franchise rights, which related to 28 franchises and
totaled $212.6 million at April 30, 2011, are evaluated for impairment on a franchise-by-franchise basis. If the fair value of
each of our franchise rights had been determined to a be a hypothetical 10% lower as of the valuation date of April 30,
2011, the resulting impairment charge would have been less than $3.0 million.
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
25
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 evaluating potential impairment of long-lived assets held and used, we first compare the carrying amount of the
asset group to the asset group’s estimated future undiscounted cash flows. If the estimated future undiscounted cash flows
are less than the carrying amount of the asset group, we then compare the carrying amount of the asset group to the asset
group’s estimated fair value to determine if impairment exists. The fair value measurements for our long-lived assets held
and used are based on Level 3 inputs, which considered information obtained from third-party real estate valuation sources.
See Note 17 of the Notes to Consolidated Financial Statements for more information about our fair value measurements.
We recognize an impairment loss if the amount of the asset group’s carrying amount exceeds the asset group’s estimated
fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset group becomes its new cost basis.
For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset.
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. Any subsequent change in the fair value less cost to sell (increase or decrease) of each asset held for sale 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 or disposal group at the time it was initially classified as held for sale. Such valuations
include estimations of fair values and incremental direct costs to transact a sale. The fair value measurements for our long-
lived assets held for sale were based on Level 3 inputs, which considered information obtained from third-party real estate
valuation sources, or, in certain cases, pending agreements to sell the related assets.
We had assets held for sale in continuing operations of $70.1 million at December 31, 2011, and $62.5 million at
December 31, 2010. We recorded $1.1 million during 2011 and $2.5 million during 2010 of non-cash impairment charges
associated with assets held for sale in continuing operations to reduce the carrying value of these assets to fair value less
cost to sell. During 2011, we also recorded $1.1 million of non-cash impairment charges related to a valuation adjustment
for the cumulative depreciation not recorded during the held for sale period for continuing operations assets that were
reclassified from held for sale to held and used during 2011. The 2011 and 2010 charges are recorded as a component of
Other Expenses (Income), Net in the Consolidated Income Statements and are reported in the "Corporate and other"
category of our segment information.
We had assets held for sale in discontinued operations of $49.5 million at December 31, 2011, and $53.8 million at
December 31, 2010. We recorded $0.5 million during 2011 and $3.4 million during 2010 of non-cash impairment charges
associated with assets held for sale in discontinued operations to reduce the carrying value of these assets to fair value less
cost to sell. These charges are recorded as a component of Loss from Discontinued Operations in the Consolidated Income
Statements.
Our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply
judgment to estimate future undiscounted cash flows and asset fair values, including forecasting useful lives of the assets.
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.
Chargeback Reserve
Revenue on finance and insurance products represents commissions earned by us for: (i) loans and leases placed with
financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts sold, and
(iii) insurance and other products sold. We primarily sell these products on a straight commission basis; however we also
participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission
arrangements, which are recognized as earned.
We may be charged back for commissions related to financing, insurance, or vehicle protection products in the event of
early termination of the contracts by customers (“chargebacks”). These commissions are recorded at the time of the sale of
the vehicles, net of an estimated liability for chargebacks.
26
We estimate our liability for chargebacks on an individual product basis using our historical chargeback experience,
based primarily on cancellation data we receive from third parties that sell and administer these products. Our estimated
liability for chargebacks totaled $46.2 million at December 31, 2011, and $42.5 million at December 31, 2010.
Chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early
termination rates resulting from cancellation of vehicle protection products, defaults, refinancings, payoffs before maturity,
and other factors. While we consider these factors in the estimation of our chargeback liability, actual events may differ
from our estimates, which could result in a change in our estimated liability for chargebacks. The increase in our liability
for chargebacks is largely attributable to higher volume of vehicle sales in recent years, as well as an increase in customer
cancellations of finance and insurance products. A 10% change in our estimated chargebacks would have changed our
estimated liability for chargebacks at December 31, 2011, by approximately $4.6 million.
See Note 19 of the Notes to Consolidated Finance Statements for further information regarding chargeback liabilities.
Self Insurance Reserves
Under our self insurance programs, we retain various levels of aggregate loss limits, per claim deductibles, and claims-
handling expenses as part of our various insurance programs, including property and casualty, employee medical benefits,
automobile, and workers’ compensation. Costs in excess of this retained risk per claim may be insured under various
contracts with third-party insurance carriers. We review our claim and loss history on a periodic basis to assist in assessing
our future liability. The ultimate costs of these retained insurance risks are estimated by management and by third-party
actuarial evaluation of historical claims experience, adjusted for current trends and changes in claims-handling procedures.
Our results could be materially impacted by claims and other expenses related to our self insurance programs if future
occurrences and claims differ from these assumptions and historical trends. Self insurance reserves totaled $58.2 million at
December 31, 2011, and $64.0 million at December 31, 2010. A 10% change in the volume of claims would have changed
our estimated liability at December 31, 2011, by approximately $5.8 million. We believe our actual loss experience has not
been materially different from our recorded estimates.
Revenue Recognition
Revenue consists of the sales of new and used vehicles, sales of parts and services, commissions from finance and
insurance products, and sales of other products. We recognize revenue in the period in which products are sold or services
are provided. We recognize vehicle and finance and insurance revenue when a sales contract has been executed, the vehicle
has been delivered, and payment has been received or financing has been arranged. Rebates, holdbacks, floorplan
assistance, and certain other incentives received from manufacturers are recorded as a reduction of the cost of the vehicle
and recognized into income upon the sale of the vehicle or when earned under a specific manufacturer program, whichever
is later. See Note 1 of the Notes to Consolidated Financial Statements for further information regarding revenue
recognition.
Income Taxes
Estimates and judgments are used in the calculation of certain tax liabilities and in the determination of the
recoverability of certain deferred tax assets. In assessing the realizability of deferred tax assets, we consider whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. We regularly evaluate the
recoverability of our deferred tax assets and provide valuation allowances to offset portions of deferred tax assets due to
uncertainty surrounding the future realization of such deferred tax assets. Valuation allowances are based on historical
taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and
the implementation of tax-planning strategies. We adjust the valuation allowance in the period we determine it is more
likely than not that deferred tax assets will or will not be realized. If a change in circumstances results in a change in our
ability to realize our deferred tax assets, our tax provision would be adjusted in the period when the change in
circumstances occurs.
Accounting for our income taxes also requires significant judgment in the evaluation of our uncertain tax positions and
in the calculation of our provision for income taxes. Accounting standards related to accounting for uncertainty in income
taxes prescribe a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate
available evidence to determine if it appears more likely than not that an uncertain tax position will be sustained on an
audit by a taxing authority, based solely on the technical merits of the tax position. The second step is to measure the tax
benefit as the largest amount that is more than 50% likely of being realized upon settling the uncertain tax position.
27
Although we believe we have adequately reserved for our uncertain tax positions, the ultimate outcome of these tax
matters may differ from our expectations. We adjust our reserves in light of changing facts and circumstances, such as the
completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals
associated with uncertain tax positions until they are resolved. To the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will impact the provision for income taxes in the period in which
such determination is made.
Our future effective tax rates could be affected by changes in our deferred tax assets or liabilities, the valuation of our
uncertain tax positions, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.
Other
Additionally, significant estimates have been made by us in the accompanying Consolidated Financial Statements
including allowances for doubtful accounts, accruals related to certain legal proceedings, estimated losses from disposals of
discontinued operations, and certain assumptions related to determining stock-based compensation.
28
Reported Operating Data
($ in millions, except per
vehicle data)
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Years Ended December 31,
2011 vs. 2010
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
2011
2010
$ 7,498.9
$ 6,669.1
$
3,512.8
2,293.1
474.5
53.0
3,116.1
2,209.1
418.9
47.8
829.8
396.7
84.0
55.6
5.2
12.4
12.7
3.8
13.3
$ 5,674.6
$
2,485.9
2,109.8
348.6
47.1
1,371.3
11.0
$ 10,666.0
Total revenue
$ 13,832.3
$ 12,461.0
Gross profit:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
$
547.7
$
284.8
970.1
474.5
26.9
451.2
266.7
963.2
418.9
27.5
Total gross profit
2,304.0
2,127.5
$
$
Selling, general, and
administrative expenses
Depreciation and amortization
Franchise rights impairment
Other expenses (income), net
Operating income
Floorplan interest expense
Other interest expense
Loss on debt extinguishment
Gain on senior note repurchases
Interest income
Other gains (losses), net
Income from continuing
operations before income taxes
$
Retail vehicle unit sales:
New vehicle
Used vehicle
1,649.4
1,552.1
83.7
—
(1.1)
572.0
(42.7)
(66.0)
(2.2)
—
0.7
(0.5)
76.8
—
2.0
496.6
(42.5)
(56.1)
(19.6)
—
1.4
1.5
224,034
171,094
395,128
206,456
160,126
366,582
Revenue per vehicle retailed:
New vehicle
Used vehicle
Gross profit per vehicle retailed:
New vehicle
Used vehicle
Finance and insurance
$
$
$
$
$
33,472
17,812
2,445
1,640
1,201
$
$
$
$
$
32,303
17,266
2,185
1,612
1,143
$
$
$
$
$
994.5
630.2
99.3
70.3
0.7
1,795.0
67.2
38.0
41.0
70.3
1.2
217.7
17.5
25.4
4.7
20.2
16.8
17.5
16.6
4.4
20.2
11.4
$
$
21.4
$
6.8
0.7
13.3
384.0
228.7
922.2
348.6
26.3
8.3
1,909.8
(6.3)
1,446.9
(105.2)
(7.3)
15.2
76.7
1.5
(23.3)
408.0
(35.7)
(42.6)
—
13.0
1.1
5.4
(0.1)
1.5
(25.3)
88.6
(6.8)
(13.5)
(19.6)
(13.0)
0.3
(3.9)
96.5
18.1
6.9
55.6
(0.6)
176.5
(97.3)
(6.9)
—
3.1
75.4
(0.2)
(9.9)
17.4
—
(0.7)
(2.0)
21.7
9.2
13.3
19.5
16.0
3.7
5.9
3.7
(3.5)
3.6
461.3
$
381.3
$
80.0
21.0
$
349.2
$
32.1
17,578
10,968
28,546
1,169
546
260
28
58
8.5
6.8
7.8
3.6
3.2
11.9
1.7
5.1
182,160
133,990
316,150
$
$
$
$
$
31,152
16,303
2,108
1,670
1,103
$
$
$
$
$
24,296
26,136
50,432
1,151
963
77
(58)
40
29
Revenue mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total
Gross profit mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
Total
Operating items as a percentage of revenue:
Gross profit:
New vehicle
Used vehicle-retail
Parts and service
Total
Selling, general and administrative expenses
Operating income
Other operating items as a percentage of total gross profit:
Selling, general and administrative expenses
Operating income
2011 (%)
Years Ended December 31,
2010 (%)
2009 (%)
54.2
25.4
16.6
3.4
0.4
100.0
23.8
12.4
42.1
20.6
1.1
100.0
7.3
9.2
42.3
16.7
11.9
4.1
71.6
24.8
53.5
25.0
17.7
3.4
0.4
100.0
21.2
12.5
45.3
19.7
1.3
100.0
6.8
9.3
43.6
17.1
12.5
4.0
73.0
23.3
53.2
23.3
19.8
3.3
0.4
100.0
20.1
12.0
48.3
18.3
1.3
100.0
6.8
10.2
43.7
17.9
13.6
3.8
75.8
21.4
December 31,
2011
2010
Days supply:
New vehicle (industry standard of selling days, including fleet)
Used vehicle (trailing 31 days) (1)
50 days
31 days
63 days
34 days
(1) As of December 31, 2011, we have revised our method of calculating used vehicle days supply from a dollar day supply to a unit
day supply (including wholesale units). We have revised prior periods to conform to our revised method of calculation.
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.
($ in millions)
Floorplan assistance
Floorplan interest expense (new vehicles)
Net new vehicle inventory carrying benefit
2011
2010
Years Ended December 31,
Variance
2011 vs. 2010
2009
Variance
2010 vs. 2009
$
$
61.1
(40.3)
20.8
$
$
55.6
(40.2)
15.4
$
$
5.5
(0.1)
5.4
$
$
47.4
(33.5)
13.9
$
$
8.2
(6.7)
1.5
30
Same Store Operating Data
We have presented below our operating results on a same store basis to reflect our internal performance. The “Same
Store” amounts presented below include the results of dealerships for the identical months in each period presented in the
comparison, commencing with the first full month in which the dealership was owned by us. For example, the results for a
dealership acquired in February 2010 would be included only in our same store comparison of 2011 to 2010, not in our
same store comparison of 2010 to 2009. Results for a dealership that we classified as a discontinued operation in October
2011 would be removed entirely from our same store comparison of 2011 to 2010. Therefore, the amounts presented in the
year 2010 column that is being compared to the 2011 column may differ from the amounts presented in the year 2010
column that is being compared to the year 2009 column.
($ in millions, except
per vehicle data)
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2010
2009
Variance
Favorable /
(Unfavorable)
%
Variance
Years Ended December 31,
Years Ended December 31,
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and
insurance, net
Other
$ 7,307.6
$ 6,669.1
$
3,415.0
2,250.9
3,116.1
2,209.1
463.9
52.2
418.9
47.8
638.5
298.9
41.8
45.0
4.4
9.6
9.6
1.9
10.7
$ 6,587.4
$ 5,665.2
$
3,069.5
2,173.4
2,476.2
2,105.2
414.3
46.8
348.0
45.6
922.2
593.3
68.2
66.3
1.2
16.3
24.0
3.2
19.1
1,028.6
8.3
$ 12,291.4
$ 10,640.2
$
$
Total revenue
$ 13,489.6
$ 12,461.0
Gross profit:
New vehicle
Used vehicle
Parts and service
Finance and
insurance
Other
$
533.4
$
279.7
950.7
463.9
26.4
451.2
266.7
963.2
418.9
27.5
Total gross profit
$ 2,254.1
$ 2,127.5
$
Retail vehicle unit
sales:
New vehicle
Used vehicle
Total
Revenue per vehicle
retailed:
New vehicle
Used vehicle
Gross profit per vehicle
retailed:
New vehicle
Used vehicle
Finance and
insurance
217,685
167,563
385,248
206,456
160,126
366,582
$ 33,570
$ 32,303
$ 17,818
$ 17,266
$
$
$
2,450
1,642
1,204
$
$
$
2,185
1,612
1,143
$
$
$
$
$
$
$
18.2
$
445.3
$
4.9
(1.3)
10.7
263.5
947.6
414.3
27.1
384.0
227.4
920.7
348.0
26.0
6.0
$ 2,097.8
$ 1,906.1
$
5.4
4.6
5.1
3.9
3.2
203,463
158,150
361,613
181,855
133,421
315,276
$ 32,376
$ 31,152
$ 17,272
$ 16,315
12.1
1.9
5.3
$
$
$
2,189
1,613
1,146
$
$
$
2,112
1,667
1,104
$
$
$
$
$
1,651.2
15.5
61.3
36.1
26.9
66.3
1.1
191.7
21,608
24,729
46,337
1,224
957
77
(54)
42
16.0
15.9
2.9
19.1
10.1
11.9
18.5
14.7
3.9
5.9
3.6
(3.2)
3.8
82.2
13.0
(12.5)
45.0
(1.1)
126.6
11,229
7,437
18,666
1,267
552
265
30
61
31
Revenue mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total
Gross profit mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
Total
Operating items as a percentage of revenue:
Gross profit:
New vehicle
Used vehicle-retail
Parts and service
Total
Years Ended December 31,
2010 (%)
2011 (%)
Years Ended December 31,
2009 (%)
2010 (%)
53.5
25.0
17.7
3.4
0.4
100.0
21.2
12.5
45.3
19.7
1.3
100.0
6.8
9.3
43.6
17.1
53.6
25.0
17.7
3.4
0.3
100.0
21.2
12.6
45.2
19.7
1.3
100.0
6.8
9.3
43.6
17.1
53.2
23.3
19.8
3.3
0.4
100.0
20.1
11.9
48.3
18.3
1.4
100.0
6.8
10.2
43.7
17.9
54.2
25.3
16.7
3.4
0.4
100.0
23.7
12.4
42.2
20.6
1.1
100.0
7.3
9.2
42.2
16.7
32
New Vehicle
($ in millions, except per vehicle
data)
Reported:
Revenue
Gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
Gross profit as a percentage of
revenue
Days supply (industry standard of
selling days, including fleet)
Same Store:
Revenue
Gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
Gross profit as a percentage of
revenue
2011 compared to 2010
Years Ended December 31,
2011 vs. 2010
2010 vs. 2009
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
$
$
7,498.9
547.7
224,034
33,472
2,445
$
$
$
$
6,669.1
451.2
206,456
32,303
2,185
$
$
$
$
829.8
96.5
17,578
1,169
260
7.3%
6.8%
50 days
63 days
12.4
21.4
8.5
3.6
11.9
$
$
$
$
5,674.6
384.0
182,160
31,152
2,108
$
$
$
$
6.8%
994.5
67.2
24,296
1,151
77
17.5
17.5
13.3
3.7
3.7
Years Ended December 31,
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
2010
2009
2011
2010
$ 7,307.6
$ 6,669.1
$
$
$
533.4
$
451.2
217,685
206,456
33,570
$ 32,303
2,450
$
2,185
$
$
$
$
638.5
82.2
11,229
1,267
265
9.6
$ 6,587.4
$ 5,665.2
18.2
$
445.3
$
384.0
5.4
3.9
203,463
181,855
$ 32,376
$ 31,152
12.1
$
2,189
$
2,112
$
$
$
$
922.2
61.3
21,608
1,224
77
16.3
16.0
11.9
3.9
3.6
7.3%
6.8%
6.8%
6.8%
Same store new vehicle revenue increased during 2011, as compared to 2010, as a result of an increase in same store
unit volume and an increase in same store revenue per new vehicle retailed. The increase in same store unit volume was
primarily due to improved market conditions, including improved credit availability offered to consumers and increased
consumer demand, as well as reinstatement or expansion of certain manufacturer leasing programs. The increase in same
store unit volume for 2011 was partially offset by the Japan supply constraints, which adversely impacted unit sales in the
second, third, and fourth quarters of 2011, and by a decrease in manufacturer incentives.
Same store revenue per new vehicle retailed increased during 2011, as compared to 2010, primarily due to a shift in mix
away from import vehicles, which have relatively lower average selling prices, toward domestic and premium luxury
vehicles. Same store revenue per new vehicle retailed also benefited from an increase in the average selling prices for new
vehicles in all three segments - Domestic, Import, and Premium Luxury.
Same store gross profit per new vehicle retailed benefited from a shift in mix away from import vehicles, which
generate relatively lower gross profit per vehicle retailed, due to the tight supply of vehicles produced by Japanese
manufacturers, as well as from an increase in new vehicle gross profit in all three segments. The increase in same store
gross profit per vehicle retailed was partially offset by a decrease in certain performance-based manufacturer incentives
primarily related to premium luxury vehicles previously sold as compared to the prior year. These incentives favorably
impacted gross profit by $8.0 million in 2011, compared to $13.1 million in 2010. We were able to recognize these
incentives due to our achievement of certain manufacturer incentive program goals during 2011 and 2010.
33
See “Market Conditions” above for a discussion of the automotive retail environment, including our expectations
regarding gross profit per vehicle retailed in 2012.
2010 compared to 2009
Same store new vehicle revenue increased during 2010, as compared to 2009, primarily as a result of an increase in
same store unit volume and an increase in same store revenue per new vehicle retailed. The increase in same store unit
volume was primarily due to improved market conditions, including improved credit availability offered to consumers, the
reinstatement or expansion of certain manufacturer leasing programs, and an increase in consumer confidence.
Same store revenue per new vehicle retailed benefited from an increase in the average selling prices for new vehicles in
all three segments – Domestic, Import, and Premium Luxury – primarily due to improved market conditions. Same store
revenue per new vehicle retailed also benefited from a shift in mix toward large vehicles, which have relatively higher
average selling prices.
Same store gross profit per new vehicle retailed increased during 2010, as compared to 2009, due in part to a recovery in
margins for both small and large vehicles in all three segments as a result of improved market conditions. Additionally, we
achieved certain manufacturer incentive program goals during the fourth quarter of 2010. As a result, we were able to
recognize certain performance-based manufacturer incentives, primarily related to premium luxury vehicles previously
sold, which favorably impacted gross profit by $13.1 million and operating income by $11.8 million.
New Vehicle Inventories
Our new vehicle inventories were $1.4 billion or 50 days supply at December 31, 2011, as compared to new vehicle
inventories of $1.5 billion or 63 days supply at December 31, 2010. We had 43,906 units in new vehicle inventory at
December 31, 2011, and 48,499 units at December 31, 2010.
The following table details net new vehicle inventory carrying benefit, consisting of new vehicle floorplan interest
expense net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of
new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit.
($ in millions)
Floorplan assistance
Floorplan interest expense (new vehicles)
Net new vehicle inventory carrying benefit
2011 compared to 2010
Years Ended December 31,
2011
2010
Variance 2011
vs. 2010
2009
Variance 2010
vs. 2009
$
$
61.1
$
55.6
$
5.5
$
47.4
$
(40.3)
(40.2)
(0.1)
(33.5)
20.8
$
15.4
$
5.4
$
13.9
$
8.2
(6.7)
1.5
The net new vehicle inventory carrying benefit increased in 2011, as compared to 2010, due to an increase in floorplan
assistance as a result of higher new vehicle sales and an increase in the floorplan assistance rate per unit, partially offset by
an increase in floorplan interest expense primarily due to higher average vehicle floorplan payable balances during the
year.
