AutoNation 2001 Annual Report Download - page 31

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Used............................................ 246,000 239,000 2.9
--------- ---------
677,000 709,000 (4.5)
========= =========
In 2001, same store performance improved by $7.2 million or .9% despite a
2.5% decrease in same store revenue. This was achieved through our focus on
operational improvements in the high margin areas of our business -- used
vehicle, parts and service, and finance and insurance. Although these areas
collectively comprise 33.9% of total same store revenue, they contributed 68.3%
of total same store gross margin in 2001.
DISCONTINUED BUSINESS SEGMENTS
On June 30, 2000, we completed the spin-off of our former automotive rental
businesses, which were organized under ANC Rental Corporation, by distributing
100% of ANC Rental's common stock to AutoNation's stockholders as a tax-free
dividend. As a result of the spin-off, AutoNation stockholders received one
share of ANC Rental common stock for every eight shares of AutoNation common
stock owned as of the June 16, 2000 record date. As discussed in Note 16,
Discontinued Operations, of the Notes to Consolidated Financial Statements, ANC
Rental has been accounted for as discontinued operations in the accompanying
Consolidated Financial Statements and accordingly, the operating results of ANC
Rental have been classified as discontinued operations in the accompanying
Consolidated Financial Statements.
In connection with the spin-off of ANC Rental Corporation and its
subsidiaries ("ANC Rental") in June 2000, we agreed to provide certain
guarantees and credit enhancements with respect to financial and other
performance obligations of ANC Rental, including acting as a guarantor under
certain motor vehicle and real property leases between ANC Rental and Mitsubishi
Motor Sales of America, Inc. ("Mitsubishi") and acting as an indemnitor with
respect to certain surety bonds issued on ANC Rental's behalf. We are also a
party to certain agreements with ANC Rental (the "ANC Rental Agreements"),
including a separation and distribution agreement, a reimbursement agreement and
a tax sharing agreement, pursuant to which both ANC Rental and we have certain
obligations. On November 13, 2001, ANC Rental filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U.S.
Bankruptcy Court in Wilmington, Delaware. In connection with ANC Rental's
bankruptcy, we were called on to perform under nine of the twelve real property
leases between ANC Rental and Mitsubishi for which we provided guarantees. As a
result, we agreed to assume these real property leases, which expire in 2017, in
order to control and
27
attempt to mitigate our exposure relating thereto. In the fourth quarter of
2001, we incurred a pre-tax charge of $20.0 million included in net income from
discontinued operations to reflect our assumption of the nine leases with
Mitsubishi and certain other costs that we expect to incur as a result of ANC
Rental's bankruptcy. We continue to guarantee the remaining three leases with
Mitsubishi until their expiration in 2017, and we remain subject to various
other ANC Rental obligations. ANC Rental has been accounted for as a
discontinued operation and, accordingly, we expect that additional charges
recorded by us pursuant to the foregoing credit enhancements and guarantees or
with respect to claims under the ANC Rental Agreements, if any, would not impact
our reported results from continuing operations.
We have reached an agreement with Mitsubishi pursuant to which our
aggregate financial exposure under a motor vehicle lease agreement between ANC
Rental and Mitsubishi is capped at $10.0 million. Although we believe that our
financial exposure under the agreement will likely decrease significantly in
2002, we could have potential exposure under the agreement for up to five to ten
years. Our indemnification obligations with respect to the surety bonds issued
on behalf of ANC Rental are capped at $29.5 million in the aggregate. We could
have potential exposure under the indemnification obligations for approximately
five years. Due to the bankruptcy of ANC Rental, obligations of ANC Rental to us