AutoNation 2001 Annual Report Download - page 71

earnings on these assets. The current rate assumptions below reflect the
expected performance of the total loans securitized as of December 31, 2001.
$ EFFECT ON INVESTMENTS IN
SECURITIZATIONS OF
--------------------------------
CURRENT 10% CHANGE 20% CHANGE
DESCRIPTION RATE ASSUMPTION IN ASSUMPTION IN ASSUMPTION
----------- --------------- -------------- --------------
Voluntary prepayment speed (ABS)............................ 1.50% $3.7 $ 6.9
Expected credit losses (annual rate, excluding accrued
interest)................................................. 2.87% $5.2 $10.3
Discount rate on residual cash flows (annual rate).......... 9.15% $1.1 $ 2.1
As of December 31, 2001 and 2000, the Company had expected static pool
credit losses on its total serviced installment loan portfolio of 3.89% and
2.28%, respectively, (3.58% and 2.07%, respectively, excluding accrued
interest). Static pool credit losses represent estimated life-time losses as a
percentage of total amounts underwritten.
The following summarizes information about total serviced installment loans
and delinquencies and net credit losses at December 31:
2001 2000
-------------------------------------------- ---------------------------------------------
TOTAL PRINCIPAL PRINCIPAL AMOUNT OF LOANS TOTAL PRINCIPAL PRINCIPAL AMOUNTS OF LOANS
AMOUNT OF LOANS 60 DAYS OR MORE PAST DUE AMOUNTS OF LOANS 60 DAYS OR MORE PAST DUE
---------------- ------------------------- ---------------- --------------------------
Loans securitized........... $1,275.9 $12.3 $1,619.2 $7.8
Loans retained on balance
sheet..................... 67.7 5.5 50.3 .4
-------- ----- -------- ----
Total loans
serviced......... $1,343.6 $17.8 $1,669.5 $8.2
======== ===== ======== ====
Net credit losses are charge-offs less recoveries and are based on total
installment loans serviced. Net credit losses, including accrued interest,
during the year ended December 31, 2001 and 2000 totaled $33.7 million and $31.5
million, respectively.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among other
things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 was
effective for fiscal quarters beginning after March 15, 2001. The Company
adopted EITF 99-20 as of April 1, 2001. The adoption of EITF 99-20 did not have
a material impact on its consolidated financial position, results of operations
or cash flows.
13. RESTRUCTURING ACTIVITIES AND IMPAIRMENT CHARGES
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan was comprised of
the following major components: (1) exiting the used vehicle megastore business;
and (2) reducing the corporate workforce. The restructuring plan also included
divesting of certain non-core franchised dealerships. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in pre-tax charges of $443.7 million in 1999, of which
$416.4 million appears as Restructuring and Impairment Charges (Recoveries), Net
in the Company's 1999 Consolidated Income Statement. These pre-tax charges
include $286.9 million of asset impairment charges; $103.3 million of reserves
for residual value guarantees for closed lease properties; $26.2 million of
severance and other exit costs; and $27.3 million of inventory related costs.
The $286.9 million asset impairment charge consists of: $244.9 million of
megastore and other property impairments; $26.6 million of goodwill impairment