2 0 2 0
A
u
t
o
N
a
t
i
o
n
,
I
n
c
.
2
0
2
0
Drive Pink.
Drive Safe.
Drive Now.
A
N
N
U
A
L
R
E
P
O
R
T
ANNUAL REPORT
Drive Pink.
Drive Safe.
Drive Now.
Drive Pink.
Drive Safe.
Drive Now.
Drive Pink. Drive Safe. Drive Now.
Drive Pink. Drive Safe. Drive Now.
AutoNation.com
Drive Pink. Drive Safe. Drive Now.
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, 2020
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
Trading Symbol(s)
Name of each exchange on which registered
AN
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 þ 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 þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically 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 þ No ¨
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.
Large accelerated filer
Non-accelerated filer
þ 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of June 30, 2020, the aggregate market value of the common stock of the registrant held by non-affiliates was approximately $2.1 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 30, 2020).
As of February 12, 2021, the registrant had 82,232,776 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year ended December 31, 2020 are incorporated herein by reference in Part III.
AUTONATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
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
PART III
Executive Compensation
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.
Page
1
13
21
21
21
21
22
24
25
54
55
101
101
101
102
102
102
103
103
104
104
ITEM 1. BUSINESS
General
PART I
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31,
2020, we owned and operated 315 new vehicle franchises from 230 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and
well-known in our key markets, sell 32 different new vehicle brands. The core brands of new vehicles that we sell,
representing approximately 89% of the new vehicles that we sold in 2020, are manufactured by Toyota (including Lexus),
Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). As of
December 31, 2020, we also owned and operated 74 AutoNation-branded collision centers, 5 AutoNation USA used
vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers.
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 2020.
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, 2020, 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
Nissan
Subaru
Toyota
Volkswagen
Volvo
Alfa Romeo
Audi
Bentley
BMW
Jaguar
Land Rover
Lexus
Maserati
Mercedes-Benz
MINI
Porsche
Sprinter
1
The following table sets forth information regarding our new vehicle revenues and retail new vehicle unit sales for the
year ended, and the number of franchises owned as of, December 31, 2020:
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
Import:
Toyota
Honda
Nissan
Other Import
Import Total
Premium Luxury:
Mercedes-Benz
BMW
Lexus
Audi
Jaguar Land Rover
Other Premium Luxury
Premium Luxury Total
$
$
1,293.3
1,099.5
1,018.3
3,411.1
1,628.8
910.9
169.2
574.8
28,901
28,020
23,766
80,687
51,692
32,967
6,250
18,168
3,283.7
109,077
1,406.2
943.1
316.7
301.2
439.2
317.4
3,723.8
10,418.6
22,768
15,311
6,770
5,569
5,861
3,611
59,890
249,654
11.6
11.2
9.5
32.3
20.7
13.2
2.5
7.3
43.7
9.1
6.1
2.7
2.2
2.3
1.6
24.0
100.0
35
40
68
143
19
24
7
28
78
38
16
3
8
16
13
94
315
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, 2020, Premium Luxury revenue represented
35% of total revenue, Domestic revenue represented 32% of total revenue, and Import revenue represented 29% of total
revenue. For additional financial information regarding our three reportable segments, refer to Note 21 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. We have
2
enhanced the AutoNation Express experience - our integrated retailing solution that provides customers with a
seamless and intuitive omnichannel vehicle shopping and purchase experience - by continuing to build
omnichannel digital capabilities that provide a personalized digital customer experience online and in-store. Our
customers are able to complete key automotive retail- and service-related transactions through our digital channels
such as selecting and reserving a vehicle with a guaranteed price, scheduling a test drive, calculating payment
options, receiving a certified trade-in or purchase offer for a vehicle that a customer wants to sell, applying for
financing, selecting vehicle protection products, scheduling in-store pick up or home delivery, arranging service
appointments, receiving service updates, and paying for maintenance and repair services online. We have also
developed proprietary tools that leverage real-time customer data to guide and personalize the customer
experience.
Since the onset of the pandemic, we have implemented cleaning, sanitization, and social distancing best practices
at all of our stores to ensure our customers are afforded a clean and safe environment.
•
Continue to invest in the AutoNation retail brand to enhance our strong customer satisfaction and expand our
market share.
We continue to build upon our comprehensive, customer-focused brand extension strategy by expanding our
AutoNation USA used vehicle store footprint. We plan to build over 100 AutoNation USA stores with
approximately 50 stores completed by the end of 2025. The first phase of the AutoNation USA store expansion
will include extending AutoNation’s coast to coast footprint into new markets. AutoNation USA stores will
continue to leverage the AutoNation brand and its proven processes for a competitive advantage. With the
AutoNation USA store expansion, we have set a long-term goal of retailing over one million combined new and
used vehicle units per year. We anticipate that our capital investments for the AutoNation USA store expansion
through the end of 2025 will exceed $500 million in the aggregate.
Our brand extension strategy also includes AutoNation-branded Customer Financial Services products (including
extended service and maintenance contracts and other vehicle protection products), AutoNation-branded parts and
accessories, AutoNation-branded collision centers, and AutoNation-branded automotive auctions, as well as our
One Price used vehicle centralized pricing and appraisal strategy, 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 expect that these initiatives will continue to 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. We also leverage our digital
capabilities to drive cost reductions and increased efficiency for the long-term success of our business. Finally, we
leverage our scale to reduce costs related to purchasing certain equipment, supplies, and services through national
vendor relationships.
Our business benefits from a well-diversified portfolio of automotive retail franchises. In 2020, approximately 39% of
our segment income for reportable segments was generated by Premium Luxury franchises, approximately 32% by Import
franchises, and approximately 29% 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.
3 Our capital allocation strategy is focused on growing long-term value per share. 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 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 and our “We’ll Buy Your Car” program, as well as through auctions, lease
terminations, and other sources, and we generally 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
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, and receive a commission payable to us from the lender. 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, many of
which 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
we also participate in future underwriting profit for certain products pursuant to retrospective commission arrangements
with the issuers of those products.
4 As of December 31, 2020, we operated stores in the following states:
State
Florida
Texas
California
Colorado
Arizona
Washington
Nevada
Georgia
Illinois
Tennessee
Maryland
New York
Ohio
Virginia
Alabama
Minnesota
Total
Number of
Stores
Number of
Franchises
49
40
37
15
14
14
11
14
7
8
7
4
4
2
3
1
230
59
62
49
25
18
19
13
22
8
12
9
6
4
2
6
1
315
% of Total
Revenue (1)
24
21
19
7
6
5
4
4
2
2
1
1
1
1
1
1
100
(1) Revenue by state includes revenue from non-dealership operations, such as collision centers, AutoNation
USA used vehicle stores, automotive auction operations, and parts distribution centers.
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.
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
5
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 how we
conduct our 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”). 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
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
6 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.
Markets and 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.
New vehicle unit volume has been impacted by reduced availability of inventory due to inventory shortages from
manufacturer plant closures resulting from the COVID-19 pandemic. We expect that new vehicle inventory shortages will
continue into 2021. Continued elevated levels in off-lease supply of late-model used vehicles has resulted in wider
availability of in-demand technology features on used vehicles. Additionally, affordability of used vehicles has increased as
compared to new vehicles. These changing dynamics in the used vehicle market have resulted in reduced disparity between
used vehicles and new vehicles, and a corresponding shift in demand from new vehicles to used vehicles. In response to
these shifting dynamics we have prioritized our capital expenditures towards opportunities with the greatest return potential
and we plan to expand our AutoNation USA used vehicle store footprint by building over 100 new stores, with 5 completed
by the end of 2021 and 50 completed by the end of 2025.
According to industry sources, as of December 31, 2020, there were approximately 16,600 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, non-franchised dealers that sell only used vehicles, and
manufacturers that sell directly to customers, (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
7 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.
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.
Human Capital
As of December 31, 2020, we employed approximately 21,600 full-time and part-time associates, approximately 230 of
whom were covered by collective bargaining agreements. We believe that we have good relations with our associates. See
“Corporate Social Responsibility – Our Workplace” below for more information on human capital measures and objectives
that we focus on in managing the business.
8 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.
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.
Information about our Executive Officers
The following sets forth certain information regarding our executive officers as of February 16, 2021.
Name
Mike Jackson
Age
72
Chief Executive Officer and Director
Position
James R. Bender
65
President and Chief Operating Officer
Joseph T. Lower
54
Executive Vice President and Chief Financial Officer
Marc Cannon
C. Coleman Edmunds
59
56
Executive Vice President and Chief Customer
Experience Officer
Executive Vice President, General Counsel and
Corporate Secretary
Years with
AutoNation
21
Years in
Automotive
Industry
50
21
1
23
25
44
1
34
25
Mike Jackson has served as our Chief Executive Officer since April 2020 and as a Director since September 1999. He
also served as our Chief Executive Officer from September 1999 until March 2019, as our Chairman of the Board from
January 2003 until February 2021, as our President from February 2015 until January 2017 and from June 2017 until
March 2019, and as our Executive Chairman from March 2019 until April 2020. 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.
James R. Bender has served as our President since April 2020 and as our Chief Operating Officer since July 2019. Mr.
Bender is responsible for new and used vehicle sales, as well as Customer Financial Services, Customer Care, Human
Resources, Corporate Development, and Manufacturer Relations. From January 2019 until July 2019, he served as our
9 Executive Vice President, Sales, and from July 2019 until April 2020, he served as our Executive Vice President and Chief
Operating Officer. 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.
Joseph T. Lower has served as our Executive Vice President and Chief Financial Officer since January 2020. Mr.
Lower is responsible for overseeing the finance department and for all financial controls and external reporting, financial
planning and analysis, and accounting, as well as the tax, internal audit, treasury, investor relations, and corporate real
estate functions. He is also responsible for our strategy department and the Company’s shared service center in Irving,
Texas. Prior to joining AutoNation, Mr. Lower served as Executive Vice President and Chief Financial Officer of Office
Depot, Inc. from January 2018 until January 2020. From November 2014 until April 2017, he served as Vice President and
Chief Financial Officer of B/E Aerospace. Prior to joining B/E Aerospace, Mr. Lower held a number of management-level
positions at The Boeing Company, including as Vice President - Business Development and Strategy from October 2009
until October 2014 and as Vice President - Corporate & Strategic Development from May 2002 until October 2009. In
addition, among other finance positions, Mr. Lower spent six years with Credit Suisse in various investment banking roles,
including positions in mergers and acquisitions and corporate finance.
Marc Cannon has served as an Executive Vice President since January 2017 and as our Chief Customer Experience
Officer since April 2020. 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. 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.
Corporate Social Responsibility
We strive to conduct our business in an ethical and socially responsible way, and we are sensitive to the needs of the
environment, the communities in which we operate, our customers, our suppliers, our shareholders, and our associates.
The Environment
We are committed to managing our environmental impact and continually work to reduce it where practicable. The
following highlights some of our environmental stewardship initiatives:
• Product offering: We offer a wide variety of environmentally friendly vehicles, including electric, flex fuel/electric
hybrid, gas/electric hybrid, and flex fuel capable. We expect our manufacturer partners to continue to enhance their
offerings of these types of vehicles.
• Building and maintenance: As we build new facilities, we take various measures to reduce our environmental impact,
such as reducing water consumption, locally sourcing materials, and improving air quality. In addition, as we build
new or renovate existing facilities, we install or convert to LED lighting where possible and practicable. Our
corporate headquarters building in Fort Lauderdale, Florida, is LEED Gold Certified, and is one of several LEED
certified properties that we occupy.
• Recycling: In addition to adhering to recycling statutes, we try to maximize our recycling efforts where practicable,
whether water, oil, tire rubber, scrap metal, paper, plastic, car batteries, radiator cores, or other materials.
• Stewardship: We have implemented an Environmental, Health and Safety Compliance Program, which includes
training and consulting support at our dealerships and other operating entities.
10 Our Communities
We are committed to supporting the communities in which we operate. We encourage our associates to be active
members in the communities where they live and work through volunteerism and charitable giving. Cancer touches nearly
everyone and that is why supporting cancer research and treatment is so important to us. 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 our 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 21,600 associates, vendors, partners, customers, and executive leadership, we have
raised and donated over $25 million to support the world-class AutoNation Institute for Breast Cancer Research and Care,
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 two million pink license plate frames have been distributed to date.
Our Business and Our Customers
We are proud to be the leader in the automotive retail industry and we strive to create transparency and establish
unparalleled trust with our customers or others with whom we do business.
• Ethical standards: We have a Code of Business Ethics in place to help support our commitment to business ethics
and responsibility. This Code describes our standards of business conduct and the steps AutoNation takes to ensure
that our standards are understood and followed. Each AutoNation associate throughout the organization is expected to
comply with the standards set forth in the Code. We also maintain a 24-hour Alert-Line for associates to
anonymously report any Company policy violations under our Business Ethics Program.
• Customer satisfaction: 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 in a clean and safe
environment. We measure customer satisfaction and loyalty on a regular basis with a mission to deliver a peerless
customer experience.
• Supplier relationships and sustainable procurement: We purchase products and services at a fair value regardless of
the manufacturer or provider, while conducting our operations according to high standards of business conduct and
all applicable legal requirements. For international suppliers that operate in geographic locations that do not mandate
the same level of standards as the United States, we generally require such suppliers to adhere to various standards
related to labor, environmental, health and safety, product safety, and anti-corruption, among others. We are also a
member of an affiliate of the National Minority Supplier Development Council, which focuses on advancing business
opportunities for certified minority business enterprises.
Our Workplace
AutoNation values the dignity of all employees and is committed to maintaining a work environment where all
associates are valued and treated with respect. We seek to develop and foster a diverse and inclusive work environment
based on ethics and integrity where all associates can devote their best efforts to their jobs.
• Respect in the Workplace: At AutoNation, we provide equal employment and promotional opportunities for all
associates, as well as any individual applying for employment without regard to race, religion, sex, sexual orientation,
gender identity or expression, national origin, age, disability, or any other protected characteristic as defined by
applicable federal, state, or local law. We are committed to maintaining a work environment free from sexual and
other harassment.
11 • Employee benefits: We offer a variety of employee benefits, such as competitive salaries/compensation plans,
incentive compensation potential, and health and welfare benefits. Many of the valuable benefits we offer are free to
our associates, including an innovative Company-paid cancer insurance plan that provides financial assistance to
associates, their spouses, and their children who are diagnosed with cancer. This Company-paid benefit is offered by
fewer than 5% of companies nationally and it underscores our commitment to driving out cancer.
• Healthy living: We encourage our associates and their families to be mindful of their physical and mental health, and
we offer programs that provide free and confidential support services for a multitude of issues, such as legal, family/
marital, and stress/anxiety, among others. We also provide a complimentary biometric screening for our associates
and their spouses to raise their awareness of certain factors that can affect their health and increase the risk for heart
disease, diabetes, or stroke. In addition, employees are eligible to receive annual company contributions to a health
savings account from the company based on the type of coverage selected.
• Diversity: We endeavor to attract and retain diverse and talented people throughout our Company by engaging in
diversity and inclusion initiatives, including programs specifically designed to develop diverse groups of leaders and
to recruit current and former military personnel, among others.
Corporate Governance
Our Board of Directors is committed to sound corporate governance principles and practices, which are set forth in our
Corporate Governance Guidelines that serve as a framework within which our Board conducts its operations. The
Corporate Governance and Nominating Committee of our Board is charged with reviewing annually, or more frequently as
appropriate, the Guidelines and recommending to our Board appropriate changes in light of applicable laws and
regulations, the governance standards identified by leading governance authorities, and our Company’s evolving needs.
Our Board of Directors consists of a diverse group of leaders. Many of them have experience serving as executive
officers or on boards and board committees of major companies. Many of them also have extensive corporate finance and
investment banking experience as well as a broad understanding of capital markets. A majority of our Board of Directors is
independent, and each of the members of our audit, compensation, and corporate governance and nominating committees is
independent. Each of our directors must stand for re-election annually and are elected by a majority of our shareholders. In
addition, Rick L. Burdick, one of our independent directors, currently serves as our Chairman of the Board.
Investor Relations
Our relationship with our shareholders is an important part of AutoNation’s success. We have an investor outreach
program committed to engaging with current and prospective stockholders and obtaining their perspectives. Our integrated
outreach team engages proactively with our stockholders by participating in activities such as quarterly financial results
conference calls, industry conferences and events, and one-on-one meetings.
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
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission (the “SEC”).
12 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 the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, the actions
we are taking in response to the COVID-19 pandemic, our strategic initiatives, partnerships, or investments, including the
planned expansion of our AutoNation USA used vehicle stores, our investments in digital and online capabilities, and other
brand extension strategies, and other statements regarding 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, 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:
Risks Related to Economic Conditions
The automotive retail industry is sensitive to changing economic conditions and various other factors, including, but not
limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. Our business and results of
operations are substantially dependent on new and used 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, labor force participation and 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, global pandemics, 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, rapid changes in fuel
prices can cause 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 14.6 million, 17.0 million, and 17.3 million new vehicles, including retail and fleet vehicles, were sold in
the United States in 2020, 2019, and 2018, respectively. We currently expect that the annual rate of U.S. new vehicle unit
sales will approach 16 million units in 2021. However, actual sales may materially differ. Our performance may differ from
the performance of the automotive retail industry due to particular economic conditions and other factors in the geographic
13 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.
The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, results of operations, and financial
condition going forward. Future epidemics, pandemics, and other outbreaks could also disrupt our business, results of
operations, and financial condition.
The COVID-19 pandemic has led to disruptions in each of our markets and the global economy. Throughout the
COVID-19 pandemic, federal, state, and local governments have implemented a number of countermeasures to mitigate the
impact of the COVID-19 pandemic, including a number of “shelter in place” or “stay at home” orders in the states and
regions in which we operate, restrictions on travel, and restrictions on the types of businesses that can operate or the manner
in which they may operate. As a result of the COVID-19 pandemic, we experienced significant declines in new and used
vehicle unit sales and sales of our finance and insurance products, particularly during the first and second quarters of 2020. In
addition, our parts and service business operated below full capacity during 2020 as a result of the countermeasures discussed
above and a decrease in the average miles being driven in our markets during the COVID-19 pandemic.
The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial
condition will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and
duration of the COVID-19 pandemic, further actions that may be taken by federal, state, and local governments and third
parties in response to the pandemic, the effectiveness of actions taken to contain the disease, the effectiveness of vaccines and
the rollout of the vaccines, the effect of government assistance programs, and other unforeseen factors.
Depending on the magnitude and duration of the COVID-19 pandemic, the disruption and adverse impact of the
COVID-19 pandemic on our business, results of operations, and financial condition could be material. The COVID-19
pandemic also may heighten or exacerbate many of the other risks discussed herein. Even after the COVID-19 pandemic has
subsided, we may continue to experience significant adverse effects to our business as a result of its economic impact,
including any economic recession or downturn and the impact of such a recession or downturn on unemployment levels,
consumer confidence, levels of personal discretionary spending, and credit availability. Future epidemics, pandemics, and
other outbreaks could disrupt and have a similar adverse impact on our business, results of operations, and financial
condition.
Risks Related to Vehicle Manufacturers
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 prior years, 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 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 design, manufacture, and allocate to our stores an attractive, high-quality, and desirable product mix
at the right time and at the right price 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.
14 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 89% of the new vehicles that we sold in 2020, are
manufactured by Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, 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, liquidity concerns, 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), tariffs and other
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.
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 and financial condition.
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 or loyalty, 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
15 meeting certain performance criteria at our existing stores (with respect to matters such as sales volume, sales effectiveness,
and customer satisfaction or loyalty) until our performance improves in accordance with the agreements, subject to applicable
state franchise laws.
