AutoNation Inc.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2005
or
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o |
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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)
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DELAWARE
(STATE OF INCORPORATION)
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73-1105145
(IRS EMPLOYER IDENTIFICATION NO.) |
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110 S.E. 6TH STREET
FT. LAUDERDALE, FLORIDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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33301
(ZIP CODE) |
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 769-6000
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yeso No
þ
On November 1, 2005 the registrant had 262,389,015 outstanding shares of common stock, par
value $.01 per share.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTONATION,
INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
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September 30, |
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December 31, |
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2005 |
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2004 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
|
$ |
277.5 |
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$ |
107.9 |
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Receivables, net |
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|
654.0 |
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|
761.0 |
|
Inventory |
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|
2,203.5 |
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|
2,580.7 |
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Other current assets |
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175.3 |
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|
286.1 |
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|
|
|
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Total Current Assets |
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3,310.3 |
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|
|
3,735.7 |
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|
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|
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PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $458.8 and $406.5,
respectively |
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1,819.2 |
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|
1,802.0 |
|
INTANGIBLE ASSETS, NET |
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|
2,961.0 |
|
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|
2,953.6 |
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OTHER ASSETS |
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|
174.6 |
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|
207.6 |
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Total Assets |
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$ |
8,265.1 |
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|
$ |
8,698.9 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Vehicle floorplan payable |
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$ |
1,946.7 |
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$ |
2,462.3 |
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Accounts payable |
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207.8 |
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|
177.1 |
|
Notes payable and current maturities of
long-term debt |
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13.7 |
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|
14.9 |
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Other current liabilities |
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550.2 |
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|
756.7 |
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Total Current Liabilities |
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2,718.4 |
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|
3,411.0 |
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|
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|
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LONG-TERM DEBT, NET OF CURRENT MATURITIES |
|
|
661.4 |
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|
797.7 |
|
DEFERRED INCOME TAXES |
|
|
209.7 |
|
|
|
156.8 |
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OTHER LIABILITIES |
|
|
76.3 |
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|
70.3 |
|
COMMITMENTS AND CONTINGENCIES (NOTE 12) |
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SHAREHOLDERS EQUITY: |
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Preferred stock, par value $.01 per share;
5,000,000 shares authorized; none issued |
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Common
stock, par value $.01 per share; 1,500,000,000 shares authorized;
273,562,137 shares issued for both periods,
including shares held in treasury |
|
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2.7 |
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|
2.7 |
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Additional paid-in capital |
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2,214.1 |
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2,240.0 |
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Retained earnings |
|
|
2,597.2 |
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|
2,176.0 |
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Accumulated other comprehensive income (loss) |
|
|
1.5 |
|
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|
(1.5 |
) |
Treasury stock, at cost; 12,160,808 and
9,300,007 shares held, respectively |
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|
(216.2 |
) |
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|
(154.1 |
) |
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Total Shareholders Equity |
|
|
4,599.3 |
|
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|
4,263.1 |
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Total Liabilities and Shareholders Equity |
|
$ |
8,265.1 |
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|
$ |
8,698.9 |
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|
The accompanying notes are an integral part of these statements.
3
AUTONATION, INC.
UNAUDITED CONSOLIDATED INCOME STATEMENTS
(In millions, except share data)
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THREE MONTHS ENDED |
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NINE MONTHS ENDED |
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SEPTEMBER 30, |
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SEPTEMBER 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Revenue: |
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New vehicle |
|
$ |
3,160.8 |
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$ |
3,090.0 |
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$ |
8,885.4 |
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$ |
8,754.9 |
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Used vehicle |
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1,172.9 |
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1,062.0 |
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3,392.3 |
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3,201.0 |
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Parts and service |
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673.0 |
|
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|
617.5 |
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|
1,974.4 |
|
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|
1,836.9 |
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Finance and insurance, net |
|
|
167.9 |
|
|
|
158.6 |
|
|
|
475.1 |
|
|
|
459.6 |
|
Other |
|
|
21.8 |
|
|
|
20.6 |
|
|
|
65.7 |
|
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|
65.2 |
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TOTAL REVENUE |
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5,196.4 |
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4,948.7 |
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14,792.9 |
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14,317.6 |
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Cost of Sales: |
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New vehicle |
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2,933.8 |
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2,874.9 |
|
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|
8,244.9 |
|
|
|
8,135.4 |
|
Used vehicle |
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|
1,064.5 |
|
|
|
967.1 |
|
|
|
3,062.0 |
|
|
|
2,900.3 |
|
Parts and service |
|
|
380.4 |
|
|
|
349.6 |
|
|
|
1,115.4 |
|
|
|
1,032.0 |
|
Other |
|
|
10.3 |
|
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|
9.5 |
|
|
|
30.7 |
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|
28.9 |
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TOTAL COST OF SALES |
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|
4,389.0 |
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|
4,201.1 |
|
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|
12,453.0 |
|
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12,096.6 |
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Gross Profit: |
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|
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New vehicle |
|
|
227.0 |
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|
|
215.1 |
|
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|
640.5 |
|
|
|
619.5 |
|
Used vehicle |
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|
108.4 |
|
|
|
94.9 |
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|
330.3 |
|
|
|
300.7 |
|
Parts and service |
|
|
292.6 |
|
|
|
267.9 |
|
|
|
859.0 |
|
|
|
804.9 |
|
Finance and insurance |
|
|
167.9 |
|
|
|
158.6 |
|
|
|
475.1 |
|
|
|
459.6 |
|
Other |
|
|
11.5 |
|
|
|
11.1 |
|
|
|
35.0 |
|
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|
36.3 |
|
|
|
|
|
|
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TOTAL GROSS PROFIT |
|
|
807.4 |
|
|
|
747.6 |
|
|
|
2,339.9 |
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2,221.0 |
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Selling, general and administrative expenses |
|
|
566.8 |
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|
531.6 |
|
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|
1,649.8 |
|
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|
1,589.0 |
|
Depreciation and amortization |
|
|
19.7 |
|
|
|
19.9 |
|
|
|
60.4 |
|
|
|
57.8 |
|
Other losses, net |
|
|
1.2 |
|
|
|
.9 |
|
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|
.6 |
|
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|
1.3 |
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OPERATING INCOME |
|
|
219.7 |
|
|
|
195.2 |
|
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|
629.1 |
|
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|
572.9 |
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Floorplan interest expense |
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|
(25.0 |
) |
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|
(20.4 |
) |
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|
(79.1 |
) |
|
|
(57.2 |
) |
Other interest expense |
|
|
(15.9 |
) |
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|
(18.3 |
) |
|
|
(48.9 |
) |
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|
(57.3 |
) |
Other interest expense senior note repurchases |
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|
(15.1 |
) |
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Interest income |
|
|
1.5 |
|
|
|
.9 |
|
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|
4.4 |
|
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|
2.3 |
|
Other expense, net |
|
|
(.1 |
) |
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|
(2.0 |
) |
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|
(.2 |
) |
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(3.4 |
) |
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
180.2 |
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|
155.4 |
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|
490.2 |
|
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|
457.3 |
|
PROVISION FOR INCOME TAXES |
|
|
60.1 |
|
|
|
59.7 |
|
|
|
175.0 |
|
|
|
176.3 |
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NET INCOME FROM CONTINUING OPERATIONS |
|
|
120.1 |
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|
95.7 |
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|
315.2 |
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|
281.0 |
|
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES |
|
|
9.2 |
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|
(3.3 |
) |
|
|
106.0 |
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|
|
(9.2 |
) |
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NET INCOME |
|
$ |
129.3 |
|
|
$ |
92.4 |
|
|
$ |
421.2 |
|
|
$ |
271.8 |
|
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BASIC EARNINGS PER SHARE: |
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Continuing operations |
|
$ |
.46 |
|
|
$ |
.36 |
|
|
|
1.20 |
|
|
|
1.05 |
|
Discontinued operations |
|
$ |
.04 |
|
|
$ |
(.01 |
) |
|
$ |
.40 |
|
|
|
(.03 |
) |
Net income |
|
$ |
.49 |
|
|
$ |
.35 |
|
|
$ |
1.60 |
|
|
$ |
1.02 |
|
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|
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|
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|
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|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
261.6 |
|
|
|
265.6 |
|
|
|
263.5 |
|
|
|
267.4 |
|
|
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DILUTED EARNINGS PER SHARE: |
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
.45 |
|
|
$ |
.35 |
|
|
$ |
1.17 |
|
|
$ |
1.03 |
|
Discontinued operations |
|
$ |
.03 |
|
|
$ |
(.01 |
) |
|
$ |
.39 |
|
|
$ |
(.03 |
) |
Net income |
|
$ |
.48 |
|
|
$ |
.34 |
|
|
$ |
1.57 |
|
|
$ |
.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
267.2 |
|
|
|
270.6 |
|
|
|
269.1 |
|
|
|
273.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, net of treasury
stock |
|
|
261.4 |
|
|
|
264.4 |
|
|
|
261.4 |
|
|
|
264.4 |
|
The accompanying notes are an integral part of these statements.
4
AUTONATION,
INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(In millions, except share data)
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|
Accumulated |
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|
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|
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|
|
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|
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|
Other |
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|
Additional |
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Compre- |
|
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|
|
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|
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|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
hensive |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) Gain |
|
|
Stock |
|
|
Total |
|
BALANCE AT DECEMBER 31, 2004 |
|
|
273,562,137 |
|
|
$ |
2.7 |
|
|
$ |
2,240.0 |
|
|
$ |
2,176.0 |
|
|
$ |
(1.5 |
) |
|
$ |
(154.1 |
) |
|
$ |
4,263.1 |
|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187.2 |
) |
|
|
(187.2 |
) |
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
(25.9 |
) |
|
|
|
|
|
|
|
|
|
|
125.1 |
|
|
|
99.2 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
|
|
|
|
3.0 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421.2 |
|
|
|
|
|
|
|
|
|
|
|
421.2 |
|
|
|
|
|
|
|
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|
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|
|
|
BALANCE AT SEPTEMBER 30, 2005 |
|
|
273,562,137 |
|
|
$ |
2.7 |
|
|
$ |
2,214.1 |
|
|
$ |
2,597.2 |
|
|
$ |
1.5 |
|
|
$ |
(216.2 |
) |
|
$ |
4,599.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
AUTONATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
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NINE MONTHS ENDED |
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SEPTEMBER 30, |
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2005 |
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|
2004 |
|
CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
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Net income |
|
$ |
421.2 |
|
|
$ |
271.8 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
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|
|
|
|
|
|
|
(Income) loss from discontinued operations |
|
|
(106.0 |
) |
|
|
9.2 |
|
Depreciation and amortization |
|
|
60.4 |
|
|
|
57.8 |
|
Amortization of debt issuance costs and discounts |
|
|
5.5 |
|
|
|
3.9 |
|
Premium on bond repurchases |
|
|
11.3 |
|
|
|
|
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Income taxes |
|
|
35.0 |
|
|
|
28.1 |
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Other |
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|
(.3 |
) |
|
|
4.2 |
|
Changes in assets and liabilities, net of effects
from business combinations: |
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|
|
|
|
|
|
|
Receivables |
|
|
107.0 |
|
|
|
70.3 |
|
Inventory |
|
|
348.4 |
|
|
|
230.3 |
|
Other assets |
|
|
51.7 |
|
|
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28.0 |
|
Vehicle floorplan payable |
|
|
(471.0 |
) |
|
|
(310.1 |
) |
IRS settlement prepayment |
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|
|
|
|
|
(42.6 |
) |
Accounts payable |
|
|
30.7 |
|
|
|
(10.6 |
) |
Other liabilities |
|
|
(60.8 |
) |
|
|
(28.0 |
) |
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|
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|
|
|
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|
|
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433.1 |
|
|
|
312.3 |
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CASH USED IN INVESTING ACTIVITIES: |
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|
|
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Purchases of property and equipment, excluding
property operating lease buyouts |
|
|
(91.9 |
) |
|
|
(81.3 |
) |
Property operating lease buyouts |
|
|
(10.3 |
) |
|
|
(77.7 |
) |
Proceeds from sale of property and equipment |
|
|
32.3 |
|
|
|
1.7 |
|
Cash used in business acquisitions, net of
cash acquired |
|
|
(13.4 |
) |
|
|
(154.3 |
) |
Cash received from business divestitures, net of
cash relinquished |
|
|
47.4 |
|
|
|
4.1 |
|
Proceeds from disposal of assets held for sale |
|
|
20.6 |
|
|
|
30.2 |
|
Net change in restricted cash |
|
|
28.7 |
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|
|
10.9 |
|
Purchases of restricted investments |
|
|
(22.3 |
) |
|
|
(16.7 |
) |
Sales of restricted investments |
|
|
6.1 |
|
|
|
21.1 |
|
Other |
|
|
(.5 |
) |
|
|
(.4 |
) |
|
|
|
|
|
|
|
|
|
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(3.3 |
) |
|
|
(262.4 |
) |
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CASH USED IN FINANCING ACTIVITIES: |
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Purchases of treasury stock |
|
|
(187.2 |
) |
|
|
(190.8 |
) |
Payment of mortgage facilities |
|
|
(36.8 |
) |
|
|
(8.5 |
) |
Proceeds from mortgage facilities |
|
|
|
|
|
|
.2 |
|
Payments of notes payable and long-term debt |
|
|
(1.2 |
) |
|
|
|
|
Proceeds from the exercises of stock options |
|
|
76.7 |
|
|
|
68.1 |
|
Repurchase of senior unsecured notes |
|
|
(112.4 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
(260.9 |
) |
|
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(131.0 |
) |
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CASH
PROVIDED BY (USED
IN) CONTINUING OPERATIONS |
|
|
168.9 |
|
|
|
(81.1 |
) |
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|
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CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS |
|
|
.7 |
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(.6 |
) |
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
169.6 |
|
|
|
(81.7 |
) |
|
|
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
107.9 |
|
|
|
174.8 |
|
|
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|
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
277.5 |
|
|
$ |
93.1 |
|
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|
The accompanying notes are an integral part of these statements.