2010 compared to 2009
The net new vehicle inventory carrying benefit increased in 2010, as compared to 2009, due to an increase in floorplan
assistance as a result of higher new vehicle sales and an increase in the floorplan assistance rate per unit, partially offset by
an increase in floorplan interest expense primarily due to higher average vehicle floorplan payable balances during the
year.
34
Used Vehicle
($ in millions, except per vehicle
data)
Years Ended December 31,
2011 vs. 2010
2010 vs. 2009
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
Reported:
Retail revenue
Wholesale revenue
Total revenue
Retail gross profit
Wholesale gross profit
Total gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
Gross profit as a percentage of retail
revenue
Days supply (trailing 31 days) (1)
$ 3,047.6
$ 2,764.8
465.2
351.3
$ 3,512.8
$ 3,116.1
$
$
$
$
280.6
4.2
284.8
171,094
17,812
1,640
$
$
$
$
258.1
8.6
266.7
160,126
17,266
1,612
$
$
$
$
$
$
9.2%
9.3%
31 days
34 days
282.8
113.9
396.7
22.5
(4.4)
18.1
10,968
546
28
10.2
$ 2,184.4
32.4
301.5
12.7
$ 2,485.9
8.7
$
223.8
4.9
228.7
133,990
16,303
1,670
$
$
$
6.8
6.8
3.2
1.7
$
$
$
$
$
$
10.2%
580.4
49.8
630.2
34.3
3.7
38.0
26,136
963
(58)
26.6
16.5
25.4
15.3
16.6
19.5
5.9
(3.5)
(1) As of December 31, 2011, we have revised our method of calculating used vehicle days supply from a dollar day supply to a unit
day supply (including wholesale units). We have revised prior periods to conform to our revised method of calculation.
Years Ended December 31,
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2010
2009
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
$
$
$
$
220.8
78.1
298.9
17.0
(4.0)
13.0
7,437
552
30
8.0
$ 2,731.5
$ 2,176.8
22.2
9.6
6.6
4.9
4.6
3.2
1.9
338.0
299.4
$ 3,069.5
$ 2,476.2
$
$
$
$
255.1
8.4
263.5
158,150
17,272
1,613
$
$
$
$
222.4
5.0
227.4
133,421
16,315
1,667
$
$
$
$
$
$
554.7
38.6
593.3
32.7
3.4
36.1
24,729
957
(54)
25.5
12.9
24.0
14.7
15.9
18.5
5.9
(3.2)
2011
2010
Same Store:
Retail revenue
$ 2,985.6
$ 2,764.8
Wholesale revenue
429.4
351.3
Total revenue
$ 3,415.0
$ 3,116.1
$
$
$
$
275.1
4.6
279.7
167,563
17,818
1,642
$
$
$
$
258.1
8.6
266.7
160,126
17,266
1,612
Retail gross profit
Wholesale gross profit
Total gross profit
Retail vehicle unit
sales
Revenue per vehicle
retailed
Gross profit per
vehicle retailed
Gross profit as
a percentage of
retail revenue
9.2%
9.3%
9.3%
10.2%
2011 compared to 2010
Same store retail used vehicle revenue increased during 2011, as compared to 2010, as a result of both an increase in
same store unit volume and an increase in revenue per used vehicle retailed. The increase in used vehicle sales volume was
driven in part by an increase in sales of value-priced vehicles. We opened 19 Value Vehicle Outlets (“VVOs”) primarily in
the second half of 2010 and an additional 8 in 2011 to address industry supply constraints and meet market demand.
Through our VVOs, which are located on existing store facilities, we sell vehicles that we would have traditionally
35
wholesaled with an average retail price lower than that of used vehicles we typically retail. Additionally, used vehicle sales
volumes benefited from an increase in trade-in volume associated with the increase in new vehicle sales volume. These
increases were partially offset by a decline in certified pre-owned vehicle sales.
Same store revenue per used vehicle retailed benefited from an increase in the average selling prices for used vehicles in
the Domestic and Import segments primarily due to tighter supply, which has driven up the wholesale values of used
vehicles. Used vehicle supply has been impacted by historically low new vehicle unit sales in recent years, and the decline
in off-lease vehicles, as well as by customers retaining their vehicles for longer periods of time. The increase in same store
revenue per used vehicle retailed was partially offset by a decline in revenues as a result of increased sales of value-priced
vehicles, which have lower average retail prices than used vehicles we typically retail.
Same store gross profit per used vehicle retailed increased during 2011, as compared to 2010, due to modest increases in
the first half of 2011, primarily due to temporarily elevated used vehicle values driven by Japanese new vehicle supply
constraints. These increases were partially offset by declines in the second half of 2011 related to the liquidation of
additional inventory acquired in the second quarter of 2011 when the timeline for the Japanese disruption in new vehicle
inventory was anticipated to be longer. The increase in same store gross profit per used vehicle retailed was also partially
offset by increased sales of value-priced vehicles, which generate a relatively lower gross profit per vehicle retailed than
used vehicles we typically retail.
2010 compared to 2009
Same store retail used vehicle revenue increased during 2010, as compared to 2009, as a result of both an increase in
same store unit volume and an increase in same store revenue per used vehicle retailed. The increase in used vehicle sales
volume was driven in part by improved market conditions, including improved credit availability offered to consumers and
an increase in consumer confidence. Additionally, used vehicle sales volumes benefited from an increase in trade-in
volume associated with the increase in new vehicle sales volume.
Same store revenue per used vehicle retailed benefited from a shift in mix toward premium luxury vehicles, which have
a higher average selling price than domestic and import vehicles, as well as an increase in the average selling prices for
used vehicles in all three segments. The increase in same store revenue per used vehicle retailed was also due in part to
tighter supply, which has driven up the wholesale values of used vehicles. Used vehicle inventory has been impacted by the
decline in new vehicle sales in recent years, as well as by customers retaining their vehicles for longer periods of time.
Same store revenue per new vehicle retailed also benefited from a shift in mix toward certified pre-owned vehicles, which
have higher average selling prices.
Same store gross profit per used vehicle retailed decreased during 2010, as compared to 2009. While credit availability
improved in 2010 as compared to 2009, gross profit per used vehicle retailed was adversely impacted by lender advances
not increasing at the same level as used vehicle values.
Used Vehicle Inventories
Used vehicle inventories were $286.3 million or 31 days supply at December 31, 2011, compared to $271.8 million or
34 days at December 31, 2010.
36
Parts & Service
Parts and service revenue is primarily derived from vehicle repairs paid directly by the customers or via reimbursement
from manufacturers and others under warranty programs.
($ in millions)
Reported:
Revenue
Gross profit
Years Ended December 31,
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
2011
2010
$ 2,293.1
$ 2,209.1
$
970.1
$
963.2
$
$
84.0
6.9
3.8
0.7
$ 2,109.8
$
922.2
$
$
99.3
41.0
4.7
4.4
Gross profit as a percentage
of revenue
42.3%
43.6%
43.7%
Years Ended December 31,
2011
2010
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2010
2009
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
$ 2,250.9
$ 2,209.1
$
950.7
$
963.2
$
$
41.8
(12.5)
1.9
$ 2,173.4
$ 2,105.2
(1.3)
$
947.6
$
920.7
$
$
68.2
26.9
3.2
2.9
42.2%
43.6%
43.6%
43.7%
Same Store:
Revenue
Gross profit
Gross profit as
a percentage
of revenue
2011 compared to 2010
Same store parts and service gross profit decreased during 2011, as compared to 2010, primarily due to a decline in
gross profit associated with warranty of $19.5 million, partially offset by an increase in gross profit associated with
customer-pay service of $6.5 million and an increase in gross profit associated with the preparation of vehicles for sale and
service work outsourced to third-parties of $4.1 million.
Warranty gross profit was adversely impacted during 2011 by fewer vehicles in operation as a result of historically
lower vehicle sales in recent years and, to a lesser extent, improved quality of vehicles manufactured in recent years.
Additionally, in 2010, warranty gross profit benefited from an increase in warranty service related to the rise of
manufacturer recalls in the automotive industry. Customer-pay service gross profit benefited from improved market
conditions and better marketing of products and services in the service department. Gross profit associated with the
preparation of vehicles for sale and service work outsourced to third-parties was favorably impacted by higher new and
used vehicle sales volume.
2010 compared to 2009
Same store parts and service gross profit increased during 2010, as compared to 2009, primarily due to increases in
gross profit associated with the preparation of vehicles for sale and service work outsourced to third-parties of $23.8
million, warranty of $2.5 million, and wholesale and retail counter parts of $2.5 million.
Gross profit associated with the preparation of vehicles for sale and service work outsourced to third-parties benefited
from higher new and used vehicle sales volume. Warranty gross profit was favorably impacted by the rise in manufacturer
recalls in the automotive industry, partially offset by an adverse impact from fewer vehicles in operation as a result of
lower vehicle sales in recent years and, to a lesser extent, improved quality of vehicles manufactured in recent years.
Wholesale and retail counter parts gross profit increased in 2010 primarily due to improving market conditions.
37
Finance and Insurance
($ in millions, except per vehicle
data)
Reported:
Years Ended December 31,
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
2011
2010
Revenue and gross profit
Gross profit per vehicle retailed
$
$
474.5
1,201
$
$
418.9
1,143
$
$
55.6
58
13.3
5.1
$
$
348.6
1,103
$
$
70.3
40
20.2
3.6
Years Ended December 31,
2011 vs. 2010
Variance
Favorable /
(Unfavorable)
%
Variance
2011
2010
2010
2009
Same Store:
Revenue and gross profit
$ 463.9
$ 418.9
Gross profit per vehicle
retailed
$ 1,204
$ 1,143
$
$
45.0
10.7
$ 414.3
$ 348.0
61
5.3
$ 1,146
$ 1,104
2010 vs. 2009
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
66.3
19.1
42
3.8
2011 compared to 2010
Same store finance and insurance revenue and gross profit increased during 2011, as compared to 2010, primarily due to
an increase in new and used vehicle sales volume and an increase in same store finance and insurance revenue and gross
profit per vehicle retailed, partially offset by a decrease in same store new vehicle sales in the Import segment.
Same store finance and insurance revenue and gross profit per vehicle retailed increased during 2011, as compared to
2010, due to an increase in revenue associated with arranging customer financing, an increase in margin on product
contracts sold, more customers financing vehicles through the dealerships, and an increase in amounts financed per
transaction. This benefit was partially offset by a decline in profit resulting from chargeback experience.
2010 compared to 2009
Same store finance and insurance revenue and gross profit increased during 2010, as compared to 2009, primarily due to
an increase in new and used vehicle sales volume.
Same store finance and insurance revenue and gross profit per vehicle retailed increased during 2010, as compared to
2009. Finance and insurance revenue and gross profit per vehicle retailed during 2010 benefited from more customers
financing vehicles through the dealerships and an increase in amounts financed per transaction.
38
Segment Results
In the following table of financial data, total segment income of the operating segments is reconciled to consolidated
Years Ended December 31,
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
operating income.
($ in millions)
Revenue
Domestic
Import
Premium Luxury
Corporate and other
Total revenue
*Segment income (loss)
Domestic
Import
Premium Luxury
Corporate and other
Total segment income
Add: Floorplan interest
expense
Operating income
$
4,655.4
$
4,111.3
$
5,121.0
3,908.7
147.2
4,708.4
3,509.0
132.3
13,832.3
$
12,461.0
180.0
$
240.3
230.9
152.7
199.5
208.4
$
$
(121.9)
(106.5)
529.3
$
454.1
$
42.7
42.5
572.0
$
496.6
$
$
$
$
$
544.1
412.6
399.7
14.9
13.2
$
3,380.5
$
8.8
11.4
11.3
4,103.8
3,073.1
108.6
1,371.3
11.0
$ 10,666.0
$
$
17.9
$
20.5
10.8
101.4
175.4
175.5
(80.0)
16.6
$
372.3
$
35.7
15.2
$
408.0
$
27.3
40.8
22.5
(15.4)
75.2
(0.2)
75.4
730.8
604.6
435.9
23.7
1,795.0
51.3
24.1
32.9
(26.5)
81.8
(6.8)
88.6
11,786
10,042
2,468
24,296
21.6
14.7
14.2
21.8
16.8
50.6
13.7
18.7
22.0
21.7
22.4
10.3
7.7
13.3
*Segment income (loss) is defined as operating income less floorplan interest expense.
Retail new vehicle unit sales:
Domestic
Import
Premium Luxury
76,335
108,128
39,571
224,034
64,317
107,580
34,559
206,456
12,018
548
5,012
17,578
18.7
0.5
14.5
8.5
52,531
97,538
32,091
182,160
39
Domestic
The Domestic segment operating results included the following:
($ in millions)
Revenue
Segment income
Years Ended December 31,
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
$ 4,655.4
$ 4,111.3
$
180.0
$
152.7
$
$
544.1
27.3
12,018
13.2
$ 3,380.5
17.9
$
101.4
18.7
52,531
$
$
730.8
51.3
11,786
21.6
50.6
22.4
Retail new vehicle unit sales
76,335
64,317
2011 compared to 2010
Domestic revenue increased during 2011, as compared to 2010, due to an increase in new and used unit volume and an
increase in revenue per used vehicle retailed. The increase in new unit volume was primarily due to improved market
conditions, including increased consumer demand, as well as reinstatement or expansion of certain manufacturer leasing
programs. New revenue and unit sales increased for all three domestic manufacturers as compared to 2010. The increases
in used unit volume and revenue per used vehicle retailed were primarily due to improved market conditions. The increase
in revenue per used vehicle retailed was partially offset by a decline in revenues as a result of increased sales of value-
priced vehicles, which have lower average retail prices than used vehicles we typically retail.
Domestic segment income increased during 2011, as compared to 2010, primarily due to an increase in new and used
unit volume. Domestic segment income also benefited from an increase in finance and insurance revenue and gross profit.
Increases in Domestic segment income were partially offset by an increase in volume-related expenses.
2010 compared to 2009
Domestic revenue increased during 2010, as compared to 2009, due to an increase in new and used unit volume and an
increase in revenue per new and used vehicle retailed. The increase in new and used unit volume was primarily due to
improved market conditions, including improved credit availability offered to consumers, reinstatement or expansion of
certain manufacturer leasing programs, and an increase in consumer confidence. Additionally, new vehicle unit volume in
the prior year was adversely impacted by customer uncertainty surrounding the Chrysler and General Motors bankruptcies.
Revenue per new and used vehicle retailed benefited from an increase in the average selling prices for both small and
large vehicles. New and used revenue and unit sales increased for both Ford and General Motors as compared to the prior
year.
Domestic segment income increased during 2010, as compared to 2009, primarily due to an increase in new and used
unit volume and a recovery in new vehicle margins for both small and large vehicles as a result of improved market
conditions. Domestic segment income also benefited from an increase in finance and insurance revenue and gross profit
due to higher new and used vehicle sales. Increases in Domestic segment income were partially offset by an increase in
volume-related expenses.
In the second quarter of 2009, each of Chrysler and General Motors filed voluntary petitions for relief under Chapter 11
of the United States Bankruptcy Code. In connection with the bankruptcies, we closed certain Chrysler and General Motors
dealerships, the operating results of which were not material to our Consolidated Financial Statements.
40
Import
The Import segment operating results included the following:
($ in millions)
Revenue
Segment income
Years Ended December 31,
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
$ 5,121.0
$ 4,708.4
$
240.3
$
199.5
$
$
412.6
40.8
548
8.8
$ 4,103.8
20.5
$
175.4
$
$
0.5
97,538
604.6
24.1
10,042
14.7
13.7
10.3
Retail new vehicle unit sales
108,128
107,580
2011 compared to 2010
Import revenue increased during 2011, as compared to 2010, due to an increase in used unit volume, primarily due to
the recent acquisitions we completed in the third quarter of 2010 and the first quarter of 2011, and an increase in revenue
per new and used vehicle retailed. Revenue per new and used vehicle retailed benefited from an increase in the average
selling prices for both new and used vehicles, due in part to the Japan supply constraints.
Import segment income increased during 2011, as compared to 2010, primarily due to the effect of the recent
acquisitions noted above, as well as an increase in used unit volume and new and used vehicle gross profit due to the Japan
supply constraints. Import segment income also benefited from an increase in finance and insurance revenue and gross
profit. Increases in Import segment income were partially offset by an increase in selling, general, and administrative
expenses primarily due to an increase in sales commissions resulting from higher new and used vehicle gross profit.
See “Market Conditions” above for a discussion of the automotive retail environment, including our expectations
regarding gross profit per vehicle retailed in 2012.
2010 compared to 2009
Import revenue increased during 2010, as compared to 2009, due to an increase in new and used unit volume and an
increase in revenue per new and used vehicle retailed. The increase in new and used unit volume was primarily due to
improved market conditions, including improved credit availability offered to consumers and an increase in consumer
confidence. Revenue per new and used vehicle retailed benefited from an increase in the average selling prices for both
small and large vehicles.
Import segment income increased during 2010, as compared to 2009, primarily due to a recovery in new vehicle
margins for both small and large vehicles as a result of improved market conditions. Import segment income also benefited
from an increase in parts and service business, which has higher margins, and an increase in finance and insurance revenue
and gross profit due to higher new and used vehicle sales. Increases in Import segment income were partially offset by an
increase in volume-related expenses.
41
Premium Luxury
The Premium Luxury segment operating results included the following:
Years Ended December 31,
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
$
$
3,908.7
230.9
39,571
$
$
3,509.0
208.4
34,559
399.7
22.5
5,012
$
$
11.4
10.8
14.5
$
$
3,073.1
175.5
32,091
435.9
32.9
2,468
14.2
18.7
7.7
($ in millions)
Revenue
Segment income
Retail new vehicle unit sales
2011 compared to 2010
Premium Luxury revenue increased during 2011, as compared to the same period in 2010, primarily due to an increase
in new and used unit volume and an increase in revenue per new vehicle retailed. The increases in new and used unit
volume and revenue per new vehicle retailed was primarily due to improved market conditions, including increased
consumer demand.
Premium Luxury segment income increased during 2011, as compared to 2010, primarily due to an increase in new unit
volume and supply and demand imbalances for vehicles produced by Japanese manufacturers as a result of the Japan
supply constraints. Premium Luxury segment income also benefited from an increase in finance and insurance revenue and
gross profit. The increases in Premium Luxury segment income were partially offset by an increase in volume-related
expenses, as well as by a decrease in certain performance-based manufacturer incentives as compared to the prior year. As
noted above in the “New Vehicle” section, we achieved certain manufacturer incentive program goals during 2011 and
2010.
See “Market Conditions” above for a discussion of the automotive retail environment, including our expectations
regarding gross profit per vehicle retailed in 2012.
2010 compared to 2009
Premium Luxury revenue increased during 2010, as compared to 2009, due to an increase in new and used unit volume
and an increase in revenue per new and used vehicle retailed. The increase in new and used unit volume was primarily due
to improved market conditions, including improved credit availability offered to consumers and an increase in consumer
confidence. Revenue per new and used vehicle retailed benefited primarily from an increase in the average selling prices
for large vehicles.
Premium Luxury segment income increased during 2010, as compared to 2009, primarily due to a recovery in new
vehicle margins for small and large vehicles, as a result of improved market conditions. Premium Luxury segment income
also benefited from an increase in finance and insurance revenue and gross profit due to higher new and used vehicle sales.
Additionally, as noted above in “New Vehicle” section, we achieved certain manufacturer incentive program goals during
the fourth quarter of 2010. As a result, we were able to recognize certain performance-based manufacturer incentives,
primarily related to premium luxury vehicles previously sold, which favorably impacted Premium Luxury segment income.
Increases in Premium Luxury segment income were partially offset by an increase in volume-related expenses.
42
Selling, General, and Administrative Expenses
Our Selling, General, and Administrative expenses (“SG&A”) consist primarily of compensation, including salaries,
commissions and incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer
advertising rebates), occupancy costs, legal, accounting, and professional services, and general corporate expenses. The
following table presents the major components of our SG&A.
($ in millions)
Reported:
Compensation
Advertising
Store and corporate overhead
Years Ended December 31,
2011
2010
Variance
Favorable /
(Unfavorable)
%
Variance
2009
Variance
Favorable /
(Unfavorable)
%
Variance
$
1,072.0
$
1,011.9
$
130.2
447.2
126.2
414.0
(60.1)
(4.0)
(33.2)
(97.3)
(5.9)
$
921.9
$
(3.2)
(8.0)
116.0
409.0
(90.0)
(10.2)
(5.0)
(6.3)
$
1,446.9
$
(105.2)
(9.8)
(8.8)
(1.2)
(7.3)
Total
$
1,649.4
$
1,552.1
$
SG&A as a % of total gross
profit:
Compensation
Advertising
Store and corporate overhead
Total
2011 compared to 2010
46.5
5.7
19.4
71.6
47.6
5.9
19.5
73.0
110
20
10
140
bps
bps
bps
bps
48.3
6.1
21.4
75.8
70
20
190
280
bps
bps
bps
bps
SG&A expenses increased in 2011, as compared to 2010, due to a volume-driven increase in compensation expense, an
increase in store and corporate overhead expenses, including a $4.9 million increase associated with hail-storm related
losses, and a $7.8 million increase in gross advertising expenditures, partially offset by a $3.8 million increase in
advertising reimbursements from manufacturers. As a percentage of total gross profit, SG&A expenses decreased to 71.6%
in 2011 from 73.0% in 2010 resulting from our continued effective management of our cost structure and improved gross
profit.
2010 compared to 2009
SG&A expenses increased in 2010, as compared to 2009, primarily due to a volume-driven increase in compensation
expense and a $20.0 million increase in gross advertising expenditures, partially offset by a $9.8 million increase in
advertising reimbursements from manufacturers. As a percentage of total gross profit, SG&A expenses decreased to 73.0%
in 2010 from 75.8% in 2009 resulting from our continued effective management of our cost structure and improved gross
profit.
