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Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and recognized over the life of the policies. Since January 1, 2003, the Company has not reinsured any new extended warranty or credit
insurance products.
For installment loans and leases that in the past had been underwritten by the Company and not securitized, revenue from retail
financing and certain loan underwriting costs were recognized over the term of the contract using the interest method. As of December 2001,
the Company had exited the auto loan and lease underwriting business, and in July 2003, sold all of its finance receivables portfolio.
Advertising
The Company expenses the cost of advertising as incurred or when such advertising initially takes place, net of earned manufacturer
credits and other discounts. Manufacturer advertising credits are earned in accordance with the respective manufacturers’ program, which is
typically after the Company has incurred the corresponding advertising expenses. Advertising expense, net of allowances was
$214.0 million, $210.1 million and $174.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. Advertising
allowances from manufacturers were $46.1 million, $51.5 million and $54.0 million for the years ended December 31, 2005, 2004 and
2003, respectively.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Deferred income taxes have been provided to show the
effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the financial statements.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding during the year. Diluted earnings (loss) per share is based on the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of options. In computing
diluted earnings (loss) per share, the Company has utilized the treasury stock method.
2. RECEIVABLES, NET
The components of receivables, net of allowance for doubtful accounts, at December 31 are as follows:
2005 2004
Trade receivables $96.5 $98.6
Manufacturer receivables 177.7 174.4
Other 98.0 80.0
372.2 353.0
Less: Allowances (7.0) (6.6)
365.2 346.4
Contracts-in-transit and vehicle receivables 430.5 370.5
Income taxes refundable — 43.1
Receivables, net $795.7 $760.0
Contracts-in-transit and vehicle receivables represent receivables from financial institutions for the portion of the vehicle sales price
financed by the Company’s customers.
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