6
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share and per share data)
1. Interim Financial Statements
AutoNation, Inc. (the Company), through its subsidiaries, is the largest automotive retailer
in the United States. As of September 30, 2005, the Company owned and operated 347 new vehicle
franchises from 270 stores primarily located in major metropolitan markets in 17 states,
predominantly in the Sunbelt region of the United States. The Company offers a diversified range
of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and
repair services, vehicle parts, extended service contracts, vehicle protection products and other
aftermarket products. The Company also arranges financing for vehicle purchases through
third-party finance sources.
The accompanying Unaudited Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries; all significant intercompany accounts and transactions have
been eliminated. The accompanying Unaudited Consolidated Financial Statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Accordingly, certain information related to the Companys organization, significant
accounting policies and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States has been condensed or
omitted. These Unaudited 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, the financial position and the results of operations of the
Company for the periods presented.
The preparation of financial statements 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. Significant estimates made by the Company in the
accompanying Unaudited Consolidated Financial Statements include allowances for doubtful accounts,
assumptions related to intangible and long-lived assets, and for accruals related to self-insurance
programs, certain legal proceedings and estimated tax liabilities.
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
the Companys audited consolidated financial statements and notes thereto included in the Companys
most recent Annual Report on Form 10-K.
During October 2005, Hurricane Wilma impacted the Companys South Florida operations where the
Company has 33 dealerships, representing approximately 20% of its national business. The Company
has had a short-term disruption to its South Florida business and is
in the process of assessing
the damage to its property and equipment, inventory and overall operations of its business.
7
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Stock Options
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees in accounting for stock-based employee compensation arrangements whereby compensation
cost related to stock options is generally not recognized in determining net income. Had
compensation cost for the Companys stock option plans been determined pursuant to Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the
Companys net income and earnings per share would have decreased accordingly. Using the
Black-Scholes option pricing model for all outstanding options, and based on their vesting schedules, the Companys pro
forma net income and pro forma earnings per share are as follows for the nine months ended
September 30:
|
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|
|
|
|
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|
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|
2005 |
|
|
2004 |
|
Net income, as reported |
|
$ |
421.2 |
|
|
$ |
271.8 |
|
Pro forma stock-based employee compensation
cost, net of taxes |
|
|
(8.1 |
) |
|
|
(12.7 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
413.1 |
|
|
$ |
259.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, as reported |
|
$ |
1.60 |
|
|
$ |
1.02 |
|
Pro forma stock-based employee compensation
cost |
|
$ |
(.03 |
) |
|
$ |
(.05 |
) |
Pro forma basic earnings per share |
|
$ |
1.57 |
|
|
$ |
.97 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, as reported |
|
$ |
1.57 |
|
|
$ |
.99 |
|
Pro forma stock-based employee compensation
cost |
|
$ |
(.03 |
) |
|
$ |
(.05 |
) |
Pro forma diluted earnings per share |
|
$ |
1.54 |
|
|
$ |
.95 |
|
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R,
Share-Based Payment, a revision of SFAS 123. In March 2005, the SEC issued Staff Bulletin No.
107 (SAB 107) regarding its interpretation of SFAS 123R. The standard requires companies to
expense the grant-date fair value of stock options and other equity-based compensation issued to
employees. In accordance with the revised statement, the Company will be required to recognize the
expense attributable to stock options granted or vested subsequent to December 31, 2005. The
Company is evaluating the requirements of SFAS 123R and SAB 107. The Company has not yet determined
the method of adoption or the effect of adopting SFAS 123R, and it has not determined whether the
adoption will result in amounts that are similar to the current pro forma disclosures under SFAS
123 above.
8
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Receivables, Net
The components of receivables, net of allowance for doubtful accounts, are as follows:
|
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|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
|
|
2005 |
|
|
2004 |
|
Trade receivables |
|
$ |
94.1 |
|
|
$ |
98.7 |
|
Manufacturer receivables |
|
|
159.7 |
|
|
|
174.7 |
|
Other |
|
|
95.6 |
|
|
|
80.1 |
|
|
|
|
|
|
|
|
|
|
|
349.4 |
|
|
|
353.5 |
|
Less: Allowances |
|
|
(7.9 |
) |
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
341.5 |
|
|
|
346.9 |
|
Contracts-in-transit and vehicle receivables |
|
|
312.5 |
|
|
|
371.0 |
|
Income taxes refundable |
|
|
|
|
|
|
43.1 |
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
654.0 |
|
|
$ |
761.0 |
|
|
|
|
|
|
|
|
Contracts-in-transit and vehicle receivables represent receivables from financial institutions
for the portion of the vehicle sales price financed by the Companys customers.
4. Inventory and Vehicle Floorplan Payable
The components of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
|
|
2005 |
|
|
2004 |
|
|
New vehicles |
|
$ |
1,720.1 |
|
|
$ |
2,146.6 |
|
Used vehicles |
|
|
332.4 |
|
|
|
290.5 |
|
Parts, accessories and other |
|
|
151.0 |
|
|
|
143.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
2,203.5 |
|
|
$ |
2,580.7 |
|
|
|
|
|
|
|
|
At September 30, 2005 and December 31, 2004, vehicle floorplan payable totaled $1.9 billion
and $2.5 billion, respectively. Vehicle floorplan payable reflects amounts payable to finance the
purchase of specific vehicle inventories at LIBOR-based rates of
interest, substantially all of which are with
manufacturers captive finance subsidiaries. Secured floorplan facilities are used to finance
primarily new vehicle inventories and the amounts outstanding thereunder are generally due within
several business days after the related vehicles are sold. Floorplan facilities are primarily
collateralized by new vehicle inventories and related receivables and contain certain financial and
operational covenants. At September 30, 2005, the Company was in compliance with such covenants in
all material respects. At September 30, 2005, aggregate capacity under the floorplan credit
facilities to finance new vehicles was approximately $3.9 billion, of which $1.9 billion was
outstanding.
5. Intangible Assets
Intangible assets, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
|
|
2005 |
|
|
2004 |
|
|
Goodwill |
|
$ |
2,998.0 |
|
|
$ |
2,993.6 |
|
Franchise rights indefinite-lived |
|
|
224.4 |
|
|
|
220.5 |
|
Other intangibles |
|
|
8.6 |
|
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
3,231.0 |
|
|
|
3,225.7 |
|
Less: Accumulated amortization |
|
|
(270.0 |
) |
|
|
(272.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
2,961.0 |
|
|
$ |
2,953.6 |
|
|
|
|
|
|
|
|
9
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company completed impairment tests as of June 30, 2005 for goodwill and intangibles with
indefinite lives. The goodwill test includes determining the estimated fair value of the Companys
single reporting unit and comparing it to the carrying value of the net assets allocated to the
reporting unit. The Companys principal identifiable intangible assets are individual store rights
under franchise agreements with vehicle manufacturers. The test for intangibles with indefinite
lives requires the comparison of estimated fair value to its carrying value by store. No
impairment charges resulted from the required impairment tests. Goodwill and intangibles with
indefinite lives will be tested for impairment annually at June 30 or more frequently when events
or circumstances indicate that an impairment may have occurred.
6. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following:
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
|
|
2005 |
|
|
2004 |
|
|
9.0% senior unsecured notes, net of unamortized discount
of $2.1 million and $3.4 million, respectively |
|
$ |
343.4 |
|
|
$ |
443.2 |
|
Revolving credit facilities |
|
|
|
|
|
|
|
|
Mortgage facilities |
|
|
281.3 |
|
|
|
318.1 |
|
Other debt |
|
|
50.4 |
|
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
675.1 |
|
|
|
812.6 |
|
Less: Current maturities |
|
|
(13.7 |
) |
|
|
(14.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities |
|
$ |
661.4 |
|
|
$ |
797.7 |
|
|
|
|
|
|
|
|
The Company has 9.0% senior unsecured notes outstanding due August 1, 2008. During the
nine months ended September 30, 2005, the Company repurchased $101.1 million (face value) of senior
unsecured notes at an average price of 111.1% of face value or $112.4 million. For the nine months
ended September 30, 2005, the premium paid for this repurchase was $11.3 million plus related
deferred financing costs of $3.8 million, which was recognized as Other Interest Expense in the
accompanying 2005 Unaudited Consolidated Income Statement. Through September 30, 2005, cumulative
repurchases of senior unsecured notes, which began during the fourth quarter of 2004, totaled
$104.5 million (face value). There were no repurchases during the three months ended September 30,
2005. The senior unsecured notes are guaranteed by substantially all of the Companys
subsidiaries.
Through July 14, 2005, the Company had two revolving credit facilities with an aggregate
borrowing capacity of $500.0 million. A 364-day revolving credit facility, which was scheduled to
expire in August 2005, provided borrowing capacity up to $200.0 million at LIBOR-plus 125 basis
points. A five-year facility, which was scheduled to expire in August 2006, provided borrowing
capacity up to $300.0 million at LIBOR plus 225 basis points. There were no borrowings on these
revolving credit facilities during 2005 and 2004. On July 14, 2005, the Company terminated the
credit facilities and entered into a new five-year revolving credit facility with an aggregate
borrowing capacity of $600.0 million presently at a rate of interest of LIBOR plus 75 basis points.
The interest rate charged for the revolving credit facility is impacted by the Companys senior
unsecured credit ratings. The facility is guaranteed by substantially all of the Companys
subsidiaries. The Company has negotiated a letter of credit sublimit as part of its 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 face amount of any outstanding letters of
credit, which totaled $85.2 million at September 30, 2005.
During
the nine months ended September 30, 2005, the Company repaid $36.8 million of the
outstanding balance under mortgage facilities with automotive manufacturers captive finance
subsidiaries, which includes a prepayment totaling $28.3 million. At September 30, 2005, the
Company had $281.3 million outstanding under these mortgage facilities. In October 2005, the
Company prepaid $125.7 million, the total outstanding
10
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
balance under one of the mortgage facilities. The outstanding balances are secured by mortgages on certain of the Companys
store properties.
The Companys senior unsecured notes, revolving credit facility and mortgage facilities
contain numerous customary financial and operating covenants that place significant restrictions on
the Company, including the Companys ability to incur additional indebtedness or repay existing
indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets and
merge or consolidate with other entities. The indenture for the Companys senior unsecured notes
places significant restrictions on making certain payments (including dividends and share
repurchases) and investments. The revolving credit facility also requires the Company to meet
certain financial ratios including financial covenants requiring the maintenance of a maximum
consolidated cash flow leverage ratio and a maximum capitalization ratio. In addition, the senior
unsecured notes contain a minimum fixed charge coverage ratio covenant, and the mortgage facilities
contain both maximum cash flow leverage ratio and minimum interest coverage ratio covenants. In
the event that the Company were to default in the observance or performance of any of the financial
covenants in the revolving credit facility or mortgage facilities and such default were to continue
beyond any cure period or waiver, the lender under the respective facility could elect to terminate
the facility and declare all outstanding obligations under such facility immediately payable.
