AutoNation 2005 Annual Report Download - page 18

Table of Contents
ments, and to sell or otherwise dispose of assets and merge or consolidate with other entities. Our revolving credit facility also requires us to
meet certain financial ratios and tests that may require us to take action to reduce debt or act in a manner contrary to our business objectives.
A failure by us to comply with the obligations contained in our revolving credit facility or the indenture could result in an event of default under
our revolving credit facility or the indenture, which could permit acceleration of the related debt and acceleration of debt under other
instruments that may contain cross-acceleration or cross-default provisions. If any debt is accelerated, our liquid assets may not be sufficient
to repay in full such indebtedness and our other indebtedness. In addition, we have granted certain manufacturers the right to acquire, at fair
market value, our automotive stores franchised by that manufacturer in specified circumstances in the event of our default under the
indenture for our senior unsecured notes due August 2008 or the credit agreement for our revolving credit facility.
We must test our intangible assets for impairment at least annually, which may result in a material, non-cash write down of
goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders’ equity.
Goodwill and indefinite-lived intangibles are subject to impairment assessments at least annually (or more frequently when events or
circumstances indicate that an impairment may have occurred) by applying a fair-value based test. Our principal intangible assets are
goodwill and our rights under our franchise agreements with vehicle manufacturers. These impairment assessments may result in a
material, non-cash write-down of goodwill or franchise values. An impairment would have a material adverse impact on our results of
operations and shareholders’ equity.
ITEM 2. PROPERTIES
We lease our corporate headquarters facility in Fort Lauderdale, Florida pursuant to a lease expiring in 2010. As of February 2006, we also
own or lease numerous facilities relating to our operations in the following 18 states: Alabama; Arizona; California; Colorado; Florida;
Georgia; Idaho; Illinois; Maryland; Minnesota; North Carolina; Nevada; New York; Ohio; Tennessee; Texas; Virginia and Washington. These
facilities consist primarily of automobile showrooms, display lots, service facilities, collision repair centers, supply facilities, automobile
storage lots, parking lots and offices. We believe that our facilities are sufficient for our current needs and are in good condition in all material
respects.
ITEM 3. LEGAL PROCEEDINGS
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.
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