Manufacturers also have the right to establish new franchises or relocate existing franchises, subject to applicable state
franchise laws. The establishment or relocation of franchises in our markets could have a material adverse effect on the
financial condition, results of operations, cash flows, and prospects of our stores in the market in which the franchise action is
taken.
Our framework, franchise, and related agreements also grant the manufacturer the right to terminate or compel us to sell
our franchise for a variety of reasons (including uncured performance deficiencies, any unapproved change of ownership or
management, or any unapproved transfer of franchise rights or impairment of financial standing or failure to meet capital
requirements), subject to applicable state franchise laws. From time to time, certain major manufacturers assert sales and
customer satisfaction performance deficiencies under the terms of our framework and franchise agreements. Additionally, our
framework agreements contain restrictions regarding a change in control, which may be outside of our control. See
“Agreements with Vehicle Manufacturers” in Part I, Item 1 of this Form 10-K. While we believe that we will be able to
renew all of our franchise agreements, we cannot guarantee that all of our franchise agreements will be renewed or that the
terms of the renewals will be favorable to us. We cannot assure you that our stores will be able to comply with
manufacturers’ sales, customer satisfaction, loyalty, 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.
Risks Related to Strategic Initiatives
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 AutoNation USA used vehicle stores, branded
Customer Financial Services products, branded parts and accessories, branded collision centers, and branded automotive
auctions. In connection with our brand extension strategy, we 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. These strategic initiatives
may be impacted by a number of variables, including customer adoption, availability of used vehicle inventory, demand for
our branded products, market conditions, and our ability to identify, acquire, and build out suitable locations in a timely
manner. In addition, we depend on sourcing our branded parts and accessories through various partnerships and third-party
suppliers. Our partners and third-party suppliers may be adversely impacted by a number of factors, including supply
shortages, rising raw material costs, delays in shipping, economic downturns, liquidity concerns, natural disasters, labor
strikes or shortages, fluctuations in currency exchange rates, product defects, litigation, governmental laws and regulations,
tariffs and export product restrictions, and adverse publicity relating to their employment, environmental, or other business
practices. 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, and we may be required to incur impairment charges.
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
16 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. We have invested and will continue to invest substantial resources on offering our vehicles and services through
digital channels. There can be no assurance that our initiatives and investments in digital channels will be successful or result
in improved financial performance. We face increased competition for market share from other automotive retailers and sales
platforms that have also invested substantial resources on offering their vehicles and services through digital channels. 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.
The carrying value of our minority equity investment in Waymo does not have a readily determinable fair value and is
required to be adjusted for observable price changes or impairments, both of which could adversely impact our results of
operations and financial condition.
Our minority equity investment in Waymo does not have a readily determinable fair value. We have elected to measure
this equity investment using a measurement alternative permitted by accounting standards and recorded the equity investment
at cost to be subsequently adjusted for observable price changes or impairment, if any. There may be future issuances of
identical or similar equity securities by Waymo that would result in observable price changes that could result in upward or
downward adjustments to our equity investment. A downward adjustment to or impairment of this equity investment could
adversely impact our results of operations and financial condition.
Risks Related to Legal, Regulatory, and Compliance Matters
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. 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.
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.
17 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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010, 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 from the Dodd-Frank
Act, the CFPB could engage in 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 has a rule, pursuant to its authority under the Dodd-Frank Act, that expanded 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.
Risks Related to Cybersecurity
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,
18 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 adversely affect our results of operations.
Risks Relating to our Indebtedness
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.
As of December 31, 2020, we had $2.1 billion of total non-vehicle debt and $2.8 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;
19 •
•
•
Our variable interest rate debt will fluctuate with changing market conditions and, accordingly, our interest expense
will increase if interest rates rise;
An increase in our leverage ratio could negatively impact the applicable margins on interest rates charged for
borrowings under our revolving credit facility; and
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. Instability or disruptions of the capital markets,
including credit markets, or the deterioration of our financial condition due to internal or external factors, could restrict or
prohibit our access to capital markets and increase our financing costs. 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 or decrease in manufacturer floorplan assistance would not have a material adverse effect
on our business, financial condition, results of operations, or cash flows.
Risks Relating to Accounting Matters
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. We recorded
non-cash goodwill impairment charges of $318.3 million during 2020 and non-cash franchise rights impairment charges of
$57.5 million and $9.6 million during 2020 and 2019, respectively. See Note 18 of the Notes to Consolidated Financial
Statements for more information.
Risks Relating to our Stockholders
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 16, 2021, William H. Gates III beneficially owns approximately
22% of the outstanding shares of our common stock, through holdings by Cascade Investment, L.L.C. (“Cascade”), which is
solely owned by Mr. Gates. As a result, Cascade 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 16, 2021, ESL Investments, Inc. together with certain of its
investment affiliates (collectively, “ESL”) beneficially owns approximately 14% of the outstanding shares of our common
20 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 16, 2021, William H. Gates III and ESL
beneficially own approximately 37% 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.
Natural disasters and adverse weather events can disrupt our business.
General Risk Factors
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.
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, parts distribution 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
See Note 19 of the Notes to Consolidated Financial Statements for information about our legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
21 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 12, 2021, there
were 1,223 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
the three and twelve months ended December 31, 2020.
Period
October 1, 2020 – October 31, 2020
November 1, 2020 – November 30, 2020
December 1, 2020 – December 31, 2020
Total for three months ended
December 31, 2020
Total for twelve months ended
December 31, 2020
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
550,000 $
1,910,000 $
2,280,266 $
58.41
61.16
67.22
4,740,266
7,248,040
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)
467.9
351.1
197.8
550,000 $
1,910,000 $
2,280,266 $
4,740,266
7,244,825
(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, 2020, $197.8 million remained available under our stock repurchase limit. Our
stock repurchase program does not have an expiration date. In 2020, all of our shares were repurchased under our
stock repurchase program, except for 3,215 shares that were surrendered to AutoNation in the first quarter of 2020 to
satisfy tax withholding obligations in connection with the vesting of restricted stock. In February 2021, our Board of
Directors increased the share repurchase authorization by $1 billion.
22
Stock Performance Graph
The following graph and table compare the cumulative total stockholder return on our common stock from
December 31, 2015 through December 31, 2020 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, 2015 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© 2021 Standard & Poor's, a division of S&P Global. All rights reserved.
AutoNation Inc.
S&P 500
Public Auto Retail Peer Group
12/2015
12/2016
12/2017
12/2018
12/2019
12/2020
100.00
100.00
100.00
81.55
111.96
113.06
86.04
136.40
112.71
59.84
130.42
101.78
81.51
171.49
152.39
116.98
203.04
191.10
23
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:
2020
As of and for the Years Ended December 31,
2018
2017
2019
2016
Revenue
$ 20,390.0 $ 21,335.7 $ 21,412.8 $ 21,534.6 $ 21,609.0
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 (1)
Long-term debt, net of current maturities (1)
Shareholders’ equity
Retail vehicle unit sales (continuing operations):
$
$
$
$
$
$
$
$
$
$
$
New vehicle
Used vehicle
Total
550.1 $
612.6 $
529.4 $
636.5 $
381.6 $
450.0 $
396.0 $
434.6 $
702.3
430.5
4.32 $
5.00 $
4.36 $
4.45 $
4.19
— $
(0.01) $
— $
— $
(0.01)
4.32 $
4.99 $
4.36 $
4.44 $
88.3
90.1
90.9
97.8
4.18
103.1
4.30 $
4.98 $
4.34 $
4.43 $
4.16
— $
(0.01) $
— $
— $
(0.01)
4.30 $
4.97 $
4.34 $
4.43 $
88.7
83.5
90.5
89.3
91.3
90.0
98.2
91.6
4.15
103.8
100.7
9,887.2 $ 10,543.3 $ 10,665.1 $ 10,271.5 $ 10,060.0
1,792.6 $
1,578.5 $
1,926.2 $
1,959.2 $
1,611.1
3,235.7 $
3,162.1 $
2,716.0 $
2,369.3 $
2,310.3
249,654
241,182
490,836
282,602
246,113
528,715
310,839
237,722
548,561
329,116
234,148
563,264
337,622
225,713
563,335
(1) Effective January 1, 2019, we adopted the new lease accounting standard (ASC Topic 842) that 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. We adopted this accounting standard using the optional transition method with no
restatement of comparative periods. Therefore, the comparative information for years prior to 2019 has not been
adjusted and continues to be reported under ASC Topic 840.
See the Notes to Consolidated Financial Statements for additional information.
24
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. This section of this Form 10-K includes discussion of year-to-year comparisons between 2020 and 2019.
Discussion of year-to-year comparisons between 2019 and 2018 can be found in “Management’s Discussion and Analysis
of Financial Conditions and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2019.
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,
2020, we owned and operated 315 new vehicle franchises from 230 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and
well known in our key markets, sell 32 different new vehicle brands. The core brands of new vehicles that we sell,
representing approximately 89% of the new vehicles that we sold in 2020, are manufactured by Toyota (including Lexus),
Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). As of
December 31, 2020, we also owned and operated 74 AutoNation-branded collision centers, 5 AutoNation USA used
vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers.
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, 2020, 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, Subaru, 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, 2020, new vehicle sales accounted for 51% of our total revenue and 16% of our total
gross profit. Used vehicle sales accounted for 27% of our total revenue and 13% of our total gross profit. Our parts and
service operations, while comprising 16% of our total revenue, contributed 41% of our total gross profit. Our finance and
insurance sales, while comprising 5% of our total revenue, contributed 30% of our total gross profit.
Market Conditions
Full-year U.S. industry new vehicle unit sales were 14.6 million in 2020, as compared to 17.0 million in 2019 and 17.3
million in 2018. We currently expect that the annual rate of U.S. new vehicle unit sales will approach 16 million units in
2021. However, actual sales may materially differ. New vehicle unit volume has been impacted by reduced availability of
inventory due to inventory shortages from manufacturer plant closures resulting from the COVID-19 pandemic. We expect
that new vehicle inventory shortages will continue into 2021. Compared to the prior year, full-year U.S. industry used
vehicle unit sales in 2020 decreased 7.0% and our full year used vehicle unit sales decreased 2.0%. During the second half
of 2020, both industry and our used vehicle unit volume increased compared to the same period in the prior year. Market
demand for used vehicles has increased due in part to increased affordability compared to new vehicles and decreased
availability of new vehicles. The tight supply of new vehicle inventory and increased demand for used vehicles benefited
new and used vehicle margins in 2020. While vehicle unit volume and parts and service volume improved during the
second half of 2020, continued elevated levels of COVID-19 cases in the United States, and particularly in states where we
25 have a significant presence, could lead to additional governmental orders and other market disrupting impacts that could
materially adversely impact our business. Additionally, any adverse economic impacts resulting from the COVID-19
pandemic, including any potential economic recessions or downturns, could materially adversely impact our business in
future periods.
Results of Operations
We had net income from continuing operations of $381.8 million and diluted earnings per share of $4.30 in 2020, as
compared to net income from continuing operations of $450.8 million and diluted earnings per share of $4.98 in 2019.
Our total gross profit increased 1% during 2020, driven primarily by increases in new vehicle and used vehicle gross
profit of 16% and 25%, respectively, partially offset by a decrease in our parts and service gross profit of 10%, each as
compared to 2019. New and used vehicle gross profit benefited from an increase in gross profit per vehicle retailed
(“PVR”) resulting from the tight supply of new vehicle inventory and increased demand for used vehicles, respectively,
partially offset by a decrease in unit volume. Parts and service gross profit was adversely impacted by a decrease in parts
and service volume that has been slow to recover from the effects of the COVID-19 pandemic.
Floorplan interest expense decreased in 2020 compared to the prior year as it benefited from the tight supply of new
vehicle inventory, as well as several Federal Reserve interest rate reductions made in late 2019 and early 2020.
We implemented various actions during the year to mitigate the financial impact of the COVID-19 pandemic, including
temporarily placing associates on unpaid leave, implementing temporary base pay reductions for our executive officers and
associates, temporarily freezing corporate new hiring, reducing our advertising expenses by approximately 14% for 2020,
as compared to the prior year, significantly reducing our discretionary spending, and postponing over $130 million of
capital expenditures. We also adjusted our sales model to further focus on digital and store efficiencies, and in June 2020,
we restructured our workforce, mostly in our field operations. As a result, SG&A expenses as a percentage of gross profit
decreased to 67.9% during 2020, from 72.6% in 2019.
During 2020, net income from continuing operations was adversely impacted by non-cash after-tax goodwill and
franchise rights impairment charges totaling $308.4 million and after-tax charges incurred in connection with the closure of
our aftermarket collision parts (“ACP”) business of $27.8 million. Net income from continuing operations during 2020
benefited from an after-tax gain related to our minority equity investment in Vroom Inc. of $97.5 million due to gains
realized on sales of Vroom shares as well as a change in the fair value of the remaining shares held as of December 31,
2020. During 2019, net income from continuing operations benefited from net after-tax gains related to store/property
divestitures of $34.4 million and after-tax gains related to legal settlements of $5.7 million.
Exit or Disposal Cost Obligations
On August 17, 2020, we made the decision to close our ACP business, which was finalized as of December 31, 2020.
The ACP business represented less than 1% of our parts and service gross profit in 2020. In connection with the closing of
the ACP business, we incurred total pre-tax charges of $36.7 million during 2020. The charges are comprised of inventory
valuation adjustments, contract termination charges, accelerated depreciation and amortization, asset impairment charges,
involuntary termination benefits, and other associated closing costs. See Note 16 of the Notes to Consolidated Financial
Statements for additional information.
Strategic Initiatives
We plan to expand our AutoNation USA used vehicle stores by building over 100 stores with approximately 50 stores
completed by the end of 2025. We anticipate that our capital investments for these 50 stores will exceed $500 million in the
aggregate. The planned roll-out may be impacted by a number of variables, including customer adoption, market
conditions, availability of used vehicle inventory, and our ability to identify, acquire, and build out suitable locations in a
timely manner.
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.
26 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 had no new vehicle inventory write-downs at
December 31, 2020 or 2019. We continue to actively manage inventory levels in response to impacts from the COVID-19
pandemic.
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 $3.4 million at December 31, 2020, and $3.2 million at December 31, 2019.
Parts, accessories, and other inventory are carried at the lower of 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 $6.5 million at
December 31, 2020, and $11.1 million at December 31, 2019.
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.
During the first quarter of 2020, in light of the uncertainty surrounding the COVID-19 pandemic and the decrease in our
market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially indicating that
the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore, we performed
quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020. As a result of these impairment
tests, during the three months ended March 31, 2020, we recorded non-cash goodwill impairment charges totaling $318.3
million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our Collision
Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The non-cash impairment charges are
reflected as Goodwill Impairment in the accompanying Consolidated Statements of Income. The quantitative goodwill
impairment test is dependent on many variables used to determine the fair value of our reporting units. See Note 18 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. This process also requires that we reconcile the
estimated aggregate fair values of our reporting units to our market capitalization, including consideration of a control
premium, based upon our stock price and/or average stock price over a reasonable period as of the measurement date.
As a result of the quantitative goodwill impairment tests, goodwill associated with our Premium Luxury reporting unit
was partially impaired and goodwill associated with our Collision Centers and Parts Centers reporting units was fully
impaired. The fair values of our Domestic and Import reporting units substantially exceeded their carrying values.
Therefore, the most significant impact of a change in the assumptions used in determining our goodwill impairment as of
March 31, 2020, was related to our Premium Luxury reporting unit. As noted above, the goodwill impairment testing
process requires the estimated aggregate fair values of our reporting units to be reconciled with our market capitalization,
including consideration of a control premium, based upon our stock price and/or average stock price over a reasonable
period as of the measurement date. The COVID-19 pandemic had a significant adverse impact on the U.S. stock market
during the first quarter of 2020, and our closing stock price declined significantly as of March 31, 2020. As a result, as of
27 March 31, 2020, our market capitalization and, therefore, the estimated fair values of our reporting units, significantly
decreased. As a measure of sensitivity, a 50 basis point increase in the discount rate would have resulted in an increase to
the goodwill impairment charge of approximately $100 million. This result and discussion is not intended to address all
potential outcomes that could have resulted if different assumptions had been used in determining our goodwill impairment
given the number of assumptions used in determining the impairment and the degree of sensitivity to changes in such
assumptions in the determination of the fair value of the Company and its assets and liabilities. We would have been in
compliance with the financial covenants in our debt agreements even if we had impaired all of the goodwill associated with
all of our reporting units as such charges do not factor into the calculations for those covenants.
For our April 30, 2020 annual impairment test, we chose to make a qualitative evaluation about the likelihood of
goodwill impairment, 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.
As of December 31, 2020, we have $227.2 million of goodwill related to the Domestic reporting unit, $500.6 million
related to the Import reporting unit, and $457.2 million related to the Premium Luxury reporting unit.
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. During the first quarter of 2020, we
concluded that, as a result of the impacts from the COVID-19 pandemic, a triggering event had occurred that indicated the
fair values of our franchise rights may have been less than their carrying values as of March 31, 2020. We performed
quantitative impairment tests as of March 31, 2020, and as a result, we identified eight stores with franchise rights carrying
values that exceeded their estimated fair values, and we recorded non-cash franchise rights impairment charges of $57.5
million during the first quarter of 2020. The non-cash impairment charges are reflected as Franchise Rights Impairment in
the accompanying Consolidated Statements of Income.
For our April 30, 2020 annual impairment test, we elected to perform quantitative franchise rights impairment tests, and
no additional impairment charges resulted from these quantitative tests. We identified seven stores that, while they each
had franchise rights fair value in excess of or equal to carrying value, had lower relative performance compared to our total
store population. We will continue to monitor these 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. As of December 31, 2020, we had 56 stores with franchise rights totaling
$509.0 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 18 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. If the fair value of
each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2020,
the resulting incremental charge would have been less than $1 million. The effect of a hypothetical 10% decrease in fair
value estimates is not intended to provide a sensitivity analysis of every potential outcome.
Impact of the COVID-19 Pandemic on Goodwill and Other Intangible Assets
Although economic conditions have improved during the second half of 2020, we cannot predict the duration or scope
of the COVID-19 pandemic. Negative financial impacts on our financial results and performance could be material in
future periods. A change in the conditions, circumstances, or strategy, which influence determinations of fair value,
including negative or declining cash flows or a decline in actual or planned revenues for our stores for a prolonged period,
and, as it relates to goodwill, a significant decrease in our market capitalization or profitability, may result in a need to
recognize additional goodwill and/or franchise rights impairment charges in the future.