Under the senior unsecured notes, should the Company be in violation of the financial covenants, it
could be limited in incurring certain additional indebtedness. The Companys revolving credit
facility, the indenture for the Companys senior unsecured notes, vehicle floorplan payable
facilities and mortgage facilities have cross-default provisions that trigger a default in the
event of an uncured default under other material indebtedness of the Company. At September 30,
2005, the Company was in compliance with the requirements of all such financial covenants.
In the event of a downgrade in the Companys credit ratings, none of the covenants described
above would be impacted. In addition, availability under the revolving credit facility described
above would not be impacted should a downgrade in the senior unsecured debt credit ratings occur. Certain covenants in the senior unsecured note indenture
would be eliminated with certain upgrades of our senior unsecured notes to investment grade.
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.
7. Shareholders Equity
During the nine months ended September 30, 2005, the Company repurchased 9.4 million shares of
its common stock in the open market for an aggregate purchase price of $187.2 million, leaving
approximately $121.2 million available for share repurchases under the current program authorized
by the Companys Board of Directors. Future share repurchases are subject to
limitations contained in the indenture for the Companys senior unsecured notes.
During the nine months ended September 30, 2005 and 2004, proceeds from the exercise of stock
options were $76.7 million and $68.1 million, respectively.
11
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Income Taxes
Income taxes provided are based upon the Companys anticipated annual effective income tax
rate.
In 2005, the Company completed the federal income tax audit for the years 1997 through 2001.
During the three and nine months ended September 30, 2005, the Company recorded net income tax
benefits in the provision for income taxes totaling $9.4 million and $16.2, respectively, primarily
related to the resolution of various income tax matters. During the three and nine months ended
September 30, 2004, the Company recorded net income tax benefits in the provision for income taxes
totaling $.3 million and $1.1 million, respectively, for other tax matters. The Company also
recognized a $3.0 million and $110.4 million gain included in Discontinued Operations for the three
and nine months ended September 30, 2005, respectively, related to the resolution of various income
tax matters.
A federal income tax audit for 2002 through 2004 is being conducted by the IRS. The Company is
routinely audited by the states in which it does business and remains under examination by various
states. The Company expects additional state and federal tax adjustments in the future as it
continues to work through various tax matters. The Company believes that its tax positions comply
with applicable tax law, and that it has adequately provided for these matters. Included in Other
Current Liabilities at September 30, 2005 and December 31, 2004, are $58.4 million and $181.3
million, respectively, provided by the Company for these matters.
9. Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share are based on the combined
weighted-average number of common shares and common share equivalents outstanding, which includes,
where appropriate, the assumed exercise of dilutive options.
The computation of weighted-average common and common equivalent shares used in the
calculation of basic and diluted earnings per share is as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Weighted-average common shares outstanding used to
calculate basic earnings per share |
|
|
261.6 |
|
|
|
265.6 |
|
|
|
263.5 |
|
|
|
267.4 |
|
Effect of dilutive options |
|
|
5.6 |
|
|
|
5.0 |
|
|
|
5.6 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent shares
used to calculate diluted earnings per share |
|
|
267.2 |
|
|
|
270.6 |
|
|
|
269.1 |
|
|
|
273.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2005 and 2004, the Company had approximately 31.4 million and 36.0
million stock options outstanding, respectively, of which 7.4 million and 9.6 million,
respectively, have been excluded from the computation of diluted earnings per share since they are
anti-dilutive. During the nine months ended September 30, 2005, the Company granted a total of 2.9
million stock options.
12
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Comprehensive Income
Comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
Net income |
|
$ |
129.3 |
|
|
$ |
92.4 |
|
|
$ |
421.2 |
|
|
$ |
271.8 |
|
Other comprehensive gain (loss) |
|
|
.7 |
|
|
|
(2.5 |
) |
|
|
3.0 |
|
|
|
(.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
130.0 |
|
|
$ |
89.9 |
|
|
$ |
424.2 |
|
|
$ |
271.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a series of interest rate hedge instruments, consisting of a combination
of swaps, and cap and floor options (collars) with a notional value of $800.0 million at September
30, 2005. The hedge instruments are designed to convert certain floating rate vehicle floorplan
payable and portions of the Companys mortgage facilities to fixed rate debt. The Company has
$200.0 million in swaps, which started in 2004 and effectively lock in a LIBOR-based rate of 3.0%,
and $600.0 million in collars that cap floating rates to a maximum LIBOR-based rate no greater than
2.4%. All of the Companys hedge instruments mature between February 2006 and July 2006. At
September 30, 2005 and 2004, net unrealized gains (losses) related to hedges included in other
comprehensive gain (loss) were $1.8 million and $(3.6) million, respectively. For the three months
ended September 30, 2005 and 2004, the income statement impact from interest rate hedges was
additional income (expense) of $.3 million and $(.6) million, respectively. For the nine months
ended September 30, 2005 and 2004, the income statement impact from interest rate hedges was an
additional expense of $.9 million and $2.1 million, respectively. As of September 30, 2005, all of
the Companys derivative contracts were determined to be highly effective, and no ineffective
portion was recognized in income.
11. Acquisitions
The Company acquired two automotive retail franchises and other related assets during the nine
months ended September 30, 2005 and five automotive retail franchises and other related assets
during the nine months ended September 30, 2004. During the nine months ended September 30, 2005
and 2004, the Company paid $6.0 million and $151.2 million, respectively, in cash for
indefinite-lived franchise rights and related operating assets. During the nine months ended
September 30, 2005 and 2004, the Company also paid $7.5 million and $3.1 million, respectively, in
deferred purchase price for certain prior year automotive retail acquisitions.
Purchase price allocations for business combinations for the nine months ended September 30
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
Property and equipment |
|
|
.1 |
|
|
|
23.9 |
|
Goodwill |
|
|
2.5 |
|
|
|
57.8 |
|
Franchise rights indefinite-lived |
|
|
3.9 |
|
|
|
60.7 |
|
Other intangibles subject to amortization |
|
|
|
|
|
|
8.8 |
|
Working capital and other |
|
|
(.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
|
|
151.2 |
|
Cash paid in deferred purchase price |
|
|
7.5 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in acquisitions, net of cash acquired |
|
$ |
13.4 |
|
|
$ |
154.3 |
|
|
|
|
|
|
|
|
The Companys unaudited pro forma consolidated results of continuing operations, assuming
acquisitions had occurred at January 1, 2004, are as follows for the nine months ended September
30:
13
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
14,804.5 |
|
|
$ |
14,493.8 |
|
Net income |
|
$ |
421.6 |
|
|
$ |
276.2 |
|
Diluted earnings per share |
|
$ |
1.57 |
|
|
$ |
1.01 |
|
The unaudited pro forma results of continuing operations are presented for informational
purposes only and may not necessarily reflect the future results of operations of the Company or
what the results of operations would have been had the Company owned and operated these businesses
as of the beginning of each period presented.
12. Commitments and Contingencies
Legal Proceedings
The Company is involved, and will continue to be involved, in numerous legal proceedings
arising out of the conduct of its business, including litigation with customers, employment-related
lawsuits, class actions, purported class actions and actions brought by governmental authorities.
Many of the Companys Texas store subsidiaries have been named in three class action lawsuits
brought against the Texas Automobile Dealers Association (TADA) and approximately 700 new vehicle
stores in Texas that are members of the TADA. The three actions allege that since January 1994,
Texas dealers have deceived customers with respect to a vehicle inventory tax and violated federal
antitrust and other laws as well. In April 2002, in two actions (which have been consolidated),
the state court certified two classes of consumers on whose behalf the action would proceed. In
October 2002, the Texas Court of Appeals affirmed the trial courts order of class certification in
the state action and the Company and other defendants appealed the ruling to the Texas Supreme
Court, which, on March 26, 2004, declined to review the class certification. The defendants then
petitioned the Texas Supreme Court to reconsider its denial of review of the class certification
and that petition was denied on September 10, 2004. In the federal antitrust case, in March 2003,
the federal court conditionally certified a class of consumers. The Company and other defendants
appealed the ruling to the Fifth Circuit Court of Appeals, which on October 5, 2004, reversed the
class certification order, and remanded the case back to the federal district court for further
proceedings. In February 2005, the Company and the plaintiffs in both the state and federal cases
agreed to settlement terms in the respective cases. The settlements are contingent upon court
approval. The estimated expense of the proposed settlements is not a material amount and includes
the Companys stores issuing coupons for discounts off future vehicle purchases, refunding cash in
certain circumstances, and paying attorneys fees and certain costs. Under the terms of the
settlements, the Companys stores would continue to itemize and pass through to the customer the
cost of the inventory tax. If the settlements are not approved, the Company would then vigorously
assert available defenses in connection with the TADA lawsuits. Further, the Company may have
certain rights of indemnification with respect to certain aspects of these lawsuits. However, an
adverse resolution of the TADA lawsuits could result in the payment of significant costs and
damages and negatively impact the Companys ability to itemize and pass through to the customer the
cost of the tax in the future, which could have a material adverse effect on the Companys future
results of operations, financial condition and cash flows.
In addition to the foregoing cases, the Company is also a party to numerous other legal
proceedings that arose in the conduct of its business. The Company does not believe that the
ultimate resolution of these matters will have a material adverse effect on its financial
condition, results of operations 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 the Companys financial condition, results of operations and cash
flows.
14
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other Matters
The Company, acting through its subsidiaries, is the lessee under many real-estate leases that
provide for the use by the Companys subsidiaries of their respective store premises. Pursuant to
these leases, the Companys 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, the Company enters into agreements with third parties in connection with the sale of assets
or businesses in which it agrees 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, the Company enters
into agreements that may contain indemnification provisions. In the event that an indemnification
claim is asserted, liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, the
Companys subsidiaries assign or sublet to the store purchaser the subsidiaries interest in any
real property leases associated with such stores. In general, the Companys 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, the Company and its subsidiaries
generally remain subject to the terms of any guarantees made by the Company and its subsidiaries in
connection with such leases. Although the Company generally has indemnification rights against the
assignee or sublessee in the event of non-performance under these leases, as well as certain
defenses, and the Company presently has no reason to believe that it or its subsidiaries will be
called on to perform any material obligations under any such assigned leases or subleases, the
Company estimates that lessee rental payment obligations during the remaining terms of such
assigned leases or subleases are currently approximately $75 million at September 30, 2005. The
Company and its subsidiaries also may be called on to perform other obligations under these leases,
such as environmental remediation of the leased premises or repair of the leased premises upon
termination of the lease, although the Company presently has no reason to believe that it or its
subsidiaries will be called on to so perform and such obligations cannot be quantified at this
time. The Companys exposure under these leases is difficult to estimate and there can be no
assurance that any performance of the Company or its subsidiaries required under these leases would
not have a material adverse effect on the Companys financial condition and cash flows.
In the ordinary course of business, the Company is required to post performance and surety
bonds, letters of credit, and/or cash deposits as financial guarantees of the Companys
performance, which totaled $118.1 million at September 30, 2005.
In the ordinary course of business, the Company is subject to numerous state and federal laws
and regulations, including automotive, environmental, health and safety and other laws and
regulations. The Company does not anticipate that the costs of compliance with such laws and
regulations will have a material adverse effect on its business, consolidated results of
operations, cash flows or financial condition, although such outcome is possible given the nature
of the Companys operations and the extensive legal and regulatory framework applicable to its
business. The Company does not have any material known environmental commitments or contingencies.
