AN 10Q 3/31/15

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 1-13107
AutoNation, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
73-1105145
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
200 SW 1st Avenue, Fort Lauderdale, Florida
 
33301
(Address of principal executive offices)
 
(Zip Code)
(954) 769-6000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   þ   No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
  
Accelerated filer   o
Non-accelerated filer o   (Do not check if a smaller reporting company)
  
Smaller reporting company   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  þ
As of April 20, 2015, the registrant had 114,025,251 shares of common stock outstanding.

 
 
 
 
 


AUTONATION, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1A.
Item 2.
Item 6.


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
 
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
74.1

 
$
75.4

Receivables, net
778.0

 
817.8

Inventory
2,928.4

 
2,899.0

Other current assets
204.8

 
207.0

Total Current Assets
3,985.3

 
3,999.2

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $951.2 million and $930.5 million, respectively
2,433.3

 
2,422.0

GOODWILL
1,321.7

 
1,314.7

OTHER INTANGIBLE ASSETS, NET
369.2

 
354.7

OTHER ASSETS
329.0

 
309.1

Total Assets
$
8,438.5

 
$
8,399.7

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Vehicle floorplan payable - trade
$
2,041.3

 
$
2,090.7

Vehicle floorplan payable - non-trade
961.1

 
1,006.5

Accounts payable
287.9

 
264.7

Current maturities of long-term debt
25.2

 
25.0

Other current liabilities
540.1

 
495.1

Total Current Liabilities
3,855.6

 
3,882.0

LONG-TERM DEBT, NET OF CURRENT MATURITIES
2,030.5

 
2,103.4

DEFERRED INCOME TAXES
140.6

 
137.9

OTHER LIABILITIES
206.2

 
204.3

COMMITMENTS AND CONTINGENCIES (Note 11)

 

SHAREHOLDERS’ EQUITY:
 
 
 
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none issued
—

 
—

Common stock, par value $0.01 per share; 1,500,000,000 shares authorized; 163,562,149 shares issued at March 31, 2015, and December 31, 2014, including shares held in treasury
1.6

 
1.6

Additional paid-in capital
66.9

 
61.8

Retained earnings
3,868.1

 
3,756.6

Treasury stock, at cost; 49,645,702 and 50,248,909 shares held, respectively
(1,731.0
)
 
(1,747.9
)
Total Shareholders’ Equity
2,205.6

 
2,072.1

Total Liabilities and Shareholders’ Equity
$
8,438.5

 
$
8,399.7


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



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Table of Contents

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Revenue:
 
 
 
New vehicle
$
2,769.6

 
$
2,428.6

Used vehicle
1,193.2

 
1,049.7

Parts and service
743.4

 
671.0

Finance and insurance, net
207.6

 
172.4

Other
30.4

 
41.8

TOTAL REVENUE
4,944.2

 
4,363.5

Cost of sales:
 
 
 
New vehicle
2,608.1

 
2,282.7

Used vehicle
1,089.5

 
955.4

Parts and service
423.4

 
384.3

Other
23.3

 
33.7

TOTAL COST OF SALES (excluding depreciation shown below)
4,144.3

 
3,656.1

Gross Profit:
 
 
 
New vehicle
161.5

 
145.9

Used vehicle
103.7

 
94.3

Parts and service
320.0

 
286.7

Finance and insurance
207.6

 
172.4

Other
7.1

 
8.1

TOTAL GROSS PROFIT
799.9

 
707.4

Selling, general, and administrative expenses
557.6

 
500.7

Depreciation and amortization
28.7

 
25.6

Other income, net
(1.3
)
 
(8.0
)
OPERATING INCOME
214.9

 
189.1

Non-operating income (expense) items:
 
 
 
Floorplan interest expense
(13.2
)
 
(13.2
)
Other interest expense
(21.4
)
 
(21.6
)
Interest income
0.1

 
—

Other income, net
1.1

 
1.5

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
181.5

 
155.8

Income tax provision
69.8

 
60.3

NET INCOME FROM CONTINUING OPERATIONS
111.7

 
95.5

Loss from discontinued operations, net of income taxes
(0.2
)
 
(0.4
)
NET INCOME
$
111.5

 
$
95.1

BASIC EARNINGS (LOSS) PER SHARE:
 
 
 
Continuing operations
$
0.98

 
$
0.80

Discontinued operations
$
—

 
$
—

Net income
$
0.98

 
$
0.80

Weighted average common shares outstanding
113.6

 
119.5

DILUTED EARNINGS (LOSS) PER SHARE:
 
 
 
Continuing operations
$
0.97

 
$
0.79

Discontinued operations
$
—

 
$
—

Net income
$
0.97

 
$
0.78

Weighted average common shares outstanding
115.1

 
121.3

COMMON SHARES OUTSTANDING, net of treasury stock, at period end
113.9

 
119.4


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


2
Table of Contents

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In millions, except share data)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Total
 
Shares
 
Amount
 
 
 
 
BALANCE AT DECEMBER 31, 2014
163,562,149

 
$
1.6

 
$
61.8

 
$
3,756.6

 
$
(1,747.9
)
 
$
2,072.1

Net income
—

 
—

 
—

 
111.5

 
—

 
111.5

Repurchases of common stock
—

 
—

 
—

 
—

 
(9.6
)
 
(9.6
)
Stock-based compensation expense
—

 
—

 
11.1

 
—

 
—

 
11.1

Shares awarded under stock-based compensation plans, including income tax benefit of $8.1
—

 
—

 
(6.0
)
 
—

 
26.5

 
20.5

BALANCE AT MARCH 31, 2015
163,562,149

 
$
1.6

 
$
66.9

 
$
3,868.1

 
$
(1,731.0
)
 
$
2,205.6


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



3
Table of Contents

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
 
 
Net income
$
111.5

 
$
95.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations
0.2

 
0.4

Depreciation and amortization
28.7

 
25.6

Amortization of debt issuance costs and accretion of debt discounts
1.1

 
1.4

Stock-based compensation expense
11.1

 
7.3

Deferred income tax provision
2.7

 
1.5

Net gain related to business/property dispositions
(1.5
)
 
(8.3
)
Non-cash impairment charges
0.2

 
0.3

Excess tax benefit from stock-based awards
(8.1
)
 
(5.7
)
Other
(0.8
)
 
(1.2
)
(Increase) decrease, net of effects from business combinations and divestitures:
 
 
 
Receivables
38.5

 
74.0

Inventory
(23.0
)
 