Non-Operating Income (Expenses)
Floorplan Interest Expense
Floorplan interest expense was $42.7 million in 2011, $42.5 million in 2010, and $35.7 million in 2009.
2011 compared to 2010
The increase in floorplan interest expense of $0.2 million in 2011, as compared to 2010, is primarily the result of higher
average vehicle floorplan balances, partially offset by lower floorplan interest rates.
2010 compared to 2009
The increase in floorplan interest expense of $6.8 million in 2010, as compared to 2009, is primarily the result of higher
average vehicle floorplan balances.
43
Other Interest Expense
Other interest expense was incurred primarily on borrowings under our term loan facilities, revolving credit facilities,
mortgage facility, and outstanding senior unsecured notes. Other interest expense was $66.0 million in 2011, $56.1 million
in 2010, and $42.6 million in 2009.
2011 compared to 2010
The increase in other interest expense of $9.9 million in 2011, as compared to 2010, was primarily due to a $10.7
million increase in interest expense resulting from higher levels of debt outstanding during the year associated with our
6.75% Senior Notes due 2018 and revolving credit facilities, and a $1.2 million increase in interest expense resulting from
higher interest rates on our prior term loan facility due 2014 . These increases were partially offset by a $3.7 million
decrease due to lower levels of debt outstanding during the year associated with our Floating Rate Senior Notes due 2013,
7% Senior Notes due 2014, and mortgage facility.
2010 compared to 2009
The increase in other interest expense of $13.5 million in 2010, as compared to 2009, was primarily due to a $22.8
million increase in interest expense resulting from higher levels of debt outstanding during the year associated with our
6.75% Senior Notes due 2018 and revolving credit facilities, and a $3.6 million increase in interest expense resulting from
higher interest rates on our prior term loan facility due 2014. These increases were partially offset by a $10.6 million
decrease due to lower levels of debt outstanding during the year associated with our Floating Rate Senior Notes due 2013,
7% Senior Notes due 2014, and mortgage facility.
Loss on Debt Extinguishment
We expensed $2.2 million pre-tax in the fourth quarter of 2011 and $19.6 million pre-tax in the second quarter of 2010
related to certain debt refinancing transactions that we completed in each respective period. These expenses included $0.4
million during 2011 and $3.5 million during 2010 for the write-off of previously deferred debt issuance costs. These
expenses are recorded in Loss on Debt Extinguishment in the accompanying Consolidated Income Statements.
Gain on Senior Note Repurchases
During 2009, we repurchased $48.4 million aggregate principal amount of our Floating Rate Senior Notes due 2013,
and $40.0 million aggregate principal amount of our 7% Senior Notes due 2014. We recorded a gain of $13.0 million in
connection with these repurchases, net of the write-off of related unamortized debt issuance costs, which is recorded in
Gain on Senior Note Repurchases in the accompanying Consolidated Income Statements.
Provision for Income Taxes
Income taxes are provided 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 dependent upon our geographic revenue mix.
Our effective income tax rate was 38.4% in 2011, and reflects the benefit of certain favorable tax adjustments. As of
December 31, 2011, we had unrecognized tax benefits recorded in accordance with an accounting standard related to
unrecognized tax benefits. See Note 11 of the Notes to Consolidated Financial Statements for additional discussion. We do
not expect that our unrecognized tax benefits will significantly increase or decrease during the twelve months beginning
January 1, 2012.
Our effective income tax rate was 38.3% in 2010, and reflects the benefit of certain favorable tax adjustments.
Our effective income tax rate was 33.2% in 2009. During the fourth quarter of 2009, we completed a restructuring of
certain of our subsidiaries, a consequence of which was the elimination of a deferred tax liability of $12.7 million, which
was reflected as a benefit in our tax provision for the three months ended December 31, 2009.
Discontinued Operations
Discontinued operations are related to stores that were sold or terminated, that we have entered into an agreement to sell
or terminate, or for which we otherwise deem a proposed sales transaction or termination to be probable, with no material
44
changes expected. We account for a store that either has been disposed of or is classified as held for sale as a discontinued
operation if (a) the operations and cash flows of the store have been (or will be) eliminated from our ongoing operations
and (b) we will not have any significant continuing involvement in the operations of the store after the disposal transaction.
In evaluating whether a store’s cash flows will be eliminated from our ongoing operations, we consider whether we
expect to continue to generate revenues or incur expenses from the sale of similar products or services to customers of the
disposed store in the same geographic market. If we believe that a significant portion of the cash flows previously
generated by the disposed store will migrate to our other operating stores, we will not treat the disposition as a discontinued
operation.
We had a loss from discontinued operations totaling $2.8 million in 2011, net of income taxes, primarily related to
carrying costs for real estate we have not yet sold associated with stores that have been closed, as well as expected losses
on real estate to be sold. We had a loss from discontinued operations totaling $8.7 million in 2010, and $35.1 million in
2009, net of income taxes, primarily related to operational losses for stores that were classified as discontinued operations,
as well as carrying costs for real estate not yet sold related to stores that had been closed. During 2009, we recorded in
discontinued operations estimated losses associated with the Chrysler and General Motors bankruptcies of approximately
$11 million (after-tax), including expected losses on the disposition of real estate. See Note 13 of our Notes to
Consolidated Financial Statements for a discussion of discontinued operations.
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
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.
Debt Refinancing Transactions
In the second quarter of 2010, we (1) completed cash tender offers to purchase any and all of our then outstanding
Floating Rate Senior Notes due 2013 and 7% Senior Notes due 2014 (these two series of notes are referred to as the “old
notes”), pursuant to which we accepted for payment, and thereafter cancelled, all of our outstanding Floating Rate Senior
Notes due 2013 and 88.9% of our 7% Senior Notes due 2014, representing an aggregate amount of $264.0 million of old
notes, (2) amended the indenture for the old notes to eliminate most of the restrictive covenants and certain events of
default and to shorten the notice periods required to undertake an optional redemption, (3) issued $400.0 million aggregate
principal amount of 6.75% Senior Notes due 2018, and (4) amended and extended our then existing credit agreement. We
expensed $19.6 million pre-tax in the second quarter of 2010, related to these transactions, including $3.5 million for the
write-off of certain unamortized debt issuance costs associated with the old notes and the credit agreement as it existed
prior to its amendment and extension.
On December 7, 2011, we entered into a new five-year unsecured credit agreement (referred to as our “credit
agreement” or the “new credit agreement”) with a $500 million term loan facility and a $1.2 billion revolving credit
facility. The new credit agreement replaced our prior unsecured credit agreement (referred to as the “prior credit
agreement”). The prior credit agreement was terminated concurrently with our entry into the new credit agreement, and the
indebtedness outstanding under the prior credit agreement was paid off with proceeds from borrowings under the new
credit agreement. The maturity date for the term loan and revolving credit facilities under the new credit agreement is
December 7, 2016.
Our prior credit agreement provided for a $533.4 million term loan facility and a $638.6 million revolving credit facility.
The term loan facility under the prior credit agreement was bifurcated into a $54.0 million tranche due July 18, 2012 and a
$479.4 million tranche due July 18, 2014. The revolving credit facility under the prior credit agreement was bifurcated into
a $57.0 million tranche due July 18, 2012 and a $581.6 million tranche due July 18, 2014.
With the new credit agreement, we increased our maximum leverage ratio to 3.75x, compared to 3.25x under the prior
credit agreement, and our maximum capitalization ratio to 65.0%, compared to 60.0% under the prior credit agreement.
45
See “Credit Agreement” below for additional information regarding our credit agreement and “Restrictions and
Covenants” for additional information regarding our financial covenants.
We expensed $2.2 million pre-tax in the fourth quarter of 2011, related to entering into the new credit agreement,
including $0.4 million for the write-off of certain unamortized debt issuance costs associated with the prior credit
agreement.
On February 1, 2012, we issued $350.0 million aggregate principal amount of 5.5% Senior Notes due 2020. The net
proceeds from the sale of the notes, after the underwriting discount and transaction fees and expenses, were $344.0 million,
and we used the net proceeds to reduce borrowings under our revolving credit facility. Interest on the 5.5% Senior Notes
due 2020 is payable on February 1 and August 1 of each year, beginning on August 1, 2012. At any time prior to February
1, 2015, we may redeem up to 35% of the principal amount of these notes with the net cash proceeds of one or more public
equity offerings of our common stock at 105.5% of principal. These notes will mature on February 1, 2020.
Available Liquidity Resources
We had the following sources of liquidity available for the years ended December 31, 2011 and 2010:
(In millions)
Cash and Cash Equivalents
Revolving Credit Facility(1)
Secured Used Floorplan Facilities(2)
December 31,
2011
December 31,
2010
$
$
$
86.6
648.5
75.4
$
$
$
95.1
398.9
70.6
(1) Based on aggregate borrowings outstanding of $495.0 million and outstanding letters of credit of $56.5 million at
December 31, 2011, and aggregate borrowings outstanding of $180.0 million and outstanding letters of credit of
$59.7 million at December 31, 2010. See “Long-Term Debt – Credit Agreement” for additional information.
(2) Based on the eligible used vehicle inventory that could have been pledged as collateral. See “Long-Term Debt –
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. At December 31, 2011, surety bonds, letters of credit, and cash
deposits totaled $90.0 million, including the $56.5 million of letters of credit outstanding under our revolving credit
facility. We do not currently provide cash collateral for outstanding letters of credit.
In February 2009, 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, subscriptions rights, depositary shares, stock purchase contracts, and units. Our 6.75% Senior Notes due 2018,
issued in April 2010, and our 5.5% Senior Notes due 2020, issued in February 2012, were offered pursuant to this shelf
registration statement.
Capital Allocation
We use our capital resources to make capital investments in our business, to complete dealership acquisitions, and to
repurchase our common stock and/or debt. During 2011, based on an anticipated industry recovery over the next several
years, our operating performance and confidence in our financial and operational strength, and the additional liquidity and
financial flexibility that we obtained as a result of our 2010 and 2011 debt refinancings (see “Debt Refinancing
Transactions” above), we opportunistically allocated capital resources for both share repurchases and acquisition activities,
as well as additional capital expenditures, as outlined below.
46
Share Repurchases
A summary of shares repurchased under our share repurchase program authorized by our Board of Directors follows:
(In millions, except per share data)
Shares repurchased
Aggregate purchase price
Average purchase price per share
2011
2010
2009
17.1
583.4
34.14
$
$
26.6
523.7
19.70
$
$
7.7
135.7
17.74
$
$
The decision to repurchase shares at any given point in time is based on such factors 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 January 2012, our Board of Directors authorized an additional $250 million under our existing share repurchase
program. From January 1, 2012 through February 8, 2012, we repurchased an additional 3.9 million shares for an aggregate
purchase price of $134.8 million (average purchase price per share of $34.89). As of February 8, 2012, $265.0 million
remained available for share repurchases under the program.
Senior Note Repurchases
The following table sets forth information regarding our debt repurchases over the past three years:
(In millions)
Aggregate principal amount repurchased:
Floating Rate Senior Notes due 2013
7% Senior Notes due 2014
6.75% Senior Notes due 2018
Total
2011
2010
2009
$
$
—
—
—
—
$
$
—
—
—
—
$
$
48.4
40.0
—
88.4
We may from time to time repurchase our outstanding senior unsecured notes in open market purchases or privately
negotiated transactions. Additionally, we may in the future prepay our term loan facility or other debt. The decision to
repurchase senior unsecured notes or to prepay our term loan facility or other debt is based on prevailing market
conditions, our liquidity requirements, contractual restrictions, and other factors.
See “Debt Refinancing Transactions” above for information regarding certain refinancing transactions that we
completed during the second quarter of 2010, the fourth quarter of 2011, and the first quarter of 2012.
Capital Expenditures
The following table sets forth information regarding our capital expenditures over the past three years:
(In millions)
Purchases of property and equipment, including operating lease buy-outs (1)
2011
2010
2009
$
158.1
$
161.8
$
75.4
(1)
Includes accrued construction in progress and excludes property acquired under capital leases.
Excluding land purchased for future sites and lease buy-outs, and net of related asset sales, we anticipate that our capital
expenditures, including accrued construction in progress, will be approximately $145 million in 2012 primarily related to
our store facilities.
47
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, over the past three years:
(In millions)
Cash received from (used in) business acquisitions, net
Cash received from (used in) business divestitures, net
2011
2010
2009
$
$
(64.2)
4.9
$
$
(73.1)
13.0
$
$
(0.2)
65.9
We acquired one automotive retail franchise and related assets during 2011, compared to five in 2010 and one in 2009.
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 anticipate paying cash dividends for the foreseeable future.
Long-Term Debt
The following table sets forth our non-vehicle long-term debt as of December 31, 2011 and 2010:
(In millions)
7% Senior Notes due 2014
6.75% Senior Notes due 2018
Term loan facility due 2012
Term loan facility due 2014
Term loan facility due 2016
Revolving credit facility due 2012
Revolving credit facility due 2014
Revolving credit facility due 2016
Mortgage facility(1)
Capital leases due from 2012 to 2031
Less: current maturities
Long-term debt, net of current maturities
2011
2010
14.7
$
395.0
—
—
500.0
—
—
495.0
211.5
30.8
14.7
394.4
54.0
479.4
—
16.1
163.9
—
219.2
7.0
1,647.0
(12.6)
1,634.4
$
1,348.7
(8.1)
1,340.6
$
$
(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 December 31, 2011, we had outstanding $395.0 million of 6.75% Senior Notes due 2018, net of debt discount.
Interest on the 6.75% Senior Notes due 2018 is payable on April 15 and October 15 of each year. At any time prior to April
15, 2013, we may redeem up to 35% of the principal amount of these notes with the net cash proceeds of one or more
public equity offerings of our common stock at 106.75% of principal. These notes will mature on April 15, 2018.
At December 31, 2011, we had outstanding $14.7 million of 7% Senior Notes due 2014. Interest on the 7% Senior Notes
due 2014 is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2014, and may be
redeemed by us currently at 101.75% of principal and at 100% of principal on or after April 15, 2012.
During 2009, we repurchased $48.4 million aggregate principal amount of our Floating Rate Senior Notes due 2013 for
an aggregate total consideration of $41.1 million. We also repurchased $40.0 million aggregate principal amount of our 7%
Senior Notes due 2014 for an aggregate total consideration of $34.5 million. We recorded a gain of $13.0 million during
2009 in connection with these repurchases, net of the write-off of related unamortized debt issuance costs. The gain is
classified as Gain on Senior Note Repurchases in the accompanying Consolidated Income Statements.
48
The 7% Senior Notes due 2014, the 6.75% Senior Notes due 2018, and the 5.5% Senior Notes due 2020 are guaranteed
by substantially all of our subsidiaries.
Credit Agreement
Under our credit agreement, we have a $500.0 million term loan facility and a $1.2 billion revolving credit facility. The
term loan and revolving credit facilities under the credit agreement mature on December 7, 2016.
As of December 31, 2011, we had borrowings outstanding of $495.0 million under the revolving credit facility. We have
a $200 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 $56.5 million at December 31, 2011. Our additional borrowing capacity under the revolving credit
facility was $648.5 million at December 31, 2011.
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 term loan facility provides for various interest rates generally at LIBOR plus 1.75%. Our revolving credit facility
provides for a 0.30% facility fee and various interest rates on borrowings generally at LIBOR plus 1.75%.
The credit spread charged for both the term loan facility and the 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 25 basis point increase in the credit spread under both our term loan facility and revolving
credit facility.
Borrowings under the credit agreement are guaranteed by substantially all of our subsidiaries.
Vehicle Floorplan Payable
Vehicle floorplan payable-trade totaled $1.4 billion at December 31, 2011 and 2010. 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 totaled $536.5 million at December 31, 2011, and $486.5 million at December 31,
2010, and 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. At December 31, 2011, the aggregate capacity
under our used floorplan facilities was $260.0 million. As of that date, $112.7 million had been borrowed under those
facilities, and the remaining borrowing capacity of $147.3 million was limited to $75.4 million based on the eligible used
vehicle inventory that could have been pledged as collateral.
At December 31, 2010, the aggregate capacity under our used floorplan facilities was $170.0 million. As of that date,
$89.0 million had been borrowed under those facilities, and the remaining borrowing capacity of $81.0 million was limited
to $70.6 million based on the eligible used vehicle inventory that could have been pledged as collateral.
All the vehicle floorplan facilities utilize LIBOR-based interest rates. 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 require that the manufacturer have the ability to draft against the 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.
Other Debt
At December 31, 2011, we had $211.5 million outstanding under a mortgage facility with an automotive manufacturer’s
captive finance subsidiary. The mortgage facility was refinanced under a new facility in November 2007 to provide a fixed
interest rate (5.864%) and provide financing 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.
49
In 2000, we sold our corporate headquarters facility and leased it back in a transaction that was originally accounted for
as a financing. During the first quarter of 2009, we amended this lease, resulting in a change in accounting method from
financing to sale-leaseback. As a result of this change, we derecognized $21.4 million of assets and a $37.5 million
financing liability in the first quarter of 2009, when we also recognized a $7.6 million gain on the sale, which is recorded in
Other Expenses (Income), Net, and $1.8 million of rent expense, which is recorded in Selling, General, and Administrative
Expenses. The remaining gain of $8.5 million and remaining rent expense of $9.1 million were fully recognized through
the third quarter of 2009.
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 prior credit agreement we were, and under our new 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 new credit agreement,
the maximum capitalization ratio is 65.0%, compared to 60.0% under the prior credit agreement, and the maximum
leverage ratio is 3.75x, compared to 3.25x under the prior credit agreement. In calculating our leverage ratio, 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), and, 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, 2011 plus $1.52 billion. The specific
terms of these covenants can be found in our new credit agreement, which we filed with our Current Report on Form 8-K
on December 8, 2011.
The indentures for our 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020 contain certain limited
covenants, including limitations on liens and sale and leaseback transactions, but do not contain restricted payments
covenants or debt incurrence restrictions. Our mortgage facility contains covenants regarding maximum cash flow leverage
and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could permit acceleration of all of our
indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default
under other material indebtedness of AutoNation.
As of December 31, 2011, we were in compliance with the requirements of the financial covenants under our debt
agreements. Under the terms of our new credit agreement, at December 31, 2011, our leverage ratio and capitalization ratio
were as follows:
Leverage ratio
Capitalization ratio
December 31, 2011
Requirement
< 3.75x
< 65.0%
Actual
2.59x
50.9%
Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The
capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness.
In the event of a downgrade in our credit ratings, none of the covenants described above would be impacted. In addition,
availability under the new credit agreement described above would not be impacted should a downgrade in the senior
unsecured debt credit ratings occur.
50
Cash Flows
The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing
activities:
($ in millions)
Years Ended December 31,
2010
2009
2011
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
$
$
$
376.4
(206.2)
(178.7)
$
$
$
251.8
(200.2)
(130.0)
$
$
$
369.3
14.0
(319.9)
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 and proceeds from vehicle floorplan payable-trade. Our primary uses of cash from operating activities are
repayments of vehicle floorplan payable-trade, personnel-related expenditures, and payments related to taxes and leased
properties.
2011 compared to 2010
During 2011, we paid $14.8 million in connection with refinancing our indebtedness. Cash flows from operating
activities reflect $1.8 million of these cash payments that we charged to expense related to this refinancing transaction. In
addition, we charged to expense $0.4 million of previously deferred debt issuance costs. Cash flows from financing
activities, discussed below, reflect $13.0 million of debt issuance costs that will be amortized to interest expense over the
term of the new credit agreement.
Net cash provided by operating activities increased during 2011, as compared to 2010, primarily due to a decrease in
working capital requirements and an increase in earnings.
2010 compared to 2009
During 2010, we paid $28.1 million in connection with refinancing our indebtedness, including debt tender premiums.
Cash flows from operating activities reflect $16.1 million of these cash payments that we charged to expense related to
these transactions. In addition, we charged to expense $3.5 million of previously deferred debt issuance costs. Cash flows
from financing activities, discussed below, reflect $11.9 million of debt issuance costs that are being amortized to interest
expense over the term of the related debt arrangements.
Net cash provided by operating activities decreased during 2010, as compared to 2009, primarily due to an increase in
working capital requirements and debt refinancing costs noted above.
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, purchases and sales of investments, and other transactions.
We will make facility and infrastructure upgrades and improvements from time to time as we identify projects that are
required to maintain our current business or that we expect to provide us with acceptable rates of return. Excluding land
purchased for future sites and lease buy-outs, and net of related asset sales, we project that 2012 capital expenditures,
including accrued construction in progress, will be approximately $145 million.
2011 compared to 2010
Net cash used in investing activities increased during 2011 as compared to 2010, primarily due to a decrease in cash
received from business divestitures and a decrease in proceeds from property dispositions, partially offset by a decrease in
cash used in business acquisitions.
51
2010 compared to 2009
We had net cash used in investing activities during 2010, as compared to net cash provided by investing activities in
2009, primarily due to an increase in purchases of property and equipment and an increase in cash used in business
acquisitions, net of cash acquired. During 2010, we acquired five automotive retail franchises and other related assets as
compared to one in 2009. Net cash flows from investing activities were also impacted by a decrease in cash received from
business divestitures, net of cash relinquished.
Cash Flows from Financing Activities
Net cash flows from financing activities primarily include repurchases of common stock, debt activity, changes in
vehicle floorplan payable-non-trade, and stock option exercises.
2011 compared to 2010
During 2011, we repurchased 17.1 million shares of common stock for an aggregate purchase price of $583.4 million
(average purchase price per share of $34.14), including repurchases for which settlement occurred subsequent to
December 31, 2011. During 2011, 59,452 shares were surrendered to AutoNation primarily to satisfy tax withholding
obligations in connection with the vesting of restricted stock.
