AutoNation 2006 Annual Report Download - page 67

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Table of Contents
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
The Company made interest payments of approximately $240.6 million, $187.2 million and $152.4 million for the years ended
December 31, 2006, 2005 and 2004, respectively, including interest on vehicle inventory financing. The Company made income tax
payments of approximately $278.3 million, $43.4 million and $253.4 million for the years ended December 31, 2006, 2005 and 2004,
respectively. The tax payments for 2004 include prepayments of the IRS settlement totaling $128.9 million as further discussed in
Note 11, Income Taxes, of Notes to Consolidated Financial Statements. In February 2006, the Company made estimated state tax and
federal tax payments totaling approximately $100 million, primarily related to provisions for the third and fourth quarter of 2005.
 
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment, and therefore cannot be determined with precision. The assumptions used have a significant effect on the
estimated amounts reported.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
• Cash and cash equivalents, trade and manufacturer receivables, other current assets, vehicle floorplan payable, accounts
payable, other current liabilities and variable rate debt: The amounts reported in the accompanying Consolidated Balance
Sheets approximate fair value due to their short-term nature.
• Marketable Securities: Investments in marketable securities are stated at fair value, estimated based on quoted market prices,
with unrealized gains and losses included in Accumulated Other Comprehensive Income (Loss) in the Company’s Consolidated
Balance Sheets. At December 31, 2006 and 2005, the carrying amount and fair value of the Company’s investments in
marketable securities totaled $27.3 million and $33.5 million, respectively.
• Fixed rate debt: The fair value of fixed rate debt is based on borrowing rates currently available to the Company for debt with
similar terms and maturities. At December 31, 2006 and 2005, the carrying amounts of the Company’s fixed rate debt primarily
consisting of amounts outstanding under the Company’s senior unsecured notes, totaled $360.5 million and $371.3 million,
respectively, with a fair value of $363.4 million and $398.5 million, respectively.
 
The Company owns and operates franchised automotive stores in the United States pursuant to franchise agreements with vehicle
manufacturers. Franchise agreements generally provide the manufacturers or distributors with considerable influence over the operations
of the store. The success of any franchised automotive dealership is dependent, to a large extent, on the financial condition, management,
marketing, production and distribution capabilities of the vehicle manufacturers or distributors of which the Company holds franchises.
At December 31, 2006 and 2005, the Company had receivables from manufacturers or distributors of $161.4 million and
$172.4 million, respectively. Additionally, a large portion of the Company’s Contracts-in-Transit included in Accounts Receivable are due
from automotive manufacturers’ captive finance subsidiaries which provide financing directly to the Company’s new and used vehicle
customers.
The Company purchases substantially all of its new vehicles from various manufacturers or distributors at the prevailing prices
available to all franchised dealers. Additionally, the Company finances its new vehicle inventory primarily with automotive
manufacturers’ captive finance subsidiaries. The Company’s sales volume could be adversely impacted by the manufacturers’ or
distributors’ inability to supply the stores with an adequate supply of vehicles and related financing.
66