AutoNation 2001 Annual Report Download - page 33

with the sale, we entered into a prepaid $15.0 million advertising agreement
and, therefore, we received net proceeds of $89.0 million. A pre-tax gain of
$53.5 million was recognized on the sale.
See Note 18, Acquisitions and Divestitures, of the Notes to Consolidated
Financial Statements, for further discussion of business combinations.
LOAN AND LEASE UNDERWRITING ACTIVITIES
In December 2001, we decided to exit the business of underwriting retail
automobile loans for customers at our dealerships, which we determined was not a
part of our core automotive retail business. We will continue to provide
automobile loans for our customers through unrelated third party financing
sources, which historically have provided more than 95% of the auto loans made
to our customers. In addition, economic conditions in the United States worsened
during the fourth quarter of 2001 as evidenced by confirmation of a recession,
lower consumer confidence, increasing unemployment and increasing consumer
credit defaults.
The decision to exit the loan underwriting business and the impact of the
economic conditions referenced above caused us to incur asset impairment and
related charges totaling $85.8 million recorded in December 2001. These charges
mainly reflect the impact of expected increases in loan losses and prepayments,
as well as higher expected loan-servicing costs. The charges also include $1.5
million of direct exit costs for asset write-offs and other costs. In addition,
during 2001 and 2000, we recognized impairment charges totaling $4.1 million and
$16.6 million, respectively, primarily associated with the deterioration in
residual values of finance lease receivables. We discontinued the writing of
finance leases in mid-1999.
Until December 2001, we securitized installment loan receivables through a
commercial paper warehouse facility with unrelated financial institutions. In
September 2001, we decreased the capacity of the commercial paper warehouse
facility from $1.0 billion to $625.0 million. The warehouse facility had a
renewable 364-day term and required an annual securitization transaction to
reduce indebtedness. During 2001, we sold installment note receivables of $397.5
million under this program, net of retained interests. In December 2001, in
conjunction with our exit from the auto loan underwriting business, we
terminated this facility. During 2001, we entered into certain interest rate
derivative transactions with certain financial institutions to manage the impact
of interest rate changes on these securitized installment loan receivables. At
December 31, 2001, since we terminated this facility, we had no derivative
instruments outstanding.
Until December 2001, we also securitized installment loan receivables
through the issuance of asset-backed notes through non-consolidated qualified
special purpose entities under a shelf registration statement. Proceeds from
these notes were used to repay outstanding commercial paper under the warehouse
facility and to finance additional loans held by us. In August 2001, we amended
the shelf registration statement relating to this program to provide aggregate
capacity of $2.0 billion. During 2001, we issued $850.0 million in asset-backed
notes under this program, net of retained interests. We provide credit
enhancements related to these notes in the form of 1% over collateralization, a
reserve fund and a third party surety bond. We retain responsibility for
servicing the loans, for which we are paid a servicing fee. We in turn have a
sub-servicing arrangement with a third party. At December 31, 2001, $1.3 billion
was outstanding under this program, net of retained interests. With our decision
to exit the loan underwriting business, we do not intend to utilize the
remaining capacity under this program. Substantially all of the beneficial
interests in the debt of the qualified special purpose entities are held by
unrelated third parties. The investors and the securitization trusts have no
recourse to our assets for failure of debtors to pay when due except to the
extent of our remaining investments in securitizations.
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At December 31, 2001, we had finance receivables totaling $175.7 million
including investments in securitizations of $73.8 million, after the impact of