During 2010, we repurchased 26.6 million shares of our common stock for an aggregate purchase price of $523.7
million (average purchase price per share of $19.70), including repurchases for which settlement occurred subsequent to
December 31, 2010. Additionally, 36,614 shares were surrendered to AutoNation to satisfy tax withholding obligations in
connection with the vesting of restricted stock.
During 2011, we entered into a new five-year unsecured credit agreement with a $500 million term loan facility and a
$1.2 billion revolving credit facility. The new credit agreement replaced our prior unsecured credit agreement. The prior
credit agreement was terminated concurrently with our entry into the new credit agreement, and the indebtedness
outstanding under the prior credit agreement was paid off with proceeds from borrowings under the new credit agreement.
As noted above under “Cash Flows from Operating Activities,” cash flows from financing activities reflect cash payments
of $13.0 million for debt issuance costs that will be amortized to expense over the term of the new credit agreement.
During 2010, we (1) accepted for payment, and thereafter cancelled, all of our outstanding Floating Rate Senior Notes
due 2013 and 88.9% of our 7% Senior Notes due 2014, representing an aggregate principal amount of $264.0 million of
old notes, (2) amended the indenture for the old notes to eliminate most of the restrictive covenants and certain events of
default and to shorten the notice periods required to undertake an optional redemption, (3) closed the debt offering and
issued $400.0 million aggregate principal amount of 6.75% Senior Notes due 2018, and (4) amended and extended our then
existing credit agreement. The 6.75% Senior Notes due 2018 were sold at 98.488% of the aggregate principal amount
providing for a yield to maturity of 7.0%.
A portion of the proceeds from the sale of the 6.75% Senior Notes due 2018 was used (1) to pay approximately $274.5
million for the old notes that were validly tendered and accepted for payment (which included accrued and unpaid interest
for the old notes, as well as consent payments for those that were tendered and accepted for payment by April 13, 2010),
(2) to reduce the size of our term loan facility by approximately $66.6 million (from $600.0 million to $533.4 million),
(3) to pay transaction fees and expenses related to the 2010 debt offering, the tender offers, and the amendment to then
existing credit agreement, and (4) for general corporate purposes. As noted above under “Cash Flows from Operating
Activities,” cash flows from financing activities in 2010 reflect cash payments of $11.9 million for debt issuance costs that
are being amortized to expense over the term of the related debt arrangements.
During 2011, we borrowed $940.0 million and repaid $625.0 million under our revolving credit facilities, for net
borrowings of $315.0 million. During 2010, we borrowed $305.0 million and repaid $125.0 million under our revolving
credit facilities, for net borrowings of $180.0 million.
We did not repurchase any of our senior notes during 2011 or 2010. During 2009, we repurchased $88.4 million
aggregate principal amount of our Floating Rate Senior Notes due 2013 and 7% Senior Notes due 2014 for an aggregate
total consideration of $75.6 million (including $1.2 million of accrued interest).
52
Cash flows from financing activities include changes in vehicle floorplan payable-non-trade (vehicle floorplan payables
with lenders other than the automotive manufacturers’ captive finance subsidiaries for that franchise) totaling net proceeds
of $40.1 million during 2011 compared to net proceeds of $117.0 million in 2010.
During 2011, cash flows from financing activities were also impacted by an increase in proceeds from the exercise of
stock options and an increase in the related excess tax benefit from stock-based awards as compared to 2010.
2010 compared to 2009
Net cash used in financing activities decreased during 2010, as compared to 2009, primarily due to an increase in
proceeds from the 2010 debt refinancing noted above, as well as an increase in net proceeds from vehicle floorplan
payable-non-trade, and an increase in proceeds from the exercise of stock options. These increases were partially offset by
an increase in the repurchase of shares of our common stock.
Contractual Payment Obligations
The following table summarizes our payment obligations under certain contracts at December 31, 2011:
(In millions)
Vehicle floorplan payable (Note 3)(1)
Long-term debt, including capital leases (Note 7)(1)
Interest payments(2)
Operating lease and other commitments (Note 8)(3)
Unrecognized tax benefits, net (Note 11)(1)
Deferred compensation obligations(4)
Estimated liability for chargebacks (Note 19)(5)
Estimated liability for self-insurance obligations(6)
Purchase obligations
Payments Due by Period
Less Than 1
Year
(2012)
1 - 3 Years
(2013 and
2014)
3 - 5 Years
(2015 and
2016)
Total
More Than 5
Years
(2017 and
thereafter)
$
1,898.8
$
1,898.8
$
—
$
—
$
1,647.0
254.9
456.9
5.2
34.1
46.2
58.2
117.2
12.6
42.6
47.1
0.5
2.0
26.0
23.6
64.2
52.1
82.0
80.1
1.2
—
18.0
21.0
52.8
1,015.4
76.5
65.5
—
—
2.1
8.7
0.1
—
566.9
53.8
264.2
3.5
32.1
0.1
4.9
0.1
Total
$
4,518.5
$
2,117.4
$
307.2
$
1,168.3
$
925.6
(1) See Notes to Consolidated Financial Statements.
(2) Primarily represents scheduled interest payments on our outstanding senior unsecured notes and mortgage facility.
Estimates of future interest payments for vehicle floorplan payables and other variable rate debt are excluded.
(3) Amounts for operating lease commitments do not include certain operating expenses such as maintenance, insurance,
and real estate taxes. In 2011, these charges totaled approximately $22 million. See Note 8 of the Notes to
Consolidated Financial Statements.
(4) Due to uncertainty regarding timing of payments expected beyond one year, long-term obligations for deferred
compensation arrangements have been classified in the “More Than 5 Years” column.
(5) Our estimated chargeback obligations do not have scheduled maturities, however, the timing of future payments can
be estimated based on historical patterns.
(6) Under our self insurance programs, we retain various levels of aggregate loss limits, per claim deductibles, and
claims-handling expenses as part of our various insurance programs, including property and casualty, employee
medical benefits, automobile, and workers’ compensation. These amounts are based on management estimates and
actuarial calculations. Although these obligations do not have scheduled maturities, the timing of future payments is
estimated based on historical patterns.
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. At December 31, 2011, surety bonds, letters of credit, and cash
53
deposits totaled $90.0 million, of which $56.5 million represented letters of credit. We do not currently provide cash
collateral for outstanding letters of credit. We have negotiated a letter of credit sublimit as part of our revolving credit
facility. The amount available to be borrowed under this revolving credit facility is reduced on a dollar-for-dollar basis by
the cumulative amount of any outstanding letters of credit.
As further discussed in Note 11 of the Notes to Consolidated Financial Statements, there are various tax matters where
the ultimate resolution may result in us owing additional tax payments.
Off-Balance Sheet Arrangements
As of December 31, 2011, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)
(ii) of SEC Regulation S-K.
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 Annual Report on Form 10-K, including statements regarding
our expectations for 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 and Section 21E of the Securities Exchange Act of 1934. 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 and 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:
•
•
•
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 results of operations and financial condition have been and could continue to be adversely affected by the
unfavorable economic conditions in the United States and/or Europe.
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 dependent upon the success and continued financial viability of the vehicle manufacturers and distributors
with which we hold franchises.
•
•
•
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 new vehicle sales are impacted by the consumer incentive and marketing programs of vehicle manufacturers.
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.
54
• 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 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.
• We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and
term loan facility that could have a material adverse effect on our profitability.
•
•
Our largest stockholders, as a result of their ownership stakes in us, have the ability to exert substantial influence
over actions to be taken or approved by our stockholders. These stockholders are represented on our Board of
Directors and, therefore, may also have the ability to exert substantial influence over actions to be taken or
approved by our Board. In addition, future share repurchases and purchases by our affiliates could further reduce
our public float and could adversely impact the liquidity of our common stock.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our primary market risk exposure is increasing 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 $1.9 billion of variable rate vehicle floorplan payable at December 31, 2011, and $1.9 billion at December 31,
2010. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change of $19.0
million in 2011 and $18.7 million in 2010 to our annual floorplan interest expense. 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 $1.0 billion of other variable rate debt outstanding at December 31, 2011, and $713.4 million at December 31,
2010. Based on the amounts outstanding at year-end, a 100 basis point change in interest rates would result in an
approximate change to annual interest expense of $10.0 million in 2011 and $7.1 million in 2010.
Our fixed rate debt, consisting of amounts outstanding under senior unsecured notes, mortgages, and capital leases,
totaled $652.0 million and had a fair value of $675.6 million as of December 31, 2011, and totaled $635.3 million and had
a fair value of $644.1 million as of December 31, 2010.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Income Statements for the Years Ended December 31, 2011, 2010, and 2009
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended
December 31, 2011, 2010, and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Selected Quarterly Financial Information (Unaudited)
Page
57
59
60
61
62
64
95
56
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
AutoNation, Inc.:
We have audited the accompanying consolidated financial statements of AutoNation, Inc. and subsidiaries as listed in
the Index at Item 8. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of AutoNation, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), AutoNation, Inc.’s internal control over financial reporting as of December 31, 2011, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 13, 2012 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
February 13, 2012
Fort Lauderdale, Florida
Certified Public Accountants
57
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
AutoNation, Inc.:
We have audited AutoNation, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). AutoNation, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting, appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements of the Company as listed in the Index at Item 8, and our report dated
February 13, 2012 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
February 13, 2012
Fort Lauderdale, Florida
Certified Public Accountants
58
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(In millions, except share and per share data)
ASSETS
2011
2010
CURRENT ASSETS:
Cash and cash equivalents
Receivables, net
Inventory
Other current assets
Total Current Assets
PROPERTY AND EQUIPMENT, NET
GOODWILL, NET
OTHER INTANGIBLE ASSETS, NET
OTHER ASSETS
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade
Accounts payable
Current maturities of long-term debt
Other current liabilities
Total Current Liabilities
LONG-TERM DEBT, NET OF CURRENT MATURITIES
DEFERRED INCOME TAXES
OTHER LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 8)
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 December 31, 2011 and 2010,
including shares held in treasury
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 27,777,625 and 15,197,680 shares held, respectively
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$
$
$
$
$
$
$
86.6
587.4
1,809.2
193.0
2,676.2
1,950.7
1,172.2
217.8
181.9
6,198.8
1,362.3
536.5
202.4
12.6
348.8
2,462.6
1,634.4
62.3
144.9
95.1
462.0
1,867.0
204.7
2,628.8
1,838.0
1,142.4
202.0
163.0
5,974.2
1,379.9
486.5
164.0
8.1
360.9
2,399.4
1,340.6
25.9
129.4
—
—
1.6
19.6
2,646.6
(773.2)
1,894.6
6,198.8
$
1.6
2.0
2,365.2
(289.9)
2,078.9
5,974.2
See accompanying Notes to Consolidated Financial Statements.
59
AUTONATION, INC.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31,
(In millions, except per share data)
2011
2010
2009
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
TOTAL REVENUE
Cost of Sales:
New vehicle
Used vehicle
Parts and service
Other
TOTAL COST OF SALES
Gross Profit:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
TOTAL GROSS PROFIT
Selling, general & administrative expenses
Depreciation and amortization
Franchise rights impairment
Other expenses (income), net
OPERATING INCOME
Floorplan interest expense
Other interest expense
Loss on debt extinguishment
Gain on senior note repurchases
Interest income
Other gains (losses), net
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income tax provision
NET INCOME FROM CONTINUING OPERATIONS
Loss from discontinued operations, net of income taxes
NET INCOME
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income
Weighted average common shares outstanding
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Net income
Weighted average common shares outstanding
COMMON SHARES OUTSTANDING, net of treasury stock
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,498.9
3,512.8
2,293.1
474.5
53.0
13,832.3
6,951.2
3,228.0
1,323.0
26.1
11,528.3
547.7
284.8
970.1
474.5
26.9
2,304.0
1,649.4
83.7
—
(1.1)
572.0
(42.7)
(66.0)
(2.2)
—
0.7
(0.5)
461.3
177.1
284.2
(2.8)
281.4
1.96
(0.02)
1.94
144.8
1.93
(0.02)
1.91
147.3
135.8
$
$
$
$
$
$
$
$
6,669.1
3,116.1
2,209.1
418.9
47.8
12,461.0
6,217.9
2,849.4
1,245.9
20.3
10,333.5
451.2
266.7
963.2
418.9
27.5
2,127.5
1,552.1
76.8
—
2.0
496.6
(42.5)
(56.1)
(19.6)
—
1.4
1.5
381.3
146.0
235.3
(8.7)
226.6
1.50
(0.06)
1.44
156.9
1.48
(0.05)
1.43
158.6
148.4
5,674.6
2,485.9
2,109.8
348.6
47.1
10,666.0
5,290.6
2,257.2
1,187.6
20.8
8,756.2
384.0
228.7
922.2
348.6
26.3
1,909.8
1,446.9
76.7
1.5
(23.3)
408.0
(35.7)
(42.6)
—
13.0
1.1
5.4
349.2
116.1
233.1
(35.1)
198.0
1.32
(0.20)
1.12
176.5
1.31
(0.20)
1.12
177.3
171.7
See accompanying Notes to Consolidated Financial Statements.
60
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
For the Years Ended December 31, 2011, 2010, and 2009
(In millions, except share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Compre-
hensive
Income
BALANCE AT DECEMBER 31, 2008
193,562,149
$
1.9
$
481.8
$
2,023.0
$
(0.7)
$
(307.9)
Comprehensive income:
Net income
Other comprehensive income:
Unrealized gains on restricted
investments and marketable
securities
Comprehensive income
Repurchases of common stock
Stock-based compensation expense
Shares awarded under stock-based
compensation plans, including
excess income tax benefit of $4.2
—
—
—
—
—
—
BALANCE AT DECEMBER 31, 2009
193,562,149
$
Comprehensive income:
Net income
Other comprehensive income
Comprehensive income
Repurchases of common stock
—
—
—
—
Treasury stock cancellation
(30,000,000)
Stock-based compensation expense
Shares awarded under stock-based
compensation plans, including
excess income tax benefit of $7.7
—
—
BALANCE AT DECEMBER 31, 2010
163,562,149
$
Comprehensive income:
Net income
Other comprehensive income
Comprehensive income
Repurchases of common stock
Stock-based compensation expense
Shares awarded under stock-based
compensation plans, including
excess income tax benefit of $22.8
—
—
—
—
—
—
BALANCE AT DECEMBER 31, 2011
163,562,149
$
—
—
—
—
—
—
1.9
—
—
—
—
(0.3)
—
—
1.6
—
—
—
—
—
—
1.6
—
198.0
—
—
$
198.0
—
—
—
13.5
(15.1)
—
—
—
—
—
$
480.2
$
2,221.0
$
—
—
—
—
(483.7)
15.9
(10.4)
226.6
—
—
—
(82.4)
—
—
$
2.0
$
2,365.2
$
—
—
—
—
18.4
281.4
—
—
—
—
(0.8)
—
$
19.6
$
2,646.6
$
0.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.7
$
198.7
(136.1)
—
44.1
$
(399.9)
—
—
—
$
$
226.6
—
226.6
(524.4)
566.4
—
68.0
$
(289.9)
281.4
—
281.4
$
$
—
—
—
(584.9)
—
101.6
$
(773.2)
See accompanying Notes to Consolidated Financial Statements.
61
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss from discontinued operations
Depreciation and amortization
Amortization of debt issuance costs and accretion of debt discounts
Stock-based compensation expense
Franchise rights impairment
Non-cash impairment charges
Write-off of deferred debt issuance costs
Gain on senior note repurchases
Gain on corporate headquarters sale-leaseback
Net gain on asset sales and dispositions
Deferred income tax provision
Other
(Increase) decrease, net of effects from business combinations
and divestitures:
Receivables
Inventory
Other assets
Increase (decrease), net of effects from business combinations
and divestitures:
Vehicle floorplan payable-trade, net
Accounts payable
Other liabilities
Net cash provided by continuing operations
Net cash provided by discontinued operations
Net cash provided by operating activities
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment
Property operating lease buy-outs
Proceeds from the sale of property and equipment
Proceeds from the disposal of assets held for sale
Insurance recoveries on property and equipment
Cash used in business acquisitions, net of cash acquired
Net change in restricted cash
Proceeds from the sales of restricted investments
Cash received from business divestitures, net of cash relinquished
Other
Net cash provided by (used in) continuing operations
Net cash provided by (used in) discontinued operations
Net cash provided by (used in) investing activities
2011
2010
2009
$
281.4
$
226.6
$
198.0
2.8
83.7
4.3
18.4
—
2.2
0.4
—
—
(3.5)
31.1
0.3
(127.4)
70.1
(23.6)
(17.6)
38.4
14.9
375.9
0.5
376.4
(149.1)
(13.8)
3.0
10.9
0.1
(64.2)
—
—
4.9
2.0
(206.2)
—
(206.2)
8.7
76.8
3.5
15.9
—
3.7
3.5
—
—
(2.8)
12.8
2.3
(55.9)
(448.6)
28.6
352.6
11.8
7.0
246.5
5.3
251.8
(150.4)
(11.4)
5.4
12.4
1.8
(73.1)
—
1.3
13.0
1.0
(200.0)
(0.2)
(200.2)
35.1
76.7
3.2
13.5
1.5
3.4
—
(13.0)
(16.1)
(8.2)
59.2
(2.8)
(42.0)
345.3
6.1
(320.0)
17.8
(17.1)
340.6
28.7
369.3
(75.0)
(0.4)
11.1
3.2
3.4
(0.2)
0.1
5.1
65.9
0.7
13.9
0.1
14.0
See accompanying Notes to Consolidated Financial Statements.
62
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
(Continued)
2011
2010
2009
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repurchases of common stock
Proceeds from 6.75% Senior Unsecured Notes due 2018
Proceeds from term loan facility
Payment of term loan facility
Payment of Floating Rate Senior Unsecured Notes due 2013
Payment of 7% Senior Unsecured Notes due 2014
Repurchase of Floating Rate Senior Unsecured Notes due 2013
Repurchase of 7% Senior Unsecured Notes due 2014
Proceeds from revolving credit facilities
Payment of revolving credit facilities
Payment of debt issuance costs
Net proceeds from (payments of) vehicle floorplan payable - non-
trade
Payments of mortgage facilities
Payments of capital leases
Proceeds from the exercise of stock options
Excess tax benefit from stock-based awards
Net cash used in continuing operations
Net cash used in discontinued operations
Net cash used in financing activities
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS at beginning of period
(579.8)
—
500.0
(533.4)
—
—
—
—
940.0
(625.0)
(13.0)
40.1
(7.7)
(0.7)
78.0
22.8
(178.7)
—
(178.7)
(8.5)
95.1
(524.4)
394.0
—
(66.6)
(146.1)
(117.9)
—
—
305.0
(125.0)
(11.9)
117.0
(7.3)
(0.3)
49.9
7.7
(125.9)
(4.1)
(130.0)
(78.4)
173.5
CASH AND CASH EQUIVALENTS at end of period
$
86.6
$
95.1
$
See accompanying Notes to Consolidated Financial Statements.
(136.1)
—
—
—
—
—
(40.9)
(33.5)
—
—
—
(100.9)
(6.9)
(0.6)
24.8
4.2
(289.9)
(30.0)
(319.9)
63.4
110.1
173.5
63
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31,
2011, we owned and operated 258 new vehicle franchises from 215 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. We offer a diversified range of automotive products and services,
including new vehicles, used vehicles, parts and automotive repair and maintenance services (also referred to as “parts and
service”), and automotive finance and insurance products (also referred to as “finance and insurance”), including the
arranging of financing for vehicle purchases through third-party finance sources. For convenience, the terms
“AutoNation,” “Company,” and “we” are used to refer collectively to AutoNation, Inc. and its subsidiaries, unless
otherwise required by the context. Our dealership operations are conducted by our subsidiaries.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries. All
of our automotive dealership subsidiaries are indirectly wholly owned by the parent company, AutoNation, Inc. All
significant intercompany accounts and transactions have been eliminated in the consolidation.
Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial
Statements in order to maintain consistency and comparability between periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. In preparing these financial statements, management has made its best estimates
and judgments of certain amounts included in the financial statements, 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 Consolidated Financial Statements include
certain assumptions related to goodwill, intangible assets, long-lived assets, and assets held for sale, allowances for
doubtful accounts, 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, estimated losses from
disposals of discontinued operations, and certain assumptions related to stock-based compensation.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less as of the date of purchase to be cash
equivalents unless the investments are legally or contractually restricted for more than three months.
Inventory
Inventory consists primarily of new and used vehicles held for sale, valued at the lower of cost or market using the
specific identification method. Cost includes acquisition, reconditioning, dealer installed accessories, and transportation
expenses. Additionally, we receive floorplan interest assistance from certain manufacturers. This assistance is reflected as a
reduction to the inventory cost and as a reduction to cost of sales as the vehicles are sold. At December 31, 2011 and 2010,
inventory cost had been reduced by $11.8 million for interest assistance received from manufacturers. Parts, accessories,
and other inventory are valued at the lower of acquisition cost (first-in, first-out) or market. See Note 3 of the Notes to
Consolidated Financial Statements for more detailed information about our inventory.
64
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and
improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred.
Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a
liability and included in current and/or long-term debt based on the lease term. When property is retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is
reflected in Other Expenses (Income), Net in the Consolidated Income Statements. See Note 4 of the Notes to
Consolidated Financial Statements for detailed information about our property and equipment.
Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. Leasehold
improvements and capitalized lease assets are amortized over the estimated useful life of the asset or the respective lease
term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows:
Buildings and improvements
Furniture, fixtures, and equipment
5 to 40 years
3 to 12 years
We continually evaluate property and equipment, including leasehold improvements, to determine whether events or
changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the remaining
balance should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the
remaining life of the property and equipment in assessing whether an asset has been impaired. We measure impairment
losses based upon the amount by which the carrying amount of the asset exceeds the fair value. See Note 17 of the Notes to
Consolidated Financial Statements for information about our fair value measurements.
