2 0 1 8
ANNUAL REPORT
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, 2018
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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 29, 2018, the aggregate market value of the common stock of the registrant held by non-affiliates was approximately $2.6 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, the registrant assumed that each
of its directors, executive officers, and greater than 10% stockholders was an affiliate of the registrant as of June 29, 2018).
As of February 20, 2019, the registrant had 90,058,836 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year ended December 31, 2018 are incorporated herein by reference in Part III.
AUTONATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
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
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
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.
Item 16.
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ITEM 1. BUSINESS
General
PART I
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31,
2018, we owned and operated 326 new vehicle franchises from 239 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 33 different new vehicle brands. The core brands of new vehicles that we sell,
representing approximately 92% of the new vehicles that we sold in 2018, are manufactured by Toyota (including Lexus),
Honda, Ford, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen (including Audi and Porsche).
We also own and operate 85 AutoNation-branded collision centers, and together with our vehicle dealerships, our
AutoNation USA stores, and our automotive auctions, we owned and operated over 325 locations coast to coast.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and
service” (also referred to as “Customer Care”), which includes automotive repair and maintenance services as well as
wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer
Financial Services”), which include vehicle service and other protection products, as well as 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, used vehicle, parts and service, and finance and insurance sales in 2018.
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.
Reportable Segments
As of December 31, 2018, we had three reportable segments: Domestic, Import, and Premium Luxury. These segments
are comprised of retail automotive franchises that sell the following new vehicle brands:
Domestic
Import
Premium Luxury
Buick
Cadillac
Chevrolet
Chrysler
Dodge
Ford
GMC
Jeep
Lincoln
Ram
Acura
Fiat
Honda
Hyundai
Infiniti
Mazda
Mitsubishi
Alfa Romeo
Nissan
Subaru
Toyota
Volkswagen
Volvo
Audi
Bentley
BMW
Jaguar
Land Rover
Lexus
Maserati
Mercedes-Benz
MINI
Porsche
1
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, 2018, Domestic revenue represented 33% of
total revenue, Premium Luxury revenue represented 33% of total revenue, and Import revenue represented 32% of total
revenue. For additional financial information regarding our three reportable segments, refer to Note 20 of the Notes to
Consolidated Financial Statements set forth in Part II, Item 8 of this Form 10-K.
Except to the extent that differences among reportable 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 create long-term value for our stockholders by being the best-run, most profitable automotive retailer in the
United States. 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. To achieve and sustain operational excellence, we are pursuing the following
strategies:
•
Create an industry-leading automotive retail customer experience in our stores and through our digital channels.
We seek to deliver a consistently superior customer experience by offering a large selection of inventory,
customer-friendly, transparent sales and service processes, and competitive pricing. We believe that this will
benefit us by encouraging our customers to bring their vehicles to our stores for all of their vehicle service,
maintenance, and collision repair needs and also by driving repeat and referral vehicle sales business.
We continue to make significant investments to build a seamless, end-to-end customer experience in our stores
and through our digital channels, and to improve our ability to generate business through those channels. As part
of our strategic initiatives, we implemented “AutoNation Express,” which enables our customers to complete
certain automotive retail- and service-related transactions through our digital channels and offers a more fully
integrated in-store and digital customer experience while also increasing traffic to our digital channels. We have
developed features such as selecting and reserving a vehicle with a guaranteed price, scheduling a test drive,
calculating payments, receiving a firm purchase offer for a vehicle that a customer wants to sell, applying for
financing options, arranging service appointments, receiving updates on maintenance and repair services, and
paying for maintenance and repair services online.
•
Continue to invest in the AutoNation retail brand to enhance our strong customer satisfaction and expand our
market share.
We continue to implement our comprehensive, customer-focused brand extension strategy, which includes
AutoNation-branded parts and accessories, AutoNation-branded Customer Financial Services products (including
extended service and maintenance contracts and other vehicle protection products), the expansion of AutoNation-
branded collision centers, AutoNation-branded automotive auctions, and AutoNation USA stand-alone used
vehicle sales and service centers. During 2018, we opened nine and acquired two collision centers, and we opened
one automotive auction and two AutoNation USA stores. Our brand extension strategy also includes AutoNation
Pre-Owned 360, which encompasses our technology, processes, and procedures for our One Price used vehicle
centralized pricing and appraisal strategy, as well as our “We’ll Buy Your Car” program (under which customers
receive a guaranteed trade-in offer honored for 7 days or 500 miles at any of our locations), and related training
and systems.
We also continue to implement our Customer Care initiatives, including our AutoNation-branded parts and
accessories. Our branded parts are sold under the name “AutoNation PrecisionParts,” which are sourced through
various partnerships with third-party suppliers. These parts include maintenance and repair items such as
batteries, wiper blades, filters, and service-drive chemicals. In addition, we have launched an accessory line called
“AutoNation AutoGear” with nearly 30 high quality accessory brands for lifestyle, appearance, protection, and
vehicle security. Our Customer Care initiatives also include the direct sourcing and distribution of other retail and
wholesale parts for sale to our customers and other dealerships and collision centers. We currently have six
operational AutoNation aftermarket collision parts distribution centers. We have also partnered with other
collision service providers and large online marketplaces to fulfill sales demand of aftermarket collision parts. We
expect to continue to expand our distribution network to support our national wholesale footprint and create more
opportunities to offer both original manufacturer and AutoNation aftermarket collision parts to our customers.
2
We expect that these initiatives will expand and strengthen the AutoNation retail brand, improve the customer
experience, provide new growth opportunities, and enable us to expand our footprint in our core and other
markets.
•
Leverage our significant scale and cost structure to improve our operating efficiency.
As the largest automotive retailer in the United States, we are uniquely positioned to leverage our significant scale
so that we are able to achieve competitive operating margins by centralizing and streamlining various business
processes. We strive to manage our new and used vehicle inventories so that our stores’ supply and mix of
vehicles are in line with seasonal sales trends and also minimize our carrying costs. Additionally, we are able to
improve financial controls and lower servicing costs by maintaining many key store-level accounting and
administrative activities in our Shared Services Center located in Irving, Texas. Finally, we leverage our scale to
reduce costs related to purchasing certain equipment, supplies, and services through national vendor relationships.
•
Continue to invest in strategic partnerships to evolve with the changing automotive retail industry and to widen
our access to new and expanding sales channels for vehicles, parts, and service.
We have invested in various strategic partnerships with a focus on emerging digital technologies. While we do not
expect these partnerships to have a material impact on near-term future earnings, we believe these partnerships
will further enhance our ability to adapt to changing customer behavior and expectations. Our investment in
Vroom Inc., one of the largest online car retailers, provides a foundation for strategic partnership opportunities
with an experienced and proven e-commerce executive team. Our partnership with Fair, a used vehicle
subscription company, positions us to adapt to shifting mobility preferences and provides us access to a wider
group of customers. We also have invested in strategic partnerships to expand our access to parts and service
customers, such as our partnership with Waymo, the self-driving technology company of Alphabet Inc., to support
Waymo’s autonomous vehicle program, and our partnership with AAA as its first national Approved Auto Repair
program partner.
As most customers still purchase vehicles through brick-and-mortar stores, we continue to ensure we have density
in our core markets where we operate. We have retail operations in 16 states with a focus on major metropolitan
areas, and we seek to offer an optimal mix of our products and services within our key markets. We will continue
to pursue acquisitions and new store and collision center opportunities that meet our return on investment
threshold.
Our business benefits from a well-diversified portfolio of automotive retail franchises. In 2018, approximately 38% of
our segment income for reportable segments was generated by Premium Luxury franchises, approximately 34% by Import
franchises, and approximately 28% by Domestic franchises. We believe that our business also 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 conditions as
compared to new and used vehicle sales.
Our capital allocation strategy is focused on maximizing stockholder returns. We invest capital in our business to
maintain and upgrade our existing facilities and to build new facilities for existing franchises, as well as for other strategic
and technology initiatives, including our brand extension strategy discussed above under “Business Strategy.” We also
deploy capital opportunistically to repurchase our common stock and/or debt or to complete dealership, collision center, or
other automotive business-related acquisitions or investments, and/or build facilities for newly awarded franchises. Our
capital allocation decisions are 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 acquisitions that meet our market and vehicle brand criteria and return on investment
threshold, and limitations set forth in our debt agreements. For additional information regarding our capital allocation,
refer to “Liquidity and Capital Resources – Capital Allocation” in Part II, Item 7 of this Form 10-K.
Operations
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 brand franchise. We generally acquire used vehicles from
customers, primarily through trade-ins, as well as through auctions, lease terminations, and other sources, and we generally
3
recondition used vehicles acquired for retail sale in our parts and service departments. Used vehicles that we do not sell at
our stores generally are sold at wholesale prices through auctions. See also “Inventory Management” in Part II, Item 7 of
this Form 10-K.
Our stores provide a wide range of vehicle maintenance, repair, and collision repair services, including manufacturer
recall repairs and other warranty work that can be performed only at franchised dealerships and customer-pay service
work. Our parts and service departments also recondition used vehicles acquired by our used vehicle departments and
perform minor preparatory work on new vehicles acquired by our new vehicle departments. In addition to our retail
business, we also have wholesale parts operations, which sell automotive parts to both collision repair shops and
independent vehicle repair providers. We also offer AutoNation PrecisionParts and AutoNation AutoGear, product and
accessory lines that are integrated into our parts and service operations.
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. We do not directly finance our
customers’ vehicle leases or purchases, and our exposure to loss in connection with these financing arrangements generally
is limited to the commissions that we receive.
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, and
several of these vehicle protection products are AutoNation-branded. These products are underwritten and administered by
independent third parties, including the vehicle manufacturers’ and distributors’ captive finance subsidiaries. We sell the
products on a commission basis, and in certain cases, we also participate in future underwriting profit for certain products
pursuant to retrospective commission arrangements with the issuers of those products.
As of December 31, 2018, we operated stores in the following states:
State
Florida
Texas
California
Colorado
Arizona
Washington
Georgia
Nevada
Tennessee
Illinois
Maryland
Ohio
New York
Alabama
Virginia
Minnesota
Total
Number of
Stores
Number of
Franchises
50
42
39
15
14
15
16
11
8
7
7
4
4
4
2
1
239
60
64
51
25
18
20
25
13
12
8
9
4
6
8
2
1
326
% of Total
Revenue (1)
24
20
18
7
6
5
4
4
3
3
1
1
1
1
1
1
100
(1) Revenue by state includes revenue from non-dealership operations, such as collision centers, auction
operations, AutoNation USA stand-alone used vehicle sales and service centers, and aftermarket collision
parts businesses.
4
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, 2018:
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, Dodge, Jeep, Ram
Domestic Total
$
1,524.8
1,255.3
1,120.7
3,900.8
1,746.4
1,145.4
437.2
717.4
4,046.4
1,435.1
884.1
330.2
363.4
450.8
340.8
3,804.4
11,751.6
$
37,918
34,467
29,630
102,015
60,401
42,480
16,361
23,314
142,556
24,979
16,126
7,202
7,080
6,288
4,593
66,268
310,839
12.2
11.1
9.5
32.8
19.4
13.7
5.3
7.5
45.9
8.0
5.2
2.3
2.3
2.0
1.5
21.3
100.0
38
42
68
148
19
24
10
32
85
38
16
3
8
14
14
93
326
Import:
Toyota
Honda
Nissan
Other Import
Import Total
Premium Luxury:
Mercedes-Benz
BMW
Lexus
Audi
Jaguar Land Rover
Other Premium Luxury
Premium Luxury Total
Agreements with Vehicle Manufacturers
Framework Agreements
We have entered into framework and related 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.
5
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, finance and 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 and hour,
anti-discrimination, and other employment practices laws. See the risk factor “Our operations are subject to extensive
governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of
these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business,
operating results, and prospects could suffer” 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. In addition, automotive dealers are subject to regulation by the Federal Trade
Commission (the “FTC”), which has implemented an enforcement initiative relating to the advertising practices of
automotive dealers. The imported automobiles, parts, and accessories 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
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
6
individuals, or governmental entities and may expose us to significant damages or other penalties, including fines and
revocation or suspension of our licenses to conduct store operations. Our financing activities may also be impacted
indirectly by laws and regulations that govern automotive finance companies and other financial institutions, including
regulations adopted by the Consumer Financial Protection Bureau (the “CFPB”).
See the risk factor “Our operations are subject to extensive governmental laws and regulations. If we are found to be in
purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are
enacted that adversely affect our operations, our business, operating results, and prospects could suffer” in Part I, Item 1A
of this Form 10-K for additional information.
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 routinely 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, selection, and online and mobile offerings. 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 industry sources, as of December 31, 2018, there were approximately 16,700
franchised automotive dealerships, which sell both new and used vehicles, in the United States. In addition, we estimate
that there were approximately twice as many independent used vehicle dealers in the United States. We face competition
from (i) several public companies that operate numerous automotive retail stores or collision centers 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 or collision centers in our markets, and
(iii) online and mobile sales platforms. We compete with dealers that sell the same vehicle brands that we sell, as well as
dealers and certain manufacturers that sell other vehicle brands 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.
7
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 vehicle 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 vehicle brand within any
area that is served by another dealer of the same vehicle 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 vehicle 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, service center chains, collision service operations, and
wholesale parts outlets. We believe that the principal competitive factors in the parts and service business are price,
location, 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 hail storms, hurricanes, earthquakes, fires, tornadoes, snow storms,
and landslides) 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 evaluations 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, 2018, we employed approximately 26,000 full-time and part-time employees, approximately 250 of
whom were covered by collective bargaining agreements. We believe that we have good relations with our employees.
Seasonality
In a stable environment, our operations generally experience higher volumes of vehicle unit sales 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. However, we typically experience
higher sales of Premium Luxury vehicles, which have higher average selling prices and gross profit per vehicle retailed, in
the fourth quarter. Revenue and operating results may be impacted significantly from quarter to quarter by changing
economic conditions, vehicle manufacturer incentive programs, and actual or threatened severe weather events.
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Trademarks
We own a number of registered service marks and trademarks, including, among other marks, AutoNation® and
AutoNation USA®. 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 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 20, 2019. As previously
disclosed in a Current Report on Form 8-K filed with the SEC on February 22, 2019, our Board of Directors has appointed
Carl C. Liebert III as our Chief Executive Officer and President, and as a member of our Board, effective as of March 11,
2019. In accordance with the terms of his employment agreement with the Company, Mr. Jackson will become our
Executive Chairman (including Chairman of the Board) until December 31, 2021, and he will no longer serve as our Chief
Executive Officer and President, effective as of March 11, 2019.
Name
Mike Jackson
H. Scott Arnold
Age
70
60
Position
Chairman of the Board, Chief Executive Officer and
President
Executive Vice President, Customer Care and Brand
Extensions
James R. Bender
63
Executive Vice President, Sales
Marc Cannon
57
Executive Vice President and Chief Marketing Officer
C. Coleman Edmunds
54
Executive Vice President, General Counsel and
Corporate Secretary
Cheryl Miller
46
Executive Vice President and Chief Financial Officer
Years with
AutoNation
19
Years in
Automotive
Industry
48
14
19
21
23
11
41
42
32
23
20
Mike Jackson has served as our Chief Executive Officer and Director since September 1999, as our Chairman of the
Board since January 2003, and as our President since June 2017. He also served as our President from February 2015 until
January 2017. 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 11
automotive dealership franchises, including Mercedes-Benz and other brands of automobiles. From January 2018 until
December 2018, Mr. Jackson served as Chair, and from January 2015 until December 2017 as Deputy Chair, of the Board
of Directors of the Federal Reserve Bank of Atlanta. He was appointed to the Board of Directors of the Federal Reserve
Bank of Atlanta in January 2014, after having previously served on the Board of Directors of the Federal Reserve Bank of
Atlanta’s Miami Branch.
H. Scott Arnold has served as our Executive Vice President, Customer Care and Brand Extensions since May 2017.
From January 2017 through April 2017, Mr. Arnold served as Senior Vice President, Customer Care. Prior to becoming a
Senior Vice President, Mr. Arnold held various leadership roles within the Company, including as a Market President in the
Company’s Western Region from February 2011 until September 2012, as Region Vice President, Customer Care in the
Company’s Western Region from October 2012 through July 2015, and as Vice President, Customer Care from August
2015 through December 2016.
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James R. Bender has served as our Executive Vice President, Sales since January 2019. Mr. Bender is responsible for
new and used vehicle sales, as well as Customer Financial Services and manufacturer relations. Prior to becoming an
Executive Vice President, Mr. Bender served as Region President of our Eastern Region, with responsibility for the states
of Florida, Georgia, Alabama, Virginia, Tennessee, Ohio, and Maryland from February 2015 until December 2018, and as
President of our former Florida Region from April 2004 until January 2015. Mr. Bender joined AutoNation in April 2000.
Marc Cannon has served as our Executive Vice President and Chief Marketing Officer since January 2017. Mr. Cannon
is responsible for marketing, communications, customer service, AutoNation.com, and public policy. From February 2016
until January 2017, he served as our Chief Marketing Officer, Senior Vice President of Communications and Public Policy,
and from February 2007 until February 2016, he served as our Senior Vice President, Corporate Communications.
C. Coleman Edmunds has served as our Executive Vice President, General Counsel and Corporate Secretary since
April 2017. In addition to his role as General Counsel, Mr. Edmunds assumed responsibility for Human Resources and
Corporate Development in January 2019. From October 2007 through March 2017, Mr. Edmunds served as our Senior
Vice President, Deputy General Counsel and Assistant Secretary. He joined AutoNation in November 1996. Prior to joining
AutoNation, Mr. Edmunds was in private practice with the international law firm of Baker & McKenzie.
Cheryl Miller has served as our Executive Vice President and Chief Financial Officer since March 2014. Ms. Miller has
responsibility for all financial functions and corporate strategy, as well as corporate real estate services and benefits. She
was appointed Interim Chief Financial Officer in January 2014, and she served as Treasurer, Vice President Investor
Relations from April 2010 until March 2014. Ms. Miller serves as a director, and as Chair of the Audit Committee, of
Tyson Foods, Inc.
Corporate Social Responsibility
We strive to conduct our business in an ethical and socially responsible way, and are sensitive to the needs of the
environment, our customers, our shareholders, our employees, and our communities.
We have transformed our brand through our “Drive Pink” initiative. More than a charitable focus on cancer research
and treatment, Drive Pink is a core element of our corporate culture and has impacted customers, associates, and
communities in meaningful ways.
We fund national cancer research and treatment facilities from coast to coast through our philanthropic activities.
Through the combined efforts of our 26,000 associates, vendors/partners, customers, and executive leadership, we have
raised and donated approximately $18 million to support the world-class AutoNation Institute for Breast and Solid Tumor
Cancer Research, the Moffitt Cancer Center, the Breast Cancer Research Foundation, St. Jude Children’s Research
Hospital, and other leading cancer facilities.
Our presence is felt at local community-based cancer events, as teams of our associates represent AutoNation at runs,
walks, and other fundraisers. Yearly, AutoNation celebrates Drive Pink Across America Day by providing our associates
with opportunities to deliver thousands of gift bags to local hospitals in our markets for patients undergoing cancer
treatment.
Vehicles sold at our AutoNation locations are fitted with a pink license plate frame as a symbol of our commitment to
“driving out” cancer. More than one million pink plates have been distributed to date.
We also offer an innovative company-paid cancer insurance plan that provides financial assistance to associates or their
families recently diagnosed with cancer. This company-paid benefit is offered by fewer than 5% of companies nationally
and it further underscores our commitment to driving out cancer.
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 and social media channels 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
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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, without limitation,
statements regarding our strategic initiatives and our expectations for the future performance of our business and the
automotive retail industry, as well as other written or oral statements made from time to time by us or by our authorized
executive officers on our behalf, constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact, including statements that describe our objectives, plans, or goals, are, or may be
deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “goal,” “plan,” “believe,”
“continue,” “may,” “will,” “could,” and variations of such words and similar expressions are intended to identify such
forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and
events, and they involve known and unknown risks, uncertainties, and other factors that are difficult to predict and may
cause our actual results, performance, or achievements to be materially different from any future results, performance, or
achievements expressed or implied by these statements. 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, including fuel
prices, interest rates, and tariffs. Our business and results of operations are substantially dependent on vehicle sales
levels in the United States and in our particular geographic markets, as well as the gross profit margins that we can
achieve on our sales of vehicles, all of which are very difficult to predict.
We believe that many factors affect sales of new and used 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, consumer shopping preferences and the success of third-party online and mobile sales platforms, the
level of personal discretionary spending, unemployment rates, the state of housing markets, vehicle production levels and
capacity, auto emission and fuel economy standards, the rate of inflation, currency exchange rates, tariffs, 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, the length of consumer loans on existing vehicles, and the rise of ride-sharing
applications. Changes in interest rates can significantly impact new and used 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 vehicles, particularly
trucks and sport utility vehicles that historically have provided us with higher gross profit per vehicle retailed, 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. The imposition of new
tariffs, quotas, duties, or other restrictions or limitations could increase prices for vehicles and/or parts imported into the
United States and adversely impact demand for such vehicles and/or parts. Our vehicle sales, service, and collision
businesses could also be adversely affected by changes in the automotive industry driven by new technologies, distribution
channels, or products, including ride-sharing applications, subscription services, autonomous and electric vehicles, and
accident avoidance technology.
Approximately 17.3 million, 17.2 million, and 17.5 million new vehicles were sold in the United States in 2018, 2017,
and 2016, respectively. We currently expect that the annual rate of U.S. new vehicle unit sales will decrease to the high 16
million unit level in 2019. However, actual sales may materially differ. If new vehicle production exceeds the new vehicle
industry selling rate, our new vehicle gross profit per vehicle retailed could be adversely impacted by excess supply and
any resulting changes in incentive, marketing, and other programs of vehicle manufacturers. See the risk factor “Our new
vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers” below. Further, our
performance may differ from the performance of the automotive retail industry due to particular economic conditions and
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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 parts and automotive repair and maintenance services and automotive
finance and insurance products.
Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers.
Most vehicle manufacturers from time to time establish various marketing and sales incentive programs designed to
spur consumer demand for their vehicles, particularly during periods of excess supply and/or in a flat or declining new
vehicle market. 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. Furthermore, manufacturers may
modify and discontinue these marketing and incentive programs from time to time, which could have a material adverse
effect on our results of operations and cash flows.
In 2018, our new vehicle unit volume and new vehicle gross profit on a per vehicle retailed basis were adversely
impacted by certain manufacturers’ disruptive marketing and sales incentive programs based upon store-level growth
targets established by those manufacturers (commonly referred to as “stair-step” incentive programs), which result in
multi-tier pricing and adversely impact our ability to compete with other dealers. If those manufacturers continue to use
such incentive programs or if other manufacturers adopt similar incentive programs, our operating results could continue to
be adversely impacted.
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.
The core brands of vehicles that we sell, representing approximately 92% of the new vehicles that we sold in 2018, are
manufactured by Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and
Volkswagen (including Audi and Porsche). We are subject to a concentration of risk in the event of adverse events or
financial distress, including bankruptcy, impacting one or more of these manufacturers.
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, vehicle recall campaigns, adverse publicity that may reduce
consumer demand for their products (including due to bankruptcy), product defects, litigation, poor product mix or
unappealing vehicle design, governmental laws and regulations (including fuel economy requirements), import product
restrictions, the rise of ride-sharing applications, or other adverse events. 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 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. In addition, vehicle recall campaigns could materially adversely affect our business, results of operations,
and financial condition.
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Our business could be materially adversely impacted by the 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.
We are investing significantly in our brand extension strategy, and if our strategic initiatives are not successful, we will
have incurred significant expenses without the benefit of improved financial results.
We have invested and will continue to invest substantial resources in marketing activities with the goals of, among other
things, extending and enhancing the AutoNation retail brand and attracting consumers to our own digital channels. We are
also investing significantly in our brand extension strategy, which includes branded parts and accessories, branded
Customer Financial Services products, the expansion of branded collision centers, branded automotive auctions, and stand-
alone used vehicle sales and service centers. In connection with our brand extension strategy, we have adopted a one price
used vehicle centralized pricing and appraisal strategy at all of our stores. See “Business Strategy” in Part I, Item 1 of this
Form 10-K. The roll-out of these strategic initiatives may be impacted by a number of variables, including customer
adoption, market conditions, and our ability to identify, acquire, and build out suitable locations in a timely manner. There
can be no assurance that those initiatives will be successful or that the amount we invest in those initiatives will result in
improved financial results. If our initiatives are not successful, we will have incurred significant expenses without the
benefit of improved financial results.
If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital
channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial
results may be harmed.
We believe that we have built an excellent reputation as an automotive retailer in the United States. All of our Domestic
and Import stores are unified under the AutoNation retail brand. We believe that our continued success will depend on our
ability to maintain and enhance the value of our retail brands across all of our sales channels, including in the communities
in which we operate, and to attract consumers to our own digital channels.
Consumers are increasingly shopping for new and used vehicles, automotive repair and maintenance services, and other
automotive products and services online and through mobile applications, including through third-party online and mobile
sales platforms, with which we compete, that are designed to generate consumer sales leads that are sold to automotive
dealers. If we fail to preserve the value of our retail brands, maintain our reputation, or attract consumers to our own digital
channels, our business could be adversely impacted.
An isolated business incident at a single store could materially adversely affect our other stores, retail brands,
reputation, and sales channels, particularly if such incident results in adverse publicity, governmental investigations, or
litigation. In addition, the growing use of social media by consumers increases the speed and extent that information and
opinions can be shared, and negative posts or comments on social media about AutoNation or any of our stores could
materially damage our retail brands, reputation, and sales channels.
13
New laws, regulations, or governmental policies regarding fuel economy and greenhouse gas emission standards, or
changes to existing standards, may affect vehicle manufacturers’ ability to produce cost-effective vehicles or vehicles
that consumers demand, which could adversely impact our business, results of operations, financial condition, cash
flow, and prospects.
Vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas, or GHG, emission
standards, which continue to change and become more stringent over time. In May 2010, the Environmental Protection
Agency and the National Highway Transportation Safety Administration issued a joint final rule implementing harmonized
federal standards for fuel economy and GHG emissions standards, which will substantially increase fuel economy
requirements. These and other laws and regulations could materially adversely affect, particularly during periods when fuel
prices are low, 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, results of operations, financial condition, cash
flow, and prospects.
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 hail storms, hurricanes, earthquakes,
fires, tornadoes, snow storms, and landslides) 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.
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, which in turn could materially adversely impact
our business, results of operations, financial conditions, and cash flows.
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, our digital channels, 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,
14
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.
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, wage and hour and other employment-related lawsuits, and actions brought
by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and
seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We do not
believe that the ultimate resolution of these matters will have a material adverse effect on our business, results of
operations, financial condition, cash flows, or prospects. 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 flows, and prospects.
Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation
of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely
affect our operations, our business, operating results, and prospects could suffer.
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, finance and
insurance, vehicle protection products, advertising, licensing, consumer protection, consumer privacy, escheatment, anti-
money laundering, the environment, vehicle emissions and fuel economy, health and safety, and employment practices.
With respect to motor vehicle sales, retail installment sales, leasing, finance and insurance, vehicle protection products, and
advertising, 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. With respect to employment practices, we are subject to various laws and regulations, including complex federal,
state, and local wage and hour and anti-discrimination laws. We are also subject to lawsuits and governmental
investigations alleging violations of these laws and regulations, including purported class action lawsuits, which could
result in significant liability, fines, and penalties. See the risk factor “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” above. 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 or the unfavorable resolution of one or more lawsuits or governmental investigations
may have an adverse effect on our business, results of operations, financial condition, cash flows, and prospects.
15
The Dodd-Frank Act established the CFPB, an independent federal agency funded by the United States Federal Reserve
with broad regulatory powers and limited oversight from the United States Congress. Although automotive dealers are
generally excluded, the Dodd-Frank Act could lead to additional, indirect regulation of automotive dealers, in particular,
their sale and marketing of finance and insurance products, through its regulation of automotive finance companies and
other financial institutions. In addition, the CFPB issued a rule, pursuant to its authority under the Dodd-Frank Act,
expanding its supervisory authority with respect to certain non-bank lenders, including automotive finance companies,
participating in automotive financing. The Dodd-Frank Act also provided the FTC with new and expanded authority
regarding automotive dealers, and the FTC has implemented an enforcement initiative relating to the advertising practices
of automotive dealers. Regulation from the CFPB or other federal agencies could lead to significant changes in the manner
that dealers are compensated for arranging customer financing, and while it is difficult to predict how any such changes
might impact us, any adverse changes could have a material adverse impact on our finance and insurance business and
results of operations.
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. We rely on our information systems
to manage, among other things, our sales, inventory, and service efforts, including through our digital channels, and
customer information, as well as to prepare our consolidated financial and operating data. 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 experience security
breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events.
For example, several well-known retailers have disclosed high-profile security breaches, involving sophisticated and highly
targeted attacks on their company’s infrastructure or their customers’ data, which were not recognized or detected until
after such retailers had been affected notwithstanding the preventative measures such retailers had in place. 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.
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 revolving credit facility and the indentures relating to our senior unsecured notes
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, to make investments, 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.
16
As of December 31, 2018, we had $2.6 billion of total non-vehicle debt (including amounts outstanding under our
commercial paper program and capital leases) and $4.0 billion of vehicle 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, investments, and other general corporate activities;
•
•
•
A downgrade in our credit ratings could negatively impact the interest rate payable on our senior notes and could
negatively impact our ability to issue, or the interest rates for, commercial paper notes;
Covenants relating to our indebtedness may limit our ability to obtain financing for working capital, capital
expenditures, acquisitions, investments, 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
An increase in our leverage ratio could negatively impact the applicable margins on interest rates charged for
borrowings under our revolving credit facility.
Future share repurchases may be limited by the maximum leverage ratio and/or maximum capitalization 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 subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and
commercial paper program that could have a material adverse effect on our profitability.
Our vehicle floorplan payables and revolving credit facility are subject to variable interest rates, and the interest rate for
our commercial paper notes varies based on duration and market conditions. Accordingly, our interest expense will
fluctuate with changing market conditions and will increase if interest rates rise. In addition, our net new vehicle 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.
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 changes in circumstances indicate that an impairment may have occurred) by applying a fair-
value based test. Our principal intangible assets are goodwill and our rights under our franchise agreements with vehicle
manufacturers. A decrease in our market capitalization or profitability increases the risk of goodwill impairment. Negative
or declining cash flows or a decline in actual or planned revenues for our stores increases the risk of franchise rights
impairment. An impairment loss could have a material adverse impact on our results of operations and shareholders’ equity.
17
During 2018, we recorded non-cash impairment charges of $8.1 million ($6.1 million after-tax) associated with certain
franchise rights at our stores. See Note 17 of the Notes to Consolidated Financial Statements for more information.
Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial influence
over actions to be taken or approved by our stockholders. In addition, future share repurchases and fluctuations in the
levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our
common stock.
Based on filings made with the SEC through February 20, 2019, William H. Gates III beneficially owns approximately
23% of the outstanding shares of our common stock, through holdings by Cascade Investment, L.L.C. (“Cascade”), which
is solely owned by Mr. Gates, and the Bill & Melinda Gates Foundation Trust (the “Trust”), of which he is a co-trustee. 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, including the election of directors and any transactions involving a change of control.
Based on filings made with the SEC through February 20, 2019, ESL Investments, Inc. together with certain of its
investment affiliates (collectively, “ESL”) beneficially owns approximately 17% of the outstanding shares of our common
stock. As a result, ESL may also have 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 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. 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, based on filings made with the SEC through February 20, 2019, William H. Gates III and ESL
beneficially own approximately 40% of our outstanding shares. Future share repurchases by the Company, together with
any future share purchases by our affiliates, will 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease our current corporate headquarters facility in Fort Lauderdale, Florida, pursuant to a lease expiring on
December 31, 2029. We also own or lease numerous facilities relating to our operations under each of our operating
segments. These facilities are located in the following 16 states: Alabama, Arizona, California, Colorado, Florida, Georgia,
Illinois, Maryland, Minnesota, Nevada, New York, 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, wage and hour and other employment-related lawsuits, and actions brought
by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and
seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We do not
believe that the ultimate resolution of any of the foregoing 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.
18
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5. MARKET FOR 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.” As of February 20, 2019, there
were 1,441 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 currently anticipate paying cash dividends for 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
2018.
Period
October 1, 2018 – October 31, 2018
November 1, 2018 – November 30, 2018
December 1, 2018 – December 31, 2018
Total for three months ended
December 31, 2018
Total for twelve months ended
December 31, 2018
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
40.38
38.61
33.52
$
$
$
361
128
118
607
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)
— $
— $
— $
—
263.7
263.7
263.7
2,117,301
2,100,838
(1) Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain
monetary limit. As of December 31, 2018, $263.7 million remained available under our stock repurchase limit most
recently authorized by our Board of Directors. Our stock repurchase program does not have an expiration date. In
2018, all of our shares were repurchased under our stock repurchase program, except for 16,463 shares that were
surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
(6,126 shares in the first quarter of 2018, 9,730 shares in the second quarter of 2018, and 607 shares in the fourth
quarter of 2018).
20
Stock Performance Graph
The following graph and table compare the cumulative total stockholder return on our common stock from
December 31, 2013 through December 31, 2018 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, 2013 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© 2019 Standard & Poor's, a division of S&P Global. All rights reserved.
AutoNation Inc.
S&P 500
Public Auto Retail Peer Group
12/13
12/14
12/15
12/16
12/17
12/18
100.00
100.00
100.00
121.57
113.69
130.36
120.06
115.26
113.14
97.91
129.05
127.91
103.30
157.22
127.52
71.85
150.33
115.16
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 Statements of Income Data:
2018
As of and for the Years Ended December 31,
2016
2017
2015
2014
Revenue
$ 21,412.8
$ 21,534.6
$ 21,609.0
$ 20,862.0
$ 19,108.8
Income from continuing operations before 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
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
$
$
$
$
$
$
$
$
529.4
396.0
4.36
$
$
$
636.5
434.6
4.45
$
$
$
702.3
430.5
4.19
$
$
$
722.7
442.6
3.94
$
$
$
— $
— $
(0.01) $
(0.01) $
$
4.36
90.9
4.44
97.8
$
4.18
$
3.93
$
103.1
112.7
4.34
$
— $
$
4.34
91.3
90.0
4.43
$
4.16
$
3.90
$
— $
(0.01) $
(0.01) $
4.43
98.2
91.6
$
4.15
$
3.89
$
103.8
100.7
113.9
110.8
682.3
418.7
3.58
(0.01)
3.57
117.3
3.53
(0.01)
3.52
118.9
113.3
$ 10,665.1
$ 10,271.5
$ 10,060.0
$
$
1,926.2
2,716.0
$
$
1,959.2
2,369.3
$
$
1,611.1
2,310.3
$
$
$
9,548.2
1,745.3
2,349.3
$
$
$
8,395.0
2,098.7
2,072.1
310,839
237,722
548,561
329,116
234,148
563,264
337,622
225,713
563,335
339,080
227,290
566,370
318,008
214,910
532,918
See the Notes to Consolidated Financial Statements for additional information.
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.
Except to the extent that differences among reportable 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,
2018, we owned and operated 326 new vehicle franchises from 239 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 33 different new vehicle brands. The core brands of new vehicles that we sell,
representing approximately 92% of the new vehicles that we sold in 2018, are manufactured by Toyota (including Lexus),
Honda, Ford, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen (including Audi and Porsche).
As of December 31, 2018, we also owned and operated 85 AutoNation-branded collision centers, and together with our
vehicle dealerships, our AutoNation USA stores, and our automotive auctions, we owned and operated over 325 locations
coast to coast.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and
service” (also referred to as “Customer Care”), which includes automotive repair and maintenance services as well as
wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer
Financial Services”), which include vehicle service and other protection products, as well as the arranging of financing for
vehicle purchases through third-party finance sources.
As of December 31, 2018, we had three reportable 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
FCA US. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily
by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new
vehicles manufactured primarily by Mercedes-Benz, BMW, Audi, Lexus, and Jaguar Land Rover. 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, 2018, new vehicle sales accounted for approximately 55% of our total revenue, and
approximately 15% of our total gross profit. Used vehicle sales accounted for approximately 24% of our total revenue, and
approximately 10% of our total gross profit. Our parts and service and finance and insurance operations, while comprising
approximately 21% of total revenue, contributed approximately 75% of our gross profit.
Market Conditions
Full-year U.S. industry new vehicle unit sales were 17.3 million in 2018, as compared to 17.2 million in 2017 and
17.5 million in 2016. We currently expect that full-year U.S. industry new vehicle unit sales in 2019 will decrease to the
high 16 million unit level. However, actual sales may materially differ. Based on industry data, vehicle leasing and
manufacturer incentives remain at historically-high levels. To the extent that vehicle manufacturers reduce their support for
these programs, U.S. industry and our new vehicle unit retail sales could be adversely impacted. In addition, an increase in
off-lease supply of late-model used vehicles could benefit retail used vehicle unit volume but adversely impact retail new
vehicle unit volume and pricing.
A rise in interest rates has adversely impacted interest expense on variable rate debt such as vehicle floorplan payables
and commercial paper notes. Consumer borrowing rates, which are generally based on the same underlying benchmark
interest rates, have increased over the past two years. If interest rates continue to rise, there may be an adverse impact on
vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a
critical factor for many vehicle buyers.
23
Results of Operations
We had net income from continuing operations of $395.9 million and diluted earnings per share of $4.34 in 2018, as
compared to net income from continuing operations of $435.0 million and diluted earnings per share of $4.43 in 2017, and
net income from continuing operations of $431.7 million and diluted earnings per share of $4.16 in 2016.
Our used vehicle gross profit increased 8%, our finance and insurance gross profit increased 4%, and our parts and
service gross profit increased 4%, each as compared to 2017, due in part to our brand extension strategy. These increases
were partially offset by a decrease in new vehicle gross profit of 12%. Our new vehicle unit volume and new vehicle gross
profit on a per vehicle retailed (“PVR”) basis were adversely impacted by competitive market conditions, including
disruptive manufacturer marketing and sales incentive programs and an increase in off-lease supply of late-model used
vehicles, in a plateauing sales environment. SG&A expenses increased, as compared to 2017, due to investments related to
our brand extension strategy, as well as increases in costs associated with our self-insurance programs, including less
favorable claims experience and higher premiums, deductibles, and hail-related losses. Floorplan interest expense also
increased as compared to the prior year period, primarily due to higher average interest rates.
Net income from continuing operations benefited from net after-tax gains related to store/property divestitures of $43.7
million in 2018, $42.2 million in 2017, and $30.1 million in 2016, and after-tax gains of $8.7 million in 2018 related to
certain legal settlements, $6.7 million in 2017 in connection with payments we received from manufacturers related to a
legal settlement and for the waiver of certain franchise protest rights, and $8.9 million in 2016 related to legal settlements.
In January 2019, we announced a restructuring of certain of our corporate and regional organization as part of a plan to
reduce our annual spending by approximately $50 million in preparation of a challenging automotive retail market in 2019.
In connection with this restructuring, we recognized $9.4 million of restructuring expenses during the fourth quarter of
2018, which is reflected as a component of our SG&A expenses. We expect to recognize additional expenses in the first
quarter of 2019 related to this restructuring.
Chief Executive Officer Transition
On February 15, 2019, our Board of Directors appointed Carl C. Liebert III as Chief Executive Officer and President of
AutoNation, and as a member of the Board, effective as of March 11, 2019. Prior to his appointment, Mr. Liebert, age 53,
served as Chief Operating Officer and Executive Vice President of United Services Automobile Association (“USAA”),
where he was responsible for USAA’s business operations functions, including USAA’s Bank, Investment, Life, Property
and Casualty, Real Estate Investment Companies, and member contact functions. His responsibilities included delivering
an integrated digital experience through USAA’s website, tablet, mobile devices, voice, and emerging channels. Mr. Liebert
also previously served as President and Chief Executive Officer of 24-Hour Fitness and as Executive Vice President, Stores
for The Home Depot. Mike Jackson, our current Chairman, Chief Executive Officer and President, will become our
Executive Chairman until December 31, 2021, and he will no longer serve as our Chief Executive Officer and President,
effective as of March 11, 2019.
Strategic Initiatives
We continue to implement our comprehensive, customer-focused brand extension strategy, which includes AutoNation-
branded parts and accessories, AutoNation-branded Customer Financial Services products (including extended service and
maintenance contracts and other vehicle protection products), the expansion of AutoNation-branded collision centers,
AutoNation-branded automotive auctions, and AutoNation USA stand-alone used vehicle sales and service centers. During
2018, we opened nine and acquired two collision centers, and we opened one automotive auction and two AutoNation USA
stores.
In October 2018, we invested $50 million in Vroom Inc., one of the largest online car retailers. Our investment currently
represents an equivalent ownership stake of approximately 7%. In November 2018, we announced a partnership with Fair,
the nation’s fastest growing car subscription company. Our partnership with Fair provides consumers with access to certain
used and certified pre-owned vehicles at AutoNation dealerships, all through a mobile application. We also continue to
partner with Waymo, the self-driving technology company of Alphabet Inc., in a multi-year agreement to support Waymo’s
autonomous vehicle program. We do not expect our agreements with Waymo or Fair or our investment in Vroom to have a
material effect on our financial results in the foreseeable future.
24
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or net realizable value in our Consolidated Balance
Sheets. We monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends.
We have typically not experienced significant 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 monitor our new
vehicle inventory values as compared to net realizable values, and as a result, our new vehicle inventory balance was net of
cumulative write-downs of $0.5 million at December 31, 2018, and $2.2 million at December 31, 2017.
We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize
the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable
values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory
balance was net of cumulative write-downs of $3.2 million at December 31, 2018, and $4.1 million at December 31, 2017.
Parts, accessories, and other inventory are carried at the lower of acquisition cost or net realizable value. We estimate
the amount of potentially damaged and/or obsolete inventory based upon historical experience, manufacturer return
policies, and industry trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of
$6.4 million at December 31, 2018, and $5.2 million at December 31, 2017.
Critical Accounting Estimates
We prepare our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles,
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 forth below are the
accounting 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. See Note 1 of the Notes to
Consolidated Financial Statements for a discussion of other significant accounting policies.
Goodwill
Goodwill for our reporting units 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 exceeds its fair value. Under accounting
standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment as of April 30, 2018, and
we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying
amounts.
The quantitative goodwill impairment test is dependent on many variables used to determine the fair value of our
reporting units. See Note 17 of the Notes to Consolidated Financial Statements for additional information on how the fair
values and carrying values of our reporting units are derived for the quantitative goodwill impairment test.
As of December 31, 2018, we have $232.5 million of goodwill related to the Domestic reporting unit, $520.9 million
related to the Import reporting unit, $717.7 million related to the Premium Luxury reporting unit, and $42.1 million in
“Other.”
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle
manufacturers, which have indefinite lives and are tested for impairment annually on April 30 or more frequently when
events or changes in circumstances indicate that impairment may have occurred.
Our franchise rights, which related to 66 stores and totaled $572.2 million at April 30, 2018, are evaluated for
impairment on a franchise-by-franchise basis annually. We performed quantitative franchise rights impairment tests as of
April 30, 2018. As a result of the quantitative tests, we identified 3 stores with franchise rights carrying values that
exceeded their fair values, and we recorded non-cash impairment charges of $8.1 million. We identified 11 additional stores
25
that, while they each had franchise rights fair value in excess of carrying value, had lower relative performance compared
to our total store population. We will continue to monitor these 11 stores, as well as all stores, for events or changes in
circumstances that may indicate potential impairment. The remainder of our stores had franchise rights with calculated fair
values that substantially exceeded their carrying values. If, hypothetically, the fair value of each of the franchise rights
quantitatively tested had been determined to be 10% lower as of the valuation date, the additional aggregate pre-tax non-
cash impairment charge would have been approximately $3 million. The quantitative franchise rights impairment test is
dependent on many variables used to determine the fair value of each store’s franchise rights. See Note 17 of the Notes to
Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in
our quantitative impairment testing. The effect of a hypothetical 10% decrease in fair value estimates is not intended to
provide a sensitivity analysis of every potential outcome.
Chargeback Liability
Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and
leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with
third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products for an
upfront commission, which is recognized when our performance obligation is satisfied, generally at the time of the vehicle
sale. In certain cases, we also participate in the future underwriting profit on certain products pursuant to retrospective
commission arrangements with the issuers of those products. See Note 2 of the Notes to Consolidated Financial Statements
for more information on our revenue recognition.
We may be charged back for commissions related to financing, vehicle service contracts, or other vehicle protection
products in the event of early termination, default, or prepayment of the contracts by customers (“chargebacks”). However,
our exposure to loss generally is limited to the commissions that we receive. These commissions are recorded at the time of
the sale of the vehicles, net of an estimated liability for chargebacks.
We estimate our liability for chargebacks on commissions related to financing, vehicle service contracts, or other vehicle
protection products on an individual basis using our historical chargeback experience based on internal cancellation data, as
well as cancellation data received from third parties that sell and administer these products. Our estimated liability for
chargebacks totaled $128.1 million at December 31, 2018, and $120.8 million at December 31, 2017.
Chargebacks are influenced by the volume of vehicle sales in recent years, commission levels, product penetration,
product mix, and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts
and other 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
an adjustment to our estimated liability for chargebacks. The increase in our liability for chargebacks is largely attributable
to increases in commission levels received upon the sale of vehicle service contracts and product penetration in recent
years, as well as product mix. Our actual chargeback experience has not been materially different from our recorded
estimates. A 10% change in our estimated cancellation rates would have changed our estimated liability for chargebacks at
December 31, 2018, by approximately $12.8 million. See Note 9 of the Notes to Consolidated Financial Statements for
more information regarding chargeback liabilities.
26
Reported Operating Data
($ in millions, except per
vehicle data)
Revenue:
New vehicle
Retail used vehicle
Wholesale
Used vehicle
Finance and insurance, net
Total variable operations(1)
Parts and service
Other
Total revenue
Gross profit:
New vehicle
Retail used vehicle
Wholesale
Used vehicle
Finance and insurance
Total variable operations(1)
Parts and service
Other
Total gross profit
Selling, general, and
administrative expenses
Depreciation and amortization
Franchise rights impairment
Other income, net
Operating income
Non-operating income (expense)
items:
Floorplan interest expense
Other interest expense
Interest income
Other income, net
Income from continuing
2018
2017
$ 11,751.6
4,807.6
315.7
5,123.3
981.4
17,856.3
3,447.6
108.9
$ 21,412.8
$ 12,180.8
4,577.1
301.3
4,878.4
939.2
17,998.4
3,398.3
137.9
$ 21,534.6
$
$
516.1
327.6
14.1
341.7
981.4
1,839.2
1,555.3
2.8
3,397.3
2,509.8
166.2
8.1
(64.7)
777.9
(130.4)
(119.4)
1.1
0.2
588.4
308.0
7.2
315.2
939.2
1,842.8
1,490.7
25.5
3,359.0
2,436.2
158.6
—
(79.2)
843.4
(97.0)
(120.2)
1.0
9.3
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
$
(429.2)
230.5
14.4
244.9
42.2
(142.1)
49.3
(29.0)
(121.8)
(72.3)
19.6
6.9
26.5
42.2
(3.6)
64.6
(22.7)
38.3
(73.6)
(7.6)
(8.1)
(14.5)
(65.5)
(33.4)
0.8
0.1
(9.1)
$
$
$
(3.5) $ 12,255.8
4,481.7
5.0
513.6
4.8
4,995.3
5.0
4.5
894.6
18,145.7
(0.8)
3,321.4
1.5
141.9
(0.6) $ 21,609.0
(12.3) $
6.4
8.4
4.5
(0.2)
4.3
1.1
(3.0)
(7.8)
635.8
334.9
(17.3)
317.6
894.6
1,848.0
1,434.7
30.5
3,313.2
2,349.4
143.4
—
(69.1)
889.5
(76.5)
(115.5)
1.1
3.7
(75.0)
95.4
(212.3)
(116.9)
44.6
(147.3)
76.9
(4.0)
(74.4)
(47.4)
(26.9)
24.5
(2.4)
44.6
(5.2)
56.0
(5.0)
45.8
(86.8)
(15.2)
—
10.1
(46.1)
(20.5)
(4.7)
(0.1)
5.6
operations before income taxes $
529.4
$
636.5
$
(107.1)
(16.8) $
702.3
$
(65.8)
Retail vehicle unit sales:
New vehicle
Used vehicle
Revenue per vehicle retailed:
New vehicle
Used vehicle
Gross profit per vehicle retailed:
New vehicle
Used vehicle
Finance and insurance
Total variable operations(2)
310,839
237,722
548,561
37,806
20,224
1,660
1,378
1,789
3,327
$
$
$
$
$
$
329,116
234,148
563,264
37,011
19,548
1,788
1,315
1,667
3,259
$
$
$
$
$
$
$
$
$
$
$
$
(18,277)
3,574
(14,703)
(5.6)
1.5
(2.6)
337,622
225,713
563,335
795
676
(128)
63
122
68
2.1
3.5
$
$
36,300
19,856
(7.2) $
$
4.8
$
7.3
$
2.1
1,883
1,484
1,588
3,311
$
$
$
$
$
$
(8,506)
8,435
(71)
711
(308)
(95)
(169)
79
(52)
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and
finance and insurance gross profit by total retail vehicle unit sales.
27
(0.6)
2.1
(41.3)
(2.3)
5.0
(0.8)
2.3
(0.3)
(7.5)
(8.0)
(0.8)
5.0
(0.3)
3.9
1.4
(3.7)
(5.2)
(9.4)
(2.5)
3.7
—
2.0
(1.6)
(5.0)
(11.4)
5.0
(1.6)
Years Ended December 31,
2018 (%)
2017 (%)
2016 (%)
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
Days supply:
New vehicle (industry standard of selling days)
Used vehicle (trailing calendar month days)
54.9
23.9
16.1
4.6
0.5
100.0
15.2
10.1
45.8
28.9
—
100.0
4.4
6.8
45.1
15.9
11.7
3.6
73.9
22.9
56.6
22.7
15.8
4.4
0.5
100.0
17.5
9.4
44.4
28.0
0.7
100.0
4.8
6.7
43.9
15.6
11.3
3.9
72.5
25.1
December 31,
2018
2017
60 days
42 days
53 days
43 days
56.7
23.1
15.4
4.1
0.7
100.0
19.2
9.6
43.3
27.0
0.9
100.0
5.2
7.5
43.2
15.3
10.9
4.1
70.9
26.8
28
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 our stores for the identical months in each period presented in the
comparison, commencing with the first full month in which the store was owned by us. For example, the results for a store
acquired in February 2017 would be included only in our same store comparison of 2018 to 2017, not in our same store
comparison of 2017 to 2016. Therefore, the amounts presented in the year 2017 column that is being compared to the year
2018 column may differ from the amounts presented in the year 2017 column that is being compared to the year 2016
column. Results from divested stores are excluded from both current and prior periods.
