AutoNation 2007 Annual Report Download - page 74

Table of Contents
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judgment, and therefore cannot be determined with precision. The assumptions used have a significant effect on the estimated amounts reported.
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
• Cash and cash equivalents, trade and manufacturer receivables, other current assets, vehicle floorplan payable, accounts
payable, other current liabilities, and variable rate debt: The amounts reported in the accompanying Consolidated Balance Sheets
approximate fair value due to their short-term nature.
• Marketable Securities: Investments in marketable securities are stated at fair value, estimated based on quoted market prices, with
unrealized gains and losses included in Accumulated Other Comprehensive Income (Loss) in the Consolidated Balance Sheets. The
carrying amount and fair value of our investments in marketable securities totaled $18.5 million at December 31, 2007, and
$27.3 million at December 31, 2006.
• Fixed rate debt: The fair value of fixed rate debt is based on borrowing rates currently available to the Company for debt with similar
terms and maturities. The carrying amounts of our fixed rate debt primarily consisting of amounts outstanding under our senior
unsecured notes and mortgages totaled $595.2 million at December 31, 2007, and $360.5 million at December 31, 2006, with a fair
value of $578.9 million in 2007 and $363.4 million in 2006.
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We own and operate franchised automotive stores in the United States pursuant to franchise agreements with vehicle manufacturers. In
2007, approximately 50% of our new vehicle revenue was generated by our stores in California and Florida. Franchise agreements generally
provide the manufacturers or distributors with considerable influence over the operations of the store. The success of any franchised automotive
dealership is dependent, to a large extent, on the financial condition, management, marketing, production, and distribution capabilities of the
vehicle manufacturers or distributors of which we hold franchises. We had receivables from manufacturers or distributors of $139.9 million at
December 31, 2007, and $158.7 million at December 31, 2006. Additionally, a large portion of our Contracts-in-Transit included in
Receivables, net, in the accompanying Consolidated Balance Sheets, are due from automotive manufacturers’ captive finance subsidiaries
which provide financing directly to our new and used vehicle customers.
We purchase substantially all of our new vehicles from various manufacturers or distributors at the prevailing prices available to all
franchised dealers. Additionally, we finance our new vehicle inventory primarily with automotive manufacturers’ captive finance subsidiaries.
Our sales volume could be adversely impacted by the manufacturers’ or distributors’ inability to supply the stores with an adequate supply of
vehicles and related financing.
Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and
markets in which our products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at
December 31, 2007, we do not consider AutoNation to have any significant non-manufacturer concentrations of credit risk.
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Our operations generally experience higher volumes of vehicle sales and service in the second and third quarters of each year in part due to
consumer buying trends and the introduction of new vehicle models. Also, demand for cars and light trucks is generally lower during the winter
months than in other seasons, particularly in regions of the United States where stores may be subject to adverse winter weather conditions.
Accordingly, we expect revenue and operating results generally to be lower in the first and fourth quarters as compared to
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