We recorded $0.6 million during 2010 of non-cash impairment charges related to our property and equipment held and
used in continuing operations to reduce the carrying value of these assets to fair market value. These charges are recorded
as a component of Other Expenses (Income), Net in the Consolidated Income Statements, of which $0.4 million was
reflected as a component of Import Segment Income and $0.2 million was reflected as a component of Domestic Segment
Income of our segment information.
When property and equipment is identified as held for sale, we reclassify the held for sale assets to Other Current Assets
and cease recording depreciation. Assets held for sale in both continuing operations and discontinued operations are
reported in the “Corporate and other” category of our segment information.
We had assets held for sale of $70.1 million at December 31, 2011, and $62.5 million at December 31, 2010, included in
continuing operations. We recorded $1.1 million during 2011 and $2.5 million during 2010 of non-cash impairment
charges related to our continuing operations assets held for sale to reduce the carrying value of these assets to fair value
less cost to sell. We also recorded $1.1 million during 2011 of non-cash impairment charges related to a valuation
adjustment for the cumulative depreciation not recorded during the held for sale period for continuing operations assets
that were reclassified from held for sale to held and used during 2011. The 2011 and 2010 charges are recorded as a
component of Other Expenses (Income), Net in the Consolidated Income Statements and are reported in the “Corporate
and other” category of our segment information.
We had assets held for sale of $49.5 million at December 31, 2011, and $53.8 million at December 31, 2010, included in
discontinued operations. We recorded $0.5 million during 2011 and $3.4 million during 2010 of non-cash net impairment
charges related to our discontinued operations assets held for sale to reduce the carrying value of these assets to fair value
less cost to sell. These charges are recorded as a component of Loss from Discontinued Operations in the Consolidated
Income Statements.
Goodwill and Other Intangible Assets, net
We account for acquisitions using the acquisition method of accounting. Goodwill consists of the cost of acquired
businesses in excess of the fair value of the net assets acquired. Additionally, other intangible assets are separately
65
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged, regardless of our intent to do so.
Our principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We
generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have
indefinite terms, anticipate routine renewals of the agreements without substantial cost. The contractual terms of our
franchise agreements provide for various durations, ranging from one year to no expiration date, and in certain cases,
manufacturers have undertaken to renew such franchises upon expiration so long as the dealership is in compliance with
the terms of the agreement. However, in general, the states in which we operate have automotive dealership franchise laws
that provide that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or
not renew a franchise unless “good cause” exists. It is generally difficult, outside of bankruptcy, for a manufacturer to
terminate or not renew a franchise under these franchise laws, which were designed to protect dealers. In addition, in our
experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily
terminated or not renewed by the manufacturer outside of bankruptcy. Accordingly, we believe that our franchise
agreements will contribute to cash flows for the foreseeable future and have indefinite lives. Other intangible assets are
amortized using a straight-line method over their useful lives, generally ranging from three to twenty-nine years.
Goodwill and franchise rights assets are tested for impairment annually or more frequently when events or changes in
circumstances indicate that impairment may have occurred. We completed our annual impairment tests for both goodwill
and franchise rights as of April 30, 2011 and 2010, and no impairment charges resulted from the required impairment tests.
We completed our annual impairment tests for both goodwill and franchise rights as of April 30, 2009, and no goodwill
impairment charges resulted from the required impairment test. We recorded $1.5 million ($0.9 million after-tax) of non-
cash impairment charges related to rights under an Import store’s franchise agreement as a result of the annual franchise
rights impairment test during 2009. This non-cash charge was recorded to reduce the carrying value of the store’s franchise
agreement to its estimated fair value.
See Note 5 of the Notes to Consolidated Financial Statements for more information about our goodwill and other
intangible assets.
Other Current Assets
Other current assets consist of various items, including, among other items, property and equipment held for sale in
continuing operations and discontinued operations, current deferred tax assets, prepaid expenses, and the current portions
of notes receivable and debt issuance costs.
Other Assets
Other assets consist of various items, including, among other items, service loaner and rental vehicle inventory, net, the
cash surrender value of corporate-owned life insurance held in a Rabbi Trust for deferred compensation plan participants,
deferred tax assets, and the long-term portions of notes receivable and debt issuance costs. Debt issuance costs are
amortized to Other Interest Expense in the accompanying Consolidated Income Statements using the effective interest
method through maturity.
Other Current Liabilities
Other current liabilities consist of various items payable within one year including, among other items, accruals for
payroll and benefits, sales taxes, deferred revenue, the current portions of finance and insurance chargeback liabilities and
self-insurance reserves, accrued expenses, and customer deposits.
Other Liabilities
Other liabilities consist of various items payable beyond one year including, among other items, the long-term portions
of finance and insurance chargeback liabilities, self-insurance reserves, and deferred compensation obligations.
66
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Employee Savings Plans
We offer a 401(k) plan to all of our employees and in 2011 provided a matching contribution of $2.1 million to certain
employees that participated in the plan. No matching contributions were made in 2010 and 2009. Prior to January 1, 2011,
participants became fully vested in the employer match immediately upon contribution. Effective January 1, 2011,
employer matching contributions are subject to a three year graded vesting period for employees hired subsequent to
January 1, 2011.
We offer a deferred compensation plan (the “Plan”) to provide certain employees and non-employee directors with the
opportunity to accumulate assets for retirement on a tax-deferred basis. Participants in the Plan are allowed to defer a
portion of their compensation and are fully vested in their respective deferrals and earnings. Participants may choose from
a variety of investment options, which determine their earnings credits. We provided a matching contribution to employee
participants in the Plan of $0.6 million for 2011. No matching contributions were made in 2010 and 2009. We may also
make discretionary contributions. Matching contributions vest over two years from the effective date of the employer’s
matching contribution, and discretionary contributions vest three years after the effective date of the discretionary
contribution. Certain participants in the Plan are not eligible for matching contributions to our 401(k) plan. The balances
due to participants in the Plan were $34.1 million as of December 31, 2011, and $28.8 million as of December 31, 2010,
and are included in Other Current Liabilities and Other Liabilities in the accompanying Consolidated Balance Sheets.
Stock-Based Compensation
Stock options granted under all plans are non-qualified. Upon exercise, shares of common stock are issued from our
treasury stock. Generally, employee stock options granted in 2008 and prior years have a term of 10 years from the date of
grant and vest in increments of 25% per year over a four-year period on the anniversary of the grant date. Stock option
awards granted subsequent to 2008 are annual awards granted in four equal increments over the year, which in 2011 were
granted on each of March 1, June 1, September 1, and December 1, 2011, and have a term of 10 years from the first date of
grant (i.e., all options granted in 2011 will expire on March 1, 2021) and vest in equal installments over four years
commencing on June 1 of the year following the grant date (e.g., 25% of each option grant made in 2011 will vest on
June 1, 2012). Stock options granted to non-employee directors in 2011 and prior years have a term of 10 years from the
date of grant and vest immediately upon grant.
We use the Black-Scholes valuation model to determine compensation expense and amortize compensation expense
over the requisite service period of the grants on a straight-line basis. Certain of our equity-based compensation plans
contain provisions that provide for vesting of awards upon retirement. Accordingly, the related compensation cost for
awards granted subsequent to our adoption on January 1, 2006, of an accounting standard for share-based payments must
be recognized over the shorter of the stated vesting period or the period until employees become retirement-eligible.
Restricted stock awards are considered nonvested share awards as defined under generally accepted accounting
principles and are issued from our treasury stock. Restricted stock awards granted in 2008 vest in increments of 25% per
year over a four-year period on the anniversary of the grant date. Restricted stock awards granted subsequent to 2008 vest
in equal installments over four years commencing on June 1 of the year following the grant date. Compensation cost for
restricted stock awards is recognized over the shorter of the stated vesting period or the period until employees become
retirement-eligible based on the closing price of our common stock on the date of grant.
See Note 10 of the Notes to Consolidated Financial Statements for more information about our stock-based
compensation arrangements.
Revenue Recognition
Revenue consists of the sales of new and used vehicles, sales of parts and automotive services, commissions from
finance and insurance products, and sales of other products. We recognize revenue (which excludes sales taxes) in the
period in which products are sold or services are provided. The automotive services we provide include, but are not limited
to, customer-paid repairs and maintenance, as well as repairs and maintenance under manufacturer warranties and extended
service contracts. We recognize vehicle and finance and insurance revenue when a sales contract has been executed, the
67
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
vehicle has been delivered, and payment has been received or financing has been arranged. Revenue on finance and
insurance products represents commissions earned by us for: (i) loans and leases placed with financial institutions in
connection with customer vehicle purchases financed, (ii) vehicle service contracts sold, and (iii) insurance and other
products sold.
We sell and receive a commission, which is recognized upon sale, on the following types of products: extended service
contracts, maintenance programs, guaranteed auto protection (known as “GAP,” this protection covers the shortfall
between a customer’s loan balance and insurance payoff in the event of a casualty), “tire and wheel” protection, and theft
protection products. The products we offer include products that are sold and administered by independent third parties,
including the vehicle manufacturers’ captive finance subsidiaries. Pursuant to our arrangements with these third-party
providers, we primarily sell the products on a straight commission basis; however, we may sell the product, recognize
commission, and participate in future profit pursuant to retrospective commission arrangements, which are recognized as
earned. Certain commissions earned from the sales of finance, insurance, and other protection products are subject to
chargeback should the contracts be terminated prior to their expirations. An estimated liability for chargebacks against
revenue recognized from sales of finance and insurance products is recorded in the period in which the related revenue is
recognized. Our estimated liability for chargebacks is based primarily on our historical chargeback experience, and is
influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting
from cancellation of vehicle protection products, defaults, refinancings and payoffs before maturity, and other factors.
Chargeback liabilities were $46.2 million at December 31, 2011, and $42.5 million at December 31, 2010. See Note 19 of
the Notes to Consolidated Financial Statements for more information regarding chargeback liabilities.
Insurance
Under our self-insurance programs, we retain various levels of aggregate loss limits, per claim deductibles, and claims-
handling expenses as part of our various insurance programs, including property and casualty, employee medical benefits,
automobile, and workers’ compensation. Costs in excess of this retained risk per claim may be insured under various
contracts with third-party insurance carriers. We review our claim and loss history on a periodic basis to assist in assessing
our future liability. The ultimate costs of these retained insurance risks are estimated by management and by third-party
actuarial evaluation of historical claims experience, adjusted for current trends and changes in claims-handling procedures.
See Note 6 of the Notes to Consolidated Financial Statements for more information on our self-insurance reserves.
Manufacturer Incentives and Other Rebates
We receive various incentives from manufacturers based on achieving certain objectives, such as specified sales volume
targets, as well as other objectives, including maintaining standards of a particular brand, which may include but are not
limited to facility image and design requirements, customer satisfaction survey results, and training standards, among
others. These incentives are typically based upon units purchased or sold. These manufacturer incentives are recognized as
a reduction of new vehicle cost of sales when earned, generally at the time the related vehicles are sold or upon attainment
of the particular program goals, whichever is later.
We also receive manufacturer rebates and assistance for holdbacks, floorplan interest, and non-reimbursement-based
advertising expenses (described below), which are reflected as a reduction in the carrying value of each vehicle purchased
by us. We recognize holdbacks, floorplan interest assistance, non-reimbursement-based advertising rebates, cash
incentives, and other rebates received from manufacturers that are tied to specific vehicles as a reduction to cost of sales as
the related vehicles are sold.
Advertising
We generally expense the cost of advertising as incurred, net of earned manufacturer reimbursements for specific
advertising costs and other discounts. Advertising expense, net of manufacturer advertising reimbursements, was $130.2
million in 2011, $126.2 million in 2010, and $116.0 million in 2009, and is reflected as a component of Selling, General,
and Administrative Expenses in the accompanying Consolidated Income Statements.
68
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Manufacturer advertising rebates that are reimbursements of costs associated with specific advertising expenses are
earned in accordance with the respective manufacturers’ reimbursement-based advertising assistance programs, which is
typically after we have incurred the corresponding advertising expenses, and are reflected as a reduction of advertising
expense. Manufacturer advertising reimbursements classified as an offset to advertising expenses were $28.2 million in
2011, $24.4 million in 2010, and $14.6 million in 2009.
All other non-reimbursement-based manufacturer advertising rebates that are not associated with specific advertising
expenses are recorded as a reduction of inventory and recognized as a reduction of new vehicle cost of sales in the period
the related vehicle is sold.
Parts and Service Internal Profit
Our parts and service departments provide reconditioning repair work for used vehicles acquired by our used vehicle
departments and minor preparatory work for new vehicles acquired by our new vehicle departments. The parts and service
departments charge the new and used vehicle departments as if they were third parties in order to account for total activity
performed by that department. Revenues and costs of sales associated with the internal work performed by our parts and
service departments are reflected in our parts and service results in our consolidated statements of income. New and used
vehicle revenues and costs of sales are reduced by the amount of the intracompany charge. As a result, the revenues and
costs of sales associated with the internal work performed by our parts and service departments are eliminated in
consolidation. We also maintain a reserve for internal profit on vehicles that have not been sold.
Income Taxes
We file a consolidated federal income tax return. Deferred income taxes have been provided for temporary differences
between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis
of assets and liabilities and their reported amounts in the financial statements. See Note 11 of the Notes to Consolidated
Financial Statements for more detailed information related to income taxes.
Taxes Assessed by Governmental Authorities
Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from
revenue in our Consolidated Financial Statements.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period, including outstanding unvested restricted stock awards which contain rights to non-
forfeitable dividends. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding adjusted for the dilutive effect of stock options. See Note 12 of the Notes to
Consolidated Financial Statements for more information on the computation of earnings (loss) per share.
New Accounting Pronouncements
Testing for Goodwill Impairment
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that
amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are
intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the
likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The
amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity
should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim
and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this
accounting standard update will not have an impact on our consolidated financial position, results of operations, or cash
flows, as it is intended to simplify the assessment for goodwill impairment.
69
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Multiemployer Pension Plan Disclosures
In September 2011, the FASB issued an accounting standard update that requires employers that participate in
multiemployer pension plans to provide additional quantitative and qualitative disclosures. The amended disclosures
provide users with more detailed information about an employer's involvement in multiemployer pension plans and are
effective for annual periods ending after December 15, 2011. Five of our 215 stores participate in multiemployer pension
plans. We adopted this standard effective December 31, 2011, and have included the required disclosures in Note 21 of the
Notes to Consolidated Financial Statements.
Presentation of Comprehensive Income
In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other
comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income
that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements.
This accounting standard update eliminates the option to present components of other comprehensive income as part of the
statement of shareholders’ equity, and is effective for interim and annual periods beginning after December 15, 2011. The
adoption of this accounting standard update will not have an impact on our consolidated financial position, results of
operations, or cash flows, as it only requires a change in the format of our current presentation of comprehensive income.
Amendments to Fair Value Measurements
In May 2011, the FASB issued an accounting standard update that amends the accounting standard on fair value
measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well
as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial
Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the
application of existing fair value measurement, and expands the fair value measurement disclosure requirements,
particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied
prospectively and are effective for interim and annual periods beginning after December 15, 2011. We do not expect the
adoption of this accounting standard update will have a material effect on our consolidated financial statements, but may
require certain additional disclosures.
2. RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, at December 31 are as follows:
Trade receivables
Manufacturer receivables
Other
Less: Allowances
Contracts-in-transit and vehicle receivables
Income tax refundable (See Note 11)
Receivables, net
2011
2010
94.3
138.4
41.4
274.1
(3.0)
271.1
306.1
10.2
587.4
$
$
89.8
127.8
37.5
255.1
(3.7)
251.4
210.6
—
462.0
$
$
Contracts-in-transit and vehicle receivables represent receivables from financial institutions for the portion of the
vehicle sales price financed by our customers.
70
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory at December 31 are as follows:
New vehicles
Used vehicles
Parts, accessories, and other
2011
2010
1,397.1
$
1,479.6
286.3
125.8
271.8
115.6
1,809.2
$
1,867.0
$
$
The components of vehicle floorplan payables at December 31 are as follows:
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade
2011
2010
$
$
1,362.3
536.5
1,898.8
$
$
1,379.9
486.5
1,866.4
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 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 require that the
manufacturer have the ability to draft against the 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 vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 2.4% during 2011 and 2.6% during
2010. At December 31, 2011, the aggregate capacity under our floorplan credit agreements with various lenders to finance
a portion of our used vehicle inventory was $260.0 million, of which $112.7 million had been borrowed. The remaining
borrowing capacity of $147.3 million was limited to $75.4 million based on the eligible used vehicle inventory that could
have been pledged as collateral. At December 31, 2011, the aggregate capacity under all of our floorplan credit facilities to
finance vehicles was approximately $2.8 billion, of which $1.9 billion had been borrowed.
71
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. PROPERTY AND EQUIPMENT, NET
A summary of property and equipment, net, at December 31 is as follows:
Land
Buildings and improvements
Furniture, fixtures, and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
$
$
5. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, at December 31 consist of the following:
Goodwill
Franchise rights - indefinite-lived
Other intangible assets
Less: accumulated amortization
Intangible assets, net
Goodwill
2011
1,172.2
212.6
8.4
221.0
(3.2)
217.8
$
$
$
2011
2010
867.1
$
1,321.8
518.6
2,707.5
(756.8)
1,950.7
837.7
1,210.3
479.6
2,527.6
(689.6)
1,838.0
2010
1,142.4
199.1
5.6
204.7
(2.7)
202.0
$
$
$
$
Goodwill is tested for impairment annually on 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. We completed our annual
impairment tests as of April 30, 2011, 2010, and 2009, and no goodwill impairment charges resulted from the required
goodwill impairment tests.
The test for goodwill impairment is a two-step approach. The first step of the goodwill impairment test requires a
determination of whether the fair value of a reporting unit is less than its carrying value. If so, the second step is required,
which involves an analysis reflecting the allocation of the fair value determined in the first step (as if it was the purchase
price in a business combination). This process may result in the determination of a new amount of goodwill. If the
calculated fair value of the goodwill resulting from this allocation is lower than the carrying value of the goodwill in the
reporting unit, the difference is reflected as a non-cash impairment loss. The purpose of the second step is only to
determine the amount of goodwill that should be recorded on the balance sheet. The recorded amounts of other items on
the balance sheet are not adjusted.
We estimate the fair value of our reporting units using an “income” valuation approach, which discounts projected free
cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation
approach requires the use of significant estimates and assumptions, which include revenue growth rates and future
operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic
and market conditions. In connection with this process, we also reconcile the estimated aggregate fair values of our
reporting units to our market capitalization, including consideration of a control premium that represents the estimated
amount an investor would pay for our equity securities to obtain a controlling interest. We believe that this reconciliation
process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the
automotive industry, our recent performance, our expectations of our future performance, and other assumptions we
believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those
72
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
estimates. We also make certain judgments and assumptions in allocating shared assets and liabilities to determine the
carrying values for each of our reporting units.
Goodwill allocated to our reporting units and changes in the carrying amount of goodwill for the years ended
December 31, 2011 and 2010 were as follows:
Domestic
Import
Premium
Luxury
Corporate
and other
Goodwill at January 1, 2010 (1)
Acquisitions and other adjustments
Goodwill at December 31, 2010 (1)
Acquisitions and other adjustments
Goodwill at December 31, 2011 (1)
$
$
156.0
$
497.8
$
469.3
$
0.4
156.4
—
18.9
516.7
14.9
—
469.3
14.9
156.4
$
531.6
$
484.2
$
—
—
—
—
—
Consolidated
$
1,123.1
19.3
1,142.4
29.8
$
1,172.2
(1) Net of accumulated impairment losses of $1.47 billion ($1.25 billion after-tax) associated with our single reporting
unit and $140.0 million ($119.0 million after-tax) associated with our Domestic reporting unit, both of which were
recorded during the year ended December 31, 2008.
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 on April 30 for impairment. The impairment test
for intangibles with indefinite lives requires the comparison of estimated fair value to its carrying value by store. Fair
values of rights under franchise agreements are estimated by discounting expected future cash flows of the store. We
completed our annual impairment tests as of April 30, 2011 and 2010, and no franchise rights impairment charges resulted
from the required impairment test.
As of December 31, 2011, we had $212.6 million of franchise rights recorded on our Consolidated Balance Sheet, of
which $5.3 million was related to Domestic stores, $67.6 million was related to Import stores, and $139.7 million was
related to Premium Luxury stores.
We completed our annual impairment tests as of April 30, 2009, and we recorded $1.5 million ($0.9 million after-tax) of
non-cash impairment charges related to rights under an Import store’s franchise agreement. This non-cash impairment
charge was recorded to reduce the carrying value of the store’s franchise agreement to its estimated fair value. The decline
in the fair value of rights under this store’s franchise agreement reflects the underperformance relative to expectations of
this store since our acquisition of it, as well as our expectations for the store’s future prospects. These factors resulted in a
reduction in forecasted cash flows and growth rates used to estimate fair value. This non-cash impairment charge is
classified as Franchise Rights Impairment in the accompanying Consolidated Income Statements.
6. INSURANCE
At December 31, 2011 and 2010, current insurance reserves were included in Other Current Liabilities in the
Consolidated Balance Sheets and long-term insurance reserves were included in Other Liabilities in the Consolidated
Balance Sheets as follows:
Insurance reserves - current portion
Insurance reserves - long-term portion
Total insurance reserves
2011
2010
$
$
23.6
34.6
58.2
$
$
27.8
36.2
64.0
73
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
7% Senior Notes due 2014
6.75% Senior Notes due 2018
Term loan facility due 2012
Term loan facility due 2014
Term loan facility due 2016
Revolving credit facility due 2012
Revolving credit facility due 2014
Revolving credit facility due 2016
Mortgage facility(1)
Capital leases due from 2012 to 2031
Less: current maturities
Long-term debt, net of current maturities
2011
2010
14.7
395.0
—
—
500.0
—
—
495.0
211.5
30.8
1,647.0
(12.6)
1,634.4
$
$
14.7
394.4
54.0
479.4
—
16.1
163.9
—
219.2
7.0
1,348.7
(8.1)
1,340.6
$
$
(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.