Years Ended December 31,
Years Ended December 31,
Variance
Favorable /
(Unfavorable)
%
Variance
2017
2016
Variance
Favorable /
(Unfavorable)
%
Variance
($ in millions, except
per vehicle data)
Revenue:
New vehicle
Retail used vehicle
Wholesale
Used vehicle
Finance and
insurance, net
Total variable
operations(1)
Parts and service
Other
Total revenue
Gross profit:
2018
2017
$ 11,519.8
4,649.6
302.0
4,951.6
$ 11,761.3
4,397.8
288.9
4,686.7
964.4
911.7
17,435.8
3,354.9
108.7
$ 20,899.4
17,359.7
3,288.7
136.9
$ 20,785.3
New vehicle
Retail used vehicle
Wholesale
Used vehicle
Finance and insurance
Total variable
operations(1)
Parts and service
Other
Total gross profit
$
$
506.5
319.5
8.1
327.6
964.4
573.4
296.7
7.6
304.3
911.7
1,798.5
1,513.3
2.8
$ 3,314.6
1,789.4
1,441.9
25.3
$ 3,256.6
Retail vehicle unit
sales:
New vehicle
Used vehicle
Total
Revenue per vehicle
retailed:
New vehicle
Used vehicle
305,615
229,379
534,994
316,914
223,559
540,473
$ 37,694
$ 20,270
$ 37,112
$ 19,672
Gross profit per vehicle
retailed:
$
New vehicle
Used vehicle
$
Finance and insurance $
Total variable
operations(2)
$
1,657
1,393
1,803
3,347
$
$
$
$
1,809
1,327
1,687
3,297
$
$
$
$
$
$
$
$
$
$
(241.5)
251.8
13.1
264.9
52.7
76.1
66.2
(28.2)
114.1
(66.9)
22.8
0.5
23.3
52.7
9.1
71.4
(22.5)
58.0
582
598
(152)
66
116
(2.1) $ 11,818.8
4,420.1
5.7
286.1
4.5
4,706.2
5.7
$ 11,886.8
4,333.7
495.1
4,828.8
5.8
0.4
2.0
0.5
918.5
871.3
17,443.5
3,307.3
137.0
$ 20,887.8
17,586.9
3,220.3
140.8
$ 20,948.0
(11.7) $
7.7
$
569.3
299.9
0.6
300.5
918.5
622.8
323.8
(15.9)
307.9
871.3
1,788.3
1,451.5
24.9
$ 3,264.7
1,802.0
1,389.9
29.9
$ 3,221.8
7.7
5.8
0.5
5.0
1.8
(11,299)
5,820
(5,479)
(3.6)
2.6
(1.0)
320,641
225,985
546,626
325,927
216,447
542,374
1.6
3.0
$ 36,860
$ 19,559
$ 36,471
$ 20,022
(8.4) $
$
5.0
$
6.9
1,776
1,327
1,680
$
$
$
$
1,911
1,496
1,606
3,352
50
1.5
$
3,270
$
$
$
$
$
$
$
$
$
$
(68.0)
86.4
(209.0)
(122.6)
47.2
(143.4)
87.0
(3.8)
(60.2)
(53.5)
(23.9)
16.5
(7.4)
47.2
(13.7)
61.6
(5.0)
42.9
(5,286)
9,538
4,252
389
(463)
(135)
(169)
74
(0.6)
2.0
(42.2)
(2.5)
5.4
(0.8)
2.7
(0.3)
(8.6)
(7.4)
(2.4)
5.4
(0.8)
4.4
1.3
(1.6)
4.4
0.8
1.1
(2.3)
(7.1)
(11.3)
4.6
(82)
(2.4)
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and
finance and insurance gross profit by total retail vehicle unit sales.
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
Years Ended December 31,
2018 (%)
2017 (%)
Years Ended December 31,
2017 (%)
2016 (%)
56.6
22.5
15.8
4.4
0.7
100.0
17.6
9.3
44.3
28.0
0.8
100.0
4.9
6.7
43.8
15.7
56.6
22.5
15.8
4.4
0.7
100.0
17.4
9.2
44.5
28.1
0.8
100.0
4.8
6.8
43.9
15.6
56.7
23.1
15.4
4.2
0.6
100.0
19.3
9.6
43.1
27.0
1.0
100.0
5.2
7.5
43.2
15.4
55.1
23.7
16.1
4.6
0.5
100.0
15.3
9.9
45.7
29.1
—
100.0
4.4
6.9
45.1
15.9
30
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)
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2017
$ 11,751.6
$ 12,180.8
$
$
$
516.1
310,839
37,806
1,660
$
$
$
588.4
329,116
37,011
1,788
$
$
$
$
(429.2)
(72.3)
(18,277)
795
(128)
4.4%
4.8%
60 days
53 days
(3.5) $ 12,255.8
(12.3) $
635.8
(5.6)
337,622
2.1
$
36,300
(7.2) $
1,883
$
$
$
$
5.2%
(75.0)
(47.4)
(8,506)
711
(95)
(0.6)
(7.5)
(2.5)
2.0
(5.0)
Same Store:
Revenue
Gross profit
2018
2017
$11,519.8
$11,761.3
$
506.5
$
573.4
Retail vehicle unit sales
305,615
316,914
Revenue per vehicle retailed
$ 37,694
$ 37,112
Gross profit per vehicle retailed $
1,657
$
1,809
Gross profit as a percentage of
revenue
4.4%
4.9%
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
2017
2016
$
$
$
$
(241.5)
(66.9)
(2.1) $11,818.8
$11,886.8
(11.7) $
569.3
$
622.8
(11,299)
(3.6)
320,641
325,927
582
(152)
1.6
$ 36,860
$ 36,471
(8.4) $
1,776
$
1,911
$
$
$
$
(68.0)
(53.5)
(5,286)
389
(135)
(0.6)
(8.6)
(1.6)
1.1
(7.1)
4.8%
5.2%
The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and
same store amounts in the above tables of $231.8 million, $419.5 million, and $369.0 million in new vehicle revenue and
$9.6 million, $15.0 million, and $13.0 million in new vehicle gross profit for 2018, 2017, and 2016, respectively, is related
to acquisition and divestiture activity, as well as new add-point openings.
2018 compared to 2017
Same store new vehicle revenue decreased during 2018, as compared to 2017, due to a decrease in same store unit
volume, partially offset by an increase in revenue PVR. The decrease in same store unit volume was primarily due to
overall competitive market conditions in a plateauing new vehicle sales environment, including disruptive manufacturer
marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles.
Same store revenue PVR benefited from an increase in the average selling prices for vehicles in all three segments due
in part to a shift in mix toward trucks and sport utility vehicles that have relatively higher average selling prices. This shift
in mix is due to a combination of consumer preference, improved vehicle fuel efficiency, and relatively low average fuel
prices. Average selling prices also increased as a result of increases in the manufacturers’ suggested retail prices.
Same store gross profit PVR decreased during 2018, as compared to 2017, for all three segments resulting from
competitive market conditions, including disruptive manufacturer marketing and sales incentive programs and an increase
in off-lease supply of late-model used vehicles.
31
2017 compared to 2016
Same store new vehicle revenue decreased during 2017, as compared to 2016, as a result of a decrease in same store unit
volume, partially offset by an increase in revenue PVR. The decrease in same store unit volume was primarily due to
declines in our Florida and Texas markets and overall competitive market conditions in a plateauing new vehicle sales
environment, as well as certain manufacturers’ disruptive marketing and sales incentive programs.
Same store revenue PVR during 2017 benefited from an increase in the average selling prices for vehicles in all three
segments. These increases were due in part to sustained low average fuel prices, which caused a shift in mix toward trucks
and sport utility vehicles, which have relatively higher average selling prices. These increases were partially offset by a
shift in mix toward Import vehicles, which have relatively lower average selling prices.
Same store gross profit PVR decreased during 2017, as compared to 2016, primarily due to a decrease in gross profit
PVR for Domestic vehicles resulting from a competitive sales environment and certain manufacturers’ disruptive
marketing and sales incentive programs.
Net New Vehicle Inventory Carrying Benefit (Cost)
The following table details net new vehicle inventory carrying benefit (cost), 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 accordance
with U.S. generally accepted accounting principles.
($ in millions)
Floorplan assistance
Years Ended December 31,
2018
2017
Variance 2018
vs. 2017
2016
Variance 2017
vs. 2016
$
117.9
$
122.1
$
(4.2) $
124.0
$
New vehicle floorplan interest expense
(121.7)
(90.4)
(31.3)
(71.5)
Net new vehicle inventory carrying benefit (cost) $
(3.8) $
31.7
$
(35.5) $
52.5
$
(1.9)
(18.9)
(20.8)
2018 compared to 2017
During 2018, we had a net new vehicle inventory carrying cost of $3.8 million compared to a net new vehicle inventory
carrying benefit of $31.7 million in the prior year. Up until the second quarter of 2018, we had a net new vehicle inventory
carrying benefit for nine consecutive years. Floorplan interest rates are variable and therefore increase and decrease with
changes in the underlying benchmark interest rates. With the increase in interest rates, our floorplan interest expense has
increased, resulting in a net new vehicle inventory carrying cost for 2018. If interest rates continue to increase without a
corresponding increase in floorplan assistance or a decrease in average new vehicle inventory levels, we would expect that
we will continue to incur a net new vehicle inventory carrying cost.
2017 compared to 2016
The net new vehicle inventory carrying benefit decreased in 2017, as compared to 2016, primarily due to an increase in
floorplan interest expense. Floorplan interest expense increased due to higher average interest rates, partially offset by
lower average vehicle floorplan payable balances during 2017.
32
Used Vehicle
($ in millions, except per vehicle
data)
Reported:
Retail revenue
Wholesale revenue
Total revenue
Retail gross profit
Wholesale gross profit (loss)
Total gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2017
$ 4,807.6
$ 4,577.1
315.7
301.3
$ 5,123.3
$ 4,878.4
$
$
$
$
327.6
14.1
341.7
237,722
20,224
1,378
$
$
$
$
308.0
7.2
315.2
234,148
19,548
1,315
$
$
$
$
$
$
230.5
14.4
244.9
19.6
6.9
26.5
3,574
676
63
5.0
4.8
5.0
6.4
8.4
1.5
3.5
4.8
$ 4,481.7
513.6
$ 4,995.3
$
$
$
$
334.9
(17.3)
317.6
225,713
19,856
1,484
$
$
$
$
$
$
7.5%
95.4
(212.3)
(116.9)
(26.9)
24.5
(2.4)
8,435
(308)
(169)
2.1
(41.3)
(2.3)
(8.0)
(0.8)
3.7
(1.6)
(11.4)
Gross profit as a percentage of retail
revenue
Days supply (trailing calendar month
days)
6.8%
6.7%
42 days
43 days
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2017
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
$
$
$
$
251.8
13.1
264.9
22.8
0.5
23.3
5,820
598
66
5.7
4.5
5.7
7.7
$ 4,420.1
$ 4,333.7
286.1
495.1
$ 4,706.2
$ 4,828.8
$
299.9
$
323.8
0.6
(15.9)
7.7
$
300.5
$
307.9
2.6
3.0
5.0
225,985
216,447
$
$
19,559
1,327
$
$
20,022
1,496
$
$
$
$
$
$
86.4
(209.0)
(122.6)
(23.9)
16.5
(7.4)
9,538
2.0
(42.2)
(2.5)
(7.4)
(2.4)
4.4
(463)
(2.3)
(169)
(11.3)
2018
2017
Same Store:
Retail revenue
$ 4,649.6
$ 4,397.8
Wholesale revenue
302.0
288.9
Total revenue
$ 4,951.6
$ 4,686.7
Retail gross profit
$
319.5
Wholesale gross profit
(loss)
8.1
Total gross profit
$
327.6
Retail vehicle unit
sales
Revenue per vehicle
retailed
Gross profit per
vehicle retailed
Gross profit as
a percentage of
retail revenue
229,379
$
$
20,270
1,393
$
$
$
$
296.7
7.6
304.3
223,559
19,672
1,327
6.9%
6.7%
6.8%
7.5%
The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and
same store amounts in the above tables of $158.0 million, $179.3 million, and $148.0 million in retail used vehicle revenue
and $8.1 million, $11.3 million, and $11.1 million in retail used vehicle gross profit for 2018, 2017, and 2016, respectively,
is related to acquisition and divestiture activity, as well as the opening of new add-points, AutoNation USA stores, and
automotive auctions.
2018 compared to 2017
Same store retail used vehicle revenue increased during 2018, as compared to 2017, as a result of increases in same
store revenue PVR and same store retail unit volume. Same store unit volume increased in the Premium Luxury and Import
segments due in part to the continued acceptance of our One Price centralized pricing and appraisal strategy and an
33
increase in off-lease supply of late-model used vehicles. Same store unit volume in the prior year was adversely impacted
by declines in our Florida markets, due in part to temporary store closures as a result of Hurricane Irma.
Same store revenue PVR increased during 2018, as compared to 2017, due in part to an increase in off-lease supply of
late-model used vehicles and a shift in mix toward Premium Luxury vehicles and trucks and sport utility vehicles, all of
which have relatively higher average selling prices. The shift in mix toward trucks and sport utility vehicles is due to a
combination of consumer preference, improved vehicle fuel efficiency, and relatively low average fuel prices.
Same store gross profit PVR increased during 2018, as compared to 2017, due in part to the continued acceptance of our
One Price centralized pricing and appraisal strategy. In the prior year, gross profit PVR was adversely impacted by
implementation challenges with our One Price centralized pricing and appraisal strategy. Same store gross profit PVR also
benefited from a shift in mix toward Premium Luxury vehicles, which have relatively higher average gross profit PVRs.
2017 compared to 2016
Same store retail used vehicle revenue increased during 2017, as compared to 2016, as a result of an increase in same
store unit volume, partially offset by a decrease in revenue PVR. Unit volume increased due to the growing supply of off-
lease vehicles and lower used vehicle pricing. Additionally, retail used vehicle unit volume in 2016 was adversely impacted
by manufacturer safety recalls, which benefited wholesale unit volume in 2016. The increase in unit volume was partially
offset by declines in our Florida markets, due in part to temporary store closures as a result of Hurricane Irma.
Same store revenue PVR was adversely impacted by a decrease in the average selling prices of used vehicles for all
three segments, primarily due to an increase in supply in the industry, which had driven down the wholesale values of used
vehicles. Same store revenue PVR was also adversely impacted by a shift in mix away from certified pre-owned vehicles,
which have relatively higher average selling prices.
Same store gross profit decreased during 2017, as compared to 2016, due to decreases in the gross profit PVR of used
vehicles for all three segments, particularly in our Domestic segment. In addition, gross profit PVR decreased due to
implementation challenges we experienced in the first half of 2017 with One Price, our centralized pricing and appraisal
strategy. Decreases in gross profit were partially offset by a decrease in wholesale losses due to a decrease in wholesale
unit volume and wholesale loss per unit as compared to 2016. Manufacturer safety recalls benefited wholesale unit volume
and adversely impacted retail used vehicle unit volume in 2016.
34
Parts & Service
($ in millions)
Reported:
Revenue
Gross profit
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2017
$ 3,447.6
$ 3,398.3
$ 1,555.3
$ 1,490.7
$
$
49.3
64.6
1.5
4.3
$ 3,321.4
$ 1,434.7
$
$
76.9
56.0
2.3
3.9
Gross profit as a percentage
of revenue
45.1%
43.9%
43.2%
Same Store:
Revenue
2018
2017
$ 3,354.9
$ 3,288.7
Gross profit
$ 1,513.3
$ 1,441.9
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2017
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
$
$
66.2
71.4
2.0
5.0
$ 3,307.3
$ 3,220.3
$ 1,451.5
$ 1,389.9
$
$
87.0
61.6
2.7
4.4
Gross profit as
a percentage
of revenue
45.1%
43.8%
43.9%
43.2%
Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement
from manufacturers and others under warranty programs, as well as from wholesale parts sales and collision services.
The following discussion of parts and service is on a same store basis. The difference between reported amounts and
same store amounts in the above tables of $92.7 million, $109.6 million, and $101.1 million in parts and service revenue
and $42.0 million, $48.8 million, and $44.8 million in parts and service gross profit for 2018, 2017, and 2016, respectively,
is related to acquisition and divestiture activity, as well as the opening of new add-points, AutoNation USA stores, and
collision centers.
2018 compared to 2017
Same store parts and service gross profit increased during 2018, as compared to 2017, primarily due to an increase in
gross profit associated with customer-pay service of $37.5 million and warranty of $5.7 million. Parts and service gross
profit also benefited from smaller increases in gross profit associated with service work outsourced to third parties and the
preparation of vehicles for sale.
Customer-pay service gross profit benefited from improved margin performance primarily from a shift in mix toward
higher margin service work, our parts initiatives, including service and maintenance parts and accessories, and price
increases. Warranty gross profit benefited from improved margin performance largely due to a shift in mix toward higher
margin service work and improved parts and labor rates negotiated with certain manufacturers.
2017 compared to 2016
Same store parts and service gross profit increased during 2017, as compared to 2016, primarily due to increases in
gross profit associated with customer-pay service of $32.0 million and warranty of $21.3 million.
Customer-pay service gross profit benefited from improved margin performance primarily from price increases, our
parts initiatives, and a shift in mix toward higher margin service work. Warranty gross profit benefited from improved
margin performance largely due to an increase in higher value recall work and improved parts and labor rates negotiated
with certain manufacturers.
35
Finance and Insurance
($ in millions, except per vehicle
data)
Reported:
2018
2017
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
Revenue and gross profit
Gross profit per vehicle retailed
$
$
981.4
1,789
$
$
939.2
1,667
$
$
42.2
122
4.5
7.3
$
$
894.6
1,588
$
$
44.6
79
5.0
5.0
Years Ended December 31,
2018 vs. 2017
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2017
2017 vs. 2016
Variance
Favorable /
(Unfavorable)
%
Variance
2017
2016
Same Store:
Revenue and gross profit
$ 964.4
$ 911.7
Gross profit per vehicle
retailed
$ 1,803
$ 1,687
$
$
52.7
116
5.8
$ 918.5
$ 871.3
6.9
$ 1,680
$ 1,606
$
$
47.2
74
5.4
4.6
Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and
leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with
third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a
commission basis, and, in certain cases, we also participate in the future underwriting profit on certain products pursuant to
retrospective commission arrangements with the issuers of those products.
The following discussion of finance and insurance results is on a same store basis. The difference between reported
amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $17.0 million,
$27.5 million, and $23.3 million for 2018, 2017, and 2016, respectively, is related to acquisition and divestiture activity, as
well as the opening of new add-points and AutoNation USA stores.
2018 compared to 2017
Same store finance and insurance revenue and gross profit increased during 2018, as compared to 2017, due to an
increase in finance and insurance gross profit PVR, partially offset by a decrease in new vehicle unit volume. The increase
in gross profit PVR was primarily due to higher realized margins on vehicle service contracts, including our AutoNation
Vehicle Protection Plan product, and an increase in product penetration. Increases in finance and insurance gross profit
PVR were partially offset by a shift in unit volume mix from new vehicles to used vehicles, which have lower average
selling prices than new vehicles and therefore typically generate lower gross profit per transaction associated with
arranging customer financing. Sales of used vehicles also have lower finance and product penetration as compared to sales
of new vehicles.
2017 compared to 2016
Same store finance and insurance revenue and gross profit increased during 2017, as compared to 2016, due to an
increase in finance and insurance gross profit PVR and an increase in used vehicle unit volume. The increase in gross profit
PVR was primarily due to an increase in profit on vehicle service contracts and an increase in retrospective commissions
resulting from the sale in our Domestic and Import stores of the AutoNation Vehicle Protection Plan product. Increases in
finance and insurance gross profit PVR were partially offset by a shift in unit volume mix from new vehicles to used
vehicles, which have lower average selling prices than new vehicles and therefore typically generate lower revenue and
gross profit per transaction associated with arranging customer financing. Sales of used vehicles also have lower finance
and product penetration as compared to sales of new vehicles.
36
Segment Results
In the following table of financial data, revenue and segment income of our reportable segments are reconciled to
consolidated revenue and consolidated operating income, respectively.
Years Ended December 31,
2018
2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
Variance
Favorable /
(Unfavorable)
%
Variance
($ in millions)
Revenue:
$
Domestic
Import
Premium Luxury
Total
Corporate and other
Total consolidated revenue $
7,134.5
6,786.4
7,010.9
20,931.8
481.0
21,412.8
Segment income(1):
Domestic
Import
Premium Luxury
Total
Corporate and other
Floorplan interest expense
$
249.3
304.7
340.9
894.9
(247.4)
130.4
$
$
$
$
$
$
7,452.8
6,873.4
6,832.7
21,158.9
375.7
21,534.6
257.1
303.1
348.8
909.0
(162.6)
97.0
Operating income
$
777.9
$
843.4
$
(318.3)
(87.0)
178.2
(227.1)
105.3
(121.8)
(7.8)
1.6
(7.9)
(14.1)
(84.8)
(33.4)
(65.5)
$
$
$
(4.3) $
7,810.0
(1.3)
6,886.1
2.6
6,665.3
(1.1)
21,361.4
247.6
28.0
(0.6) $ 21,609.0
(3.0) $
0.5
(2.3)
(1.6)
311.1
296.8
350.2
958.1
(145.1)
76.5
(7.8) $
889.5
$
(1) Segment income is defined as operating income less floorplan interest expense.
Retail new vehicle unit sales:
Domestic
Import
Premium Luxury
102,015
142,556
66,268
310,839
111,028
150,422
67,666
329,116
(9,013)
(7,866)
(1,398)
(18,277)
(8.1)
(5.2)
(2.1)
(5.6)
118,867
150,005
68,750
337,622
(357.2)
(12.7)
167.4
(202.5)
128.1
(74.4)
(54.0)
6.3
(1.4)
(49.1)
(17.5)
(20.5)
(46.1)
(7,839)
417
(1,084)
(8,506)
(4.6)
(0.2)
2.5
(0.9)
51.7
(0.3)
(17.4)
2.1
(0.4)
(5.1)
(5.2)
(6.6)
0.3
(1.6)
(2.5)
37
Domestic
The Domestic segment operating results included the following:
Years Ended December 31,
2018
2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
Variance
Favorable /
(Unfavorable)
%
Variance
$ 7,134.5
$ 7,452.8
$
249.3
$
257.1
$
$
(318.3)
(7.8)
(9,013)
(4.3) $ 7,810.0
(3.0) $
311.1
$
$
(8.1)
118,867
(357.2)
(54.0)
(7,839)
(4.6)
(17.4)
(6.6)
($ in millions)
Revenue
Segment income
Retail new vehicle unit sales
102,015
111,028
2018 compared to 2017
Domestic revenue decreased during 2018, as compared to 2017, primarily due to the divestitures we completed in 2017
and 2018 and a decrease in new vehicle unit volume, partially offset by an increase in new and used vehicle revenue PVRs.
The decrease in new vehicle unit volume was primarily due to overall competitive market conditions in a plateauing new
vehicle sales environment, including disruptive manufacturer marketing and sales incentive programs and an increase in
off-lease supply of late-model used vehicles. The increase in new and used vehicle revenue PVRs was due in part to a shift
in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices, as a result of a
combination of consumer preference, improved vehicle fuel efficiency, and relatively low average fuel prices. New vehicle
average selling prices also increased as a result of increases in the manufacturers’ suggested retail prices.
Domestic segment income decreased during 2018, as compared to 2017, primarily due to decreases in new vehicle gross
profit PVR and new vehicle unit volume due to competitive market conditions, including disruptive manufacturer
marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles. Segment income
was also adversely impacted by an increase in floorplan interest expense. These decreases in Domestic segment income
were partially offset by a decrease in SG&A expenses due to the divestitures we completed in 2017 and 2018, as well as an
increase in parts and service gross profit associated with customer-pay service, due in part to our parts initiatives, and
warranty.
2017 compared to 2016
Domestic revenue decreased during 2017, as compared to 2016, primarily due to decreases in new vehicle unit volume
and wholesale unit volume and a realignment of stand-alone collision centers. New vehicle unit volume was impacted by
declines in our Florida and Texas markets, the competitive sales environment, and certain manufacturers’ disruptive
marketing and sales incentive programs. Manufacturer safety recalls adversely impacted retail used vehicle unit volume
and benefited wholesale unit volume in 2016. Decreases in Domestic revenue were partially offset by an increase in new
vehicle revenue PVR due to sustained low average fuel prices, which caused a shift in mix toward trucks and sport utility
vehicles that have relatively higher average selling prices.
Domestic segment income decreased during 2017, as compared to 2016, primarily due to decreases in new and used
vehicle gross profit PVR and new vehicle unit volume. New vehicle gross profit PVR decreased primarily due to a
competitive sales environment and certain manufacturers’ disruptive marketing and sales incentive programs. Used vehicle
gross profit PVR decreased due to implementation challenges we experienced in the first half of 2017 with One Price, our
centralized pricing and appraisal strategy. These decreases in Domestic segment income were partially offset by a decrease
in SG&A expenses.
38
Import
The Import segment operating results included the following:
Years Ended December 31,
2018
2017
Variance
Favorable /
(Unfavorable)
%
Variance
2016
Variance
Favorable /
(Unfavorable)
%
Variance
$ 6,786.4
$ 6,873.4
$
304.7
$
303.1
$
$
(87.0)
1.6
(1.3) $ 6,886.1
0.5
$
296.8
$
$
(12.7)
6.3
417
(0.2)
2.1
0.3
Retail new vehicle unit sales
142,556
150,422
(7,866)
(5.2)
150,005
($ in millions)
Revenue
Segment income
2018 compared to 2017
Import revenue decreased during 2018, as compared to 2017, primarily due to the divestitures we completed in 2017
and 2018 and a decrease in new vehicle unit volume, partially offset by an increase in new and used vehicle revenue PVRs
and used vehicle unit volume. The decrease in new vehicle unit volume was primarily due to overall competitive market
conditions in a plateauing new vehicle sales environment, including disruptive manufacturer marketing and sales incentive
programs and an increase in off-lease supply of late-model used vehicles. The increase in new and used vehicle revenue
PVRs was due in part to a shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling
prices, as a result of a combination of consumer preference, improved vehicle fuel efficiency, and relatively low average
fuel prices. New vehicle average selling prices also increased as a result of increases in the manufacturers’ suggested retail
prices. Import revenue also benefited from the continued acceptance of our One Price centralized pricing and appraisal
strategy, as well as an increase in finance and insurance revenue and gross profit. Finance and insurance revenue and gross
profit PVR benefited from higher realized margins on vehicle service contracts, including our AutoNation Vehicle
Protection Plan product, and an increase in product penetration.