115.5

Other assets
1.4

 
(11.9
)
Increase (decrease), net of effects from business combinations and divestitures:
 
 
 
Vehicle floorplan payable - trade, net
(43.6
)
 
(143.2
)
Accounts payable
26.6

 
(0.6
)
Other liabilities
54.8

 
65.7

Net cash provided by continuing operations
199.8

 
215.9

Net cash used in discontinued operations
(0.2
)
 
(0.3
)
Net cash provided by operating activities
199.6

 
215.6

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(66.4
)
 
(49.3
)
Property operating lease buy-outs
—

 
(0.4
)
Proceeds from the sale of property and equipment
0.2

 
—

Proceeds from assets held for sale
—

 
0.2

Cash received from business divestitures, net of cash relinquished
15.7

 
10.0

Cash used in business acquisitions, net of cash acquired
(27.7
)
 
—

Proceeds from the sale of restricted investments
—

 
0.5

Other
(1.4
)
 
(3.3
)
Net cash used in continuing operations
(79.6
)
 
(42.3
)
Net cash used in discontinued operations
—

 
—

Net cash used in investing activities
(79.6
)
 
(42.3
)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


4
Table of Contents

AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Continued)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
 
 
 
Repurchases of common stock
(9.6
)
 
(116.2
)
Proceeds from revolving credit facility
540.0

 
290.0

Payments of revolving credit facility
(615.0
)
 
(305.0
)
Net payments of vehicle floorplan payable - non-trade
(54.1
)
 
(41.9
)
Payments of mortgage facility
(2.4
)
 
(2.3
)
Payments of capital leases and other debt obligations
(0.7
)
 
(18.9
)
Proceeds from the exercise of stock options
12.4

 
15.3

Excess tax benefit from stock-based awards
8.1

 
5.7

Net cash used in continuing operations
(121.3
)
 
(173.3
)
Net cash used in discontinued operations
—

 
—

Net cash used in financing activities
(121.3
)
 
(173.3
)
DECREASE IN CASH AND CASH EQUIVALENTS
(1.3
)
 
—

CASH AND CASH EQUIVALENTS at beginning of period
75.4

 
69.2

CASH AND CASH EQUIVALENTS at end of period
$
74.1

 
$
69.2


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.




5
Table of Contents

AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data)
 
1.
INTERIM FINANCIAL STATEMENTS
Business and Basis of Presentation
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2015, we owned and operated 282 new vehicle franchises from 232 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 34 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 95% of the new vehicles that we sold during the three months ended March 31, 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.
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; all significant intercompany accounts and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information related to our organization, significant accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented.
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. Significant estimates made by AutoNation in the accompanying Unaudited Condensed 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.
Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our most recent Annual Report on Form 10-K.
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 should 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


6
Table of Contents
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

update is effective for interim and annual reporting periods beginning after December 15, 2016, with no early adoption permitted. However, the FASB recently agreed to propose a one-year deferral of the effective date for all entities along with the option to adopt the standard as of the original effective date. We are currently evaluating the method of adoption and the impact of the provisions of the accounting standard update.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued an accounting standard update to simplify the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability. The amendments in this accounting standard update are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. We do not expect the adoption of this accounting standard update to have a material impact on our balance sheet.

2.
RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, are as follows:
 
March 31,
2015
 
December 31,
2014
Trade receivables
$
125.1

 
$
125.0

Manufacturer receivables
180.4

 
198.3

Other
35.1

 
37.9

 
340.6

 
361.2

Less: Allowances
(4.0
)
 
(3.7
)
 
336.6

 
357.5

Contracts-in-transit and vehicle receivables
441.4

 
460.3

Receivables, net
$
778.0

 
$
817.8


Trade receivables represent amounts due for parts and services that have been sold or delivered, excluding amounts due from manufacturers, as well as receivables from finance organizations for commissions on the sale of financing products. Manufacturer receivables represent receivables from manufacturers including amounts due for holdbacks, rebates, incentives, floorplan assistance, and warranty claims. Contracts-in-transit and vehicle receivables primarily represent receivables from financial institutions for the portion of the vehicle sales price financed by our customers.
We evaluate our receivables for collectability based on the age of receivables and past collection experience.

3.
INVENTORY AND VEHICLE FLOORPLAN PAYABLE
The components of inventory are as follows:
 
March 31,
2015
 
December 31,
2014
New vehicles
$
2,291.8

 
$
2,294.3

Used vehicles
470.6

 
437.6

Parts, accessories, and other
166.0

 
167.1

Inventory
$
2,928.4

 
$
2,899.0


The components of vehicle floorplan payable are as follows:
 
March 31,
2015
 
December 31,
2014
Vehicle floorplan payable - trade
$
2,041.3

 
$
2,090.7

Vehicle floorplan payable - non-trade
961.1

 
1,006.5

Vehicle floorplan payable
$
3,002.4

 
$
3,097.2



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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Vehicle floorplan payable-trade reflects amounts borrowed to finance the purchase of specific new vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle floorplan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under our secured used floorplan facilities, which are primarily collateralized by used vehicle inventories and related receivables. Changes in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle floorplan payable-non-trade are reported as financing cash flows in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.
Our inventory costs are generally reduced by manufacturer holdbacks, incentives, and floorplan assistance, while the related vehicle floorplan payables are reflective of the gross cost of the vehicle. The vehicle floorplan payables, as shown in the above table, will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability.
Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Our manufacturer agreements generally require that the manufacturer have the ability to draft against new vehicle floorplan facilities so the lender directly funds the manufacturer for the purchase of new vehicle inventory. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables.
Our used vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.7% for the three months ended March 31, 2015, and 1.7% for the three months ended March 31, 2014. At March 31, 2015, the aggregate capacity under our used vehicle floorplan facilities with various lenders to finance a portion of our used vehicle inventory was $315.0 million, of which $182.1 million had been borrowed. The remaining borrowing capacity of $132.9 million was limited to $107.1 million based on the eligible used vehicle inventory that could have been pledged as collateral.
Our new vehicle floorplan facilities utilize LIBOR-based interest rates, which averaged 1.7% for the three months ended March 31, 2015, and 1.8% for the three months ended March 31, 2014. At March 31, 2015, the aggregate capacity under our new vehicle floorplan facilities to finance our new vehicle inventory was approximately $3.8 billion, of which $2.8 billion had been borrowed.

