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 June 30, 2006
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 a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
On July 24, 2006 the registrant had 212,989,183 outstanding shares of common stock, par value
$.01 per share.
AUTONATION, INC.
INDEX
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Page |
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39 |
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40 |
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41 |
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42 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTONATION, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
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June 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
35.6 |
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$ |
245.2 |
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Receivables, net |
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734.9 |
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785.7 |
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Inventory |
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2,795.7 |
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2,626.6 |
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Other current assets |
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177.9 |
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266.5 |
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Total Current Assets |
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3,744.1 |
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3,924.0 |
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PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $503.6 and $463.2,
respectively |
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1,824.2 |
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1,799.6 |
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GOODWILL, NET |
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2,738.4 |
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2,718.7 |
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OTHER INTANGIBLE ASSETS, NET |
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272.5 |
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228.0 |
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OTHER ASSETS |
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172.6 |
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154.2 |
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Total Assets |
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$ |
8,751.8 |
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$ |
8,824.5 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Vehicle floorplan payable trade |
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$ |
2,415.0 |
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$ |
2,384.0 |
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Vehicle floorplan payable non-trade |
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96.7 |
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102.9 |
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Accounts payable |
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228.1 |
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211.7 |
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Notes payable and current maturities of
long-term obligations |
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40.7 |
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40.6 |
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Other current liabilities |
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555.7 |
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673.0 |
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Total Current Liabilities |
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3,336.2 |
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3,412.2 |
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LONG-TERM DEBT, NET OF CURRENT MATURITIES |
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1,452.8 |
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484.4 |
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DEFERRED INCOME TAXES |
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200.3 |
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186.2 |
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OTHER LIABILITIES |
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79.4 |
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72.2 |
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COMMITMENTS AND CONTINGENCIES (NOTE 12)
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 $.01 per share;
1,500,000,000 shares authorized;
273,562,149 and 273,562,137 shares issued,
respectively, including shares held in treasury |
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2.7 |
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2.7 |
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Additional paid-in capital |
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2,197.3 |
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2,201.0 |
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Retained earnings |
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2,832.4 |
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2,672.5 |
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Accumulated other comprehensive income (loss) |
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.8 |
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1.8 |
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Treasury stock, at cost; 60,580,841 and
11,329,650 shares held, respectively |
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(1,350.1 |
) |
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(208.5 |
) |
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Total Shareholders Equity |
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3,683.1 |
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4,669.5 |
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Total Liabilities and Shareholders Equity. |
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$ |
8,751.8 |
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$ |
8,824.5 |
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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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SIX MONTHS ENDED |
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JUNE 30, |
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JUNE 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenue: |
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New vehicle |
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$ |
2,944.9 |
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$ |
2,993.8 |
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$ |
5,629.2 |
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$ |
5,624.8 |
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Used vehicle |
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1,203.9 |
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1,124.4 |
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2,345.3 |
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2,186.7 |
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Parts and service |
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670.0 |
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645.2 |
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1,334.4 |
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1,278.0 |
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Finance and insurance, net |
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171.1 |
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158.1 |
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322.9 |
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302.2 |
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Other |
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20.9 |
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22.5 |
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39.8 |
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42.0 |
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TOTAL REVENUE |
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5,010.8 |
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4,944.0 |
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9,671.6 |
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9,433.7 |
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Cost of Sales: |
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New vehicle |
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2,730.5 |
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2,779.5 |
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5,214.9 |
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5,216.4 |
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Used vehicle |
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1,097.8 |
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1,018.2 |
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2,124.7 |
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1,967.9 |
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Parts and service |
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372.8 |
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363.3 |
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745.3 |
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722.0 |
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Other |
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9.0 |
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10.7 |
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16.7 |
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18.8 |
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TOTAL COST OF SALES |
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4,210.1 |
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4,171.7 |
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8,101.6 |
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7,925.1 |
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Gross Profit: |
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New vehicle |
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214.4 |
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214.3 |
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414.3 |
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408.4 |
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Used vehicle |
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106.1 |
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106.2 |
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220.6 |
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218.8 |
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Parts and service |
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297.2 |
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281.9 |
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589.1 |
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556.0 |
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Finance and insurance |
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171.1 |
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158.1 |
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322.9 |
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302.2 |
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Other |
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11.9 |
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11.8 |
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23.1 |
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23.2 |
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TOTAL GROSS PROFIT |
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800.7 |
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772.3 |
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1,570.0 |
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1,508.6 |
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Selling, general and administrative expenses |
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566.2 |
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542.4 |
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1,112.5 |
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1,059.7 |
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Depreciation and amortization |
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21.2 |
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20.0 |
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41.0 |
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39.8 |
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Other expenses (income) |
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|
.1 |
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(.6 |
) |
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.1 |
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(.5 |
) |
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Operating income |
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213.2 |
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210.5 |
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416.4 |
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409.6 |
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Floorplan interest expense |
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(37.7 |
) |
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(28.1 |
) |
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(69.9 |
) |
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(52.6 |
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Other interest expense |
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(25.2 |
) |
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(15.4 |
) |
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(37.2 |
) |
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(33.0 |
) |
Other interest expense senior note
repurchases |
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(34.5 |
) |
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(.7 |
) |
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(34.5 |
) |
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(15.1 |
) |
Interest income |
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3.2 |
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1.4 |
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6.7 |
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2.9 |
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Other income, net |
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|
.7 |
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|
.9 |
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|
.7 |
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INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES |
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119.7 |
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168.6 |
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282.2 |
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311.8 |
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PROVISION FOR INCOME TAXES |
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46.0 |
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61.7 |
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110.5 |
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115.8 |
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NET INCOME FROM CONTINUING OPERATIONS |
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73.7 |
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106.9 |
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171.7 |
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196.0 |
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INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES |
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(1.0 |
) |
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87.9 |
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(11.8 |
) |
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95.8 |
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NET INCOME |
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$ |
72.7 |
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$ |
194.8 |
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$ |
159.9 |
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$ |
291.8 |
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BASIC EARNINGS PER SHARE: |
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Continuing operations |
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$ |
.33 |
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$ |
.41 |
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$ |
.71 |
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$ |
.74 |
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Discontinued operations |
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$ |
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$ |
.34 |
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$ |
(.05 |
) |
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$ |
.36 |
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Net income |
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$ |
.33 |
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$ |
.74 |
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$ |
.66 |
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$ |
1.11 |
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Weighted average common shares outstanding |
|
|
220.4 |
|
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|
262.3 |
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|
241.5 |
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|
263.4 |
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DILUTED EARNINGS PER SHARE: |
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Continuing operations |
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$ |
.33 |
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$ |
.40 |
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$ |
.70 |
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$ |
.73 |
|
Discontinued operations |
|
$ |
|
|
|
$ |
.33 |
|
|
$ |
(.05 |
) |
|
$ |
.36 |
|
Net income |
|
$ |
.32 |
|
|
$ |
.73 |
|
|
$ |
.65 |
|
|
$ |
1.08 |
|
|
|
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|
|
|
|
|
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|
Weighted average common shares outstanding |
|
|
225.2 |
|
|
|
267.8 |
|
|
|
246.5 |
|
|
|
269.0 |
|
|
|
|
|
|
|
|
|
|
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COMMON SHARES OUTSTANDING, net of treasury
stock |
|
|
213.0 |
|
|
|
261.2 |
|
|
|
213.0 |
|
|
|
261.2 |
|
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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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 |
|
|
Gain (Loss) |
|
|
Stock |
|
|
Total |
|
BALANCE AT DECEMBER 31, 2005 |
|
|
273,562,137 |
|
|
$ |
2.7 |
|
|
$ |
2,201.0 |
|
|
$ |
2,672.5 |
|
|
$ |
1.8 |
|
|
$ |
(208.5 |
) |
|
$ |
4,669.5 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
(12.6 |
) |
|
|
|
|
|
|
|
|
|
|
77.0 |
|
|
|
64.4 |
|
Stock option expense |
|
|
|
|
|
|
|
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Other |
|
|
12 |
|
|
|
|
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2 |
|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,218.6 |
) |
|
|
(1,218.6 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.9 |
|
|
|
|
|
|
|
|
|
|
|
159.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JUNE 30, 2006 |
|
|
273,562,149 |
|
|
$ |
2.7 |
|
|
$ |
2,197.3 |
|
|
$ |
2,832.4 |
|
|
$ |
.8 |
|
|
$ |
(1,350.1 |
) |
|
$ |
3,683.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
AUTONATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED |
|
|
|
JUNE 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Restated *) |
|
CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
159.9 |
|
|
$ |
291.8 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Loss (income) from discontinued operations |
|
|
11.8 |
|
|
|
(95.8 |
) |
Depreciation and amortization |
|
|
41.0 |
|
|
|
39.8 |
|
Amortization of debt issue costs and discounts |
|
|
2.0 |
|
|
|
3.3 |
|
Stock option expense |
|
|
8.7 |
|
|
|
|
|
Interest expense on bond repurchase |
|
|
34.5 |
|
|
|
15.1 |
|
Income taxes |
|
|
95.9 |
|
|
|
100.6 |
|
Other |
|
|
(.5 |
) |
|
|
(.5 |
) |
Changes in assets and liabilities, net of effects
from business combinations and divestitures: |
|
|
|
|
|
|
|
|
Receivables |
|
|
100.0 |
|
|
|
(28.4 |
) |
Inventory |
|
|
(149.2 |
) |
|
|
(33.9 |
) |
Other assets |
|
|
(11.9 |
) |
|
|
1.6 |
|
Vehicle floorplan payable-trade, net |
|
|
31.1 |
|
|
|
(93.1 |
) |
Accounts payable |
|
|
16.1 |
|
|
|
70.2 |
|
Other liabilities |
|
|
(185.8 |
) |
|
|
(88.2 |
) |
|
|
|
|
|
|
|
Net cash provided by continuing operations |
|
|
153.6 |
|
|
|
182.5 |
|
Net cash used in discontinued operations |
|
|
(1.0 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
152.6 |
|
|
|
179.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment, excluding
property operating lease buyouts |
|
|
(49.1 |
) |
|
|
(57.1 |
) |
Property operating lease buy-outs |
|
|
|
|
|
|
(10.3 |
) |
Proceeds from sale of property and equipment |
|
|
.6 |
|
|
|
5.4 |
|
Proceeds from assets held for sale |
|
|
|
|
|
|
10.3 |
|
Cash used in business acquisitions, net of
cash acquired |
|
|
(67.4 |
) |
|
|
(8.0 |
) |
Net change in restricted cash |
|
|
(1.1 |
) |
|
|
23.9 |
|
Purchases of restricted investments |
|
|
(5.5 |
) |
|
|
(17.1 |
) |
Proceeds from the sale of restricted investments |
|
|
8.1 |
|
|
|
4.0 |
|
Cash received from business divestitures, net of
cash relinquished |
|
|
16.3 |
|
|
|
33.6 |
|
Other |
|
|
(.3 |
) |
|
|
(.5 |
) |
|
|
|
|
|
|
|
Net cash used in continuing operations |
|
|
(98.4 |
) |
|
|
(15.8 |
) |
Net cash used in discontinued operations |
|
|
(.1 |
) |
|
|
(.1 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(98.5 |
) |
|
|
(15.9 |
) |
|
|
|
|
|
|
|
6
AUTONATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Continued
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED |
|
|
|
JUNE 30 |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Restated *) |
|
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(1,218.6 |
) |
|
|
(148.6 |
) |
Proceeds from senior unsecured notes issued |
|
|
600.0 |
|
|
|
|
|
Proceeds from term loan |
|
|
600.0 |
|
|
|
|
|
Proceeds from revolving credit facility |
|
|
318.0 |
|
|
|
|
|
Payments of revolving credit facility |
|
|
(238.0 |
) |
|
|
|
|
Net proceeds (payments) of
vehicle floorplan non-trade |
|
|
(34.4 |
) |
|
|
17.5 |
|
Payment of mortgage facilities |
|
|
(2.8 |
) |
|
|
(34.1 |
) |
Payments of notes payable and long-term debt |
|
|
(1.6 |
) |
|
|
(.6 |
) |
Proceeds from the exercises of stock options |
|
|
51.6 |
|
|
|
52.7 |
|
Tax benefit from stock options |
|
|
12.8 |
|
|
|
|
|
Repurchases of 9% senior unsecured notes |
|
|
(334.2 |
) |
|
|
(112.4 |
) |
Other |
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing
operations |
|
|
(263.3 |
) |
|
|
(225.5 |
) |
Net cash
provided by (used in) discontinued operations |
|
|
(.4 |
) |
|
|
2.2 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(263.7 |
) |
|
|
(223.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(209.6 |
) |
|
|
(60.1 |
) |
CASH AND CASH EQUIVALENTS at beginning of period |
|
|
245.2 |
|
|
|
109.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS at end of period |
|
$ |
35.6 |
|
|
$ |
49.4 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
See Note 1 to the Unaudited Consolidated Financial Statements |
The accompanying notes are an integral part of these statements.