28 Reported Operating Data
($ in millions, except per vehicle data)
Revenue:
2020
2019
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
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
Goodwill impairment
Franchise rights impairment
Other (income) expense, 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
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)
$ 10,418.6 $ 11,166.5 $
5,260.5
340.8
5,601.3
1,059.3
5,160.3
306.2
5,466.5
1,023.3
17,079.2
3,257.4
53.4
17,656.3
3,572.1
107.3
$ 20,390.0 $ 21,335.7 $
$
584.1 $
414.5
44.5
459.0
1,059.3
2,102.4
1,460.8
3.2
3,566.4
503.9 $
346.8
21.2
368.0
1,023.3
1,895.2
1,622.6
5.2
3,523.0
2,422.0
198.9
318.3
57.5
6.5
563.2
(63.8)
(93.7)
0.3
144.1
2,558.6
180.5
—
9.6
(49.3)
823.6
(138.4)
(106.7)
0.5
33.6
(747.9)
100.2
34.6
134.8
36.0
(577.1)
(314.7)
(53.9)
(945.7)
80.2
67.7
23.3
91.0
36.0
207.2
(161.8)
(2.0)
43.4
136.6
(18.4)
(318.3)
(47.9)
(55.8)
(260.4)
74.6
13.0
(0.2)
110.5
(6.7) $ 11,751.6 $
1.9
11.3
2.5
3.5
4,807.6
315.7
5,123.3
981.4
(3.3)
(8.8)
17,856.3
3,447.6
108.9
(4.4) $ 21,412.8 $
15.9 $
19.5
24.7
3.5
10.9
(10.0)
1.2
5.3
(31.6)
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
(585.1)
352.7
(9.5)
343.2
41.9
(200.0)
124.5
(1.6)
(77.1)
(12.2)
19.2
7.1
26.3
41.9
56.0
67.3
2.4
125.7
(48.8)
(14.3)
—
(1.5)
(15.4)
45.7
(8.0)
12.7
(0.6)
33.4
(5.0)
7.3
(3.0)
6.7
4.3
(1.1)
3.6
(0.4)
(2.4)
5.9
7.7
4.3
3.0
4.3
3.7
(1.9)
5.9
$
550.1 $
612.6 $
(62.5)
(10.2) $
529.4 $
83.2
15.7
249,654
241,182
490,836
282,602
246,113
528,715
(32,948)
(4,931)
(37,879)
(11.7)
(2.0)
(7.2)
310,839
237,722
548,561
(28,237)
8,391
(19,846)
$ 41,732 $ 39,513 $
$ 21,811 $ 20,967 $
2,219
844
5.6 $ 37,806 $
4.0 $ 20,224 $
1,707
743
$
$
$
$
2,340 $
1,719 $
2,158 $
1,783 $
1,409 $
1,935 $
4,193 $
3,544 $
557
310
223
649
31.2 $
22.0 $
11.5 $
1,660 $
1,378 $
1,789 $
18.3 $
3,327 $
123
31
146
217
(9.1)
3.5
(3.6)
4.5
3.7
7.4
2.2
8.2
6.5
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance
and insurance gross profit by total retail vehicle unit sales.
29
Revenue mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total
Gross profit mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
Total
Operating items as a percentage of revenue:
Gross profit:
New vehicle
Used vehicle-retail
Parts and service
Total
Selling, general, and administrative expenses
Operating income
Other operating items as a percentage of total gross profit:
Selling, general, and administrative expenses
Operating income
2020 (%)
Years Ended December 31,
2019 (%)
2018 (%)
51.1
27.5
16.0
5.2
0.2
100.0
16.4
12.9
41.0
29.7
—
100.0
5.6
7.9
44.8
17.5
11.9
2.8
67.9
15.8
52.3
25.6
16.7
4.8
0.6
100.0
14.3
10.4
46.1
29.0
0.2
100.0
4.5
6.7
45.4
16.5
12.0
3.9
72.6
23.4
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
Days supply:
New vehicle (industry standard of selling days)
Used vehicle (trailing calendar month days)
42 days
39 days
52 days
39 days
December 31,
2020
2019
30
Retail used vehicle
Wholesale
Used vehicle
Finance and insurance,
net
Total variable
operations(1)
Parts and service
Other
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. Results from divested stores are
excluded from both current and prior periods. Therefore, the amounts presented in the year 2019 column that is being
compared to the year 2020 column may differ from the amounts presented in the year 2019 column that is being compared
to the year 2018 column. We believe the presentation of this information provides a meaningful comparison of period-
over-period results of our operations.
($ in millions, except
per vehicle data)
Revenue:
Years Ended December 31,
Years Ended December 31,
2020
2019
Variance
Favorable /
(Unfavorable)
%
Variance
2019
2018
Variance
Favorable /
(Unfavorable)
%
Variance
New vehicle
$ 10,414.3 $ 11,046.5 $
5,257.6
340.7
5,598.3
5,096.6
302.3
5,398.9
(632.2)
161.0
38.4
199.4
(5.7) $ 10,908.4 $ 11,366.8 $
3.2
12.7
3.7
4,649.3
306.4
4,955.7
5,040.6
299.3
5,339.9
(458.4)
391.3
(7.1)
384.2
(4.0)
8.4
(2.3)
7.8
1,059.1
1,012.9
46.2
4.6
1,004.5
953.7
50.8
5.3
17,071.7
3,201.1
53.0
17,458.3
3,457.0
107.0
Total revenue
$ 20,325.8 $ 21,022.3 $
Gross profit:
New vehicle
Retail used vehicle
Wholesale
Used vehicle
Finance and insurance
Total variable
operations(1)
Parts and service
Other
$
583.8 $
414.7
44.6
459.3
1,059.1
502.1 $
344.5
21.7
366.2
1,012.9
2,102.2
1,469.7
2.7
1,881.2
1,584.4
5.2
Total gross profit
$ 3,574.6 $ 3,470.8 $
Retail vehicle unit sales:
New vehicle
Used vehicle
Total
249,595
241,048
490,643
278,666
242,146
520,812
(386.6)
(255.9)
(54.0)
(696.5)
81.7
70.2
22.9
93.1
46.2
221.0
(114.7)
(2.5)
103.8
(29,071)
(1,098)
(30,169)
(2.2)
(7.4)
17,252.8
3,479.6
105.2
17,276.2
3,335.0
108.4
(3.3) $ 20,837.6 $ 20,719.6 $
16.3 $
20.4
25.4
4.6
11.7
(7.2)
494.7 $
341.8
20.8
362.6
1,004.5
506.9 $
320.2
14.6
334.8
953.7
1,861.8
1,580.2
5.3
1,795.4
1,503.8
3.0
3.0 $ 3,447.3 $ 3,302.2 $
(23.4)
144.6
(3.2)
118.0
(12.2)
21.6
6.2
27.8
50.8
66.4
76.4
2.3
145.1
(10.4)
(0.5)
(5.8)
275,808
239,996
515,804
298,468
228,093
526,561
(22,660)
11,903
(10,757)
Revenue per vehicle
retailed:
New vehicle
Used vehicle
Gross profit per vehicle
retailed:
New vehicle
Used vehicle
Finance and insurance
Total variable
operations(2)
$ 41,725 $ 39,641 $
$ 21,811 $ 21,048 $
2,084
763
5.3 $ 39,551 $ 38,084 $
3.6 $ 21,003 $ 20,383 $
1,467
620
$
$
$
$
2,339 $
1,720 $
2,159 $
1,802 $
1,423 $
1,945 $
4,194 $
3,570 $
537
297
214
624
29.8 $
20.9 $
11.0 $
1,794 $
1,424 $
1,947 $
1,698 $
1,404 $
1,811 $
17.5 $
3,569 $
3,382 $
96
20
136
187
(0.1)
4.3
0.6
(2.4)
6.7
8.3
5.3
3.7
5.1
4.4
(7.6)
5.2
(2.0)
3.9
3.0
5.7
1.4
7.5
5.5
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance
and insurance gross profit by total retail vehicle unit sales.
31
Revenue mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total
Gross profit mix percentages:
New vehicle
Used vehicle
Parts and service
Finance and insurance
Other
Total
Operating items as a percentage of revenue:
Gross profit:
New vehicle
Used vehicle-retail
Parts and service
Total
Years Ended December 31,
Years Ended December 31,
2020 (%)
2019 (%)
2019 (%)
2018 (%)
51.2
27.5
15.7
5.2
0.4
100.0
16.3
12.8
41.1
29.6
0.2
100.0
5.6
7.9
45.9
17.6
52.5
25.7
16.4
4.8
0.6
100.0
14.5
10.6
45.6
29.2
0.1
100.0
4.5
6.8
45.8
16.5
52.3
25.6
16.7
4.8
0.6
100.0
14.4
10.5
45.8
29.1
0.2
100.0
4.5
6.8
45.4
16.5
54.9
23.9
16.1
4.6
0.5
100.0
15.4
10.1
45.5
28.9
0.1
100.0
4.5
6.9
45.1
15.9
32
New Vehicle
($ in millions, except per vehicle data)
2020
2019
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
Reported:
Revenue
Gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
$ 10,418.6 $ 11,166.5 $
584.1 $
503.9 $
(747.9)
80.2
(6.7) $ 11,751.6 $
15.9 $
516.1 $
249,654
282,602
(32,948)
(11.7)
310,839
41,732 $
39,513 $
2,340 $
1,783 $
2,219
557
5.6 $
37,806 $
31.2 $
1,660 $
$
$
$
(585.1)
(12.2)
(28,237)
1,707
123
(5.0)
(2.4)
(9.1)
4.5
7.4
Gross profit as a percentage of revenue
5.6%
4.5%
4.4%
Inventory days supply (industry
standard of selling days)
42 days
52 days
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2019
2018
2020
2019
Same Store:
Revenue
Gross profit
$ 10,414.3 $ 11,046.5 $
(632.2)
(5.7) $ 10,908.4 $ 11,366.8 $
$
583.8 $
502.1 $
81.7
16.3 $
494.7 $
506.9 $
Retail vehicle unit sales
249,595
278,666
(29,071)
(10.4)
275,808
298,468
Revenue per vehicle retailed
$ 41,725 $ 39,641 $
Gross profit per vehicle retailed
$
2,339 $
1,802 $
2,084
537
5.3 $ 39,551 $ 38,084 $
29.8 $
1,794 $
1,698 $
Gross profit as a percentage of
revenue
5.6%
4.5%
4.5%
4.5%
(458.4)
(12.2)
(22,660)
1,467
96
(4.0)
(2.4)
(7.6)
3.9
5.7
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 $4.3 million, $120.0 million, and $384.8 million in new vehicle revenue and $0.3
million, $1.8 million, and $9.2 million in new vehicle gross profit for 2020, 2019, and 2018, respectively, is related to
acquisition and divestiture activity, as well as new add-point openings, as applicable in a given year.
2020 compared to 2019
Same store new vehicle revenue decreased during 2020, as compared to 2019, due to a decrease in same store unit
volume, partially offset by an increase in same store revenue PVR. The decrease in same store unit volume was primarily
due to significant declines in new vehicle unit sales, particularly during the last two weeks of March 2020 through April
2020, as a result of the COVID-19 pandemic. Same store unit volume was also adversely impacted by reduced availability
of inventory due to inventory shortages from manufacturer plant closures resulting from the COVID-19 pandemic.
Additionally, same store unit volume was adversely impacted by a shift in mix to used vehicles. Our used-to-new vehicle
unit sales ratio increased to 96.6% in 2020, as compared to 86.9% in 2019.
Same store revenue PVR increased during 2020, as compared to 2019, due in part to reduced availability of inventory
and a continued shift in mix toward trucks and sport utility vehicles, which have relatively higher average selling prices.
The shift in mix toward trucks and sports utility vehicles is due to a combination of improved vehicle fuel efficiency,
relatively low average fuel prices, and changing consumer preference. Same store revenue PVR also benefited from a shift
in mix away from Import vehicles, which have relatively lower average selling prices, as well as an increase in the
manufacturers’ suggested retail prices for Premium Luxury vehicles.
Same store gross profit PVR increased during 2020, as compared to the same period in 2019, primarily due to increases
in gross profit PVR as a result of the tighter supply in new vehicle inventory. Same store gross profit also benefited from
increased manufacturer support in the form of incentives, particularly in the first half of 2020, as a result of the COVID-19
pandemic.
33
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 GAAP.
($ in millions)
Floorplan assistance
New vehicle floorplan interest expense
Net new vehicle inventory carrying benefit (cost)
2020
2019
Variance
2020 vs. 2019
2018
Variance
2019 vs. 2018
$
$
110.7 $
111.8 $
(1.1) $
117.9 $
(58.0)
(128.1)
70.1
(121.7)
(6.1)
(6.4)
52.7 $
(16.3) $
69.0 $
(3.8) $
(12.5)
Years Ended December 31,
2020 compared to 2019
We had a net new vehicle inventory carrying benefit in 2020 and a net new vehicle inventory carrying cost in 2019.
Floorplan interest expense decreased due to lower average interest rates and lower average floorplan balances. Floorplan
interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates.
The Federal Reserve reduced interest rates three times over the third and fourth quarters of 2019, and in response to the
COVID-19 pandemic, the Federal Reserve further reduced interest rates to near 0% in March 2020. Floorplan assistance
decreased due to lower new vehicle unit sales, partially offset by an increase in the average floorplan assistance rate per
unit.
34
Used Vehicle
($ in millions, except per vehicle data)
2020
2019
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
Reported:
Retail revenue
Wholesale revenue
Total revenue
Retail gross profit
Wholesale gross profit
Total gross profit
Retail vehicle unit sales
Revenue per vehicle retailed
Gross profit per vehicle retailed
Gross profit as a percentage of retail
revenue
Inventory days supply (trailing calendar
month days)
$
$
$
$
$
$
5,260.5 $
5,160.3 $
340.8
306.2
5,601.3 $
5,466.5 $
414.5 $
346.8 $
44.5
21.2
459.0 $
368.0 $
100.2
34.6
134.8
67.7
23.3
91.0
1.9 $
4,807.6 $
11.3
315.7
2.5 $
5,123.3 $
19.5 $
327.6 $
14.1
24.7 $
341.7 $
241,182
246,113
(4,931)
(2.0)
237,722
21,811 $
20,967 $
1,719 $
1,409 $
844
310
4.0 $
20,224 $
22.0 $
1,378 $
7.9%
6.7%
39 days
39 days
6.8%
352.7
(9.5)
343.2
19.2
7.1
26.3
8,391
743
31
7.3
(3.0)
6.7
5.9
7.7
3.5
3.7
2.2
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2019
2018
2020
2019
Same Store:
Retail revenue
Wholesale revenue
Total revenue
Retail gross profit
Wholesale gross profit
Total gross profit
Retail vehicle unit sales
$ 5,257.6 $ 5,096.6 $
340.7
302.3
$ 5,598.3 $ 5,398.9 $
$
414.7 $
344.5 $
44.6
21.7
$
459.3 $
366.2 $
161.0
38.4
199.4
70.2
22.9
93.1
3.2 $ 5,040.6 $ 4,649.3 $
12.7
299.3
306.4
3.7 $ 5,339.9 $ 4,955.7 $
20.4 $
341.8 $
320.2 $
20.8
14.6
25.4 $
362.6 $
334.8 $
391.3
(7.1)
384.2
21.6
6.2
27.8
241,048
242,146
(1,098)
(0.5)
239,996
228,093
11,903
Revenue per vehicle retailed
$ 21,811 $ 21,048 $
Gross profit per vehicle retailed
$
1,720 $
1,423 $
763
297
3.6 $ 21,003 $ 20,383 $
20.9 $
1,424 $
1,404 $
620
20
Gross profit as a percentage of
retail revenue
7.9%
6.8%
6.8%
6.9%
8.4
(2.3)
7.8
6.7
8.3
5.2
3.0
1.4
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 $2.9 million, $63.7 million, and $158.3 million in retail used vehicle revenue and
$0.2 million, $2.3 million, and $7.4 million in retail used vehicle gross profit for 2020, 2019, and 2018, respectively, is
related to acquisition and divestiture activity, as well as the opening of new add-points, AutoNation USA used vehicle
stores, and automotive auctions, as applicable in a given year.
2020 compared to 2019
Same store retail used vehicle revenue increased during 2020, as compared to 2019, due to an increase in same store
revenue PVR, partially offset by a decrease in same store unit volume. The decrease in same store unit volume was due to
significant declines in used retail vehicle unit sales during the last two weeks of March 2020 through April 2020 as a result
of the COVID-19 pandemic. These declines were partially offset by an increase in relative market demand for used
vehicles as compared to new vehicles, due in part to decreased availability of new vehicles due to lower inventory levels,
increased affordability compared to new vehicles, and reduced disparity between used vehicles and new vehicles as used
vehicles continue to have a wider availability of in-demand technology features. Our used-to-new vehicle unit sales ratio
increased to 96.6% in 2020, as compared to 86.9% in 2019.
35
Same store revenue PVR increased during 2020, as compared to 2019, due in part to an increase in market demand for
used vehicles and a strong used vehicle pricing environment. Same store revenue PVR also benefited from a shift in mix
toward Premium Luxury vehicles, which have relatively higher average selling prices.
Same store gross profit PVR increased during 2020, as compared to 2019, due to increases in gross profit PVR for
vehicles in all three reportable segments as a result of increased demand for used vehicles and a strong used vehicle pricing
environment. In addition, gross profit PVR benefited from a shift in mix to used vehicles acquired through our “We’ll Buy
Your Car” program, which have a relatively higher average gross profit PVR.
36 Parts & Service
($ in millions)
Reported:
Revenue
Gross profit
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$
$
3,257.4 $
3,572.1 $
1,460.8 $
1,622.6 $
(314.7)
(161.8)
(8.8) $
3,447.6 $
(10.0) $
1,555.3 $
124.5
67.3
3.6
4.3
Gross profit as a percentage of revenue
44.8%
45.4%
45.1%
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2019
2018
2020
2019
Same Store:
Revenue
Gross profit
Gross profit as a percentage of
revenue
$ 3,201.1 $ 3,457.0 $
$ 1,469.7 $ 1,584.4 $
(255.9)
(114.7)
(7.4) $ 3,479.6 $ 3,335.0 $
(7.2) $ 1,580.2 $ 1,503.8 $
144.6
76.4
4.3
5.1
45.9%
45.8%
45.4%
45.1%
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, collision services, and the
preparation of vehicles for sale.
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 $56.3 million, $115.1 million, and $112.6 million in parts and service revenue
and $8.9 million, $38.2 million, and $51.5 million in parts and service gross profit for 2020, 2019, and 2018, respectively,
is related to the closure of our ACP business, acquisition and divestiture activity, and the opening of new add-points,
AutoNation USA used vehicle stores, and collision centers, as applicable in a given year. Results from divested businesses,
including our ACP business, are excluded from “Same Store” for both current and prior periods. See “Segment Results –
Corporate and other” for additional information on the closure of our ACP business.
2020 compared to 2019
During 2020, same store parts and service gross profit decreased as compared to 2019, primarily due to decreases in
gross profit associated with customer-pay service of $58.7 million, collision business of $23.3 million, and warranty
service of $19.5 million.
Gross profit associated with customer-pay service, collision business, and warranty service was adversely impacted by a
decrease in volume as a result of the COVID-19 pandemic, partially offset by higher value repair orders. Warranty service
gross profit also benefited from improved margin performance largely due to improved parts and labor rates negotiated
with certain manufacturers. Collision business also benefited from improved margin performance.
37
Finance and Insurance
($ in millions, except per vehicle
data)
Reported:
2020
2019
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
Revenue and gross profit
Gross profit per vehicle retailed
$
$
1,059.3 $
1,023.3 $
2,158 $
1,935 $
36.0
223
3.5 $
981.4 $
11.5 $
1,789 $
41.9
146
4.3
8.2
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2019
2018
Same Store:
Revenue and gross profit
$ 1,059.1 $ 1,012.9 $
Gross profit per vehicle retailed
$
2,159 $
1,945 $
46.2
214
4.6 $ 1,004.5 $
953.7 $
11.0 $
1,947 $
1,811 $
50.8
136
5.3
7.5
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 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 $0.2 million,
$10.4 million, and $27.7 million for 2020, 2019, and 2018, respectively, is related to acquisition and divestiture activity, as
well as the opening of new add-points and AutoNation USA used vehicle stores, as applicable in a given year.
2020 compared to 2019
Same store finance and insurance revenue and gross profit increased during 2020, as compared to 2019, due to an
increase in finance and insurance gross profit PVR, partially offset by a decrease in vehicle unit volume. The increase in
finance and insurance gross profit PVR was primarily due to an increase in product and finance penetration and higher
realized margins on vehicle service contracts, including our AutoNation Vehicle Protection Plan product. Finance and
insurance gross profit PVR also benefited from an increase in retrospective commissions due in part to lower claim activity
and improved portfolio performance expectations. Increases in finance and insurance gross profit PVR were partially offset
by a shift in unit volume mix from new vehicles to used vehicles, which have lower average selling prices than new
vehicles and therefore typically generate lower gross profit per transaction associated with arranging customer financing.