4.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net, consist of the following:
 
March 31,
2015
 
December 31,
2014
Goodwill
$
1,321.7

 
$
1,314.7

 
 
 
 
Franchise rights - indefinite-lived
$
362.8

 
$
348.1

Other intangibles
12.6

 
12.6

 
375.4

 
360.7

Less: accumulated amortization
(6.2
)
 
(6.0
)
Other intangible assets, net
$
369.2

 
$
354.7

Goodwill
We test goodwill of our Domestic, Import, and Premium Luxury reporting units for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. We are scheduled to complete our annual impairment test as of April 30, 2015.
Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested at least annually as of April 30 for impairment. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2015.



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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5.
LONG-TERM DEBT
Long-term debt consists of the following:
 
March 31,
2015
 
December 31,
2014
6.75% Senior Notes due 2018
$
397.3

 
$
397.1

5.5% Senior Notes due 2020
350.0

 
350.0

Revolving credit facility due 2019
1,035.0

 
1,110.0

Mortgage facility (1)
183.1

 
185.5

Capital leases and other debt
90.3

 
85.8

 
2,055.7

 
2,128.4

Less: current maturities
(25.2
)
 
(25.0
)
Long-term debt, net of current maturities
$
2,030.5

 
$
2,103.4

(1) The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017.
Senior Unsecured Notes and Credit Agreement
At March 31, 2015, we had outstanding $397.3 million of 6.75% Senior Notes due 2018, net of debt discount. Interest is payable on April 15 and October 15 of each year. These notes will mature on April 15, 2018.
At March 31, 2015, we had outstanding $350.0 million of 5.5% Senior Notes due 2020. Interest is payable on February 1 and August 1 of each year. These notes will mature on February 1, 2020.
Under our credit agreement, we have a $1.8 billion revolving credit facility that matures on December 3, 2019. The credit agreement also contains an accordion feature that allows us, subject to credit availability and certain other conditions, to increase the amount of the revolving credit facility, together with any added term loans, by up to $500.0 million in the aggregate. As of March 31, 2015, we had borrowings outstanding of $1.0 billion under our revolving credit facility. We have a $200.0 million letter of credit sublimit as part of our revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which was $45.9 million at March 31, 2015, leaving an additional borrowing capacity under the revolving credit facility of $719.1 million at March 31, 2015.
Our revolving credit facility provides for a commitment fee on undrawn amounts of 0.20% and various interest rates on borrowings generally at LIBOR plus 1.50%. The credit spread charged for our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio from greater than or equal to 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the credit spread.
Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.
Other Debt
At March 31, 2015, we had $183.1 million outstanding under a mortgage facility with an automotive manufacturer’s captive finance subsidiary that matures on November 30, 2017. The mortgage facility utilizes a fixed interest rate of 5.864% and is secured by 10-year mortgages on certain of our store properties. The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon payment of $155.4 million due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At March 31, 2015, we had capital lease and other debt obligations of $90.3 million, which are due at various dates through 2034.


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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Restrictions and Covenants
Our credit agreement, the indentures for our 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020, our vehicle floorplan facilities, and our mortgage facility contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments. The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total capitalization including vehicle floorplan payable. Under the credit agreement, the maximum leverage ratio is 3.75x and the maximum capitalization ratio is 70.0%. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of letters of credit in excess of $150.0 million). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus $1.53 billion.
The indentures for our 6.75% Senior Notes due 2018 and 5.5% Senior Notes due 2020 contain certain limited covenants, including limitations on liens and sale and leaseback transactions. Our mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
Our failure to comply with the covenants contained in our debt agreements could permit acceleration of all of our indebtedness. Our debt agreements have cross-default provisions that trigger a default in the event of an uncured default under other material indebtedness of AutoNation.
Under the terms of our credit agreement, at March 31, 2015, our leverage ratio and capitalization ratio were as follows:
 
March 31, 2015
 
Requirement
 
Actual
Leverage ratio
≤ 3.75x
 
2.15x
Capitalization ratio
≤ 70.0%
 
57.5%
Both the leverage ratio and the capitalization ratio limit our ability to incur additional non-vehicle debt. The capitalization ratio also limits our ability to incur additional vehicle floorplan indebtedness and repurchase shares.
In the event of a downgrade in our credit ratings, none of the covenants described above would be impacted. In addition, availability under our credit agreement described above would not be impacted should a downgrade in our senior unsecured debt credit ratings occur.

6.
INCOME TAXES
Income taxes payable included in Other Current Liabilities totaled $57.8 million at March 31, 2015 and $17.5 million at December 31, 2014.
We file income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit us. Currently, no tax years are under examination by the IRS, and tax years from 2009 to 2013 are under examination by certain U.S. state jurisdictions. These audits may result in proposed assessments where the ultimate resolution may result in our owing additional taxes. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters.
It is our continuing policy to account for interest and penalties associated with income tax obligations as a component of Income Tax Provision in the accompanying Unaudited Condensed Consolidated Financial Statements.



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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

7.
SHAREHOLDERS’ EQUITY
A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Shares repurchased
0.2

 
2.4

Aggregate purchase price
$
9.1

 
$
115.7

Average purchase price per share
$
60.46

 
$
47.92


As of March 31, 2015, $271.6 million remained available for share repurchases under the program.
A summary of shares of common stock issued in connection with the exercise of stock options follows:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Shares issued
0.6

 
0.7

Proceeds from the exercise of stock options
$
12.4

 
$
15.3

Average exercise price per share
$
20.15

 
$
20.84


The following table presents a summary of shares of common stock issued in connection with grants of restricted stock and shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock (in actual number of shares):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Shares issued
155,328

 
145,188

Shares surrendered to AutoNation to satisfy tax withholding obligations in connection with the vesting of restricted stock
8,999

 
11,203




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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

8.
EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period, including outstanding unvested restricted stock awards and vested restricted stock unit awards. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options.
The following table presents the calculation of basic and diluted EPS:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Net income from continuing operations
$
111.7

 
$
95.5

Loss from discontinued operations, net of income taxes
(0.2
)
 
(0.4
)
Net income
$
111.5

 
$
95.1

 
 
 
 
Weighted average common shares outstanding used in calculating basic EPS
113.6

 
119.5

Effect of dilutive stock options
1.5

 
1.8

Weighted average common shares outstanding used in calculating diluted EPS
115.1

 
121.3

 
 
 
 
Basic EPS amounts:
 
 
 
Continuing operations
$
0.98

 
$
0.80

Discontinued operations
$
—

 
$
—

Net income
$
0.98

 
$
0.80

 
 
 
 
Diluted EPS amounts:
 
 
 
Continuing operations
$
0.97

 
$
0.79

Discontinued operations
$
—

 
$
—

Net income
$
0.97

 
$
0.78


A summary of anti-dilutive options excluded from the computation of diluted earnings per share is as follows:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Anti-dilutive options excluded from the computation of diluted earnings per share
0.5

 
0.4


9.
DIVESTITURES
During the first quarter of 2015, we divested two Import stores and recorded a gain of $1.4 million ($0.9 million after-tax). During the first quarter of 2014, we divested our customer lead distribution business and recorded a gain of $8.3 million ($5.1 million after-tax). This business was reported in the “Corporate and other” category of our segment information. The gains on these divestitures are included in Other Income, Net (within Operating Income) in our Unaudited Condensed Consolidated Statements of Income. The financial condition and results of operations of these businesses were not material to our consolidated financial statements.