7
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share and per share data)
1. Interim Financial Statements
Business and Basis of Presentation
AutoNation, Inc. (the Company), through its subsidiaries, is the largest automotive retailer
in the United States. As of June 30, 2006, the Company owned and operated 338 new vehicle
franchises from 264 stores primarily located in major metropolitan markets in 16 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,
accruals for chargebacks against revenue recognized from the sale of finance and insurance
products, certain assumptions related to intangible, long-lived assets and accruals related to
self-insurance programs, certain legal proceedings, estimated tax liabilities, estimated losses
from disposals of discontinued operations and certain assumptions related to stock option
compensation.
Operating results for interim periods are not necessarily indicative of the results that can
be expected for a full year. These interim financial statements should be read in conjunction with
the Companys audited consolidated financial statements and notes thereto included in the Companys
most recent Annual Report on Form 10-K.
Restatement and Revision
The Company has restated certain amounts in the Unaudited Consolidated Statements of Cash
Flows for the six months ended June 30, 2005 from operating activities to financing activities to
comply with Statement of Financial Accounting Standards (SFAS) 95, Statement of Cash Flows, as
a result of comments to the Company from the SEC, as previously disclosed in the Companys Annual
Report on Form 10-K for the year ended December 31, 2005. Amounts that were previously reported as
operating activities have been restated as a component of financing activities to reflect the net
cash flows for floorplan facilities with lenders other than the automotive manufacturers captive
finance subsidiaries for that franchise (non-trade lenders).
8
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Additionally, the Company has revised its Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2005 as a result of guidance given by the SEC to separately
disclose the operating, investing and financing cash flows attributable to the Companys
discontinued operations. The Company had previously reported these amounts on a combined basis.
A summary of the effects of the restatement and revision for the six months ended June 30,
2005 is as follows:
|
|
|
|
|
Net cash provided by operating activities as
previously reported |
|
$ |
198.0 |
|
Revision of discontinued operations |
|
|
.8 |
|
Restatement of vehicle floorplan payable
non-trade: |
|
|
|
|
Continuing operations |
|
|
(17.5 |
) |
Discontinued operations |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
Restated and revised net cash provided by operating
activities |
|
$ |
179.1 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities as previously
reported |
|
$ |
(16.0 |
) |
Revision of discontinued operations |
|
|
.1 |
|
|
|
|
|
Revised net cash used in investing activities |
|
$ |
(15.9 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities as
previously reported |
|
$ |
(243.0 |
) |
Restatement of vehicle floorplan
payable non-trade: |
|
|
|
|
Continuing operations |
|
|
17.5 |
|
Discontinued operations |
|
|
2.2 |
|
|
|
|
|
Restated net cash used in financing
activities |
|
$ |
(223.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
Previously |
|
|
As |
|
|
|
Reported |
|
|
Restated |
|
Vehicle floorplan payable |
|
$ |
(46.6) |
* |
|
$ |
|
|
Vehicle floorplan payable trade, net |
|
$ |
|
|
|
$ |
(93.1 |
) |
Net proceeds of vehicle floorplan payable-non-trade |
|
$ |
|
|
|
$ |
17.5 |
|
Vehicle floorplan payable non-trade (discontinued
operations) |
|
$ |
|
|
|
$ |
2.2 |
|
|
|
|
* |
|
Includes $26.8 million of discontinued operations for the six months ended June 30,
2005. |
In
May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154,
Accounting Changes and Error Corrections which replaces Accounting Principles Board Opinion
(APB) No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements-An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. SFAS 154 is effective
for accounting changes and correction of errors made in fiscal years beginning after December 15,
2005. The adoption of SFAS 154 did not have an effect on the Companys unaudited consolidated
financial statements.
9
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Stock Options
The Company has various stock option plans under which options to purchase shares of
common stock may be granted to key employees and directors of the Company. Upon exercise, shares of
common stock are issued from the Companys treasury stock. Options granted under the plans are
non-qualified and are granted at a price equal to or above the closing price of the common stock on
the trading day immediately prior to the date of grant. Generally, options have a term of 10 years
from the date of grant and vest in increments of 25% per year over a four-year period on the yearly
anniversary of the grant date.
In December 2004, the FASB issued SFAS 123R, Share-Based Payment, a revision of SFAS 123.
In March 2005, the SEC issued Staff Accounting Bulletin No. 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 and is effective for annual periods
beginning after June 15, 2005. As of January 1, 2006, the Company adopted SFAS 123R using the
modified prospective transition method. Accordingly, the Companys unaudited consolidated
financial statements for prior periods have not been restated to reflect the adoption of SFAS 123R.
The
following table summarizes the impact to compensation expense (included in Selling, General and
Administrative expenses in the Unaudited Consolidated Income Statements) attributable to stock
options granted or vested subsequent to December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Pre-tax
compensation
expense |
|
$ |
4.2 |
|
|
$ |
|
|
|
$ |
8.7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
compensation
expense |
|
$ |
2.6 |
|
|
$ |
|
|
|
$ |
5.3 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company used the Black-Scholes
valuation model and straight-line amortization of compensation expense over the requisite service
period of the grants. The following is a summary of the assumptions used:
|
|
|
Risk-free interest rate |
|
2.99%- 5.16% |
Expected dividend yield |
|
|
Expected term |
|
5-6 years |
Expected volatility |
|
32%-40% |
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the
grant. The expected term of stock options granted is derived from historical data and represents
the period of time that stock options are expected to be outstanding. The expected volatility is
based on historical volatility, implied volatility and other factors impacting the Company,
including its recent debt and equity tender offers discussed in Notes 6 and 7 of the Notes to
Unaudited Consolidated Financial Statements.
10
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of stock option transactions is as follows for the six months ended June 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
Aggregate |
|
|
|
Shares |
|
|
Exercise |
|
|
Average Remaining |
|
|
Intrinsic |
|
|
|
(in |
|
|
Price |
|
|
Contractual Term |
|
|
Value |
|
|
|
millions) |
|
|
(per share) |
|
|
(Years) |
|
|
(in millions) |
|
Options outstanding at beginning
of period |
|
|
28.0 |
|
|
$ |
16.39 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
.2 |
|
|
$ |
21.40 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(3.8 |
) |
|
$ |
13.41 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(.2 |
) |
|
$ |
18.11 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(.4 |
) |
|
$ |
25.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of period |
|
|
23.8 |
|
|
$ |
16.73 |
|
|
|
4.1 |
|
|
$ |
104.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
18.0 |
|
|
$ |
16.26 |
|
|
|
2.8 |
|
|
$ |
87.4 |
|
Options available for future grants |
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of stock options granted during the six months
ended June 30, 2006 and 2005 was $8.55 and $7.11, per share, respectively. The total intrinsic
value of stock options exercised during the six months ended June 30, 2006 and 2005 was $33.6
million and $36.9 million, respectively.
A summary of nonvested stock option transactions is as follows for the six months ended June
30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
(in millions) |
|
|
(per share) |
|
Nonvested at beginning of period |
|
|
6.0 |
|
|
$ |
6.67 |
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(.2 |
) |
|
$ |
6.67 |
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
5.8 |
|
|
$ |
6.67 |
|
|
|
|
|
|
|
|
As of June 30, 2006, there was $34.2 million of total unrecognized compensation cost
related to nonvested stock options which is expected to be recognized over a period of four years.
Prior to the adoption of SFAS 123R, the Company reported all tax benefits resulting from the
exercise of stock options as operating cash flows in the
Companys Unaudited Consolidated
Statements of Cash Flows. In accordance with SFAS 123R, commencing January 1, 2006, excess tax
benefits from the exercise of stock options of $12.8 million are reported as financing cash flows.
Prior to January 1, 2006, the Company applied 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 was generally not recognized in
determining net income.
11
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Companys pro forma net income and pro forma earnings per share that would have been
reported if the fair value based method had been applied to all awards were as follows for the six
months ended June 30, 2005:
|
|
|
|
|
Net income, as reported |
|
$ |
291.8 |
|
Pro forma stock-based employee
compensation cost, net of taxes |
|
|
(5.1 |
) |
|
|
|
|
Pro forma net income |
|
$ |
286.7 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, as reported |
|
$ |
1.11 |
|
Pro forma stock-based employee
compensation cost |
|
$ |
(.02 |
) |
Pro forma basic earnings per share |
|
$ |
1.09 |
|
|
|
|
|
|
Diluted earnings per share, as reported |
|
$ |
1.08 |
|
Pro forma stock-based employee
compensation cost |
|
$ |
(.02 |
) |
Pro forma diluted earnings per share |
|
$ |
1.07 |
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.99% - 6.82 |
% |
Expected dividend yield |
|
|
|
|
Expected term |
|
5 years |
Expected volatility |
|
|
35% - 40 |
% |
3. Receivables, Net
The components of receivables, net of allowance for doubtful accounts, are as follows:
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
Trade receivables |
|
$ |
95.0 |
|
|
$ |
95.2 |
|
Manufacturer receivables |
|
|
170.7 |
|
|
|
174.8 |
|
Other |
|
|
98.7 |
|
|
|
97.4 |
|
|
|
|
|
|
|
|
|
|
|
364.4 |
|
|
|
367.4 |
|
Less: Allowances |
|
|
(7.0 |
) |
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
357.4 |
|
|
|
360.7 |
|
Contracts-in-transit and vehicle receivables |
|
|
333.4 |
|
|
|
425.0 |
|
Income taxes
receivable |
|
|
44.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
734.9 |
|
|
$ |
785.7 |
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
New vehicles |
|
$ |
2,259.4 |
|
|
$ |
2,153.0 |
|
Used vehicles |
|
|
385.6 |
|
|
|
323.9 |
|
Parts, accessories and other |
|
|
150.7 |
|
|
|
149.7 |
|
|
|
|
|
|
|
|
|
|
$ |
2,795.7 |
|
|
$ |
2,626.6 |
|
|
|
|
|
|
|
|
12
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At June 30, 2006 and December 31, 2005, vehicle floorplan payable-trade totaled $2.4
billion for both periods. Vehicle floorplan payable-trade reflects amounts borrowed to finance the
purchase of specific vehicle inventories with the corresponding manufacturers captive finance
subsidiaries (trade lenders). Vehicle floorplan
payable-non-trade totaled $96.7 million and
$102.9 million, at June 30, 2006 and December 31, 2005, respectively, and represents amounts
borrowed to finance the purchase of specific vehicle inventories with non-trade lenders. Changes
in vehicle floorplan payable-trade are reported as operating cash flows and changes in vehicle
floorplan-non-trade are reported as financing cash flows in the accompanying Unaudited Consolidated
Statements of Cash Flows.
The Companys floorplan facilities are at LIBOR-based rates of interest (6.0% and 4.4%
weighted average for the six months ended June 30, 2006 and 2005, respectively). Secured floorplan
facilities are used to finance new vehicle inventories and the amounts outstanding thereunder are
due on demand, but are generally paid within several business days after the related vehicles are
sold. Floorplan facilities are primarily collateralized by new vehicle inventories and related
receivables. The Companys manufacturer agreements generally require that the manufacturer have
the ability to draft against the floorplan facilities so that the lender directly funds the
manufacturer for the purchase of inventory. The floorplan facilities contain certain financial and
operating covenants. At June 30, 2006, the Company was in compliance with such covenants in all
material respects. At June 30, 2006, aggregate capacity under the floorplan credit facilities to
finance new vehicles was approximately $4.0 billion, of which $2.5 billion total was outstanding.
In December 2004, the FASB issued SFAS 151, Inventory Costs. SFAS 151 requires abnormal
amounts of inventory costs related to idle facility, freight, handling and wasted materials to be
recognized as current period expenses. SFAS 151 is effective for fiscal years beginning after June
15, 2005. The adoption of SFAS 151 did not have a material effect on
the Companys Unaudited
Consolidated Financial Statements.
5.
Goodwill and Intangible Assets
Intangible assets, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
Goodwill |
|
$ |
3,004.2 |
|
|
$ |
2,984.5 |
|
Franchise rights indefinite-lived |
|
|
268.9 |
|
|
|
224.4 |
|
Other intangibles |
|
|
6.4 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
3,279.5 |
|
|
|
3,215.1 |
|
Less: accumulated amortization |
|
|
(268.6 |
) |
|
|
(268.4 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,010.9 |
|
|
$ |
2,946.7 |
|
|
|
|
|
|
|
|
The Company completed impairment tests as of June 30, 2006 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.
