AutoNation 2003 Annual Report Download - page 35

Table of Contents
In conjunction with the revolving credit facilities and senior unsecured notes offering, we received corporate credit ratings from rating
agencies. The revolving credit facilities and the senior unsecured notes have provisions linked to credit ratings. The interest rates for the
revolving credit facilities are impacted by changes in credit ratings. In the event of a downgrade in our credit rating, we would continue to have
access to the revolving credit facilities, but at higher rates of interest. Certain covenants related to the senior unsecured notes would be
eliminated with certain upgrades in ratings to investment grade.
At December 31, 2003, we had $329.7 million outstanding under mortgage facilities with automotive manufacturers’ captive finance
subsidiaries. The facilities have an aggregate capacity of $400.0 million, which includes additional capacity obtained totaling $100.0 million
during 2003. The facilities bear interest at LIBOR-based interest rates and are secured by mortgages on certain of our stores’ real property.
We drew additional amounts totaling $183.6 million of our available capacity under our mortgage facilities during 2003.
We finance our new vehicle inventory through secured financings, primarily floorplan facilities, with automotive manufacturers’ captive
finance subsidiaries as well as independent financial institutions. As of December 31, 2003, aggregate capacity of the facilities was
approximately $3.8 billion, of which $2.8 billion was outstanding at December 31, 2003. We finance our used vehicle inventory primarily
through our cash flow from operations.
We sell and receive commissions on the following types of vehicle protection and other products: extended warranties, guaranteed auto
protection, credit insurance, lease “wear and tear” insurance and theft protection products. The products we offer include products that are sold
and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries. Pursuant to our
arrangements with these third-party finance and vehicle protection product providers, we primarily sell the products on a straight commission
basis, however, we may sell the product, recognize commission and participate in future underwriting profit pursuant to retrospective
commission arrangements. Through 2002, we assumed some of the underwriting risk through reinsurance agreements with our captive
insurance subsidiaries. Effective January 1, 2003, we no longer reinsure any new extended warranties and credit insurance products. We
maintain restricted cash in trust accounts in accordance with the terms and conditions of certain reinsurance agreements to secure the
payments of outstanding losses and loss adjustment expenses related to our captive insurance subsidiaries.
During 2003, we repurchased 39.2 million shares of our common stock for an aggregate purchase price of $575.2 million. Our Board
has authorized us to acquire $3.0 billion of our common stock since 1998 and, through December 31, 2003, we have acquired 224.9 million
shares of our common stock for an aggregate purchase price of approximately $2.7 billion, leaving approximately $295.2 million authorized
for repurchases at December 31, 2003. As of March 5, 2004, we repurchased an additional 1.7 million shares of common stock for an
aggregate purchase price of $28.2 million, leaving approximately $267.0 million authorized for share repurchases. Repurchases are made
pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended. While we expect to continue repurchasing shares, the decision
to make additional share repurchases will be based on such factors as the market price of our common stock, the potential impact on our
capital structure and the expected return on competing uses of our capital such as strategic store acquisitions and capital investments in our
current businesses. Future share repurchases are also subject to limitations contained in the indenture relating to our senior unsecured
notes and credit agreements relating to our two senior secured revolving credit facilities.
On June 30, 2000, we completed the tax-free spin-off of ANC Rental Corporation (“ANC Rental”), which operated our former rental
business. In connection with the spin-off, we agreed to provide certain guarantees on behalf of ANC Rental. 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 May 2003, the bankruptcy court approved a settlement agreement among AutoNation, ANC Rental and the
Committee of Unsecured Creditors in the bankruptcy that resolved potential claims relating to ANC Rentals bankruptcy, including potential
claims against us arising out of the spin-off of ANC Rental (the “Settlement Agreement”). On October 14, 2003, with the approval of the
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