10.
ACQUISITIONS
During the first quarter of 2015, we purchased a Mercedes-Benz store in Reno, Nevada, and a Volkswagen store in the Atlanta, Georgia market. Acquisitions are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition. The purchase price allocation for these business combinations are tentative and subject to final adjustment. We did not purchase any stores during the three months ended March 31, 2014.


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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The acquisitions that occurred during the first quarter of 2015 were not material to our financial condition or results of operations. Additionally, on a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire three month periods ended March 31, 2015 and 2014, revenue and net income would not have been materially different from our reported revenue and net income for these periods.
In April 2015, we purchased a Chrysler Dodge Jeep Ram store in Valencia, California, and a Mercedes-Benz store in San Jose, California.

11.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including litigation with customers, wage and hour and other employment-related lawsuits, and actions brought by governmental authorities. Some of these lawsuits purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We are currently defending several purported class action lawsuits in California arising out of alleged violations of state wage and hour laws relating to compensation of automotive technicians. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the amount accrued if material or if such disclosure is necessary for our financial statements to not be misleading. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material or a statement that such an estimate cannot be made. Our evaluation of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter.
For three months ended March 31, 2015 and 2014, we believe we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable, and there was no indication of a reasonable possibility that a material loss, or additional material loss, may have been incurred. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Other Matters
AutoNation, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by our subsidiaries of their respective store premises. Pursuant to these leases, our subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, we enter into agreements with third parties in connection with the sale of assets or businesses in which we agree to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, we enter into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, our liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, our subsidiaries assign or sublet to the store purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, our subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, AutoNation and its subsidiaries generally remain subject to the terms of any guarantees made by us and our subsidiaries in connection with such leases. Although we generally have indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, we estimate that lessee rental payment obligations during the remaining terms of these leases with expirations ranging from 2015 to 2034 are approximately $32 million at March 31, 2015. We do not have any material known commitments that we or our subsidiaries will be called on to perform under any such assigned leases or subleases at March 31, 2015. Our exposure under these leases is difficult to estimate and there can be no assurance that any performance by AutoNation or its subsidiaries required under these leases would not have a material adverse effect on our business, financial condition, and cash flows.


13
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

At March 31, 2015, surety bonds, letters of credit, and cash deposits totaled $94.8 million, including $45.9 million of letters of credit. In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance. We do not currently provide cash collateral for outstanding letters of credit.
In the ordinary course of business, we are subject to numerous laws and regulations, including automotive, environmental, health and safety, and other laws and regulations. We do not anticipate that the costs of such compliance will have a material adverse effect on our business, consolidated results of operations, cash flows, or financial condition, although such outcome is possible given the nature of our operations and the extensive legal and regulatory framework applicable to our business.
Further, we expect that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact our business. We do not have any material known environmental commitments or contingencies.

12.
SEGMENT INFORMATION
At March 31, 2015 and 2014, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
“Corporate and other” is comprised of our other businesses, including collision centers and an auction operation, each of which generates revenues, as well as unallocated corporate overhead expenses and retrospective commissions for certain financing and insurance transactions that we arrange under agreements with third parties.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer.
Reportable segment revenue and segment income are as follows:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Revenue:
 
 
 
Domestic
$
1,665.7

 
$
1,473.0

Import
1,678.7

 
1,549.4

Premium Luxury
1,563.2

 
1,306.4

Total
4,907.6

 
4,328.8

Corporate and other
36.6

 
34.7

Total consolidated revenue
$
4,944.2

 
$
4,363.5




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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 
Three Months Ended
 
March 31,
 
2015
 
2014
Segment income(1):
 
 
 
Domestic
$
79.3

 
$
63.8

Import
75.0

 
65.4

Premium Luxury
94.1

 
83.3

Total
248.4

 
212.5

Corporate and other
(46.7
)
 
(36.6
)
Other interest expense
(21.4
)
 
(21.6
)
Interest income
0.1

 
—

Other income, net
1.1

 
1.5

Income from continuing operations before income taxes
$
181.5

 
$
155.8

(1)
Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.

13.
BUSINESS AND CREDIT CONCENTRATIONS
We are subject to a concentration of risk in the event of financial distress of or other adverse event related to a major vehicle manufacturer or related lender or supplier. The core brands of vehicles that we sell, representing approximately 95% of the new vehicles that we sold during the three months ended March 31, 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). Our business could be materially adversely impacted by a bankruptcy of or other adverse event related to a major vehicle manufacturer or related lender or supplier.
We had receivables from manufacturers or distributors of $180.4 million at March 31, 2015, and $198.3 million at December 31, 2014. Additionally, a large portion of our Contracts-in-Transit included in Receivables, Net, in the accompanying Unaudited Condensed Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries, which provide financing directly to our new and used vehicle customers. Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at March 31, 2015, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.

14.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
 
 
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities


15
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
•
Cash and cash equivalents, accounts receivable, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, and variable rate debt: The amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
•
Fixed rate debt: Our fixed rate debt primarily consists of amounts outstanding under our senior unsecured notes and mortgages. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). We estimate the fair value of our mortgages using a present value technique based on our current market interest rates for similar types of financial instruments (Level 2). A summary of the aggregate carrying values and fair values of our fixed rate debt is as follows:
 
March 31,
2015
 
December 31,
2014
Carrying value
$
1,020.7

 
$
1,018.4

Fair value
$
1,131.3

 
$
1,109.9


Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s fair value less cost to sell (increase or decrease) is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale.
Long-Lived Assets
The fair value measurement valuation process for our long-lived assets is established by our corporate real estate services group. Fair value measurements, which are based on Level 3 inputs, and changes in fair value measurements are reviewed and assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for properties classified as held and used, by the corporate real estate services group. Our corporate real estate services group utilizes its knowledge of the automotive industry and historical experience in real estate markets and transactions in establishing the valuation process, which is generally based on a combination of the market and replacement cost approaches.
In a market approach, the corporate real estate services group uses transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. The corporate real estate services group also evaluates changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.
To validate the fair values determined under the valuation process noted above, our corporate real estate services group also obtains independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and evaluates any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market. 
During the three months ended March 31, 2015 and 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations, and there were no significant impairment charges recorded for the carrying value of long-lived assets held for sale in continuing or discontinued operations.
As of March 31, 2015, we had long-lived assets held for sale of $68.7 million in continuing operations and $23.2 million in discontinued operations. Long-lived assets held for sale are included in Other Current Assets in our Unaudited Condensed Consolidated Balance Sheets.

