AutoNation 2007 Annual Report Download - page 37

Table of Contents
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Selling, General, and Administrative Expenses
During 2007, selling, general, and administrative expenses decreased $63.7 million or 3.0%. As a percentage of total gross profit, selling,
general, and administrative expenses increased to 71.9% in 2007 from 70.7% in 2006 resulting from deleveraging of our cost structure due to the
decline in vehicles sales. Selling, general, and administrative expenses in 2007, as compared to 2006, decreased due to a $58.8 million decrease
in compensation expense and an $8.3 million decrease in gross advertising expenditures, partially offset by a $3.7 million decrease in
advertising reimbursements from manufacturers.
During 2006, selling, general, and administrative expenses increased $66.5 million or 3.3%. As a percentage of total gross profit, selling,
general, and administrative expenses increased to 70.7% in 2006 from 70.1% in 2005. Increases in selling, general, and administrative expenses
in 2006, compared to 2005, are primarily due to a $49.8 million increase in compensation expense, including $15.2 million of non-cash
compensation expense related to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,”
for stock options during 2006. Additionally, advertising expenses increased $16.0 million, resulting from a $7.4 million increase in gross
advertising expenditures and an $8.6 million decrease in advertising reimbursements from manufacturer. In 2005, selling, general, and
administrative expenses included $10.5 million of property damage costs related to Hurricane Wilma.
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Floorplan Interest Expense
Floorplan interest expense was $133.1 million in 2007, $138.2 million in 2006, and $102.3 million in 2005. The decrease in 2007, as
compared to 2006, is primarily the result of lower inventory levels, partially offset by higher short-term LIBOR interest rates during 2007. The
increase in 2006, as compared to 2005, is primarily the result of higher short-term LIBOR interest rates. In 2008, we anticipate lower floorplan
interest rates resulting from lower short-term LIBOR interest rates.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under our term loan facility, mortgage facility, revolving credit facility, and
outstanding senior unsecured notes. Other interest expense was $114.3 million in 2007, $90.9 million in 2006, and $63.3 million in 2005. The
increase in other interest expense in 2007, as compared to 2006, is primarily due to a $21.8 million increase in interest expense related to the
$1.15 billion of additional debt incurred in connection with our April 2006 equity tender offer and a $6.2 million increase in interest expense
related to our revolving credit facility, primarily as a result of increased borrowings in 2007. Partially offsetting these increases was an
$8.7 million reduction in interest expense resulting from the repurchase of our 9% senior unsecured notes and repayments of mortgage facilities.
Additionally, during 2007 we incurred $2.6 million of expenses in connection with the modifications to our term loan, revolving credit facilities,
and our mortgage facility.
The increase in other interest expense in 2006, as compared to 2005, is primarily due to a $61.6 million increase in interest expense related
to the $1.15 billion of additional debt incurred in connection with our April 2006 equity tender offer, partially offset by a $32.4 million
reduction in interest expense resulting from the repurchase of our 9% senior unsecured notes and repayments of mortgage facilities during 2006
and 2005.
Other Interest Expense — Senior Note Repurchases
In April 2006, we purchased $309.4 million aggregate principal of our 9% senior unsecured notes for an aggregate total consideration of
$339.8 million pursuant to our debt tender offer and consent solicitation. Approximately $34.5 million of tender premium and other financing
costs related to our debt tender offer was expensed as Other Interest Expense — Senior Note Repurchases in the accompanying Consolidated
Income Statements.
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