AutoNation 2006 Annual Report Download - page 48

Table of Contents
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Organization and Business
AutoNation, Inc. (the “Company”), through its subsidiaries, is the largest automotive retailer in the United States. As of
December 31, 2006, the Company owned and operated 331 new vehicle franchises from 257 stores located in major metropolitan
markets, predominantly in the Sunbelt region of the United States. The Company offers a diversified range of automotive products and
services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle
protection products and other aftermarket products. The Company also arranges financing for vehicle purchases through third-party
finance sources.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries. All of the
Company’s automotive dealership subsidiaries are indirectly wholly owned by the parent company, AutoNation, Inc. The Company
operates in a single industry segment, automotive retailing. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with 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. Significant estimates
made by the Company in the accompanying Consolidated Financial Statements include allowances for doubtful accounts, accruals for
chargebacks against revenue recognized from the sale of finance and insurance products, certain assumptions related to intangible long-
lived assets and accruals related to self-insurance programs, certain legal proceedings, estimated tax liabilities, estimated losses from
disposals of discontinued operations and certain assumptions related to determining stock option compensation.
Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated Financial Statements in
order to maintain consistency and comparability between periods presented.
Inventory
Inventory consists primarily of new and used vehicles held for sale, valued at the lower of cost or market using the specific
identification method. Cost includes acquisition, reconditioning, dealer installed accessories and transportation expenses. Parts and
accessories are valued at the lower of cost (first-in, first-out) or market.
Investments
Investments in marketable securities are included in Other Assets in the accompanying Consolidated Balance Sheets and relate to the
Company’s insurance programs. Restricted investments, included in Other Assets, consist primarily of marketable corporate and
government debt securities. Marketable securities include investments in debt and equity securities and are primarily classified as
available for sale. Investments in debt securities include investment grade corporate bonds, government securities and other instruments
with maturities ranging from 2007 to 2036. Marketable securities are stated at fair value with unrealized gains and losses included in
Accumulated Other Comprehensive Income (Loss) in the Company’s Consolidated Balance Sheets. Other-than-temporary declines in
investment values are recorded as a component of Other Income (Expense), Net in the Company’s Consolidated Income Statements. Fair
value is estimated based on quoted market prices.
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