15.
CASH FLOW INFORMATION
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. We had non-cash investing and financing activities primarily related to increases in property acquired under capital leases of $5.3 million for the three


16
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AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

months ended March 31, 2015. We did not enter into any capital leases during the three months ended March 31, 2014. We also had accrued purchases of property and equipment of $12.8 million at March 31, 2015 and $13.2 million at March 31, 2014. The effect of non-cash transactions is excluded from the accompanying Unaudited Condensed Consolidated Statements of Cash Flows.
We made interest payments, including interest on vehicle inventory financing, of $31.5 million during the three months ended March 31, 2015, and $32.2 million during the three months ended March 31, 2014. We made income tax payments, net of income tax refunds, of $18.4 million during the three months ended March 31, 2015, and $8.9 million during the three months ended March 31, 2014.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K.
Overview
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of March 31, 2015, we owned and operated 282 new vehicle franchises from 232 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 34 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 95% of the new vehicles that we sold during the three months ended March 31, 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. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, leveraging the AutoNation retail brand and advertising, implementing standardized processes, and increasing productivity across all of our stores.
At March 31, 2015, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and FCA US (formerly Chrysler). Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.
For the three months ended March 31, 2015, new vehicle sales accounted for approximately 56% of our total revenue, but approximately 20% of our total gross profit. Used vehicle sales accounted for approximately 24% of our total revenue, and approximately 13% of our total gross profit. Our parts and service and finance and insurance operations, while comprising approximately 19% of our total revenue for the three months ended March 31, 2015, contributed approximately 66% of our total gross profit for the same period.

Results of Operations
First Quarter 2015 compared to First Quarter 2014
During the three months ended March 31, 2015, we had net income from continuing operations of $111.7 million or $0.97 per share on a diluted basis, as compared to net income from continuing operations of $95.5 million or $0.79 per share on a diluted basis during the same period in 2014. Results for the three months ended March 31, 2014, were favorably impacted by a net gain related to business/property dispositions of $8.0 million ($5.0 million after-tax), primarily related to the divestiture of our customer lead distribution business.
Market Conditions
In the first quarter of 2015, U.S. industry new vehicle unit sales increased 6% as compared to the first quarter of 2014, driven by replacement demand. Based on industry data, the average age of cars and trucks in the United States is at a record high of 11.5 years compared to an average age of 9.8 years during the period from 2002 to 2007. Attractive products, continued access to affordable credit, and lower average fuel prices were also supportive of a strong selling environment. We expect continued growth in new vehicle unit sales in 2015, with full-year 2015 U.S. industry new vehicle unit sales above 17 million. However, actual sales may materially differ.
During the three months ended March 31, 2015, the warranty component of our parts and service business continued to benefit from elevated manufacturer recall activity. Additionally, after several years of decline, the number of recent-model-year vehicles in operation is growing due to increases in the annual rate of new vehicle sales in the United States since 2009. The growth in that portion of our service base, together with our customer retention efforts, has benefited the customer-pay service


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and warranty components of our parts and service business, and we believe that it will continue to benefit those components for the next several years. While the number of older vehicles in operation is expected to decline over the next few years, we believe that overall our parts and service business will benefit from the mix shift in our service base toward newer vehicles.
Inventory Management
Our new and used vehicle inventories are stated at the lower of cost or market on our consolidated balance sheets. We monitor our vehicle inventory levels closely based on current economic conditions and seasonal sales trends.
We have generally not experienced losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We had 65,993 units in new vehicle inventory at March 31, 2015, 67,424 units at December 31, 2014, and 67,330 units at March 31, 2014. 
We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. In general, used vehicles that are not sold on a retail basis are liquidated at wholesale auctions. We record estimated losses on used vehicle inventory. Our used vehicle inventory balance was net of cumulative write-downs of $3.0 million at March 31, 2015, and $3.3 million at December 31, 2014.
Parts, accessories, and other inventory are carried at the lower of acquisition cost (first-in, first-out method) or market. We estimate the amount of potential obsolete inventory based upon past experience and market trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $3.3 million at March 31, 2015, and $3.5 million at December 31, 2014.

Critical Accounting Policies and Estimates
We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, and we base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Unaudited Condensed Consolidated Financial Statements. For additional discussion of our critical accounting policies and estimates, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10‑K.
Goodwill
Goodwill for our Domestic, Import, and Premium Luxury reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test as of April 30, 2015.
Other Intangible Assets
Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2015.
Long-Lived Assets
We estimate the depreciable lives of our property and equipment, including leasehold improvements, and review them for impairment when events or changes in circumstances indicate that their carrying amounts may be impaired. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, a current expectation that more-likely-than-not a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, or a current-period operating or cash flow loss combined with historical losses or projected future losses.
When property and equipment is identified as held for sale, we reclassify the held for sale assets to Other Current Assets and cease recording depreciation. We measure each long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell and recognize a loss for any initial adjustment of the long-lived asset’s or disposal group’s carrying amount to fair value less cost to sell in the period the “held for sale” criteria are met. We periodically evaluate the carrying value of assets held for sale to determine if, based on market conditions, the values of these assets should be adjusted.


19
Table of Contents

As of March 31, 2015, we had long-lived assets held for sale of $68.7 million in continuing operations and $23.2 million in discontinued operations. During the three months ended March 31, 2015 and 2014, there were no significant impairment charges recorded for the carrying value of long-lived assets held and used in continuing operations, and there were no significant impairment charges recorded for the carrying value of long-lived assets held for sale in continuing or discontinued operations. The fair value measurements for our property and equipment and assets held for sale are based on Level 3 inputs, which considered information from third-party real estate valuation sources, or, in certain cases, pending agreements to sell the related assets. See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our fair value measurement valuation process. 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.


