AutoNation - 10-Q quarterly report FY

 

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     On November 1, 2005 the registrant had 262,389,015 outstanding shares of common stock, par value $.01 per share.

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

     AutoNation, Inc. (the “Company”), through its subsidiaries, is the largest automotive retailer in the United States. As of September 30, 2005, the Company owned and operated 347 new vehicle franchises from 270 stores primarily located in major metropolitan markets in 17 states, predominantly in the Sunbelt region of the United States. The Company offers a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products and other aftermarket products. The Company also arranges financing for vehicle purchases through third-party finance sources.

     The accompanying Unaudited Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries; all significant intercompany accounts and transactions have been eliminated. The accompanying Unaudited Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. These Unaudited Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, the financial position and the results of operations of the Company for the periods presented.

     The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Significant estimates made by the Company in the accompanying Unaudited Consolidated Financial Statements include allowances for doubtful accounts, assumptions related to intangible and long-lived assets, and for accruals related to self-insurance programs, certain legal proceedings and estimated tax liabilities.

     Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.

     During October 2005, Hurricane Wilma impacted the Company’s South Florida operations where the Company has 33 dealerships, representing approximately 20% of its national business. The Company has had a short-term disruption to its South Florida business and is in the process of assessing the damage to its property and equipment, inventory and overall operations of its business.

     The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for stock-based employee compensation arrangements whereby compensation cost related to stock options is generally not recognized in determining net income. Had compensation cost for the Company’s stock option plans been determined pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and earnings per share would have decreased accordingly. Using the Black-Scholes option pricing model for all outstanding options, and based on their vesting schedules, the Company’s pro forma net income and pro forma earnings per share are as follows for the nine months ended September 30:

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005, the SEC issued Staff Bulletin No. 107 (SAB 107) regarding its interpretation of SFAS 123R. The standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees. In accordance with the revised statement, the Company will be required to recognize the expense attributable to stock options granted or vested subsequent to December 31, 2005. The Company is evaluating the requirements of SFAS 123R and SAB 107. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123 above.

     The components of receivables, net of allowance for doubtful accounts, are as follows:

     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.

     The components of inventory are as follows:

     At September 30, 2005 and December 31, 2004, vehicle floorplan payable totaled $1.9 billion and $2.5 billion, respectively. Vehicle floorplan payable reflects amounts payable to finance the purchase of specific vehicle inventories at LIBOR-based rates of interest, substantially all of which are with manufacturers’ captive finance subsidiaries. Secured floorplan facilities are used to finance primarily new vehicle inventories and the amounts outstanding thereunder are generally due within several business days after the related vehicles are sold. Floorplan facilities are primarily collateralized by new vehicle inventories and related receivables and contain certain financial and operational covenants. At September 30, 2005, the Company was in compliance with such covenants in all material respects. At September 30, 2005, aggregate capacity under the floorplan credit facilities to finance new vehicles was approximately $3.9 billion, of which $1.9 billion was outstanding.

     Intangible assets, net, consist of the following:

     The Company completed impairment tests as of June 30, 2005 for goodwill and intangibles with indefinite lives. The goodwill test includes determining the estimated fair value of the Company’s single reporting unit and comparing it to the carrying value of the net assets allocated to the reporting unit. The Company’s principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers. The test for intangibles with indefinite lives requires the comparison of estimated fair value to its carrying value by store. No impairment charges resulted from the required impairment tests. Goodwill and intangibles with indefinite lives will be tested for impairment annually at June 30 or more frequently when events or circumstances indicate that an impairment may have occurred.

     Notes payable and long-term debt consist of the following:

     The Company has 9.0% senior unsecured notes outstanding due August 1, 2008. During the nine months ended September 30, 2005, the Company repurchased $101.1 million (face value) of senior unsecured notes at an average price of 111.1% of face value or $112.4 million. For the nine months ended September 30, 2005, the premium paid for this repurchase was $11.3 million plus related deferred financing costs of $3.8 million, which was recognized as Other Interest Expense in the accompanying 2005 Unaudited Consolidated Income Statement. Through September 30, 2005, cumulative repurchases of senior unsecured notes, which began during the fourth quarter of 2004, totaled $104.5 million (face value). There were no repurchases during the three months ended September 30, 2005. The senior unsecured notes are guaranteed by substantially all of the Company’s subsidiaries.