Import segment income increased during 2018, as compared to 2017, primarily due to a decrease in SG&A expenses
due to the divestitures we completed in 2017 and 2018, as well as an increase in finance and insurance revenue and gross
profit discussed above. Increases in Import segment income were partially offset by a decrease in new vehicle gross profit
PVR and new vehicle unit volume resulting from competitive market conditions, including disruptive manufacturer
marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles, and an increase in
floorplan interest expense.
2017 compared to 2016
Import revenue decreased during 2017, as compared to 2016, primarily due to decreases in retail used vehicle revenue
and parts and service revenue, largely due to the divestitures we completed in 2017, as well as a decrease in wholesale unit
volume and a realignment of stand-alone collision centers. Manufacturer safety recalls adversely impacted retail used
vehicle unit volume and benefited wholesale unit volume in 2016. These decreases were partially offset by increases in
new and used vehicle unit volume and new vehicle revenue PVR.
Import segment income increased during 2017, as compared to 2016, primarily due to an increase in finance and
insurance gross profit, which benefited from higher vehicle unit volume and an increase in finance and insurance gross
profit PVR, and an increase in wholesale used vehicle gross profit, which was adversely impacted by higher losses incurred
per unit wholesaled in 2016 as a result of manufacturer safety recalls. Import segment income also benefited from a
decrease in SG&A expenses due to the divestitures we completed in 2017. Increases in Import segment income were
partially offset by a decrease in gross profit resulting from the divestitures we completed in 2017, as well as an increase in
floorplan interest expense. Import segment income was also adversely impacted by a decrease in new vehicle gross profit
PVR due to a competitive sales environment and a decrease in used vehicle gross profit PVR due to implementation
challenges we experienced in the first half of 2017 with One Price, our centralized pricing and appraisal strategy.
39
Premium Luxury
The Premium Luxury segment operating results included the following:
Years Ended December 31,
2018
2017
Variance
Favorable /
(Unfavorable)
%
Variance
Variance
Favorable /
(Unfavorable)
%
Variance
2016
$
$
$
$
7,010.9
340.9
66,268
$
$
6,832.7
348.8
67,666
178.2
(7.9)
(1,398)
2.6
$
6,665.3
(2.3) $
(2.1)
350.2
68,750
$
$
167.4
(1.4)
(1,084)
2.5
(0.4)
(1.6)
($ in millions)
Revenue
Segment income
Retail new vehicle unit sales
2018 compared to 2017
Premium Luxury revenue increased during 2018, as compared to 2017, primarily due to acquisitions and new add-point
openings completed during 2017 and 2018, as well as an increase in used vehicle unit volume due in part to continued
acceptance of our One Price centralized pricing and appraisal strategy. These increases in Premium Luxury revenue were
partially offset by a decrease in new vehicle unit volume primarily due to overall competitive market conditions in a
plateauing new vehicle sales environment, including disruptive manufacturer marketing and sales incentive programs and
an increase in off-lease supply of late-model used vehicles.
Premium Luxury segment income decreased during 2018, as compared to 2017, primarily due to increases in SG&A and
floorplan interest expenses, due in part to the acquisitions and new add-point openings discussed above, and a decrease in
new vehicle gross profit resulting from competitive market conditions, including disruptive manufacturer marketing and
sales incentive programs and an increase in off-lease supply of late-model used vehicles. Decreases in Premium Luxury
segment income were partially offset by an increase in parts and service gross profit associated with customer-pay service
and warranty and an increase in finance and insurance revenue and gross profit. Finance and insurance revenue and gross
profit PVR benefited from higher realized margins on vehicle service contracts, as well as increases in product penetration.
Premium Luxury segment income also benefited from increases in used vehicle unit volume, noted above, and used vehicle
gross profit PVR. In the prior year, used vehicle gross profit PVR was adversely impacted by implementation challenges
with our One Price centralized pricing and appraisal strategy.
2017 compared to 2016
Premium Luxury revenue increased during 2017, as compared to 2016, primarily due to increases in retail used vehicle
revenue, parts and service revenue, and new vehicle revenue largely due to the acquisitions we completed in 2016. The
increases in Premium Luxury revenue were partially offset by a decrease in wholesale revenue and new vehicle unit
volume. Manufacturer safety recalls adversely impacted retail used vehicle unit volume and benefited wholesale unit
volume in 2016.
Premium Luxury segment income decreased slightly during 2017, as compared to 2016, primarily due to an increase in
SG&A, floorplan interest, and depreciation expenses, partially offset by an increase in total gross profit, all of which were
due in part to the acquisitions we completed in 2016. The decrease in Premium Luxury segment income was also due to a
decrease in new vehicle gross profit resulting from the decline in new vehicle unit volume. Decreases in Premium Luxury
segment income were partially offset by an increase in parts and service gross profit due to increases in gross profit
associated with customer-pay service and warranty.
40
Selling, General, and Administrative Expenses
Our SG&A expenses consist primarily of compensation, including store and corporate salaries, commissions, and
incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer advertising rebates), and
store and corporate overhead expenses, which include occupancy costs, legal, accounting, and professional services, and
general corporate expenses. The following table presents the major components of our SG&A.
Years Ended December 31,
2018
2017
Variance
Favorable /
(Unfavorable)
%
Variance
Variance
Favorable /
(Unfavorable)
%
Variance
2016
($ in millions)
Reported:
Compensation
Advertising
Store and corporate overhead
$
1,567.8
$
1,540.6
$
197.8
744.2
192.8
702.8
(27.2)
(5.0)
(41.4)
(73.6)
(1.8) $
1,467.5
$
(2.6)
(5.9)
196.7
685.2
(3.0) $
2,349.4
$
(73.1)
3.9
(17.6)
(86.8)
(5.0)
2.0
(2.6)
(3.7)
Total
$
2,509.8
$
2,436.2
$
SG&A as a % of total gross
profit:
Compensation
Advertising
Store and corporate overhead
Total
2018 compared to 2017
46.2
5.8
21.9
73.9
45.9
5.7
20.9
72.5
(30) bps
(10) bps
(100) bps
(140) bps
44.3
5.9
20.7
70.9
(160) bps
20
bps
(20) bps
(160) bps
SG&A expenses increased in 2018, as compared to 2017, primarily due to increases in expenses related to our brand
extension strategy, as well as restructuring expenses recognized during the fourth quarter of 2018 in connection with our
restructuring and cost savings plan announced in January 2019. Additionally, store and corporate overhead expenses
increased due to increases in costs associated with our self-insurance programs, including less favorable claims experience
and higher premiums, deductibles, and hail-related losses. Increases in SG&A expenses were partially offset by decreases
due to divestitures. As a percentage of total gross profit, SG&A expenses increased to 73.9% in 2018 from 72.5% in 2017,
primarily due to lower gross profit in our new vehicle business and investments related to our brand extension strategy.
2017 compared to 2016
SG&A expenses increased in 2017, as compared to 2016, primarily due to increases in compensation expense and store
and corporate overhead expenses. Compensation expense increased due in part to acquisitions, as well as other increases in
headcount, merit adjustments, and changes in certain vehicle sales associate compensation plans. Store and corporate
overhead expenses increased primarily due to our brand extension strategy and acquisitions. As a percentage of total gross
profit, SG&A expenses increased to 72.5% in 2017 from 70.9% in 2016, primarily due to lower gross profit in our new and
used vehicle businesses and investments related to our brand extension strategy.
Other Income, Net (included in Operating Income)
During 2018, we recognized net gains of $57.6 million primarily related to store/property divestitures and gains of
$11.5 million related to certain legal settlements. These gains were partially offset by non-cash asset impairments of $3.2
million.
During 2017, we recognized net gains of $68.1 million primarily related to store/property divestitures and a gain of
$10.9 million in connection with payments we received from manufacturers related to a legal settlement and for the waiver
of certain franchise protest rights.
During 2016, we recognized net gains of $61.8 million related to store divestitures, a gain of $14.4 million in
connection with a legal settlement related to the Volkswagen diesel emissions litigation, and a gain of $5.5 million related
41
to payments we received to waive certain franchise protest rights. These net gains were partially offset by non-cash
property impairments of $14.0 million.
We expect business divestitures to decrease in 2019 as compared to recent years.
Franchise Rights Impairment
During 2018, we recorded non-cash impairment charges of $8.1 million to reduce the carrying values of certain
franchise rights to their estimated fair values. See Note 17 of the Notes to Consolidated Financial Statements for more
information.
Non-Operating Income (Expenses)
Floorplan Interest Expense
Floorplan interest expense was $130.4 million in 2018, $97.0 million in 2017, and $76.5 million in 2016. The increase
in floorplan interest expense of $33.4 million in 2018, as compared to 2017, is primarily due to higher average interest
rates. Floorplan interest rates are variable and therefore increase and decrease with changes in the underlying benchmark
interest rates. The increase in floorplan interest expense of $20.5 million in 2017, as compared to 2016, is the result of
higher average interest rates, partially offset by lower average vehicle floorplan balances during 2017.
Other Interest Expense
Other interest expense was $119.4 million in 2018, $120.2 million in 2017, and $115.5 million in 2016. The decrease in
interest expense of $0.8 million in 2018, as compared to 2017, was primarily due to lower average debt balances and lower
average interest rates as we refinanced higher cost debt with lower-rate senior notes and commercial paper. Interest
expense decreased by $27.2 million resulting from the repayments of the 6.75% Senior Notes due 2018 in the second
quarter of 2018 and the mortgage facility in the fourth quarter of 2017. Decreases in interest expense were largely offset by
an increase of $24.1 million resulting from the November 2017 issuance of our 3.5% Senior Notes due 2024 and 3.8%
Senior Notes due 2027, and $4.9 million resulting from higher year-over-year average interest rates on our commercial
paper borrowings. The weighted average annual interest rate on our commercial paper borrowings during 2018 was 2.61%
compared to 1.60% during 2017. The increase in interest expense of $4.7 million in 2017, as compared to 2016, was
primarily due to an increase in interest expense of $3.4 million resulting from the November 2017 issuance of our 3.5%
Senior Notes due 2024 and 3.85% Senior Notes due 2027, as well as higher average interest rates, an increase in capital
leases due to acquisitions, and a loss on debt extinguishment of $0.4 million resulting from our credit facility debt
refinancing in October 2017. These increases were partially offset by a decrease in interest expense of $2.5 million
resulting from the repayment of our mortgage facility in the fourth quarter of 2017.
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 discrete 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 38.5% in 2016. On December 22, 2017, H.R.1, formally known as the “Tax Cuts and
Jobs Act,” was enacted into law. This new tax legislation, among other things, reduced the U.S. federal corporate income
tax rate from 35% to 21%, effective January 1, 2018. Our effective income tax rate of 31.7% in 2017 included a favorable
adjustment to our deferred tax liability as a result of the U.S. tax reform bill. During 2018, we completed our accounting
for the tax effects of enactment of the Act by refining our calculations in preparation of our federal and state tax returns.
Accordingly, we recorded an incremental $5.0 million benefit related to the legislation resulting in an impact of 0.9
percentage points on the effective income tax rate for full year 2018. Our effective income tax rate was 25.2% in 2018.
Discontinued Operations
Discontinued operations are related to stores that were sold or terminated prior to January 1, 2014. Results from
discontinued operations, net of income taxes, were primarily related to carrying costs for real estate we have not yet sold
associated with stores that were closed prior to January 1, 2014, and other adjustments related to disposed operations.
42
Liquidity and Capital Resources
We manage our liquidity to ensure access to sufficient funding at acceptable costs to fund our ongoing operating
requirements and future capital expenditures while continuing to meet our financial obligations. We believe that our cash
and cash equivalents, funds generated through future operations, and amounts available under our revolving credit facility,
commercial paper program, and secured used vehicle floorplan facilities will be sufficient to fund our working capital
requirements, service our debt, pay our tax obligations and commitments and contingencies, and meet any seasonal
operating requirements for the foreseeable future.
Available Liquidity Resources
We had the following sources of liquidity available for the years ended December 31, 2018 and 2017:
(In millions)
Cash and cash equivalents
Revolving credit facility(1)
Secured used floorplan facilities(3)
December 31,
2018
December 31,
2017
$
$
$
(2)
48.6
588.0
0.5
$
$
$
69.2
1,378.6
0.4
(1) As limited by the maximum consolidated leverage ratio in our credit agreement.
(2) At December 31, 2018, we had $41.8 million of letters of credit outstanding. In addition, we use the revolving
credit facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper
program. We had $630.0 million of commercial paper notes outstanding at December 31, 2018. See Note 8 of
the Notes to Consolidated Financial Statements for additional information.
(3) Based on the eligible used vehicle inventory that could have been pledged as collateral. See Note 5 of the Notes
to Consolidated Financial Statements for additional information.
In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash
deposits as financial guarantees of our performance relating to insurance matters. At December 31, 2018, surety bonds,
letters of credit, and cash deposits totaled $102.5 million, including the $41.8 million of letters of credit issued under our
revolving credit facility. We do not currently provide cash collateral for outstanding letters of credit.
Capital Allocation
Our capital allocation strategy is focused on maximizing stockholder returns. We invest capital in our business to
maintain and upgrade our existing facilities and to build new facilities, as well as for other strategic and technology
initiatives, including our brand extension strategy discussed above under “Strategic Initiatives.” We also deploy capital
opportunistically to repurchase our common stock and/or debt, to complete dealership, collision center, or other automotive
business-related acquisitions or investments, and/or build facilities for newly awarded franchises or newly opened collision
centers. 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 acquisitions that meet our market and vehicle brand criteria and return on
investment threshold, and limitations set forth in our debt agreements.
Share Repurchases
Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain
monetary limit. A summary of shares repurchased under our 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
2018
2017
2016
2.1
100.0
47.58
$
$
10.1
434.9
42.99
$
$
10.5
497.0
47.30
$
$
43
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
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, collision center, and other automotive business-related
acquisitions or investments, capital investments in our current businesses, or repurchases of our debt.
As of December 31, 2018, $263.7 million remained available under our stock repurchase limit most recently authorized
by our Board of Directors.
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)
2018
2017
2016
$
393.6
$
332.9
$
253.2
(1) Includes accrued construction in progress and excludes property associated with capital leases entered into during the
year.
Acquisitions and Divestitures
The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, cash
received from business divestitures, net of cash relinquished, and proceeds received from the sale of property and
equipment and the disposal of assets held for sale over the past three years:
(In millions)
Cash used in business acquisitions, net(1)
Cash received from business divestitures, net
Proceeds from the sale of property and equipment
Proceeds from the disposal of assets held for sale
(1) Excludes capital leases and deferred purchase price commitments.
2018
2017
2016
$
$
$
$
(67.2) $
$
173.2
28.0
21.1
$
$
(76.8) $
$
104.6
21.0
38.0
$
$
(410.4)
150.4
8.7
4.8
We purchased one Premium Luxury store in the Southern California market, a collision center in the Baltimore,
Maryland market, and a collision center in the Dallas, Texas market during 2018. We purchased seven collision centers and
one store in 2017 and 20 stores and one collision center in 2016.
During 2018, we divested eight Domestic stores, seven Import stores, two Premium Luxury stores, and one collision
center. In 2017, we divested two Domestic stores and four Import stores. In 2016, we divested five Domestic stores and
nine Import stores.
We regularly review our store portfolio and may divest stores opportunistically. We have utilized proceeds related to
asset sales, including business and real estate divestitures, to fund our capital investments and strategic initiatives or for
other general corporate purposes. We expect proceeds from business divestitures to decrease in 2019 as compared to recent
years.
44
Long-Term Debt
The following table sets forth our non-vehicle long-term debt as of December 31, 2018 and 2017:
Debt Description
6.75% Senior Notes
5.5% Senior Notes
3.35% Senior Notes
3.5% Senior Notes
4.5% Senior Notes
3.8% Senior Notes
Maturity Date
April 15, 2018
February 1, 2020
January 15, 2021
Interest Payable
April 15 and October 15
February 1 and August 1
January 15 and July 15
November 15, 2024
May 15 and November 15
October 1, 2025
April 1 and October 1
November 15, 2027
May 15 and November 15
Revolving credit facility
October 19, 2022
Monthly
Capital leases and other debt Various dates through 2038 Monthly
Less: unamortized debt discounts and debt issuance costs
Less: current maturities
Long-term debt, net of current maturities
(in millions)
2018
2017
$
— $
350.0
300.0
450.0
450.0
300.0
—
133.1
400.0
350.0
300.0
450.0
450.0
300.0
—
139.4
1,983.1
(12.6)
(44.3)
1,926.2
$
2,389.4
(15.7)
(414.5)
1,959.2
$
In April 2018, we repaid the outstanding $400.0 million of 6.75% Senior Notes through the utilization of our
commercial paper program.
At December 31, 2018, we had $630.0 million of commercial paper notes outstanding with a weighted-average annual
interest rate of 3.22% and a weighted-average remaining term of 21 days. At December 31, 2017, we had $330.0 million of
commercial paper notes outstanding with a weighted-average annual interest rate of 1.97% and a weighted-average
remaining term of 24 days.
A downgrade in our credit ratings could negatively impact the interest rate payable on our senior notes and could
negatively impact our ability to issue, or the interest rates for, commercial paper notes. Additionally, an increase in our
leverage ratio could negatively impact the interest rates charged for borrowings under our revolving credit facility.
See Note 8 of the Notes to Consolidated Financial Statements for more information on our long-term debt and
commercial paper.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, and our vehicle floorplan facilities 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 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. The specific terms of these covenants can be found in our credit agreement, which we filed with
our Current Report on Form 8-K on October 24, 2017.
The indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale
and leaseback transactions.
Our failure to comply with the covenants contained in our debt agreements could result in the acceleration of all of our
indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default
under other material indebtedness of AutoNation.
45
As of December 31, 2018, we were in compliance with the requirements of the financial covenants under our debt
agreements. Under the terms of our credit agreement, at December 31, 2018, our leverage ratio and capitalization ratio
were as follows:
Leverage ratio
Capitalization ratio
Vehicle Floorplan Payable
The components of vehicle floorplan payable are as follows:
(In millions)
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade
Vehicle floorplan payable
December 31, 2018
Requirement
Actual
3.06x
60.6%
2018
2017
$
$
2,388.0
1,609.7
3,997.7
$
$
2,179.1
1,627.8
3,806.9
See Note 5 of the Notes to Consolidated Financial Statements for more information on our vehicle floorplan payable.
Cash Flows
The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing
activities:
(In millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Cash Flows from Operating Activities
Years Ended December 31,
2017
2016
2018
$
$
$
511.0
$
(295.3) $
(237.4) $
540.1
$
(227.0) $
(307.4) $
516.0
(493.0)
(35.6)
Our primary sources of operating cash flows result from the sale of vehicles and finance and insurance products,
collections from customers for the sale of parts and services, and proceeds from vehicle floorplan payable-trade. Our
primary uses of cash from operating activities are repayments of vehicle floorplan payable-trade, purchases of inventory,
personnel-related expenditures, and payments related to taxes and leased properties.
2018 compared to 2017
Net cash provided by operating activities decreased during 2018, as compared to 2017, primarily due to an increase in
working capital requirements, partially offset by an increase in earnings.
2017 compared to 2016
Net cash provided by operating activities increased during 2017, as compared to 2016, primarily due to a decrease in
working capital requirements, partially offset by a decrease in earnings.
Cash Flows from Investing Activities
Net cash flows from investing activities consist primarily of cash used in capital additions and activity from business
acquisitions, business divestitures, property dispositions, 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.
46
2018 compared to 2017
Net cash used in investing activities increased during 2018, as compared to 2017, primarily due to an increase in
purchases of property and equipment, an investment in an equity security during 2018, and a decrease in proceeds from the
disposal of assets held for sale, partially offset by an increase in cash received from business divestitures, net of cash
relinquished.
2017 compared to 2016
Net cash used in investing activities decreased during 2017, as compared to 2016, primarily due to a decrease in cash
used in business acquisitions, net of cash acquired, and increases in proceeds from the disposal of assets held for sale and
the sale of property and equipment, partially offset by an increase in purchases of property and equipment and 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 proceeds from stock option exercises.
2018 compared to 2017
Net cash flows from financing activities during 2018, as compared to 2017, were impacted by the repayment of the
outstanding $400.0 million of 6.75% Senior Notes in 2018 and the debt activity that occurred in 2017. During 2017, we
amended and restated our existing unsecured credit agreement, and we also issued $450.0 million aggregate principal
amount of 3.5% Senior Notes due 2024 and $300.0 million aggregate principal amount of 3.8% Senior Notes due 2027.
Cash flows from financing activities in 2017 reflect cash payments of $13.5 million for debt issuance costs for these
transactions that are being amortized to interest expense over the terms of the related debt arrangements. During 2017, we
also repaid our mortgage facility. Our mortgage facility required monthly principal and interest payments of $1.6 million
based on a fixed amortization schedule with a balloon payment of $143.9 million, which was paid in the fourth quarter of
2017.
Cash flows from financing activities include changes in commercial paper notes outstanding totaling net proceeds of
$300.0 million during 2018 and net repayments of $612.0 million during 2017, as well as changes in vehicle floorplan
payable-non-trade totaling net repayments of $34.2 million during 2018 compared to net proceeds of $130.2 million in
2017.
During 2018, we repurchased 2.1 million shares of common stock for an aggregate purchase price of $100.0 million
(average purchase price per share of $47.58). During 2017, we repurchased 10.1 million shares of our common stock for an
aggregate purchase price of $434.9 million (average purchase price per share of $42.99).
During 2018, we had no borrowings or repayments under our revolving credit facility. During 2017, we borrowed $1.3
billion and repaid $1.3 billion under our revolving credit facility.
2017 compared to 2016
Net cash flows from financing activities during 2017, as compared to 2016, were impacted primarily by the debt activity
that occurred in 2017, described above, a decrease in commercial paper borrowings, a decrease in repurchases of common
stock, and an increase in proceeds from the exercise of stock options.
47
Contractual Payment Obligations
The following table summarizes our payment obligations under certain contracts at December 31, 2018. The amounts
presented are based upon, among other things, the terms of any relevant agreements. Future events that may occur related
to the following payment obligations could cause actual payments to differ significantly from these amounts.
(In millions)
Vehicle floorplan payable (Note 5)(1)
Long-term debt, including capital leases (Note 8)(1)(2)
Commercial paper (Note 8)(1)
Interest payments(3)
Operating lease and other commitments (Note 18)(1)(4)
Unrecognized tax benefits, net (Note 11)(1)
Deferred compensation obligations(5)
Estimated chargeback liability (Note 9)(1)(6)
Estimated self-insurance obligations (Note 10)(1)(7)
Purchase obligations(8)
Payments Due by Period
Less Than 1
Year
(2019)
1 - 3 Years
(2020 and
2021)
3 - 5 Years
(2022 and
2023)
Total
More Than
5
Years
(2024 and
thereafter)
$
3,997.7
$
3,997.7
$
— $
— $
1,983.1
630.0
462.5
495.4
8.5
78.8
128.1
77.3
218.1
44.3
630.0
84.6
61.2
—
4.2
72.0
29.9
156.3
659.5
—
132.2
97.1
1.9
—
50.1
26.5
46.5
9.4
—
106.3
78.7
6.6
—
5.8
10.7
15.3
—
1,269.9
—
139.4
258.4
—
74.6
0.2
10.2
—
Total
$
8,079.5
$
5,080.2
$
1,013.8
$
232.8
$
1,752.7
(1) See Notes to Consolidated Financial Statements.
(2) Amounts for long-term debt obligations reflect principal payments and are not reduced for unamortized debt
discounts of $1.8 million or debt issuance costs of $10.8 million.
(3) Primarily represents scheduled fixed interest payments on our outstanding senior unsecured notes and capital leases.
Estimates of future interest payments for vehicle floorplan payables and commercial paper are excluded due to the
short-term nature of these facilities.
(4) Amounts for operating lease commitments do not include certain operating expenses such as maintenance, insurance,
and real estate taxes. In 2018, these charges totaled approximately $21 million. Additionally, operating leases that are
on a month-to-month basis are not included.
(5) 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.
(6) Our estimated chargeback obligations do not have scheduled maturities, however, the timing of future payments is
estimated based on historical patterns.
(7) Our estimated self-insurance obligations 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.
(8) Primarily represents purchase orders and contracts in connection with information technology and communication
systems and real estate construction projects.
We expect that the amounts above will be funded through cash flows from operations or borrowings under our
commercial paper program or credit agreement. In the case of payments due upon the maturity of our debt instruments, we
currently expect to be able to refinance such instruments in the normal course of business.
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, 2018, surety bonds, letters of credit, and cash
deposits totaled $102.5 million, of which $41.8 million were 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
48
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, 2018, 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 without limitation
statements regarding our brand extension strategy, strategic initiatives, partnerships, or investments, the impact of tax
reform in the United States on our financial results, pending or planned acquisitions, expected future investments in our
business, and our expectations for the future performance of our business (including with respect to sales of used vehicles
and parts and accessories) and the automotive retail industry, as well as other written or oral statements made from time to
time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives,
plans or goals are, or may be deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “intend,”
“goal,” “plan,” “believe,” “continue,” “may,” “will,” “could,” and variations of such words and similar expressions are
intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations
concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are
difficult to predict and may cause our actual results, performance, or achievements to be materially different from any
future results, performance, or achievements expressed or implied by these statements. These forward-looking statements
speak only as of the date of this report, 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, but are not limited to, the following:
•
The automotive retail industry is sensitive to changing economic conditions and various other factors, including
fuel prices, interest rates, and tariffs. Our business and results of operations are substantially dependent on vehicle
sales levels in the United States and in our particular geographic markets, as well as the gross profit margins that
we can achieve on our sales of vehicles, all of which are very difficult to predict.