13
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Notes Payable and Long-term Debt
Notes payable and long-term debt consist of the following:
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
Floating rate senior unsecured notes |
|
$ |
300.0 |
|
|
$ |
|
|
7% senior unsecured notes |
|
|
300.0 |
|
|
|
|
|
Term loan |
|
|
600.0 |
|
|
|
|
|
9% senior unsecured notes, net of unamortized discount
of $.1 million and $1.8 million, respectively |
|
|
14.0 |
|
|
|
321.7 |
|
Revolving credit facility |
|
|
80.0 |
|
|
|
|
|
Mortgage facility |
|
|
150.9 |
|
|
|
153.7 |
|
Other debt |
|
|
48.6 |
|
|
|
49.6 |
|
|
|
|
|
|
|
|
|
|
|
1,493.5 |
|
|
|
525.0 |
|
Less: current maturities |
|
|
(40.7 |
) |
|
|
(40.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities |
|
$ |
1,452.8 |
|
|
$ |
484.4 |
|
|
|
|
|
|
|
|
In April 2006, the Company sold $300.0 million of floating rate senior unsecured notes
due April 15, 2013 and $300.0 million of 7% senior unsecured notes due April 15, 2014, in each case
at par. The floating rate senior unsecured notes bear interest at a rate equal to three-month
LIBOR plus 2.0% per annum, adjusted quarterly, and may be redeemed by the Company on or after April
15, 2008 at 103% of principal, on or after April 15, 2009 at 102% of principal, on or after April
15, 2010 at 101% of principal and on or after April 15, 2011 at 100% of principal. The 7% senior
unsecured notes may be redeemed by the Company on or after April 15, 2009 at 105.25% of principal,
on or after April 15, 2010 at 103.5% of principal, on or after April 15, 2011 at 101.75% of
principal and on or after April 15, 2012 at 100% of principal.
In connection with the issuance of the new senior notes, the Company amended its existing
credit agreement to provide: (1) a $675.0 million revolving credit facility that provides for
various interest rates on borrowings generally at LIBOR plus 1.0%, and (2) a $600.0 million term
loan that bears interest at a rate equal to LIBOR plus 1.25%. The amended credit agreement, which
includes the new term loan, terminates on July 14, 2010, and is guaranteed by substantially all the
Companys subsidiaries. The credit spread charged for the revolving credit facility is impacted by
the Companys senior unsecured credit ratings. 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 amount of
any outstanding letters of credit, which totaled $135.9 million at June 30, 2006.
The proceeds of the new senior notes and term loan borrowings, together with cash on hand and
borrowings of $80.0 million under the amended revolving credit facility, were used to: (1) purchase
50 million shares of the Companys common stock at $23 per share for an aggregate purchase price of
$1.15 billion pursuant to the Companys equity tender offer, (2) purchase $309.4 million aggregate
principal of the Companys 9% senior unsecured notes for an aggregate total consideration of $339.8
million pursuant to the Companys debt tender offer and consent solicitation, and (3) pay related
financing costs. Approximately $34.5 million of tender premium and other financing costs related
to the Companys debt tender offer was expensed during the three months ended June 30, 2006.
14
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As discussed above, in April 2006 the Company purchased $309.4 million aggregate
principal amount of the 9% senior notes. The 9% senior unsecured notes are guaranteed by
substantially all of the Companys subsidiaries. As of April 12, 2006, covenants related to the 9%
senior unsecured notes were substantially eliminated as a result of the successful completion of
the consent solicitation. The remaining aggregate principal amount of 9% senior unsecured notes
was not tendered for purchase and, accordingly, remains outstanding after completion of the
transaction.
At June 30, 2006, the Company had $150.9 million outstanding under a mortgage facility with
various maturities through 2008. The facility bears interest at LIBOR-based interest rates (6.1%
and 4.8% weighted average for the six months ended June 30, 2006 and 2005, respectively) and is
secured by mortgages on certain of the Companys Toyota store properties.
The Companys new senior notes, amended credit agreement and mortgage facility contain
numerous customary financial and operating covenants that place significant restrictions on the
Company, including the Companys ability to incur additional indebtedness or prepay 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 new senior notes
restricts the Companys ability to make payments in connection with share repurchases, dividends,
debt retirement, investments and similar matters to a cumulative aggregate amount that is limited
to $500 million plus 50% of the Companys cumulative consolidated net income (as defined in the
indenture), subject to certain exceptions and conditions set forth in the indenture. The amended
credit agreement requires the Company to meet certain financial ratios, including financial
covenants, as defined, requiring the maintenance of a maximum consolidated cash flow leverage
ratio, as defined, (2.75 times) and a maximum capitalization ratio (65%), as defined. In addition,
the indenture for the new senior notes contains a debt incurrence restriction based on a minimum
fixed charge coverage ratio (2:1), and the mortgage facility contains covenants regarding maximum
cash flow leverage and minimum interest coverage. In the event that the Company were to default in
the observance or performance of any of the financial covenants in the amended credit agreement or
mortgage facility and such default were to continue beyond any cure period or waiver, the lender
under the respective facility could elect to terminate the facilities and declare all outstanding
obligations under such facilities immediately payable. The Companys amended credit agreement, the
indenture for the Companys new senior notes, vehicle floorplan payable facilities and mortgage
facility have cross-default provisions that trigger a default in the event of an uncured default
under other material indebtedness of the Company. In connection with the issuance of the new senior
notes, the Company is required to complete an exchange offer pursuant to which the Company will
file a registration statement with the SEC and offer to exchange the senior notes for new notes
that are not subject to certain transfer restrictions. As of June 30, 2006, the Company was in
compliance with the requirements of all such financial and operating covenants.
The Companys senior notes and borrowings under the amended credit agreement are guaranteed by
substantially all of the Companys subsidiaries. Within the meaning of Regulation S-X, Rule 3-10,
AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of
its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than
the guarantor subsidiaries are minor.
15
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 amended credit agreement
described above would not be impacted should a downgrade in the senior unsecured debt credit
ratings occur. Certain covenants in the indenture for the new senior notes would be eliminated
with an upgrade of the Companys new senior notes to investment grade by either Standard & Poors
or Moodys Investors Service.
7. Shareholders Equity
As a result of the transactions discussed in Note 6 of the Notes to Unaudited
Consolidated Financial Statements, the Companys share repurchase program was temporarily suspended
and it made no repurchases of its common stock during the first quarter of 2006. In April 2006,
the Company purchased 50 million shares of its common stock at $23 per share for an aggregate
purchase price of $1.15 billion pursuant to the Companys equity tender offer. After completion of
the equity tender offer, during the three months ended June 30, 2006, the Company repurchased an
additional 3.1 million shares of its common stock for a purchase price of $67.0 million, leaving
approximately $254.3 million available for share repurchases under the program authorized by the
Companys Board of Directors, including an additional $250.0 million share repurchase program
authorized by the Companys Board of Directors in June 2006. Future share repurchases are subject
to limitations contained in the indenture relating to the Companys new senior notes.
During the six months ended June 30, 2006 and 2005, proceeds from the exercise of stock
options were $51.6 million and $52.7 million, respectively.
8. Income Taxes
Income taxes provided are based upon the Companys anticipated annual effective income
tax rate.
During the three and six months ended June 30, 2005, the Company recorded net income tax
benefits in the provision for income taxes totaling $5.2 million and $6.6 million, respectively,
primarily related to the resolution of various income tax matters. During the three and six months
ended June 30, 2005, the Company recognized a $95.7 million and $107.4 million gain, respectively,
included in Discontinued Operations related to the resolution of various income tax matters.
As a matter of course, various taxing authorities, including the IRS, regularly audit the
Company. Currently, the IRS is auditing the tax years from 2002 to 2004. These audits may result
in proposed assessments where the ultimate resolution may result in the Company owing additional
taxes. 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 June 30, 2006 and
December 31, 2005 are $57.3 million and $54.5 million, respectively, provided by the Company for
these matters.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainties in tax positions. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of adopting FIN
48 on its Consolidated
Financial Statements.
16
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In March 2006, the EITF reached a consensus on EITF Issue No. 06-3, How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(that is, Gross versus Net Presentation), which allows companies to adopt a policy of presenting
taxes in the income statement on either a gross or net basis. Taxes within the scope of this EITF
would include taxes that are imposed on a revenue transaction between a seller and a customer, for
example, sales taxes, use taxes, value-added taxes, and some types of excise taxes. EITF 06-3 is
effective for interim and annual reporting periods beginning after December 15, 2006. EITF 06-3
will not impact the method for recording and reporting these sales taxes in the Companys
Consolidated Financial Statements as the Companys policy is to exclude all such taxes from
revenue.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted-average common shares
outstanding used to calculate
basic earnings per share |
|
|
220.4 |
|
|
|
262.3 |
|
|
|
241.5 |
|
|
|
263.4 |
|
Effect of dilutive options |
|
|
4.8 |
|
|
|
5.5 |
|
|
|
5.0 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common
equivalent shares used to calculate
diluted earnings per share |
|
|
225.2 |
|
|
|
267.8 |
|
|
|
246.5 |
|
|
|
269.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 6 to the Notes to Unaudited Consolidated Financial Statements, in
April 2006 the Company purchased 50 million shares of its common stock pursuant to an equity tender
offer.
At June 30, 2006 and 2005, the Company had approximately 23.8 million and 31.0 million stock
options outstanding, respectively, of which 5.0 million and 6.7 million, respectively, have been
excluded from the computation of diluted earnings per share since they are anti-dilutive.
10. Comprehensive Income
Comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
72.7 |
|
|
$ |
194.8 |
|
|
$ |
159.9 |
|
|
$ |
291.8 |
|
Other comprehensive gain (loss) |
|
|
(.7 |
) |
|
|
(.4 |
) |
|
|
(1.0 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
72.0 |
|
|
$ |
194.4 |
|
|
$ |
158.9 |
|
|
$ |
294.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At June 30, 2006, the Company has an interest rate hedge instrument (swap) with a total
notional value of $50.0 million. The instrument, which matures in July 2006, is designed to
convert certain floating rate vehicle floorplan payable and mortgage notes to fixed rate debt.
During the six months ended June 30, 2006, the Company had $750.0 million of interest rate hedge
instruments mature, consisting of $150.0 million in swaps, which effectively locked in a
LIBOR-based rate of 3.0%, and $600.0 million in collars that capped floating rates to a maximum
LIBOR-based rate no greater than 2.4%. For the six months ended June 30, 2006 and 2005, net
unrealized gains related to hedges included in other comprehensive gain (loss) were $.1 million and
$.9 million, respectively. For the six months ended June 30, 2006 and 2005, the income statement
impact from interest rate hedges was an additional income (expense) of $.4 million and $(.3)
million, respectively. As of June 30, 2006, the Companys derivative contracts were determined to
be highly effective, and no ineffective portion was recognized in income.
11. Acquisitions
The Company acquired one automotive retail franchise and other related assets during each
six-month period ended June 30, 2006 and 2005. Additionally, the Company also signed a separate
agreement in January 2006 to acquire certain rights to establish a new Mercedes-Benz dealership.
Acquisitions are included in the Unaudited Financial Statements from the date of acquisition.
Purchase price allocations for business combinations for the six months ended June 30, 2006
are tentative and subject to final adjustment. Preliminary purchase price allocations for the six
months ended June 30, 2006 were as follows:
|
|
|
|
|
Accounts receivable |
|
$ |
5.0 |
|
Inventory |
|
|
20.0 |
|
Property and equipment |
|
|
7.8 |
|
Other assets |
|
|
8.0 |
|
Goodwill |
|
|
15.7 |
|
Franchise rights indefinite-lived |
|
|
44.5 |
|
Other intangibles subject to amortization |
|
|
.2 |
|
Vehicle floorplan payable-non-trade |
|
|
(28.2 |
) |
Other liabilities |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
67.2 |
|
Cash paid in deferred purchase price |
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
Cash used in acquisitions, net of cash acquired |
|
$ |
67.4 |
|
|
|
|
|
During the six months ended June 30, 2005, the Company paid $.5 million for
indefinite-lived franchise rights in cash for acquisitions and also paid $7.5 million in deferred
purchase price for certain prior year automotive retail acquisitions.
Responsibility for vehicle floorplan payable is assumed by the Company in acquisition
transactions. Typically, the Company refinances the vehicle floorplan payable in which case the
initial refinancing is accounted for as a vehicle floorplan payable-non-trade.
