AutoNation 2005 Annual Report Download - page 35

Table of Contents
additional indebtedness or repay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets and
merge or consolidate with other entities. The indenture for our senior unsecured notes places significant restrictions on our ability to make
certain payments (including dividends and share repurchases) and investments. The revolving credit facility also requires that we meet
certain financial ratios including financial covenants requiring the maintenance of a maximum consolidated cash flow leverage ratio and a
maximum capitalization ratio. In addition, the senior unsecured notes contain a minimum fixed charge coverage ratio covenant, and the
mortgage facility contains both maximum cash flow leverage ratio and minimum interest coverage ratio covenants. In the event that we were
to default in the observance or performance of any of the financial covenants in the revolving credit facility or mortgage facilities and such
default were to continue beyond any cure period or waiver, the lender under the respective facility could elect to terminate the facility and
declare all outstanding obligations under such facility immediately payable. Under the senior unsecured notes, should we be in violation of
the financial covenants, we could be limited in incurring certain additional indebtedness. Our revolving credit facility, the indenture for our
senior unsecured notes, vehicle floorplan payable facilities and mortgage facilities have cross-default provisions that trigger a default in the
event of an uncured default under other material indebtedness. At December 31, 2005, we were in compliance with the requirements of all
such financial covenants. The credit spread for the revolving credit facility is impacted by our senior unsecured credit ratings.
During 2005, we repaid $164.4 million of the outstanding balance under mortgage facilities with certain automotive manufacturers’
captive finance subsidiaries, which includes prepayments totaling $154.0 million. At December 31, 2005, we had $153.7 million outstanding
under a mortgage facility. The facility bears interest at LIBOR-based interest rates (5.2% and 3.5% weighted average for 2005 and 2004,
respectively) and is secured by mortgages on certain of our stores properties.
At December 31, 2005 and 2004, vehicle floorplan payable-trade totaled $2.4 billion for both years. Vehicle floorplan payable-trade reflects
amounts borrowed to finance the purchase of specific vehicle inventories with manufacturers’ captive finance subsidiaries. Vehicle floorplan
payable-non-trade totaled $104.0 million and $80.0 million, at December 31, 2005 and 2004, respectively, and represents amounts payable
borrowed to finance the purchase of specific vehicle inventories with non-trade lenders. All the Company’s floorplan facilities are at LIBOR-
based rates of interest (4.8% and 3.0% weighted average for 2005 and 2004, respectively). Secured floorplan facilities are used to finance
new vehicle inventories and the amounts outstanding thereunder are due on demand, but are generally paid within several business days
after the related vehicles are sold. Floorplan facilities are primarily collateralized by new vehicle inventories and related receivables. Our
manufacturer agreements generally require that the manufacturer have the ability to draft against the floorplan facilities so that the lender
directly funds the manufacturer for the purchase of inventory. The floorplan facilities contain certain financial and operational covenants. At
December 31, 2005, we were in compliance with such covenants in all material respects. At December 31, 2005, aggregate capacity under
the floorplan credit facilities to finance new vehicles was approximately $3.9 billion, of which $2.5 billion total was outstanding.
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 profit pursuant to retrospective commission
arrangements. Through 2002, we assumed some of the underwriting risk through reinsurance agreements with our captive insurance
subsidiaries. Since January 1, 2003, we have not reinsured any new extended warranties or 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 2005, we repurchased 11.8 million shares of our common stock in the open market for an aggregate purchase price of
$237.1 million leaving $71.3 million authorized for share repurchases. Repur-
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