•
Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers.
• We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors
with which we hold franchises.
• We are investing significantly in our brand extension strategy, and if our strategic initiatives are not successful, we
will have incurred significant expenses without the benefit of improved financial results.
•
•
If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own
digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and
financial results may be harmed.
New laws, regulations, or governmental policies regarding fuel economy and greenhouse gas emission standards,
or changes to existing standards, may affect vehicle manufacturers’ ability to produce cost-effective vehicles or
vehicles that consumers demand, which could adversely impact our business, results of operations, financial
condition, cash flow, and prospects.
•
Natural disasters and adverse weather events can disrupt our business.
49
• We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may
adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our
ability to acquire additional stores.
• We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could
materially adversely affect our business, results of operations, financial condition, cash flows, and prospects.
•
•
•
Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported
violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are
enacted that adversely affect our operations, our business, operating results, and prospects could suffer.
A failure of our information systems or any security breach or unauthorized disclosure of confidential information
could have a material adverse effect on our business.
Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business,
and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from
fulfilling our debt service obligations.
• We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, and
commercial paper program that could have a material adverse effect on our profitability.
•
•
Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill
and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down
of goodwill or franchise rights and could have a material adverse impact on our results of operations and
shareholders’ equity.
Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial
influence over actions to be taken or approved by our stockholders. In addition, future share repurchases and
fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity,
and market price of our common stock.
Additional Information
Investors and others should note that we announce material financial information using our company website
(www.autonation.com), our investor relations website (investors.autonation.com), SEC filings, press releases, public
conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be
announced by posts on the following social media channels:
• AutoNation’s Twitter feed (www.twitter.com/autonation)
• Mike Jackson’s Twitter feed (www.twitter.com/CEOMikeJackson)
• AutoNation’s Facebook page (www.facebook.com/autonation)
• Mike Jackson’s Facebook page (www.facebook.com/CEOMikeJackson)
The information that we post on these social media channels could be deemed to be material information. As a result,
we encourage investors, the media, and others interested in AutoNation to review the information that we post on these
social media channels. These channels may be updated from time to time on AutoNation’s investor relations website. The
information on or accessible through our websites and social media channels is not incorporated by reference in this
Annual Report on Form 10-K.
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.
50
We had $4.0 billion of variable rate vehicle floorplan payable at December 31, 2018, and $3.8 billion at December 31,
2017. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change of
$40.0 million in 2018 and $38.1 million in 2017 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 $630.0 million of commercial paper notes outstanding at December 31, 2018, and $330.0 million at
December 31, 2017. Based on the amounts outstanding, a 100 basis point change in interest rates would result in an
approximate change to our annual interest expense of $6.3 million in 2018 and $3.3 million in 2017.
Our fixed rate long-term debt, consisting of amounts outstanding under senior unsecured notes and capital lease and
other debt obligations, totaled $2.0 billion and had a fair value of $1.9 billion as of December 31, 2018, and totaled $2.4
billion and had a fair value of $2.4 billion as of December 31, 2017.
51
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, 2018 and 2017
Consolidated Statements of Income for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Selected Quarterly Financial Information (Unaudited)
Page
53
55
56
57
58
60
95
52
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
AutoNation, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AutoNation, Inc. and subsidiaries (the “Company”) as of
December 31, 2018 and 2017, the related consolidated statements of income, shareholders’ equity, and cash flows for each
of the years in the three year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years
in the three year period ended December 31, 2018, 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)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on the criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 22, 2019 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for
revenues and related costs for the year ended December 31, 2018 due to the adoption of Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers (Topic 606), effective January 1, 2018
Basis for Opinion
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 are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
We have served as the Company’s auditor since 2003.
/s/ KPMG LLP
Fort Lauderdale, Florida
February 22, 2019
53
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
AutoNation, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited AutoNation, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December
31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control
- Integrated Framework (2013) 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)
(“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2018, and the related notes (collectively, the “consolidated financial statements”), and our report dated February 22, 2019
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Fort Lauderdale, Florida
February 22, 2019
/s/ KPMG LLP
54
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(In millions, except share and per share data)
ASSETS
2018
2017
CURRENT ASSETS:
Cash and cash equivalents
Receivables, net
Inventory
Other current assets
Total Current Assets
PROPERTY AND EQUIPMENT, NET
GOODWILL
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
Commercial paper
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 18)
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;
102,562,149 shares issued at December 31, 2018, and December 31, 2017,
including shares held in treasury
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 12,540,065 and 11,002,298 shares held, respectively
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$
$
$
$
$
$
$
48.6
976.2
3,650.5
208.7
4,884.0
3,155.3
1,513.2
595.4
517.2
10,665.1
2,388.0
1,609.7
306.2
630.0
44.3
679.9
5,658.1
1,926.2
89.8
275.0
69.2
1,111.0
3,365.6
251.7
4,797.5
2,962.7
1,515.0
586.8
409.5
10,271.5
2,179.1
1,627.8
309.8
330.0
414.5
774.5
5,635.7
1,959.2
71.9
235.4
—
—
1.0
20.8
3,238.3
(544.1)
2,716.0
10,665.1
$
1.0
4.0
2,832.2
(467.9)
2,369.3
10,271.5
See accompanying Notes to Consolidated Financial Statements.
55
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(In millions, except per share data)
2018
2017
2016
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 (excluding depreciation shown below)
Gross Profit:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
TOTAL GROSS PROFIT
Selling, general, and administrative expenses
Depreciation and amortization
Franchise rights impairment
Other income, net
OPERATING INCOME
Non-operating income (expense) items:
Floorplan interest expense
Other interest expense
Interest income
Other income, net
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income tax provision
NET INCOME FROM CONTINUING OPERATIONS
Income (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, at period end
$
$
$
$
$
$
$
$
11,751.6
5,123.3
3,447.6
981.4
108.9
21,412.8
11,235.5
4,781.6
1,892.3
106.1
18,015.5
516.1
341.7
1,555.3
981.4
2.8
3,397.3
2,509.8
166.2
8.1
(64.7)
777.9
(130.4)
(119.4)
1.1
0.2
529.4
133.5
395.9
0.1
396.0
$
$
12,180.8
4,878.4
3,398.3
939.2
137.9
21,534.6
11,592.4
4,563.2
1,907.6
112.4
18,175.6
588.4
315.2
1,490.7
939.2
25.5
3,359.0
2,436.2
158.6
—
(79.2)
843.4
(97.0)
(120.2)
1.0
9.3
636.5
201.5
435.0
(0.4)
434.6
$
$
4.36
$
— $
$
4.36
90.9
4.34
$
— $
$
4.34
91.3
90.0
4.45
$
— $
$
4.44
97.8
4.43
$
— $
$
4.43
98.2
91.6
12,255.8
4,995.3
3,321.4
894.6
141.9
21,609.0
11,620.0
4,677.7
1,886.7
111.4
18,295.8
635.8
317.6
1,434.7
894.6
30.5
3,313.2
2,349.4
143.4
—
(69.1)
889.5
(76.5)
(115.5)
1.1
3.7
702.3
270.6
431.7
(1.2)
430.5
4.19
(0.01)
4.18
103.1
4.16
(0.01)
4.15
103.8
100.7
See accompanying Notes to Consolidated Financial Statements.
56
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2018, 2017, and 2016
(In millions, except share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Total
BALANCE AT DECEMBER 31, 2015
120,562,149
$
1.2
$
5.2
$
2,702.8
$
(359.9) $
2,349.3
Net income
Repurchases of common stock
Stock-based compensation expense
Shares awarded under stock-based compensation
plans, net of shares withheld for taxes, including
excess income tax benefit of $0.6
Other
—
—
—
—
—
—
—
—
—
—
—
—
25.1
(7.5)
(4.6)
430.5
—
—
—
—
—
(497.0)
—
14.5
—
430.5
(497.0)
25.1
7.0
(4.6)
BALANCE AT DECEMBER 31, 2016
120,562,149
$
1.2
$
18.2
$
3,133.3
$
(842.4) $
2,310.3
Net income
Repurchases of common stock
Treasury stock cancellation
Stock-based compensation expense
Shares awarded under stock-based compensation
plans, net of shares withheld for taxes
Other
—
—
(18,000,000)
—
—
—
—
—
(0.2)
—
—
—
BALANCE AT DECEMBER 31, 2017
102,562,149
$
1.0
$
Net income
Repurchases of common stock
Stock-based compensation expense
Shares awarded under stock-based compensation
plans, net of shares withheld for taxes
Cumulative effect of change in accounting principle
- revenue recognition
—
—
—
—
—
BALANCE AT DECEMBER 31, 2018
102,562,149
$
—
—
—
—
—
1.0
—
—
(30.2)
20.6
(4.8)
0.2
4.0
—
—
25.5
(8.7)
—
434.6
—
(735.6)
—
—
(0.1)
—
(434.9)
766.0
—
43.4
—
434.6
(434.9)
—
20.6
38.6
0.1
$
2,832.2
$
(467.9) $
2,369.3
396.0
—
—
—
10.1
—
(100.0)
—
23.8
—
396.0
(100.0)
25.5
15.1
10.1
$
20.8
$
3,238.3
$
(544.1) $
2,716.0
See accompanying Notes to Consolidated Financial Statements.
57
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:
(Income) loss from discontinued operations
Depreciation and amortization
Amortization of debt issuance costs and accretion of debt discounts
Stock-based compensation expense
Deferred income tax provision (benefit)
Net gain on asset sales and dispositions
Franchise rights impairment
Non-cash impairment charges
Excess tax benefit from stock-based awards
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 (used in) 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
Cash received from business divestitures, net of cash relinquished
Investment in equity security
Other
Net cash used in continuing operations
Net cash used in discontinued operations
Net cash used in investing activities
2018
2017
2016
$
396.0
$
434.6
$
430.5
(0.1)
166.2
5.4
25.5
14.5
(57.6)
8.1
3.2
—
0.8
133.7
(319.5)
(107.9)
242.4
1.7
(2.0)
510.4
0.6
511.0
(387.0)
(13.8)
28.0
21.1
1.1
(67.2)
173.2
(50.0)
(0.7)
(295.3)
—
(295.3)
0.4
158.6
5.6
20.6
(19.0)
(95.4)
—
26.4
—
(7.3)
(61.6)
39.3
(37.0)
(64.4)
0.5
139.1
540.4
(0.3)
540.1
(310.1)
(3.3)
21.0
38.0
1.7
(76.8)
104.6
—
(2.1)
(227.0)
—
(227.0)
1.2
143.4
5.4
25.1
3.7
(62.6)
—
14.0
(0.6)
(10.6)
(99.3)
259.1
(33.6)
(196.4)
(5.8)
43.8
517.3
(1.3)
516.0
(244.5)
(5.0)
8.7
4.8
3.1
(410.4)
150.4
—
(0.1)
(493.0)
—
(493.0)
See accompanying Notes to Consolidated Financial Statements.
58
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
(Continued)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
2018
2017
2016
Repurchases of common stock
Payment of 6.75% Senior Notes due 2018
Proceeds from 3.5% Senior Notes due 2024
Proceeds from 3.8% Senior Notes due 2027
Proceeds from revolving credit facilities
Payments of revolving credit facilities
Net proceeds from (payments of) commercial paper
Payment of debt issuance costs
Net proceeds from (payments of) vehicle floorplan payable - non-
trade
Purchase of subsidiary shares
Payments of mortgage facilities
Payments of capital lease and other debt obligations
Proceeds from the exercise of stock options
Payments of tax withholdings for stock-based awards
Excess tax benefit from stock-based awards
Other
Net cash used in continuing operations
Net cash used in discontinued operations
Net cash used in financing activities
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at
beginning of year
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH at end of
year
(100.0)
(400.0)
—
—
—
—
300.0
—
(34.2)
—
—
(15.8)
17.8
(2.7)
—
(2.5)
(237.4)
—
(237.4)
(21.7)
71.1
(434.9)
—
449.4
299.8
1,307.0
(1,307.0)
(612.0)
(13.5)
130.2
—
(153.2)
(11.8)
39.7
(1.1)
—
—
(307.4)
—
(307.4)
5.7
65.4
$
49.4
$
71.1
$
(497.0)
—
—
—
1,330.0
(1,330.0)
342.5
—
153.8
(15.2)
(22.5)
(4.2)
8.4
(2.0)
0.6
—
(35.6)
—
(35.6)
(12.6)
78.0
65.4
See accompanying Notes to Consolidated Financial Statements.
59
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,
2018, we owned and operated 326 new vehicle franchises from 239 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. Our stores sell 33 different new vehicle brands. The core brands of new
vehicles that we sell, representing approximately 92% of the new vehicles that we sold in 2018, are manufactured by
Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen
(including Audi and Porsche). As of December 31, 2018, we also owned and operated 85 AutoNation-branded collision
centers, and together with our vehicle dealerships, our AutoNation USA stores, and our automotive auctions, we owned and
operated over 325 locations coast to coast.
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and
service” (also referred to as “Customer Care”), which includes automotive repair and maintenance services as well as
wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer
Financial Services”), which include vehicle service and other protection products, as well as the arranging of financing for
vehicle purchases through third-party finance sources. For convenience, the terms “AutoNation,” “Company,” and “we”
are used to refer collectively to AutoNation, Inc. and its subsidiaries, unless otherwise required by the context. Our
dealership operations are conducted by our subsidiaries.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries. All
of our automotive dealership subsidiaries are indirectly wholly owned by the parent company, AutoNation, Inc.
Intercompany accounts and transactions have been eliminated in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. In preparing these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements. We base our estimates and judgments on historical experience and
other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise
of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from
these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and
make changes on a prospective basis when adjustments are necessary. The critical accounting estimates made in the
accompanying Consolidated Financial Statements include certain assumptions related to goodwill, other intangible assets,
and accruals for chargebacks against revenue recognized from the sale of finance and insurance products. Other significant
accounting estimates include certain assumptions related to long-lived assets, assets held for sale, accruals related to self-
insurance programs, certain legal proceedings, and estimated tax liabilities.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less as of the date of purchase to be cash
equivalents unless the investments are legally or contractually restricted for more than three months. Under our cash
management system, outstanding checks that are in excess of the cash balances at certain banks are included in Accounts
Payable in the Consolidated Balance Sheets and changes in these amounts are reflected in operating cash flows in the
accompanying Consolidated Statements of Cash Flows.
60
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Inventory
Inventory consists primarily of new and used vehicles held for sale, valued at the lower of cost or net realizable value
using the specific identification method. Cost includes acquisition, reconditioning, dealer installed accessories, and
transportation expenses. Our new vehicle inventory costs are generally reduced by manufacturer holdbacks (percentage of
either the manufacturer’s suggested retail price or invoice price of a new vehicle that the manufacturer repays to the
dealer), incentives, floorplan assistance, and non-reimbursement-based manufacturer advertising assistance. Parts,
accessories, and other inventory are valued at the lower of acquisition cost or net realizable value. See Note 5 of the Notes
to Consolidated Financial Statements for more detailed information about our inventory.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and
improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In
addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest
is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting
certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in
current and/or long-term debt based on the lease term. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in Other Income, Net
(within Operating Income) in the Consolidated Statements of Income. See Note 6 of the Notes to Consolidated Financial
Statements for detailed information about our property and equipment.
Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold
improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset
or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful
lives is as follows:
Buildings and improvements
Furniture, fixtures, and equipment
5 to 40 years
3 to 10 years
We continually evaluate property and equipment, including leasehold improvements, to determine whether events or
changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the remaining
balance should be evaluated for possible impairment. Such events or changes may include a significant decrease in market
value, a significant change in the business climate in a particular market, a current expectation that more-likely-than-not a
long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, or
a current-period operating or cash flow loss combined with historical losses or projected future losses. We use an estimate
of the related undiscounted cash flows over the remaining life of the asset (asset group) in assessing whether an asset (asset
group) has been impaired. We measure impairment losses based upon the amount by which the carrying amount of the
asset (asset group) exceeds the fair value.
When property and equipment is identified as held for sale, we reclassify the held for sale assets to Other Current Assets
and cease recording depreciation. 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. 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 recognize an impairment loss if the
amount of the asset’s or disposal group’s carrying amount exceeds the asset’s or disposal group’s estimated fair value less
cost to sell. If we recognize an impairment loss, the adjusted carrying amount of the asset or disposal 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.
61
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 $67.8 million at December 31, 2018, and $169.1 million at December 31, 2017, included
in continuing operations. We had assets held for sale of $14.1 million at December 31, 2018, and $14.4 million at
December 31, 2017, included in discontinued operations.
See Note 17 of the Notes to Consolidated Financial Statements for information about our fair value measurement
valuation process and impairment charges that were recorded during 2018 and 2017.
Goodwill and Other Intangible Assets, net
Goodwill consists of the cost of acquired businesses in excess of the fair value of the net assets acquired. Additionally,
other intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or
other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of our intent
to do so.
Our principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We
generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have
indefinite terms, anticipate routine renewals of the agreements without substantial cost. The contractual terms of our
franchise agreements provide for various durations, ranging from one year to no expiration date, and in certain cases,
manufacturers have undertaken to renew such franchises upon expiration so long as the dealership is in compliance with
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 thirty years.
We do not amortize goodwill or franchise rights assets. Goodwill and franchise rights are tested for impairment annually
or more frequently when events or changes in circumstances indicate that impairment may have occurred. Under generally
accepted accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment as
of April 30, 2018, and determined that it was not more likely than not that the fair values of our reporting units were less
than their carrying amounts. We elected to perform a quantitative goodwill impairment test as of April 30, 2017, and no
goodwill impairment charges resulted from the impairment test.
We chose to perform quantitative franchise rights impairment tests as of April 30, 2018, and $8.1 million of impairment
charges resulted from the impairment tests. We also elected to perform quantitative franchise rights impairment tests as of
April 30, 2017, and no impairment charges resulted from the impairment tests.
See Note 7 of the Notes to Consolidated Financial Statements for more information about our goodwill and other
intangible assets and Note 17 of the Notes to Consolidated Financial Statements for information about our annual
impairment tests of goodwill and franchise rights.
Other Current Assets
Other current assets consist of various items, including, among other items, assets held for sale in continuing operations
and discontinued operations, contract assets, and prepaid expenses.
62
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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,
an investment in an equity security, and contract assets.
Other Current Liabilities
Other current liabilities consist of various items payable within one year including, among other items, accruals for
payroll and benefits and sales taxes, the current portions of finance and insurance chargeback liabilities, contract liabilities,
deferred revenue, and self-insurance liabilities, customer deposits, accrued interest payable, liabilities held for sale (which
are comprised primarily of floorplan payables of disposal groups held for sale), income taxes payable, and accrued
expenses.
Other Liabilities
Other liabilities consist of various items payable beyond one year including, among other items, the long-term portions
of deferred compensation obligations, contract liabilities, finance and insurance chargeback liabilities, self-insurance
liabilities, and deferred revenue.
Employee Savings Plans
We offer a 401(k) plan to all of our employees and provide a matching contribution to certain employees that participate
in the plan. We provided a matching contribution of $14.1 million in 2018, $7.1 million in 2017, and $6.8 million in 2016.
Employer matching contributions are subject to a three-year graded vesting period for employees hired subsequent to
January 1, 2011, and are fully vested immediately upon contribution for employees hired prior to January 1, 2011.
We offer a deferred compensation plan (the “Plan”) to provide certain employees and non-employee directors with the
opportunity to accumulate assets for retirement on a tax-deferred basis. Participants in the Plan are allowed to defer a
portion of their compensation and are fully vested in their respective deferrals and earnings. Participants may choose from
a variety of investment options, which determine their earnings credits. We provided a matching contribution to employee
participants in the Plan of $1.5 million for 2018, $0.7 million for 2017, and $0.7 million for 2016. One-third of the
matching contribution is vested and credited to participants on the first business day of the subsequent calendar year, and
an additional one-third vests and is credited on each of the first and second anniversaries of such date. We may also make
discretionary contributions, which vest three years after the effective date of the discretionary contribution. Participants
eligible for a matching contribution under the Plan are not eligible for a matching contribution in our 401(k) plan. The
balances due to participants in the Plan were $78.8 million as of December 31, 2018, and $78.1 million as of December 31,
2017, and are included in Other Current Liabilities and Other Liabilities in the accompanying Consolidated Balance Sheets.
Stock-Based Compensation
In 2018 and 2017, we granted stock-based awards in the form of time-based and performance-based restricted stock
units (“RSUs”). In 2016, we granted stock-based awards in the form of stock options, restricted stock, and RSUs.
Restricted stock awards, which are considered nonvested share awards as defined under U.S. generally accepted accounting
principles, and RSUs are issued from our treasury stock. Compensation cost for restricted stock awards and RSUs is based
on the closing price of our common stock on the date of grant. Stock options granted under all plans are non-qualified.
Upon exercise of stock options, shares of common stock are issued from our treasury stock. We use the Black-Scholes
valuation model to determine compensation expense associated with our stock options.
Certain of our equity-based compensation plans contain provisions that provide for vesting of awards upon retirement.
Accordingly, compensation cost for time-based RSUs, restricted stock awards, and stock options is recognized on a
straight-line basis over the shorter of the stated vesting period or the period until employees become retirement-eligible.
Compensation cost for performance-based RSUs is recognized over the requisite service period based on the expected
achievement level of the performance goals, which is evaluated over the performance period. The amount of compensation
63
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
cost recognized on performance-based RSUs depends on the relative satisfaction of the performance condition based on
performance to date. We account for forfeitures of stock-based awards as they occur. See Note 13 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 for the
placement of finance and insurance products, and sales of other products. See Note 2 of the Notes to Consolidated
Financial Statements for a discussion of our significant accounting policies related to revenue recognition.
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 10 of the Notes to Consolidated Financial Statements for more information on our self-insurance liabilities.
Manufacturer Incentives and Other Rebates
We receive various incentives from manufacturers based on achieving certain objectives, such as specified sales volume
targets, as well as other objectives, including maintaining standards of a particular vehicle brand, which may include but
are not limited to facility image and design requirements, customer satisfaction survey results, and training standards,
among others. These incentives are typically based upon units purchased or sold. These manufacturer incentives are
recognized as a reduction of new vehicle cost of sales when earned, generally at the time the related vehicles are sold or
upon attainment of the particular program goals, whichever is later.
We also receive manufacturer rebates and assistance for holdbacks, floorplan interest, and non-reimbursement-based
advertising expenses (described below), which are reflected as a reduction in the carrying value of each vehicle purchased
by us. We recognize holdbacks, floorplan interest assistance, non-reimbursement-based advertising rebates, cash
incentives, and other rebates received from manufacturers that are tied to specific vehicles as a reduction to cost of sales as
the related vehicles are sold.
Advertising
We generally expense the cost of advertising as incurred, net of earned manufacturer reimbursements for specific
advertising costs and other discounts. Advertising expense, net of manufacturer advertising reimbursements, was
$197.8 million in 2018, $192.8 million in 2017, and $196.7 million in 2016, and is reflected as a component of Selling,
General, and Administrative Expenses in the accompanying Consolidated Statements of Income.
Manufacturer advertising rebates that are reimbursements of costs associated with specific advertising expenses are
earned in accordance with the respective manufacturers’ reimbursement-based advertising assistance programs, which is
typically after we have incurred the corresponding advertising expenses, and are reflected as a reduction of advertising
expense. Manufacturer advertising reimbursements classified as an offset to advertising expenses were $66.1 million in
2018, $65.0 million in 2017, and $58.5 million in 2016. All other non-reimbursement-based manufacturer advertising
rebates that are not associated with specific advertising expenses are recorded as a reduction of inventory and recognized as
a reduction of new vehicle cost of sales in the period the related vehicle is sold.
Parts and Service Internal Profit
Our parts and service departments recondition the majority of used vehicles acquired by our used vehicle departments
and perform minor preparatory work on new vehicles acquired by our new vehicle departments. The parts and service
64
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
departments charge the new and used vehicle departments as if they were third parties in order to account for total activity
performed by that department. Revenues and costs of sales associated with the internal work performed by our parts and
service departments are reflected in our parts and service results in our Consolidated Statements of Income. New and used
vehicle revenues and costs of sales are reduced by the amount of the intracompany charge. As a result, the revenues and
costs of sales associated with the internal work performed by our parts and service departments are eliminated in
consolidation. We also defer 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.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the period, including outstanding unvested restricted stock awards, which contain rights to non-
forfeitable dividends, and vested RSU awards. Diluted earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options and
unvested RSU awards. See Note 3 of the Notes to Consolidated Financial Statements for more information on the
computation of earnings (loss) per share.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard (ASC Topic 606)
that amends the accounting guidance on revenue recognition. The new accounting standard is intended to provide a more
robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve
disclosure requirements. Under the new standard, revenue is recognized when a customer obtains control of promised
goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in
exchange for those goods or services. The principles in the standard should be applied using a five-step model that includes
1) identifying the contract(s) with a customer, 2) identifying the performance obligations in the contract, 3) determining the
transaction price, 4) allocating the transaction price to the performance obligations in the contract, and 5) recognizing
revenue when (or as) the performance obligations are satisfied. The standard also requires disclosure of the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the standard amends
the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract
with a customer (for example, sales of real estate) to be consistent with the standard’s guidance on recognition and
measurement (including the constraint on revenue). The FASB also subsequently issued several amendments to the
standard, including clarification on principal versus agent guidance, identifying performance obligations, and immaterial
goods and services in a contract.