Sales of used vehicles also have lower finance and product penetration as compared to sales of new vehicles.
38
Segment Results
In the following table of financial data, revenue and segment income of our reportable segments are reconciled to
consolidated revenue and consolidated operating income, respectively.
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
($ in millions)
Revenue:
Domestic
Import
Premium Luxury
Total
Corporate and other
$
6,490.6 $
6,671.4 $
5,988.0
7,202.8
6,468.7
7,434.8
19,681.4
20,574.9
708.6
760.8
Total consolidated revenue
$ 20,390.0 $ 21,335.7 $
Segment income(1):
Domestic
Import
Premium Luxury
Total
Corporate and other
Floorplan interest expense
$
355.2 $
257.6 $
386.4
478.2
1,219.8
(720.4)
63.8
318.6
381.1
957.3
(272.1)
138.4
(180.8)
(480.7)
(232.0)
(893.5)
(52.2)
(945.7)
97.6
67.8
97.1
262.5
(448.3)
74.6
(2.7) $
7,134.5 $
(7.4)
(3.1)
(4.3)
(6.9)
6,786.4
7,010.9
20,931.8
481.0
(4.4) $ 21,412.8 $
37.9 $
249.3 $
21.3
25.5
27.4
304.7
340.9
894.9
(247.4)
130.4
Operating income
$
563.2 $
823.6 $
(260.4)
(31.6) $
777.9 $
Retail new vehicle unit sales:
Domestic
Import
Premium Luxury
Retail used vehicle unit sales:
Domestic
Import
Premium Luxury
80,687
109,077
59,890
249,654
88,404
128,183
66,015
282,602
83,406
82,841
66,611
87,344
86,679
64,768
232,858
238,791
(7,717)
(19,106)
(6,125)
(32,948)
(3,938)
(3,838)
1,843
(5,933)
(8.7)
(14.9)
(9.3)
(11.7)
102,015
142,556
66,268
310,839
(4.5)
(4.4)
2.8
(2.5)
86,660
84,550
60,952
232,162
(463.1)
(317.7)
423.9
(356.9)
279.8
(77.1)
8.3
13.9
40.2
62.4
(24.7)
(8.0)
45.7
(13,611)
(14,373)
(253)
(28,237)
684
2,129
3,816
6,629
(6.5)
(4.7)
6.0
(1.7)
58.2
(0.4)
3.3
4.6
11.8
7.0
5.9
(13.3)
(10.1)
(0.4)
(9.1)
0.8
2.5
6.3
2.9
(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
39
Domestic
The Domestic segment operating results included the following:
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$
3,411.1 $
3,502.5 $
1,781.4
1,769.5
891.5
370.5
36.1
959.0
354.6
85.8
$
$
6,490.6 $
6,671.4 $
355.2 $
257.6 $
80,687
83,406
88,404
87,344
(91.4)
11.9
(67.5)
15.9
(49.7)
(180.8)
97.6
(7,717)
(3,938)
(2.6) $
3,900.8 $
0.7
(7.0)
4.5
1,725.2
1,082.8
344.4
81.3
(398.3)
44.3
(123.8)
10.2
4.5
(2.7) $
7,134.5 $
(463.1)
37.9 $
249.3 $
(8.7)
(4.5)
102,015
86,660
8.3
(13,611)
684
(10.2)
2.6
(11.4)
3.0
(6.5)
3.3
(13.3)
0.8
($ in millions)
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total Revenue
Segment income
Retail new vehicle unit sales
Retail used vehicle unit sales
2020 compared to 2019
Domestic revenue decreased during 2020, as compared to 2019, primarily due to decreases in new and used vehicle unit
volume and parts and service volume as a result of the COVID-19 pandemic and the divestitures we completed in 2019.
These decreases were partially offset by increases in new and used vehicle revenue PVR. New vehicle revenue PVR
benefited from tighter supply in new vehicle inventory. New vehicle revenue PVR also benefited from a continued shift in
mix toward trucks and sport utility vehicles, which have relatively higher average selling prices, as a result of a
combination of improved vehicle fuel efficiency, relatively low average fuel prices, and changing consumer preference.
Used vehicle revenue PVR benefited from increased demand for used vehicles and a strong used vehicle pricing
environment.
Domestic segment income increased during 2020, as compared to 2019, due in part to a decrease in SG&A expenses
resulting from the cost-saving actions we implemented to mitigate the financial impact of the COVID-19 pandemic and a
decrease in floorplan interest expenses due to lower average interest rates and lower average vehicle floorplan balances.
Domestic segment income also benefited from an increase in new vehicle gross profit PVR due in part to tighter supply in
new vehicle inventory and an increase in used vehicle gross profit PVR due to increased demand for used vehicles and a
shift in mix to used vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average
gross profit PVR. Increases to Domestic segment income were partially offset by a decrease in parts and service volume
and vehicle unit volume as a result of the COVID-19 pandemic.
40
Import
The Import segment operating results included the following:
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$
3,283.7 $
3,695.6 $
(411.9)
(11.1) $
4,046.4 $
(350.8)
1,516.5
1,501.9
811.3
361.7
14.8
889.7
368.3
13.2
$
$
5,988.0 $
6,468.7 $
386.4 $
318.6 $
109,077
82,841
128,183
86,679
14.6
(78.4)
(6.6)
1.6
(480.7)
67.8
(19,106)
(3,838)
1.0
(8.8)
(1.8)
1,418.7
934.8
362.6
23.9
(7.4) $
6,786.4 $
21.3 $
304.7 $
(14.9)
(4.4)
142,556
84,550
83.2
(45.1)
5.7
(10.7)
(317.7)
13.9
(14,373)
2,129
(8.7)
5.9
(4.8)
1.6
(4.7)
4.6
(10.1)
2.5
($ in millions)
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total Revenue
Segment income
Retail new vehicle unit sales
Retail used vehicle unit sales
2020 compared to 2019
Import revenue decreased during 2020, as compared to the same period in 2019, primarily due to decreases in new and
used vehicle unit volume and parts and service volume as a result of the COVID-19 pandemic and the divestitures we
completed in 2019. These decreases were partially offset by increases in new and used vehicle revenue PVR. New vehicle
revenue PVR benefited from tighter supply in new vehicle inventory and a continued shift in mix toward trucks and sport
utility vehicles, which have relatively higher average selling prices, as a result of a combination of improved vehicle fuel
efficiency, relatively low average fuel prices, and changing consumer preference. Used vehicle revenue PVR benefited
from increased demand for used vehicles and a strong used vehicle pricing environment.
Import segment income increased during 2020, as compared to 2019. SG&A expenses decreased due to the cost-saving
actions we implemented to mitigate the financial impact of the COVID-19 pandemic, and floorplan interest expenses
decreased due to lower average interest rates and lower average vehicle floorplan balances. Import segment income also
benefited from an increase in new vehicle gross profit PVR due in part to tighter supply in new vehicle inventory, as well
as an increase in used vehicle gross profit PVR due to increased demand for used vehicles and a shift in mix to used
vehicles acquired through our “We’ll Buy Your Car” program, which have a relatively higher average gross profit PVR.
Increases in Import segment income were partially offset by decreases in parts and service gross profit and finance and
insurance gross profit due to decreases in parts and service volume and vehicle unit volume, respectively, as a result of the
COVID-19 pandemic.
41
Premium Luxury
The Premium Luxury segment operating results included the following:
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$
3,723.8 $
3,968.4 $
(244.6)
(6.2) $
3,804.4 $
2,125.9
1,058.1
294.7
0.3
2,045.6
1,136.0
279.2
5.6
$
$
7,202.8 $
7,434.8 $
478.2 $
381.1 $
59,890
66,611
66,015
64,768
80.3
(77.9)
15.5
(5.3)
(232.0)
97.1
(6,125)
1,843
3.9
(6.9)
5.6
1,875.1
1,082.2
246.0
3.2
(3.1) $
7,010.9 $
25.5 $
340.9 $
(9.3)
2.8
66,268
60,952
164.0
170.5
53.8
33.2
2.4
423.9
40.2
(253)
3,816
4.3
9.1
5.0
13.5
6.0
11.8
(0.4)
6.3
($ in millions)
Revenue:
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
Total Revenue
Segment income
Retail new vehicle unit sales
Retail used vehicle unit sales
2020 compared to 2019
Premium Luxury revenue decreased during 2020, as compared to 2019, primarily due to decreases in new vehicle unit
volume and parts and service volume as a result of the COVID-19 pandemic. These decreases were partially offset by an
increase in new vehicle revenue PVR due in part to increases in the manufacturers’ suggested retail prices and tighter
supply in new vehicle inventory. Premium Luxury revenue also benefited from increases in used vehicle unit volume and
used vehicle revenue PVR as a result of increased demand for used vehicles.
Premium Luxury segment income increased during 2020, as compared to 2019. SG&A expenses decreased due to the
cost-saving actions we implemented to mitigate the financial impact of the COVID-19 pandemic, and floorplan interest
expenses decreased due to lower average interest rates and lower average vehicle floorplan balances. Premium Luxury
segment income also benefited from increases in used vehicle unit volume and used vehicle gross profit PVR resulting
from increased demand for used vehicles, as well as an increase in new vehicle gross profit PVR due to tighter supply in
new vehicle inventory. Increases in Premium Luxury segment income were partially offset by decreases in parts and
service volume and new vehicle unit volume as a result of the COVID-19 pandemic.
42
Corporate and other
Corporate and other results included the following:
($ in millions)
Revenue:
Used vehicle
Parts and service
Finance and insurance, net
Other
Revenue
Income (loss)
Years Ended December 31,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$
177.5 $
149.5 $
496.5
32.4
2.2
587.4
21.2
2.7
$
$
708.6 $
760.8 $
(720.4) $
(272.1) $
28.0
(90.9)
11.2
(0.5)
(52.2)
(448.3)
18.7 $
104.3 $
(15.5)
52.8
(18.5)
347.8
28.4
0.5
(6.9) $
481.0 $
$
(247.4) $
45.2
239.6
(7.2)
2.2
279.8
(24.7)
43.3
68.9
(25.4)
440.0
58.2
“Corporate and other” is comprised of our other businesses, including collision centers, auction operations, AutoNation
USA used vehicle stores, and parts distribution centers, all of which generate revenues but do not meet the quantitative
thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items.
As of December 31, 2020, we had 74 AutoNation-branded collision centers, 5 AutoNation USA used vehicle stores, 4
AutoNation-branded automotive auction operations, and 3 parts distribution centers that service our wholesale parts sales
markets for the sale of original equipment manufacturer parts. We recently announced that we plan to expand our
AutoNation USA used vehicle stores by building approximately 50 additional stores by the end of 2025. The roll-out may
be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle
inventory, and our ability to identify, acquire, and build out suitable locations in a timely manner.
As part of our continued efforts to reduce costs and increase efficiencies, we determined, on August 17, 2020, to close
our aftermarket collision parts (“ACP”) business by the end of 2020. The ACP business represented less than 1% of our
parts and service gross profit for 2020. In connection with the closing of the ACP business, we incurred total pre-tax
charges of $36.7 million in 2020. The charges are comprised of inventory valuation adjustments, contract termination
charges, accelerated depreciation and amortization, asset impairment charges, involuntary termination benefits, and other
associated closing costs. See Note 16 of the Notes to Consolidated Financial Statements for additional information.
During 2020, we recorded non-cash goodwill impairment charges totaling $318.3 million, of which $257.4 million
related to our Premium Luxury reporting unit, $41.6 million related to our Collision Centers reporting unit, and $19.3
million related to our Parts Centers reporting unit. We also recorded non-cash franchise rights impairment charges of $57.5
million. The non-cash goodwill impairments and franchise rights impairments are reflected as Goodwill Impairment and
Franchise Rights Impairment, respectively, in the accompanying Consolidated Statements of Income and are reported in
the “Corporate and other” category of our segment information. During 2020, we recorded non-cash long-lived asset
impairment charges associated with our ACP business of $11.0 million, of which $5.1 million is included in the ACP
closing charges described above, and non-cash intangible asset impairment charges associated with our collision centers
and ACP business of $2.4 million, all of which are reported in the “Corporate and other” category of our segment
information.
43
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,
2020 vs. 2019
Variance
Favorable /
(Unfavorable)
%
Variance
2018
2019 vs. 2018
Variance
Favorable /
(Unfavorable)
%
Variance
2020
2019
$ 1,573.0 $ 1,634.6 $
161.7
687.3
187.8
736.2
61.6
26.1
48.9
3.8 $ 1,567.8 $
(66.8)
(4.3)
13.9
6.6
197.8
744.2
10.0
8.0
5.1
1.1
$ 2,422.0 $ 2,558.6 $
136.6
5.3 $ 2,509.8 $
(48.8)
(1.9)
44.1
4.5
19.3
67.9
46.4
5.3
20.9
72.6
230 bps
80 bps
160 bps
470 bps
46.2
5.8
21.9
73.9
(20) bps
50 bps
100 bps
130 bps
($ in millions)
Reported:
Compensation
Advertising
Store and corporate overhead
Total
SG&A as a % of total gross
profit:
Compensation
Advertising
Store and corporate overhead
Total
2020 compared to 2019
SG&A expenses decreased in 2020, as compared to 2019, primarily due to the cost-saving actions we implemented to
mitigate the financial impact of the COVID-19 pandemic, including temporarily placing associates on unpaid leave,
implementing temporary base pay reductions for our executive officers and associates, temporarily freezing corporate new
hiring, reducing our advertising expenses by approximately 14%, and reducing our discretionary spending. Gross
advertising expenses decreased $37.7 million, partially offset by a decrease in advertising reimbursements from
manufacturers of $11.6 million. As a percentage of total gross profit, SG&A expenses decreased to 67.9% in 2020 from
72.6% in 2019, primarily due to effective cost management including the cost-saving actions taken due to the pandemic.
Goodwill Impairment
We recorded non-cash goodwill impairment charges of $318.3 million during the first quarter of 2020 primarily due to
the impacts to our business and the decrease in our stock price and market capitalization as a result of the COVID-19
pandemic. See Note 18 of the Notes to Consolidated Financial Statements for more information.
Franchise Rights Impairment
We recorded non-cash franchise rights impairment charges of $57.5 million during the first quarter of 2020 and $9.6
million during the second quarter of 2019 to reduce the carrying values of certain franchise rights to their estimated fair
values. See Note 18 of the Notes to Consolidated Financial Statements for more information.
Other (Income) Expense, Net (Operating)
During 2020, we recognized $3.2 million related to contract termination charges and $5.1 million related to long-lived
asset impairment charges in connection with the closure of our ACP business, as well as other asset impairment charges of
$9.6 million. These charges were partially offset by net gains of $7.8 million related to store/property divestitures and $4.7
million related to legal settlements.
44
During 2019, we recognized net gains of $45.4 million primarily related to store/property divestitures and $7.5 million
related to certain legal settlements. These gains were partially offset by non-cash asset impairments of $2.2 million.
Non-Operating Income (Expenses)
Floorplan Interest Expense
Floorplan interest expense was $63.8 million in 2020 and $138.4 million in 2019. The decrease in floorplan interest
expense of $74.6 million in 2020, as compared to 2019, was the result of lower average interest rates and lower average
vehicle floorplan balances. Floorplan interest rates are variable and therefore increase and decrease with changes in the
underlying benchmark interest rates.
Other Interest Expense
Other interest expense was $93.7 million in 2020 and $106.7 million in 2019. The decrease in interest expense of $13.0
million in 2020, as compared to 2019, was driven by lower average interest rates primarily due to the repayment of the
5.5% Senior Notes due 2020 and lower average debt balances.
Other Income, Net (included in Non-Operating Income)
During 2020, we recorded a gain of $131.5 million related to our minority equity investment in Vroom, Inc., of which
$63.4 million was realized based on Vroom shares sold during 2020 and $68.1 million was unrealized based on changes in
the fair value of Vroom shares still held as of December 31, 2020. During 2019, we recorded an unrealized gain of $25.7
million based on changes in the fair value of Vroom shares still held as of December 31, 2019. Since our initial investment
in Vroom, Inc. in October 2018 through December 31, 2020, we recognized a total cumulative gain of $157.2 million, of
which $77.7 million was realized and $79.5 million remained unrealized as of December 31, 2020. In the first quarter of
2021, we sold the remaining shares of our Vroom equity investment. See Note 18 of the Notes to Consolidated Financial
Statements for more information.
Income Tax Provision
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 30.6% in 2020 and 26.4% in 2019. The tax rate for 2020 reflects the fact that a
significant portion of the goodwill impairment charges taken in the first quarter of 2020 was not deductible for income tax
purposes. See Note 12 of the Notes to Consolidated Financial Statements for more information.
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.
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 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.
45 Available Liquidity Resources
We had the following sources of liquidity available for the years ended December 31, 2020 and 2019:
(In millions)
Cash and cash equivalents
Revolving credit facility
Secured used vehicle floorplan facilities(3)
December 31,
2020
December 31,
2019
$
$
$
569.6
$
1,760.3 (1) $
42.0
1,421.1 (2)
0.3
$
0.6
(1) At December 31, 2020, we had $39.7 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 no commercial paper notes outstanding at December 31, 2020. See Note 9 of the Notes to
Consolidated Financial Statements for additional information.
(2) As limited by the maximum consolidated leverage ratio in our credit agreement.
(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 January 2021, we repaid the outstanding $300.0 million of 3.35% Senior Notes through utilization of available funds.
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, 2020, surety bonds,
letters of credit, and cash deposits totaled $102.4 million, including the $39.7 million of letters of credit issued under our
revolving credit facility. We do not currently provide cash collateral for outstanding letters of credit.
In February 2019, we filed an automatic shelf registration statement with the SEC that enables us to offer for sale, from
time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities,
warrants, subscription rights, depositary shares, stock purchase contracts, units, and guarantees of debt securities.
Capital Allocation
Our capital allocation strategy is focused on growing long-term value per share. We invest capital in our business to
maintain and upgrade our existing facilities and to build new facilities for existing franchises, as well as for other strategic
and technology initiatives. We also deploy capital opportunistically to repurchase our common stock and/or debt, to
complete acquisitions or investments, and/or build facilities for newly awarded franchises. Our capital allocation decisions
will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus
our view of its intrinsic value, the market price of our debt, the potential impact on our capital structure, our ability to
complete 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
2020
2019
2018
7.2
1.3
$
$
382.3 $
44.7 $
52.76 $
35.51 $
2.1
100.0
47.58
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
46
expected return on competing uses of capital such as acquisitions or investments, capital investments in our current
businesses, or repurchases of our debt.
As of December 31, 2020, $197.8 million remained available under our stock repurchase limit most recently authorized
by our Board of Directors. In February 2021, our Board of Directors increased the share repurchase authorization by
$1 billion.
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)
2020
2019
2018
$
137.2 $
257.4 $
393.6
(1) Includes accrued construction in progress and excludes property associated with leases entered into during the year.
At December 31, 2020, we owned approximately 80% of our new vehicle franchise store locations with a net book
value of $2.1 billion, as well as other properties associated with our collision centers, auction operations, AutoNation USA
used vehicle stores, parts distribution centers, and other excess properties with a net book value of $463.2 million. None of
these properties are mortgaged or encumbered. We took various actions to mitigate the financial impact of the COVID-19
pandemic, including the postponement of over $130 million of capital expenditures during 2020.
Acquisitions and Divestitures
The following table sets forth information regarding cash used in business acquisitions, net of cash acquired, and cash
received from business divestitures, net of cash relinquished, over the past three years:
(In millions)
Cash used in business acquisitions, net(1)
Cash received from business divestitures, net
2020
2019
2018
$
$
(0.4) $
(4.7) $
(67.2)
9.0 $
115.6 $
173.2
During 2020, we divested one Premium Luxury store and two collision centers and terminated one Domestic franchise.