The Companys unaudited pro forma consolidated results of continuing operations, assuming
acquisitions had occurred at January 1, 2005, are as follows for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
9,706.0 |
|
|
$ |
9,548.6 |
|
Net income |
|
$ |
161.4 |
|
|
$ |
296.9 |
|
Diluted earnings per share |
|
$ |
.65 |
|
|
$ |
1.10 |
|
18
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
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 each of the cases agreed to settlement terms. The state settlement, which was
approved preliminarily by the state court on December 27, 2005, is contingent upon final court
approval, the hearing for which occurred in June 2006. The Company is awaiting the courts order.
The claims against the Company in federal court also would be settled contingent upon final
approval in the state action. The estimated expense of the 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 be permitted to continue to itemize and pass
through to the customer the cost of the inventory tax. If the settlements are not finally
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 business, 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 results of
operations, financial condition or cash flows. However, the results of these matters cannot be
predicted with certainty, and an unfavorable resolution of one or more of these matters could have
a material adverse effect on its financial condition, results of operations and cash flows.
19
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 dealership 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 dealership purchaser the subsidiaries interests 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 under any such assigned leases or subleases, the Company
estimates that lessee rental payment obligations during the remaining terms of these leases are
approximately $70 million at June 30, 2006. 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
business, financial condition and cash flows.
At June 30, 2006, surety bonds, letters of credit and cash deposits totaled $170.4 million,
including $135.9 million of letters of credit. 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. The Company does not currently provide cash collateral
for outstanding letters of credit.
In the ordinary course of business, the Company is subject to numerous laws and regulations,
including automotive, environmental, health and safety and other laws and regulations. The Company
does not anticipate that the costs of such compliance 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.
20
AUTONATION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 13-1, Accounting
for Rental Costs Incurred During a Construction Period. FSP No. FAS 13-1 requires rental costs
associated with operating leases that are incurred during a construction period to be recognized as
rental expense. FSP No. FAS 13-1 is effective for reporting periods beginning after December 15,
2005 and did not have a material impact on the Companys unaudited consolidated financial
statements.
13. Discontinued Operations
Discontinued operations are related to stores that were sold or for which the Company has
entered into a sale agreement. Generally, the sale of a store is completed within 60 to 90 days
after the date of a sale agreement. 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 for the six months ended June 30,
2005 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 |
|
|
Six Months Ended |
|
|
|
June 30 |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Total revenue |
|
$ |
46.4 |
|
|
$ |
142.3 |
|
|
$ |
110.6 |
|
|
$ |
301.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss from discontinued operations |
|
$ |
(3.2 |
) |
|
$ |
(4.0 |
) |
|
$ |
(6.3 |
) |
|
$ |
(8.0 |
) |
Pre-tax loss on disposal from
discontinued operations |
|
|
(1.6 |
) |
|
|
(6.5 |
) |
|
|
(10.2 |
) |
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.8 |
) |
|
|
(10.5 |
) |
|
|
(16.5 |
) |
|
|
(13.6 |
) |
Income tax benefit |
|
|
(3.8 |
) |
|
|
(2.7 |
) |
|
|
(4.7 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
(7.8 |
) |
|
|
(11.8 |
) |
|
|
(11.6 |
) |
Income tax adjustment (see Note 8) |
|
|
|
|
|
|
95.7 |
|
|
|
|
|
|
|
107.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations,
net of income taxes |
|
$ |
(1.0 |
) |
|
$ |
87.9 |
|
|
$ |
(11.8 |
) |
|
$ |
95.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the total assets and liabilities of discontinued operations included in
Other Current Assets and Other Current Liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Inventory |
|
$ |
25.2 |
|
|
$ |
67.5 |
|
Other current assets |
|
|
10.4 |
|
|
|
20.6 |
|
Property and equipment, net |
|
|
21.7 |
|
|
|
50.2 |
|
Goodwill |
|
|
5.6 |
|
|
|
16.9 |
|
Other non-current assets |
|
|
.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
63.2 |
|
|
$ |
156.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle floorplan payable trade |
|
$ |
19.9 |
|
|
$ |
61.8 |
|
Vehicle floorplan payable non-trade |
|
|
.8 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
4.9 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
25.6 |
|
|
$ |
73.6 |
|
|
|
|
|
|
|
|
Responsibility for the Companys vehicle floorplan payable at the time of divestiture is
assumed by the buyer. Cash received from business divestitures is net of vehicle floorplan payable
assumed by the buyer.
21
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.
Certain amounts have been reclassified from the previously reported financial statements to
conform with the income statement presentation of the current period.
We have restated certain amounts in the Unaudited Consolidated Statements of Cash Flows for
the six months ended June 30, 2005 from operating activities to financing activities to comply with
Statement of Financial Accounting Standards (SFAS) 95, Statement of Cash Flows, as a result of
comments to us from the Securities and Exchange Commission, as previously disclosed in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005. Amounts that were
previously reported as operating activities have been restated as a component of financing
activities to reflect the net cash flows for floorplan facilities with lenders other than the
corresponding automotive manufacturers captive finance subsidiaries for that franchise (non-trade
lenders).
OVERVIEW
AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United
States. As of June 30, 2006, we owned and operated 338 new vehicle franchises from 264 stores
primarily located in major metropolitan markets in 16 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 37 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.
Historically, new vehicle sales have accounted for approximately 60% of our total revenue, but
less than 30% of our total gross profit. Our parts and service and finance and insurance
operations, while comprising less than 20% of total revenue, contribute approximately 60% of our
gross profit. We believe that many factors affect industry-wide sales of new and used vehicles and
finance and insurance products, 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. Our parts and service business is
also impacted by many of these factors.
For the three months ended June 30, 2006 and 2005, we had net income from continuing
operations of $73.7 million and $106.9 million, respectively, and diluted earnings per share of
$.33 and $.40, respectively. For the six months
22
ended June 30, 2006 and 2005, we had net income
from continuing operations of $171.7 million and $196.0 million, respectively, and diluted earnings
per share of $.70 and $.73, respectively. Total revenue and gross profit in 2006 increased over
prior year primarily due to increases in parts and service and finance and insurance. The results
for 2006 include premium and deferred financing costs recognized as Interest Expense related to the
repurchase of our 9% senior unsecured notes. The results for 2006 were also impacted by lower
weighted average common shares outstanding and higher interest expense resulting from the equity
transaction discussed below, higher floorplan interest expense primarily resulting from higher
short-term LIBOR interest rates and additional non-cash compensation expense related to the
implementation of SFAS 123R for stock options.
In April 2006, we sold $300.0 million of floating rate senior unsecured notes due April 15,
2013 and $300.0 million of 7% senior unsecured notes due April 15, 2014, in each case at par. The
floating rate senior unsecured notes bear interest at a rate equal to three-month LIBOR plus 2.0%
per annum, adjusted quarterly.
In connection with the issuance of the new senior unsecured notes, we amended our existing
credit agreement to provide: (1) a $675 million revolving credit facility that provides for various
interest rates on borrowings generally at LIBOR plus 1.0%, and (2) a $600.0 million term loan that
bears interest at a rate equal to LIBOR plus 1.25%. The amended credit agreement, which includes
the new term loan, terminates on July 14, 2010.
The proceeds of the new senior notes and term loan borrowings, together with cash on hand and
borrowings of $80.0 million under the amended revolving credit facility, were used to: (1) purchase
50 million shares of our common stock at $23 per share for an aggregate purchase price of $1.15
billion pursuant to our equity tender offer, (2) purchase $309.4 million aggregate principal of our
9% senior unsecured notes for an aggregate total consideration of $339.8 million pursuant to our
debt tender offer and consent solicitation, and (3) pay related financing costs. Approximately
$34.5 million of tender premium and other financing costs related to our debt tender offer was
expensed during the three months ended June 30, 2006.
During the three months ended June 30, 2006 and 2005, we had a (loss)/income from discontinued
operations (generally related to stores that were sold or for which we
have entered into a sale agreement) totaling $(1.0) million and $87.9 million, respectively, net of income taxes. For the six months ended June 30, 2006 and 2005, we had a (loss)/income from discontinued
operations totaling $(11.8) million and $95.8 million, respectively, net of income taxes. For the
three and six months ended June 30, 2005, we recognized gains of $95.7 million and $107.4 million,
respectively, included in discontinued operations primarily related to the resolution of various
income tax matters. Certain amounts reflected in the accompanying Unaudited Consolidated Financial
Statements for the three and six months ended June 30, 2006 and 2005, have been adjusted to
classify the results of these stores as discontinued operations.
During the six months ended June 30, 2006, 3.8 million shares of our common stock were issued
upon the exercise of stock options resulting in proceeds of $51.6 million.
In April 2006, we purchased 50 million shares of our common stock at $23 per share for an
aggregate purchase price of $1.15 billion pursuant to our equity tender offer. During the three
months ended June 30, 2006, we repurchased an additional 3.1 million shares of our common stock for
a purchase price of $67.0 million, leaving approximately $254.3 million available for share
repurchases under the program authorized by our Board of Directors including an additional $250.0
million share repurchase program authorized by the Companys Board of Directors in June 2006.
Future share
repurchases are subject to limitations contained in the indenture relating to our new senior notes.