At December 31, 2011, aggregate maturities of non-vehicle long-term debt were as follows:
Year Ending December 31:
2012
2013
2014
2015
2016
Thereafter
$
$
12.6
9.5
42.6
10.0
1,005.4
566.9
1,647.0
Debt Refinancing Transactions
In the second quarter of 2010, we (1) completed cash tender offers to purchase any and all of our then outstanding
Floating Rate Senior Notes due 2013 and 7% Senior Notes due 2014 (these two series of notes are referred to as the “old
notes”), pursuant to which we accepted for payment, and thereafter cancelled, all of our outstanding Floating Rate Senior
Notes due 2013 and 88.9% of our 7% Senior Notes due 2014, representing an aggregate amount of $264.0 million of old
notes, (2) amended the indenture for the old notes to eliminate most of the restrictive covenants and certain events of
default and to shorten the notice periods required to undertake an optional redemption, (3) issued $400.0 million aggregate
principal amount of 6.75% Senior Notes due 2018, and (4) amended and extended our then existing credit agreement. We
expensed $19.6 million pre-tax in the second quarter of 2010, related to these transactions, including $3.5 million for the
write-off of certain unamortized debt issuance costs associated with the old notes and the credit agreement as it existed
prior to its amendment and extension.
On December 7, 2011, we entered into a new five-year unsecured credit agreement (referred to as our “credit
agreement” or the “new credit agreement”) with a $500.0 million term loan facility and a $1.2 billion revolving credit
74
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
facility. The new credit agreement replaced our prior unsecured credit agreement (referred to as the “prior credit
agreement”). The prior credit agreement was terminated concurrently with our entry into the new credit agreement, and
the indebtedness outstanding under the prior credit agreement was paid off with proceeds from borrowings under the new
credit agreement. The maturity date for the term loan and revolving credit facilities under the new credit agreement is
December 7, 2016.
Our prior credit agreement provided for a $533.4 million term loan facility and a $638.6 million revolving credit
facility. The term loan facility under the prior credit agreement was bifurcated into a $54.0 million tranche due July 18,
2012 and a $479.4 million tranche due July 18, 2014. The revolving credit facility under the prior credit agreement was
bifurcated into a $57.0 million tranche due July 18, 2012 and a $581.6 million tranche due July 18, 2014.
With the new credit agreement, we increased our maximum leverage ratio to 3.75x, compared to 3.25x under the prior
credit agreement, and our maximum capitalization ratio to 65.0%, compared to 60.0% under the prior credit agreement.
See “Senior Unsecured Notes and Credit Agreement” below for additional information regarding our credit agreement
and “Restrictions and Covenants” for additional information regarding our financial covenants.
We expensed $2.2 million pre-tax in the fourth quarter of 2011, related to entering into the new credit agreement,
including $0.4 million for the write-off of certain unamortized debt issuance costs associated with the prior credit
agreement.
On February 1, 2012, we issued $350.0 million aggregate principal amount of 5.5% Senior Notes due 2020. Interest is
payable on February 1 and August 1 of each year, beginning on August 1, 2012. At any time prior to February 1, 2015, we
may redeem up to 35% of the principal amount of these notes with the net cash proceeds of one or more public equity
offerings of our common stock at 105.5% of principal. These notes will mature on February 1, 2020.
Senior Unsecured Notes and Credit Agreement
At December 31, 2011, we had outstanding $395.0 million of 6.75% Senior Notes due 2018, net of debt discount.
Interest on the 6.75% Senior Notes due 2018 is payable on April 15 and October 15 of each year. At any time prior to April
15, 2013, we may redeem up to 35% of the principal amount of these notes with the net cash proceeds of one or more
public equity offerings of our common stock at 106.75% of principal. These notes will mature on April 15, 2018.
At December 31, 2011, we had outstanding $14.7 million of 7% Senior Notes due 2014. Interest on the 7% Senior
Notes due 2014 is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2014, and may be
redeemed by us currently at 101.75% of principal and at 100% of principal on or after April 15, 2012.
During 2009, we repurchased $48.4 million aggregate principal amount of our Floating Rate Senior Notes due 2013 for
an aggregate total consideration of $41.1 million. We also repurchased $40.0 million aggregate principal amount of our 7%
Senior Notes due 2014 for an aggregate total consideration of $34.5 million. We recorded a gain of $13.0 million during
2009 in connection with these repurchases, net of the write-off of related unamortized debt issuance costs. The gain is
classified as Gain on Senior Note Repurchases in the accompanying Consolidated Income Statements.
As described above under “Debt Refinancing Transactions,” under our new credit agreement, we have a $500.0 million
term loan facility and a $1.2 billion revolving credit facility. The term loan and revolving credit facilities under the new
credit agreement mature December 7, 2016. As of December 31, 2011, we had borrowings outstanding of $495.0 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, which was $56.5 million at December 31, 2011, leaving an
additional borrowing capacity under the revolving credit facility of $648.5 million at December 31, 2011.
Our term loan facility provides for various interest rates generally at LIBOR plus 1.75%. Our revolving credit facility
provides for a commitment fee on undrawn amounts of 0.30% and various interest rates on borrowings generally at LIBOR
plus 1.75%.
75
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The credit spread charged for both our term loan facility and 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 25 basis point increase in the credit spread under both our term loan facility and revolving credit
facility.
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 Debt
At December 31, 2011, we had $211.5 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 December 31, 2011, we had capital lease obligations of $30.8 million. See Note 8 of the Notes to Consolidated
Financial Statements for more information related to capital lease obligations.
In 2000, we sold our corporate headquarters facility and leased it back in a transaction that was originally accounted for
as a financing. During the first quarter of 2009, we amended this lease, resulting in a change in accounting method from
financing to sale-leaseback. As a result of this change, we derecognized $21.4 million of assets and a $37.5 million
financing liability in the first quarter of 2009, when we also recognized a $7.6 million gain on the sale, which is recorded
in Other Expenses (Income), Net, and $1.8 million of rent expense, which is recorded in Selling, General, and
Administrative Expenses. The remaining gain of $8.5 million and remaining rent expense of $9.1 million were fully
recognized through the third quarter of 2009.
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 numerous customary financial and operating covenants that
place significant 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 prior credit agreement we were, and under our new 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 new credit agreement,
the maximum capitalization ratio is 65.0%, compared to 60.0% under the prior credit agreement, and the maximum
leverage ratio is 3.75x, compared to 3.25x under the prior credit agreement. In calculating our leverage ratio, 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), and, 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, 2011 plus $1.52 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.
76
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our failure to comply with the covenants contained in our debt agreements could permit 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 new credit agreement, at December 31, 2011, our leverage ratio and capitalization ratio were as
follows:
Leverage ratio
Capitalization ratio
December 31, 2011
Requirement
< 3.75x
< 65.0%
Actual
2.59x
50.9%
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.
In the event of a downgrade in our credit ratings, none of the covenants described above would be impacted. In
addition, availability under our new credit agreement described above would not be impacted should a downgrade in the
senior unsecured debt credit ratings occur.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our
business, including litigation with customers, employment-related lawsuits, class actions, purported class actions, and
actions brought by governmental authorities. 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 financial condition, results of operations, and cash flows.
Lease Commitments
We lease real property, equipment, and software under various operating leases, most of which have terms from one to
twenty years. We account for leases under related accounting guidance and other authoritative literature.
Expenses under real property, equipment, and software leases were $53.9 million in 2011, $55.4 million in 2010, and
$66.6 million in 2009. The leases require payment of real estate taxes, insurance, and maintenance in addition to rent. Most
of the leases contain renewal options and rent escalation clauses. Lease expense is recognized on a straight-line basis over
the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the
amortization period of related leasehold improvements, and the estimation of future lease commitments.
77
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Future minimum lease obligations under non-cancelable real property, equipment, and software leases with initial terms
in excess of one year at December 31, 2011, are as follows:
Noncancelable Lease Commitments
Capital (1)
2012
2013
2014
2015
2016
Thereafter
Total minimum lease payments
Less: Amounts representing interest
$
$
$
6.7
3.0
19.9
1.1
1.0
12.0
43.7
(12.9)
30.8
Operating(1) (2)
47.1
$
41.7
38.4
33.3
32.2
264.2
456.9
$
(1) Amounts for capital and operating lease commitments do not include certain operating expenses such as
maintenance, insurance, and real estate taxes. In 2011, these charges totaled approximately $22 million.
(2) Future minimum operating lease payments do not reflect future minimum sublease income of $7.1 million.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our
subsidiaries of their respective dealership premises. Pursuant to these leases, our subsidiaries generally agree to indemnify
the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including
environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements
with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or
related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course
of business in connection with purchases or sales of goods and services, we enter into agreements that may contain
indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the
terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to
the dealership purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our
subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee
or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of
the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us
in connection with such leases. We generally have indemnification rights against the assignee or sublessee in the event of
non-performance under these leases, as well as certain defenses. We presently have no reason to believe that we or our
subsidiaries will be called on to perform under any such remaining assigned leases or subleases. We estimate that lessee
rental payment obligations during the remaining terms of these leases with expirations ranging from 2012 to 2034 are
approximately $63 million at December 31, 2011. Our exposure under these leases is difficult to estimate and there can be
no assurance that any performance of AutoNation or its subsidiaries required under these leases would not have a material
adverse effect on our business, financial condition, and cash flows.
At December 31, 2011, surety bonds, letters of credit, and cash deposits totaled $90.0 million, of which $56.5 million
represented letters of credit. In the ordinary course of business, we are required to post performance and surety bonds,
letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash
collateral for outstanding letters of credit.
78
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law
on July 21, 2010, established a new consumer financial protection agency with broad regulatory powers. Although
automotive dealers are generally excluded, the Dodd-Frank Act could lead to additional, indirect regulation of automotive
dealers through its regulation of automotive finance companies and other financial institutions. In addition, we expect that
the Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, will increase our annual
employee health care costs that we fund, with the most significant increases commencing in 2014. 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.
9. SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our share repurchase program authorized by our Board of Directors follows:
(In millions, except per share data)
Shares repurchased
Aggregate purchase price
Average purchase price per share
2011
2010
2009
17.1
583.4
34.14
$
$
26.6
523.7
19.70
$
$
7.7
135.7
17.74
$
$
In January 2012, our Board of Directors authorized an additional $250 million under our existing share repurchase
program. From January 1, 2012 through February 8, 2012, we repurchased an additional 3.9 million shares for an
aggregate purchase price of $134.8 million (average purchase price per share of $34.89). As of February 8, 2012, $265.0
million remained available for share repurchases under the program.
Our Board of Directors authorized the retirement of 30 million shares of our treasury stock in October 2010, which
assumed the status of authorized but unissued shares. Upon the retirement of treasury stock, it is our policy to charge the
excess of the cost of the treasury stock over its par value entirely to additional paid-in capital. Any amounts exceeding
additional paid-in capital are charged to retained earnings. The retirement made in 2010 had the effect of reducing treasury
stock and issued common stock, which includes treasury stock. Our common stock, additional paid-in capital, retained
earnings, and treasury stock accounts have been adjusted accordingly. There was no impact to shareholders’ equity or
outstanding common stock.
We have 5.0 million authorized shares of preferred stock, par value $0.01 per share, none of which are issued or
outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the
rights, preferences, and dividends.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
(In millions, except per share data)
Shares issued
Proceeds from the exercise of stock options
Average exercise price per share
2011
2010
2009
4.4
78.7
17.74
$
$
3.1
49.9
16.25
$
$
2.4
24.8
10.41
$
$
79
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents a summary of shares of common stock issued in connection with grants of restricted stock
and shares surrendered to AutoNation primarily to satisfy tax withholding obligations in connection with the vesting of
restricted stock (in actual number of shares):
Shares issued
Shares surrendered to AutoNation primarily to satisfy tax
withholding obligations in connection with the vesting of
restricted stock
2011
2010
2009
163,892
188,740
194,716
59,452
36,614
18,648
10. STOCK-BASED COMPENSATION
The AutoNation, Inc. 2008 Equity and Incentive Plan (“2008 Plan”) provides for the grant of stock options, stock
appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards to employees. A
maximum of 12.0 million shares may be issued under the 2008 Plan, provided that no more than 2.0 million shares may be
issued pursuant to the grant of awards, other than options or stock appreciation rights, that are settled in shares. The
exercise price of all stock options and stock appreciation rights granted under the 2008 Plan, is equal to or above the
closing price of our common stock on the date such awards are granted, or if the date of grant is not a trading day, on the
next trading day.
The AutoNation, Inc. 2007 Non-Employee Director Stock Option Plan (“Non-Employee Director Plan”) provides for
the grant of stock options to our non-employee directors. A maximum of 2.0 million shares may be issued under the Non-
Employee Director Plan. The exercise price of all stock options granted in 2011 under the Non-Employee Director Plan is
equal to the closing price of our common stock on the date such awards are granted.
In 2011, the Executive Compensation Subcommittee of the Compensation Committee of our Board of Directors (the
“Subcommittee”) approved an annual grant of 1.0 million employee stock options for 2011. One-fourth of each employee
stock option award that was approved in 2011 was granted on each of March 1, June 1, September 1, and December 1,
2011. Additionally, each of our non-employee directors received an automatic grant of an option to purchase 5,000 shares
of our common stock on each of March 1, June 1, September 1, and December 1, 2011. The options granted in 2011 have
an exercise price equal to the closing price per share on the grant date ($32.50 on March 1, $34.51 on June 1, $40.37 on
September 1, and $35.99 on December 1, 2011). In 2011, the Subcommittee also approved a total of 0.2 million shares of
restricted stock, all of which were granted to restricted stock-eligible employees on March 1, 2011.
On February 1, 2012, our Board of Directors approved an amendment to the Non-Employee Director Plan. Prior to the
adoption of the amendment, each option granted under the Non-Employee Director Plan was immediately exercisable and
expired on the tenth anniversary of the option grant date. The amendment provides that, after February 1, 2012, (1) each
option granted under the Non-Employee Director Plan shall vest and become exercisable with respect to 25% of the total
number of shares underlying the option on June 1 of the year following the year in which the option is granted (the “initial
vesting date”) and with respect to an additional 25% on each of the next three succeeding anniversaries of the initial
vesting date, (2) except as set forth in (3) below, in the event an optionee ceases to be a non-employee director, then any
options held by such non-employee director shall become immediately vested and exercisable until the earlier of (a) 30
days following the date the optionee ceases to be a non-employee director and (b) the expiration of the options, (3) in the
event an optionee ceases to be a non-employee director because of retirement, death, or permanent and total disability
(each as defined in the Non-Employee Director Plan), then any options held by such non-employee director shall become
immediately vested and exercisable until the earlier of (x) the third anniversary of the date of such retirement, death, or
permanent and total disability and (y) the expiration of the options, and (4) each option granted thereunder shall expire on
the tenth anniversary of the first grant date in the year in which the option was granted.
No additional options may be issued under our other stock option plans (“Prior Plans”). Under our Prior Plans, stock
options were granted with exercise prices equal to or above the closing price of our common stock on the trading day
immediately prior to the date of grant.
80
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock Options
Stock options granted under all plans are non-qualified. Upon exercise, shares of common stock are issued from our
treasury stock. Generally, employee stock options granted in 2008 and prior years have a term of 10 years from the date of
grant and vest in increments of 25% per year over a four-year period on the anniversary of the grant date. Employee stock
options granted subsequent to 2008 have a term of 10 years from the first date of grant (i.e., all employee stock options
granted in 2011 will expire on March 1, 2021) and vest in equal installments over four years commencing on June 1 of the
year following the grant date (e.g., 25% of each option grant made in 2011 will vest on June 1, 2012). Stock options
granted to non-employee directors in 2011 and prior years have a term of 10 years from the date of grant and vest
immediately upon grant.
We use the Black-Scholes valuation model to determine compensation expense and amortize compensation expense
over the requisite service period of the grants on a straight-line basis. Certain of our equity-based compensation plans
contain provisions that provide for vesting of awards upon retirement. Accordingly, the related compensation cost for
awards granted subsequent to our adoption on January 1, 2006, of an accounting standard for share-based payments must
be recognized over the shorter of the stated vesting period or the period until employees become retirement-eligible.
The following table summarizes the assumptions used relating to the valuation of our stock options during 2011, 2010,
and 2009:
Risk-free interest rate
Expected dividend yield
Expected term
Expected volatility
2011
Grant Year
2010
2009
0.62% - 2.81%
1.18% - 3.24%
1.64% - 3.36%
—
4 -7 years
39% - 50%
—
4 -7 years
40% - 49%
—
4 - 7 years
42% - 52%
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant with a remaining term equal
to the expected term used for stock options granted. The expected term of stock options granted is derived from historical
data and represents the period of time that stock options are expected to be outstanding. The expected volatility is based on
historical volatility, implied volatility, and other factors.
81
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes stock option activity during 2011:
Stock Options
Shares
(in millions)
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(in millions)
Options outstanding at January 1
Granted (1)
Exercised
Forfeited
Expired
Options outstanding as of December 31
Options exercisable at December 31
Options exercisable at December 31 and
expected to vest thereafter
Options available for future grants at
December 31
17.92
35.84
17.74
20.23
—
21.03
18.91
20.94
$
$
$
$
$
$
$
$
10.1
1.2
(4.4)
(0.1)
—
6.8
4.2
6.7
8.1
6.5
5.4
6.4
$
$
$
108.7
75.7
108.2
(1) The options granted during 2011, are related to our employee and non-employee director quarterly stock option
award grants in March, June, September, and December 2011.
The weighted average grant-date fair value of stock options granted and total intrinsic value of stock options exercised
are summarized in the following table:
(In millions, except per option data)
Weighted average grant-date fair value of stock options granted
Total intrinsic value of stock options exercised
2011
2010
2009
$
$
15.69
81.0
$
$
9.57
24.8
$
$
7.30
19.5
Restricted Stock
Restricted stock awards are considered nonvested share awards as defined under generally accepted accounting
principles and are issued from our treasury stock. Restricted stock awards granted in 2008 vest in increments of 25% per
year over a four-year period on the anniversary of the grant date. Restricted stock awards granted subsequent to 2008 vest
in equal installments over four years commencing on June 1 of the year following the grant date. Compensation cost for
restricted stock awards is recognized over the shorter of the stated vesting period or the period until employees become
retirement-eligible based on the closing price of our common stock on the date of grant.
82
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information about vested and unvested restricted stock for 2011:
Nonvested at January 1
Granted (2)
Vested
Forfeited
Nonvested at December 31
Restricted Stock
Shares
(in millions)
Weighted-Average
Grant Date
Fair Value
0.4
0.2
(0.2)
—
0.4
$
$
$
$
$
13.78
32.50
14.99
—
21.17
(2) The restricted stock awards granted during 2011 are related to our employee annual restricted stock
award grant in March 2011.
The weighted average grant-date fair value of restricted stock awards granted and total fair value of restricted stock
awards vested are summarized in the following table:
(In millions, except per share data)
Weighted average grant-date fair value of restricted stock awards granted
Total fair value of restricted stock awards vested
2011
2010
2009
$
$
32.50
5.5
$
$
18.20
2.2
$
$
9.97
1.0
Compensation Expense
The following table summarizes the total stock-based compensation expense recognized in Selling, General, and
Administrative Expenses in the Consolidated Income Statements and the total recognized tax benefit related thereto:
Stock options
Restricted stock
Total stock-based compensation expense
Tax benefit related to stock-based compensation expense
2011
2010
2009
$
$
$
15.2
3.2
18.4
7.0
$
$
$
14.0
1.9
15.9
6.1
$
$
$
12.5
1.0
13.5
5.1
As of December 31, 2011, there was $17.2 million of total unrecognized compensation cost related to non-vested stock-
based compensation arrangements, of which $11.9 million relates to stock options and $5.3 million relates to restricted
stock. These amounts are expected to be recognized over a weighted average period of 1.8 years.
We realized tax benefits related to stock options exercised and/or vesting of restricted stock of $32.8 million in 2011,
$10.1 million in 2010, and $7.7 million in 2009.
83
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. INCOME TAXES
The components of the income tax provision from continuing operations for the years ended December 31 are as
follows:
Current:
Federal
State
Federal and state deferred
Change in valuation allowance, net
Adjustments and settlements
Income tax provision
2011
2010
2009
$
$
125.3
21.3
31.3
(0.2)
(0.6)
177.1
$
$
115.4
19.5
13.2
(0.1)
(2.0)
146.0
$
$
47.2
9.7
73.3
—
(14.1)
116.1
A reconciliation of the income tax provision calculated using the statutory federal income tax rate to our income tax
provision from continuing operations for the years ended December 31 is as follows:
2011
%
2010
%
2009
%
Income tax provision at statutory rate
Non-deductible expenses (income), net
State income taxes, net of federal benefit
Change in valuation allowance, net
Adjustments and settlements
Other, net
Income tax provision
$
$
161.4
1.1
16.7
179.2
(0.2)
(0.6)
(1.3)
177.1
35.0
0.2
3.6
38.8
—
(0.2)
(0.2)
38.4
$
$
133.4
1.5
13.9
148.8
(0.1)
(2.0)
(0.7)
146.0
35.0
0.4
3.6
39.0
—
(0.5)
(0.2)
38.3
Deferred income tax asset and liability components at December 31 are as follows:
$
$
$
35.0
(0.6)
3.4
37.8
—
(4.0)
(0.6)
33.2
122.2
(2.1)
12.0
132.1
—
(14.1)
(1.9)
116.1
2010
10.6
5.4
38.3
47.6
21.6
15.9
16.7
156.1
(7.4)
(107.4)
(4.8)
(112.2)
36.5
2011
11.3
4.5
38.2
35.8
18.8
14.3
18.0
140.9
(6.5)
(142.5)
(9.4)
(151.9)
(17.5)
$
Deferred income tax assets:
Inventory
Receivable reserves
Warranty, chargeback, and self-insurance liabilities
Other accrued liabilities
Stock-based compensation
Loss carryforwards—federal and state
Other, net
Valuation allowances
Deferred income tax liabilities:
Long-lived assets (intangible assets and property)
Other, net
Net deferred income tax assets (liabilities)
84
$
$
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We had $41.8 million of current deferred income tax assets, $3.0 million of non-current deferred income tax assets, and
$62.3 million of non-current deferred income tax liabilities at December 31, 2011, and $60.0 million of current deferred
income tax assets, $2.5 million of non-current deferred income tax assets, and $25.9 million of non-current deferred
income tax liabilities at December 31, 2010. Current deferred income tax assets are classified as Other Current Assets,
non-current deferred income tax assets are classified as Other Assets, and non-current deferred income tax liabilities are
classified as Deferred Income Taxes in the accompanying Consolidated Balance Sheets.