During 2019, we purchased two parts distribution centers and divested three Domestic stores, five Import stores, and two
collision centers.
47 Long-Term Debt
The following table sets forth our non-vehicle long-term debt as of December 31, 2020 and 2019:
Debt Description
5.5% Senior Notes
3.35% Senior Notes
3.5% Senior Notes
4.5% Senior Notes
3.8% Senior Notes
4.75% Senior Notes
Revolving credit facility
Maturity Date
February 1, 2020
January 15, 2021
Interest Payable
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
June 1, 2030
March 26, 2025
June 1 and December 1
Monthly
Finance leases and other debt Various dates through 2040 Monthly
Less: unamortized debt discounts and debt issuance costs
Less: current maturities
Long-term debt, net of current maturities
(in millions)
2020
2019
$
— $
300.0
450.0
450.0
300.0
500.0
—
116.6
2,116.6
350.0
300.0
450.0
450.0
300.0
—
—
93.9
1,943.9
(14.8)
(9.8)
(309.2)
(355.6)
$
1,792.6 $
1,578.5
On March 26, 2020, we amended and restated our existing unsecured credit agreement to, among other things,
(1) provide for lower commitment fees and loan margins as set forth in the amended and restated credit agreement, (2)
extend the maturity date to March 26, 2025, and (3) provide for customary LIBOR replacement provisions.
In February 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes. On May 21, 2020, we
issued $500.0 million aggregate principal amount of 4.75% Senior Notes due 2030, which were sold at 99.479% of the
aggregate principal amount. In January 2021, we repaid the outstanding $300.0 million of 3.35% Senior Notes through
utilization of available funds.
We had no commercial paper notes outstanding at December 31, 2020. At December 31, 2019, we had $170.0 million
of commercial paper notes outstanding with a weighted-average annual interest rate of 2.13% and a weighted-average
remaining term of 12 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 9 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 March 26, 2020.
48
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.
During 2020, we recorded non-cash goodwill and franchise rights impairment charges of $375.8 million. See Note 7 of
the Notes to Consolidated Financial Statements. As of December 31, 2020, we were in compliance with the requirements
of the financial covenants under our debt agreements as such non-cash impairment charges do not factor into the
calculations for those covenants. Under the terms of our credit agreement, at December 31, 2020, 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, 2020
Requirement
Actual
≤ 3.75x
≤ 70.0%
1.82x
49.0%
2020
2019
$
$
1,541.7 $
1,218.2
2,759.9 $
2,120.6
1,455.2
3,575.8
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. Vehicle floorplan facilities are primarily collateralized by vehicle
inventories and related receivables. 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,
2019
2018
2020
1,207.6 $
(73.7) $
(606.7) $
769.2 $
(115.8) $
(660.3) $
511.0
(295.3)
(237.4)
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.
2020 compared to 2019
Net cash provided by operating activities increased during 2020, as compared to 2019, primarily due to an increase in
earnings and a decrease in working capital requirements.
49
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.
2020 compared to 2019
Net cash used in investing activities decreased during 2020, as compared to 2019, primarily due to proceeds received
from sales of equity securities in 2020 and a decrease in purchases of property and equipment, partially offset by a decrease
in cash received from business divestitures, net of cash relinquished, an investment in an equity security in 2020, and a
decrease in proceeds from the sale of assets held for sale.
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.
2020 compared to 2019
During 2020, we borrowed $1.1 billion and repaid $1.1 billion under our revolving credit facility. During 2019, we had
no borrowings or repayments under our revolving credit facility.
During 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes due 2020, issued $500.0 million aggregate
principal amount of 4.75% Senior Notes due 2030, and amended and restated our existing unsecured credit agreement.
Cash flows from financing activities during 2020 reflect cash payments of $11.0 million for debt issuance costs associated
with the senior note issuance and debt refinancing that are being amortized to interest expense over the terms of the related
debt arrangements.
Cash flows from financing activities include changes in vehicle floorplan payable-non-trade totaling net repayments of
$233.3 million during 2020 compared to net repayments of $134.3 million in 2019, as well as changes in commercial paper
notes outstanding totaling net payments of $170.0 million during 2020 compared to net repayments of $460.0 million
during 2019.
During 2020, we repurchased 7.2 million shares of common stock for an aggregate purchase price of $382.3 million
(average purchase price per share of $52.76), including repurchases for which settlement occurred subsequent to December
31, 2020. During 2019, we repurchased 1.3 million shares of our common stock for an aggregate purchase price of $44.7
million (average purchase price per share of $35.51).
During 2020, cash flows from financing activities were also impacted by an increase in proceeds from the exercise of
stock options as compared to 2019.
50 Contractual Payment Obligations
The following table summarizes our payment obligations under certain contracts at December 31, 2020. 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 finance leases (Note 9)(1)(2)
Interest payments(3)
Operating lease and other commitments (Note 8)(1)(4)
Unrecognized tax benefits, net (Note 12)(1)
Deferred compensation obligations(5)
Estimated chargeback liability (Note 10)(1)(6)
Estimated self-insurance obligations (Note 11)(1)(7)
Purchase obligations(8)
Total
Payments Due by Period
Less Than 1
Year
(2021)
1 - 3 Years
(2022 and
2023)
3 - 5 Years
(2024 and
2025)
Total
More Than
5 Years
(2026 and
thereafter)
$
2,759.9 $
2,759.9 $
— $
— $
2,116.6
307.6
530.4
449.8
12.0
99.8
142.1
82.4
123.5
82.5
54.2
—
4.3
77.6
35.4
86.1
11.5
153.9
90.6
4.3
—
56.5
27.8
32.6
912.8
136.9
69.4
7.7
—
7.7
10.3
4.8
—
884.7
157.1
235.6
—
95.5
0.3
8.9
—
$
6,316.5 $
3,407.6 $
377.2 $
1,149.6 $
1,382.1
(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 $3.7 million or debt issuance costs of $11.1 million.
(3) Primarily represents scheduled fixed interest payments on our outstanding senior unsecured notes and finance 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 2020, 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, 2020, surety bonds, letters of credit, and cash
deposits totaled $102.4 million, of which $39.7 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
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.
51
As further discussed in Note 12 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, 2020, 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 the impact of the COVID-19 pandemic on our business, results of operations, and financial condition,
the actions we are taking in response to the COVID-19 pandemic, our strategic initiatives, partnerships, or investments,
including the planned expansion of our AutoNation USA used vehicle stores, our investments in digital and online
capabilities, and other brand extension strategies, and other statements regarding 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, 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,
but not limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. Our business
and results of operations are substantially dependent on new and used 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.
The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, results of operations, and
financial condition going forward. Future epidemics, pandemics, and other outbreaks could also disrupt our
business, results of operations, and financial condition.
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 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 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.
52 •
•
•
•
•
•
•
•
•
•
The carrying value of our minority equity investment in Waymo does not have a readily determinable fair value
and is required to be adjusted for observable price changes or impairments, both of which could adversely impact
our results of operations and financial condition.
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.
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.
Natural disasters and adverse weather events can disrupt our business.
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)
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.
53 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our primary market risk exposure is increasing LIBOR-based interest rates. Interest rate derivatives may be used to
hedge a portion of our variable rate debt, when appropriate, based on market conditions.
We had $2.8 billion of variable rate vehicle floorplan payable at December 31, 2020, and $3.6 billion at December 31,
2019. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change of
$27.6 million in 2020 and $35.8 million in 2019 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 no commercial paper notes outstanding at December 31, 2020, and $170.0 million at December 31, 2019.
Based on the amount outstanding, a 100 basis point change in interest rates would result in an approximate change to our
annual interest expense of $1.7 million in 2019.
Our fixed rate long-term debt, consisting of amounts outstanding under senior unsecured notes and finance lease and
other debt obligations, totaled $2.1 billion and had a fair value of $2.3 billion as of December 31, 2020, and totaled $1.9
billion and had a fair value of $2.0 billion as of December 31, 2019.
Equity Price Risk
We are subject to equity price risk with respect to our minority equity investment in Vroom Inc., which has a readily
determinable fair value following Vroom’s initial public offering in the second quarter of 2020. During the period that we
hold this equity investment, gains and losses will be recorded as the fair market value of this security changes over time.
The fair value of our equity investment was $101.9 million at December 31, 2020. A hypothetical 10% change in the equity
price of this security would result in an approximate change to gain or loss of $10.2 million. The selected 10% hypothetical
change in the equity price is not intended to reflect a best or worst case scenario, as equity price changes could be smaller
or larger due to the nature of equity markets.
54 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, 2020 and 2019
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Selected Quarterly Financial Information (Unaudited)
Page
56
60
61
62
63
65
100
55
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, 2020 and 2019, the related consolidated statements of income, shareholders’ equity, and cash flows for each
of the years in the three‑year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows
for each of the years in the three‑year period ended December 31, 2020, 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, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 16, 2021 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
leases as of January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), as
amended.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
Assessment of the fair value of franchise rights
As discussed in Notes 1, 7 and 18 to the consolidated financial statements, the franchise rights balance as of December
31, 2020 was $509.0 million. The Company performs franchise rights impairment testing annually or when events or
56 changes in circumstances indicate that impairment may have occurred. These tests are performed at the store level and
the fair value of franchise rights are estimated by discounting expected future cash flows of the store.
We identified the assessment of the fair value of franchise rights as a critical audit matter. We performed sensitivity
analysis as a risk assessment procedure over assumptions used to estimate the fair value of the franchise rights and
determined the forecasted revenue growth rate, the forecasted margin rate and the discount rate assumptions
represented the significant assumptions. A higher degree of auditor judgment was required to evaluate the Company’s
estimates of fair value including forecasted revenue growth and margins. Specialized skills are required to evaluate the
determination of the discount rate assumptions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the critical audit matter, including controls
over the:
•
•
development of the forecasted revenue growth rate and margin rate assumptions
selection of the discount rate assumptions used to develop the estimate.
We evaluated the reasonableness of the Company’s forecasted revenue growth rates by comparing the growth
assumptions to market data, such as industry forecasted growth rates and historical actual growth for similar store
brands in the market. We evaluated the Company’s forecasted margin rates by comparing the rate assumptions to
historical actual margins. We compared the Company’s historical revenue and margin forecasts to actual results to
assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized
skills and knowledge, who assisted in:
•
•
evaluating the computed weighted average cost of capital used by management in the valuation, by comparing it
against a discount rate range that was independently developed using publicly available market data for
comparable entities
developing an independent estimate of the fair value of franchise rights using the Company’s cash flow forecast
by store location and an independently developed discount rate, and comparing the results of our estimate of fair
value to the Company’s fair value estimate.
Valuation of goodwill in the Premium Luxury reporting unit
As discussed in Notes 1, 7 and 18 to the consolidated financial statements, the goodwill balance as of December 31,
2020 was $1,185.0 million, of which $457.2 million related to the Premium Luxury reporting unit. The Company
performs goodwill impairment testing annually or more frequently when events or changes in circumstances indicate
that the carrying value of a reporting unit more likely that not exceeds its fair value. This involves estimating the fair
value of the reporting units using the discounted cash flow model.
We identified the evaluation of the goodwill impairment analysis for the Premium Luxury reporting unit as a critical
audit matter. We performed sensitivity analysis as a risk assessment procedure over assumptions used to estimate the
fair value of the Premium Luxury reporting unit and determined the forecasted revenue growth rates, forecasted
operating margin rates, and the weighted average costs of capital assumptions represented the significant assumptions.
The significant assumptions were challenging to test as they were based on subjective determinations of future market
and economic conditions that were also sensitive to variation. Minor changes to the significant assumptions could have
had a significant effect on the Company’s assessment of the goodwill carrying value. Additionally, the audit effort
associated with this estimate required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of internal control related to the critical audit matter, including control over the:
•
•
development of the forecasted revenue growth rate and operating margin rate assumptions
selection of the weighted average costs of capital assumptions used to develop the estimate.
We evaluated the reasonableness of the Company’s forecasted revenue growth rates and operating margin rates for the
Premium Luxury reporting unit, by comparing the revenue growth rate and operating margin rate assumptions to
market data, such as industry forecasted growth rates and the Company’s and peer companies’ analyst reports. We
compared the Company’s historical revenue and operating margin forecasts to actual results to assess the Company’s
57 ability to accurately forecast. In addition, we involved valuation professionals with specialized skills and knowledge,
who assisted in:
•
•
evaluating the computed weighted average cost of capital used by management in the valuation, by comparing it
against a discount rate range that was independently developed using publicly available market data for
comparable entities
developing an estimate of the Premium Luxury reporting unit’s fair value using the reporting unit’s cash flow
forecast and an independently developed discount rate, and comparing the results of our estimate of fair value to
the Company’s fair value estimate.
We have served as the Company’s auditor since 2003.
/s/ KPMG LLP
Fort Lauderdale, Florida
February 16, 2021
58 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, 2020, 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, 2020, 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, 2020 and 2019, the related
consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated
February 16, 2021, 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 16, 2021
/s/ KPMG LLP
59 AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(In millions, except share and per share data)
ASSETS
2020
2019
CURRENT ASSETS:
Cash and cash equivalents
Receivables, net
Inventory
Other current assets
Total Current Assets
PROPERTY AND EQUIPMENT, NET
OPERATING LEASE ASSETS
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
Accrued payroll and benefits
Other current liabilities
Total Current Liabilities
LONG-TERM DEBT, NET OF CURRENT MATURITIES
NONCURRENT OPERATING LEASE LIABILITIES
DEFERRED INCOME TAXES
OTHER LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 19)
SHAREHOLDERS’ EQUITY:
$
$
$
569.6 $
845.2
2,598.5
139.4
4,152.7
3,138.1
309.5
1,185.0
521.5
580.4
9,887.2 $
1,541.7 $
1,218.2
335.2
—
309.2
225.8
535.8
4,165.9
1,792.6
286.5
95.9
310.6
42.0
916.7
3,305.8
146.6
4,411.1
3,174.6
333.1
1,501.9
581.6
541.0
10,543.3
2,120.6
1,455.2
290.3
170.0
355.6
178.4
530.1
5,100.2
1,578.5
305.0
135.1
262.4
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, 2020, and December 31, 2019,
including shares held in treasury
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 19,078,620 and 13,212,974 shares held, respectively
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$
—
—
1.0
53.1
4,069.4
(887.8)
3,235.7
9,887.2 $
1.0
35.9
3,688.3
(563.1)
3,162.1
10,543.3
See accompanying Notes to Consolidated Financial Statements.
60
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(In millions, except per share data)
2020
2019
2018
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
Goodwill impairment
Franchise rights impairment
Other (income) expense, 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
$
$
$
$
$
$
$
10,418.6 $
5,601.3
3,257.4
1,059.3
53.4
20,390.0
11,166.5 $
5,466.5
3,572.1
1,023.3
107.3
21,335.7
9,834.5
5,142.3
1,796.6
50.2
16,823.6
584.1
459.0
1,460.8
1,059.3
3.2
3,566.4
2,422.0
198.9
318.3
57.5
6.5
563.2
(63.8)
(93.7)
0.3
144.1
550.1
168.3
381.8
(0.2)
381.6 $
4.32 $
— $
4.32 $
88.3
4.30 $
— $
4.30 $
88.7
83.5
10,662.6
5,098.5
1,949.5
102.1
17,812.7
503.9
368.0
1,622.6
1,023.3
5.2
3,523.0
2,558.6
180.5
—
9.6
(49.3)
823.6
(138.4)
(106.7)
0.5
33.6
612.6
161.8
450.8
(0.8)
450.0 $
5.00 $
(0.01) $
4.99 $
90.1
4.98 $
(0.01) $
4.97 $
90.5
89.3
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
4.36
—
4.36
90.9
4.34
—
4.34
91.3
90.0
See accompanying Notes to Consolidated Financial Statements.
61
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2020, 2019, and 2018
(In millions, except share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Total
BALANCE AT DECEMBER 31, 2017
102,562,149 $
1.0 $
4.0 $
2,832.2 $
(467.9) $
2,369.3
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
—
—
—
—
—
—
—
—
—
—
—
—
25.5
(8.7)
396.0
—
—
—
—
10.1
—
(100.0)
—
23.8
—
396.0
(100.0)
25.5
15.1
10.1
BALANCE AT DECEMBER 31, 2018
102,562,149 $
1.0 $
20.8 $
3,238.3 $
(544.1) $
2,716.0
Net income
Repurchases of common stock
Stock-based compensation expense
Shares awarded under stock-based compensation
plans, net of shares withheld for taxes
—
—
—
—
—
—
—
—
—
—
31.1
(16.0)
450.0
—
—
—
(44.7)
—
450.0
(44.7)
31.1
25.7
9.7
BALANCE AT DECEMBER 31, 2019
102,562,149 $
1.0 $
35.9 $
3,688.3 $
(563.1) $
3,162.1
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
- current expected credit losses
—
—
—
—
—
—
—
—
—
—
—
—
30.2
(13.0)
381.6
—
—
—
—
(0.5)
—
(382.3)
—
57.6
381.6
(382.3)
30.2
44.6
(0.5)
BALANCE AT DECEMBER 31, 2020
102,562,149 $
1.0 $
53.1 $
4,069.4 $
(887.8) $
3,235.7
See accompanying Notes to Consolidated Financial Statements.
62
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:
2020
2019
2018
$
381.6 $
450.0 $
396.0
(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
Goodwill impairment
Franchise rights impairment
Other non-cash impairment charges
Gain on equity investments
Other
(Increase) decrease, net of effects from business combinations
and divestitures:
Receivables
Inventory
Other assets
Increase (decrease), net of effects from business combinations
and divestitures:
Vehicle floorplan payable-trade, net
Accounts payable
Other liabilities
Net cash provided by continuing operations
Net cash provided by discontinued operations
Net cash provided by operating activities
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment
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
Proceeds from the sale of equity securities
Investment in equity securities
Other
Net cash used in continuing operations
Net cash used in discontinued operations
Net cash used in investing activities
0.2
198.9
4.7
30.2
(38.9)
(7.9)
318.3
57.5
14.7
(131.5)
(11.0)
70.0
703.6
85.6
(579.3)
47.7
63.2
1,207.6
—
1,207.6
(156.0)
16.4
1.9
(0.4)
9.0
105.4
(50.0)
—
(73.7)
—
(73.7)
See accompanying Notes to Consolidated Financial Statements.
0.8
180.5
5.2
31.1
45.8
(44.9)
—
9.6
2.2
(25.7)
(6.8)
56.2
296.0
49.5
(240.6)
(17.6)
(22.1)
769.2
—
769.2
(269.3)
38.0
3.5
(4.7)
115.6
—
—
1.1
(115.8)
—
(115.8)
(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
(400.8)
21.1
1.1
(67.2)
173.2
—
(50.0)
27.3
(295.3)
—
(295.3)
63
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
(Continued)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repurchases of common stock
Payment of 6.75% Senior Notes due 2018
Payment of 5.5% Senior Notes due 2020
Proceeds from 4.75% Senior Notes due 2030
Proceeds from revolving credit facilities
Payments of revolving credit facilities
Net proceeds from (payments of) commercial paper
Payment of debt issuance costs
Net payments of vehicle floorplan payable - non-trade
Payments of other debt obligations
Proceeds from the exercise of stock options
Payments of tax withholdings for 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
2020
2019
2018
(367.2)
(44.7)
—
(350.0)
497.4
1,110.0
(1,110.0)
(170.0)
(11.0)
(233.3)
(17.2)
52.7
(8.1)
—
—
—
—
—
—
(460.0)
—
(134.3)
(31.0)
12.7
(3.0)
—
(100.0)
(400.0)
—
—
—
—
300.0
—
(34.2)
(15.8)
17.8
(2.7)
(2.5)
(606.7)
(660.3)
(237.4)
—
—
—
(606.7)
(660.3)
(237.4)
527.2
42.5
(6.9)
(21.7)
49.4
71.1
49.4
$
569.7 $
42.5 $
See accompanying Notes to Consolidated Financial Statements.
