AutoNation 2006 Annual Report Download - page 32

Table of Contents
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Selling, General and Administrative Expenses
During 2006, selling, general and administrative expenses increased $64.1 million, or 3.1%. As a percentage of total gross profit,
selling, general and administrative expenses increased to 71.1% in 2006 from 70.4% in 2005. Increases in selling, general and
administrative expenses in 2006 compared to 2005 are due to an increase in compensation expense, including $15.2 million of non-cash
compensation expense related to the adoption of SFAS No. 123R for stock options during 2006 and increased advertising expenses,
resulting from a decrease in advertising program participation reimbursed by manufacturers and an increase in non-reimbursed
advertising. In 2005, selling, general and administrative expenses included property damage costs related to Hurricane Wilma.
During 2005, selling, general and administrative expenses increased $71.1 million or 3.5%. As a percent of total gross profit,
selling, general and administrative expenses decreased 40 basis points in spite of property damage costs related to Hurricane Wilma which
impacted our Florida stores during the fourth quarter of 2005. Improvements are due to our continued efforts to leverage our cost
structure, particularly in the areas of compensation and other selling, general and administrative expenses, partially offset by increased
occupancy costs.
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Floorplan Interest Expense
Floorplan interest expense was $142.0 million, $105.5 million and $74.7 million for the years ended December 31, 2006, 2005 and
2004, respectively. The increase in 2006 compared to 2005 is primarily the result of higher short-term LIBOR interest rates. The increase
in 2005 compared to 2004 is primarily the result of higher short-term LIBOR interest rates partially offset by lower average new vehicle
inventory levels.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under our term loan facility, mortgage facilities, revolving credit facility
and outstanding senior unsecured notes. Other interest expense was $90.9 million, $63.3 million and $76.3 million for the years ended
December 31, 2006, 2005 and 2004, respectively. The increase in other interest expense in 2006 compared to 2005 is primarily due to
additional debt incurred in connection with our equity tender offer in April 2006, partially offset by the repurchase of our 9% senior
unsecured notes and repayments of mortgage facilities during 2006 and 2005. We expect to continue to have higher year over year interest
expense during the early part of 2007.
The decrease in 2005 compared to 2004 of other interest expense is primarily due to the repurchase of a portion of our 9% senior
unsecured notes. Other interest expense also includes interest related to the IRS settlement totaling $4.8 million for the year ended
December 31, 2004 which represents interest due under the agreement from the date of the settlement.
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 as Other Interest Expense — Senior Note Repurchases in the accompanying
2006 Consolidated Income Statement.
During 2005 and 2004, we repurchased $123.1 million and $3.4 million (face value) of our 9.0% senior unsecured notes at an
average price of 110.5% and 114.3% of face value or $136.0 million and $3.9 million, respectively. The premium paid and financing
costs of $17.4 million and $.6 million, respectively, were recognized as Other Interest Expense — Senior Note Repurchases in the
accompanying 2005 and 2004 Consolidated Income Statements.
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