20
Table of Contents

Reported Operating Data
Historical operating results include the results of acquired businesses from the date of acquisition.
 
($ in millions, except per vehicle data)
Three Months Ended March 31,
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
New vehicle
$
2,769.6

 
$
2,428.6

 
$
341.0

 
14.0

Retail used vehicle
1,094.1

 
945.8

 
148.3

 
15.7

Wholesale
99.1

 
103.9

 
(4.8
)
 
(4.6
)
Used vehicle
1,193.2

 
1,049.7

 
143.5

 
13.7

Finance and insurance, net
207.6

 
172.4

 
35.2

 
20.4

Total variable operations(1)
4,170.4

 
3,650.7

 
519.7

 
14.2

Parts and service
743.4

 
671.0

 
72.4

 
10.8

Other
30.4

 
41.8

 
(11.4
)
 
 
Total revenue
$
4,944.2

 
$
4,363.5

 
$
580.7

 
13.3

Gross profit:
 
 
 
 
 
 
 
New vehicle
$
161.5

 
$
145.9

 
$
15.6

 
10.7

Retail used vehicle
102.5

 
92.8

 
9.7

 
10.5

Wholesale
1.2

 
1.5

 
(0.3
)
 
 
Used vehicle
103.7

 
94.3

 
9.4

 
10.0

Finance and insurance
207.6

 
172.4

 
35.2

 
20.4

Total variable operations(1)
472.8

 
412.6

 
60.2

 
14.6

Parts and service
320.0

 
286.7

 
33.3

 
11.6

Other
7.1

 
8.1

 
(1.0
)
 
 
Total gross profit
799.9

 
707.4

 
92.5

 
13.1

Selling, general, and administrative expenses
557.6

 
500.7

 
(56.9
)
 
(11.4
)
Depreciation and amortization
28.7

 
25.6

 
(3.1
)
 
 
Other income, net
(1.3
)
 
(8.0
)
 
(6.7
)
 
 
Operating income
214.9

 
189.1

 
25.8

 
13.6

Non-operating income (expense) items:
 
 
 
 
 
 
 
Floorplan interest expense
(13.2
)
 
(13.2
)
 
—

 
 
Other interest expense
(21.4
)
 
(21.6
)
 
0.2

 
 
Interest income
0.1

 
—

 
0.1

 
 
Other income, net
1.1

 
1.5

 
(0.4
)
 
 
Income from continuing operations before income taxes
$
181.5

 
$
155.8

 
$
25.7

 
16.5

Retail vehicle unit sales:
 
 
 
 
 
 
 
New vehicle
78,560

 
71,223

 
7,337

 
10.3

Used vehicle
58,624

 
52,136

 
6,488

 
12.4

 
137,184

 
123,359

 
13,825

 
11.2

Revenue per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
35,255

 
$
34,099

 
$
1,156

 
3.4

Used vehicle
$
18,663

 
$
18,141

 
$
522

 
2.9

Gross profit per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
2,056

 
$
2,048

 
$
8

 
0.4

Used vehicle
$
1,748

 
$
1,780

 
$
(32
)
 
(1.8
)
Finance and insurance
$
1,513

 
$
1,398

 
$
115

 
8.2

Total variable operations(2)
$
3,438

 
$
3,333

 
$
105

 
3.2

 
 
 
 
 
 
 
 
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.



21
Table of Contents

 
Three Months Ended
 
March 31,
 
2015 (%)
 
2014 (%)
Revenue mix percentages:
 
 
 
New vehicle
56.0
 
55.7
Used vehicle
24.1
 
24.1
Parts and service
15.0
 
15.4
Finance and insurance, net
4.2
 
4.0
Other
0.7
 
0.8
Total
100.0
 
100.0
Gross profit mix percentages:
 
 
 
New vehicle
20.2
 
20.6
Used vehicle
13.0
 
13.3
Parts and service
40.0
 
40.5
Finance and insurance
26.0
 
24.4
Other
0.8
 
1.2
Total
100.0
 
100.0
Operating items as a percentage of revenue:
 
 
 
Gross profit:
 
 
 
New vehicle
5.8
 
6.0
Used vehicle - retail
9.4
 
9.8
Parts and service
43.0
 
42.7
Total
16.2
 
16.2
Selling, general, and administrative expenses
11.3
 
11.5
Operating income
4.3
 
4.3
Operating items as a percentage of total gross profit:
 
 
 
Selling, general, and administrative expenses
69.7
 
70.8
Operating income
26.9
 
26.7
 
 
 
March 31,
 
2015
 
2014
Days supply:
 
 
 
New vehicle (industry standard of selling days)
52 days
 
61 days
Used vehicle (trailing calendar month days)
34 days
 
31 days
 
 
 
 



22
Table of Contents

Same Store Operating Data
We have presented below our operating results on a same store basis to reflect our internal performance. The “Same Store” amounts presented below include the results of our stores for the identical months in each period presented in the comparison, commencing with the first full month in which the store was owned by us.

 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
New vehicle
$
2,692.1

 
$
2,414.9

 
$
277.2

 
11.5

Retail used vehicle
1,060.7

 
939.6

 
121.1

 
12.9

Wholesale
97.3

 
103.6

 
(6.3
)
 
(6.1
)
Used vehicle
1,158.0

 
1,043.2

 
114.8

 
11.0

Finance and insurance, net
203.4

 
171.4

 
32.0

 
18.7

Total variable operations(1)
4,053.5

 
3,629.5

 
424.0

 
11.7

Parts and service
722.7

 
666.3

 
56.4

 
8.5

Other
30.4

 
40.8

 
(10.4
)
 
 
Total revenue
$
4,806.6

 
$
4,336.6

 
$
470.0

 
10.8

Gross profit:
 
 
 
 
 
 
 
New vehicle
$
154.2

 
$
145.1

 
$
9.1

 
6.3

Retail used vehicle
99.7

 
92.0

 
7.7

 
8.4

Wholesale
1.2

 
1.5

 
(0.3
)
 
 
Used vehicle
100.9

 
93.5

 
7.4

 
7.9

Finance and insurance
203.4

 
171.4

 
32.0

 
18.7

Total variable operations(1)
458.5

 
410.0

 
48.5

 
11.8

Parts and service
310.1

 
284.6

 
25.5

 
9.0

Other
6.8

 
7.9

 
(1.1
)
 
 
Total gross profit
$
775.4

 
$
702.5

 
$
72.9

 
10.4

Retail vehicle unit sales:
 