23
Reported Operating Data
Historical operating results include the results of acquired businesses from the date of
acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
($ in millions, except per |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
vehicle data) |
|
2006 |
|
|
2005 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2006 |
|
|
2005 |
|
|
(Unfavorable) |
|
|
% Variance |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,944.9 |
|
|
$ |
2,993.8 |
|
|
$ |
(48.9 |
) |
|
|
(1.6 |
) |
|
$ |
5,629.2 |
|
|
$ |
5,624.8 |
|
|
$ |
4.4 |
|
|
|
.1 |
|
Used vehicle |
|
|
1,203.9 |
|
|
|
1,124.4 |
|
|
|
79.5 |
|
|
|
7.1 |
|
|
|
2,345.3 |
|
|
|
2,186.7 |
|
|
|
158.6 |
|
|
|
7.3 |
|
Parts and service |
|
|
670.0 |
|
|
|
645.2 |
|
|
|
24.8 |
|
|
|
3.8 |
|
|
|
1,334.4 |
|
|
|
1,278.0 |
|
|
|
56.4 |
|
|
|
4.4 |
|
Finance and insurance, net |
|
|
171.1 |
|
|
|
158.1 |
|
|
|
13.0 |
|
|
|
8.2 |
|
|
|
322.9 |
|
|
|
302.2 |
|
|
|
20.7 |
|
|
|
6.8 |
|
Other |
|
|
20.9 |
|
|
|
22.5 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
39.8 |
|
|
|
42.0 |
|
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
5,010.8 |
|
|
$ |
4,944.0 |
|
|
$ |
66.8 |
|
|
|
1.4 |
|
|
$ |
9,671.6 |
|
|
$ |
9,433.7 |
|
|
$ |
237.9 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
214.4 |
|
|
$ |
214.3 |
|
|
$ |
.1 |
|
|
|
|
|
|
|
414.3 |
|
|
$ |
408.4 |
|
|
$ |
5.9 |
|
|
|
1.4 |
|
Used vehicle |
|
|
106.1 |
|
|
|
106.2 |
|
|
|
(.1 |
) |
|
|
(.1 |
) |
|
|
220.6 |
|
|
|
218.8 |
|
|
|
1.8 |
|
|
|
.8 |
|
Parts and service |
|
|
297.2 |
|
|
|
281.9 |
|
|
|
15.3 |
|
|
|
5.4 |
|
|
|
589.1 |
|
|
|
556.0 |
|
|
|
33.1 |
|
|
|
6.0 |
|
Finance and insurance |
|
|
171.1 |
|
|
|
158.1 |
|
|
|
13.0 |
|
|
|
8.2 |
|
|
|
322.9 |
|
|
|
302.2 |
|
|
|
20.7 |
|
|
|
6.8 |
|
Other |
|
|
11.9 |
|
|
|
11.8 |
|
|
|
.1 |
|
|
|
|
|
|
|
23.1 |
|
|
|
23.2 |
|
|
|
(.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
800.7 |
|
|
|
772.3 |
|
|
|
28.4 |
|
|
|
3.7 |
|
|
|
1,570.0 |
|
|
|
1,508.6 |
|
|
|
61.4 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
566.2 |
|
|
|
542.4 |
|
|
|
(23.8 |
) |
|
|
(4.4 |
) |
|
|
1,112.5 |
|
|
|
1,059.7 |
|
|
|
(52.8 |
) |
|
|
(5.0 |
) |
Depreciation and amortization |
|
|
21.2 |
|
|
|
20.0 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
41.0 |
|
|
|
39.8 |
|
|
|
(1.2 |
) |
|
|
|
|
Other expenses (income) |
|
|
.1 |
|
|
|
(.6 |
) |
|
|
(.7 |
) |
|
|
|
|
|
|
.1 |
|
|
|
(.5 |
) |
|
|
(.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
213.2 |
|
|
|
210.5 |
|
|
|
2.7 |
|
|
|
1.3 |
|
|
|
416.4 |
|
|
|
409.6 |
|
|
|
6.8 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floorplan interest expense |
|
|
(37.7 |
) |
|
|
(28.1 |
) |
|
|
(9.6 |
) |
|
|
|
|
|
|
(69.9 |
) |
|
|
(52.6 |
) |
|
|
(17.3 |
) |
|
|
|
|
Other interest expense |
|
|
(25.2 |
) |
|
|
(15.4 |
) |
|
|
(9.8 |
) |
|
|
|
|
|
|
(37.2 |
) |
|
|
(33.0 |
) |
|
|
(4.2 |
) |
|
|
|
|
Other interest expense
senior note repurchases |
|
|
(34.5 |
) |
|
|
(.7 |
) |
|
|
(33.8 |
) |
|
|
|
|
|
|
(34.5 |
) |
|
|
(15.1 |
) |
|
|
(19.4 |
) |
|
|
|
|
Interest income |
|
|
3.2 |
|
|
|
1.4 |
|
|
|
1.8 |
|
|
|
|
|
|
|
6.7 |
|
|
|
2.9 |
|
|
|
3.8 |
|
|
|
|
|
Other income, net |
|
|
.7 |
|
|
|
.9 |
|
|
|
(.2 |
) |
|
|
|
|
|
|
.7 |
|
|
|
|
|
|
|
.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income
taxes |
|
$ |
119.7 |
|
|
$ |
168.6 |
|
|
$ |
(48.9 |
) |
|
|
(29.0 |
) |
|
$ |
282.2 |
|
|
$ |
311.8 |
|
|
$ |
(29.6 |
) |
|
|
(9.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
99,027 |
|
|
|
102,007 |
|
|
|
(2,980 |
) |
|
|
(2.9 |
) |
|
|
188,001 |
|
|
|
191,568 |
|
|
|
(3,567 |
) |
|
|
(1.9 |
) |
Used vehicle |
|
|
59,635 |
|
|
|
59,388 |
|
|
|
247 |
|
|
|
.4 |
|
|
|
117,570 |
|
|
|
117,806 |
|
|
|
(236 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,662 |
|
|
|
161,395 |
|
|
|
(2,733 |
) |
|
|
(1.7 |
) |
|
|
305,571 |
|
|
|
309,374 |
|
|
|
(3,803 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
29,738 |
|
|
$ |
29,349 |
|
|
$ |
389 |
|
|
|
1.3 |
|
|
$ |
29,942 |
|
|
$ |
29,362 |
|
|
$ |
580 |
|
|
|
2.0 |
|
Used vehicle |
|
$ |
16,190 |
|
|
$ |
15,208 |
|
|
$ |
982 |
|
|
|
6.5 |
|
|
$ |
16,068 |
|
|
$ |
15,102 |
|
|
$ |
966 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,165 |
|
|
$ |
2,101 |
|
|
$ |
64 |
|
|
|
3.0 |
|
|
$ |
2,204 |
|
|
$ |
2,132 |
|
|
$ |
72 |
|
|
|
3.4 |
|
Used vehicle |
|
$ |
1,781 |
|
|
$ |
1,780 |
|
|
$ |
1 |
|
|
|
.1 |
|
|
$ |
1,856 |
|
|
$ |
1,826 |
|
|
$ |
30 |
|
|
|
1.6 |
|
Finance and insurance |
|
$ |
1,078 |
|
|
$ |
980 |
|
|
$ |
98 |
|
|
|
10.0 |
|
|
$ |
1,057 |
|
|
$ |
977 |
|
|
$ |
80 |
|
|
|
8.2 |
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30,_ |
|
|
% 2006 |
|
% 2005 |
|
% 2006 |
|
%2005 |
Revenue mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
58.8 |
|
|
|
60.6 |
|
|
|
58.2 |
|
|
|
59.6 |
|
Used vehicle |
|
|
24.0 |
|
|
|
22.7 |
|
|
|
24.2 |
|
|
|
23.2 |
|
Parts and services |
|
|
13.4 |
|
|
|
13.1 |
|
|
|
13.8 |
|
|
|
13.5 |
|
Finance and insurance, net |
|
|
3.4 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.2 |
|
Other |
|
|
.4 |
|
|
|
.4 |
|
|
|
.5 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
26.8 |
|
|
|
27.7 |
|
|
|
26.4 |
|
|
|
27.1 |
|
Used vehicle |
|
|
13.3 |
|
|
|
13.8 |
|
|
|
14.1 |
|
|
|
14.5 |
|
Parts and service |
|
|
37.1 |
|
|
|
36.5 |
|
|
|
37.5 |
|
|
|
36.9 |
|
Finance and insurance |
|
|
21.4 |
|
|
|
20.5 |
|
|
|
20.6 |
|
|
|
20.0 |
|
Other |
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating items as a percentage of
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
7.3 |
|
|
|
7.2 |
|
|
|
7.4 |
|
|
|
7.3 |
|
Used vehicle |
|
|
11.0 |
|
|
|
11.7 |
|
|
|
11.6 |
|
|
|
12.1 |
|
Parts and service |
|
|
44.4 |
|
|
|
43.7 |
|
|
|
44.1 |
|
|
|
43.5 |
|
Total |
|
|
16.0 |
|
|
|
15.6 |
|
|
|
16.2 |
|
|
|
16.0 |
|
Selling, general and
administrative expenses |
|
|
11.3 |
|
|
|
11.0 |
|
|
|
11.5 |
|
|
|
11.2 |
|
Operating income |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating items as a
percentage of total gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
70.7 |
|
|
|
70.2 |
|
|
|
70.9 |
|
|
|
70.2 |
|
Operating income |
|
|
26.6 |
|
|
|
27.3 |
|
|
|
26.5 |
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Days supply: |
|
|
|
|
|
|
|
|
New vehicle (industry standard of
selling days, including fleet) |
|
61 days |
|
50 days |
Used vehicle (trailing 30 days) |
|
43 days |
|
42 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 June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Variance |
|
|
2006 |
|
|
2005 |
|
|
Variance |
|
Floorplan assistance |
|
$ |
30.4 |
|
|
$ |
30.7 |
|
|
$ |
(.3 |
) |
|
$ |
57.4 |
|
|
$ |
57.0 |
|
|
$ |
.4 |
|
Floorplan interest expense |
|
|
(37.7 |
) |
|
|
(28.1 |
) |
|
|
(9.6 |
) |
|
|
(69.9 |
) |
|
|
(52.6 |
) |
|
|
(17.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
inventory carrying benefit (cost) |
|
$ |
(7.3 |
) |
|
$ |
2.6 |
|
|
$ |
(9.9 |
) |
|
$ |
(12.5 |
) |
|
$ |
4.4 |
|
|
$ |
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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 June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
($ in millions, except per |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
vehicle data) |
|
2006 |
|
|
2005 |
|
|
(Unfavorable) |
|
|
% Variance |
|
|
2006 |
|
|
2005 |
|
|
(Unfavorable) |
|
|
% Variance |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,915.8 |
|
|
$ |
2,993.8 |
|
|
$ |
(78.0 |
) |
|
|
(2.6 |
) |
|
$ |
5,586.8 |
|
|
$ |
5,624.8 |
|
|
$ |
(38.0 |
) |
|
|
(.7 |
) |
Used vehicle |
|
|
1,190.3 |
|
|
|
1,123.7 |
|
|
|
66.6 |
|
|
|
5.9 |
|
|
|
2,326.9 |
|
|
|
2,185.4 |
|
|
|
141.5 |
|
|
|
6.5 |
|
Parts and service |
|
|
661.8 |
|
|
|
645.2 |
|
|
|
16.6 |
|
|
|
2.6 |
|
|
|
1,322.6 |
|
|
|
1,278.0 |
|
|
|
44.6 |
|
|
|
3.5 |
|
Finance and insurance, net |
|
|
170.5 |
|
|
|
158.0 |
|
|
|
12.5 |
|
|
|
7.9 |
|
|
|
322.0 |
|
|
|
301.7 |
|
|
|
20.3 |
|
|
|
6.7 |
|
Other |
|
|
8.1 |
|
|
|
7.8 |
|
|
|
.3 |
|
|
|
3.8 |
|
|
|
15.2 |
|
|
|
14.7 |
|
|
|
.5 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
4,946.5 |
|
|
$ |
4,928.5 |
|
|
$ |
18.0 |
|
|
|
.4 |
|
|
$ |
9,573.5 |
|
|
$ |
9,404.6 |
|
|
$ |
168.9 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
211.5 |
|
|
$ |
214.3 |
|
|
$ |
(2.8 |
) |
|
|
(1.3 |
) |
|
$ |
410.1 |
|
|
$ |
408.4 |
|
|
$ |
1.7 |
|
|
|
.4 |
|
Used vehicle |
|
|
104.6 |
|
|
|
105.6 |
|
|
|
(1.0 |
) |
|
|
(.9 |
) |
|
|
218.3 |
|
|
|
217.5 |
|
|
|
.8 |
|
|
|
.4 |
|
Parts and service |
|
|
292.6 |
|
|
|
282.0 |
|
|
|
10.6 |
|
|
|
3.8 |
|
|
|
582.2 |
|
|
|
556.0 |
|
|
|
26.2 |
|
|
|
4.7 |
|
Finance and insurance |
|
|
170.5 |
|
|
|
158.0 |
|
|
|
12.5 |
|
|
|
7.9 |
|
|
|
322.0 |
|
|
|
301.7 |
|
|
|
20.3 |
|
|
|
6.7 |
|
Other |
|
|
6.7 |
|
|
|
6.5 |
|
|
|
.2 |
|
|
|
3.1 |
|
|
|
13.2 |
|
|
|
12.6 |
|
|
|
.6 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
785.9 |
|
|
$ |
766.4 |
|
|
$ |
19.5 |
|
|
|
2.5 |
|
|
$ |
1,545.8 |
|
|
$ |
1,496.2 |
|
|
$ |
49.6 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle unit sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
98,567 |
|
|
|
102,007 |
|
|
|
(3,440 |
) |
|
|
(3.4 |
) |
|
|
187,325 |
|
|
|
191,568 |
|
|
|
(4,243 |
) |
|
|
(2.2 |
) |
Used vehicle |
|
|
59,468 |
|
|
|
59,388 |
|
|
|
80 |
|
|
|
.1 |
|
|
|
117,337 |
|
|
|
117,806 |
|
|
|
(469 |
) |
|
|
(.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
158,035 |
|
|
|
161,395 |
|
|
|
(3,360 |
) |
|
|
(2.1 |
) |
|
|
304,662 |
|
|
|
309,374 |
|
|
|
(4,712 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
29,582 |
|
|
$ |
29,349 |
|
|
$ |
233 |
|
|
|
.8 |
|
|
$ |
29,824 |
|
|
$ |
29,362 |
|
|
$ |
462 |
|
|
|
1.6 |
|
Used vehicle |
|
$ |
16,113 |
|
|
$ |
15,208 |
|
|
$ |
905 |
|
|
|
6.0 |
|
|
$ |
16,013 |
|
|
$ |
15,102 |
|
|
$ |
911 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit per vehicle retailed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
$ |
2,146 |
|
|
$ |
2,101 |
|
|
$ |
45 |
|
|
|
2.1 |
|
|
$ |
2,189 |
|
|
$ |
2,132 |
|
|
$ |
57 |
|
|
|
2.7 |
|
Used vehicle |
|
$ |
1,769 |
|
|
$ |
1,780 |
|
|
$ |
(11 |
) |
|
|
(.6 |
) |
|
$ |
1,849 |
|
|
$ |
1,826 |
|
|
$ |
23 |
|
|
|
1.3 |
|
Finance and insurance |
|
$ |
1,079 |
|
|
$ |
979 |
|
|
$ |
100 |
|
|
|
10.2 |
|
|
$ |
1,057 |
|
|
$ |
975 |
|
|
$ |
82 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
% 2006 |
|
% 2005 |
|
% 2006 |
|
% 2005 |
Revenue mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
58.9 |
|
|
|
60.7 |
|
|
|
58.4 |
|
|
|
59.8 |
|
Used vehicle |
|
|
24.1 |
|
|
|
22.8 |
|
|
|
24.3 |
|
|
|
23.2 |
|
Parts and service |
|
|
13.4 |
|
|
|
13.1 |
|
|
|
13.8 |
|
|
|
13.6 |
|
Finance and insurance, net |
|
|
3.4 |
|
|
|
3.2 |
|
|
|
3.4 |
|
|
|
3.2 |
|
Other |
|
|
.2 |
|
|
|
.2 |
|
|
|
.1 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit mix percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
26.9 |
|
|
|
28.0 |
|
|
|
26.5 |
|
|
|
27.3 |
|
Used vehicle |
|
|
13.3 |
|
|
|
13.8 |
|
|
|
14.1 |
|
|
|
14.5 |
|
Parts and service |
|
|
37.2 |
|
|
|
36.8 |
|
|
|
37.7 |
|
|
|
37.2 |
|
Finance and insurance |
|
|
21.7 |
|
|
|
20.6 |
|
|
|
20.8 |
|
|
|
20.2 |
|
Other |
|
|
.9 |
|
|
|
.8 |
|
|
|
.9 |
|
|
|
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating items as a percentage of
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicle |
|
|
7.3 |
|
|
|
7.2 |
|
|
|
7.3 |
|
|
|
7.3 |
|
Used vehicle |
|
|
11.0 |
|
|
|
11.7 |
|
|
|
11.5 |
|
|
|
12.1 |
|
Parts and service |
|
|
44.2 |
|
|
|
43.7 |
|
|
|
44.0 |
|
|
|
43.5 |
|
Total |
|
|
15.9 |
|
|
|
15.6 |
|
|
|
16.1 |
|
|
|
15.9 |
|
26
New Vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
SIX MONTHS ENDED JUNE 30, |
|
|
|
|
|
|
|
|
|
|
VARIANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
VARIANCE |
|
|
($ in millions, |
|
|
|
|
|
|
|
|
|
FAVORABLE/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
FAVORABLE/ |
|
|
except per vehicle data) |
|
2006 |
|
2005 |
|
(UNFAVORABLE) |
|
% VARIANCE |
|
2006 |
|
2005 |
|
(UNFAVORABLE) |
|
%VARIANCE |
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,944.9 |
|
|
$ |
2,993.8 |
|
|
$ |
(48.9 |
) |
|
|
(1.6 |
) |
|
$ |
5,629.2 |
|
|
$ |
5,624.8 |
|
|
$ |
4.4 |
|
|
|
.1 |
|
Gross profit |
|
$ |
214.4 |
|
|
$ |
214.3 |
|
|
$ |
.1 |
|
|
|
|
|
|
$ |
414.3 |
|
|
$ |
408.4 |
|
|
$ |
5.9 |
|
|
|
1.4 |
|
Retail vehicle unit sales |
|
|
99,027 |
|
|
|
102,007 |
|
|
|
(2,980 |
) |
|
|
(2.9 |
) |
|
|
188,001 |
|
|
|
191,568 |
|
|
|
(3,567 |
) |
|
|
(1.9 |
) |
Revenue per vehicle retailed |
|
$ |
29,738 |
|
|
$ |
29,349 |
|
|
$ |
389 |
|
|
|
1.3 |
|
|
$ |
29,942 |
|
|
$ |
29,362 |
|
|
$ |
580 |
|
|
|
2.0 |
|
Gross profit per vehicle
retailed |
|
$ |
2,165 |
|
|
|
2,101 |
|
|
$ |
64 |
|
|
|
3.0 |
|
|
$ |
2,204 |
|
|
$ |
2,132 |
|
|
$ |
72 |
|
|
|
3.4 |
|
Gross profit as a percentage
of revenue |
|
|
7.3 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
7.4 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
Days supply (industry
standard of selling days,
including fleet) |
|
61 days |
|
50 days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,915.8 |
|
|
$ |
2,993.8 |
|
|
$ |
(78.0 |
) |
|
|
(2.6 |
) |
|
$ |
5,586.8 |
|
|
$ |
5,624.8 |
|
|
$ |
(38.0 |
) |
|
|
(.7 |
) |
Gross profit |
|
$ |
211.5 |
|
|
$ |
214.3 |
|
|
$ |
(2.8 |
) |
|
|
(1.3 |
) |
|
$ |
410.1 |
|
|
$ |
408.4 |