64
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,
2020, we owned and operated 315 new vehicle franchises from 230 stores located in the United States, predominantly in
major metropolitan markets in the Sunbelt region. Our stores sell 32 different new vehicle brands. The core brands of new
vehicles that we sell, representing approximately 89% of the new vehicles that we sold in 2020, are manufactured by
Toyota (including Lexus), Honda, Ford, General Motors, FCA US, Mercedes-Benz, BMW, and Volkswagen (including
Audi and Porsche). As of December 31, 2020, we also owned and operated 74 AutoNation-branded collision centers, 5
AutoNation USA used vehicle stores, 4 automotive auction operations, and 3 parts distribution centers.
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. Such estimates and assumptions affect, among other
things, our goodwill, indefinite-lived intangible asset, and long-lived asset valuations; inventory valuation; equity
investment valuation; assets held for sale; accruals for chargebacks against revenue recognized from the sale of finance and
insurance products; accruals related to self-insurance programs; certain legal proceedings; assessment of the annual income
tax expense; deferred income taxes and income tax contingencies; the allowance for expected credit losses; and
measurement of performance-based compensation costs.
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.
65 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 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 as a finance lease right-of-use asset 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) Expense, 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 finance lease right-of-use 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) is recoverable. If the asset (asset group) is not recoverable, we determine the fair value of the asset (asset group)
based on Level 3 inputs, and measure impairment losses based upon the amount by which the carrying amount of the asset
(asset group) exceeds the fair value. If we recognize an impairment loss on a depreciable long-lived asset, the adjusted
carrying amount of the asset becomes its new cost basis, which is depreciated over the remaining useful life of that asset.
When property and equipment are 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 are based on Level 3 inputs, which consider 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.
66 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 in continuing operations of $25.5 million at December 31,
2020, and $40.6 million at December 31, 2019. We had assets held for sale in discontinued operations of $8.0 million at
December 31, 2020, and $8.0 million at December 31, 2019.
See Note 18 of the Notes to Consolidated Financial Statements for information about our fair value measurement
valuation process and impairment charges that were recorded during 2020 and 2019.
Leases
We lease numerous facilities and various types of equipment relating to our operations. Effective January 1, 2019, we
adopted ASC Topic 842, which amended accounting guidance related to leases. See Note 8 of the Notes to Consolidated
Financial Statements for a discussion of our significant accounting policies related to leases.
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.
During 2020, we recorded $318.3 million of goodwill impairment charges and $57.5 million of franchise rights
impairment charges. During 2019, we recorded no goodwill impairment charges and$9.6 million of franchise rights
impairment charges. These non-cash impairment charges are reflected as Goodwill Impairment and Franchise Rights
Impairment, respectively, in the accompanying Consolidated Statements of Income.
See Note 7 of the Notes to Consolidated Financial Statements for more information about our goodwill and other
intangible assets and Note 18 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, prepaid expenses, assets held for sale in
continuing operations and discontinued operations, contract assets, and deposits.
67 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,
investments in equity securities, and the cash surrender value of corporate-owned life insurance held in a Rabbi Trust for
deferred compensation plan participants.
Other Current Liabilities
Other current liabilities consist of various items payable within one year including, among other items, accruals for
sales taxes, the current portions of finance and insurance chargeback liabilities, customer deposits, operating lease
liabilities, deferred revenue and contract liabilities, accrued expenses, and accrued interest payable.
Other Liabilities
Other liabilities consist of various items payable beyond one year including, among other items, the long-term portions
of deferred compensation obligations, finance and insurance chargeback liabilities, contract liabilities, and self-insurance
liabilities.
Employee Savings Plans
We offer a 401(k) plan to all of our associates and provided a matching contribution to certain associates that participate
in the plan of $4.5 million in 2020, $15.0 million in 2019, and $14.1 million in 2018. Effective in April 2020, we
suspended matching contributions to the 401(k) plan in light of the uncertain economic conditions resulting from the
COVID-19 pandemic. A matching contribution to the 401k plan was reinstated effective January 2021. Employer matching
contributions are subject to a three-year graded vesting period for associates hired subsequent to January 1, 2011, and are
fully vested immediately upon contribution for associates hired prior to January 1, 2011.
We offer a deferred compensation plan (the “Plan”) to provide certain associates 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 2020, $1.4 million for 2019, and $1.5 million for 2018. 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. Effective in
January 2021, we suspended matching contributions to the Plan. The balances due to participants in the Plan were $99.8
million as of December 31, 2020, and $85.8 million as of December 31, 2019, and are included in Other Current Liabilities
and Other Liabilities in the accompanying Consolidated Balance Sheets.
Stock-Based Compensation
We grant stock-based awards in the form of time-based and performance-based restricted stock units (“RSUs”), which
are issued from our treasury stock upon vesting. Compensation cost for RSUs is based on the closing price of our common
stock on the date of grant. Prior to 2017, we also granted stock options and restricted stock.
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 associates 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
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 14 of the Notes to
Consolidated Financial Statements for more information about our stock-based compensation arrangements.
68 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 11 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
$161.7 million in 2020, $187.8 million in 2019, and $197.8 million in 2018, 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 $48.2 million in
2020, $59.8 million in 2019, and $66.1 million in 2018. 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 preparatory work on new vehicles acquired by our new vehicle departments. The parts and service
departments charge the new and used vehicle departments as if they were third parties in order to account for total activity
performed by that department. Revenues and costs of sales associated with the internal work performed by our parts and
service departments are reflected in our parts and service results in our Consolidated Statements of Income. New and used
vehicle revenues and costs of sales are reduced by the amount of the intracompany charge. As a result, the revenues and
69 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
costs of sales associated with the internal work performed by our parts and service departments are eliminated in
consolidation. We also defer internal profit associated with the internal work performed by our parts and service
departments on our vehicle inventory until such vehicles have 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 12 of the Notes to Consolidated
Financial Statements for more detailed information related to income taxes.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares
outstanding for the period, including vested RSU awards. Diluted earnings per share is computed by dividing net income
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 per share.
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 tables, 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 tables below also include a reconciliation of the disaggregated revenue to reportable segment
revenue.
Year Ended December 31, 2020
Premium
Luxury
Corporate
and other(1)
Import
Total
Domestic
Major Goods/Service Lines
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
$
3,411.1 $
3,283.7 $
3,723.8 $
— $ 10,418.6
1,781.4
891.5
370.5
36.1
1,516.5
811.3
361.7
14.8
2,125.9
1,058.1
294.7
0.3
177.5
496.5
32.4
2.2
5,601.3
3,257.4
1,059.3
53.4
$
6,490.6 $
5,988.0 $
7,202.8 $
708.6 $ 20,390.0
Timing of Revenue Recognition
Goods and services transferred at a point in time
Goods and services transferred over time(2)
$
5,841.6 $
5,343.8 $
6,301.3 $
413.7 $ 17,900.4
649.0
644.2
901.5
294.9
2,489.6
$
6,490.6 $
5,988.0 $
7,202.8 $
708.6 $ 20,390.0
70
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year Ended December 31, 2019
Premium
Luxury
Corporate
and other(1)
Import
Total
Domestic
Major Goods/Service Lines
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
$
3,502.5 $
3,695.6 $
3,968.4 $
— $ 11,166.5
1,769.5
1,501.9
959.0
354.6
85.8
889.7
368.3
13.2
2,045.6
1,136.0
279.2
5.6
149.5
587.4
21.2
2.7
5,466.5
3,572.1
1,023.3
107.3
$
6,671.4 $
6,468.7 $
7,434.8 $
760.8 $ 21,335.7
Timing of Revenue Recognition
Goods and services transferred at a point in time
Goods and services transferred over time(2)
$
5,969.6 $
5,768.3 $
6,467.5 $
399.3 $ 18,604.7
701.8
700.4
967.3
361.5
2,731.0
$
6,671.4 $
6,468.7 $
7,434.8 $
760.8 $ 21,335.7
Year Ended December 31, 2018
Premium
Luxury
Corporate
and other(1)
Import
Total
Domestic
Major Goods/Service Lines
New vehicle
Used vehicle
Parts and service
Finance and insurance, net
Other
$
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 $
6,079.1 $
6,098.3 $
140.9 $ 18,759.5
693.3
707.3
912.6
340.1
2,653.3
$
7,134.5 $
6,786.4 $
7,010.9 $
481.0 $ 21,412.8
(1) “Corporate and other” is comprised of our other businesses, including collision centers, auction operations,
AutoNation USA used vehicle stores, and parts distribution centers.
(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 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).
71
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 vehicle maintenance
contracts 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.
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 Liabilities in our
Consolidated Balance Sheets.
The following table provides the balances at December 31 of our receivables from contracts with customers and our
current and long-term contract assets and contract liabilities:
Receivables from contracts with customers, net
Contract Asset (Current)
Contract Asset (Long-Term)
Contract Liability (Current)
Contract Liability (Long-Term)
2020
2019
2018
595.0 $
662.0 $
706.7
25.7 $
10.2 $
32.5 $
56.0 $
26.7 $
7.0 $
32.6 $
57.7 $
28.2
17.4
31.6
61.9
$
$
$
$
$
The change in the 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. The following table
presents revenue recognized during the year from amounts included in the contract liability balance at the beginning of the
period and performance obligations satisfied in previous periods:
Amounts included in contract liability at the beginning of the period
Performance obligations satisfied in previous periods
$
$
31.0 $
19.0 $
35.1 $
9.3 $
29.8
23.6
2020
2019
2018
Other significant changes include contract assets reclassified to receivables of $26.1 million during 2020 and $30.0
million in 2019.
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
used vehicle 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
72 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
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.
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, for
certain products, we also 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.
73 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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-
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. See Note 10 of the Notes to Consolidated Financial Statements for more information regarding chargeback
liabilities.
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
Next 12
Months
13 - 36
Months
37 - 60
Months
Revenue expected to be recognized on VCP contracts
sold as of period end
$
88.2 $
32.2 $
42.3 $
13.7
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
74 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. We had capitalized costs incurred to obtain or fulfill a VCP
contract with a customer of $9.0 million as of December 31, 2020 and $9.1 million at December 31, 2019. We amortized
$3.5 million and $3.8 million of these capitalized costs during 2020 and 2019, respectively.
3. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common
shares outstanding for the period, including vested RSU awards. Diluted EPS is computed by dividing net income by the
weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options and unvested
RSU awards.
The following table presents the calculation of basic and diluted EPS:
Net income from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income
Basic weighted average common shares outstanding
Dilutive effect of stock options and unvested RSUs
Diluted weighted average common shares outstanding
Basic EPS amounts(1):
Continuing operations
Discontinued operations
Net income
Diluted EPS amounts(1):
Continuing operations
Discontinued operations
Net income
2020
2019
2018
$
$
381.8 $
(0.2)
381.6 $
450.8 $
(0.8)
450.0 $
395.9
0.1
396.0
88.3
0.4
88.7
90.1
0.4
90.5
$
$
$
$
$
$
4.32 $
— $
4.32 $
5.00 $
(0.01) $
4.99 $
4.30 $
— $
4.30 $
4.98 $
(0.01) $
4.97 $
90.9
0.4
91.3
4.36
—
4.36
4.34
—
4.34
(1) EPS 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 EPS is as follows:
Anti-dilutive equity instruments excluded from the computation of diluted EPS
1.7
2.4
2.3
2020
2019
2018
75
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. RECEIVABLES, NET
The components of receivables, net of allowances for expected credit losses, at December 31 are as follows:
Contracts-in-transit and vehicle receivables
Trade receivables
Manufacturer receivables
Income taxes receivable (see Note 12)
Other
Less: allowances for expected credit losses
Receivables, net
2020
2019
445.8 $
138.0
210.0
—
55.1
848.9
(3.7)
845.2 $
506.0
136.4
234.5
1.5
38.8
917.2
(0.5)
916.7
$
$
Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of
the vehicle sales price financed by our customers. 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. We evaluate our receivables
for collectability based on past collection experience, current information, and reasonable and supportable forecasts.
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
2020
2019
$
1,761.9 $
2,490.8
648.4
188.2
570.0
245.0
$
2,598.5 $
3,305.8
The components of vehicle floorplan payables at December 31 are as follows:
Vehicle floorplan payable - trade
Vehicle floorplan payable - non-trade
Vehicle floorplan payable
2020
2019
$
$
1,541.7 $
1,218.2
2,759.9 $
2,120.6
1,455.2
3,575.8
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.
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
76
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. Vehicle floorplan facilities are primarily collateralized by vehicle
inventories and related receivables.
Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 2.0% during 2020 and 3.7%
during 2019. At December 31, 2020, the aggregate capacity under our new vehicle floorplan facilities to finance our new
vehicle inventory was approximately $4.7 billion, of which $2.3 billion had been borrowed.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 2.3% during 2020 and 3.6%
during 2019. At December 31, 2020, the aggregate capacity under our used vehicle floorplan facilities with various lenders
to finance a portion of our used vehicle inventory was $482.0 million, of which $437.5 million had been borrowed. The
remaining borrowing capacity of $44.5 million was limited to $0.3 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
2020
2019
$
1,417.4 $
2,333.3
1,040.3
4,791.0
1,376.8
2,306.0
973.0
4,655.8
(1,652.9)
(1,481.2)
$
3,138.1 $
3,174.6
We capitalized interest in connection with various construction projects to build, upgrade, or remodel our facilities of
$0.6 million in 2020, $1.3 million in 2019, and $1.4 million in 2018.
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
2020
2019
1,185.0 $
1,501.9
509.0 $
19.6
528.6
(7.1)
521.5 $
566.5
23.4
589.9
(8.3)
581.6
$
$
$
77
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Goodwill
Goodwill is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances
indicate that impairment may have occurred.
During the first quarter of 2020, our stock price, along with the U.S. stock market in general, was adversely impacted by
the market reaction to the COVID-19 pandemic. In light of the uncertainty surrounding the COVID-19 pandemic and the
decrease in our market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially
indicating that the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore,
we performed quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020. As a result of
these impairment tests, during the three months ended March 31, 2020, we recorded non-cash goodwill impairment charges
totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our
Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The non-cash impairment
charges are reflected as Goodwill Impairment in the accompanying Consolidated Statements of Income. See Note 18 of the
Notes to Consolidated Financial Statements for more information about our goodwill impairment test.
For our April 30, 2020 annual impairment test, we chose to make a qualitative evaluation about the likelihood of
goodwill impairment, 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.
Goodwill allocated to our reporting units and changes in the carrying amount of goodwill for the years ended
December 31, 2020 and 2019, were as follows:
Goodwill at January 1, 2019 (1)
Acquisitions, dispositions, and
other adjustments, net (2)
Goodwill at December 31, 2019 (1)
Acquisitions, dispositions, and
other adjustments, net (2)
Impairment
Goodwill at December 31, 2020 (1)(3)
$
Domestic
$
232.5 $
Import
Premium
Luxury
Collision
Centers
Parts
Centers
520.9 $
717.7 $
42.1 $
Consolidated
1,513.2
— $
(5.2)
(22.0)
(2.8)
(0.4)
227.3
498.9
714.9
41.7
19.1
19.1
(0.1)
1.7
(0.3)
(0.1)
0.2
—
227.2 $
—
500.6 $
(257.4)
457.2 $
(41.6)
— $
(19.3)
— $
(11.3)
1,501.9
1.4
(318.3)
1,185.0
(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 and related adjustments, which are presented in Other Current Assets in
our Consolidated Balance Sheet as of period end.
(3) Net of accumulated impairment losses of $257.4 million associated with our Premium Luxury reporting unit, $41.6
million associated with our Collision Centers reporting unit, and $19.3 million associated with our Parts Centers
reporting unit, each of which were recorded during the three months ended March 31, 2020.
Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle
manufacturers. As of December 31, 2020, we had $509.0 million of franchise rights recorded on our Consolidated Balance
Sheet, of which $136.6 million was related to Domestic stores, $105.8 million was related to Import stores, and $266.6
million was related to Premium Luxury stores. Franchise rights 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.
78
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During the first quarter of 2020, we concluded that, as a result of the impacts from the COVID-19 pandemic, a
triggering event had occurred that indicated the fair values of our franchise rights may have been less than their carrying
values as of March 31, 2020. We performed quantitative impairment tests as of March 31, 2020, and as a result, we
identified eight stores with franchise rights carrying values that exceeded their estimated fair values, and we recorded non-
cash franchise rights impairment charges of $57.5 million.
For our April 30, 2020 annual impairment test, we elected to perform quantitative franchise rights impairment tests, and
no additional impairment charges resulted from these quantitative tests. See Note 18 of the Notes to Consolidated Financial
Statements for more information about our franchise rights impairment tests.
8.
LEASES
General description
The significant majority of leases that we enter into are for real estate. We lease numerous facilities relating to our
operations, including primarily for automobile showrooms, display lots, service facilities, collision repair centers, supply
facilities, automobile storage lots, parking lots, offices, and our corporate headquarters. Leases for real property have terms
ranging from one to twenty-five years. We also lease various types of equipment, including security cameras, diagnostic
equipment, copiers, key-cutting machines, and postage machines, among others. Equipment leases generally have terms
ranging from one to five years. In addition, we lease certain vehicles from vehicle manufacturers to provide our service
customers with the use of a vehicle while their vehicles are being serviced at our dealerships. These service loaner vehicle
leases generally have terms ranging from six to eighteen months, and we typically purchase the service loaner vehicles at
the end of the lease.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not
have any significant leases that have not yet commenced but that create significant rights and obligations for us. We have
elected the practical expedient under ASC Topic 842 to not separate lease and nonlease components for the following
classes of underlying assets: real estate, office equipment, service loaner vehicles, and marketing-related assets (e.g.,
billboards).
Our real estate and equipment leases often require that we pay maintenance in addition to rent. Additionally, our real
estate leases generally require payment of real estate taxes and insurance. Maintenance, real estate taxes, and insurance
payments are generally variable and based on actual costs incurred by the lessor. Therefore, these amounts are not included
in the consideration of the contract when determining the right-of-use (“ROU”) asset and lease liability, but are reflected as
variable lease expenses for those classes of underlying assets for which we have elected the practical expedient to not
separate lease and nonlease components.
Leases with an initial term of 12 months or less that do not include a purchase option that is reasonably certain to be
exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the
lease term. We rent or sublease certain real estate to third parties, which are primarily operating leases.
Variable lease payments
A majority of our lease agreements include fixed rental payments. Certain of our lease agreements include fixed rental
payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on a change in
an index or a rate are not considered in the determination of lease payments for purposes of measuring the related lease
liability. While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as
variable lease payments and recognized in the period in which the obligation for those payments are incurred.
79 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Options to extend or terminate leases
Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term
from one to five years or more. The exercise of lease renewal options is at our sole discretion. If it is reasonably certain that
we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part
of our ROU assets and lease liabilities. Certain leases also include options to purchase the leased property or asset. The
depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of
title or purchase option reasonably certain of exercise.
Discount rate
For our incremental borrowing rate, we generally use a portfolio approach to determine the discount rate for leases with
similar characteristics. We determine discount rates based on current market prices of instruments similar to our unsecured
borrowings with maturities that align with the relevant lease term, and such rates are then adjusted for our credit spread and
the effects of full collateralization.
