AutoNation 2015 Annual Report Download - page 70

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Table of Contents
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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 $56.4 million in 2015, $47.1 million in 2014, and $42.4 million in 2013. 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 provide reconditioning repair work for the majority of used vehicles acquired by our used vehicle departments and
minor preparatory work for 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 costs of sales associated with the
internal work performed by our parts and service departments are eliminated in consolidation. We also maintain a reserve for internal profit on vehicles that
have not 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 11 of the Notes to Consolidated Financial Statements for more detailed information related to income taxes.
Taxes Assessed by Governmental Authorities
Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue in our Consolidated Financial
Statements.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period,
including outstanding unvested restricted stock awards which contain rights to non-forfeitable dividends and vested restricted stock unit awards. Diluted
earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding, noted above, adjusted for the
dilutive effect of stock options. See Note 12 of the Notes to Consolidated Financial Statements for more information on the computation of earnings (loss) per
share.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that amends the accounting guidance on
revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues,
improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update will be
applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting
period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the standard
recognized at the date of adoption (which requires additional footnote disclosures). This accounting standard update was originally effective for interim and
annual reporting periods beginning after December 15, 2016, with no early adoption permitted. However, in August 2015, the FASB issued an accounting
standard update that delays the effective date by one year for all entities with the option to adopt the standard as of the original
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