AutoNation 2015 Annual Report Download - page 65

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Table of Contents
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Organization and Business
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31, 2015, we owned and operated 342
new vehicle franchises from 254 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores sell 35
different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 95% of the new vehicles that we sold in 2015, are
manufactured by Toyota (including Lexus), Ford, Honda, Nissan, General Motors, Mercedes-Benz, FCA US (formerly Chrysler), BMW, and Volkswagen
(including Audi and Porsche).
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service,” which includes automotive
repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, 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 accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has
made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We base our estimates
and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We
periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when
adjustments are necessary. The significant estimates made in the accompanying Consolidated Financial Statements include certain assumptions related to
goodwill, intangible assets, long-lived assets, 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, estimated tax liabilities, and certain assumptions related to stock-based
compensation.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less as of the date of purchase to be cash equivalents unless the investments
are legally or contractually restricted for more than three months. 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.
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. 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),
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