Income taxes refundable included in Receivables, net, totaled $10.2 million at December 31, 2011. Income taxes
payable included in Other Current Liabilities totaled $10.7 million at December 31, 2010.
At December 31, 2011, we had $254.1 million of gross domestic state net operating loss carryforwards and capital loss
carryforwards, and $5.2 million of state tax credits, all of which result in a deferred tax asset of $14.2 million and expire
from 2012 through 2032. At December 31, 2011, we had $6.5 million of valuation allowance related to these loss
carryforwards. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. We provide valuation allowances to offset portions of deferred
tax assets due to uncertainty surrounding the future realization of such deferred tax assets. We adjust the valuation
allowance in the period management determines it is more likely than not that deferred tax assets will or will not be
realized. Certain decreases to valuation allowances are offset against intangible assets associated with business acquisitions
accounted for under the acquisition method of accounting.
During 2011, we recognized net tax benefits of $1.3 million related to the adjustment and resolution of certain income
tax matters.
During 2010, we recognized net tax benefits of $2.7 million related to the adjustment and resolution of certain income
tax matters.
During 2009, we completed a restructuring of certain of our subsidiaries, a consequence of which was the elimination of
a deferred tax liability of $12.7 million, which was reflected as a benefit in our tax provision for the three months ended
December 31, 2009.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing
authorities, including the IRS, regularly audit us. These audits may result in proposed assessments where the ultimate
resolution may result in our owing additional taxes. Currently, no tax years are under examination by the IRS and tax years
from 2007 to 2009 are under examination by U.S. state jurisdictions. We believe that our tax positions comply with
applicable tax law and that we have adequately provided for these matters.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions for expirations of statute of limitations
Settlements
Balance at December 31
2011
2010
2009
$
$
6.9
—
0.9
—
—
(1.4)
6.4
$
$
$
2.5
—
4.4
—
—
—
6.9
$
9.6
—
—
(6.8)
(0.3)
—
2.5
We had accumulated interest and penalties associated with these unrecognized tax benefits of $4.0 million at
December 31, 2011, $3.7 million at December 31, 2010, and $3.1 million at December 31, 2009. We additionally had a
deferred tax asset of $5.2 million at December 31, 2011, $4.8 million at December 31, 2010, and $2.0 million at December
31, 2009, related to these balances. The net of the unrecognized tax benefits, associated interest, penalties, and deferred tax
85
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
asset was $5.2 million at December 31, 2011, $5.7 million at December 31, 2010, and $3.6 million at December 31, 2009,
which if resolved favorably (in whole or in part) would reduce our effective tax rate. The unrecognized tax benefits,
associated interest, penalties, and deferred tax asset are included as components of Other Assets and Other Liabilities in the
Consolidated Balance Sheets.
It is our continuing policy to account for interest and penalties associated with income tax obligations as a component of
income tax expense. We recognized $0.3 million during each of 2011, 2010, and 2009 (each net of tax effect), of interest
and no penalties as part of the provision for income taxes in the Consolidated Income Statements.
We do not expect that our unrecognized tax benefits will significantly increase or decrease during the twelve months
beginning January 1, 2012.
12. EARNINGS (LOSS) PER SHARE
The computation of weighted average common and common equivalent shares used in the calculation of basic and
diluted earnings (loss) per share is as follows for the years ended December 31:
Weighted average common shares outstanding used to
calculate basic earnings per share
Effect of dilutive stock-based awards
Weighted average common and common equivalent shares
used to calculate diluted earnings per share
2011
2010
2009
144.8
2.5
147.3
156.9
1.7
158.6
176.5
0.8
177.3
A summary of anti-dilutive options excluded from the computation of diluted earnings per share follows:
Anti-dilutive options excluded from the computation of
diluted earnings per share
0.4
2.9
8.1
2011
2010
2009
13. DISCONTINUED OPERATIONS
Discontinued operations are related to stores that were sold or terminated, that we have entered into an agreement to sell
or terminate, or for which we otherwise deem a proposed sales transaction or termination to be probable, with no material
changes expected. Generally, the sale of a store is completed within 60 to 90 days after the date of a sale agreement. We
account for a store that either has been disposed of or is classified as held for sale as a discontinued operation if (a) the
operations and cash flows of the store have been (or will be) eliminated from our ongoing operations and (b) we will not
have any significant continuing involvement in the operations of the store after the disposal transaction.
In evaluating whether a store’s cash flows will be eliminated from our ongoing operations, we consider whether we
expect to continue to generate revenues or incur expenses from the sale of similar products or services to customers of the
disposed store in the same geographic market. If we believe that a significant portion of the cash flows previously
generated by the disposed store will migrate to our other operating stores, we will not treat the disposition as a
discontinued operation.
We received proceeds (net of cash relinquished) of $4.9 million during 2011, $13.0 million during 2010, and $65.9
million during 2009 related to discontinued operations.
86
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Selected income statement data for our discontinued operations is as follows:
Total revenue
Pre-tax loss from discontinued operations(1)
Pre-tax loss on disposal of discontinued operations
Income tax benefit
Loss from discontinued operations, net of income taxes
2011
2010
2009
0.1
(3.0)
(1.6)
(4.6)
(1.8)
(2.8)
$
$
$
40.5
(8.2)
(4.6)
(12.8)
(4.1)
(8.7)
$
$
$
349.7
(15.6)
(35.8)
(51.4)
(16.3)
(35.1)
$
$
$
(1) Pre-tax loss from discontinued operations includes estimated losses on real estate to be sold, operational losses for
stores that have been classified as discontinued operations, and carrying costs for items such as maintenance,
security, rent, and landscaping, among others, for real estate we have not yet sold related to stores that have been
closed.
We had assets held for sale in discontinued operations of $51.7 million at December 31, 2011 and $56.5 million at
December 31, 2010, primarily related to real estate we have not yet sold associated with stores that have been closed.
Assets and liabilities of discontinued operations are reported in the "Corporate and other" category of our segment
information in Note 20 below.
14. ACQUISITIONS
We acquired one automotive retail franchise and related assets during 2011, five in 2010, and one in 2009. We paid in
cash $64.2 million in 2011, $73.1 million in 2010, and $0.2 million in 2009 for these automotive retail acquisitions.
Acquisitions are included in the Consolidated Financial Statements from the date of acquisition.
The acquisition that occurred during 2011 was not material to our financial condition or results of operations.
Additionally, the pro forma consolidated income statements as if the results of this acquisition had been included in our
consolidated results for the entire years ended December 31, 2011 and 2010, would not have been materially different from
our reported consolidated income statements for these periods.
15. RELATED PARTY TRANSACTIONS
It is our policy that transactions with affiliated parties must be entered into in good faith on fair and reasonable terms
that are no less favorable to us than those that would be available in a comparable transaction in arm’s-length dealings with
an unrelated third-party.
In January 2009, our Board of Directors authorized and approved letter agreements with certain automotive
manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework
agreements with those manufacturers in the event that ESL Investments, Inc. and certain of its investment affiliates
(together, “ESL”) acquire 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc.
(“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as
described below. ESL is also a party to both the Honda and Toyota Agreements. As of February 8, 2012, ESL beneficially
owned approximately 51% of the outstanding shares of our common stock.
Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura
franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the
event that ESL acquires 50% or more of our common stock. ESL has agreed to vote all shares in excess of 50% in the same
proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is
independent of both the Company and ESL under existing New York Stock Exchange (“NYSE”) listing standards for so
long as ESL owns more than 50% of our common stock. Furthermore, the Honda Agreement provides that Honda’s
consent does not apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934.
87
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus
franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the
event that ESL acquires 50% or more of our common stock. ESL has agreed to vote all shares in excess of 50% in the same
proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be
independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to
merge, consolidate or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the
Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of
our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and
extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within certain
specified time periods or its voting interest will be limited, as set forth in the Toyota Agreement. The Toyota Agreement
will terminate in the event that ESL's ownership of our common stock falls to 40% or lower. In addition, the Toyota
Agreement will terminate on December 31, 2012, with respect to future stock acquisitions by ESL, provided that ESL may
seek successive annual one-year extensions. The description of the Toyota Agreement set forth above reflects all
amendments thereto, including the most recent extension and amendment dated as of November 29, 2011, which we filed
with a Current Report on Form 8-K on November 30, 2011.
We have also entered into separate letter agreements with certain other manufacturers that eliminate any potential
adverse consequences under our framework agreements with those manufacturers in the event that ESL acquires 50% or
more of our common stock. ESL is not a party to any of those agreements.
There were no other material transactions with related parties in the years ended December 31, 2011, 2010, or 2009.
16. 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 activities related to the increase in property acquired under capital leases of $24.2 million during 2011, and none
during 2010 and 2009. The effect of non-cash transactions is excluded from the accompanying Consolidated Statements of
Cash Flows.
We made interest payments of $103.6 million in 2011, $86.6 million in 2010, and $80.5 million in 2009 including
interest on vehicle inventory financing. We made income tax payments, net of income tax refunds, of $121.1 million in
2011, $84.2 million in 2010, and $46.1 million in 2009.
17. 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 significant judgment, and therefore cannot be determined with precision. The
assumptions used have a significant effect on the estimated amounts reported.
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, and variable rate debt: The amounts reported in the accompanying Consolidated Balance
Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate
prevailing market rates.
88
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
• Fixed rate debt: Our fixed rate debt consists primarily of amounts outstanding under our senior unsecured notes and
mortgages. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability and
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. A summary of the carrying values and fair values of our 7% Senior Notes due
2014, 6.75% Senior Notes due 2018, mortgage facility, and capital leases are as follows:
(in millions)
Carrying value
Fair value
December 31,
2011
December 31,
2010
$
$
652.0
675.6
$
$
635.3
644.1
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
Level 2
Quoted prices in active markets for identical assets or liabilities
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
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair
value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a
business combination. The fair values less costs to sell of long-lived assets or disposal groups held for sale are assessed
each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s or
disposal group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount,
except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the
time it was initially classified as held for sale.
The following table presents nonfinancial assets measured and recorded at fair value on a nonrecurring basis during the
years ended December 31, 2011 and 2010:
Description
Long-lived assets held and used
Long-lived assets held for sale:
Continuing operations
Discontinued operations
Total long-lived assets held for sale
2011
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Gain/
(Loss)
2010
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Gain/
(Loss)
$
$
$
15.8
13.9
10.9
24.8
$
$
$
(1.1)
(1.1)
(0.5)
(1.6)
$
$
$
3.7
17.2
32.6
49.8
$
$
$
(0.6)
(2.5)
(3.4)
(5.9)
89
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Goodwill and Other Intangible Assets
During 2011 and 2010, no impairment charges were recorded for the carrying value of goodwill or franchise rights in
accordance with accounting guidance for goodwill and other intangible assets. See Note 5 of the Notes to Consolidated
Financial Statements for information on how fair value measurements are derived for our goodwill and franchise rights.
Long-lived Assets Held and Used in Continuing Operations
During 2011, long-lived assets held and used in continuing operations with a carrying amount of $16.9 million were
written down to $15.8 million to reflect a valuation adjustment for the cumulative depreciation not recorded during the
held for sale period for long-lived assets that were reclassified from held for sale to held and used during 2011. This
adjustment resulted in a non-cash impairment charge of $1.1 million, which was included in Other Expenses (Income), Net
in our Consolidated Income Statements and reflected as a component of Segment Income (Loss) in the "Corporate and
other" category of our segment information.
During 2010, long-lived assets held and used in continuing operations with a carrying amount of $4.3 million were
written down to their fair value of $3.7 million, resulting in a non-cash impairment charge of $0.6 million, which was
included in Other Expenses (Income), Net in our Consolidated Income Statements, of which $0.4 million was reflected as
a component of Import Segment Income and $0.2 million was reflected as a component of Domestic Segment Income of
our segment information.
Long-lived Assets Held for Sale in Continuing Operations
During 2011, long-lived assets held for sale in continuing operations with a carrying amount of $14.4 million were
written down to their fair value of $12.9 million, resulting in a non-cash impairment charge of $1.5 million. Additionally,
an adjustment of $0.4 million was recorded to long-lived assets held for sale with a carrying amount of $0.6 million as a
result of an increase in the asset group’s fair value. The adjustment was limited to the carrying amount of $1.0 million at
the time the long-lived asset group was initially classified as held for sale.
During 2010, long-lived assets held for sale in continuing operations with a carrying amount of $9.4 million were
written down to their fair value of $5.9 million, resulting in a non-cash impairment charge of $3.5 million. Additionally, an
adjustment of $1.0 million was recorded to long-lived assets held for sale with a carrying amount of $10.3 million as a
result of an increase in the asset group’s fair value. The adjustment was limited to the carrying amount of $11.3 million at
the time the long-lived asset group was initially classified as held for sale.
The 2011 and 2010 non-cash impairment charges related to assets held for sale in continuing operations were included
in Other Expenses (Income), Net in our Consolidated Income Statements and as a component of Segment Income (Loss) in
the “Corporate and other” category of our segment information.
Long-lived Assets Held for Sale in Discontinued Operations
During 2011, long-lived assets held for sale in discontinued operations with a carrying amount of $11.4 million were
written down to their fair value of $10.9 million, resulting in a non-cash impairment charge of $0.5 million.
During 2010, long-lived assets held for sale in discontinued operations with a carrying amount of $28.9 million were
written down to their fair value of $25.1 million, resulting in a non-cash impairment charge of $3.8 million. Additionally,
an adjustment of $0.4 million was recorded to long-lived assets held for sale in discontinued operations with a carrying
amount of $7.1 million to increase the asset group’s carrying amount to its fair value of $7.5 million.
The 2011 and 2010 non-cash impairment charges related to assets held for sale in discontinued operations were included
in Loss from Discontinued Operations in our Consolidated Income Statements.
As of December 31, 2011, we had assets held for sale of $70.1 million in continuing operations and $49.5 million in
discontinued operations. As of December 31, 2010, we had assets held for sale of $62.5 million in continuing operations
and $53.8 million in discontinued operations.
90
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair value measurements for our long-lived assets were based on Level 3 inputs, which considered information
obtained from third-party real estate valuation sources, or, in certain cases, pending agreements to sell the related assets.
18. BUSINESS AND CREDIT CONCENTRATIONS
We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle
manufacturers. Franchise agreements generally provide the manufacturers or distributors with considerable influence over
the operations of the store. The success of any franchised automotive dealership is dependent, to a large extent, on the
financial condition, management, marketing, production, and distribution capabilities of the vehicle manufacturers or
distributors of which we hold franchises. We had receivables from manufacturers or distributors of $138.4 million at
December 31, 2011, and $127.8 million at December 31, 2010. Additionally, a large portion of our Contracts-in-Transit
included in Receivables, net, in the accompanying Consolidated Balance Sheets, are due from automotive manufacturers’
captive finance subsidiaries which provide financing directly to our new and used vehicle customers.
We purchase substantially all of our new vehicles from various manufacturers or distributors at the prevailing prices
available to all franchised dealers. Additionally, we finance our new vehicle inventory primarily with automotive
manufacturers’ captive finance subsidiaries. Our sales volume could be adversely impacted by the manufacturers’ or
distributors’ inability to supply the stores with an adequate supply of vehicles and related financing.
We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major
vehicle manufacturer. The core brands of vehicles that we sell are manufactured by Ford, Toyota, Nissan, General Motors,
Honda, Mercedes-Benz, BMW, and Chrysler. Our business could be materially adversely impacted by another bankruptcy
of or other adverse event related to a major vehicle manufacturer or related lender.
Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of
customers and markets in which our products are sold as well as their dispersion across many different geographic areas in
the United States. Consequently, at December 31, 2011, we do not consider AutoNation to have any significant non-
manufacturer concentrations of credit risk.
19. CHARGEBACK RESERVES
We may be charged back for commissions related to financing, insurance, or vehicle protection products in the event of
early termination of the contracts by customers (“chargebacks”). These commissions are recorded at the time of the sale of
the vehicles, net of an estimated liability for chargebacks. The following is a rollforward of our estimated chargeback
liability for each of the three years presented in our Consolidated Financial Statements:
Balance - January 1
Add: Provisions
Deduct: Chargebacks
Balance - December 31
20. SEGMENT INFORMATION
2011
2010
2009
42.5
$
48.7
$
39.9
(36.2)
46.2
$
29.6
(35.8)
42.5
$
61.0
28.1
(40.4)
48.7
$
$
At December 31, 2011, 2010, and 2009, we had three operating and reportable segments: (1) Domestic, (2) Import, and
(3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles
manufactured by General Motors, Ford, and 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, and Lexus. The
franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance and insurance
products.
91
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
“Corporate and other” is comprised of our other businesses, including collision centers, e-commerce activities, 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 operating 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. We have
determined that our three operating segments also represent our reportable segments.
Reportable segment revenues, segment income (loss), floorplan interest expense, depreciation and amortization, total
assets, and capital expenditures are as follows (in millions):
Revenues:
Domestic
Import
Premium Luxury
Corporate and other
Total revenues
Segment income (loss)*:
Domestic
Import
Premium Luxury
Corporate and other
Total segment income
Other interest expense
Loss on debt extinguishment
Gain on senior note repurchases
Interest income
Other gains (losses), net
Income from continuing operations before income taxes
Years Ended December 31,
2010
2009
2011
$
4,655.4
$
4,111.3
$
5,121.0
3,908.7
147.2
4,708.4
3,509.0
132.3
3,380.5
4,103.8
3,073.1
108.6
$
13,832.3
$
12,461.0
$
10,666.0
Years Ended December 31,
2010
2009
2011
$
$
180.0
240.3
230.9
(121.9)
529.3
(66.0)
(2.2)
—
0.7
(0.5)
461.3
$
$
152.7
199.5
208.4
(106.5)
454.1
(56.1)
(19.6)
—
1.4
1.5
381.3
$
$
101.4
175.4
175.5
(80.0)
372.3
(42.6)
—
13.0
1.1
5.4
349.2
*Segment income (loss) is defined as operating income less floorplan interest expense.
92
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Floorplan interest expense:
Domestic
Import
Premium Luxury
Corporate and other
Total floorplan interest expense
Depreciation and amortization:
Domestic
Import
Premium Luxury
Corporate and other
Total depreciation and amortization
Assets:
Domestic
Import
Premium Luxury
Corporate and other:
Goodwill
Franchise rights
Other Corporate and other assets
Years Ended December 31,
2010
2009
2011
$
20.4
11.6
9.3
1.4
$
19.3
12.9
9.0
1.3
42.7
$
42.5
$
Years Ended December 31,
2010
2009
2011
20.7
23.4
22.4
17.2
83.7
$
$
20.3
20.0
17.8
18.7
76.8
$
$
15.4
10.1
9.3
0.9
35.7
21.0
19.6
17.7
18.4
76.7
$
$
$
$
Years Ended December 31,
2010
2009
2011
$
1,557.7
$
1,447.7
$
1,526.1
1,239.3
1,172.2
212.6
490.9
1,522.6
1,176.0
1,142.1
199.1
486.7
1,227.4
1,239.2
1,023.9
1,122.8
173.4
620.6
Total assets
$
6,198.8
$
5,974.2
$
5,407.3
Capital expenditures:
Domestic
Import
Premium Luxury
Corporate and other
Total capital expenditures
Years Ended December 31,
2010
2009
2011
$
$
$
31.7
61.2
54.9
10.3
$
23.2
44.9
74.1
19.6
158.1
$
161.8
$
10.6
11.7
45.0
8.1
75.4
93
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. MULTIEMPLOYER PENSION PLANS
Five of our 215 stores participate in multiemployer pension plans. We contribute to these multiemployer defined benefit
pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.
The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
a. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of
other participating employers.
b.
c.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be assumed by
the remaining participating employers.
If we choose to stop participating in a multiemployer plan, we may be required to pay the plan an amount based
on the underfunded status of the plan, referred to as a withdrawal liability.
One of the multiemployer pension plans in which we participate is designated as being in “red zone” status, as defined
by the Pension Protection Act (PPA) of 2006. Our participation in this plan for the year ended December 31, 2011, is
outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (EIN)
and the three-digit plan number. The most recent PPA zone status available in 2011 and 2010 is for the plan's year end at
December 31, 2010, and December 31, 2009, respectively. The zone status is based on information that we received from
the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent
funded. The last column lists the expiration date of the collective-bargaining agreements to which the plan is subject. A
rehabilitation plan has been implemented for this plan. There have been no significant changes that affect the comparability
of 2011, 2010, and 2009 contributions.