 
 
 
 
 
 
New vehicle
76,919

 
70,676

 
6,243

 
8.8

Used vehicle
57,353

 
51,674

 
5,679

 
11.0

 
134,272

 
122,350

 
11,922

 
9.7

Revenue per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
34,999

 
$
34,169

 
$
830

 
2.4

Used vehicle
$
18,494

 
$
18,183

 
$
311

 
1.7

Gross profit per vehicle retailed:
 
 
 
 
 
 
 
New vehicle
$
2,005

 
$
2,053

 
$
(48
)
 
(2.3
)
Used vehicle
$
1,738

 
$
1,780

 
$
(42
)
 
(2.4
)
Finance and insurance
$
1,515

 
$
1,401

 
$
114

 
8.1

Total variable operations(2)
$
3,406

 
$
3,339

 
$
67

 
2.0

 
 
 
 
 
 
 
 
(1) Total variable operations includes new vehicle, used vehicle (retail and wholesale), and finance and insurance results.
(2) Total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, retail used vehicle, and finance and insurance gross profit by total retail vehicle unit sales.



23
Table of Contents

 
Three Months Ended
 
March 31,
 
2015 (%)
 
2014 (%)
Revenue mix percentages:
 
 
 
New vehicle
56.0
 
55.7
Used vehicle
24.1
 
24.1
Parts and service
15.0
 
15.4
Finance and insurance, net
4.2
 
4.0
Other
0.7
 
0.8
Total
100.0
 
100.0
Gross profit mix percentages:
 
 
 
New vehicle
19.9
 
20.7
Used vehicle
13.0
 
13.3
Parts and service
40.0
 
40.5
Finance and insurance
26.2
 
24.4
Other
0.9
 
1.1
Total
100.0
 
100.0
Operating items as a percentage of revenue:
 
 
 
Gross profit:
 
 
 
New vehicle
5.7
 
6.0
Used vehicle - retail
9.4
 
9.8
Parts and service
42.9
 
42.7
Total
16.1
 
16.2



24
Table of Contents

New Vehicle
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue
$
2,769.6

 
$
2,428.6

 
$
341.0

 
14.0

Gross profit
$
161.5

 
$
145.9

 
$
15.6

 
10.7

Retail vehicle unit sales
78,560

 
71,223

 
7,337

 
10.3

Revenue per vehicle retailed
$
35,255

 
$
34,099

 
$
1,156

 
3.4

Gross profit per vehicle retailed
$
2,056

 
$
2,048

 
$
8

 
0.4

Gross profit as a percentage of revenue
5.8
%
 
6.0
%
 
 
 
 
Days supply (industry standard of selling days)
52 days

 
61 days

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Same Store:
 
 
 
 
 
 
 
Revenue
$
2,692.1

 
$
2,414.9

 
$
277.2

 
11.5

Gross profit
$
154.2

 
$
145.1

 
$
9.1

 
6.3

Retail vehicle unit sales
76,919

 
70,676

 
6,243

 
8.8

Revenue per vehicle retailed
$
34,999

 
$
34,169

 
$
830

 
2.4

Gross profit per vehicle retailed
$
2,005

 
$
2,053

 
$
(48
)
 
(2.3
)
Gross profit as a percentage of revenue
5.7
%
 
6.0
%
 
 
 
 

First Quarter 2015 compared to First Quarter 2014
Same store new vehicle revenue increased during the three months ended March 31, 2015, as compared to the same period in 2014, as a result of an increase in same store unit volume and an increase in revenue per new vehicle retailed. The increase in same store unit volume was primarily due to replacement demand and improved market conditions, including increased consumer borrowing and confidence and lower average fuel prices. New product offerings from automotive manufacturers also favorably impacted same store unit volume.
Same store revenue per new vehicle retailed during the three months ended March 31, 2015, benefited from a shift in mix toward Premium Luxury vehicles, which have relatively higher average selling prices. Same store revenue per new vehicle retailed also benefited from an increase in the average selling prices for Domestic and Import vehicles, partially offset by a decrease in the average selling price for Premium Luxury vehicles.
Same store gross profit per new vehicle retailed decreased during the three months ended March 31, 2015, as compared to the same period in 2014, primarily due to a decrease in the gross profit per vehicle retailed for Premium Luxury vehicles, partially offset by a shift in mix toward Premium Luxury vehicles, which have a relatively higher average gross profit per vehicle retailed.
New Vehicle Inventories
Our new vehicle inventories were $2.3 billion or 52 days supply at March 31, 2015, as compared to new vehicle inventories of $2.3 billion or 54 days supply at December 31, 2014 and $2.2 billion or 61 days supply at March 31, 2014. We had 65,993 units in new vehicle inventory at March 31, 2015, 67,424 units at December 31, 2014, and 67,330 units at March 31, 2014.


25
Table of Contents

The following table details net new vehicle inventory carrying benefit, consisting of new vehicle floorplan interest expense, net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit.
 
 
Three Months Ended March 31,
(In millions)
2015
 
2014
 
Variance
Floorplan assistance
$
26.7

 
$
24.0

 
$
2.7

New vehicle floorplan interest expense
(12.5
)
 
(12.7
)
 
0.2

Net new vehicle inventory carrying benefit
$
14.2

 
$
11.3

 
$
2.9

First Quarter 2015 compared to First Quarter 2014
The net new vehicle inventory carrying benefit increased during the three months ended March 31, 2015, as compared to the same period in 2014 primarily due to an increase in floorplan assistance. Floorplan assistance increased primarily due to higher new vehicle sales.