The following tables present information about our ROU assets, lease liabilities, total lease costs, cash flows arising
from lease transactions, and other supplemental information for the years ended December 31, 2020 and 2019:
Leases
Assets
Operating
Finance
Total right-of-use assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Classification
2020
2019
Operating Lease Assets
Property and Equipment, Net and Other Assets
$
$
309.5 $
102.9
412.4 $
Other Current Liabilities
Current Maturities of Long-Term Debt and Vehicle
$
Floorplan Payable - Trade
Noncurrent Operating Lease Liabilities
Long-Term Debt, Net of Current Maturities
38.4 $
27.2
286.5
107.1
333.1
82.5
415.6
41.0
26.2
305.0
87.3
459.5
Total lease liabilities
$
459.2 $
Lease Term and Discount Rate
Weighted average remaining lease term
Operating
Finance
Weighted-average discount rate
Operating
Finance
2020
2019
12 years
14 years
5.17 %
6.46 %
11 years
13 years
5.27 %
9.09 %
80
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Lease cost
Operating lease cost
Finance lease cost:
Classification
Selling, general, and administrative expenses
2020
2019
$
58.3 $
60.5
Amortization of ROU
assets
Interest on lease liabilities Other interest expense and floorplan interest expense
Depreciation and amortization
Short-term lease cost (1)
Variable lease cost
Sublease income
Net lease cost
Selling, general, and administrative expenses
Selling, general, and administrative expenses
Selling, general, and administrative expenses
(1) Includes leases with a term of one month or less.
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases (1)
Financing cash flows from finance leases
Supplemental noncash information on adjustments to right-of-use assets, including
right-of-use assets obtained in exchange for new:
Operating lease liabilities
Finance lease liabilities
$
$
$
$
$
$
9.8
6.9
7.3
7.7
(0.5)
89.5 $
2020
2019
57.0 $
38.5 $
15.0 $
16.8 $
57.6 $
10.8
8.8
9.6
6.6
(1.2)
95.1
60.0
50.8
28.9
31.9
46.3
(1) Includes the interest component of payments made on finance leases as well as principal payments on
vehicle floorplan payables with trade lenders for certain service loaner vehicle leases.
Maturity of Lease Liabilities
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
Operating Leases
Finance Leases
$
54.2 $
48.9
41.7
35.7
33.7
235.6
449.8
$
(124.9)
324.9 $
33.5
11.7
11.5
11.5
11.7
110.1
190.0
(55.7)
134.3
Under ASC Topic 840, expenses under real property, equipment, and software leases were $66.2 million in 2018.
81
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT AND COMMERCIAL PAPER
Long-term debt at December 31 consisted of the following:
Debt Description
5.5% Senior Notes
3.35% Senior Notes
3.5% Senior Notes
4.5% Senior Notes
3.8% Senior Notes
4.75% Senior Notes
Revolving credit facility
Finance leases and other debt
Interest Payable
Maturity Date
February 1 and August 1
February 1, 2020
January 15 and July 15
January 15, 2021
May 15 and November 15
November 15, 2024
April 1 and October 1
October 1, 2025
May 15 and November 15
November 15, 2027
June 1 and December 1
June 1, 2030
March 26, 2025
Monthly
Various dates through 2040 Monthly
Less: unamortized debt discounts and debt issuance costs
Less: current maturities
Long-term debt, net of current maturities
2020
2019
$
— $
300.0
450.0
450.0
300.0
500.0
—
116.6
2,116.6
(14.8)
(309.2)
1,792.6 $
$
350.0
300.0
450.0
450.0
300.0
—
—
93.9
1,943.9
(9.8)
(355.6)
1,578.5
At December 31, 2020, aggregate maturities of non-vehicle long-term debt were as follows:
Year Ending December 31:
2021
2022
2023
2024
2025
Thereafter
$
307.6
5.7
5.8
456.1
456.7
884.7
$
2,116.6
Debt Refinancing Transaction
On March 26, 2020, we amended and restated our existing unsecured credit agreement to, among other things,
(1) provide for lower commitment fees and loan margins as set forth in the amended and restated credit agreement,
(2) extend the maturity date to March 26, 2025, and (3) provide for customary LIBOR replacement provisions.
Senior Unsecured Notes and Credit Agreement
In February 2020, we repaid the outstanding $350.0 million of 5.5% Senior Notes due 2020. On May 21, 2020, we
issued $500.0 million aggregate principal amount of 4.75% Senior Notes due 2030, which were sold at 99.479% of the
aggregate principal amount. In January 2021, we repaid the outstanding $300.0 million of 3.35% Senior Notes due 2021.
The interest rates payable on our outstanding senior unsecured notes are subject to adjustment upon the occurrence of
certain credit rating events as provided in the indentures for these senior unsecured notes.
Under our amended and restated credit agreement, we have a $1.8 billion revolving credit facility that matures on
March 26, 2025. The credit agreement also contains an accordion feature that allows us, subject to credit availability and
certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up
82
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 $39.7 million at December 31, 2020, leaving an
additional borrowing capacity under the revolving credit facility of $1.8 billion at December 31, 2020.
Our revolving credit facility under the amended credit agreement provides for a commitment fee on undrawn amounts
ranging from 0.125% to 0.20% and interest on borrowings at LIBOR or the base rate, in each case plus an applicable
margin. The applicable margin ranges from 1.125% to 1.50% for LIBOR borrowings and 0.125% to 0.50% 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.
Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or
operations. If the guarantees of our subsidiaries were to be issued under our existing registration statement, we expect that
such guarantees would be full and unconditional and joint and several, and any subsidiaries other than the guarantor
subsidiaries would be minor.
Other Long-Term Debt
At December 31, 2020, we had finance leases and other debt obligations of $116.6 million, which are due at various
dates through 2040. See Note 8 of the Notes to Consolidated Financial Statements for more information related to finance
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. Proceeds from the issuance of commercial paper
notes are used to repay borrowings under the revolving credit facility, to finance acquisitions and for working capital,
capital expenditures, share repurchases, and/or other general corporate purposes. We plan to use the revolving credit
facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper program. A
downgrade in our credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper
notes.
At December 31, 2020, we had no commercial paper notes outstanding. At December 31, 2019, we had $170.0 million
of commercial paper notes outstanding with a weighted-average annual interest rate of 2.13% and a weighted-average
remaining term of 12 days.
10. 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
2020
2019
2018
$
$
134.5 $
128.1 $
118.1
(110.5)
142.1 $
108.6
(102.2)
134.5 $
120.8
108.3
(101.0)
128.1
83
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SELF-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.
At December 31, 2020 and 2019, 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
12. INCOME TAXES
2020
2019
$
$
35.4 $
47.0
82.4 $
32.3
48.0
80.3
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
2020
2019
2018
$
$
168.9 $
37.4
(39.0)
0.3
0.7
168.3 $
86.0 $
29.4
45.8
0.2
0.4
161.8 $
93.0
26.8
10.9
3.5
(0.7)
133.5
A reconciliation of the income tax provision calculated using the statutory federal income tax rate to our income tax
provision from continuing operations for the years ended December 31 is as follows:
2020
%
2019
%
2018
%
Income tax provision at statutory rate
Impact of goodwill impairment
Other 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
$
$
115.5
21.4
8.2
24.3
169.4
—
0.3
0.7
(0.7)
(1.4)
168.3
21.0 $
3.9
1.5
4.4
30.8
—
0.1
0.1
(0.1)
(0.3)
30.6 $
128.7
—
10.3
25.7
164.7
—
0.2
0.4
(0.9)
(2.6)
161.8
21.0 $
—
1.7
4.2
26.9
—
—
0.1
(0.2)
(0.4)
26.4 $
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
84
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
Lease liabilities
Loss carryforwards— 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)
Investments - unrealized appreciation
Right-of-use assets
Other, net
Total deferred income tax liabilities
Net deferred income tax liabilities
$
2020
2019
20.2 $
1.0
53.1
31.5
24.4
10.6
80.8
6.8
4.6
233.0
(4.8)
228.2
(219.6)
(19.5)
(75.0)
(10.0)
(324.1)
(95.9) $
25.7
0.2
50.7
27.7
20.9
14.9
85.4
6.8
4.1
236.4
(4.5)
231.9
(269.6)
(6.3)
(80.0)
(11.1)
(367.0)
(135.1)
Our net deferred tax liability of $95.9 million as of December 31, 2020, and $135.1 million as of December 31, 2019, is
classified as Deferred Income Taxes in the accompanying Consolidated Balance Sheets.
Income taxes payable included in Other Current Liabilities totaled $13.3 million at December 31, 2020. Income taxes
receivable included in Receivables, net totaled $1.5 million at December 31, 2019.
At December 31, 2020, we had $104.0 million of gross domestic state net operating loss carryforwards and capital loss
carryforwards, and $1.9 million of state tax credits, all of which result in a deferred tax asset of $6.8 million and expire
from 2021 through 2040.
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, 2020, we had $4.8
million of valuation allowance related to state net operating loss carryforwards. 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 2019 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.
85
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
$
$
2020
2019
2018
5.3 $
0.4
1.6
—
(0.3)
—
7.0 $
4.3 $
—
1.4
—
(0.4)
—
5.3 $
6.4
—
0.6
—
(0.9)
(1.8)
4.3
We had accumulated interest and penalties associated with these unrecognized tax benefits of $8.4 million at
December 31, 2020, $7.5 million at December 31, 2019, and $6.6 million at December 31, 2018. We additionally had a
deferred tax asset of $3.4 million at December 31, 2020, $2.8 million at December 31, 2019, and $2.4 million at December
31, 2018, related to these balances. The net of the unrecognized tax benefits, associated interest, penalties, and deferred tax
asset was $12.0 million at December 31, 2020, $10.0 million at December 31, 2019, and $8.5 million at December 31,
2018, 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 $0.7 million during 2020, $0.7 million during 2019, and $0.6 million during 2018 (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, 2021.
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. For
the tax year ended December 31, 2018, we 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.
13. 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
2020
2019
2018
7.2
382.3 $
52.76 $
1.3
44.7 $
35.51 $
2.1
100.0
47.58
$
$
As of December 31, 2020, $197.8 million remained available under our stock repurchase limit most recently authorized
by our Board of Directors. In February 2021, our Board of Directors increased the share repurchase authorization by
$1 billion.
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.
86
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
2020
2019
2018
1.1
52.7 $
49.91 $
0.4
12.7 $
33.87 $
0.5
17.8
35.25
$
$
The following table presents a summary of shares of common stock issued in connection with the settlement of 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:
Shares issued
Shares surrendered to AutoNation to satisfy tax
withholding obligations
14. STOCK-BASED COMPENSATION
2020
2019
2018
0.5
0.2
0.3
0.1
0.1
0.1
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, 2020, the maximum number of shares authorized for issuance under the 2014 Director Plan
was 600,000.
Restricted Stock Units
On January 2, 2020, each of our non-employee directors received a grant of 5,110 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 2020, our Board’s Compensation Committee approved the grant of 0.8 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.
87
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information about vested and nonvested RSUs for 2020:
Nonvested at January 1
Granted
Vested
Forfeited
Nonvested at December 31
RSUs
Shares
(in millions)
Weighted-Average
Grant Date
Fair Value
1.7 $
0.9 $
(0.5) $
(0.2) $
1.9 $
40.56
44.28
42.40
44.21
41.36
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)
Stock Options
2020
2019
2018
$
$
44.28 $
23.2 $
35.51 $
9.0 $
49.16
7.3
Prior to 2017, we granted non-qualified stock options with a term of 10 years from the date of grant that vested in equal
installments over four years. Upon exercise, shares of common stock are issued from our treasury stock.
We used the Black-Scholes valuation model to determine compensation expense and amortized compensation expense
on a straight-line basis over the requisite service period of the grants. All stock options were fully vested as of December
31, 2020. The following table summarizes stock option activity during 2020:
Stock Options
Options outstanding at January 1
Granted
Exercised
Forfeited
Expired
Options outstanding and exercisable as
of December 31
Options available for future grants at
December 31
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(in millions)
Shares
(in millions)
Weighted-
Average
Exercise Price
52.29
—
49.91
—
58.00
2.6 $
— $
(1.1) $
— $
(0.3) $
1.2 $
52.78
3.53 $
19.7
3.1
The total intrinsic value of stock options exercised was $9.8 million during 2020, $5.2 million during 2019, and $8.2
million during 2018.
88
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Restricted Stock
Prior to 2017, we granted restricted stock awards, which were issued from our treasury stock. All restricted stock
awards were fully vested as of December 31, 2020. Compensation cost for restricted stock awards was based on the closing
price of our common stock on the date of grant. The following table summarizes information about restricted stock for
2020:
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
16,267 $
— $
(16,189) $
(78) $
— $
52.53
—
52.53
52.53
—
The total fair value of restricted stock awards vested was $0.7 million in 2020, $1.7 million in 2019, and $3.3 million in
2018.
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
2020
2019
2018
30.0 $
0.1
0.1
30.2 $
29.4 $
0.9
0.8
31.1 $
21.7
1.6
2.2
25.5
2.6 $
2.5 $
3.0
$
$
$
As of December 31, 2020, there was $19.9 million of total unrecognized compensation cost related to non-vested RSUs,
which is expected to be recognized over a weighted average period of 1.64 years.
Tax benefits related to stock options exercised and vesting of restricted stock and RSUs were $4.3 million in 2020,
$3.3 million in 2019, and $3.4 million in 2018.
15. STORE DIVESTITURES
During 2020, we divested one Premium Luxury store and two collision centers. We also terminated one Domestic
franchise. During 2019, we divested three Domestic stores, five Import stores, and two collision centers. During 2018, we
divested eight Domestic stores, seven Import stores, two Premium Luxury stores, and one collision center.
We recognized net gains related to store divestitures of $2.5 million in 2020, $29.7 million in 2019, and $40.3 million in
2018. The net gains on these divestitures are included in Other (Income) Expense, 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.
89
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. EXIT OR DISPOSAL COST OBLIGATIONS
On August 17, 2020, we determined to close our aftermarket collision parts (“ACP”) business by the end of 2020. In
connection with the closing of the ACP business, we expect to incur total charges of $36.7 million, the significant majority
of which was incurred in 2020, as follows:
Cost Associated with Exit Activity
Inventory valuation adjustment
Contract termination charges
Other associated closing costs
Accelerated depreciation
Accelerated amortization
Asset impairment charges
Involuntary termination benefits
Total Costs
Expected to be
Incurred
Cumulative
Costs Incurred
during 2020
Statement of Operations Line Item
$
$
17.6 $
3.2
2.6
3.9
3.2
5.1
1.1
36.7 $
17.6 Parts and service cost of sales
3.2 Other (income) expense, net (operating)
2.6 Selling, general, and administrative expenses
3.9 Depreciation and amortization
3.2 Selling, general, and administrative expenses
5.1 Other (income) expense, net (operating)
1.1 Selling, general, and administrative expenses
36.7
Charges incurred are reflected as part of the “Corporate and other” category of our segment information.
The following is a rollforward of our liability balances for exit or disposal cost obligations associated with the closing
of the ACP business, which are included in Other Current Liabilities in the Consolidated Balance Sheets:
Contract
Termination
Charges
Other
Associated
Closing Costs
Involuntary
Termination
Benefits
Total
$
$
— $
3.2
(3.0)
0.2 $
— $
2.6
(0.2)
2.4 $
— $
1.1
(0.3)
0.8 $
—
6.9
(3.5)
3.4
Balance at December 31, 2019
Costs incurred
Costs paid or otherwise settled
Balance at December 31, 2020
17. CASH FLOW INFORMATION
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents reported on our Consolidated Balance Sheets
to the total amounts, which include cash, cash equivalents, and restricted cash, reported on our Consolidated Statements of
Cash Flows:
Cash and cash equivalents
Restricted cash included in Other Current Assets
Total cash, cash equivalents, and restricted cash
Non-Cash Investing and Financing Activities
Years Ended December 31,
2020
2019
$
$
569.6 $
0.1
569.7 $
42.0
0.5
42.5
We had accrued purchases of property and equipment of $9.6 million at December 31, 2020, $29.4 million at
December 31, 2019, and $41.3 million at December 31, 2018. We had non-cash investing and financing activities related to
increases in property and equipment acquired under financing agreements of $1.7 million during 2020, $3.3 million during
2019, and $9.6 million during 2018. See Note 8 of the Notes to Consolidated Financial Statements for supplemental
90
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
noncash information on adjustments to right-of-use assets, including right-of-use assets obtained in exchange for new lease
liabilities.
Interest and Income Taxes Paid
We made interest payments, net of amounts capitalized and including interest on vehicle inventory financing, of $164.2
million in 2020, $243.1 million in 2019, and $245.6 million in 2018. We made income tax payments, net of income tax
refunds, of $190.2 million in 2020, $107.5 million in 2019, and $210.0 million in 2018.
18. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific
point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also
establishes the following three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted market prices in markets that are not active; or model-derived
valuations or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
• Cash and cash equivalents, 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.
•
Investments in Equity Securities: As of December 31, 2020, the carrying amount of our Vroom equity investment
was $101.9 million. The fair value of this equity investment is based on the quoted price in active markets for the
identical asset (Level 1). In March 2020, we invested $50.0 million in the equity securities of Waymo LLC, which
do not have a readily determinable fair value. We elected to measure this investment using the measurement
alternative as permitted by accounting standards, and we recorded the equity interest at its cost of $50.0 million.
We have considered all relevant transactions since the date of our investment through December 31, 2020, and we
have not recorded any impairments or upward or downward adjustments to the carrying amount of our Waymo
investment as of December 31, 2020, as there have not been any indications of impairment or observable price
changes in orderly transactions for the identical or a similar investment of the same issuer as of such date.
Investments in equity securities are reported in Other Assets in the accompanying Consolidated Balance Sheets.
Realized and unrealized gains and losses are reported in Other Income, Net (non-operating) in the Consolidated
Statements of Income and in the “Corporate and other” category of our segment information.
91
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following is the portion of unrealized gains recognized during the years ended December 31, 2020 and 2019,
related to equity securities still held at December 31:
Net gains recognized during the period on equity
securities
Less: Net gains recognized during the period on equity
securities sold during the period
Unrealized gains recognized during the reporting period
on equity securities still held at the reporting date
$
$
2020
2019
131.5 $
63.4
68.1 $
25.7
—
25.7
In the first quarter of 2021, we sold the remaining shares of our Vroom equity investment for total proceeds of
$109.4 million.
• 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 at December 31 is as follows:
Carrying value
Fair value
2020
2019
$
$
2,101.8 $
2,341.1 $
1,934.1
2,001.8
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair
value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a
business combination. The fair values less costs to sell of long-lived assets or disposal groups held for sale are assessed
each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s or
disposal group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount,
except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the
time it was initially classified as held for sale.
The following table presents assets measured and recorded at fair value on a nonrecurring basis during the years ended
December 31, 2020 and 2019:
Description
Goodwill
Franchise rights and other
Equity investment
Right-of-use assets
Long-lived assets held and used
Long-lived assets held for sale:
Continuing operations
Discontinued operations
Total assets held for sale
2020
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Gain/
(Loss)
2019
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Gain/
(Loss)
$
$
$
$
$
$
$
457.5 $ (318.3) $
26.2 $
(59.9) $
— $
5.0 $
1.8 $
— $
(3.1) $
(9.2) $
— $
—
— $
— $
—
— $
— $
—
8.9 $
(9.9)
75.7 $
25.7
0.1 $
— $
(0.2)
(0.1)
26.1 $
5.4
31.5 $
(1.6)
(0.5)
(2.1)
92
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Goodwill
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.
During the first quarter of 2020, our stock price, along with the U.S. stock market in general, was adversely impacted by
the market reaction to the COVID-19 pandemic. In light of the uncertainty surrounding the COVID-19 pandemic and the
decrease in our market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially
indicating that the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore,
we performed quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020.
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.
As a result of these impairment tests, during the three months ended March 31, 2020, we recorded non-cash goodwill
impairment charges totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6
million related to our Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The
non-cash impairment charges are reflected as Goodwill Impairment in the accompanying Consolidated Statements of
Income and in the “Corporate and other” category of our segment information. For our April 30, 2020 annual impairment
test, we chose to make a qualitative evaluation about the likelihood of goodwill impairment, 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.