15
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. Discontinued Operations
Discontinued operations are related to stores that were sold or for which the Company has
entered into a definitive agreement to sell. Generally, the sale of a store is completed within 60
to 90 days after a definitive agreement is signed. The accompanying Unaudited Consolidated
Financial Statements for all the periods presented have been adjusted to classify these stores as
discontinued operations. Also included in results from discontinued operations is a gain from an
income tax adjustment related to items previously reported in discontinued operations. Selected
income statement data for the Companys discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Total revenue |
|
$ |
35.1 |
|
|
$ |
161.2 |
|
|
$ |
178.7 |
|
|
$ |
524.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss from discontinued
operations |
|
$ |
(3.8 |
) |
|
$ |
(2.2 |
) |
|
$ |
(10.0 |
) |
|
$ |
(7.0 |
) |
Pre-tax gain (loss) on disposal from
discontinued operations |
|
|
2.3 |
|
|
|
(1.7 |
) |
|
|
(3.3 |
) |
|
|
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(3.9 |
) |
|
|
(13.3 |
) |
|
|
(13.2 |
) |
Income tax benefit |
|
|
(7.7 |
) |
|
|
(.6 |
) |
|
|
(8.9 |
) |
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
|
(3.3 |
) |
|
|
(4.4 |
) |
|
|
(9.2 |
) |
Income tax adjustment (see Note 8) |
|
|
3.0 |
|
|
|
|
|
|
|
110.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of income taxes |
|
$ |
9.2 |
|
|
$ |
(3.3 |
) |
|
$ |
106.0 |
|
|
$ |
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the total assets and liabilities of discontinued operations included in Other
Current Assets and Other Current Liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Inventory |
|
$ |
12.3 |
|
|
$ |
81.6 |
|
Other current assets |
|
|
18.8 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
31.1 |
|
|
|
96.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
18.1 |
|
|
|
39.7 |
|
Goodwill |
|
|
6.8 |
|
|
|
31.7 |
|
Other assets |
|
|
.9 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
25.8 |
|
|
|
72.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
56.9 |
|
|
$ |
169.7 |
|
|
|
|
|
|
|
|
|
Vehicle floorplan payable |
|
$ |
10.3 |
|
|
$ |
75.6 |
|
Other current liabilities |
|
|
3.7 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
14.0 |
|
|
$ |
87.4 |
|
|
|
|
|
|
|
|
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited Consolidated
Financial Statements and notes thereto included under Item 1. In addition, reference should be made
to our audited consolidated financial statements and notes thereto and related Managements
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 September 30, 2005, we owned and operated 347 new vehicle franchises from 270 stores
primarily located in major metropolitan markets in 17 states, predominantly in the Sunbelt region
of the United States. Our stores, which we believe include some of the most recognizable and
well-known in our key markets, sell 35 different brands of new vehicles. The core brands of
vehicles that we sell are manufactured by Ford, General Motors, DaimlerChrysler, Toyota, Nissan,
Honda and BMW.
We operate in a single industry segment, automotive retailing. We offer a diversified range
of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and
repair services, vehicle parts, extended service contracts, vehicle protection products and other
aftermarket products. We also arrange 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, reducing
operating expenses, leveraging our market brands and advertising, improving asset management and
sharing and implementing best practices across all of our stores.
The automotive retailing industry historically has been subject to substantial cyclical
variation characterized by periods of oversupply of new vehicles and weak consumer demand, although
the impact on retailers has been mitigated in recent years by historically low interest rates
(which have recently been increasing and are expected to continue increasing) and high manufacturer
incentives and discount programs. We believe that many factors affect industry-wide sales of new
vehicles and retailers gross profit margins, including consumer confidence in the economy, the
level of manufacturers excess production capacity, manufacturer incentives (and consumers
reaction to such offers), intense industry competition, interest rates, the prospects of war, other
international conflicts or terrorist attacks, severe weather conditions, the level of personal
discretionary spending, product quality, affordability and innovation, fuel prices, credit
availability, unemployment rates, the number of consumers whose vehicle leases are expiring and the
length of consumer loans on existing vehicles.
During the three months ended September 30, 2005 and 2004, we had net income from continuing
operations of $180.2 million and $155.4 million, respectively, and diluted earnings per share of
$.45 and $.35, respectively. The Companys results were positively impacted by revenue growth,
gross margin increases, share repurchases and continued leverage of the Companys cost structure.
During the third quarter of 2004, store volumes were impacted by four hurricanes that caused
temporary store closings and substantial disruption of our business throughout Florida and the
Southeast. We were not significantly affected by hurricanes during the third quarter of 2005.
However, in the fourth quarter Hurricane Wilma has impacted our South Florida operations where we
have 33 dealerships, representing approximately 20% of our national business. We have had a
short-term disruption to our South Florida business and are in the
process of assessing the damage
to our property and equipment, inventory and overall operations of
our business. While we do not expect a long-term effect on our
business, there can be no assurance that Hurricane Wilma will not
materially impact our business and results of operations during the
fourth quarter of 2005. In June 2005, General
Motors announced an employee pricing for everyone program, which was followed in July 2005 with
similar programs introduced by Ford and Chrysler. Although these programs helped drive increases
in volume, we focused on expanding gross profit per vehicle retailed through lower and more
balanced new vehicle inventories. Industry new vehicles sales were
adversely impacted in October 2005 as a result of items such as the
end of manufacturer employee pricing programs, higher gas prices and
rising interest rates as well as the impact of Hurricanes Katrina and
Wilma. Industry new vehicles sales are difficult to predict and may
continue to be adversely affected for the remainder of 2005 by these
or other factors.
Additionally, we recognized a $9.4 million benefit during the
three months ended September 30, 2005 related to the resolution of various tax matters. During the
three
months ended September 30, 2005, we had income from discontinued operations totaling $9.2 million,
net of income taxes. We recognized a $3.0 million gain included in discontinued operations
primarily related to the resolution of various income tax matters. We also recognized a loss of
$6.2 million, net of income taxes, related to stores that were sold or for which we have entered a
definitive agreement to sell. Certain amounts reflected in the accompanying Unaudited Consolidated
Financial
17
Statements for the three and nine months ended September 30, 2005 and 2004 have been
adjusted to classify the results of the stores described above as discontinued operations.
For the nine months ended September 30, 2005 and 2004, we had net income from continuing
operations of $490.2 million and $457.3 million, respectively, and diluted earnings per share of
$1.17 and $1.03, respectively. During 2005, we recognized a $16.2 million benefit related to
the resolution of various tax matters. The results for the nine months ended September 30, 2005
include $9.1 million or $.03 per share after-tax ($15.1 million pre-tax) of premium and deferred
costs recognized as Other Interest Expense related to the repurchase of $101.1 million (face value)
of our 9% senior unsecured notes. Additionally, the results for the nine months ended September
30, 2005 were impacted by higher floorplan interest expense primarily resulting from higher
short-term interest rates partially offset by lower average new vehicle inventory balances. The
net inventory carrying benefit (floorplan interest expense net of floorplan assistance recognized
from manufacturers) for the nine months ended September 30, 2005 was $9.8 million, a decrease of
$20.5 million compared to the same period in 2004. We expect to have similar negative trends for
the remainder of 2005.
During the nine months ended September 30, 2005, we had income from discontinued operations
totaling $106.0 million, net of income taxes, which includes a $110.4 million gain primarily
related to the resolution of various income tax matters.
During the nine months ended September 30, 2005, we acquired 9.4 million shares of our common
stock in the open market for an aggregate purchase price of $187.2 million. The indenture for our
senior notes contains restrictions on our ability to make share repurchases. See further
discussion under the heading Financial Condition. During the nine months ended September 30,
2005, 6.6 million shares of our common stock were issued upon the exercise of stock options
resulting in proceeds of $76.7 million.
18
Reported Operating Data
Historical operating results include the results of acquired businesses from the date of
acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
($ in millions, except per vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
3,160.8 |
|
|
$ |
3,090.0 |
|
|
$ |
70.8 |
|
|
|
2.3 |
|
|
$ |
8,885.4 |
|
|
$ |
8,754.9 |
|
|
$ |
130.5 |
|
|
|
1.5 |
|
Used vehicle |
|
|
1,172.9 |
|
|
|
1,062.0 |
|
|
|
110.9 |
|
|
|
10.4 |
|
|
|
3,392.3 |
|
|
|
3,201.0 |
|
|
|
191.3 |
|
|
|
6.0 |
|
Parts and service |
|
|
673.0 |
|
|
|
617.5 |
|
|
|
55.5 |
|
|
|
9.0 |
|
|
|
1,974.4 |
|
|
|
1,836.9 |
|
|
|
137.5 |
|
|
|
7.5 |
|
Finance and insurance, net |
|
|
167.9 |
|
|
|
158.6 |
|
|
|
9.3 |
|
|
|
5.9 |
|
|
|
475.1 |
|
|
|
459.6 |
|
|
|
15.5 |
|
|
|
3.4 |
|
Other |
|
|
21.8 |
|
|
|
20.6 |
|
|
|
1.2 |
|
|
|
|
|
|
|
65.7 |
|
|
|
65.2 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
5,196.4 |
|
|
$ |
4,948.7 |
|
|
$ |
247.7 |
|
|
|
5.0 |
|
|
$ |
14,792.9 |
|
|
$ |
14,317.6 |
|
|
$ |
475.3 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
227.0 |
|
|
$ |
215.1 |
|
|
$ |
11.9 |
|
|
|
5.5 |
|
|
$ |
640.5 |
|
|
$ |
619.5 |
|
|
$ |
21.0 |
|
|
|
3.4 |
|
Used vehicle |
|
|
108.4 |
|
|
|
94.9 |
|
|
|
13.5 |
|
|
|
14.2 |
|
|
|
330.3 |
|
|
|
300.7 |
|
|
|
29.6 |
|
|
|
9.8 |
|
Parts and service |
|
|
292.6 |
|
|
|
267.9 |
|
|
|
24.7 |
|
|
|
9.2 |
|
|
|
859.0 |
|
|
|
804.9 |
|
|
|
54.1 |
|
|
|
6.7 |
|
Finance and insurance |
|
|
167.9 |
|
|
|
158.6 |
|
|
|
9.3 |
|
|
|
5.9 |
|
|
|
475.1 |
|
|
|
459.6 |
|
|
|
15.5 |
|
|
|
3.4 |
|
Other |
|
|
11.5 |
|
|
|
11.1 |
|
|
|
.4 |
|
|
|
|
|
|
|
35.0 |
|
|
|
36.3 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
807.4 |
|
|
|
747.6 |
|
|
|
59.8 |
|
|
|
8.0 |
|
|
|
2,339.9 |
|
|
|
2,221.0 |
|
|
|
118.9 |
|
|
|
5.4 |
|
Selling, general and
administrative expenses |
|
|
566.8 |
|
|
|
531.6 |
|
|
|
(35.2 |
) |
|
|
(6.6 |
) |
|
|
1,649.8 |
|
|
|
1,589.0 |
|
|
|
(60.8 |
) |
|
|
(3.8 |
) |
Depreciation and amortization |
|
|
19.7 |
|
|
|
19.9 |
|
|
|
.2 |
|
|
|
|
|
|
|
60.4 |
|
|
|
57.8 |
|
|
|
(2.6 |
) |
|
|
|
|
Other losses , net |
|
|
1.2 |
|
|
|
.9 |
|
|
|
(.3 |
) |
|
|
|
|
|
|
.6 |
|
|
|
1.3 |
|
|
|