26
Table of Contents

Used Vehicle
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Retail revenue
$
1,094.1

 
$
945.8

 
$
148.3

 
15.7

Wholesale revenue
99.1

 
103.9

 
(4.8
)
 
(4.6
)
Total revenue
$
1,193.2

 
$
1,049.7

 
$
143.5

 
13.7

Retail gross profit
$
102.5

 
$
92.8

 
$
9.7

 
10.5

Wholesale gross profit
1.2

 
1.5

 
(0.3
)
 
 
Total gross profit
$
103.7

 
$
94.3

 
$
9.4

 
10.0

Retail vehicle unit sales
58,624

 
52,136

 
6,488

 
12.4

Revenue per vehicle retailed
$
18,663

 
$
18,141

 
$
522

 
2.9

Gross profit per vehicle retailed
$
1,748

 
$
1,780

 
$
(32
)
 
(1.8
)
Gross profit as a percentage of revenue
9.4
%
 
9.8
%
 
 
 
 
Days supply (trailing calendar month days)
34 days

 
31 days

 
 
 
 
 
 
 
Three Months Ended March 31,
 
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Same Store:
 
 
 
 
 
 
 
Retail revenue
$
1,060.7

 
$
939.6

 
$
121.1

 
12.9

Wholesale revenue
97.3

 
103.6

 
(6.3
)
 
(6.1
)
Total revenue
$
1,158.0

 
$
1,043.2

 
$
114.8

 
11.0

Retail gross profit
$
99.7

 
$
92.0

 
$
7.7

 
8.4

Wholesale gross profit
1.2

 
1.5

 
(0.3
)
 
 
Total gross profit
$
100.9

 
$
93.5

 
$
7.4

 
7.9

Retail vehicle unit sales
57,353

 
51,674

 
5,679

 
11.0

Revenue per vehicle retailed
$
18,494

 
$
18,183

 
$
311

 
1.7

Gross profit per vehicle retailed
$
1,738

 
$
1,780

 
$
(42
)
 
(2.4
)
Gross profit as a percentage of revenue
9.4
%
 
9.8
%
 
 
 
 
First Quarter 2015 compared to First Quarter 2014
Same store retail used vehicle revenue increased during the three months ended March 31, 2015, as compared to the same period in 2014, due to an increase in same store unit volume and an increase in revenue per used vehicle retailed. Same store unit volume benefited from an increase in sales of certified pre-owned vehicles, as well as an increase in trade-in volume.
Same store revenue per used vehicle retailed benefited primarily from an increase in the average selling price of used vehicles in the Domestic segment and an increase in sales of certified pre-owned vehicles, which have relatively higher average selling prices.
Same store gross profit per used vehicle retailed decreased during the three months ended March 31, 2015, as compared to the same period in 2014, primarily due to a decrease in the gross profit per vehicle retailed for Premium Luxury and Import vehicles.
Used Vehicle Inventories
Used vehicle inventories were $470.6 million or 34 days supply at March 31, 2015, compared to $437.6 million or 38 days supply at December 31, 2014, and $355.0 million or 31 days supply at March 31, 2014.



27
Table of Contents

Parts and Service
  
Three Months Ended March 31,
($ in millions)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue
$
743.4

 
$
671.0

 
$
72.4

 
10.8
Gross Profit
$
320.0

 
$
286.7

 
$
33.3

 
11.6
Gross profit as a percentage of revenue
43.0
%
 
42.7
%
 
 
 
 
Same Store:
 
 
 
 
 
 
 
Revenue
$
722.7

 
$
666.3

 
$
56.4

 
8.5
Gross Profit
$
310.1

 
$
284.6

 
$
25.5

 
9.0
Gross profit as a percentage of revenue
42.9
%
 
42.7
%
 
 
 
 

Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales and collision businesses.
First Quarter 2015 compared to First Quarter 2014
During the three months ended March 31, 2015, same store parts and service gross profit increased as compared to the same period in 2014, primarily due to increases in gross profit associated with warranty of $9.3 million, the preparation of vehicles for sale of $6.7 million, customer-pay service of $4.9 million, and collision business of $2.9 million.
Warranty gross profit benefited from an increase in volume, driven primarily by elevated manufacturer recall activity. Gross profit associated with the preparation of vehicles for sale benefited from higher new and used vehicle unit volume. Customer-pay service gross profit benefited from improved operational execution and increased volume. Gross profit associated with our collision business benefited from increased volume referred by automotive insurance providers as well as an increase in the average repair value.



28
Table of Contents

Finance and Insurance
 
Three Months Ended March 31,
($ in millions, except per vehicle data)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Reported:
 
 
 
 
 
 
 
Revenue and gross profit
$
207.6

 
$
172.4

 
$
35.2

 
20.4
Gross profit per vehicle retailed
$
1,513

 
$
1,398

 
$
115

 
8.2
Same Store:
 
 
 
 
 
 
 
Revenue and gross profit
$
203.4

 
$
171.4

 
$
32.0

 
18.7
Gross profit per vehicle retailed
$
1,515

 
$
1,401

 
$
114

 
8.1

First Quarter 2015 compared to First Quarter 2014
Same store finance and insurance revenue and gross profit increased during the three months ended March 31, 2015, as compared to the same period in 2014, due to increases in new and used vehicle unit volume and same store finance and insurance revenue and gross profit per vehicle retailed.
Same store finance and insurance revenue and gross profit per vehicle retailed benefited from a shift in mix toward and an increase in product penetration for more profitable vehicle service contracts, an increase in retrospective commissions, an increase in amounts financed per transaction, and an increase in revenue and gross profit per transaction associated with arranging customer financing.




29
Table of Contents

Segment Results
In the following table, revenue and segment income of our reportable segments is reconciled to consolidated revenue and consolidated operating income, respectively.
 
Three Months Ended March 31,
($ in millions)
2015
 
2014
 
Variance
Favorable /
(Unfavorable)
 
%
Variance
Revenue:
 
 
 
 
 
 
 
Domestic
$
1,665.7

 
$
1,473.0

 
$
192.7

 
13.1
Import
1,678.7

 
1,549.4

 
129.3

 
8.3
Premium Luxury
1,563.2

 
1,306.4

 
256.8

 
19.7
Total
4,907.6

 
4,328.8

 
578.8

 
13.4
Corporate and other
36.6

 
34.7

 
1.9

 
5.5
Total consolidated revenue
$
4,944.2

 
$
4,363.5

 
$
580.7

 
13.3
Segment income(1):
 
 
 
 
 
 
 
Domestic
$
79.3

 
$
63.8

 
$
15.5

 
24.3
Import
75.0

 
65.4

 
9.6

 
14.7
Premium Luxury
94.1

 
83.3

 
10.8

 
13.0
Total
248.4

 
212.5

 
35.9

 
16.9
Corporate and other
(46.7
)
 
(36.6
)
 
(10.1
)
 
 
Floorplan interest expense
13.2

 
13.2

 
—

 
 
Operating income
$
214.9

 
$
189.1

 
$
25.8

 
13.6
 
 
 
 
 
 
 
 
(1) Segment income represents income for each of our reportable segments and is defined as operating income less floorplan interest expense.
 
Retail new vehicle unit sales:
Domestic
25,750

 
23,815

 
1,935

 
8.1
Import
36,914

 
34,925

 
1,989

 
5.7
Premium Luxury
15,896

 
12,483

 
3,413

 
27.3
 
78,560