For our April 30, 2019 annual impairment test, we chose to make a qualitative evaluation about the likelihood of
goodwill impairment for our Domestic, Import, and Premium Luxury reporting units, and we determined that it was not
more likely than not that the fair values of these reporting units were less than their carrying amounts. We elected to
perform a quantitative goodwill impairment test for our Collision Centers and Parts Centers reporting units as of April 30,
2019, and no impairment charges resulted from the impairment test.
For our April 30, 2018 annual impairment test, we chose to make a qualitative evaluation about the likelihood of
goodwill impairment, and we determined that it was not more likely than not that the fair values of our reporting units were
less than their carrying amounts.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle
manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when
events or changes in circumstances indicate that impairment may have occurred. During the first quarter of 2020, we
concluded that, as a result of the impacts from the COVID-19 pandemic, a triggering event had occurred that indicated the
fair values of our franchise rights may have been less than their carrying values as of March 31, 2020. Therefore, we
performed quantitative franchise rights impairment tests as of March 31, 2020.
93 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.
As a result of the quantitative tests, we identified eight stores with franchise rights carrying values that exceeded their
estimated fair values, and we recorded non-cash franchise rights impairment charges of $57.5 million during the three
months ended March 31, 2020. For our April 30, 2020 annual impairment test, we elected to perform quantitative franchise
rights impairment tests, and no additional impairment charges resulted from these quantitative tests.
For our April 30, 2019 and 2018 annual impairment tests, we elected to perform quantitative franchise rights
impairment tests. As a result of these tests, we recorded non-cash impairment charges of $9.6 million in 2019 and $8.1
million in 2018 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 in the “Corporate and other” category of our segment information.
In 2020, we also recorded non-cash impairment charges of $2.4 million to reduce the carrying value of certain finite-
lived intangible assets to estimated fair value, which are included in Other (Income) Expense, Net in our Consolidated
Statements of Income and in the “Corporate and other” category of our segment information.
Long-Lived Assets and Right-of-Use Assets
Fair value measurements for our long-lived assets and right-of-use assets are based on Level 3 inputs. 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 or for right-of-use assets. The valuation process 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, we use transaction prices for comparable properties that have recently been sold. These
transaction prices are adjusted for factors related to a specific property. We evaluate 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, we also obtain 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 we evaluate any recent negotiations or discussions with third-party real estate
brokers related to a specific long-lived asset or market.
We recorded non-cash impairment charges of $3.1 million in 2020 and $0.2 million in 2019 related to our right-of-use
assets.
We recorded non-cash impairment charges of $9.2 million in 2020 and $0.1 million in 2019 related to our long-lived
assets held and used.
We recorded no impairment charges related to our long-lived assets held for sale in 2020. In 2019, we recorded non-
cash impairment charges of $1.6 million related to our long-lived assets held for sale in continuing operations and $0.5
million related to our long-lived assets held for sale in discontinued operations.
94 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The non-cash impairment charges recorded in 2020 and 2019, are included in Other (Income) Expense, Net (within
Operating Income) in our Consolidated Statements of Income and are reported in the “Corporate and other” category of our
segment information.
We had assets held for sale in continuing operations of $25.5 million as of December 31, 2020, and $40.6 million as of
December 31, 2019, primarily related to property held for sale, as well as inventory, goodwill, and property of disposal
groups held for sale. We had assets held for sale in discontinued operations of $8.0 million as of December 31, 2020, and
$8.0 million as of December 31, 2019, primarily related to property held for sale. Assets held for sale are included in Other
Current Assets in our Consolidated Balance Sheets.
Quantitative Information about Level 3 Fair Value Measurements
Description
Fair Value at
March 31, 2020 Valuation Technique
Unobservable Input
Range (Average)
Franchise rights
$
24.6 Discounted cash flow
Weighted average cost of capital
8.5 %
Discount rate
11.1% - 14.3% (12.1%)
Long-term revenue growth rate
2.0 %
Long-term pretax income margin
0.6% - 2.8% (1.4%)
Contributory asset charges
4.2% - 12.1% (6.2%)
19. 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, 2020 and 2019, 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.
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
95 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 2022 to 2034 are
approximately $11 million at December 31, 2020. 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, 2020, surety bonds, letters of credit, and cash deposits totaled $102.4 million, of which $39.7 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
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.
20. BUSINESS AND CREDIT CONCENTRATIONS
We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle
manufacturers. In 2020, approximately 64% of our total revenue was generated by our stores in Florida, Texas, and
California. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the
operations of the store. The success of any franchised automotive dealership is dependent, to a large extent, on the financial
condition, management, marketing, production, and distribution capabilities of the vehicle manufacturers or distributors of
which we hold franchises. We had receivables from manufacturers or distributors of $210.0 million at December 31, 2020,
and $234.5 million at December 31, 2019. 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
89% of the new vehicles that we sold in 2020, are manufactured by Toyota (including Lexus), Honda, Ford, General
Motors, FCA US, Mercedes-Benz, BMW, and Volkswagen (including Audi and Porsche). Our business could be
96 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2020, we do not consider AutoNation to have any significant non-
manufacturer concentrations of credit risk.
21. SEGMENT INFORMATION
At December 31, 2020, 2019, and 2018, 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, Subaru, 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 used vehicle stores, and parts distribution centers, all of which generate revenues but do not meet the quantitative
thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items.
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.
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.
Year Ended December 31, 2020
Premium
Luxury
Corporate
and other
Import
Total
Domestic
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
$
$
$
$
$
$
$
$
$
$
$
$
6,490.6 $
5,988.0 $
7,202.8 $
708.6 $
20,390.0
23.8 $
39.8 $
355.2 $
17.9 $
12.9 $
33.6 $
386.4 $
25.7 $
21.8 $
60.5 $
478.2 $
51.6 $
5.3 $
65.0 $
(720.4) $
42.0 $
63.8
198.9
499.4
137.2
2,130.0 $
1,764.7 $
2,752.5 $
3,240.0 $
9,887.2
Year Ended December 31, 2019
Premium
Luxury
Corporate
and other
Import
Total
Domestic
6,671.4 $
6,468.7 $
7,434.8 $
760.8 $
21,335.7
51.8 $
37.2 $
257.6 $
38.6 $
2,483.6 $
30.7 $
33.4 $
318.6 $
23.2 $
1,842.1 $
47.3 $
53.5 $
381.1 $
145.3 $
3,150.5 $
8.6 $
56.4 $
138.4
180.5
(272.1) $
50.3 $
3,067.1 $
685.2
257.4
10,543.3
97 AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year Ended December 31, 2018
Premium
Luxury
Corporate
and other
Import
Total
Domestic
Revenues from external customers
Floorplan interest expense
$
$
7,134.5 $
6,786.4 $
7,010.9 $
481.0 $
21,412.8
51.3 $
31.0 $
41.7 $
6.4 $
130.4
Depreciation and amortization
Segment income (loss)(1)
Capital expenditures
(1) Segment income represents income for each of our reportable segments and is defined as operating income less
(247.4) $
115.5 $
304.7 $
340.9 $
144.2 $
249.3 $
77.7 $
48.1 $
33.2 $
37.3 $
47.6 $
56.2 $
$
$
$
166.2
647.5
393.6
floorplan interest expense.
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
Years Ended December 31,
2019
2018
2020
$
$
19,681.4 $
20,574.9 $
20,931.8
708.6
760.8
481.0
20,390.0 $
21,335.7 $
21,412.8
Years Ended December 31,
2019
2020
2018
Total segment income for reportable segments
$
1,219.8 $
957.3 $
Corporate and other
Other interest expense
Interest income
Other income, net
(720.4)
(93.7)
0.3
144.1
(272.1)
(106.7)
0.5
33.6
894.9
(247.4)
(119.4)
1.1
0.2
Income from continuing operations before income taxes
$
550.1 $
612.6 $
529.4
22. MULTIEMPLOYER PENSION PLANS
Five of our 230 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.
98
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Both of the multiemployer pension plans in which we participate are designated as being in “red zone” status, as
defined by the Pension Protection Act (PPA) of 2006. Our participation in these plans for the year ended December 31,
2020, 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 2020 and 2019 is based on
information that we received from the plans and is certified by each 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 plans are subject. A rehabilitation plan has been implemented for each plan. There have been no
significant changes that affect the comparability of 2020, 2019, and 2018 contributions.
Pension Fund
Automotive Industries Pension Plan
IAM National Pension Fund
Other funds
Total contributions
EIN/Pension
PlanNumber
94-1133245
- 001
51-6031295-
002
Pension Protection
Act Zone Status
Contributions of
AutoNation
($ in millions) (1)
2020
2019
2020
2019
2018
Expiration
Date of
Collective-
Bargaining
Agreement
Surcharge
Imposed (2)
Red
Red
Red
$ 1.4 $ 1.6 $ 1.4
Yes
Red
0.2
0.1
0.2
0.1
0.2
0.1
Yes
$ 1.7 $ 1.9 $ 1.7
(3)
(4)
(1) Our stores were not listed in the Automotive Industries Pension Plan’s or IAM National Pension Fund’s Form 5500
as providing more than 5% of the total contributions for the plan years ended December 31, 2019 or 2018.
(2) We paid surcharges to the Automotive Industries Pension Plan of $0.6 million, $0.8 million, and $0.6 million in
2020, 2019, and 2018 respectively. Surcharges to the IAM National Pension Fund commenced in 2019 and were
de minimis.
(3) We are party to three collective-bargaining agreements that require contributions to the Automotive Industries
Pension Plan. One agreement has an expiration date of December 31, 2021, and one agreement has an expiration
date of December 31, 2022. One agreement expired on December 31, 2019, and is currently extended during
collective bargaining for a new agreement.
(4) We are party to two collective-bargaining agreements that require contributions to the IAM National Pension Fund.
Both agreements have an expiration date of August 31, 2022.
In the event that we cease participating in these plans, we could be assessed withdrawal liabilities, which we estimate
are approximately $15 million for the Automotive Industries Pension Plan and approximately $3 million for the IAM
National Pension Fund.
99
AUTONATION, INC.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements of Income by quarter for 2020 and 2019:
Revenue
Gross profit
Operating income (loss)(1)
Income (loss) from continuing operations(1) (2)
Net income (loss)(1) (2)
Basic earnings (loss) per share
from continuing operations(1) (2) (3)
Diluted earnings (loss) per share
from continuing operations(1) (2) (3)
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Third
Quarter
Second
Quarter
Fourth
Quarter
First
Quarter
$ 4,667.0 $ 4,533.0 $ 5,404.9 $ 5,785.1
$ 4,981.8 $ 5,343.8 $ 5,461.2 $ 5,548.9
986.7
$
895.6
$
309.4
$
235.8
$
151.5
$
157.7
$
151.5
$
157.7
$
1.74
$
1.75
$
1.73
$
1.74
$
813.2 $
849.2 $
(219.3) $
190.8 $
(232.2) $
92.1 $
(232.3) $
92.0 $
(2.58) $
1.02 $
(2.58) $
1.02 $
795.0 $
890.8 $
201.4 $
203.5 $
279.9 $
101.0 $
279.8 $
100.8 $
3.18 $
1.12 $
3.18 $
1.12 $
971.5 $
887.4 $
271.7 $
193.5 $
182.6 $
100.0 $
182.6 $
99.5 $
2.07 $
1.11 $
2.05 $
1.11 $
(1) During the first quarter of 2020, we recorded non-cash goodwill and franchise rights impairment charges of
$375.8 million ($308.4 million after-tax) due to the impacts of the COVID-19 pandemic. During the third quarter of
2020, we recognized $36.5 million ($27.7 million after-tax) of charges incurred in connection with the closure of our
aftermarket collision parts business. During the fourth quarter of 2019, we recorded net gains of $25.9 million ($19.6
million after-tax) primarily related to business/property divestitures.
(2) During the second and third quarters of 2020, we recognized a gain of $214.7 million ($160.5 million after-tax) and a
loss of $2.0 million ($1.5 million after-tax), respectively, related to our Vroom equity investment due to changes in
the fair value of the underling security for shares held at the end of those respective periods. During the fourth quarter
of 2020, we recognized a loss of $81.2 million ($61.5 million after-tax) related to our Vroom equity investment due
to shares sold during the fourth quarter of 2020 and a change in the fair value of the underlying security for shares
still held as of December 31. 2020. During the fourth quarter of 2019, we recognized a gain of $25.7 million ($19.5
million after-tax) related to our Vroom equity investment due to a change in the fair value of the underlying security
for shares still held as of December 31, 2019.
(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.
100 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,
2020. 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
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 2020 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
101 PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under the heading “Information about our Executive Officers” 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 2021
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December
31, 2020.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2021 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2020.
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, 2020 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)
3,141,922(1)
$52.78(2)
3,127,480(3)
—
3,141,922(1)
—
$52.78(2)
—
3,127,480(3)
(1)
Includes 1,868,440 shares granted under the AutoNation, Inc. 2017 Employee Equity and Incentive Plan (the “2017
Plan”) and 117,789 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 2,830,586 shares available under the 2017 Plan and 296,894 shares available under the 2014 Plan.
The other information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2021
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2020.
102
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 2021 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2020.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to AutoNation’s Proxy Statement for its 2021 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
2020.
103 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.
104
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
Chief Executive Officer and Director
February 16, 2021
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/ JOSEPH T. LOWER
Joseph T. Lower
/S/ CHRISTOPHER CADE
Christopher Cade
/S/ RICK L. BURDICK
Rick L. Burdick
/S/ DAVID B. EDELSON
David B. Edelson
/S/ STEVEN L. GERARD
Steven L. Gerard
/S/ ROBERT R. GRUSKY
Robert R. Grusky
/S/ NORMAN K. JENKINS
Norman K. Jenkins
/S/ LISA LUTOFF-PERLO
Lisa Lutoff-Perlo
/S/ G. MIKE MIKAN
G. Mike Mikan
/S/ JACQUELINE A. TRAVISANO
Jacqueline A. Travisano
Title
Chief Executive Officer and Director
(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
Date
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
105
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*
10.1*
10.2
10.3
10.4
10.5
10.6
10.7
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
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 4.5%
Senior Notes due 2025.
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 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).
Supplemental Indenture to 2010 Indenture, dated May
22, 2020, relating to the Company’s 4.75% Senior Notes
due 2030.
Form of 4.75% Senior Notes due 2030 (included in
Exhibit 4.23).
Description of Registrant’s Securities.
AutoNation, Inc. Deferred Compensation Plan, as
amended and restated.
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.
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.
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
4.3
9/21/15
8-K
001-13107
4.3
9/21/15
10-Q
001-13107
4.4
4/22/16
10-Q
001-13107
4.4
10/28/16
10-Q
001-13107
4.4
11/2/17
8-K
001-13107
4.2
11/13/17
8-K
001-13107
4.3
11/13/17
8-K
001-13107
4.4
11/13/17
8-K
001-13107
4.5
11/13/17
8-K
001-13107
4.2
5/22/20
8-K
001-13107
4.2
5/22/20
10-K
001-13107 10.17
2/28/07
10-Q
001-13107 10.4
10/28/10
8-K
001-13107 10.2
2/2/12
10-Q
001-13107 10.6
4/18/14
10-Q
001-13107 10.2
7/17/14
10-Q
001-13107 10.1
4/25/17
106 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 2018-2021.
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 August 21, 2019, by and between
AutoNation, Inc. and Carl C. Liebert III.
Letter Agreement, dated as of November 21, 2019, by
and between AutoNation, Inc. and Joseph T. Lower.
Restricted Stock Unit Award Agreement, dated as of
January 13, 2020, by and between AutoNation, Inc. and
Joseph T. Lower.
Separation Agreement and General Release of All
Claims, dated July 14, 2020, by and between
AutoNation, Inc. and Cheryl Miller.
Amended and Restated Employment Agreement, dated
July 14, 2020, by and between AutoNation, Inc. and
Michael J. Jackson.
Third Amended and Restated Credit Agreement, dated
March 26, 2020, by and among the Company, JPMorgan
Chase Bank, N.A. as Administrative Agent, and the
other parties thereto.
Form of Commercial Paper Dealer Agreement between
AutoNation, Inc., as Issuer, and the Dealer party thereto.
Subsidiaries of AutoNation, Inc.
Consent of KPMG LLP.
Incorporated by Reference
Form
10-Q
File Number Exhibit
001-13107 10.1
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
8/23/19
8-K
001-13107 10.1
11/22/19
10-K
001-13107 10.37
2/18/20
8-K
001-13107 10.2
7/14/20
8-K
001-13107 10.1
7/14/20
8-K
001-13107 10.1
3/26/20
8-K
001-13107 10.2
3/26/20
Exhibit
Number
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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
21.1*
23.1*
107 Incorporated by Reference
Form
File Number Exhibit
Filing Date
Exhibit
Number
31.1*
31.2*
32.1**
32.2**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
EXHIBIT INDEX
Exhibit Description
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
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase
Document
Cover Page Interactive Data File - the cover page XBRL
tags are embedded within the Inline XBRL document.
*
**
Filed herewith
Furnished herewith
Exhibits 10.1 through 10.26 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.
108 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 16, 2021
/S/ MICHAEL J. JACKSON
Michael J. Jackson
Chief Executive Officer and Director
Exhibit 31.2
I, Joseph T. Lower, 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 16, 2021
/s/ JOSEPH T. LOWER
Joseph T. Lower
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, 2020, 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 16, 2021
/S/ MICHAEL J. JACKSON
Michael J. Jackson
Chief Executive Officer and Director
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, 2020, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Joseph T. Lower,
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/ JOSEPH T. LOWER
Joseph T. Lower
Executive Vice President and Chief Financial Officer
February 16, 2021
[This page intentionally left blank]
[This page intentionally left blank]
Corporate Information
EXECUTIVE COMMITTEE
Mike Jackson
Chief Executive Officer and Director
James R. Bender
President and Chief Operating Officer
Marc Cannon
Executive Vice President and Chief Customer
Experience Officer
C. Coleman Edmunds
Executive Vice President, General Counsel and
Corporate Secretary
Joseph Lower
Executive Vice President and Chief Financial Officer
BOARD OF DIRECTORS
Mike Jackson
Chief Executive Officer and Director,
AutoNation, Inc.
Rick L. Burdick 2, 3
Chairman of the Board of
AutoNation, Inc.
Directors,
David B. Edelson 1
Senior Vice President and Chief Financial Officer,
Loews Corporation
Steven L. Gerard 1, 2
Chairman of the Board of Directors,
CBIZ, Inc.
Robert R. Grusky
Founder and Managing Member,
Hope Capital Management, LLC
Norman K. Jenkins
President and Chief Executive Officer,
Capstone Development
Lisa Lutoff-Perlo 1, 3
President and Chief Executive Officer,
Celebrity Cruises
G. Mike Mikan 2
President and Chief Executive Officer,
Bright Health Group, Inc.
Jacqueline A. Travisano, Ed.D. 3
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
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 virtually at 8:00 a.m. Eastern Time,
Thursday, April 22, 2021 at:
www.virtualshareholdermeeting.com/AN2021
COMMON STOCK INFORMATION
The Company’s common stock trades on the New York Stock
Exchange (NYSE) under the symbol “AN.”
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
2 0 2 0
A
u
t
o
N
a
t
i
o
n
,
I
n
c
.
Drive Pink.
Drive Safe.
Drive Now.
N
R
E
P
O
R
T
ANNUAL REPORT
Drive Pink.
Drive Safe.
Drive Now.
Drive Pink.
Drive Safe.
Drive Now.
Drive Pink. Drive Safe. Drive Now.
Drive Pink. Drive Safe. Drive Now.
AutoNation.com
Drive Pink. Drive Safe. Drive Now.