.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
219.7 |
|
|
|
195.2 |
|
|
|
24.5 |
|
|
|
12.6 |
|
|
|
629.1 |
|
|
|
572.9 |
|
|
|
56.2 |
|
|
|
9.8 |
|
Floorplan interest expense |
|
|
(25.0 |
) |
|
|
(20.4 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
(79.1 |
) |
|
|
(57.2 |
) |
|
|
(21.9 |
) |
|
|
|
|
Other interest expense |
|
|
(15.9 |
) |
|
|
(18.3 |
) |
|
|
2.4 |
|
|
|
|
|
|
|
(48.9 |
) |
|
|
(57.3 |
) |
|
|
8.4 |
|
|
|
|
|
Other
interest expense
senior note repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.1 |
) |
|
|
|
|
|
|
(15.1 |
) |
|
|
|
|
Interest income |
|
|
1.5 |
|
|
|
.9 |
|
|
|
.6 |
|
|
|
|
|
|
|
4.4 |
|
|
|
2.3 |
|
|
|
2.1 |
|
|
|
|
|
Other expense, net |
|
|
(.1 |
) |
|
|
(2.0 |
) |
|
|
1.9 |
|
|
|
|
|
|
|
(.2 |
) |
|
|
(3.4 |
) |
|
|
3.2 |
|
|
|
|
|
Income from continuing
operations before income
taxes |
|
$ |
180.2 |
|
|
$ |
155.4 |
|
|
$ |
24.8 |
|
|
|
16.0 |
|
|
$ |
490.2 |
|
|
$ |
457.3 |
|
|
$ |
32.9 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
110,288 |
|
|
|
107,568 |
|
|
|
2,720 |
|
|
|
2.5 |
|
|
|
305,595 |
|
|
|
305,867 |
|
|
|
(272 |
) |
|
|
(.1 |
) |
Used vehicle |
|
|
62,281 |
|
|
|
58,523 |
|
|
|
3,758 |
|
|
|
6.4 |
|
|
|
182,154 |
|
|
|
179,570 |
|
|
|
2,584 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,569 |
|
|
|
166,091 |
|
|
|
6,478 |
|
|
|
3.9 |
|
|
|
487,749 |
|
|
|
485,437 |
|
|
|
2,312 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
28,660 |
|
|
$ |
28,726 |
|
|
$ |
(66 |
) |
|
|
(.2 |
) |
|
$ |
29,076 |
|
|
$ |
28,623 |
|
|
$ |
453 |
|
|
|
1.6 |
|
Used vehicle |
|
$ |
15,038 |
|
|
$ |
14,567 |
|
|
$ |
471 |
|
|
|
3.2 |
|
|
$ |
15,063 |
|
|
$ |
14,529 |
|
|
$ |
534 |
|
|
|
3.7 |
|
Gross profit per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,058 |
|
|
$ |
2,000 |
|
|
$ |
58 |
|
|
|
2.9 |
|
|
$ |
2,096 |
|
|
$ |
2,025 |
|
|
$ |
71 |
|
|
|
3.5 |
|
Used vehicle |
|
$ |
1,766 |
|
|
$ |
1,630 |
|
|
$ |
136 |
|
|
|
8.3 |
|
|
$ |
1,802 |
|
|
$ |
1,665 |
|
|
$ |
137 |
|
|
|
8.2 |
|
Finance and insurance |
|
$ |
973 |
|
|
$ |
955 |
|
|
$ |
18 |
|
|
|
1.9 |
|
|
$ |
974 |
|
|
$ |
947 |
|
|
$ |
27 |
|
|
|
2.9 |
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
% 2005 |
|
% 2004 |
|
% 2005 |
|
% 2004 |
Revenue mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
60.8 |
|
|
|
62.4 |
|
|
|
60.1 |
|
|
|
61.1 |
|
Used vehicle |
|
|
22.6 |
|
|
|
21.5 |
|
|
|
22.9 |
|
|
|
22.4 |
|
Parts and services |
|
|
13.0 |
|
|
|
12.5 |
|
|
|
13.3 |
|
|
|
12.8 |
|
Finance and insurance, net |
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.2 |
|
Other |
|
|
.4 |
|
|
|
.4 |
|
|
|
.5 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
28.1 |
|
|
|
28.8 |
|
|
|
27.4 |
|
|
|
27.9 |
|
Used vehicle |
|
|
13.4 |
|
|
|
12.7 |
|
|
|
14.1 |
|
|
|
13.5 |
|
Parts and service |
|
|
36.2 |
|
|
|
35.8 |
|
|
|
36.7 |
|
|
|
36.2 |
|
Finance and insurance |
|
|
20.8 |
|
|
|
21.2 |
|
|
|
20.3 |
|
|
|
20.7 |
|
Other |
|
|
1.5 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating items as a percentage of
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
7.2 |
|
|
|
7.0 |
|
|
|
7.2 |
|
|
|
7.1 |
|
Used vehicle |
|
|
11.7 |
|
|
|
11.2 |
|
|
|
12.0 |
|
|
|
11.5 |
|
Parts and service |
|
|
43.5 |
|
|
|
43.4 |
|
|
|
43.5 |
|
|
|
43.8 |
|
Total |
|
|
15.5 |
|
|
|
15.1 |
|
|
|
15.8 |
|
|
|
15.5 |
|
Selling, general and
administrative expenses |
|
|
10.9 |
|
|
|
10.7 |
|
|
|
11.2 |
|
|
|
11.1 |
|
Operating income |
|
|
4.2 |
|
|
|
3.9 |
|
|
|
4.3 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating items as a
percentage of total gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
70.2 |
|
|
|
71.1 |
|
|
|
70.5 |
|
|
|
71.5 |
|
Operating income |
|
|
27.2 |
|
|
|
26.1 |
|
|
|
26.9 |
|
|
|
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Days supply: |
|
|
|
|
|
|
|
|
New vehicle (industry standard of
selling days, including fleet) |
|
43 days |
|
53 days |
Used vehicle (trailing 30 days) |
|
42 days |
|
44 days |
The following table details net inventory carrying costs consisting of floorplan
assistance earned, a component of new vehicle gross profit, and floorplan interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
Floorplan assistance |
|
$ |
30.5 |
|
|
$ |
31.8 |
|
|
$ |
(1.3 |
) |
|
$ |
88.9 |
|
|
$ |
87.5 |
|
|
$ |
1.4 |
|
Floorplan interest expense |
|
|
(25.0 |
) |
|
|
(20.4 |
) |
|
|
(4.6 |
) |
|
|
(79.1 |
) |
|
|
(57.2 |
) |
|
|
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inventory carrying benefit |
|
$ |
5.5 |
|
|
$ |
11.4 |
|
|
$ |
(5.9 |
) |
|
$ |
9.8 |
|
|
$ |
30.3 |
|
|
$ |
(20.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Same Store Operating Data
We have presented below our operating results on a same store basis to reflect our
internal performance. Same store operating results include the results of stores for identical
months in both years included in the comparison, starting with the first month of ownership or
operation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
($ in millions, except per |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
%Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
3,141.7 |
|
|
$ |
3,090.0 |
|
|
$ |
51.7 |
|
|
|
1.7 |
|
|
$ |
8,778.2 |
|
|
$ |
8,750.9 |
|
|
$ |
27.3 |
|
|
|
.3 |
|
Used vehicle |
|
|
1,164.5 |
|
|
|
1,061.2 |
|
|
|
103.3 |
|
|
|
9.7 |
|
|
|
3,348.0 |
|
|
|
3,196.9 |
|
|
|
151.1 |
|
|
|
4.7 |
|
Parts and service |
|
|
669.0 |
|
|
|
617.5 |
|
|
|
51.5 |
|
|
|
8.3 |
|
|
|
1,953.1 |
|
|
|
1,835.7 |
|
|
|
117.4 |
|
|
|
6.4 |
|
Finance and insurance, net |
|
|
167.3 |
|
|
|
158.6 |
|
|
|
8.7 |
|
|
|
5.5 |
|
|
|
471.6 |
|
|
|
459.8 |
|
|
|
11.8 |
|
|
|
2.6 |
|
Other |
|
|
7.5 |
|
|
|
8.0 |
|
|
|
(.5 |
) |
|
|
|
|
|
|
23.8 |
|
|
|
24.1 |
|
|
|
(.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
5,150.0 |
|
|
$ |
4,935.3 |
|
|
$ |
214.7 |
|
|
|
4.4 |
|
|
$ |
14,574.7 |
|
|
$ |
14,267.4 |
|
|
$ |
307.3 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
225.5 |
|
|
$ |
215.0 |
|
|
$ |
10.5 |
|
|
|
4.9 |
|
|
$ |
632.0 |
|
|
$ |
619.4 |
|
|
$ |
12.6 |
|
|
|
2.0 |
|
Used vehicle |
|
|
107.2 |
|
|
|
93.8 |
|
|
|
13.4 |
|
|
|
14.3 |
|
|
|
325.5 |
|
|
|
298.4 |
|
|
|
27.1 |
|
|
|
9.1 |
|
Parts and service |
|
|
290.6 |
|
|
|
267.9 |
|
|
|
22.7 |
|
|
|
8.5 |
|
|
|
848.5 |
|
|
|
804.4 |
|
|
|
44.1 |
|
|
|
5.5 |
|
Finance and insurance |
|
|
167.3 |
|
|
|
158.6 |
|
|
|
8.7 |
|
|
|
5.5 |
|
|
|
471.6 |
|
|
|
459.8 |
|
|
|
11.8 |
|
|
|
2.6 |
|
Other |
|
|
6.8 |
|
|
|
6.7 |
|
|
|
.1 |
|
|
|
|
|
|
|
19.7 |
|
|
|
20.5 |
|
|
|
(.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
797.4 |
|
|
$ |
742.0 |
|
|
$ |
55.4 |
|
|
|
7.5 |
|
|
$ |
2,297.3 |
|
|
$ |
2,202.5 |
|
|
$ |
94.8 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
109,766 |
|
|
|
107,568 |
|
|
|
2,198 |
|
|
|
2.0 |
|
|
|
302,812 |
|
|
|
305,701 |
|
|
|
(2,889 |
) |
|
|
(.9 |
) |
Used vehicle |
|
|
62,012 |
|
|
|
58,523 |
|
|
|
3,489 |
|
|
|
6.0 |
|
|
|
180,802 |
|
|
|
179,454 |
|
|
|
1,348 |
|
|
|
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
171,778 |
|
|
|
166,091 |
|
|
|
5,687 |
|
|
|
3.4 |
|
|
|
483,614 |
|
|
|
485,155 |
|
|
|
(1,541 |
) |
|
|
(.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
28,622 |
|
|
$ |
28,726 |
|
|
$ |
(104 |
) |
|
|
(.4 |
) |
|
$ |
28,989 |
|
|
$ |
28,626 |
|
|
$ |
363 |
|
|
|
1.3 |
|
Used vehicle |
|
$ |
15,023 |
|
|
$ |
14,569 |
|
|
$ |
454 |
|
|
|
3.1 |
|
|
$ |
15,011 |
|
|
$ |
14,532 |
|
|
$ |
479 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,054 |
|
|
$ |
1,999 |
|
|
$ |
55 |
|
|
|
2.8 |
|
|
$ |
2,087 |
|
|
$ |
2,026 |
|
|
$ |
61 |
|
|
|
3.0 |
|
Used vehicle |
|
$ |
1,767 |
|
|
$ |
1,628 |
|
|
$ |
139 |
|
|
|
8.5 |
|
|
$ |
1,800 |
|
|
$ |
1,664 |
|
|
$ |
136 |
|
|
|
8.2 |
|
Finance and insurance |
|
$ |
974 |
|
|
$ |
955 |
|
|
$ |
19 |
|
|
|
2.0 |
|
|
$ |
975 |
|
|
$ |
948 |
|
|
$ |
27 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30,_ |
|
|
|
% 2005 |
|
|
% 2004 |
|
|
% 2005 |
|
|
%2004_ |
|
Revenue mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
61.0 |
|
|
|
62.6 |
|
|
|
60.2 |
|
|
|
61.3 |
|
Used vehicle |
|
|
22.6 |
|
|
|
21.5 |
|
|
|
23.0 |
|
|
|
22.4 |
|
Parts and service |
|
|
13.0 |
|
|
|
12.5 |
|
|
|
13.4 |
|
|
|
12.9 |
|
Finance and insurance, net |
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.2 |
|
Other |
|
|
.2 |
|
|
|
.2 |
|
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
28.3 |
|
|
|
29.0 |
|
|
|
27.5 |
|
|
|
28.1 |
|
Used vehicle |
|
|
13.4 |
|
|
|
12.6 |
|
|
|
14.2 |
|
|
|
13.5 |
|
Parts and service |
|
|
36.4 |
|
|
|
36.1 |
|
|
|
36.9 |
|
|
|
36.5 |
|
Finance and insurance |
|
|
21.0 |
|
|
|
21.4 |
|
|
|
20.5 |
|
|
|
20.9 |
|
Other |
|
|
.9 |
|
|
|
.9 |
|
|
|
.9 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating items as a percentage of
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
7.2 |
|
|
|
7.0 |
|
|
|
7.2 |
|
|
|
7.1 |
|
Used vehicle |
|
|
11.8 |
|
|
|
11.2 |
|
|
|
12.0 |
|
|
|
11.5 |
|
Parts and service |
|
|
43.4 |
|
|
|
43.4 |
|
|
|
43.4 |
|
|
|
43.8 |
|
Total |
|
|
15.5 |
|
|
|
15.0 |
|
|
|
15.8 |
|
|
|
15.4 |
|
21
New Vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
($ in millions, |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
except per vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
3,160.8 |
|
|
$ |
3,090.0 |
|
|
$ |
70.8 |
|
|
|
2.3 |
|
|
$ |
8,885.4 |
|
|
$ |
8,754.9 |
|
|
$ |
130.5 |
|
|
|
1.5 |
|
Gross profit |
|
$ |
227.0 |
|
|
$ |
215.1 |
|
|
$ |
11.9 |
|
|
|
5.5 |
|
|
$ |
640.5 |
|
|
$ |
619.5 |
|
|
$ |
21.0 |
|
|
|
3.4 |
|
Retail vehicle unit sales |
|
|
110,288 |
|
|
|
107,568 |
|
|
|
2,720 |
|
|
|
2.5 |
|
|
|
305,595 |
|
|
|
305,867 |
|
|
|
(272 |
) |
|
|
(.1 |
) |
Revenue per vehicle retailed |
|
$ |
28,660 |
|
|
$ |
28,726 |
|
|
$ |
(66 |
) |
|
|
(.2 |
) |
|
$ |
29,076 |
|
|
$ |
28,623 |
|
|
$ |
453 |
|
|
|
1.6 |
|
Gross profit per vehicle
retailed |
|
$ |
2,058 |
|
|
$ |
2,000 |
|
|
$ |
58 |
|
|
|
2.9 |
|
|
$ |
2,096 |
|
|
$ |
2,025 |
|
|
$ |
71 |
|
|
|
3.5 |
|
Gross profit as a percentage
of revenue |
|
|
7.2 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
7.2 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
Days supply (industry
standard of selling days,
including fleet) |
|
43 days |
|
53 days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
3,141.7 |
|
|
$ |
3,090.0 |
|
|
$ |
51.7 |
|
|
|
1.7 |
|
|
$ |
8,778.2 |
|
|
$ |
8,750.9 |
|
|
$ |
27.3 |
|
|
|
.3 |
|
Gross profit |
|
$ |
225.5 |
|
|
$ |
215.0 |
|
|
$ |
10.5 |
|
|
|
4.9 |
|
|
$ |
632.0 |
|
|
$ |
619.4 |
|
|
$ |
12.6 |
|
|
|
2.0 |
|
Retail vehicle unit sales |
|
|
109,766 |
|
|
|
107,568 |
|
|
|
2,198 |
|
|
|
2.0 |
|
|
|
302,812 |
|
|
|
305,701 |
|
|
|
(2,889 |
) |
|
|
(.9 |
) |
Revenue per
vehicle retailed |
|
$ |
28,622 |
|
|
$ |
28,726 |
|
|
$ |
(104 |
) |
|
|
(.4 |
) |
|
$ |
28,989 |
|
|
$ |
28,626 |
|
|
$ |
363 |
|
|
|
1.3 |
|
Gross profit per vehicle
retailed |
|
$ |
2,054 |
|
|
$ |
1,999 |
|
|
$ |
55 |
|
|
|
2.8 |
|
|
$ |
2,087 |
|
|
$ |
2,026 |
|
|
$ |
61 |
|
|
|
3.0 |
|
Gross profit as a percentage
of revenue |
|
|
7.2 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
7.2 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
Floorplan assistance |
|
$ |
30.5 |
|
|
$ |
31.8 |
|
|
$ |
(1.3 |
) |
|
$ |
88.9 |
|
|
$ |
87.5 |
|
|
$ |
1.4 |
|
Floorplan interest expense |
|
|
(25.0 |
) |
|
|
(20.4 |
) |
|
|
(4.6 |
) |
|
|
(79.1 |
) |
|
|
(57.2 |
) |
|
|
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inventory carrying benefit |
|
$ |
5.5 |
|
|
$ |
11.4 |
|
|
$ |
(5.9 |
) |
|
$ |
9.8 |
|
|
$ |
30.3 |
|
|
$ |
(20.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported new vehicle performance for the three and nine months ended September 30, 2005
benefited from the impact of acquisitions and divestitures when compared to same store performance.