|
|
$ |
1.7 |
|
|
|
.4 |
|
Retail vehicle unit sales |
|
|
98,567 |
|
|
|
102,007 |
|
|
|
(3,440 |
) |
|
|
(3.4 |
) |
|
|
187,325 |
|
|
|
191,568 |
|
|
|
(4,243 |
) |
|
|
(2.2 |
) |
Revenue per vehicle retailed |
|
$ |
29,582 |
|
|
$ |
29,349 |
|
|
$ |
233 |
|
|
|
.8 |
|
|
$ |
29,824 |
|
|
$ |
29,362 |
|
|
$ |
462 |
|
|
|
1.6 |
|
Gross profit per vehicle
retailed |
|
$ |
2,146 |
|
|
$ |
2,101 |
|
|
$ |
45 |
|
|
|
2.1 |
|
|
$ |
2,189 |
|
|
$ |
2,132 |
|
|
$ |
57 |
|
|
|
2.7 |
|
Gross profit as a percentage
of revenue |
|
|
7.3 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
7.3 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
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 June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
Variance |
|
|
2006 |
|
|
2005 |
|
|
Variance |
|
Floorplan assistance |
|
$ |
30.4 |
|
|
$ |
30.7 |
|
|
$ |
(.3 |
) |
|
$ |
57.4 |
|
|
$ |
57.0 |
|
|
$ |
.4 |
|
Floorplan interest expense |
|
|
(37.7 |
) |
|
|
(28.1 |
) |
|
|
(9.6 |
) |
|
|
(69.9 |
) |
|
|
(52.6 |
) |
|
|
(17.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inventory carrying
benefit (cost) |
|
$ |
(7.3 |
) |
|
$ |
2.6 |
|
|
$ |
(9.9 |
) |
|
$ |
(12.5 |
) |
|
$ |
4.4 |
|
|
$ |
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported new vehicle performance for the three and six months ended June 30, 2006
benefited from the impact of acquisitions when compared to same store performance.
Same store new vehicle revenue for the three and six months ended June 30, 2006 decreased
compared to the same periods in 2005 primarily as a result of a decrease in same store unit volume.
The decrease in same store volume is consistent with industry trends. Same store gross profit per
vehicle retailed and gross profit as a percentage of revenue increased as a result of the shift in
our sales mix to more premium luxury brands.
At June 30, 2006, our new vehicle inventories were at $2.3 billion or 61 days compared to new
vehicle inventories of $2.2 billion or 55 days supply at December 31, 2005. For the remainder of
2006, we anticipate that new vehicle sales will remain highly competitive and that 2006 full-year
industry new vehicle sales will approximate 2005 levels. However, the level of retail sales for
2006 is very difficult to predict.
The net inventory carrying cost (floorplan interest expense net of floorplan assistance from
manufacturers) for the three and six months ended June 30, 2006 was $7.3 million and $12.5 million,
respectively, an increase of $9.9 million and $16.9 million, respectively, compared to the same
periods in 2005, primarily as a result of increased floorplan interest expense due to higher
short-term LIBOR interest rates. For the remainder of 2006, we expect to have similar negative
impacts due to higher interest rates.
27
Used Vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
SIX MONTHS ENDED JUNE 30, |
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VARIANCE |
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VARIANCE |
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($ in millions, |
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FAVORABLE/ |
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FAVORABLE/ |
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except per vehicle data) |
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2006 |
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|
2005 |
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(UNFAVORABLE) |
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%VARIANCE |
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2006 |
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|
2005 |
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(UNFAVORABLE) |
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% VARIANCE |
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Reported: |
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Retail revenue |
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$ |
965.5 |
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|
$ |
903.2 |
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|
$ |
62.3 |
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|
|
6.9 |
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|
$ |
1,889.1 |
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|
$ |
1,779.1 |
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|
$ |
110.0 |
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|
6.2 |
|
Wholesale revenue |
|
|
238.4 |
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|
221.2 |
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|
17.2 |
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7.8 |
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|
456.2 |
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|
407.6 |
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48.6 |
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11.9 |
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Total revenue |
|
$ |
1,203.9 |
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|
$ |
1,124.4 |
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|
$ |
79.5 |
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|
|
7.1 |
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|
$ |
2,345.3 |
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$ |
2,186.7 |
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|
$ |
158.6 |
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7.3 |
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Retail gross profit |
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$ |
106.2 |
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|
$ |
105.7 |
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|
$ |
.5 |
|
|
|
.5 |
|
|
$ |
218.2 |
|
|
$ |
215.1 |
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|
$ |
3.1 |
|
|
|
1.4 |
|
Wholesale gross profit |
|
|
(.1 |
) |
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|
.5 |
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|
|
(.6 |
) |
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2.4 |
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3.7 |
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(1.3 |
) |
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Total gross profit |
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$ |
106.1 |
|
|
$ |
106.2 |
|
|
$ |
(.1 |
) |
|
|
(.1 |
) |
|
$ |
220.6 |
|
|
$ |
218.8 |
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|
$ |
1.8 |
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|
|
.8 |
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Retail vehicle unit sales |
|
|
59,635 |
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|
59,388 |
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|
247 |
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|
.4 |
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|
|
117,570 |
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|
117,806 |
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|
(236 |
) |
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|
(.2 |
) |
Revenue per vehicle retailed |
|
$ |
16,190 |
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|
$ |
15,208 |
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|
$ |
982 |
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|
6.5 |
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|
$ |
16,068 |
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|
$ |
15,102 |
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|
$ |
966 |
|
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|
6.4 |
|
Gross profit per vehicle
retailed |
|
$ |
1,781 |
|
|
$ |
1,780 |
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|
$ |
1 |
|
|
|
.1 |
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|
$ |
1,856 |
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|
$ |
1,826 |
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$ |
30 |
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|
1.6 |
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|
Gross profit as a percentage of
retail revenue |
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|
11.0 |
% |
|
|
11.7 |
% |
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|
|
|
|
|
|
|
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|
11.6 |
% |
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|
12.1 |
% |
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|
Days supply (trailing 30 days) |
|
43 days |
|
42 days |
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Same Store: |
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Retail revenue |
|
$ |
958.2 |
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|
$ |
903.2 |
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|
$ |
55.0 |
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|
6.1 |
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|
$ |
1,878.9 |
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|
$ |
1,779.1 |
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|
$ |
99.8 |
|
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|
5.6 |
|
Wholesale revenue |
|
|
232.1 |
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|
220.5 |
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|
11.6 |
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|
5.3 |
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|
448.0 |
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|
406.3 |
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|
41.7 |
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|
10.3 |
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Total revenue |
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$ |
1,190.3 |
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$ |
1,123.7 |
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$ |
66.6 |
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|
5.9 |
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|
$ |
2,326.9 |
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$ |
2,185.4 |
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|
$ |
141.5 |
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|
6.5 |
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Retail gross profit |
|
$ |
105.2 |
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|
$ |
105.7 |
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|
$ |
(.5 |
) |
|
|
(.5 |
) |
|
$ |
217.0 |
|
|
$ |
215.1 |
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|
$ |
1.9 |
|
|
|
.9 |
|
Wholesale gross profit |
|
|
(.6 |
) |
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|
(.1 |
) |
|
|
(.5 |
) |
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|
1.3 |
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|
2.4 |
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|
(1.1 |
) |
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Gross profit |
|
$ |
104.6 |
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|
$ |
105.6 |
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|
$ |
(1.0 |
) |
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|
(.9 |
) |
|
$ |
218.3 |
|
|
$ |
217.5 |
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|
$ |
.8 |
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|
.4 |
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Retail vehicle unit sales |
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|
59,468 |
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|
59,388 |
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|
80 |
|
|
|
.1 |
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|
117,337 |
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|
117,806 |
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|
(469 |
) |
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|
(.4 |
) |
Revenue per vehicle
retailed |
|
$ |
16,113 |
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|
$ |
15,208 |
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|
$ |
905 |
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|
6.0 |
|
|
$ |
16,013 |
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|
$ |
15,102 |
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|
$ |
911 |
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|
6.0 |
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Gross profit per vehicle
retailed |
|
$ |
1,769 |
|
|
$ |
1,780 |
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|
$ |
(11 |
) |
|
|
(.6 |
) |
|
$ |
1,849 |
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|
$ |
1,826 |
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|
$ |
23 |
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|
1.3 |
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Gross profit as a
percentage of
retail revenue |
|
|
11.0 |
% |
|
|
11.7 |
% |
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|
|
|
|
|
|
|
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|
11.5 |
% |
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|
12.1 |
% |
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|
Reported used vehicle performance for the three and six months ended June 30,
2006 benefited from the impact of acquisitions when compared to same store performance.
