AutoNation 2015 Annual Report Download - page 28

Table of Contents
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 discontinued operations of $22.3 million at December 31, 2015, and $23.2 million at December 31, 2014. During 2015, we
recorded a non-cash impairment charge of $0.8 million related to long-lived assets held for sale in discontinued operations, which is included in Loss from
Discontinued Operations in our Consolidated Statements of Income.
Our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future
undiscounted cash flows and asset fair values, including forecasting useful lives of the assets. Although we believe our property and equipment and assets
held for sale are appropriately valued, the assumptions and estimates used may change and we may be required to record impairment charges to reduce the
value of these assets.
Chargeback Reserve
Revenue on finance and insurance products represents commissions earned by us for: (i) loans and leases placed with financial institutions in connection
with customer vehicle purchases financed, (ii) vehicle service contracts sold, and (iii) other vehicle protection products sold. We primarily sell these products
on a straight commission basis; however, in certain cases, we also participate in the future underwriting profit on certain extended service contracts pursuant
to retrospective commission arrangements, which are recognized as earned.
We may be charged back for commissions related to financing, vehicle service contracts, or other vehicle protection products in the event of early
termination, default, or prepayment of the contracts by customers (“chargebacks”). However, our exposure to loss generally is limited to the commissions that
we receive. These commissions are recorded at the time of the sale of the vehicles, net of an estimated liability for chargebacks.
We estimate our liability for chargebacks on an individual product basis using our historical chargeback experience, based primarily on cancellation data
we receive from third parties that sell and administer these products. Our estimated liability for chargebacks totaled $97.3 million at December 31, 2015, and
$84.9 million at December 31, 2014.
Chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation
of vehicle service contracts and other vehicle protection products, defaults, refinancings, payoffs before maturity, and other factors. While we consider these
factors in the estimation of our chargeback liability, actual events may differ from our estimates, which could result in an adjustment to our estimated liability
for chargebacks. The increase in our liability for chargebacks is largely attributable to increases in vehicle unit volume and product penetration in recent
years, as well as an overall increase in the cancellation rates of finance and insurance products. Our actual chargeback experience has not been materially
different from our recorded estimates. A 10% change in our estimated cancellation rates would have changed our estimated liability for chargebacks at
December 31, 2015, by approximately $9.7 million.
See Note 18 of the Notes to Consolidated Financial Statements for further information regarding chargeback liabilities.
Self-Insurance Reserves
Under our self-insurance programs, we retain various levels of aggregate loss limits, per claim deductibles, and claims-handling expenses as part of our
various insurance programs, including property and casualty, employee medical benefits, automobile, and workers’ compensation. Costs in excess of this
retained risk per claim may be insured under various contracts with third-party insurance carriers. We review our claim and loss history on a periodic basis to
assist in assessing our future liability. The ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial
evaluation of historical claims experience, adjusted for current trends and changes in claims-handling procedures. Our results could be materially impacted
by claims and other expenses related to our self insurance programs if future occurrences and claims differ from these assumptions and historical trends. Self-
insurance reserves totaled $74.8 million at December 31, 2015, and $71.4 million at December 31, 2014. Our actual loss experience has not been materially
different from our recorded estimates.
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