Same store new vehicle revenue for the three months ended September 30, 2005 increased
compared to the same period in 2004 primarily as a result of a same store volume increase partially
offset by a slight decrease in revenue per unit. During the third quarter of 2004, same store
volume was impacted by four hurricanes that caused temporary store closings and substantial
disruption of our business throughout Florida and the Southeast. We were not significantly
impacted by hurricanes during the third quarter of 2005. In June 2005, General Motors announced an
employee pricing for everyone program, which was followed in July 2005 with similar programs
introduced by Ford and Chrysler. Although these programs helped drive increases in volume, we
focused on expanding gross profit per vehicle retailed through lower and more balanced new vehicle
inventories. Same store revenue per vehicle retailed and gross profit per vehicle retailed for the
nine months ended September 30, 2005 increased as a result of an increase in sales of more
expensive cars, and our focus on pricing and profitability and management of inventory levels.
Industry new vehicles sales were
adversely impacted in October 2005 as a result of items such as the
end of manufacturer employee pricing programs, higher gas prices and
rising interest rates as well as the impact of Hurricanes Katrina and
Wilma. Industry new vehicles sales are difficult to predict and may
continue to be adversely affected for the remainder of 2005 by these
or other factors.
At September 30, 2005, our new vehicle inventories were at $1.7 billion or 43 days supply
compared to new vehicle inventories of $2.1 billion or 53 days supply at September 30, 2004. The
decrease is due to our continued focus on managing inventory and increased sales resulting from
consumer employee pricing programs. The net inventory carrying benefit (floorplan interest expense
net of floorplan assistance recognized from manufacturers) for full-year 2004 was approximately $35
million. The net inventory benefit for the nine months ended September 30, 2005 was $9.8 million, a
decrease of $20.5 million compared to the same period in 2004, primarily as a result of increased
floorplan interest expense due to higher short-term interest rates. We expect to have similar
negative trends for the remainder of 2005.
22
Used Vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
($ in millions, |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
except per vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenue |
|
$ |
936.6 |
|
|
$ |
852.5 |
|
|
$ |
84.1 |
|
|
|
9.9 |
|
|
$ |
2,743.8 |
|
|
$ |
2,609.0 |
|
|
$ |
134.8 |
|
|
|
5.2 |
|
Wholesale revenue |
|
|
236.3 |
|
|
|
209.5 |
|
|
|
26.8 |
|
|
|
12.8 |
|
|
|
648.5 |
|
|
|
592.0 |
|
|
|
56.5 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
1,172.9 |
|
|
$ |
1,062.0 |
|
|
$ |
110.9 |
|
|
|
10.4 |
|
|
$ |
3,392.3 |
|
|
$ |
3,201.0 |
|
|
$ |
191.3 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail gross profit |
|
$ |
110.0 |
|
|
$ |
95.4 |
|
|
$ |
14.6 |
|
|
|
15.3 |
|
|
$ |
328.2 |
|
|
$ |
298.9 |
|
|
$ |
29.3 |
|
|
|
9.8 |
|
Wholesale gross profit |
|
|
(1.6 |
) |
|
|
(.5 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
108.4 |
|
|
$ |
94.9 |
|
|
$ |
13.5 |
|
|
|
14.2 |
|
|
$ |
330.3 |
|
|
$ |
300.7 |
|
|
$ |
29.6 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales |
|
|
62,281 |
|
|
|
58,523 |
|
|
|
3,758 |
|
|
|
6.4 |
|
|
|
182,154 |
|
|
|
179,570 |
|
|
|
2,584 |
|
|
|
1.4 |
|
Revenue per vehicle retailed |
|
$ |
15,038 |
|
|
$ |
14,567 |
|
|
$ |
471 |
|
|
|
3.2 |
|
|
$ |
15,063 |
|
|
$ |
14,529 |
|
|
$ |
534 |
|
|
|
3.7 |
|
Gross profit per vehicle
retailed |
|
$ |
1,766 |
|
|
$ |
1,630 |
|
|
$ |
136 |
|
|
|
8.3 |
|
|
$ |
1,802 |
|
|
$ |
1,665 |
|
|
$ |
137 |
|
|
|
8.2 |
|
Gross profit as a percentage
of retail revenue |
|
|
11.7 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
12.0 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
Days supply (trailing 30 days) |
|
42 days |
|
44 days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenue |
|
$ |
931.6 |
|
|
$ |
852.6 |
|
|
$ |
79.0 |
|
|
|
9.3 |
|
|
$ |
2,714.1 |
|
|
$ |
2,607.8 |
|
|
$ |
106.3 |
|
|
|
4.1 |
|
Wholesale revenue |
|
|
232.9 |
|
|
|
208.6 |
|
|
|
24.3 |
|
|
|
11.6 |
|
|
|
633.9 |
|
|
|
589.1 |
|
|
|
44.8 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
1,164.5 |
|
|
$ |
1,061.2 |
|
|
$ |
103.3 |
|
|
|
9.7 |
|
|
$ |
3,348.0 |
|
|
$ |
3,196.9 |
|
|
$ |
151.1 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail gross profit |
|
$ |
109.6 |
|
|
$ |
95.3 |
|
|
$ |
14.3 |
|
|
|
15.0 |
|
|
$ |
325.4 |
|
|
$ |
298.7 |
|
|
$ |
26.7 |
|
|
|
8.9 |
|
Wholesale gross profit |
|
|
(2.4 |
) |
|
|
(1.5 |
) |
|
|
(.9 |
) |
|
|
|
|
|
|
.1 |
|
|
|
(.3 |
) |
|
|
.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
107.2 |
|
|
$ |
93.8 |
|
|
$ |
13.4 |
|
|
|
14.3 |
|
|
$ |
325.5 |
|
|
$ |
298.4 |
|
|
$ |
27.1 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales |
|
|
62,012 |
|
|
|
58,523 |
|
|
|
3,489 |
|
|
|
6.0 |
|
|
|
180,802 |
|
|
|
179,454 |
|
|
|
1,348 |
|
|
|
.8 |
|
Revenue per vehicle
retailed |
|
$ |
15,023 |
|
|
$ |
14,569 |
|
|
$ |
454 |
|
|
|
3.1 |
|
|
$ |
15,011 |
|
|
$ |
14,532 |
|
|
$ |
479 |
|
|
|
3.3 |
|
Gross profit per vehicle
retailed |
|
$ |
1,767 |
|
|
$ |
1,628 |
|
|
$ |
139 |
|
|
|
8.5 |
|
|
$ |
1,800 |
|
|
$ |
1,664 |
|
|
$ |
136 |
|
|
|
8.2 |
|
Gross profit as a
percentage of
retail revenue |
|
|
11.8 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
12.0 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
Reported used vehicle performance for the three and nine months ended September
30, 2005 benefited from the impact of acquisitions and divestitures when compared to same store
performance.
Same store used vehicle revenue for the three and nine months ended September 30, 2005
increased compared to the same period in 2004 as a result of an increase in same store volume and
average revenue per unit. Volume was positively impacted by increased store traffic resulting from
new vehicle employee pricing programs offered by vehicle manufacturers. During the third quarter of
2004, same store volume was impacted by four hurricanes that caused temporary store closings and
substantial disruption of our business throughout Florida and the Southeast. We were not
significantly impacted by hurricanes during the third quarter of 2005. The increase in same store
average revenue per unit is the result of strengthened used vehicle market prices and the
availability of quality used vehicles from trade-ins brought in by the new vehicle manufacturer
programs. Same store gross profit and same store gross profit as a percentage of revenue for the
three and nine months ended September 30, 2005 increased as a result of better inventory management
focused on stocking more profitable core models.
Used vehicle inventories were at $332.4 million or 42 days supply at September 30, 2005
compared to $319.4 million or 44 days supply at September 30, 2004.
23
Parts and Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
($ in millions, except per vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
673.0 |
|
|
$ |
617.5 |
|
|
$ |
55.5 |
|
|
|
9.0 |
|
|
$ |
1,974.4 |
|
|
$ |
1,836.9 |
|
|
$ |
137.5 |
|
|
|
7.5 |
|
Gross profit |
|
$ |
292.6 |
|
|
$ |
267.9 |
|
|
$ |
24.7 |
|
|
|
9.2 |
|
|
$ |
859.0 |
|
|
$ |
804.9 |
|
|
$ |
54.1 |
|
|
|
6.7 |
|
Gross profit as a percentage
of revenue |
|
|
43.5 |
% |
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
|
43.5 |
% |
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
669.0 |
|
|
$ |
617.5 |
|
|
$ |
51.5 |
|
|
|
8.3 |
|
|
$ |
1,953.1 |
|
|
$ |
1,835.7 |
|
|
$ |
117.4 |
|
|
|
6.4 |
|
Gross profit |
|
$ |
290.6 |
|
|
$ |
267.9 |
|
|
$ |
22.7 |
|
|
|
8.5 |
|
|
$ |
848.5 |
|
|
$ |
804.4 |
|
|
$ |
44.1 |
|
|
|
5.5 |
|
Gross profit as a percentage
of revenue |
|
|
43.4 |
% |
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
|
43.4 |
% |
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
Parts and service revenue is primarily derived from vehicle repairs paid directly
by customers or via reimbursement from manufacturers and others under warranty programs.
Reported parts and service revenue and gross profit for the three and nine months ended
September 30, 2005 benefited from the impact of acquisitions and divestitures when compared to same
store performance.
Same store parts and service revenue and gross profit increased for the three months and nine
months ended September 30, 2005 due to increases in customer-paid and warranty work for parts and
service as well as our parts wholesale business. Prior year results were also impacted by the
effect of four hurricanes on our stores in Florida and the Southeast. We were not significantly
impacted by hurricanes during the third quarter of 2005. In spite of one less service day in the
current year compared to last year, same store parts and service revenue and gross profit increased
for the nine months ended September 30, 2005. The improvements are attributable in part to our
service drive process, maintenance menu and service marketing program, as well as our pricing
models and training programs.
