AutoNation 2007 Annual Report Download - page 25

Table of Contents
our common stock for an aggregate purchase price of $645.7 million (average purchase price per share of $19.43) during the year ended
December 31, 2007. Future share repurchases are subject to limitations contained in the indenture relating to our senior unsecured notes. As of
January 1, 2008, we had approximately $30 million available for share repurchases and other restricted payments that are subject to these
limitations. This amount will increase in future periods by 50% of our cumulative consolidated net income (as defined in the indenture), the net
proceeds of stock option exercises, and certain other items, and decrease by the amount of future share repurchases and other restricted
payments subject to these limitations. For further information, see “Liquidity and Capital Resources” and Note 7, Notes Payable and Long-
Term Debt, of the Notes to Consolidated Financial Statements. During 2007, 6.8 million shares of our common stock were issued upon exercise
of stock options, resulting in proceeds of $96.6 million (average price per share of $14.12).
We had a loss from discontinued operations totaling $9.3 million in 2007 and $13.9 million in 2006, net of income taxes. Certain amounts
reflected in the accompanying Consolidated Financial Statements for the years ended December 31, 2007, 2006, and 2005, have been adjusted
to reclassify as discontinued operations the results of stores that were sold, that we have entered into an agreement to sell, or for which we
otherwise deem a proposed sales transaction to be probable with no material changes expected.
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We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, which
require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our
estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we believe to be reasonable.
Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Consolidated Financial
Statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and an understanding of
our results of operations, based on the high degree of judgment or complexity in their application.
Goodwill, Other Intangible Assets, and Long-Lived Assets — Goodwill, other intangible assets, and long-lived assets are significant
components of our Consolidated Balance Sheets. Our policies regarding the valuation of intangible assets affect the amount of future
amortization and possible impairment charges we may incur.
Goodwill consists of the cost of acquired businesses in excess of the fair value of net assets acquired, using the purchase method of
accounting. Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal
rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of our intent to do so. Our principal
identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We generally expect our franchise agreements to
survive for the foreseeable future, and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without
substantial cost. We believe that our franchise agreements will contribute to cash flows for the foreseeable future and have indefinite lives.
Goodwill and franchise rights assets are tested for impairment annually at June 30 or more frequently when events or circumstances indicate
that impairment may have occurred. We are subject to financial statement risk to the extent that goodwill, franchise rights assets, or other
intangible assets become impaired due to decreases in the fair value of the related underlying business.
The risk of goodwill and franchise rights impairment losses may increase to the extent that our market capitalization and earnings decline. A
sustained decrease in our market capitalization, or a negative long-term performance outlook, could cause the carrying value of our reporting
unit to exceed its fair value, which may result in an impairment loss. Impairment losses could have an adverse impact on our ability to satisfy
the financial ratios or other covenants under our debt agreements and could have a material adverse impact on our results of operations and
financial condition.
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