The new accounting standard update must be applied using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect
certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the
standard recognized at the date of adoption (which requires additional footnote disclosures).
The new accounting standard is effective for reporting periods beginning after December 15, 2017. We adopted the
accounting standard effective January 1, 2018, using the modified retrospective approach applied only to contracts not
completed as of the date of adoption, with no restatement of comparative periods. Therefore, the comparative information
has not been adjusted and continues to be reported under ASC Topic 605. We recognized a net after-tax cumulative effect
65
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
adjustment to retained earnings of $10.1 million as of the date of adoption. The details and quantitative impacts of the
significant changes are described below.
Finance and Insurance
We participate in future profit pursuant to retrospective commission arrangements with the issuers of certain finance
and insurance products, payment of which is contingent upon the annual performance of the portfolio of contracts. We
previously recognized this revenue by the amount that would be due at each reporting date based on the performance of the
portfolio at such date and recorded amounts due to us as receivables. Under ASC Topic 606, revenue associated with this
portion of the transaction price is accelerated as it is considered variable consideration for which we must estimate the
amount to which we will be entitled over the contract term, and amounts are reflected as a contract asset until the right to
such consideration becomes unconditional, at which time amounts due are reclassified to receivables. Additionally, we
previously deferred revenue by the net amount of consideration that we retained for the sale of a contract under our Vehicle
Care Program (“VCP”), a vehicle maintenance program that provides a specific number of maintenance services to be
redeemed at an AutoNation location over a five-year term. Under ASC Topic 606, we have determined that we act as the
principal in this arrangement since we have the primary responsibility to provide the specified services to the customer
under the VCP contract. Therefore, we defer the gross revenue on sales of VCP contracts and record such amounts as a
contract liability, and reflect the amount due from the third-party administrator for customer claims in Other Current Assets
and Other Assets.
Parts and Service
We previously recognized revenue for an automotive repair and maintenance service when the service was completed
and recorded amounts due to us as receivables. Under ASC Topic 606, performance obligations associated with automotive
repair and maintenance services are satisfied over time, which results in the acceleration of revenue recognition, and
amounts due to us are reflected as a contract asset until the right to such consideration becomes unconditional, at which
time amounts due to us are reclassified to receivables. Additionally, the timing of revenue recognition associated with
customer loyalty points offered for parts and services for select franchises in certain of our stores is now deferred. We
previously accrued the incremental cost of loyalty points awarded. Under the new standard, a customer loyalty program
that provides a customer with a material right is accounted for as a separate performance obligation with revenue
recognized when the loyalty points are redeemed.
Impacts on Consolidated Financial Statements
The following tables summarize the impacts to each financial statement line item affected by the adoption of ASC Topic
606 as of and for the twelve months ended December 31, 2018.
Consolidated Balance Sheet Line Items
Impact of changes in accounting policies
As reported
December 31, 2018
Balances
without
adoption of
ASC Topic 606
Receivables, net
Inventory
Other current assets
Other assets
Other current liabilities
Deferred income taxes
Other liabilities
Retained earnings
976.2
3,650.5
208.7
517.2
679.9
89.8
275.0
3,238.3
$
$
$
$
$
$
$
$
997.0
3,655.4
150.2
454.6
649.3
85.1
229.8
3,223.4
$
$
$
$
$
$
$
$
66
Impact of
adoption
Higher/(Lower)
(20.8)
(4.9)
58.5
$
$
$
$
$
$
$
$
62.6
30.6
4.7
45.2
14.9
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Consolidated Statement of Income Line Items
Impact of changes in accounting policies
Revenue:
Parts and service
Finance and insurance
Cost of sales:
Parts and service
Gross profit:
Parts and service
Finance and insurance
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
Income tax provision
NET INCOME FROM CONTINUING OPERATIONS
NET INCOME
Twelve Months Ended December 31, 2018
Balances
without
adoption of
ASC Topic 606
Impact of
adoption
Higher/(Lower)
As reported
$
$
$
$
$
$
$
$
$
3,447.6
981.4
1,892.3
1,555.3
981.4
529.4
133.5
395.9
396.0
$
$
$
$
$
$
$
$
$
3,447.6
975.2
1,892.4
1,555.2
975.2
523.1
132.0
391.1
391.2
$
$
$
$
$
$
$
$
$
—
6.2
(0.1)
0.1
6.2
6.3
1.5
4.8
4.8
Consolidated Statement of Cash Flows Line Items
Impact of changes in accounting policies
Net income
Deferred income tax provision
(Increase) decrease, net of effects from business combinations
and divestitures:
Receivables
Inventory
Other assets
Increase (decrease), net of effects from business combinations
and divestitures:
Other liabilities
Classification of Certain Cash Receipts and Cash Payments
Twelve Months Ended December 31, 2018
Balances
without
adoption of
ASC Topic 606
Impact of
adoption
Higher/(Lower)
As reported
$
$
$
$
$
$
396.0
14.5
$
$
391.2
13.0
$
$
133.7
$
(319.5) $
(107.9) $
112.9
$
(319.7) $
(4.8) $
4.8
1.5
20.8
0.2
(103.1)
(2.0) $
(77.8) $
75.8
In August 2016, the FASB issued an accounting standard update that provides classification guidance on eight specific
cash flow issues, for which guidance previously did not exist or was unclear. The amendments in this accounting standard
update are effective for periods beginning after December 15, 2017. We adopted this accounting standard update effective
January 1, 2018. The activity on our consolidated statements of cash flows was previously classified in accordance with the
67
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
provisions of the new standard. Therefore, the provisions of the accounting standard update did not impact our consolidated
statements of cash flows.
Restricted Cash
In November 2016, the FASB issued an accounting standard update that requires the statement of cash flows explain the
change during the period in the total of cash and cash equivalents, as well as restricted cash and restricted cash equivalents.
Therefore, restricted cash should be included in the beginning-of-period and end-of-period total amounts presented on the
statement of cash flows. The amendments in this accounting standard update are effective for periods beginning after
December 15, 2017, and should be applied using a retrospective transition method to each period presented. We adopted
this accounting standard update effective January 1, 2018, and made the relevant changes, which were not material, to each
period presented in our consolidated statements of cash flows.
Accounting for Leases
In February 2016, the FASB issued an accounting standard update (ASC Topic 842) that amends the accounting
guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset
and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB
also subsequently issued amendments to the standard, including providing an additional and optional transition method to
adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor
accounting. The amendments in this accounting standard update are effective for us on January 1, 2019, with early
adoption permitted. We will adopt this accounting standard update effective January 1, 2019.
The accounting standard update originally required the use of a modified retrospective approach reflecting the
application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the
standard provides an additional and optional transition method that allows entities to initially apply the new leases standard
at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period
of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which
it adopts the new leases standard will continue to be in accordance with ASC Topic 840 if the optional transition method is
elected. We plan to adopt the standard using the optional transition method with no restatement of comparative periods and
a cumulative effect adjustment, if any, recognized as of the date of adoption.
We expect that this standard will have a material effect on our financial statements due to the recognition of new ROU
assets and lease liabilities on our consolidated balance sheet for real estate and equipment operating leases. As part of our
implementation process, we have assessed our lease arrangements, evaluated practical expedient and accounting policy
elections, and implemented software to meet the reporting requirements of this standard. We also have evaluated the
changes in controls and processes that are necessary to implement the new standard, and no material changes were
required. The new standard provides a number of optional practical expedients in transition. We expect to elect the
‘package of practical expedients,’ which permits us not to reassess under the new standard our prior conclusions about
lease identification, lease classification, and initial direct costs. We do not expect to elect the use-of-hindsight or the
practical expedient pertaining to land easements; the latter not being applicable to us. Consequently, on adoption, we
expect to recognize additional operating liabilities ranging from $325 million to $400 million, with corresponding ROU
assets of approximately the same amount based on the present value of the remaining minimum rental payments under
current leasing standards for existing operating leases.
The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the
short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not
recognize ROU assets or lease liabilities, including for existing short-term leases of those assets in transition. We also
currently expect to elect the practical expedient to not separate lease and non-lease components for the majority of our
leases. We also expect significant new disclosures about our leasing activities in accordance with the new standard.
68
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We have a significant number of real estate leases, including for land and buildings. The majority of our leases for land
are classified as operating leases under current lease accounting guidance. For new leases entered into after adoption, the
new lease standard may affect the pattern of expense recognition related to the land component of a new real estate lease,
since those land leases may be classified as finance leases under the new standard.
2. REVENUE RECOGNITION
Disaggregation of Revenue
The significant majority of our revenue is from contracts with customers. Taxes assessed by governmental authorities
that are directly imposed on revenue transactions are excluded from revenue. In the following table, revenue is
disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that
these categories depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by
economic factors. The table below also includes a reconciliation of the disaggregated revenue with our reportable
segments.
Major Goods/Service Lines
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Twelve Months Ended December 31, 2018
Corporate
Premium
and other(1)
Luxury
Import
Total
Domestic
$
3,900.8
$
4,046.4
$
3,804.4
$
— $
11,751.6
1,725.2
1,082.8
344.4
81.3
1,418.7
934.8
362.6
23.9
1,875.1
1,082.2
246.0
3.2
104.3
347.8
28.4
0.5
5,123.3
3,447.6
981.4
108.9
$
7,134.5
$
6,786.4
$
7,010.9
$
481.0
$
21,412.8
Timing of Revenue Recognition
Goods and services transferred at a point in time
Goods and services transferred over time(2)
$
$
6,441.2
693.3
7,134.5
$
$
6,079.1
707.3
6,786.4
$
$
6,098.3
912.6
7,010.9
$
$
140.9
340.1
481.0
$
$
18,759.5
2,653.3
21,412.8
(1) “Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation
USA stand-alone used vehicle sales and service centers, and aftermarket collision parts businesses.
(2) Represents revenue recognized during the period for automotive repair and maintenance services.
Contract Assets and Liabilities
When the timing of our provision of goods or services is different from the timing of the payments made by our
customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability
(customer payment precedes performance). Contract assets primarily relate to our right to consideration for work in process
not yet billed at the reporting date associated with automotive repair and maintenance services, as well as our estimate of
variable consideration that has been included in the transaction price for certain finance and insurance products
(retrospective commissions). These contract assets are reclassified to receivables when the right to consideration becomes
unconditional. Contract liabilities primarily relate to upfront payments received from customers for the sale of certain
finance and insurance products for which our performance obligations are satisfied, and revenue is recognized, as each
underlying service of the multi-year contract is completed during the contract term.
69
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our receivables from contracts with customers are included in Receivables, net, our current contract asset is included
with Other Current Assets, our long-term contract asset is included with Other Assets, our current contract liability is
included with Other Current Liabilities, and our long-term contract liability is included with Other Long-Term Liabilities in
our consolidated balance sheet.
The opening and closing balances of our receivables from contracts with customers and our current and long-term
contract assets and contract liabilities are as follows:
Receivables from contracts with customers, net
Contract Asset (Current)
Contract Asset (Long-Term)
Contract Liability (Current)
Contract Liability (Long-Term)
December 31, 2018
January 1, 2018
$
$
$
$
$
706.7
28.2
17.4
31.6
61.9
$
$
$
$
$
854.3
18.4
1.4
26.7
63.8
Twelve Months Ended
December 31, 2018
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period
Performance obligations satisfied in previous periods
$
$
29.8
23.6
The differences between the opening and closing balances of our contract assets and contract liabilities primarily result
from the timing differences between our performance and the customer’s payment, as well as changes in the estimated
transaction price related to variable consideration that was constrained for performance obligations satisfied in previous
periods. Other significant changes include contract assets of $9.8 million reclassified to receivables.
Performance Obligations and Significant Judgments and Estimates Related to Revenue Recognition
New and Used Vehicle
We sell new vehicles at our franchised dealerships and used vehicles at our franchised dealerships and AutoNation USA
stores. The transaction price for a vehicle sale is determined with the customer at the time of sale. Customers often trade in
their own vehicle to apply toward the purchase of a retail new or used vehicle. The “trade-in” vehicle is a type of noncash
consideration measured at fair value, based on external and internal market data for the specific vehicle, and applied as
payment to the contract price for the purchased vehicle.
When we sell a new or used vehicle, we typically transfer control at a point in time upon delivery of the vehicle to the
customer, which is generally at time of sale, as the customer is able to direct the use of, and obtain substantially all of the
benefits from, the vehicle at such time. We do not directly finance our customers’ vehicle purchases or leases. In many
cases, we arrange third-party financing for the retail sale or lease of vehicles to our customers in exchange for a fee paid to
us by the third-party financial institution. We receive payment directly from the customer at the time of sale or from the
third-party financial institution (referred to as contracts-in-transit or vehicle receivables, which are part of our receivables
from contracts with customers) within a short period of time following the sale. We establish provisions, which are not
significant, for estimated returns and warranties on the basis of both historical information and current trends.
We also offer auction services at our AutoNation-branded automotive auctions, revenue from which is included within
Used Vehicle wholesale revenue. The transaction price for auction services is based on an established pricing schedule and
determined with the customer at the time of sale, and payment is due upon completion of service. We satisfy our
70
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
performance obligations related to auction services at the point in time that control transfers to the customer, which is when
the service is completed.
Parts and Service
We sell parts and automotive services related to customer-paid repairs and maintenance, repairs and maintenance under
manufacturer warranties and extended service contracts, and collision-related repairs. We also sell parts through our
wholesale and retail counter channels.
Each automotive repair and maintenance service is a single performance obligation that includes both the parts and labor
associated with the service. Payment for automotive service work is typically due upon completion of the service, which is
generally completed within a short period of time from contract inception. The transaction price for automotive repair and
maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. We
satisfy our performance obligations, transfer control, and recognize revenue over time for automotive repair and
maintenance services because we are creating an asset with no alternative use and we have an enforceable right to payment
for performance completed to date. We use an input method to recognize revenue and measure progress based on labor
hours expended relative to the total labor hours expected to be expended to satisfy the performance obligation. We have
determined labor hours expended to be the relevant measure of work performed to complete the automotive repair or
maintenance service for the customer. As a practical expedient, since automotive repair and maintenance service contracts
have an original duration of one year or less, we do not consider the time value of money, and we do not disclose estimated
revenue expected to be recognized in the future for performance obligations that are unsatisfied (or partially unsatisfied) at
the end of the reporting period or when we expect to recognize such revenue.
The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity
and price of each product purchased. Payment is typically due at time of sale, or within a short period of time following the
sale. We establish provisions, which are not significant, for estimated parts returns based on historical information and
current trends. Delivery methods of wholesale and retail counter parts vary; however, we generally consider control of
wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or
within a few days of the sale. We also offer customer loyalty points for parts and service for select franchises in a relative
few of our stores and we satisfy our performance obligation and recognize revenue when the loyalty points are redeemed.
Amounts deferred related to the customer loyalty programs are insignificant.
Finance and Insurance
We sell and receive a commission on the following types of finance and insurance 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, among others. We offer 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 sell the products on a commission basis, and, in
certain cases, we sell the product, recognize an upfront commission, and participate in future profit pursuant to
retrospective commission arrangements with the issuers of those contracts through the life of the related contracts. For
retrospective commission arrangements, we are paid annually based on the annual performance of the issuers’ product
portfolio. For the majority of finance and insurance product sales, our performance obligation is to arrange for the
provision of goods or services by another party. Our performance obligation is satisfied when this arrangement is made,
which is when the finance and insurance product is delivered to the end-customer, generally at the time of the vehicle sale.
As agent, we recognize revenue in the amount of any fee or commission to which we expect to be entitled, which is the net
amount of consideration that we retain after paying the third-party provider the consideration received in exchange for the
goods or services to be fulfilled by that party.
The retrospective commission we earn on each product sold is a form of variable consideration that is subject to
constraint due to it being highly susceptible to factors outside our influence and control. Our agreements with the third-
71
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
party administrators generally provide for an annual retrospective commission payout based on the product portfolio
performance for that year. We estimate variable consideration related to retrospective commissions and perform a
constraint analysis using the expected value method based on the historical performance of the product portfolios and
current trends to estimate the amount of retrospective commissions to which we expect we will be entitled. At each
reporting period, we reassess our expectations about the amount of retrospective commission variable consideration to
which we expect to be entitled and recognize revenue when we no longer believe a significant revenue reversal is probable.
Additionally, we may be charged back for commissions related to finance and insurance products in the event of early
termination, default, or prepayment of the contracts by end-customers (“chargebacks”). An estimated refund liability for
chargebacks against the revenue recognized from sales of finance and insurance products is recorded in the period in which
the related revenue is recognized and is based primarily on our historical chargeback experience. We update our
measurement of the chargeback liability at each reporting date for changes in expectations about the amount of
chargebacks.
We also sell a vehicle maintenance program (the Vehicle Care Program or “VCP”) where we act as the principal in the
sale since we have the primary responsibility to provide the specified services to the customer under the VCP contract.
When a VCP product is sold in conjunction with the sale of a vehicle to the same customer, the stand-alone selling prices of
each product are based on observable selling prices. Under a VCP contract, a customer purchases a specific number of
maintenance services to be redeemed at an AutoNation location over a five-year term from the date of purchase. We satisfy
our performance obligations and recognize revenue as maintenance services are rendered, since the customer benefits when
we have completed the maintenance service. Although payment is due from the customer at the time of sale and services
are rendered at points in time during a five-year contract term, these contracts do not contain a significant financing
component. The following table includes estimated revenue expected to be recognized in the future related to VCP
performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
Revenue Expected to Be Recognized by Period
Total
Less Than
1 Year
1 - 3 Years
3 - 5 Years
Revenue expected to be recognized on VCP contracts
sold as of period end
$
92.9
$
31.0
$
46.4
$
15.5
We also recognize revenue, net of estimated chargebacks, for commissions earned by us for the transfer of financial
assets when we arrange installment loans and leases with third-party lenders in connection with customer vehicle
purchases.
Other Revenue
The majority of our other revenue is generated from the sale of vehicles to fleet/rental car companies that are
specifically ordered for such companies (“fleet” sales). Revenue recognition for fleet sales is very similar to the recognition
of revenue for new vehicles, described above.
Contract Costs
For sales commissions incurred related to sales of vehicles and sales of finance and insurance products for which we act
as agent, we have elected as a practical expedient to not capitalize the incremental costs to obtain those contracts since they
are point-of-sale transactions and the amortization period would be immediate.
We have determined that the sales commissions and third-party administrator fees incurred related to sales of VCP
products qualify for capitalization since these payments are directly related to sales achieved during a time period and
would not have been incurred if the contract had not been obtained. Since the capitalized costs are related to services that
are transferred during a five-year contract term, we amortize the assets over the contract term of five years consistent with
the pattern of transfer of the service to which the assets relate. As of December 31, 2018, we had $9.4 million of capitalized
72
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
costs incurred to obtain or fulfill a VCP contract with a customer. We amortized $3.2 million of these capitalized costs
during 2018.
3. EARNINGS (LOSS) PER SHARE
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and are to be included in the computation of earnings per share (“EPS”) under
the two-class method. Our restricted stock awards are considered participating securities because they contain non-
forfeitable rights to dividends. As the number of shares granted under such awards that have not yet vested is immaterial,
all earnings per share amounts reflect such shares as if they were fully vested shares and the disclosures associated with the
two-class method are not presented. RSU awards are not considered participating securities as they do not contain non-
forfeitable rights to dividends.
Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding
for the period, including outstanding unvested restricted stock awards and vested RSU awards. Diluted EPS is computed
by dividing net income (loss) by the weighted average number of shares outstanding, noted above, adjusted for the dilutive
effect of stock options and unvested RSU awards.
The following table presents the calculation of basic and diluted EPS:
2018
2017
2016
Net income from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income
Weighted average common shares outstanding used in calculating basic EPS
Effect of dilutive stock options and unvested RSUs
Weighted average common shares outstanding used in calculating diluted EPS
Basic EPS amounts(1):
Continuing operations
Discontinued operations
Net income
Diluted EPS amounts(1):
Continuing operations
Discontinued operations
Net income
$
$
$
$
$
$
$
$
395.9
0.1
396.0
$
$
435.0
(0.4)
434.6
$
$
90.9
0.4
91.3
97.8
0.4
98.2
4.36
$
— $
$
4.36
4.34
$
— $
$
4.34
4.45
$
— $
$
4.44
4.43
$
— $
$
4.43
431.7
(1.2)
430.5
103.1
0.7
103.8
4.19
(0.01)
4.18
4.16
(0.01)
4.15
(1) Earnings per share amounts are calculated discretely and therefore may not add up to the total due to rounding.
A summary of anti-dilutive equity instruments excluded from the computation of diluted earnings per share is as
follows:
Anti-dilutive equity instruments excluded from the computation of diluted
earnings per share
2018
2017
2016
2.3
3.1
3.0
73
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. 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 for doubtful accounts
Contracts-in-transit and vehicle receivables
Income taxes receivable (See Note 11)
Receivables, net
2018
2017
130.4
242.3
31.4
404.1
(4.6)
399.5
568.6
8.1
976.2
$
$
162.6
253.3
44.9
460.8
(5.5)
455.3
655.7
—
1,111.0
$
$
Trade receivables represent amounts due for parts and services that have been delivered or sold, excluding amounts due
from manufacturers, as well as receivables from finance organizations for commissions on the sale of finance and
insurance products. Manufacturer receivables represent amounts due from manufacturers for holdbacks, rebates, incentives,
floorplan assistance, and warranty claims. Contracts-in-transit and vehicle receivables primarily represent receivables from
financial institutions for the portion of the vehicle sales price financed by our customers.
We evaluate our receivables for collectability based on the age of receivables and past collection experience.
5. INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory at December 31 are as follows:
New vehicles
Used vehicles
Parts, accessories, and other
Inventory
2018
2017
2,874.8
$
2,577.9
553.8
221.9
576.5
211.2
3,650.5
$
3,365.6
$
$
The components of vehicle floorplan payables at December 31 are as follows:
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade
Vehicle floorplan payable
2018
2017
$
$
2,388.0
1,609.7
3,997.7
$
$
2,179.1
1,627.8
3,806.9
Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser
extent, used vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”).
Vehicle floorplan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser
extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under our secured used vehicle
floorplan facilities. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle
floorplan payable-non-trade are reported as financing cash flows in the accompanying Consolidated Statements of Cash
Flows.
74
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our inventory costs are generally reduced by manufacturer holdbacks, incentives, floorplan assistance, and non-
reimbursement-based manufacturer advertising rebates, while the related vehicle floorplan payables are reflective of the
gross cost of the vehicle. The vehicle floorplan payables, as shown in the above table, will generally also be higher than the
inventory cost due to the timing of the sale of a vehicle and payment of the related liability.
Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within
several business days after the related vehicles are sold. Our manufacturer agreements generally allow the manufacturer to
draft against the new vehicle floorplan facilities so the lender funds the manufacturer directly for the purchase of new
vehicle inventory. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 3.5% during 2018 and 2.6%
during 2017. At December 31, 2018, the aggregate capacity under our floorplan credit agreements with various lenders to
finance our new vehicle inventory was approximately $4.8 billion, of which $3.6 billion had been borrowed.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 3.5% during 2018 and 2.5%
during 2017. At December 31, 2018, the aggregate capacity under our floorplan credit agreements with various lenders to
finance a portion of our used vehicle inventory was $515.0 million, of which $413.2 million had been borrowed. The
remaining borrowing capacity of $101.8 million was limited to $0.5 million based on the eligible used vehicle inventory
that could have been pledged as collateral.
6. 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
2018
2017
$
1,360.8
$
2,320.2
807.1
4,488.1
(1,332.8)
3,155.3
$
$
1,332.5
2,121.1
720.2
4,173.8
(1,211.1)
2,962.7
We capitalized interest in connection with various construction projects to build, upgrade, or remodel our facilities of
$1.4 million in 2018, $1.0 million in 2017, and $0.5 million in 2016.
7. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net, at December 31 consisted of the following:
Goodwill
Franchise rights - indefinite-lived
Other intangible assets
Less: accumulated amortization
Intangible assets, net
2018
2017
$
$
$
1,513.2
580.1
22.2
602.3
(6.9)
595.4
$
$
$
1,515.0
572.2
23.3
595.5
(8.7)
586.8
75
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Goodwill
Goodwill allocated to our reporting units and changes in the carrying amount of goodwill for the years ended
December 31, 2018 and 2017 were as follows:
Goodwill at January 1, 2017 (1)
Acquisitions, dispositions, and other
adjustments, net (2)
Goodwill at December 31, 2017 (1)
Acquisitions, dispositions, and other
adjustments, net (2)
Goodwill at December 31, 2018 (1)
$
232.5
$
Domestic
Import
Premium
Luxury
Other
Consolidated
$
252.1
$
558.2
$
697.4
$
3.6
$
1,511.3
(20.4)
231.7
0.8
(25.8)
532.4
(11.5)
520.9
$
14.7
712.1
5.6
35.2
38.8
3.3
717.7
$
42.1
$
3.7
1,515.0
(1.8)
1,513.2
(1) Net of accumulated impairment losses of $1.47 billion associated with our single reporting unit (prior to September
30, 2008, our reporting unit structure was comprised of a single reporting unit) and $140.0 million associated with
our Domestic reporting unit, both of which were recorded during the year ended December 31, 2008.
(2)
Includes amounts reclassified to held for sale, which are presented in Other Current Assets in our Consolidated
Balance Sheet as of period end.
Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle
manufacturers. As of December 31, 2018, we had $580.1 million of franchise rights recorded on our Consolidated Balance
Sheet, of which $160.5 million was related to Domestic stores, $108.9 million was related to Import stores, and $310.7
million was related to Premium Luxury stores.
See Note 17 of the Notes to Consolidated Financial Statements for more information about our annual impairment tests
of goodwill and franchise rights.
8. LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt at December 31 consisted of the following:
Debt Description
Interest Payable
6.75% Senior Notes
April 15 and October 15
5.5% Senior Notes
February 1 and August 1
3.35% Senior Notes
January 15 and July 15
3.5% Senior Notes
May 15 and November 15
4.5% Senior Notes
April 1 and October 1
3.8% Senior Notes
May 15 and November 15
Monthly
Revolving credit facility
Capital leases and other debt Various dates through 2038 Monthly
Maturity Date
April 15, 2018
February 1, 2020
January 15, 2021
November 15, 2024
October 1, 2025
November 15, 2027
October 19, 2022
Less: unamortized debt discounts and debt issuance costs
Less: current maturities
Long-term debt, net of current maturities
2018
2017
$
— $
350.0
300.0
450.0
450.0
300.0
—
133.1
1,983.1
(12.6)
(44.3)
1,926.2
$
$
400.0
350.0
300.0
450.0
450.0
300.0
—
139.4
2,389.4
(15.7)
(414.5)
1,959.2
76
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2018, aggregate maturities of non-vehicle long-term debt were as follows:
Year Ending December 31:
2019
2020
2021
2022
2023
Thereafter
$
$
44.3
354.8
304.7
4.6
4.8
1,269.9
1,983.1
Senior Unsecured Notes and Credit Agreement
The interest rates payable on the 3.35% Senior Notes, 3.5% Senior Notes, 4.5% Senior Notes, and 3.8% Senior Notes
are subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior
unsecured notes. In April 2018, we repaid the outstanding $400.0 million of 6.75% Senior Notes.
Under our credit agreement, we have a $1.8 billion revolving credit facility as well as an accordion feature that allows
us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together
with any added term loans, by up to $500.0 million in the aggregate. 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 $41.8 million at
December 31, 2018, leaving an additional borrowing capacity under the revolving credit facility of $1.8 billion at
December 31, 2018. As of December 31, 2018, this borrowing capacity was limited under the maximum consolidated
leverage ratio contained in our credit agreement to $588.0 million.
Our revolving credit facility provides for a commitment fee on undrawn amounts ranging from 0.150% to 0.25% and
interest on borrowings at LIBOR or the base rate, in each case plus an applicable margin. The applicable margin ranges
from 1.25% to 1.625% for LIBOR borrowings and 0.25% to 0.625% for base rate borrowings. The interest rate charged for
our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater
than or equal to 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the
applicable margin.
Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our
subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent
assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries
other than the guarantor subsidiaries are minor.
Other Long-Term Debt
At December 31, 2018, we had capital lease and other debt obligations of $133.1 million, which are due at various dates
through 2038. See Note 18 of the Notes to Consolidated Financial Statements for more information related to capital lease
obligations.
Commercial Paper
We have a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes
on a private placement basis up to a maximum aggregate amount outstanding at any time of $1.0 billion. The interest rate
for the commercial paper notes varies based on duration and market conditions. The maturities of the commercial paper
notes may vary, but may not exceed 397 days from the date of issuance. The commercial paper notes are guaranteed by
substantially all of our subsidiaries. Proceeds from the issuance of commercial paper notes are used to repay borrowings
77
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
under the revolving credit facility, to finance acquisitions and for working capital, capital expenditures, share repurchases
and/or other general corporate purposes. We plan to use the revolving credit facility under our credit agreement as a
liquidity backstop for borrowings under the commercial paper program. A downgrade in our credit ratings could negatively
impact our ability to issue, or the interest rates for, commercial paper notes.
At December 31, 2018, we had $630.0 million of commercial paper notes outstanding with a weighted-average annual
interest rate of 3.22% and a weighted-average remaining term of 21 days. At December 31, 2017, we had $330.0 million of
commercial paper notes outstanding with a weighted-average annual interest rate of 1.97% and a weighted-average
remaining term of 24 days.
9. CHARGEBACK LIABILITY
We may be charged back for commissions related to financing, vehicle service, or protection products in the event of
early termination, default, or prepayment of the contracts by customers (“chargebacks”). However, our exposure to loss
generally is limited to the commissions that we receive. An estimated chargeback liability is recorded in the period in
which the related finance and insurance revenue is recognized. 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
10. SELF-INSURANCE
2018
2017
2016
$
$
120.8
$
116.8
$
108.3
(101.0)
128.1
$
96.3
(92.3)
120.8
$
97.3
106.6
(87.1)
116.8
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.
At December 31, 2018 and 2017, current and long-term self-insurance liabilities were included in Other Current
Liabilities and Other Liabilities, respectively, in the Consolidated Balance Sheets as follows:
Self-insurance - current portion
Self-insurance - long-term portion
Total self-insurance liabilities
11. INCOME TAXES
2018
2017
$
$
29.9
47.4
77.3
$
$
29.5
48.7
78.2
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
2018
2017
2016
93.0
26.8
10.9
3.5
(0.7)
133.5
$
$
190.6
29.4
(22.1)
3.3
0.3
201.5
$
$
234.9
31.4
3.7
0.3
0.3
270.6
$
$
78
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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:
2018
%
2017
%
2016
%
Income tax provision at statutory rate
Non-deductible expenses, net
State income taxes, net of federal benefit
$
Change in tax rate
Change in valuation allowance, net
Adjustments and settlements
Federal and state tax credits
Other, net
Income tax provision
$
111.2
4.9
22.8
138.9
(5.0)
3.5
(0.7)
(1.0)
(2.2)
133.5
21.0
0.9
4.3
26.2
(0.9)
0.7
(0.1)
(0.2)
(0.5)
25.2
$
$
222.8
5.9
19.7
248.4
(44.2)
3.3
0.3
(3.7)
(2.6)
201.5
35.0
0.9
3.1
39.0
(6.9)
0.5
0.1
(0.6)
(0.4)
31.7
Deferred income tax asset and liability components at December 31 are as follows:
Deferred income tax assets:
Inventory
Receivable allowances
Warranty, chargeback, and self-insurance liabilities
Other accrued liabilities
Deferred compensation
Stock-based compensation
Loss carryforwards—federal and state
Other, net
Total deferred income tax assets
Valuation allowance
Deferred income tax assets, net of valuation allowance
Deferred income tax liabilities:
Long-lived assets (intangible assets and property)
Other, net
Total deferred income tax liabilities
Net deferred income tax liabilities
$
$
Our net deferred tax liability of $89.8 million as of December 31, 2018 and $71.9 million as of December 31, 2017 is
classified as Deferred Income Taxes in the accompanying Consolidated Balance Sheets.
Income taxes receivables included in Receivables, net totaled $8.1 million at December 31, 2018 and income taxes
payable included in Other Current Liabilities totaled $81.1 million at December 31, 2017.
At December 31, 2018, we had $91.6 million of gross domestic state net operating loss carryforwards and capital loss
carryforwards, and $3.3 million of state tax credits, all of which result in a deferred tax asset of $7.0 million and expire
from 2019 through 2038.
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. At December 31, 2018, we had $4.3
79
$
$
$
35.0
0.7
3.1
38.8
—
—
—
(0.3)
—
38.5
245.8
4.6
21.7
272.1
—
0.3
0.3
(1.9)
(0.2)
270.6
2017
22.8
1.9
47.4
25.4
18.8
18.9
6.5
10.2
151.9
(5.4)
146.5
(207.1)
(11.3)
(218.4)
(71.9)
2018
23.3
1.4
48.4
30.0
19.0
21.2
7.0
8.8
159.1
(8.9)
150.2
(225.1)
(14.9)
(240.0)
(89.8) $
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
million of valuation allowance related to state net operating loss carryforwards and $4.6 million of valuation allowance
related to deferred tax assets for stock-based compensation and other executive compensation impacted by the new tax
reform legislation. See “Tax Reform” below. We adjust the valuation allowance in the period management determines it is
more likely than not that deferred tax assets will or will not be realized.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing
authorities, including the IRS, regularly audit us. These audits may culminate in proposed assessments which may
ultimately result in our owing additional taxes. Currently, no tax years are under examination by the IRS and tax years
from 2014 to 2016 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
$
$
2018
2017
2016
6.4
—
0.6
—
(0.9)
(1.8)
4.3
$
$
5.8
—
0.8
—
(0.2)
—
6.4
$
$
5.6
—
0.8
(0.4)
(0.2)
—
5.8
We had accumulated interest and penalties associated with these unrecognized tax benefits of $6.6 million at
December 31, 2018, $6.8 million at December 31, 2017, and $6.1 million at December 31, 2016. We additionally had a
deferred tax asset of $2.4 million at December 31, 2018, $2.8 million at December 31, 2017, and $4.2 million at December
31, 2016, related to these balances. The net of the unrecognized tax benefits, associated interest, penalties, and deferred tax
asset was $8.5 million at December 31, 2018, $10.4 million at December 31, 2017, and $7.7 million at December 31, 2016,
which if resolved favorably (in whole or in part) would reduce our effective tax rate. The unrecognized tax benefits,
associated interest, penalties, and deferred tax asset are included as components of Other Liabilities and Deferred Income
Taxes in the Consolidated Balance Sheets.
It is our policy to account for interest and penalties associated with income tax obligations as a component of income
tax expense. We recognized $0.6 million during 2018, $0.4 million during 2017, and $0.4 million during 2016 (each net of
tax effect), of interest and penalties as part of the provision for income taxes in the Consolidated Statements of Income.
We do not expect that our unrecognized tax benefits will significantly increase or decrease during the twelve months
beginning January 1, 2019.
Tax Reform
On December 22, 2017, H.R. 1 formerly known as the “Tax Cuts and Jobs Act,” was enacted into law. This new tax
legislation, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. At
December 31, 2017, we made a reasonable estimate of the effects of the new tax legislation on our deferred tax balances
and recognized a provisional benefit of $41.3 million, which was net of a valuation allowance on equity compensation.
As of December 31, 2018, we completed our accounting for the tax effects of the new tax legislation. In 2018, and in
preparation of our federal and state income tax returns, we refined our calculations remeasuring deferred tax assets and
liabilities and recorded a $5.0 million reduction to income tax expense related to our provisional estimate recorded as of
December 31, 2017. The reduction was recorded as a component of income tax expense from continuing operations and
had an impact of 0.9 percentage points on our effective income tax rate for the full year 2018.
80
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
Shares repurchased
Aggregate purchase price
Average purchase price per share
2018
2017
2016
2.1
100.0
47.58
$
$
10.1
434.9
42.99
$
$
10.5
497.0
47.30
$
$
As of December 31, 2018, $263.7 million remained available under our stock repurchase limit most recently authorized
by our Board of Directors.
Our Board of Directors authorized the retirement of 18.0 million shares of our treasury stock in November 2017, which
assumed the status of authorized but unissued shares. Upon the retirement of treasury stock, it is our policy to charge the
excess of the cost of the treasury stock over its par value entirely to additional paid-in capital. Any amounts exceeding
additional paid-in capital are charged to retained earnings. This retirement had the effect of reducing treasury stock and
issued common stock, which includes treasury stock. Our common stock, additional paid-in capital, retained earnings, and
treasury stock accounts were adjusted accordingly. There was no impact to shareholders’ equity or outstanding common
stock.
We have 5.0 million authorized shares of preferred stock, par value $0.01 per share, none of which are issued or
outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the
rights, preferences, and dividends.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
Shares issued
Proceeds from the exercise of stock options
Average exercise price per share
2018
2017
2016
0.5
17.8
35.25
$
$
1.0
39.7
37.85
$
$
0.3
8.4
31.21
$
$
The following table presents a summary of shares of common stock issued in connection with grants of restricted stock
and settlement of restricted stock units (“RSUs”), as well as shares surrendered to AutoNation to satisfy tax withholding
obligations in connection with the vesting of restricted stock and settlement of RSUs:
(In actual number of shares)
Shares issued
Shares surrendered to AutoNation to satisfy tax
withholding obligations
2018
122,661
56,027
2017
20,000
26,514
2016
143,424
38,906
13. STOCK-BASED COMPENSATION
The AutoNation, Inc. 2017 Employee Equity and Incentive Plan (the “2017 Plan”) provides for the grant of time-based
and performance-based RSUs, restricted stock, stock options, stock appreciation rights, and other stock-based and cash-
based awards to employees. A maximum of 5.5 million shares may be issued under the 2017 Plan.
The AutoNation, Inc. 2014 Non-Employee Director Equity Plan (the “2014 Director Plan”) provides for the grant of
stock options, restricted stock, RSUs, stock appreciation rights, and other stock-based awards to our non-employee
directors. As of December 31, 2018, the total number of shares authorized for issuance under the 2014 Director Plan was
600,000. No director may be granted awards in any calendar year with an aggregate grant date fair market value
81
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(determined, with respect to options and stock appreciation rights, based on a Black-Scholes or other option valuation
methodology approved by the Compensation Committee) in excess of $750,000 per director.
Restricted Stock Units
On January 2, 2018, each of our non-employee directors received a grant of 4,764 RSUs under the 2014 Director Plan.
RSUs granted to our non-employee directors are fully vested on the grant date and are settled in shares of the Company’s
common stock on the first trading day of February in the third year following the grant date, unless the non-employee
director elects to defer delivery in accordance with the terms of the award and the 2014 Director Plan. Settlement of the
RSUs will be accelerated in certain circumstances as provided in the terms of the award and the 2014 Director Plan,
including in the event the non-employee director ceases to serve as a non-employee director of the Company.
Compensation cost is recognized on the grant date and is based on the closing price of our common stock on the grant date.
In 2018, our Board’s Compensation Committee approved the grant of 0.6 million RSUs, which included time-based and
performance-based RSUs. Time-based RSUs vest in equal installments over four years. The performance-based RSUs are
subject to a one-year earnings performance measure. Certain performance-based RSUs vest in equal installments over four
years, and others cliff vest after three years subject to the achievement of certain additional performance goals measured
over a three-year period. The additional performance goals are based on an additional measure of earnings, a measure of
return on invested capital, and a measure of our performance relative to certain customer satisfaction indices.
The fair value of each RSU award grant is based on the closing price of our common stock on the date of grant.
Compensation cost for time-based RSUs is recognized on a straight-line basis over the shorter of the stated vesting period
or the period until employees become retirement-eligible, and for performance-based awards is recognized over the
requisite service period based on the expected achievement level of the performance goals, which is evaluated over the
performance period. The amount of compensation cost recognized on performance-based RSUs depends on the relative
satisfaction of the performance condition based on performance to date. We account for forfeitures of stock-based awards
as they occur.
The following table summarizes information about vested and nonvested RSUs for 2018:
Nonvested at January 1
Granted (1)
Vested
Forfeited
Nonvested at December 31
RSUs
Shares
(in actual number
of shares)
Weighted-Average
Grant Date
Fair Value
$
519,609
670,366
$
(146,200) $
(15,243) $
$
1,028,532
43.22
49.16
45.99
44.53
46.69
(1) The RSUs granted during 2018 are primarily related to our employee annual equity award grant in
March 2018 and non-employee director annual equity award grant in January 2018.
The weighted average grant-date fair value of RSUs and total fair value of RSUs vested are summarized in the
following table:
Weighted average grant-date fair value of RSUs granted
Total fair value of RSUs vested (in millions)
2018
2017
2016
$
$
49.16
7.3
$
$
43.66
2.2
$
$
58.69
2.3
82
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. Employee stock options granted in 2016 have a term of 10 years from the date of grant and vest in equal
installments over four years on the anniversary of the grant date.
We use the Black-Scholes valuation model to determine compensation expense and amortize compensation expense on
a straight-line basis over the requisite service period of the grants. We account for forfeitures of stock-based awards as they
occur. Certain of our equity-based compensation plans contain provisions that provide for vesting of awards upon
retirement. Accordingly, compensation cost is recognized over the shorter of the stated vesting period or the period until
employees become retirement-eligible.
The following table summarizes the assumptions used related to the valuation of our stock options granted during 2016:
Risk-free interest rate
Expected dividend yield
Expected term
Expected volatility
2016
1.16% - 1.55%
—
4 - 7 years
29% - 31%
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant with a remaining term equal
to the expected term used for stock options granted. The expected term of stock options granted is derived from historical
data and represents the period of time that stock options are expected to be outstanding. The expected volatility is based on
historical volatility, implied volatility, and other factors.
The following table summarizes stock option activity during 2018:
Stock Options
Options outstanding at January 1
Granted
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
Weighted-
Average
Exercise Price
48.49
$
—
$
35.25
$
—
$
59.75
$
50.20
$
49.34
$
$
50.23
Shares
(in millions)
3.7
—
(0.5)
—
(0.1)
3.1
2.7
3.1
4.8
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(in millions)
5.13
4.78
5.08
$
$
$
2.5
2.5
2.5
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:
Weighted average grant-date fair value of stock options granted
Total intrinsic value of stock options exercised (in millions)
2018
2017
2016
$
$
— $
8.2
$
— $
11.9
$
17.96
5.3
83
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Restricted Stock
Restricted stock awards are considered nonvested share awards as defined under U.S. generally accepted accounting
principles and are issued from our treasury stock. Restricted stock awards granted in 2016 vest in equal installments over
four years on the anniversary date of the grant. Compensation cost for restricted stock awards is based on the closing price
of our common stock on the date of grant and is recognized on a straight-line basis over the shorter of the stated vesting
period or the period until employees become retirement-eligible. We account for forfeitures of stock-based awards as they
occur.
The following table summarizes information about vested and nonvested restricted stock for 2018:
Nonvested at January 1
Granted
Vested
Forfeited
Nonvested at December 31
Restricted Stock
Shares
(in actual number
of shares)
Weighted-Average
Grant Date
Fair Value
147,931
$
— $
(68,842) $
(8,371) $
$
70,718
55.65
—
55.84
56.27
55.38
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:
Weighted average grant-date fair value of restricted stock awards granted
Total fair value of restricted stock awards vested (in millions)
$
$
— $
$
3.3
— $
$
4.2
52.23
6.4
2018
2017
2016
Compensation Expense
The following table summarizes the total stock-based compensation expense recognized in Selling, General, and
Administrative Expenses in the Consolidated Statements of Income and the total recognized tax benefit related thereto:
RSUs
Stock options
Restricted stock
Total stock-based compensation expense
Tax benefit related to stock-based compensation expense
2018
2017
2016
21.7
1.6
2.2
25.5
3.0
$
$
$
14.2
3.1
3.3
20.6
7.8
$
$
$
2.3
16.2
6.6
25.1
9.6
$
$
$
As of December 31, 2018, there was $23.4 million of total unrecognized compensation cost related to non-vested stock-
based compensation arrangements, of which $20.9 million relates to RSUs, $1.0 million relates to stock options, and $1.5
million relates to restricted stock. These amounts are expected to be recognized over a weighted average period of 1.63
years.
Tax benefits related to stock options exercised and vesting of restricted stock and RSUs were $3.4 million in 2018,
$6.2 million in 2017, and $4.8 million in 2016.
84
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. STORE DIVESTITURES
During 2018, we divested eight Domestic stores, seven Import stores, two Premium Luxury stores, and one collision
center. During 2017, we divested two Domestic stores and four Import stores. During 2016, we divested five Domestic
stores and nine Import stores.
We recognized net gains related to store divestitures of $40.3 million in 2018, $78.2 million in 2017, and $61.8 million
in 2016. During the fourth quarter of 2017, we also recorded write-downs of $26.2 million associated with business
divestitures that closed during the first and second quarters of 2018. The net gains on these divestitures are included in
Other Income, Net (within Operating Income) in our Consolidated Statements of Income. The financial condition and
results of operations of these businesses were not material to our consolidated financial statements.
15. ACQUISITIONS
During 2018, we purchased one Premium Luxury store located in California, one collision center located in Maryland,
and one collision center located in Texas. Acquisitions are included in the Consolidated Financial Statements from the date
of acquisition. The purchase price allocations for the business combinations in 2018 are preliminary and subject to final
adjustment. We purchased one store and seven collision centers in 2017 and 20 stores and one collision center in 2016.
The acquisitions that occurred during 2018 were not material to our financial condition or results of operations.
Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for
the entire years ended December 31, 2018 and 2017, revenue and net income would not have been materially different
from our reported revenue and net income for these periods.
16. CASH FLOW INFORMATION
Cash, Cash Equivalents, and Restricted Cash
The total amounts presented on our statements of cash flows include cash, cash equivalents, and restricted cash.
Restricted cash includes certain deferred purchase price commitments related to certain acquisitions. The following table
provides a reconciliation of cash and cash equivalents reported on our Consolidated Balance Sheets to the total amounts
reported on our Consolidated Statements of Cash Flows:
Cash and cash equivalents
Restricted cash included in Current Assets
Total cash, cash equivalents, and restricted cash
Non-Cash Investing and Financing Activities
Years Ended December 31,
2018
2017
$
$
48.6
0.8
49.4
$
$
69.2
1.9
71.1
We had non-cash investing and financing activities related to increases in property acquired under capital leases and
other financing arrangements of $9.6 million during 2018 and $11.5 million during 2017. We had non-cash investing and
financing activities of $3.3 million and $47.2 million related to capital leases and deferred purchase price commitments
associated with our 2017 and 2016 acquisitions, respectively. We also had accrued purchases of property and equipment of
$41.3 million at December 31, 2018, $48.5 million at December 31, 2017, and $29.1 million at December 31, 2016.
Interest and Income Taxes Paid
We made interest payments, net of amounts capitalized and including interest on vehicle inventory financing, of $245.6
million in 2018, $205.9 million in 2017, and $183.9 million in 2016. We made income tax payments, net of income tax
refunds, of $210.0 million in 2018, $127.0 million in 2017, and $265.5 million in 2016.
85
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also
establishes the following three levels of inputs that may be used to measure fair value:
Level 1
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
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
• Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other
current liabilities, commercial paper, and variable rate debt: The amounts reported in the accompanying
Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable
interest rates that approximate prevailing market rates.
•
Investment in equity security: In October 2018, we invested $50.0 million in an equity security that does not have
a readily determinable fair value. Therefore, we have elected to apply a measurement alternative and have
recorded the equity interest at its cost of $50.0 million, which will be subsequently adjusted for observable price
changes. The equity interest is reported in Other Assets in the accompanying Consolidated Balance Sheet. We
have considered all relevant transactions since the date of our investment through December 31, 2018, and we
have not recorded any impairments or upward or downward adjustments to the carrying amount of our investment
as of December 31, 2018, as there have not been any changes in the observable price of our equity interest as of
such date.
• Fixed rate long-term debt: Our fixed rate long-term debt consists primarily of amounts outstanding under our
senior unsecured notes. We estimate the fair value of our senior unsecured notes using quoted prices for the
identical liability (Level 1). A summary of the aggregate carrying values and fair values of our fixed rate long-
term debt is as follows:
Carrying value
Fair value
December 31,
2018
December 31,
2017
$
$
1,970.5
1,908.9
$
$
2,373.7
2,442.1
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,
86
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2018 and 2017:
2018
Fair Value
Measurements
Using Significant
Unobservable
Inputs (Level 3)
Gain/
(Loss)
2017
Fair Value
Measurements
Using Significant
Unobservable
Inputs (Level 3)
Gain/
(Loss)
$
$
$
31.7
$
— $
(8.1) $
(2.6) $
— $
— $
—
(0.4)
7.4
$
(0.6) $
121.3
$
(26.0)
Description
Franchise rights
Long-lived assets held and used
Long-lived assets held for sale in continuing
operations
Goodwill and Other Intangible Assets
Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or
changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value.
Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment as of
April 30, 2018, and determined that it was not more likely than not that the fair values of our reporting units were less than
their carrying amounts.
We chose to perform a quantitative goodwill impairment test as of April 30, 2017, and no goodwill impairment charges
resulted from the quantitative impairment test. The quantitative goodwill impairment test requires a determination of
whether the fair value of a reporting unit is less than its carrying value. 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 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.
For our April 30, 2016 annual goodwill impairment assessments, we chose to make a qualitative evaluation about the
likelihood of goodwill impairment and determined that it was not more likely than not that the fair values of our reporting
units were less than their carrying amounts.
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle
manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when
events or changes in circumstances indicate that impairment may have occurred. We elected to perform quantitative
franchise rights impairment tests as of April 30, 2018. As a result of these tests, we recorded non-cash impairment charges
of $8.1 million to reduce the carrying values of certain franchise rights to their estimated fair values. The non-cash
impairment charges are reflected as Franchise Rights Impairment in the accompanying Consolidated Statements of Income
and are reported in the “Corporate and other” category of our segment information.
87
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair
value to carrying value by store. Fair values of rights under franchise agreements are estimated using Level 3 inputs by
discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including
significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures,
and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry
projections, economic projections, and other marketplace data we believe to be reasonable. The development of the
assumptions used in our annual impairment tests are coordinated by our financial planning and analysis group, and the
assumptions are reviewed by management.
We elected to perform quantitative franchise rights impairment tests as of April 30, 2017, and no impairment charges
resulted from these quantitative tests.
For our April 30, 2016 annual franchise rights impairment assessment, we chose to make a qualitative evaluation of the
likehood of franchise impairments to determine whether it was necessary to perform a quantitative test. Based on our
qualitative assessment of potential franchise rights impairment, we determined that we should perform a quantitative test
for certain franchise rights, and no impairment charges resulted from these quantitative tests.
Long-Lived Assets
The fair value measurement valuation process for our long-lived assets is established by our corporate real estate
services group. Fair value measurements, which are based on Level 3 inputs, and changes in fair value measurements are
reviewed and assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for
properties classified as held and used, by the corporate real estate services group. Our corporate real estate services group
utilizes its knowledge of the automotive industry and historical experience in real estate markets and transactions in
establishing the valuation process, which is generally based on a combination of the market and replacement cost
approaches. In certain cases, fair value measurements are based on pending agreements to sell the related assets.