24
Finance and Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
($ in millions, except per vehicle data) |
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2005 |
|
|
2004 |
|
|
(Unfavorable) |
|
|
% Variance |
|
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and gross profit |
|
$ |
167.9 |
|
|
$ |
158.6 |
|
|
$ |
9.3 |
|
|
|
5.9 |
|
|
$ |
475.1 |
|
|
$ |
459.6 |
|
|
$ |
15.5 |
|
|
|
3.4 |
|
Gross profit per vehicle
retailed |
|
$ |
973 |
|
|
$ |
955 |
|
|
$ |
18 |
|
|
|
1.9 |
|
|
$ |
974 |
|
|
|
947 |
|
|
$ |
27 |
|
|
|
2.9 |
|
Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and gross profit |
|
$ |
167.3 |
|
|
$ |
158.6 |
|
|
$ |
8.7 |
|
|
|
5.5 |
|
|
$ |
471.6 |
|
|
$ |
459.8 |
|
|
$ |
11.8 |
|
|
|
2.6 |
|
Gross profit per vehicle
retailed |
|
$ |
974 |
|
|
$ |
955 |
|
|
$ |
19 |
|
|
|
2.0 |
|
|
$ |
975 |
|
|
$ |
948 |
|
|
$ |
27 |
|
|
|
2.8 |
|
Reported finance and insurance revenue and gross profit for the three and nine
months ended September 30, 2005 benefited from the impact of acquisitions and divestitures when
compared to same store performance.
Same store finance and insurance revenue and gross profit increased for the three and nine
months ended September 30, 2005 as a result of increased new and used vehicle sales and increased
retrospective commissions received on extended service contracts. Improvements were also driven by
our continued emphasis on training of store associates. Prior year results were also impacted by
the effect of four hurricanes on our stores in Florida and the Southeast. We were not
significantly impacted by hurricanes during the third quarter of 2005. Substantially higher
short-term interest rates for consumers in the future may negatively impact finance and insurance
revenue and gross profit.
25
Operating Expenses
Selling, General and Administrative Expenses
During the three and nine months ended September 30, 2005, selling, general and administrative
expenses increased $35.2 million and $60.8 million or 6.6% and 3.8%, respectively, compared to the
same periods in the prior year. As a percent of total gross profit, selling, general and
administrative expenses improved to 70.2% and 70.5% for the three and nine months ended September
30, 2005, respectively, an improvement of 90 and 100 basis points, respectively. Improvements are
due to our continued efforts to leverage our cost structure, particularly in the areas of
compensation and other selling, general and administrative expenses. Additionally, we continue to
centralize certain key store-level accounting and administrative activities in certain of our
operating regions, which we expect will reduce our operating costs and improve our operating
efficiency over time.
NonOperating Income (Expense)
Floorplan Interest Expense
Floorplan interest expense was $25.0 million and $20.4 million for the three months ended
September 30, 2005 and 2004, respectively. Floorplan interest expense was $79.1 million and $57.2
million for the nine months ended September 30, 2005 and 2004, respectively. The increase is
primarily the result of higher short-term interest rates partially offset by lower average new
vehicle inventory levels.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under mortgage facilities and
outstanding senior unsecured notes. Other interest expense was $15.9 million and $18.3 million for
the three months ended September 30, 2005 and 2004, respectively, and $48.9 million and $57.3
million for the nine months ended September 30, 2005 and 2004, respectively. The decreases are
primarily due to the repurchase of a portion of our senior unsecured notes. In
October 2005, we prepaid $125.7 million, the total outstanding balance under one of the mortgage
facilities, from available cash in order to reduce future interest expense.
Other
Interest Expense Senior Note Repurchases
During 2005, we repurchased $101.1 million (face value) of our 9.0% senior unsecured notes at
an average price of 111.1% of face value or $112.4 million. For the nine months ended September
30, 2005, the premium paid for this repurchase was $11.3 million plus related deferred costs of
$3.8 million, which was recognized as Other Interest Expense in the accompanying 2005 Unaudited
Consolidated Income Statement. There were no repurchases during the three months ended September
30, 2005.
Provision for (Benefit from) Income Taxes
The effective income tax rate was 33.4% and 38.4% for the three months ended September 30,
2005 and 2004, respectively, and 35.7% and 38.6% for the nine months ended September 30, 2005 and
2004, respectively. Income taxes are provided based upon our anticipated underlying annual blended
federal and state income tax rates, adjusted, as necessary, for any other tax matters occurring
during the period. As we operate in various states, our effective tax rate is also dependent upon
our geographic revenue mix.
In 2005, we completed the federal income tax audit for the years 1997 through 2001. During the
three and nine months ended September 30, 2005, we recorded net income tax benefits in our
provision for income taxes totaling $9.4 million, and $16.2 million, respectively, primarily
related to the resolution of various income tax matters. During the three and nine months ended
September 30, 2004, we recorded net income tax benefits in our provision for income taxes totaling
$.3 million and $1.1 million, respectively, for other tax matters. We also recognized a $3.0
million and $110.4 million gains included in Discontinued Operations for the three and nine months
ended September 30, 2005, respectively, related to the resolution of various income tax matters.
A federal income tax audit for 2002 through 2004 is being conducted by the IRS. We are
routinely audited by the states in which we do business and remain under examination by various
states. We expect additional state and federal tax adjustments in the future as we continue to
work through various tax matters. Once we resolve our open tax matters, we expect our effective
tax rate to be approximately 39.8%.
26
Financial Condition
At September 30, 2005, we had $277.5 million of unrestricted cash and cash equivalents.
Through July 14, 2005, we had two revolving credit facilities with an aggregate borrowing capacity
of $500.0 million. There were no borrowings on these revolving credit facilities during 2005 and
2004. On July 14, 2005, we terminated these credit facilities and entered into a new five-year
revolving credit facility with an aggregate borrowing capacity of $600.0 million with
investment-grade terms, including lower credit spreads compared to the facilities it replaced. The
facility is guaranteed by substantially all of our subsidiaries. We have negotiated a letter of
credit sublimit as part of our multi-year 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 face amount of any outstanding letters of credit which totaled $85.2 million at
September 30, 2005.
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. At September
30, 2005, surety bonds, letters of credit and cash deposits totaled $118.1 million, including $85.2
million of letters of credit. We do not currently provide cash collateral for outstanding letters
of credit.
We also have 9.0% senior unsecured notes due August 1, 2008. During the nine months ended
September 30, 2005, we repurchased $101.1 million (face value) of senior unsecured notes at an
average price of 111.1% of face value or $112.4 million. For the nine months ended September 30,
2005, the premium paid for this repurchase was $11.3 million plus related deferred financing costs
of $3.8 million, which was recognized as Other Interest Expense in the accompanying 2005 Unaudited
Consolidated Income Statement. Through September 30, 2005, cumulative repurchases of senior
unsecured notes, which began during the fourth quarter of 2004, totaled $104.5 million (face
value). There were no repurchases during the three months ended September 30, 2005. The senior
unsecured notes are guaranteed by substantially all of our subsidiaries.
We maintain corporate credit ratings from nationally-recognized rating agencies. The Company,
our revolving credit facility and senior unsecured notes carry investment grade ratings from
Standard & Poors and Fitch Ratings. Although Moodys credit ratings are currently non-investment
grade, it raised the ratings outlook in 2004 to positive from stable and affirmed its positive
outlook during 2005 for the Company and the senior unsecured notes. The senior unsecured notes
have provisions linked to credit ratings of our senior unsecured notes. Certain covenants in the
senior unsecured note indenture would be eliminated with certain upgrades of our senior unsecured
notes to investment grade. The interest rate for the revolving credit facility is impacted by our
senior unsecured credit ratings. In the event of a downgrade in our credit ratings, we would
continue to have access to the revolving credit facility, although at higher rates of interest.
During
the nine months ended September 30, 2005, we repaid $36.8 million of the outstanding
balance under mortgage facilities with automotive manufacturers captive finance subsidiaries,
which includes a prepayment totaling $28.3 million. At September 30, 2005, we had $281.3 million
outstanding under our mortgage facilities. In October 2005, we prepaid $125.7 million, the total
outstanding balance under one of the mortgage facilities. The facilities bear interest at
LIBOR-based interest rates and are secured by mortgages on certain of our stores properties.
27
We finance our new vehicle inventories through secured floorplan facilities, primarily with
automotive manufacturers captive finance subsidiaries as well as independent financial
institutions. As of September 30, 2005, aggregate capacity under the floorplan credit facilities
to finance new vehicles was approximately $3.9 billion of which $1.9 billion was outstanding at
September 30, 2005. We finance our used vehicle inventory primarily through cash flow from
operations.
We sell and receive commissions on the following types of vehicle protection and other
products: extended service contracts, guaranteed auto protection, credit insurance, lease wear
and tear insurance, and theft protection products. The products we offer include products that
are sold and administered by independent third parties, including the vehicle manufacturers
captive finance subsidiaries. Pursuant to our arrangements with these third-party finance and
vehicle protection product providers, we primarily sell the products on a straight commission
basis, however, we may sell the product, recognize commission and participate in future
underwriting profit pursuant to retrospective commission arrangements. Through 2002, we assumed
some of the underwriting risk through reinsurance agreements with our insurance subsidiaries. Since
January 1, 2003, we have not reinsured any new extended warranties or credit insurance products. We
maintain restricted cash in trust accounts in accordance with the terms and conditions of certain
reinsurance agreements to secure the payments of outstanding losses and loss adjustment expenses
related to our captive insurance subsidiaries.
During the nine months ended September 30, 2005, we repurchased 9.4 million shares of our
common stock in the open market for an aggregate purchase price of $187.2 million, leaving $121.2
million available for share repurchases under our current Board authorization. While we expect to
continue repurchasing shares, the decision to make additional share repurchases will be based on
such factors as the market price of our common stock, the potential impact on our capital structure
and the expected return on competing uses of capital such as strategic store acquisitions and
capital investments in our current businesses. Future share repurchases are also subject
to limitations contained in the indenture for our senior unsecured notes.
As a matter of course, we are regularly audited by various tax authorities. From time to
time, these audits result in proposed assessments. Other tax accruals totaled $58.4 million and
$181.3 million at September 30, 2005 and December 31, 2004, respectively, and relate to various tax
matters where the ultimate resolution may result in us owing additional tax payments. We believe
that our tax positions comply with applicable tax law and that we have adequately provided for
these matters. We completed the federal income tax audit for the years 1997 through 2001 and a
federal income tax audit for 2002 through 2004 is being conducted by the IRS. We remain under
examination by various states. We expect additional state and federal tax adjustments in the
future as we continue to work through various tax matters. Once we resolve our open tax matters,
we expect our base effective tax rate to be approximately 39.8%. See Note 8, Income Taxes, of
Notes to Unaudited Consolidated Financial Statements for additional discussion of income taxes.
Cash Flows
Cash
and cash equivalents increased (decreased) by $169.6 million and $(81.7) million
during the nine months ended September 30, 2005 and 2004, respectively. The major components of
these changes are discussed below.
Cash Flows Operating Activities
Cash
provided by operating activities was $433.1 million and $312.3 million during the nine
months ended September 30, 2005 and 2004, respectively.
Cash flows from operating activities include net income adjusted for non-cash items and the
effects of changes in working capital including changes in vehicle floorplan payable which directly
relates to new vehicle inventory.
Cash Flows Investing Activities
Cash flows from investing activities consist primarily of cash used in capital additions,
activity from business acquisitions, property dispositions, purchases and sales of investments and
other transactions as further described below.
28
Capital expenditures, excluding property lease buyouts, were $91.9 million and $81.3 million
during the nine months ended September 30, 2005 and 2004, respectively. We project that 2005
full-year capital expenditures will be approximately $130 million, excluding acquisition-related
spending and opportunistic lease buy-outs.
Property operating lease buy-outs were $10.3 million and $77.7 million for the nine months
ended September 30, 2005 and 2004, respectively. We continue to analyze certain higher cost
operating leases and evaluate alternatives in order to lower effective financing costs.
Total
cash used in business acquisitions, net of cash acquired, was $13.4 million and $154.3
million for the nine months ended September 30, 2005 and 2004, respectively. We acquired two
automotive retail franchises and other related assets during the nine months ended September 30,
2005 and five automotive retail franchises and other related assets during the nine months ended
September 30, 2004. Cash used in business acquisitions during the nine months ended September 30,
2005 and 2004 includes $7.5 million and $3.1 million, respectively, in deferred purchase price for
certain prior year automotive retail acquisitions. We expect that future acquisitions will
primarily target single stores or store groups located in our key existing markets.
