AutoNation 2005 Annual Report Download - page 33

Table of Contents
Operating Expenses
Selling, General and Administrative Expenses
During 2005 selling, general and administrative expenses increased $67.4 million or 3.2%. As a percent of total gross profit, selling,
general and administrative expenses decreased 20 basis points in spite of property damage costs related to Hurricane Wilma which impacted
our Florida stores during the fourth quarter of 2005. Improvements are due to our continued efforts to leverage our cost structure, particularly
in the areas of compensation and other selling, general and administrative expenses, partially offset by increased occupancy costs.
As a percent of total gross profit, selling, general and administrative expenses decreased 70 basis points during 2004. Our cost structure
was targeted for vehicle sales volumes and gross margins that did not materialize through the third quarter of 2004. During the fourth
quarter, our results benefited from increased vehicle sales, as well as cost-control and productivity improvements. Throughout 2004, we
continued to leverage our cost structure, especially in the areas of compensation and, to a lesser extent, advertising and occupancy costs.
Occupancy costs benefited from lease buy-outs completed in 2004. Additionally, in September 2004, we announced a new streamlined
regional structure.
Non-Operating Income (Expense)
Floorplan Interest Expense
Floorplan interest expense was $110.7 million, $79.1 million and $66.5 million for the years ended December 31, 2005, 2004 and 2003,
respectively. The increase in 2005 compared to 2004 is primarily the result of higher short-term LIBOR interest rates partially offset by lower
average new vehicle inventory levels. The increase in 2004 compared to 2003 is primarily the result of higher average inventory levels and
higher interest rates.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under mortgage facilities and outstanding senior unsecured notes. Other
interest expense was $63.3 million, $76.3 million and $71.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.
Other interest expense also includes interest related to the IRS settlement (as discussed in the “Provision for Income Taxes” section) totaling
$4.8 million and $12.1 million for the years ended December 31, 2004 and 2003, respectively, which represents interest due under the
agreement from the date of the settlement. The decrease in 2005 compared to 2004 of other interest expense is primarily due to the
repurchase of a portion of our senior unsecured notes. The increase in other interest expense for 2004 compared to 2003, excluding amounts
related to the IRS settlement, is primarily due to higher average debt outstanding.
Other Interest Expense — Senior Note Repurchases
During 2005 and 2004, we repurchased $123.1 million and $3.4 million (face value) of our 9.0% senior unsecured notes at an average
price of 110.5% and 114.3% of face value or $136.0 million and $3.9 million, respectively. The $12.9 million and $.5 million premium paid
for this repurchase plus related deferred costs of $4.5 million and $.1 million, respectively, were recognized as Other Interest Expense-
Senior Note Repurchases in the accompanying 2005 and 2004 Consolidated Income Statements.
Other Income (Expense), Net
Other income in 2003 primarily relates to the sale of our interest in an equity-method investment in LKQ Corporation, an auto parts
recycling business, for $38.3 million, resulting in a pre-tax gain of $16.5 million.
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