AutoNation 2005 Annual Report Download - page 16

Table of Contents
assure you that our stores will be able to comply with manufacturers’ sales, customer satisfaction and other performance requirements in
the future, which may affect our ability to acquire new stores or renew our franchise agreements, or subject us to other adverse actions,
including termination or compelled sale of a franchise, any of which could have a material adverse effect on our financial condition, results of
operations, cash flows and prospects.
In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by
that manufacturer in specified circumstances in the event of our default under the indenture for our senior unsecured notes due 2008 or the
credit agreement for our revolving credit facility.
We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially
adversely affect our business, results of operations, financial condition, cash flows and prospects.
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business, including
litigation with customers, employment-related lawsuits, class actions, purported class actions and actions brought by governmental
authorities.
Many of our Texas dealership subsidiaries have been named in three class action lawsuits brought against the Texas Automobile Dealers
Association (“TADA”) and approximately 700 new vehicle stores in Texas that are members of the TADA. The three actions allege that since
January 1994 Texas dealers have deceived customers with respect to a vehicle inventory tax and violated federal antitrust and other laws as
well. In April 2002, in two actions (which have been consolidated) the state court certified two classes of consumers on whose behalf the
action would proceed. In the federal antitrust case, in March 2003, the federal court conditionally certified a class of consumers. We and the
other dealership defendants appealed the ruling to the Fifth Circuit Court of Appeals, which on October 5, 2004 reversed the class certification
order and remanded the case back to the federal district court for further proceedings. In February 2005, we and the plaintiffs in each of the
cases agreed to settlement terms. The state settlement, which was approved preliminarily by the state court on December 27, 2005, is
contingent upon final court approval, the hearing for which is currently scheduled for June 2006. The claims against us in federal court also
would be settled contingent upon final approval in the state action. The estimated expense of the settlements is not a material amount and
includes our stores issuing coupons for discounts off future vehicle purchases, refunding cash in certain circumstances, and paying
attorneys’ fees and certain costs. Under the terms of the settlements, our stores would be permitted to continue to itemize and pass through
to the customer the cost of the inventory tax. If the settlements are not finally approved, we would then vigorously assert available defenses
in connection with the TADA lawsuits. Further, we may have certain rights of indemnification with respect to certain aspects of these
lawsuits. However, an adverse resolution of the TADA lawsuits could result in the payment of significant costs and damages and negatively
impact our ability to itemize and pass through to the customer the cost of the tax in the future, which could have a material adverse effect on
our business, results of operations, financial condition, cash flows and prospects.
In addition to the foregoing cases, we also are a party to numerous other legal proceedings that arose in the conduct of our business. We
do not believe that the ultimate resolution of these matters will have a material adverse effect on our business, results of operations, financial
condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or
more of these matters could have a material adverse effect on our business, results of operations, financial condition, cash flows and
prospects.
Our operations, including, without limitation, our sales of finance, insurance and vehicle protection products, are subject to
extensive governmental laws, regulation and scrutiny. If we are found to be in violation of any of these laws or regulations, or
if new laws or regulations are enacted that adversely affect our operations, our business, operating results and prospects
could suffer.
The automotive retailing industry, including our facilities and operations, is subject to a wide range of federal, state and local laws and
regulations, such as those relating to motor vehicle sales, retail installment sales, leasing, sales of finance, insurance and vehicle protection
products, licensing, consumer protection,
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