Cash Flows Financing Activities
Cash flows from financing activities primarily include treasury stock purchases and stock
option exercises.
During the nine months ended September 30, 2005 and 2004, we repurchased 9.4 million and 11.6
million shares of our common stock, respectively, for an aggregate price of $187.2 million and
$190.8 million, respectively, under our Board-approved share repurchase programs. We are
projecting 2005 combined spending on acquisitions and share repurchases of $300 million, depending
upon market conditions.
During the nine months ended September 30, 2005 and 2004, proceeds to the Company from the
exercise of stock options were $76.7 million and $68.1 million, respectively.
During 2005, we repurchased $101.1 million (face value) of our 9.0% senior unsecured notes at
an average price of 111.1% of face value or $112.4 million.
During
2005, we repaid $36.8 million of amounts outstanding under our mortgage facilities,
including a prepayment totaling $28.3 million.
Liquidity
In July 2005, we terminated our existing credit facilities with aggregate borrowing capacity
of $500.0 million, and entered into a new five-year revolving credit facility with an aggregate
borrowing capacity of $600.0 million. We believe that our funds generated through future operations
and availability of borrowings under our secured floorplan facilities (for new vehicles) and
revolving credit facility will be sufficient to service our debt and fund our working capital
requirements, pay our tax obligations, commitments and contingencies and meet any seasonal
operating requirements for the foreseeable future. We intend to finance capital expenditures,
business acquisitions, debt retirements and share repurchases through cash flow from operations,
our revolving credit facility and other financings. We do not foresee any difficulty in continuing
to comply with covenants of our various financing facilities. At September 30, 2005, we have
available capacity under our revolving credit facility and available cash totaling approximately
$792 million, net of outstanding letters of credit.
We will continue to evaluate the best use of our operating cash flow among capital
expenditures, share repurchases, acquisitions and debt reduction, including possible additional
repurchases of our senior unsecured notes and/or prepayments of our mortgage facilities. In October 2005, we prepaid $125.7 million, the total outstanding balance under one of the mortgage facilities, from available cash in order to reduce future interest expense. We have not declared
or paid any cash dividends on our common stock during our three most recent fiscal years. We do
not anticipate paying cash dividends in the foreseeable future. The indenture for our senior
unsecured notes restricts our ability to declare cash dividends.
29
Seasonality
Our operations generally experience higher volumes of vehicle sales and service in the
second and third quarters of each year due in part to consumer buying trends and the introduction
of new vehicle models. Also, demand for vehicles and light trucks is generally lower during the
winter months than in other seasons, particularly in regions of the United States where stores may
be subject to adverse winter conditions. Accordingly, we expect our revenue and operating results
to be generally lower in the first and fourth quarters as compared to the second and third
quarters. However, revenue may be impacted significantly from quarter to quarter by actual or
threatened severe weather events, and by other factors unrelated to season, such as changing
economic conditions and automotive manufacturer incentive programs.
New Accounting Pronouncements
See Note 2, Stock Options, of the Notes to Unaudited Consolidated Financial Statements.
Forward-Looking Statements
Our business, financial condition, results of operations, cash flows and prospects, and the
prevailing market price and performance of our common stock, may be adversely affected by a number
of factors, including the matters discussed below. Certain statements and information set forth
herein in this Form 10-Q, as well as other written or oral statements made from time to time by us
or our authorized executive officers on our behalf, constitute forward-looking statements within
the meaning of the Federal Private Securities Litigation Reform Act of 1995. We intend for our
forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this
statement and these risk factors in order to comply with such safe harbor provisions. It should be
noted that our forward-looking statements speak only as of the date of this Form 10-Q or when made
and we undertake no duty or obligation to update or revise our forward-looking statements, whether
as a result of new information, future events or otherwise. Although we believe that the
expectations, plans, intentions and projections reflected in our forward-looking statements are
reasonable, such statements are subject to known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the forward-looking statements.
The risks, uncertainties and other factors that our shareholders and prospective investors should
consider include, but are not limited to, the following:
|
|
The automotive retailing industry is cyclical and is sensitive to
changing economic conditions and various other factors. Our
business and results of operations are dependent in large part on
new vehicle sales levels in the United States and in our
particular geographic markets and the level of gross profit
margins that we can achieve on our sales of new vehicles, all of
which are very difficult to predict. Sales of certain new
vehicles, particularly larger trucks and sports utility vehicles,
also may be impacted adversely by further significant increases in
fuel prices, which have risen dramatically in recent months. |
|
|
We are subject to restrictions imposed by, and significant
influence from, vehicle manufacturers that may adversely impact
our business, financial condition, results of operations, cash
flows and prospects, including our ability to acquire additional
stores. |
|
|
Our stores are dependent on the programs, financial condition and
operations of vehicle manufacturers with whom we hold franchises.
Any event that has a material adverse effect on these
manufacturers or their financial condition, credit ratings,
management or designing, marketing, production or distribution
capabilities (such as, among other events, increases in interest
rates, poor product mix or unappealing vehicle design and
disruption in the vehicle manufacturers supply chain) may
adversely affect our store operations and, in turn, materially
affect our business, results of operations, financial condition,
cash flows and prospects. |
30
|
|
We are subject to numerous legal and administrative proceedings,
which, if the outcomes are adverse to us, could materially
adversely affect our business, results of operations, financial
condition, cash flows and prospects. |
|
|
Our operations, including, without limitation, our sales of
finance and insurance and vehicle protection products, are subject
to extensive governmental laws, regulation and scrutiny. If we
are found to be in violation of any of these laws or regulations,
or if new laws or regulations are enacted that adversely affect
our operations, our business, operating results and prospects
could suffer. |
|
|
Our ability to grow our business may be limited by our ability to
acquire automotive stores in key markets on favorable terms or at
all. |
|
|
We are subject to interest rate risk in connection with our
vehicle floorplan payable, revolving credit facility and mortgage
facilities that could have a material adverse effect on our
profitability. |
|
|
Our revolving credit facility and the indenture relating to our
senior unsecured notes contain certain restrictions on our ability
to conduct our business. |
|
|
We must test our intangibles for impairment at least annually,
which may result in a material, non-cash write-down of goodwill or
franchise rights and could have a material adverse impact on our
results of operations and shareholders equity. |
Please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004,
and to our subsequent filings with the SEC for additional discussion of the foregoing risk factors.
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is changing interest rates. Our policy is to manage interest
rates through the use of a combination of fixed and floating rate debt. At September 30, 2005 and
December 31, 2004, fixed rate debt, primarily consisting of
amounts outstanding under our 9.0% senior
unsecured notes, totaled $393.8 million and $494.5 million, respectively, and had a fair value of
$424.4 million and $561.5 million, respectively. Interest rate derivatives may be used to adjust
interest rate exposures when appropriate, based upon market conditions.
Interest Rate Risk
At September 30, 2005 and December 31, 2004, we had variable rate vehicle floorplan payable
totaling $1.9 billion and $2.5 billion, respectively. Based on these amounts at September 30, 2005
and December 31, 2004, a 100 basis point change in interest rates would result in an approximate
$19.0 million and $25.0 million, respectively, change to our annual floorplan interest expense. Our
exposure to changes in interest rates with respect to vehicle floorplan payable is partially
mitigated by manufacturers floorplan assistance, which in some cases is based on variable interest
rates. Net of floorplan assistance, at September 30, 2005 and December 31, 2004, a 100 basis
point change in interest rates would result in an approximate $15.7 million and $20.4 million,
respectively, change to our net inventory carrying costs.
At September 30, 2005 and December 31, 2004, we had other variable rate debt outstanding
totaling $281.3 million and $318.1 million, respectively, consisting of mortgage facilities. Based
on the amounts outstanding at September 30, 2005 and December 31, 2004, a 100 basis point change in
interest rates would result in an approximate $2.8 million and $3.2 million change to interest
expense, respectively.
Hedging Risk
We reflect the current fair value of all derivatives on our balance sheet. The related gains
or losses on these transactions are deferred in stockholders equity as a component of other
comprehensive income (loss). These deferred gains and losses are recognized in income in the
period in which the related items being hedged are recognized in expense. However, to the extent
that the change in value of a derivative contract does not perfectly offset the change in the value
of the items being hedged, that ineffective portion is immediately recognized in income. All of our
interest rate hedges are designated as cash flow hedges. We have a series of interest rate hedge
instruments with a notional value of $800.0 million, consisting of a combination of swaps, and cap
and floor options (collars). The instruments are designed to convert certain floating rate vehicle
floorplan payable and mortgage notes to fixed rate debt. We have $200.0 million in swaps, which
started in 2004 and effectively lock in a LIBOR-based rate of 3.0%, and $600.0 million in collars
that cap floating rates to a maximum LIBOR-based rate no greater than 2.4%. All of our hedges
mature between February 2006 and July 2006. At September 30, 2005 and 2004, net unrealized gains
(losses) related to hedges included in other comprehensive gain
(loss) were $1.8 million and $(3.6)
million, respectively. For the three months ended September 30, 2005 and 2004, the income
statement impact from interest rate hedges was additional (income) expense of $.3 million and $(.6)
million, respectively. For the nine months ended September 30, 2005 and 2004, the income statement
impact from interest rate hedges was an additional expense of $.9 million and $2.1 million,
respectively. As of September 30, 2005, all of our derivative contracts were determined to be
highly effective, and no ineffective portion was recognized in income.
Reference is made to our quantitative disclosures about market risk in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004.
32
ITEM 4. CONTROLS AND PROCEDURES
We evaluated, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly Report. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this
Quarterly Report in timely alerting them as to material information relating to AutoNation
(including our consolidated subsidiaries) required to be included in this Quarterly Report.
We continue to centralize certain key store-level accounting and administrative activities,
which we expect will streamline our internal control over financial reporting. The initial or
core phase consists of implementing a standard data processing platform in the store and
centralizing to a shared services center certain key accounting processes. We have substantially
implemented the core phase in 76 of our 270 stores as of September 30, 2005. In the final or
extended phase, substantially all remaining store accounting functions are centralized. As of
September 30, 2005, we have implemented the extended phase at 22 of our 270 stores.
There was no change in our internal control over financial reporting during our last fiscal
quarter identified in connection with the evaluation referred to above that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
33
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information with respect to shares of common stock repurchased by
us during the three months ended September 30, 2005. See Note 7 of our Notes to Unaudited
Consolidated Financial Statements for additional information regarding our stock repurchase
programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Dollar Value of |
|
|
|
Total Number |
|
|
Average |
|
|
Shares Purchased as |
|
|
Shares That May Yet Be |
|
|
|
Of Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Announced Programs |
|
|
Programs (in millions)(1)(2) |
|
July 1, 2005 to
July 31, 2005 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
159.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2005 to
August 31, 2005 |
|
|
600,000 |
|
|
$ |
20.84 |
|
|
|
600,000 |
|
|
|
147.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2005 to
September 30, 2005 |
|
|
1,270,000 |
|
|
$ |
20.60 |
|
|
|
1,270,000 |
|
|
|
121.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,870,000 |
|
|
|
|
|
|
|
1,870,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Future share repurchases are subject to limitations contained in the
indenture for the Companys senior unsecured notes. |
|
(2)
Shares are repurchased under our stock repurchase program
approved by the Companys Board of Directors in October 2004, which authorized the Company to repurchase up to
$250.0 million of shares. This program does not have an
expiration date. |
34
ITEM 6. EXHIBITS
(a) Exhibits:
|
|
|
4.5
|
|
Five Year Credit Agreement dated July 14, 2005 relating to a $600
million unsecured bank line of credit (incorporated by reference to Exhibit 10.15
of the Companys Form 8-K filed on July 14, 2005). |
|
|
|
10.15
|
|
Employment Agreement dated July 27, 2005 between AutoNation, Inc.
and Michael E. Maroone, President and Chief Operating Officer (incorporated by
reference to Exhibit 10.1 of the Companys Form 8-K filed on July 27, 2005). |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
|
|
|
32.1
|
|
Section 1350 Certification of Principal Executive Officer |
|
|
|
32.2
|
|
Section 1350 Certification of Principal Financial Officer |
35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant,
AutoNation, Inc., has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
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|
|
|
|
|
|
AUTONATION, INC. |
|
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|
|
|
|
|
|
|
|
|
By:
|
|
/s/ J. Alexander McAllister |
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Alexander McAllister |
|
|
|
|
|
|
Vice President and Corporate Controller |
|
|
|
|
|
|
(DULY AUTHORIZED OFFICER AND |
|
|
|
|
|
|
PRINCIPAL ACCOUNTING OFFICER) |
|
|
Date: November 4, 2005 |
|
|
|
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36