Pension Fund
Automotive Industries Pension Plan
Other funds
Total contributions
EIN/Pension
PlanNumber
94-1133245
- 001
2011
Red
Pension Protection Act
Zone Status
Contributions of AutoNation
($ in millions)
2010
2011
2010
2009
Surcharge
Imposed
Expiration
Date of
Collective-
Bargaining
Agreement
Red
$
$
0.5
0.2
0.7
$
$
0.5
0.2
0.7
$
$
0.5
0.2
0.7
No
(1)
(1) We are party to two collective-bargaining agreements that require contributions to the Automotive Industries
Pension Plan. One expired May 31, 2011, and one expired June 30, 2011, and both are currently extended during
collective bargaining for new agreements.
In the event that we decide to cease participating in this plan, we could be assessed a withdrawal liability. We currently
do not have any plans that would trigger the withdrawal liability under this multiemployer pension plan.
94
AUTONATION, INC.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Our operations generally experience higher volumes of vehicle sales and service in the second and third quarters of each
year in part due to consumer buying trends and the introduction of new vehicle models. Also, demand for cars and light
trucks is generally lower during the winter months than in other seasons, particularly in regions of the United States where
stores may be subject to adverse winter weather conditions. Accordingly, we expect revenue and operating results
generally to be lower in the first and fourth quarters as compared to the second and third quarters. However, revenue may
be impacted significantly from quarter to quarter by changing economic conditions, vehicle manufacturer incentive
programs, and actual or threatened severe weather events.
The following is an analysis of certain items in the Consolidated Income Statements by quarter for 2011 and 2010.
Revenue
Gross profit(1)
Operating income(1)
Income from continuing operations(1)
Net income(1)
Basic earnings per share from continuing operations(1) (2)
Diluted earnings per share from continuing operations(1) (2)
First
Quarter
$ 3,311.1
$ 2,836.6
Second
Quarter
$ 3,336.3
$ 3,104.3
Third
Quarter
$ 3,506.5
$ 3,273.9
Fourth
Quarter
$ 3,678.4
$ 3,246.2
$
$
$
$
$
$
$
$
$
$
$
$
566.2
508.4
140.0
115.1
70.3
58.8
69.4
55.2
0.47
0.34
0.46
0.34
$
$
$
$
$
$
$
$
$
$
$
$
583.4
529.2
144.4
126.0
73.3
50.0
71.9
47.2
0.50
0.31
0.49
0.31
$
$
$
$
$
$
$
$
$
$
$
$
575.2
545.4
144.1
120.9
70.7
58.5
70.7
56.9
0.49
0.40
0.48
0.39
$
$
$
$
$
$
$
$
$
$
$
$
579.2
544.5
143.5
134.6
69.9
68.0
69.4
67.3
0.50
0.46
0.50
0.45
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
(1) During 2010 and 2011, we achieved certain manufacturer incentive program goals. As a result, we were able to
recognize certain performance-based manufacturer incentives, primarily related to premium luxury vehicles
previously sold. During 2010, the recognition of these incentives favorably impacted new vehicle gross profit by
$13.1 million in the fourth quarter of 2010. During 2011, the recognition of these incentives favorably impacted new
vehicle gross profit by $4.6 million in the first quarter of 2011, $1.4 million in the second quarter of 2011, and $2.0
million in the fourth quarter of 2011.
(2) Quarterly basic and diluted earnings per share from continuing operations may not equal total earnings per share for
the year as reported in the Consolidated Income Statements due to the effect of the calculation of weighted average
common stock equivalents on a quarterly basis.
95
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. 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 Annual Report on
Form 10-K. 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 Annual Report on Form 10-K.
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 the fourth quarter of 2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
We continue to centralize certain key store-level accounting and administrative activities, which we expect will
streamline our internal control over financial reporting. The initial or “core” phase consisted of implementing a standard
data processing platform in the store and centralizing to a shared services center certain key accounting processes (non-
inventory accounts payable, bank account reconciliations, and certain accounts receivable). We have implemented the core
phase in substantially all of our stores.
We are also transferring certain additional accounting responsibilities to our shared services center (the “extended”
phase), which includes accounting for vehicle sales, lien payoffs, receipt of vehicles, floorplan transactions, and
manufacturer payables, as well as certain other reconciliation processes. We have substantially implemented the extended
phase in 156 of our 215 stores as of December 31, 2011.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
our management concluded that our internal control over financial reporting was effective as of December 31, 2011. Our
independent auditor, KPMG LLP, also concluded that we maintained effective internal control over financial reporting as
set forth in its Report of Independent Registered Public Accounting Firm which is included in Part II, Item 8 of this Form
10-K.
ITEM 9B. OTHER INFORMATION
None.
96
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under the heading “Executive Officers of AutoNation” in Part I, Item 1 of this Form 10-K is
incorporated by reference in this section.
We have adopted a Code of Business Ethics applicable to all employees. In addition, we have adopted a Code of Ethics
for Senior Officers applicable to our principal executive officer, principal financial officer, principal accounting officer, and
other senior officers and a Code of Ethics for Directors applicable to our directors. These codes are available on our
Investor Relations website at investors.autonation.com. In the event that we amend or waive any of the provisions of the
Code of Ethics for Senior Officers that relate to any element of the code of ethics definition enumerated in Item 406(b) of
Regulation S-K, we intend to disclose the same on our Investor Relations website.
The other information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2012
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December
31, 2011.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2012 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2011.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2012 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2011.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2012 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2011.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2012 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2011.
97
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
1.
2.
3.
Financial Statements: The Consolidated Financial Statements of AutoNation are set forth in Part II, Item 8 of this
Form 10-K.
Financial Statement Schedules: Not applicable.
Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed, furnished or incorporated by
reference as part of this Form 10-K.
Certain of the agreements listed as exhibits to this Form 10-K (including the exhibits to such agreements), which have
been filed to provide investors with information regarding their terms, contain various representations, warranties, and
covenants of AutoNation, Inc. and the other parties thereto. They are not intended to provide factual information about any
of the parties thereto or any subsidiaries of the parties thereto. The assertions embodied in those representations,
warranties, and covenants were made for purposes of each of the agreements, solely for the benefit of the parties thereto. In
addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of
materiality different from what a security holder might view as material, or may have been made for purposes of allocating
contractual risk among the parties rather than establishing matters as facts. Investors should not view the representations,
warranties, and covenants in the agreements (or any description thereof) as disclosures with respect to the actual state of
facts concerning the business, operations, or condition of any of the parties to the agreements (or their subsidiaries) and
should not rely on them as such. In addition, information in any such representations, warranties, or covenants may change
after the dates covered by such provisions, which subsequent information may or may not be fully reflected in the public
disclosures of the parties. In any event, investors should read the agreements together with the other information
concerning AutoNation, Inc. contained in reports and statements that we file with the SEC.
98
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
AUTONATION, INC.
(Registrant)
By:
/s/ MICHAEL J. JACKSON
Michael J. Jackson, Chairman of the
Board and Chief Executive Officer
February 13, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ MICHAEL J. JACKSON
Michael J. Jackson
/S/ MICHAEL J. SHORT
Michael J. Short
/S/ MICHAEL J. STEPHAN
Michael J. Stephan
/S/ ROBERT J. BROWN
Robert J. Brown
/S/ RICK L. BURDICK
Rick L. Burdick
/S/ WILLIAM C. CROWLEY
William C. Crowley
/S/ DAVID B. EDELSON
David B. Edelson
/S/ ROBERT R. GRUSKY
Robert R. Grusky
/S/ MICHAEL LARSON
Michael Larson
/S/ MICHAEL E. MAROONE
Michael E. Maroone
/S/ CARLOS A. MIGOYA
Carlos A. Migoya
/S/ ALISON H. ROSENTHAL
Alison H. Rosenthal
Title
Date
Chairman of the Board and Chief
February 13, 2012
Executive Officer (Principal Executive Officer)
Executive Vice President and Chief
February 13, 2012
Financial Officer (Principal Financial Officer)
Vice President – Corporate
Controller (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
99
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
February 13, 2012
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
EXHIBIT INDEX
Exhibit Description
Third Amended and Restated Certificate of
Incorporation of AutoNation, Inc.
Amended and Restated By-Laws of AutoNation, Inc.
Indenture, dated April 12, 2006 (the “2006 Indenture”),
relating to the issuance of $300.0 million aggregate
principal amount of floating rate senior unsecured notes
due 2013 and $300.0 million aggregate principal amount
of 7% senior unsecured notes due 2014.
Supplemental Indenture, dated August 17, 2006,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated January 24, 2007,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated March 19, 2007,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated October 18, 2007,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated March 11, 2008,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated August 12, 2008,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated February 6, 2009,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated February 8, 2010,
amending the 2006 Indenture to update the list of the
Company’s subsidiaries as guarantors thereunder.
Supplemental Indenture, dated April 14, 2010, amending
the 2006 Indenture to eliminate substantially all of the
restrictive covenants and certain events of default and
shorten the notice periods required to undertake an
optional redemption.
Form of floating rate senior unsecured notes due 2013
(included in Exhibit 4.1).
Form of 7% senior unsecured notes due 2014 (included
in Exhibit 4.1).
Indenture, dated April 14, 2010 (the “2010 Indenture”),
among AutoNation, Inc. and Wells Fargo Bank, National
Association.
Supplemental Indenture to 2010 Indenture, dated
April 14, 2010, relating to the Company’s 6.75% Senior
Notes due 2018.
Form of 6.75% Senior Notes due 2018 (included in
Exhibit 4.14).
100
Incorporated by Reference
Form
10-Q
File Number
001-13107
Exhibit
3.1
Filing Date
8/13/99
8-K
8-K
001-13107
001-13107
3.1
4.1
2/3/11
4/28/06
S-4
333-136949
4.7
8/29/06
10-K
001-13107
4.9
2/28/08
10-K
001-13107
4.10
2/28/08
10-K
001-13107
4.11
2/28/08
10-Q
001-13107
4.2
4/25/08
10-Q
001-13107
4.1
11/7/08
10-Q
001-13107
4.1
4/24/09
10-K
001-13107
4.9
2/17/10
8-K
001-13107
4.3
4/15/10
8-K
001-13107
8-K
001-13107
8-K
001-13107
4.1
4.1
4.1
4/28/06
4/28/06
4/15/10
8-K
001-13107
4.2
4/15/10
8-K
001-13107
4.2
4/15/10
Exhibit
Number
4.16
4.17
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Exhibit Description
Supplemental Indenture to 2010 Indenture, dated
February 1, 2012, relating to the Company’s 5.5%
Senior Notes due 2020.
Form of 5.5% Senior Notes due 2020 (included in
Exhibit 4.16).
AutoNation, Inc. 1995 Amended and Restated Employee
Stock Option Plan, as amended to date.
AutoNation, Inc. Amended and Restated 1995 Non-
Employee Director Stock Option Plan.
Amendment, dated October 24, 2006, to the AutoNation,
Inc. Amended and Restated 1995 Non-Employee
Director Stock Option Plan.
AutoNation, Inc. Amended and Restated 1997 Employee
Stock Option Plan, as amended and restated on
February 5, 2007.
AutoNation, Inc. Amended and Restated 1998 Employee
Stock Option Plan, as amended and restated on
February 5, 2007.
AutoNation, Inc. Deferred Compensation Plan, as
amended and restated.
Employment Agreement dated July 20, 2010, between
AutoNation, Inc. and Michael J. Jackson, Chairman and
Chief Executive Officer.
Employment Agreement dated July 20, 2010, between
AutoNation, Inc. and Michael E. Maroone, President
and Chief Operating Officer.
AutoNation, Inc. 2007 Non-Employee Director Stock
Option Plan.
Amendment to the AutoNation, Inc. 2007 Non-
Employee Director Stock Option Plan, effective as of
October 26, 2010.
Amendment to the AutoNation, Inc. 2007 Non-
Employee Director Stock Option Plan, effective as of
February 1, 2012.
Form of Waiver, executed by each of the Company’s
non-employee directors.
AutoNation, Inc. Senior Executive Incentive Bonus Plan
(approved by the Company's stockholders in 2007).
AutoNation, Inc. Senior Executive Incentive Bonus Plan
(approved by the Company's Board of Directors on
February 1, 2012, subject to stockholder approval).
AutoNation, Inc. 2008 Employee Equity and Incentive
Plan.
Form of Stock Option Agreement for stock options
granted under the AutoNation, Inc. employee stock
options plans other than the 2008 Employee Equity and
Incentive Plan.
Form of Stock Option Agreement under the 2008
Employee Equity and Incentive Plan (for 2008 grants).
Incorporated by Reference
Form
8-K
File Number
001-13107
Exhibit
4.2
Filing Date
2/1/12
8-K
001-13107
4.2
2/1/12
10-Q
001-13107
10.2
8/14/00
10-K
001-13107
10.10
3/31/99
10-Q
001-13107
10.1
10/27/06
10-K
001-13107
10.4
2/28/07
10-K
001-13107
10.5
2/28/07
S-8
333-170737
10.1
11/19/10
10-Q
001-13107
10.4
7/22/10
10-Q
001-13107
10.5
7/22/10
10-K
001-13107
10.17
2/28/07
10-Q
001-13107
10.4
10/28/10
8-K
001-13107
10.2
2/2/12
10-Q
001-13107
10.1
7/27/11
10-K
001-13107
10.18
2/28/07
8-K
001-13107
10.1
2/2/12
10-Q
001-13107
10.1
4/25/08
10-K
001-13107
10.12
2/24/05
10-K
001-13107
10.16
2/17/09
101
Exhibit
Number
10.18
10.19
10.20
10.21
10.22*
10.23*
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Exhibit Description
Form of Restricted Stock Agreement under the 2008
Employee Equity Incentive and Incentive Plan (for 2008
grants).
Form of Stock Option Agreement under the 2008
Employee Equity and Incentive Plan (for grants in 2009
and thereafter).
Form of Restricted Stock Agreement under the 2008
Employee Equity and Incentive Plan (for grants in 2009
and thereafter).
Separation Agreement, dated as of November 11, 2011,
by and between AutoNation, Inc. and Kevin P. Westfall.
Employment Letter dated October 5, 2011, between
AutoNation, Inc. and David L. Koehler, Senior Vice
President, Sales.
Employment Letter dated January 3, 2012, between
AutoNation, Inc. and Alan J. McLaren, Senior Vice
President, Customer Care.
Honda Agreement, dated January 28, 2009, between
AutoNation, Inc., American Honda Motor Co., Inc. and
ESL Investments, Inc.
Toyota Agreement, dated January 28, 2009 (the “Toyota
Agreement”), among AutoNation, Inc., Toyota Motor
Sales, U.S.A., Inc., ESL Investments, Inc. and certain
investment affiliates of ESL Investments, Inc.
ESL Agreement, dated January 28, 2009, between
AutoNation, Inc. and ESL Investments, Inc. (on behalf
of itself and certain investment affiliates of ESL
Investments, Inc.)
Extension Agreement, dated November 23, 2009, among
AutoNation, Inc., Toyota Motor Sales, U.S.A., Inc. and
ESL Investments, Inc. and certain investment affiliates
of ESL Investments, Inc.
Amendment, dated April 23, 2010, among AutoNation,
Inc., Toyota Motor Sales, U.S.A., Inc., ESL Investments,
Inc. and certain investment affiliates of ESL
Investments, Inc., amending the Toyota Agreement.
Second Extension Agreement, dated December 16,
2010, among AutoNation, Inc., Toyota Motor Sales,
U.S.A., Inc. and ESL Investments, Inc. and certain
investment affiliates of ESL Investments, Inc.
Extension and Amendment Agreement, dated as of
November 29, 2011, among AutoNation, Inc., Toyota
Motor Sales, U.S.A., Inc., ESL Investments, Inc. and
certain investment affiliates of ESL Investments, Inc.
Stockholder Agreement, dated August 16, 2010, among
AutoNation, Inc., Cascade Investment, L.L.C. and the
Bill & Melinda Gates Foundation Trust.
Fourth Amendment, dated as of April 14, 2010, to the
Company’s Credit Agreement, dated as of July 14, 2005
(the “Prior Credit Agreement”), amending and restating
the Company’s Prior Credit Agreement.
Credit Agreement, dated as of December 7, 2011, by and
among the Company, JPMorgan Chase Bank, N.A. as
Administrative Agent, and the other parties thereto.
102
Incorporated by Reference
Form
10-K
File Number
001-13107
Exhibit
10.17
Filing Date
2/17/09
10-Q
001-13107
10.4
4/24/09
10-Q
001-13107
10.5
4/24/09
8-K
001-13107
10.1
11/14/11
8-K
001-13107
10.1
1/29/09
8-K
001-13107
10.2
1/29/09
8-K
001-13107
10.3
1/29/09
8-K
001-13107
10.2
11/24/09
10-Q
001-13107
10.4
4/23/10
8-K
001-13107
10.4
12/17/10
8-K
001-13107
10.5
11/30/11
8-K
001-13107
10.1
8/16/10
10-Q
001-13107
10.1
7/22/10
8-K
001-13107
10.1
12/8/11
Incorporated by Reference
Form
File Number
Exhibit
Filing Date
Exhibit
Number
12.1*
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS***
101.SCH***
101.CAL***
101.DEF***
101.LAB***
101.PRE***
Exhibit Description
Statement Regarding Computation of Ratio of Earnings
to Fixed Charges.
Subsidiaries of AutoNation, Inc.
Consent of KPMG LLP.
Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Certification of Chief Executive Officer Pursuant to Rule
13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350.
Certification of Chief Financial Officer Pursuant to Rule
13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase
Document
*
**
***
Filed herewith
Furnished herewith
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under
those sections.
Exhibits 10.1 through 10.23 are management contracts or compensatory plans, contracts, or arrangements.
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of
long-term debt of the Company or its subsidiaries are not filed herewith. We hereby agree to furnish a copy of any such
instrument to the Commission upon request.
103
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Exhibit 31.1
I, Michael J. Jackson, certify that:
1. I have reviewed this annual report on Form 10-K of AutoNation, Inc.;
CERTIFICATION
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.
Date: February 13, 2012
/s/ MICHAEL J. JACKSON
Michael J. Jackson
Chairman and Chief Executive Officer
Exhibit 31.2
I, Michael J. Short, certify that:
1. I have reviewed this annual report on Form 10-K of AutoNation, Inc.;
CERTIFICATION
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.
Date: February 13, 2012
/s/ MICHAEL J. SHORT
Michael J. Short
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of AutoNation, Inc. (the “Company”) for the year ended
December 31, 2011, 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.
February 13, 2012
/s/ MICHAEL J. JACKSON
Michael J. Jackson
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of AutoNation, Inc. (the “Company”) for the year ended
December 31, 2011, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Michael J. Short,
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/ MICHAEL J. SHORT
Michael J. Short
Executive Vice President and Chief Financial Officer
February 13, 2012
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THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Corporate Information
AutoNation
EXECUTIVE MANAGEMENT
Mike Jackson
Chairman & Chief Executive Officer
Michael E. Maroone
Director, President & Chief Operating Officer
Jonathan P. Ferrando
Executive Vice President, General Counsel & Secretary
Michael J. Short
Executive Vice President & Chief Financial Officer
AUTONATION HEADQUARTERS
200 SW 1st Ave
Fort Lauderdale, Florida 33301
Telephone: (954) 769-6000
www.AutoNation.com
INVESTOR CONTACT
Stockholders, securities analysts, portfolio managers, and representatives
of financial institutions requesting copies of the Annual Report, Form 10-K,
quarterly reports, and other corporate literature should call (954) 769-7342
or write AutoNation, Inc., Investor Relations, at the above address.
ANNUAL MEETING
The Annual Meeting of Stockholders of AutoNation, Inc. will be held
at 8:00 a.m. Eastern Time, Wednesday, May 9, 2012 at:
AutoNation Headquarters
200 SW 1st Ave, Fort Lauderdale, Florida 33301
Telephone: (954) 769-6000
COMMON STOCK INFORMATION
The Company’s common stock trades on the New York Stock Exchange
(NYSE) under the symbol “AN.”
At March 15, 2012, there were 2,081 Stockholders of record.
TRANSFER AGENT
For inquiries regarding address changes, stock transfers, lost shares
or other account matters, please contact:
Computershare Investor Services, LLC
250 Royall Street, Canton, MA 02021
(800) 689-5259
http://www.computershare.com.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP, Fort Lauderdale, Florida
FORWARD-LOOKING STATEMENTS
This Annual Report contains “forward-looking statements“ as defined
under federal securities laws. Our forward-looking statements reflect
our current expectations concerning future results, and they involve
known and unknown risks, uncertainties, and other factors that are
difficult to predict and may cause our actual results to be materially
different from any future results expressed or implied by these
statements. Risk factors that could cause actual results to be materially
different are set forth in the “Risk Factors“ section and throughout
our Form 10-K. We undertake no duty to update or revise our forward-
looking statements, whether as a result of new information, future
events, or otherwise.
BOARD OF DIRECTORS
Robert J. Brown 1
Chairman & Chief
Executive Officer,
B & C Associates, Inc.
William C. Crowley 2, 4
President & Chief
Operating Officer,
ESL Investments, Inc.
(an investment firm)
Robert R. Grusky 1
Founder and Managing
Member, Hope Capital
Management, LLC
(an investment firm)
Rick L. Burdick 2, 3, 4
Partner, Akin, Gump,
Strauss, Hauer &
Feld, L.L.P.
(a law firm)
David B. Edelson 1
Senior Vice President,
Loews Corporation
Mike Jackson
Chairman & Chief
Executive Officer,
AutoNation, Inc.
Michael Larson 2, 3
Chief Investment Officer
for William H. Gates III
Michael E. Maroone
President & Chief
Operating Officer,
AutoNation, Inc.
Carlos A. Migoya 2, 3, 4
Chief Executive Officer
Jackson Health System
Alison H. Rosenthal 1
Executive in Residence,
Greylock Partners
1 Member of Audit Committee
2Member of Compensation Committee
3Member of Executive Compensation Subcommittee
4Member of Corporate Governance and Nominating Committee
AutoNation.com