Same store retail used vehicle revenue for the three and six months ended June 30, 2006
increased compared to the same periods in 2005 primarily a result of increased same store average
revenue per unit retailed. Same store retail revenue and retail gross profit for the three and six
months ended June 30, 2006 increased as a result of strengthened used vehicle market prices and our
continued focus on inventory management emphasizing the stocking of more profitable core models.
Used vehicle inventories were at $385.6 million or 43 days supply at June 30, 2006 compared to
$323.9 million or 42 days supply at December 31, 2005.
28
Parts and Service
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|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
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Variance |
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Variance |
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($ in millions, |
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|
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Favorable/ |
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|
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|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
except per vehicle data) |
|
2006 |
|
2005 |
|
(Unfavorable) |
|
% Variance |
|
2006 |
|
2005 |
|
(Unfavorable) |
|
% Variance |
Reported: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Revenue |
|
$ |
670.0 |
|
|
$ |
645.2 |
|
|
$ |
24.8 |
|
|
|
3.8 |
|
|
$ |
1,334.4 |
|
|
$ |
1,278.0 |
|
|
$ |
56.4 |
|
|
|
4.4 |
|
Gross profit |
|
$ |
297.2 |
|
|
$ |
281.9 |
|
|
$ |
15.3 |
|
|
|
5.4 |
|
|
$ |
589.1 |
|
|
$ |
556.0 |
|
|
$ |
33.1 |
|
|
|
6.0 |
|
Gross profit as a percentage
of revenue |
|
|
44.4 |
% |
|
|
43.7 |
% |
|
|
|
|
|
|
|
|
|
|
44.1 |
% |
|
|
43.5 |
% |
|
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|
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|
|
|
|
|
|
|
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|
Same Store: |
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|
|
|
|
|
|
|
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|
|
|
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|
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|
Revenue |
|
$ |
661.8 |
|
|
$ |
645.2 |
|
|
$ |
16.6 |
|
|
|
2.6 |
|
|
$ |
1,322.6 |
|
|
$ |
1,278.0 |
|
|
$ |
44.6 |
|
|
|
3.5 |
|
Gross profit |
|
$ |
292.6 |
|
|
$ |
282.0 |
|
|
$ |
10.6 |
|
|
|
3.8 |
|
|
$ |
582.2 |
|
|
$ |
556.0 |
|
|
$ |
26.2 |
|
|
|
4.7 |
|
Gross profit as a percentage
of revenue |
|
|
44.2 |
% |
|
|
43.7 |
% |
|
|
|
|
|
|
|
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|
44.0 |
% |
|
|
43.5 |
% |
|
|
|
|
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|
|
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 six months ended June 30, 2006
benefited from the impact of acquisitions when compared to same store performance.
Same store parts and service revenue and same store parts and service gross profit increased
during the three and six months ended June 30, 2006 due to increases in customer-paid work for
parts and service partially offset by a decrease in warranty. The improvements are attributable to
our service drive process, maintenance menu and service marketing program, as well as our pricing
models and training programs.
29
Finance and Insurance
|
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|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
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Variance |
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|
Variance |
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|
($ in millions, |
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable/ |
|
|
except per vehicle data) |
|
2006 |
|
2005 |
|
(Unfavorable) |
|
% Variance |
|
2006 |
|
2005 |
|
(Unfavorable) |
|
% Variance |
Reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and gross profit |
|
$ |
171.1 |
|
|
$ |
158.1 |
|
|
$ |
13.0 |
|
|
|
8.2 |
|
|
$ |
322.9 |
|
|
$ |
302.2 |
|
|
$ |
20.7 |
|
|
|
6.8 |
|
Gross profit per vehicle
retailed |
|
$ |
1,078 |
|
|
$ |
980 |
|
|
$ |
98 |
|
|
|
10.0 |
|
|
$ |
1,057 |
|
|
$ |
977 |
|
|
$ |
80 |
|
|
|
8.2 |
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store: |
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and gross profit |
|
$ |
170.5 |
|
|
$ |
158.0 |
|
|
$ |
12.5 |
|
|
|
7.9 |
|
|
$ |
322.0 |
|
|
$ |
301.7 |
|
|
$ |
20.3 |
|
|
|
6.7 |
|
Gross profit per vehicle
retailed |
|
$ |
1,079 |
|
|
$ |
979 |
|
|
$ |
100 |
|
|
|
10.2 |
|
|
$ |
1,057 |
|
|
$ |
975 |
|
|
$ |
82 |
|
|
|
8.4 |
|
Reported finance and insurance revenue and gross profit for the three and six
months ended June 30, 2006 benefited from the impact of acquisitions when compared to same store
performance.
Same store finance and insurance revenue and gross profit increased for the three and six
months ended June 30, 2006 as a result of higher used vehicle revenue. Gross profit per vehicle
retailed benefited from the strengthened used vehicle market, increased premium luxury business and
increased retrospective commissions received on extended service contracts. Improvements were also
driven by our continued emphasis on training and certification of store associates, particularly in
fourth quartile stores. Substantially higher interest rates in the future may negatively impact
finance and insurance revenue and gross profit.
30
Operating Expenses
Selling, General and Administrative Expenses
During the three months ended June 30, 2006, selling, general and administrative expenses
increased $23.8 million or 4.4%. During the six months ended June 30, 2006, selling, general and
administrative expenses increased $52.8 million or 5.0%. As a percent of total gross profit,
selling, general and administrative expenses increased to 70.7 and 70.9 basis points for the three
and six months ended June 30, 2006, respectively, primarily due to $4.2 million and $8.7 million of
non-cash compensation expense recorded in those respective periods related to the implementation of
SFAS 123R for stock options.
Non-Operating Income (Expense)
Floorplan Interest Expense
Floorplan interest expense was $37.7 million and $28.1 million for the three months ended June
30, 2006 and 2005, respectively. Floorplan interest expense was $69.9 million and $52.6 million
for the six months ended June 30, 2006 and 2005, respectively. The increase in 2006 compared to
2005 is primarily the result of higher short-term LIBOR interest rates.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under mortgage facilities and
outstanding senior unsecured notes. Other interest expense was $25.2 million and $15.4 million for
the three months ended June 30, 2006 and 2005, respectively, and $37.2 million and $33.0 million
for the six months ended June 30, 2006 and 2005, respectively. The increase in other interest
expense in 2006 compared to 2005 is primarily due to additional debt incurred in connection with
our tender offer partially offset by the repurchase of our 9% senior unsecured notes and
prepayments of mortgage facilities during 2005.
Other Interest Expense Senior Note Repurchases
In
April 2006, we purchased $309.4 million aggregate principal of our 9% senior unsecured notes
for an aggregate total consideration of $339.8 million pursuant to our debt tender offer and
consent solicitation. Approximately $34.5 million of tender premium and other financing costs
related to our debt tender offer was expensed during the three months ended June 30, 2006.
During the six months ended June 30, 2005, we repurchased $101.1 million (face value) of our
9% senior unsecured notes at an average price of 111.1% of face value or $112.4 million. The $11.3
million premium paid plus deferred financing costs of $3.8 million for this repurchase were
recognized as Other Interest Expense in the accompanying 2005 Unaudited Consolidated Income
Statement.
Provision for (Benefit from) Income Taxes
The effective income tax rate was 38.4% and 36.6% for the three months ended June 30, 2006 and
2005, respectively and 39.2% and 37.1% for the six months ended June 30, 2006 and 2005,
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.
During the three and six months ended June 30, 2005, we recorded net income tax benefits in
our provision for income taxes totaling $5.2 million, and $6.6 million, respectively, primarily
related to the resolution of
various income tax matters. We also recognized a $95.7 million and $107.4 million gains included
in Discontinued Operations for the three and six months ended June 30, 2005, respectively, related
to the resolution of various income tax
31
matters. As a matter of course, various taxing authorities,
including the IRS, regularly audit us. Currently, the IRS is auditing the tax years from 2002 to
2004. These audits may result in proposed assessments where the ultimate resolution may result in
us owing additional taxes. We believe that our tax positions comply with applicable tax law and
that we have adequately provided for these matters. Included in Other Current Liabilities at June
30, 2006 and December 31, 2005 are $57.3 million and $54.5 million, respectively, provided by us
for these matters. Once we resolve our open tax matters, we expect our base effective tax rate to
be approximately 39.5%.
See Note 8, Income Taxes of Notes to Unaudited Consolidated Financial Statements for
additional discussion of income taxes.
32
Financial Condition
At June 30, 2006, we had $35.6 million of unrestricted cash and cash equivalents. 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 June 30, 2006, surety
bonds, letters of credit and cash deposits totaled $170.4 million, including $135.9 million of
letters of credit. We do not currently provide cash collateral for outstanding letters of credit.
At
June 30, 2006, we also had $14.0 million of 9.0% senior unsecured notes due August 1, 2008.
The 9% senior unsecured notes are guaranteed by substantially all of our subsidiaries.
In April 2006, we sold $300.0 million of floating rate senior unsecured notes due April 15,
2013 and $300.0 million of 7% senior unsecured notes due April 15, 2014, in each case at par. The
floating rate senior unsecured notes bear interest at a rate equal to three-month LIBOR plus 2.0%
per annum, adjusted quarterly, and may be redeemed by us on or after April 15, 2008 at 103% of
principal, on or after April 15, 2009 at 102% of principal, on or after April 15, 2010 at 101% of
principal and on or after April 15, 2011 at 100% of principal. The 7% senior unsecured notes may be
redeemed by us on or after April 15, 2009 at 105.25% of principal, on or after April 15, 2010 at
103.5% of principal, on or after April 15, 2011 at 101.75% of principal and on or after April 15,
2012 at 100% of principal.
In connection with the issuance of the new senior unsecured notes, we amended our existing
credit agreement to provide: (1) a $675 million revolving credit facility that provides for various
interest rates on borrowings generally at LIBOR plus 1.0%, and (2) a $600.0 million term loan that
bears interest at a rate equal to LIBOR plus 1.25%. The amended credit agreement, which includes
the new term loan, terminates on July 14, 2010 and is guaranteed by substantially all the Companys
subsidiaries. The credit spread charged for the revolving credit facility is impacted by our
senior unsecured credit ratings. We have negotiated a letter of credit sublimit as part of our
revolving credit facility. The amount available to be borrowed under the revolving credit facility
is reduced on a dollar-for-dollar basis by the cumulative amount of
any outstanding
letters of credit, which totaled $135.9 million at June 30, 2006.
The proceeds of the new senior notes and term loan borrowings, together with cash on hand and
borrowings of $80.0 million under the amended revolving credit facility, were used to: (1) purchase
50 million shares of our common stock at $23 per share for an aggregate purchase price of $1.15
billion pursuant to our equity tender offer, (2) purchase $309.4 million aggregate principal of our
9% senior unsecured notes for an aggregate total consideration of $339.8 million pursuant to our
debt tender offer and consent solicitation, and (3) pay related financing costs. Approximately
$34.5 million of tender premium related to our debt tender offer and other financing costs was
expensed during the three months ended June 30, 2006.
At June 30, 2006, we had $150.9 million outstanding under a mortgage facility with an
automotive manufacturers captive finance subsidiary. The facility bears interest at LIBOR-based
interest rates and is secured by mortgages on certain of our stores properties.
We had no repurchases of our common stock during the first quarter of 2006. In April 2006, we
purchased 50 million shares of our common stock at $23 per share for an aggregate purchase price of
$1.15 billion pursuant to our equity tender offer. After the completion of the equity tender
offer, during the three months ended June 30, 2006, we repurchased an additional 3.1 million
shares of our common stock for a purchase price of $67.0 million, leaving approximately
$254.3 million available for share repurchases under the program authorized by our Board of
Directors, including an additional $250.0 million share repurchase program authorized by our Board
of Directors in June 2006.
33
Future share repurchases are subject to limitations contained in the indenture relating to our
new senior notes. While we expect to continue repurchasing shares in the future, 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.
At June 30, 2006 and December 31, 2005, vehicle floorplan payable-trade totaled $2.4 billion
for both periods. Vehicle floorplan payable-trade reflects amounts borrowed to finance the
purchase of specific vehicle inventories with manufacturers captive finance subsidiaries. Vehicle
floorplan payable-non-trade totaled $96.7 million and $102.9 million, at June 30, 2006 and December
31, 2005, respectively, and represents amounts payable borrowed to finance the purchase of specific
vehicle inventories with non-trade lenders. All our floorplan facilities are at one-month
LIBOR-based rates of interest. Secured floorplan facilities are used to finance new vehicle
inventories and the amounts outstanding thereunder are due on demand, but are generally paid
within several business days after the related vehicles are sold. Floorplan facilities are
primarily collateralized by new vehicle inventories and related receivables. Our manufacturer
agreements generally require that the manufacturer have the ability to draft against the floorplan
facilities so that the lender directly funds the manufacturer for the purchase of inventory. The
floorplan facilities contain certain financial and operating covenants. At June 30, 2006, we were
in compliance with such covenants in all material respects. At June 30, 2006, aggregate capacity
under the floorplan credit facilities to finance new vehicles was approximately $4.0 billion, of
which $2.5 billion total was outstanding.
