AutoNation 2015 Annual Report Download - page 67

Table of Contents



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. We completed our annual impairment tests for both goodwill and franchise rights as of
April 30, 2015. Based on our qualitative assessment of potential goodwill impairment, we determined that it was not more likely than not that the fair values
of our reporting units were less than their carrying amounts and we recorded no goodwill impairment charges during 2015. Based on our qualitative
assessment of potential franchise rights impairment, we determined that we should perform a quantitative test for certain franchise rights, and no impairment
charges resulted from the quantitative test. As a result of the unresolved issues related to Volkswagen associated with certain of its diesel engine vehicles,
during the fourth quarter of 2015, we performed a quantitative impairment test of the franchise rights recorded at our Volkswagen stores. As a result of this
test, we recorded non-cash impairment charges of $15.4 million ($9.6 million after-tax) to reduce the carrying values of the Volkswagen franchise rights to
their estimated fair values.
We completed our annual impairment tests for both goodwill and franchise rights as of April 30, 2014. Based on our qualitative assessment of potential
goodwill impairment, we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts and
we recorded no goodwill impairment charges during 2014. Based on our qualitative assessment of potential franchise rights impairment, we determined that
we should perform a quantitative test for certain franchise rights, and no impairment charges resulted from the quantitative test.
See Note 5 of the Notes to Consolidated Financial Statements for more information about our goodwill and other intangible assets and Note 16 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, property and equipment held for sale in continuing operations and
discontinued operations and prepaid expenses, and at December 31, 2014, also included current deferred tax assets. See Note 11 of our Notes to Consolidated
Financial Statements for more information.
Other Assets
Other assets consist of various items, including, among other items, service loaner and rental vehicle inventory, net, the cash surrender value of corporate-
owned life insurance held in a Rabbi Trust for deferred compensation plan participants,
65