In a market approach, the corporate real estate services group uses transaction prices for comparable properties that
have recently been sold. These transaction prices are adjusted for factors related to a specific property. The corporate real
estate services group also evaluates changes in local real estate markets, and/or recent market interest or negotiations
related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered,
which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present
and measurable.
To validate the fair values determined under the valuation process noted above, our corporate real estate services group
also obtains independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are
generally developed using the same valuation approaches described above, and evaluates any recent negotiations or
discussions with third-party real estate brokers related to a specific long-lived asset or market.
We had assets held for sale in continuing operations of $67.8 million as of December 31, 2018, and $169.1 million as of
December 31, 2017, primarily related to property held for sale, as well as inventory, goodwill, franchise rights, and
property of disposal groups held for sale. We had assets held for sale in discontinued operations of $14.1 million as of
December 31, 2018, and $14.4 million as of December 31, 2017, primarily related to property held for sale. Assets held for
sale are included in Other Current Assets in our Consolidated Balance Sheets.
The non-cash impairment charges recorded in 2018 and 2017, are included in Other Income, Net (within Operating
Income) in our Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment
information.
88
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our
business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought
by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and
seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We establish
accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the
loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional
information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our
financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss
exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional
loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we
disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be
made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with
legal counsel regarding the ultimate outcome of the matter.
As of December 31, 2018 and 2017, we have accrued for the potential impact of loss contingencies that are probable
and reasonably estimable, and there was no indication of a reasonable possibility that a material loss, or additional material
loss, may have been incurred. We do not believe that the ultimate resolution of any of these matters will have a material
adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot
be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse
effect on our results of operations, financial condition, or cash flows.
Lease Commitments
We lease real property, equipment, and software under various operating leases, most of which have terms from one to
twenty-five years.
Expenses under real property, equipment, and software leases were $66.2 million in 2018, $56.3 million in 2017, and
$52.8 million in 2016. The leases require payment of real estate taxes, insurance, and maintenance in addition to rent. Most
of the leases contain renewal options, rent abatements, and rent escalation clauses. Lease expense is recognized on a
straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for
lease classification, the amortization period of related leasehold improvements, and the estimation of future lease
commitments.
89
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, 2018, are as follows:
Noncancelable Lease Commitments
Capital
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Less: Amounts representing interest
$
$
$
35.7
10.4
10.1
10.2
10.1
108.7
185.2
(69.5)
115.7
Operating(1)
61.2
$
51.0
46.1
42.1
36.6
258.4
495.4
$
(1) Future minimum operating lease payments do not reflect future minimum sublease income of $2.2 million.
Additionally, operating leases that are on a month-to-month basis are not included.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our
subsidiaries of their respective dealership premises. Pursuant to these leases, our subsidiaries generally agree to indemnify
the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including
environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements
with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or
related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course
of business in connection with purchases or sales of goods and services, we enter into agreements that may contain
indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the
terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to
the dealership purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our
subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee
or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of
the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us
in connection with such leases. We generally have indemnification rights against the assignee or sublessee in the event of
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 2019 to 2034 are
approximately $17 million at December 31, 2018. 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, 2018, surety bonds, letters of credit, and cash deposits totaled $102.5 million, of which $41.8 million
were letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of
credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for
outstanding letters of credit.
In the ordinary course of business, we are subject to numerous laws and regulations, including automotive,
environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of such compliance
90
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 legal and regulatory framework applicable to our
business. We do not have any material known environmental commitments or contingencies.
19. BUSINESS AND CREDIT CONCENTRATIONS
We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle
manufacturers. In 2018, approximately 62% of our total revenue was generated by our stores in Florida, Texas, and
California. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the
operations of the store. The success of any franchised automotive dealership is dependent, to a large extent, on the financial
condition, management, marketing, production, and distribution capabilities of the vehicle manufacturers or distributors of
which we hold franchises. We had receivables from manufacturers or distributors of $242.3 million at December 31, 2018,
and $253.3 million at December 31, 2017. 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 or related lender or supplier. The core brands of vehicles that we sell, representing approximately
92% of the new vehicles that we sold in 2018, are manufactured by Toyota (including Lexus), Honda, Ford, General
Motors, FCA US, Mercedes-Benz, Nissan, BMW, and Volkswagen (including Audi and Porsche). Our business could be
materially adversely impacted by another bankruptcy of or other adverse event related to a major vehicle manufacturer or
related lender or supplier.
Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of
customers and markets in which our products are sold as well as their dispersion across many different geographic areas in
the United States. Consequently, at December 31, 2018, we do not consider AutoNation to have any significant non-
manufacturer concentrations of credit risk.
20. SEGMENT INFORMATION
At December 31, 2018, 2017, and 2016, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium
Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by
General Motors, Ford, and FCA US. Our Import segment is comprised of retail automotive franchises that sell new
vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail
automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Audi, Lexus, and Jaguar
Land Rover. The franchises in each segment also sell used vehicles, parts and automotive services, and automotive finance
and insurance products.
“Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation
USA stand-alone used vehicle sales and service centers, and aftermarket collision parts businesses, all of which generate
revenues but do not meet the quantitative thresholds for determining reportable segments, as well as unallocated corporate
overhead expenses and retrospective commissions for certain finance and insurance transactions that we arrange under
agreements with third parties.
The reportable segments identified above are the business activities of the Company for which discrete financial
information is available and for which operating results are regularly reviewed by our chief operating decision maker to
allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
91
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following tables provide information on revenues from external customers, segment income of our reportable
segments, floorplan interest expense, depreciation and amortization, total assets, and capital expenditures.
Revenues from external customers
Floorplan interest expense
Depreciation and amortization
Segment income (loss)(1)
Capital expenditures
Segment assets
Revenues from external customers
Floorplan interest expense
Depreciation and amortization
Segment income (loss)(1)
Capital expenditures
Segment assets
Revenues from external customers
Floorplan interest expense
Depreciation and amortization
Segment income (loss)(1)
Capital expenditures
Domestic
7,134.5
51.3
37.3
249.3
77.7
2,684.5
Domestic
7,452.8
40.9
38.2
257.1
36.2
2,563.9
Domestic
7,810.0
33.7
37.5
311.1
62.5
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31, 2018
Premium
Luxury
Corporate
and other
Import
6,786.4
31.0
33.2
304.7
56.2
1,934.3
$
$
$
$
$
$
7,010.9
41.7
47.6
340.9
144.2
3,046.4
$
$
$
$
$
$
481.0
6.4
$
$
$
48.1
(247.4) $
$
115.5
Total
21,412.8
130.4
166.2
647.5
393.6
2,999.9
$
10,665.1
Year Ended December 31, 2017
Premium
Luxury
Corporate
and other
Import
6,873.4
23.2
34.3
303.1
32.8
1,992.6
$
$
$
$
$
$
6,832.7
28.4
44.5
348.8
101.7
2,716.8
$
$
$
$
$
$
375.7
4.5
$
$
41.6
$
(162.6) $
$
162.2
Total
21,534.6
97.0
158.6
746.4
332.9
2,998.2
$
10,271.5
$
$
$
$
$
$
$
$
$
$
$
$
Twelve Months Ended December 31, 2016
Corporate
Premium
and other
Luxury
Import
$
$
$
$
$
6,886.1
17.4
35.4
296.8
28.0
$
$
$
$
$
6,665.3
22.7
40.7
350.2
95.6
$
$
$
$
$
247.6
2.7
$
$
29.8
$
(145.1) $
$
67.1
Total
21,609.0
76.5
143.4
813.0
253.2
(1)Segment income is defined as operating income less floorplan interest expense.
92
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following is a reconciliation of the total of the reportable segments’ revenue and segment income to our
consolidated revenue and income from continuing operations before income taxes, respectively.
Total external revenues for reportable segments
Corporate and other revenues
Total consolidated revenues
Total segment income for reportable segments
Corporate and other
Other interest expense
Interest income
Other income, net
Income from continuing operations before income taxes
21. MULTIEMPLOYER PENSION PLANS
Years Ended December 31,
2017
2016
2018
20,931.8
481.0
21,412.8
$
$
21,158.9
375.7
21,534.6
$
$
21,361.4
247.6
21,609.0
Years Ended December 31,
2017
2016
2018
$
894.9
(247.4)
(119.4)
1.1
0.2
$
909.0
(162.6)
(120.2)
1.0
9.3
529.4
$
636.5
$
958.1
(145.1)
(115.5)
1.1
3.7
702.3
$
$
$
$
Five of our 239 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, subject to certain limits, referred to as a withdrawal liability.
93
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2018, 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 2018 and 2017 is for the plan’s year end at
December 31, 2017, and December 31, 2016, 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 2018, 2017, and 2016 contributions.
Pension Fund
Automotive Industries Pension Plan
Other funds
Total contributions
EIN/Pension
PlanNumber
94-1133245
- 001
2018
Red
Pension Protection Act
Zone Status
Contributions of AutoNation
($ in millions) (1)
2017
2018
2017
2016
Surcharge
Imposed
Expiration
Date of
Collective-
Bargaining
Agreement
Red
$
$
1.4
0.3
1.7
$
$
1.3
0.3
1.6
$
$
1.1
0.4
1.5
Yes
(2)
(1) Our stores were not listed in the Automotive Industries Pension Plan’s Form 5500 as providing more than 5% of the
total contributions for the plan years ended December 31, 2017 or 2016.
(2) We are party to three collective-bargaining agreements that require contributions to the Automotive Industries
Pension Plan. Two of the agreements have an expiration date of December 31, 2019, and one agreement has an
expiration date of December 31, 2021.
In the event that we cease participating in this plan, we could be assessed a withdrawal liability. We currently do not
have any plans that would trigger the withdrawal liability under this multiemployer pension plan.
94
AUTONATION, INC.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements of Income by quarter for 2018 and 2017:
Revenue
Gross profit
Operating income(1)
Income from continuing operations(1) (2)
Net income(1) (2)
Basic earnings per share from continuing operations(1) (2) (3)
Diluted earnings per share from continuing operations(1) (2) (3)
First
Quarter
$ 5,259.9
$ 5,139.4
Second
Quarter
$ 5,392.0
$ 5,279.3
Third
Quarter
$ 5,349.2
$ 5,432.4
Fourth
Quarter
$ 5,411.7
$ 5,683.5
$
$
$
$
$
$
$
$
$
$
$
$
842.3
819.8
185.8
206.7
93.3
98.2
93.7
98.1
1.01
0.97
1.01
0.97
$
$
$
$
$
$
$
$
$
$
$
$
851.8
826.1
191.2
196.2
97.4
87.7
97.6
87.7
1.07
0.87
1.07
0.86
$
$
$
$
$
$
$
$
$
$
$
$
855.3
845.9
203.6
211.2
112.3
97.6
112.0
97.5
1.24
1.00
1.24
1.00
$
$
$
$
$
$
$
$
$
$
$
$
847.9
867.2
197.3
229.3
92.9
151.5
92.7
151.3
1.03
1.65
1.02
1.64
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
(1) During the fourth quarter of 2018, we recorded net gains of $18.6 million ($14.1 million after-tax) primarily related
to business/property divestitures. During the fourth quarter of 2017, we recorded net gains of $25.0 million ($15.5
million after-tax) related to business/property divestitures.
(2) During the fourth quarter of 2017, we recognized a $41.3 million provisional income tax benefit due to the
revaluation of our deferred tax liability as a result of the U.S. tax reform bill enacted in December 2017.
(3) The sum of quarterly basic and diluted earnings per share from continuing operations may not equal full year
amounts as reported in the Consolidated Statements of Income due to the effect of the calculation of weighted
average common stock equivalents on a quarterly basis.
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.
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 (2013) 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,
2018. Our independent registered public accounting firm, 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.
Changes in Internal Control over Financial Reporting
In connection with our adoption of the new revenue recognition accounting standard (ASC Topic 606) effective January
1, 2018, we implemented internal controls to ensure we adequately evaluated our contracts with customers and properly
assessed the impact of the new accounting standard related to revenue recognition on our consolidated financial statements.
There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.
Additionally, there were no changes 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 2018 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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 2019
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December
31, 2018.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2019 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2018.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plans
The following table provides information as of December 31, 2018 regarding our equity compensation plans:
EQUITY COMPENSATION PLANS
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans Not Approved by
Security Holders
Total
(A)
(B)
(C)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities Remaining
Available for Future Issuance Under
Equity Compensation Plans
(Excluding Securities Reflected in
Column A)
4,260,370(1)
$50.20(2)
4,756,280(3)
—
4,260,370(1)
—
$50.20(2)
—
4,756,280(3)
(1)
Includes 1,028,532 shares granted under the AutoNation, Inc. 2017 Employee Equity and Incentive Plan (the “2017
Plan”) and 148,268 shares granted under the AutoNation, Inc. 2014 Non-Employee Director Equity Plan (the “2014
Plan”) that are issuable upon settlement of outstanding restricted stock units (“RSUs”). The remaining balance
consists of outstanding stock option awards.
(2) The weighted average exercise price does not take into account the shares issuable upon settlement of outstanding
RSUs, which have no exercise price.
(3)
Includes 4,368,144 shares available under the 2017 Plan and 388,136 shares available under the 2014 Plan.
The other information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2019
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2018.
97
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 2019 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2018.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2019 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2018.
98
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 Exhibit Index 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.
ITEM 16. FORM 10-K SUMMARY
None.
99
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, Chief Executive Officer and
President
February 22, 2019
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/ CHERYL MILLER
Cheryl Miller
/S/ CHRISTOPHER CADE
Christopher Cade
/S/ RICK L. BURDICK
Rick L. Burdick
/s/ TOMAGO COLLINS
Tomago Collins
/S/ DAVID B. EDELSON
David B. Edelson
/S/ ROBERT R. GRUSKY
Robert R. Grusky
/S/ KAVEH KHOSROWSHAHI
Kaveh Khosrowshahi
/S/ G. MIKE MIKAN
G. Mike Mikan
/S/ ALISON H. ROSENTHAL
Alison H. Rosenthal
/S/ JACQUELINE A. TRAVISANO
Jacqueline A. Travisano
Date
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
Title
Chairman, Chief Executive Officer
and President (Principal Executive Officer)
Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
Senior Vice President and Chief Accounting
Officer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
100
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
4.16
4.17
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 14, 2010 (the “2010 Indenture”),
among AutoNation, Inc. and Wells Fargo Bank, National
Association.
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 4.2).
Supplemental Indenture to 2010 Indenture, dated March
7, 2012, relating to the Company’s 5.5% Senior Notes
due 2020.
Supplemental Indenture to 2010 Indenture, dated
February 6, 2014, relating to the Company’s 5.5%
Senior Notes due 2020.
Supplemental Indenture to 2010 Indenture, dated
September 21, 2015, relating to the Company’s 3.35%
Senior Notes due 2021.
Form of 3.35% Senior Notes due 2021 (included in
Exhibit 4.6).
Supplemental Indenture to 2010 Indenture, dated
September 21, 2015, relating to the Company’s 4.5%
Senior Notes due 2025.
Form of 4.5% Senior Notes due 2025 (included in
Exhibit 4.8).
Supplemental Indenture to 2010 Indenture, dated
February 29, 2016, relating to the Company’s 5.5%
Senior Notes due 2020.
Supplemental Indenture to 2010 Indenture, dated
February 29, 2016, relating to the Company’s 3.35%
Senior Notes due 2021.
Supplemental Indenture to 2010 Indenture, dated
February 29, 2016, relating to the Company’s 4.5%
Senior Notes due 2025.
Supplemental Indenture to 2010 Indenture, dated July
29, 2016, relating to the Company’s 5.5% Senior Notes
due 2020.
Supplemental Indenture to 2010 Indenture, dated July
29, 2016, relating to the Company’s 3.35% Senior Notes
due 2021.
Supplemental Indenture to 2010 Indenture, dated July
29, 2016, relating to the Company’s 4.5% Senior Notes
due 2025.
Supplemental Indenture to 2010 Indenture, dated August
3, 2017, relating to the Company’s 5.5% Senior Notes
due 2020.
Supplemental Indenture to 2010 Indenture, dated August
3, 2017, relating to the Company’s 3.35% Senior Notes
due 2021.
101
Incorporated by Reference
Form
10-Q
File Number Exhibit
3.1
001-13107
Filing Date
8/13/99
8-K
8-K
001-13107
001-13107
3.1
4.1
12/16/16
4/15/10
8-K
001-13107
4.2
2/1/12
8-K
001-13107
10-Q
001-13107
4.2
4.6
2/1/12
4/25/12
10-Q
001-13107
4.2
4/18/14
8-K
001-13107
4.2
9/21/15
8-K
001-13107
8-K
001-13107
8-K
001-13107
10-Q
001-13107
4.2
4.3
4.3
4.2
9/21/15
9/21/15
9/21/15
4/22/16
10-Q
001-13107
4.3
4/22/16
10-Q
001-13107
4.4
4/22/16
10-Q
001-13107
4.2
10/28/16
10-Q
001-13107
4.3
10/28/16
10-Q
001-13107
4.4
10/28/16
10-Q
001-13107
4.2
11/2/17
10-Q
001-13107
4.3
11/2/17
Exhibit
Number
4.18
4.19
4.20
4.21
4.22
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
EXHIBIT INDEX
Exhibit Description
Supplemental Indenture to 2010 Indenture, dated August
3, 2017, relating to the Company’s 4.5% Senior Notes
due 2025.
Supplemental Indenture to 2010 Indenture, dated
November 10, 2017, relating to the Company’s 3.5%
Senior Notes due 2024.
Form of 3.5% Senior Notes due 2024 (included in
Exhibit 4.19).
Supplemental Indenture to 2010 Indenture, dated
November 10, 2017, relating to the Company’s 3.8%
Senior Notes due 2027.
Form of 3.8% Senior Notes due 2027 (included in
Exhibit 4.21).
AutoNation, Inc. 1995 Amended and Restated Employee
Stock Option Plan, as amended and restated.
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.
Amended and Restated Employment Agreement, dated
September 17, 2018, by and between AutoNation, Inc.
and Michael J. Jackson.
Retirement Agreement and General Release of All
Claims, dated March 7, 2017, by and between
AutoNation, Inc. and Jonathan P. Ferrando.
Separation Agreement and General Release of All
Claims, dated May 31, 2017, by and between
AutoNation, Inc. and William R. Berman.
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.
Incorporated by Reference
Form
10-Q
File Number Exhibit
4.4
001-13107
Filing Date
11/2/17
8-K
001-13107
4.2
11/13/17
8-K
001-13107
8-K
001-13107
4.3
4.4
11/13/17
11/13/17
8-K
001-13107
4.5
11/13/17
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
333-214308
99.1
10/28/16
8-K
001-13107
10.1
9/19/18
8-K
001-13107
10.1
3/8/17
8-K
001-13107
10.1
6/1/17
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
AutoNation, Inc. 2014 Non-Employee Director Equity
Plan (the “2014 Director Plan”).
Terms of Non-Employee Director Restricted Stock Units
granted under the 2014 Director Plan.
Amendment to the 2014 Director Plan, effective as of
January 31, 2017.
10-Q
001-13107
10.6
4/18/14
10-Q
001-13107
10.2
7/17/14
10-Q
001-13107
10.1
4/25/17
102
Exhibit
Number
10.16
10.17
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
10.34
10.35
10.36
EXHIBIT INDEX
Exhibit Description
AutoNation, Inc. 2008 Employee Equity and Incentive
Plan (the “2008 Plan”).
Form of Stock Option Agreement under the 2008 Plan
(for grants made in 2009-2013).
Form of Stock Option Agreement under the 2008 Plan
(for grants made in 2014).
Form of Stock Option Agreement under the 2008 Plan
for grants in 2015.
Form of Restricted Stock Agreement under the 2008
Plan for grants in 2015.
Form of Stock Option Agreement under the 2008 Plan
for grants in 2016.
Form of Restricted Stock Agreement under the 2008
Plan for grants in 2016.
AutoNation, Inc. Policy Regarding Recoupment of
Certain Incentive Compensation.
AutoNation, Inc. 2017 Employee Equity and Incentive
Plan (the “2017 Plan”).
Form of AutoNation, Inc. Stock Unit Awards Agreement
under the 2017 Plan for grants in 2017.
Form of AutoNation, Inc. Restricted Stock Unit Award
Agreement under the 2017 Plan.
Form of AutoNation, Inc. Stock Unit Awards Agreement
under the 2017 Plan for grants in 2018.
AutoNation, Inc. Executive Severance Plan, adopted as
of April 18, 2018.
Separation Agreement and General Release of All
Claims, dated January 3, 2019, by and between
AutoNation, Inc. and Donna Parlapiano.
Separation Agreement and General Release of All
Claims, dated January 17, 2019, by and between
AutoNation, Inc. and Thomas M. Conophy.
Separation Agreement and General Release of All
Claims, dated January 17, 2019, by and between
AutoNation, Inc. and Lance Iserman.
Separation Agreement and General Release of All
Claims, dated January 31, 2019, by and between
AutoNation, Inc. and Dennis Berger.
Employment Agreement, dated as of February 18, 2019,
by and between AutoNation, Inc. and Carl C. Liebert III.
Honda Agreement, dated January 28, 2009, between
AutoNation, Inc., American Honda Motor Co., Inc. and
ESL Investments, Inc.
Stockholder Agreement, dated August 16, 2010, among
AutoNation, Inc., Cascade Investment, L.L.C. and the
Bill & Melinda Gates Foundation Trust.
Second Amended and Restated Credit Agreement, dated
October 19, 2017, by and among the Company,
JPMorgan Chase Bank, N.A. as Administrative Agent,
and the other parties thereto.
103
Incorporated by Reference
Form
10-Q
File Number Exhibit
10.1
001-13107
Filing Date
4/25/08
10-Q
001-13107
10.4
4/24/09
8-K
001-13107
10.1
3/7/14
10-Q
001-13107
10.4
4/22/15
10-Q
001-13107
10.5
4/22/15
10-Q
001-13107
10.1
4/22/16
10-Q
001-13107
10.2
4/22/16
8-K
001-13107
10.1
2/6/15
8-K
001-13107
10.1
4/21/17
8-K
001-13107
10.2
4/21/17
10-Q
001-13107
10.3
8/2/17
10-Q
001-13107
10.1
5/1/18
10-Q
001-13107
10.2
5/1/18
8-K
001-13107
10.1
1/9/19
8-K
001-13107
10.1
1/24/19
8-K
001-13107
10.1
2/22/19
8-K
001-13107
10.1
1/29/09
8-K
001-13107
10.1
8/16/10
8-K
001-13107
10.1
10/24/17
Incorporated by Reference
Form
8-K
File Number Exhibit
10.1
001-13107
Filing Date
5/22/15
Exhibit
Number
10.37
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS*
101.SCH*
101.CAL*
101.DEF*
EXHIBIT INDEX
Exhibit Description
Form of Commercial Paper Dealer Agreement between
AutoNation, Inc., as Issuer, and the Dealer party thereto.
Subsidiaries of AutoNation, Inc.
Consent of KPMG LLP.
Certification of Principal Executive Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Certification of Principal Financial Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
Certification of Principal Executive Officer Pursuant to
Rule 13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350.
Certification of Principal Financial Officer Pursuant to
Rule 13a-14(b) of the Exchange Act and 18 U.S.C.
Section 1350.
XBRL Instance Document - the instance document does
not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
Document
*
**
Filed herewith
Furnished herewith
Exhibits 10.1 through 10.33 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.
104
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 22, 2019
/s/ MICHAEL J. JACKSON
Michael J. Jackson
Chairman, Chief Executive Officer and President
Exhibit 31.2
I, Cheryl Miller, 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 22, 2019
/s/ CHERYL MILLER
Cheryl Miller
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, 2018, 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 22, 2019
/s/ MICHAEL J. JACKSON
Michael J. Jackson
Chairman, Chief Executive Officer and President
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, 2018, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Cheryl Miller, Executive
Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ CHERYL MILLER
Cheryl Miller
Executive Vice President and Chief Financial Officer
February 22, 2019
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THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Corporate Information
EXECUTIVE COMMITTEE
Mike Jackson
Chairman of the Board, Chief Executive Officer
and President
H. Scott Arnold
Executive Vice President, Customer Care and
Brand Extensions
James R. Bender
Executive Vice President, Sales
Marc Cannon
Executive Vice President and Chief Marketing Officer
C. Coleman Edmunds
Executive Vice President, General Counsel and
Corporate Secretary
Cheryl Miller
Executive Vice President and Chief Financial Officer
BOARD OF DIRECTORS
Rick L. Burdick 2, 3, 6
Partner, Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Tomago Collins 1, 5
Vice President, Communications,
Kroenke Sports & Entertainment
David B. Edelson 1, 4
Senior Vice President and Chief Financial Officer,
Loews Corporation
Robert R. Grusky 1
Founder and Managing Member,
Hope Capital Management, LLC
Mike Jackson
Chairman of the Board, Chief Executive Officer
and President, AutoNation, Inc.
Kaveh Khosrowshahi 4, 5
Partner and Managing Director,
Allen & Company LLC
G. Mike Mikan 2, 3, 4
Vice Chairman and President,
Bright Health, Inc.
Alison H. Rosenthal 3, 5
Founding Partner,
Moxie Works
Jacqueline A. Travisano, Ed.D. 1, 5
Executive Vice President for Business
and Finance & Chief Operating Officer
University of Miami
1 Member of Audit Committee
2Member of Compensation Committee
3Member of Corporate Governance and Nominating Committee
4Member of Finance Committee
5Member of Technology Committee
6Lead Independent Director
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, Thursday, April 18, 2019 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 February 20, 2019, there were 1,441 stockholders of record.
TRANSFER AGENT
For inquiries regarding address changes, stock transfers,
lost shares, or other account matters, please contact:
Computershare Investor Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
(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.
www.AutoNation.com
Drive Pink. Drive Safe. Drive Now.
AutoNation.com