We sell and receive commissions on the following types of vehicle protection and
other products: extended warranties, 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 profit pursuant to
retrospective commission arrangements. Through 2002, we assumed some of the underwriting risk
through reinsurance agreements with our captive 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.
Cash Flows
Cash and cash equivalents decreased by $209.6 million and $60.1 million during the six months
ended June 30, 2006 and 2005, respectively. The major components of these changes are discussed
below. We have revised our 2005 Unaudited Consolidated Statements of Cash Flows to separately
disclose the operating, investing and financing cash flows attributable to our discontinued
operations. We had previously reported these amounts on a combined basis.
We have restated certain amounts in the 2005 Unaudited Consolidated Statements of Cash Flows
from operating activities to financing activities to comply with SFAS 95, as a result of recent
comments to us from the SEC. For the six months ended June 30, 2005 amounts which were previously
reported as operating activities are reported as a component of financing activities to reflect the
net cash flows for floorplan facilities with lenders other than the automotive manufacturers
captive finance subsidiaries for that franchise (non-trade lenders).
Cash Flows Operating Activities
Cash
provided by operating activities was $152.6 million and $179.1 million during the six
months ended June 30, 2006 and 2005, respectively.
34
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-trade
(vehicle floorplan payables with the automotive manufacturers captive finance subsidiary for the
related franchise), which directly relates to changes in new vehicle inventory for those
franchises.
In February 2006, we made estimated state tax and federal tax payments totaling approximately
$100 million, primarily related to provisions for the third and fourth quarter of 2005, payment for
which had been deferred as allowed for filers impacted by hurricanes in 2005.
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.
Capital expenditures, excluding property lease buyouts, were $49.1 million and $57.1 million
during the six months ended June 30, 2006 and 2005, respectively. We project that 2006 full-year
capital expenditures will be approximately $130 million, excluding acquisition-related spending and
lease buy-outs.
Total cash used in business acquisitions, net of cash acquired, was $67.4 million and $8.0
million for the six months ended June 30, 2006 and 2005, respectively. We acquired one automotive
retail franchise and other related assets during the six months ended June 30, 2006. Additionally,
we also signed a separate agreement in January 2006 to acquire certain rights to establish a new
Mercedes-Benz dealership. Cash used in business acquisitions during the six months ended June 30,
2006 and 2005 includes $.2 million and $7.5 million, respectively, in deferred purchase price for
certain prior year automotive retail acquisitions.
35
Cash Flows Financing Activities
Cash flows from financing activities primarily include treasury stock purchases, stock option
exercises, debt activity and changes in vehicle floorplan payable-non-trade.
In April 2006, we sold $300.0 million of floating rate senior unsecured notes due April 15,
2013 and $300.0 million of 7% senior unsecured notes due April 15, 2014, in each case at par. In
connection with the issuance of the new senior notes, we amended our existing credit agreement to
provide: (1) a $675.0 million revolving credit facility for which the Company had borrowings of
$80.0 million during the three months ended June 30, 2006 and (2) a $600.0 million term loan.
The proceeds of the new senior notes and term loan borrowings, together with cash on hand and
borrowings of $80.0 million under the amended revolving credit facility, were used to: (1) purchase
50 million shares of our common stock at $23 per share for an aggregate purchase price of $1.15
billion pursuant to our equity tender offer, (2) purchase $309.4 million aggregate principal of our
9% senior unsecured notes for an aggregate total consideration of $339.8 million ($334.2 million of
principal and tender premium and $5.6 million of accrued interest) pursuant to our debt tender
offer and consent solicitation , and (3) pay related financing costs. Approximately $34.5 million
of tender premium ($24.8 million) and other debt financing costs ($9.7 million) related to our debt
tender offer was expensed during the three months ended June 30, 2006.
During the six months ended June 30, 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.
As
discussed above, in April 2006, we purchased 50 million
shares of our common stock at $23
per share for an aggregate purchase price of $1.15 billion pursuant to our equity tender offer.
During the six months ended June 30, 2006, we repurchased 3.1 million additional shares of our
common stock for a purchase price of $67.0 million. During the six months ended June 30, 2005, we
repurchased 7.6 million shares of our common stock for an aggregate price of $148.6 million under
our Board-approved share repurchases programs. Excluding share repurchases totaling $1.15 billion
pursuant to our equity tender offer, we project that 2006 combined spending on acquisitions and
share repurchases will be approximately $300 to $400 million.
During the six months ended June 30, 2006 and 2005, proceeds from the exercise of stock
options were $51.6 million and $52.7 million, respectively.
During the six months ended June 30, 2005, we repaid $34.1 million of amounts outstanding
under our mortgage facilities.
Liquidity
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 do not foresee any difficulty in continuing to comply with covenants of our various
financing facilities. At June 30, 2006, capacity under our revolving credit facility totaled
$459.1 million, net of outstanding letters of credit.
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 new senior notes restricts our ability to declare cash dividends.
36
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 weather conditions, such as changing
economic conditions and automotive manufacturer incentive programs.
New Accounting Pronouncements
See Notes 1, 2, 4, 8 and 12 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:
§ |
|
We are dependent upon the success and continued financial
viability of the vehicle manufacturers and distributors with which
we hold franchises. |
§ |
|
The automotive retailing industry is sensitive to changing
economic conditions and various other factors. Our business and
results of operations are substantially dependent 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. |
§ |
|
Our new vehicle sales are impacted by the consumer incentive
programs of vehicle manufacturers. |
§ |
|
Natural disasters and other adverse weather events can disrupt our
business. |
§ |
|
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. |
37
§ |
|
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 on favorable terms or at all. |
§ |
|
We are subject to interest rate risk in connection with our
vehicle floorplan payable, amended credit agreement, floating rate
senior unsecured notes and mortgage facility that could have a
material adverse effect on our profitability. |
§ |
|
Our amended credit agreement and the indenture relating to our
senior unsecured notes contain certain restrictions on our ability
to conduct our business. |
§ |
|
We must test our intangible assets 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, 2005,
and to our subsequent filings with the SEC for additional discussion of the foregoing risk factors.
38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is changing interest rates. At June 30, 2006 and
December 31, 2005, fixed rate debt, primarily consisting of amounts outstanding under senior
unsecured notes, totaled $362.6 million and $371.3 million, respectively, and had a fair value of
$361.5 million and $398.5 million, respectively. Interest rate derivatives may be used to adjust
interest rate exposures when appropriate, based upon market conditions.
Interest Rate Risk
At June 30, 2006 and December 31, 2005, we had total variable rate vehicle floorplan payable
totaling $2.5 billion for both periods. Based on these amounts at June 30, 2006 and December 31,
2005, a 100 basis point change in interest rates would result in an approximate $25.1 million and
$24.9 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.
At June 30, 2006 and December 31, 2005, we had other variable rate debt outstanding totaling
$1.1 billion and $153.7 million, respectively. Based on the amounts outstanding at June 30, 2006
and December 31, 2005, a 100 basis point change in interest rates would result in an approximate
$11.3 million and $1.5 million, respectively, change to interest expense.
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. At June 30, 2006, we have an
interest rate hedge instrument (swap) with a total notional value of $50.0 million. The
instrument, which matures in July 2006, is designed to convert certain floating rate vehicle
floorplan payable to fixed rate debt. During the six months ended June 30, 2006, we had $750.0
million of interest rate hedge instruments mature, consisting of $150.0 million in swaps, which
effectively locked in a LIBOR-based rate of 3.0%, and $600.0 million in collars that capped
floating rates to a maximum LIBOR-based rate no greater than 2.4%. For the six months ended June
30, 2006 and 2005, net unrealized gains related to hedges included in other comprehensive gain
(loss) were $.1 million and $.9 million, respectively.
For the six months ended June 30, 2006 and
2005, the income statement impact from interest rate hedges was an additional income (expense) of
$.4 million and $(.3) million, respectively. As of June 30, 2006, 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, 2005.
39
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 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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.
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.
However, we continue to centralize certain key store-level accounting and administrative
activities in certain of our operating regions, 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 stores and centralizing in a shared services center certain key
accounting processes (non-inventory accounts payable, bank account reconciliations and certain
accounts receivable). We have substantially implemented the core phase in 122 of our 264 stores as
of June 30, 2006.
40
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There were no material changes during the quarter ended June 30, 2006 to the risk factors
previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2005.
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
AutoNation, Inc. during the three months ended June 30, 2006. 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) |
April 1, 2006 to
April 30, 2006 |
|
|
50,000,000 |
|
|
$ |
23.00 |
|
|
|
50,000,000 |
(3) |
|
|
71.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2006 to
May 31, 2006 |
|
|
1,450,000 |
|
|
$ |
22.22 |
|
|
|
1,450,000 |
|
|
|
39.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2006 to
June 30, 2006 |
|
|
1,650,000 |
|
|
$ |
21.11 |
|
|
|
1,650,000 |
|
|
|
254.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
53,100,000 |
|
|
|
|
|
|
|
53,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Future share repurchases are subject to limitations contained in the
indenture for the Companys senior unsecured notes. |
|
(2) |
|
In June 2006, the Companys Board of Directors authorized an
additional $250.0 million share repurchase program. This program does not have an expiration
date. |
|
(3) |
|
The Company purchased 50.0 million shares of its common stock
at $23 per share pursuant to the Companys equity tender offer that commenced on March 10,
2006. |
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Companys annual meeting of shareholders held on June 1, 2006, the shareholders of
the Company voted on the following three matters:
|
1. |
|
The election of seven directors, each for a term expiring at the next annual
meeting or until their successors are duly elected and qualified. |
|
|
2. |
|
The ratification of the appointment of the Companys independent registered public
accounting firm for 2006. |
|
|
3. |
|
The adoption of stockholder proposal on cumulative voting for the election of
directors. |
41
All of the director nominees were elected based on the following votes:
|
|
|
|
|
|
|
|
|
Director Nominee |
|
Votes Cast For |
|
|
Votes Withheld |
|
Robert J. Brown |
|
|
189,635,263 |
|
|
|
7,177,775 |
|
Rick L. Burdick |
|
|
186,017,514 |
|
|
|
10,795,524 |
|
William C. Crowley |
|
|
173,585,008 |
|
|
|
23,228,030 |
|
Mike Jackson |
|
|
188,988,185 |
|
|
|
7,824,853 |
|
Edward S. Lampert |
|
|
191,429,523 |
|
|
|
5,383,515 |
|
Michael E. Maroone |
|
|
189,725,338 |
|
|
|
7,087,700 |
|
Irene B. Rosenfeld |
|
|
189,892,338 |
|
|
|
6,920,700 |
|
The appointment of KPMG LLP as the Companys independent registered public accounting firm for
2006 was ratified based on the following votes:
|
|
|
|
|
Votes Cast For
|
|
Votes Cast Against
|
|
Votes Abstained |
192,356,298
|
|
3,818,082
|
|
638,658 |
The adoption of the stockholder proposal on cumulative voting for the election of
directors was not approved based on the following votes:
|
|
|
|
|
|
|
|
Votes Cast For |
|
Votes Cast Against |
|
Votes Abstained |
|
Broker Non-Votes |
|
60,548,186 |
|
103,468,896 |
|
2,118,442 |
|
30,677,514 |
|
ITEM 6. EXHIBITS
(a) Exhibits:
|
|
|
4.1
|
|
Indenture, dated April 12, 2006, relating to the issuance of
$300.0 million aggregate principal amount of floating rate senior unsecured
notes due 2013 and $300.0 million aggregate principal amount of 7% senior
unsecured notes due 2014 (incorporated by reference to Exhibit 4.1 of the
Companys Form 8-K filed on April 28, 2006) |
|
|
|
10.1
|
|
First Amendment, dated April 12, 2006, to Five-Year Credit Agreement
dated July 14, 2005 (incorporated by reference to Exhibit 10.1 of the Companys
Form 8-K filed on April 28, 2006) |
|
|
|
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 |
42
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:
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/s/ J. Alexander McAllister |
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J. Alexander McAllister |
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Vice President Corporate
Controller |
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(DULY AUTHORIZED OFFICER AND |
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PRINCIPAL ACCOUNTING OFFICER) |
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Date: July 27, 2006
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