AutoNation 2006 Annual Report Download - page 33

Table of Contents
Provision for Income Taxes
The effective income tax rate was 38.9%, 36.5% and 34.7% for the years ended December 31, 2006, 2005 and 2004, respectively.
Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates, adjusted, as
necessary, for any other tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent
upon our geographic revenue mix.
During 2005 and 2004, we recorded net income tax benefits in our provision for income taxes of $14.5 million and $25.8 million,
respectively, primarily related to the resolution of various income tax matters. In 2005 and 2004, we also recognized income of
$110.0 million and $52.2 million, respectively, included in Discontinued Operations related to the settlement of various income tax
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 December 31, 2006 and 2005 are $58.7 million and $54.5 million, respectively, provided by us for these
matters. We expect our effective tax rate to be in the low to mid-39% range on an ongoing basis, excluding the impact of any potential tax
adjustments in the future.
See Note 11, Income Taxes, of the Notes to Consolidated Financial Statements for further information.
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At December 31, 2006, we had $52.2 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
December 31, 2006, surety bonds, letters of credit and cash deposits totaled $124.9 million, including $92.3 million in letters of credit.
We do not currently provide cash collateral for outstanding letters of credit.
At December 31, 2006, we also had $14.1 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
$675.0 million revolving credit facility that provides for various interest rates on borrowings generally at LIBOR plus .80%, and (2) a
$600.0 million term loan facility that bears interest at a rate equal to LIBOR plus 1.25%. In December 2006, the borrowing capacity of
the revolving credit facility increased to $700.0 million under the amended credit agreement. The amended credit agreement, which
includes the new term loan facility, terminates on July 14, 2010 and is guaranteed by substantially all our 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 $92.3 million at December 31, 2006.
We had borrowings outstanding under the revolving credit facility of $195.0 million at December 31, 2006, leaving $412.7 million of
borrowing capacity at December 31, 2006.
The proceeds of the new senior unsecured notes and term loan facility, 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
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