     Through July 14, 2005, the Company had two revolving credit facilities with an aggregate borrowing capacity of $500.0 million. A 364-day revolving credit facility, which was scheduled to expire in August 2005, provided borrowing capacity up to $200.0 million at LIBOR-plus 125 basis points. A five-year facility, which was scheduled to expire in August 2006, provided borrowing capacity up to $300.0 million at LIBOR plus 225 basis points. There were no borrowings on these revolving credit facilities during 2005 and 2004. On July 14, 2005, the Company terminated the credit facilities and entered into a new five-year revolving credit facility with an aggregate borrowing capacity of $600.0 million presently at a rate of interest of LIBOR plus 75 basis points. The interest rate charged for the revolving credit facility is impacted by the Company’s senior unsecured credit ratings. The facility is guaranteed by substantially all of the Company’s subsidiaries. The Company has negotiated a letter of credit sublimit as part of its revolving credit facility. The amount available to be borrowed under the revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative face amount of any outstanding letters of credit, which totaled $85.2 million at September 30, 2005.

     During the nine months ended September 30, 2005, the Company repaid $36.8 million of the outstanding balance under mortgage facilities with automotive manufacturers’ captive finance subsidiaries, which includes a prepayment totaling $28.3 million. At September 30, 2005, the Company had $281.3 million outstanding under these mortgage facilities. In October 2005, the Company prepaid $125.7 million, the total outstanding

balance under one of the mortgage facilities. The outstanding balances are secured by mortgages on certain of the Company’s store properties.

     The Company’s senior unsecured notes, revolving credit facility and mortgage facilities contain numerous customary financial and operating covenants that place significant restrictions on the Company, including the Company’s ability to incur 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 the Company’s senior unsecured notes places significant restrictions on making certain payments (including dividends and share repurchases) and investments. The revolving credit facility also requires the Company to 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 facilities contain both maximum cash flow leverage ratio and minimum interest coverage ratio covenants. In the event that the Company 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 the Company be in violation of the financial covenants, it could be limited in incurring certain additional indebtedness. The Company’s revolving credit facility, the indenture for the Company’s 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 of the Company. At September 30, 2005, the Company was in compliance with the requirements of all such financial covenants.

     In the event of a downgrade in the Company’s credit ratings, none of the covenants described above would be impacted. In addition, availability under the revolving credit facility described above would not be impacted should a downgrade in the senior unsecured debt credit ratings occur. Certain covenants in the senior unsecured note indenture would be eliminated with certain upgrades of our senior unsecured notes to investment grade.

     Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor.

     During the nine months ended September 30, 2005, the Company repurchased 9.4 million shares of its common stock in the open market for an aggregate purchase price of $187.2 million, leaving approximately $121.2 million available for share repurchases under the current program authorized by the Company’s Board of Directors. Future share repurchases are subject to limitations contained in the indenture for the Company’s senior unsecured notes.

     During the nine months ended September 30, 2005 and 2004, proceeds from the exercise of stock options were $76.7 million and $68.1 million, respectively.

     Income taxes provided are based upon the Company’s anticipated annual effective income tax rate.

     In 2005, the Company completed the federal income tax audit for the years 1997 through 2001. During the three and nine months ended September 30, 2005, the Company recorded net income tax benefits in the provision for income taxes totaling $9.4 million and $16.2, respectively, primarily related to the resolution of various income tax matters. During the three and nine months ended September 30, 2004, the Company recorded net income tax benefits in the provision for income taxes totaling $.3 million and $1.1 million, respectively, for other tax matters. The Company also recognized a $3.0 million and $110.4 million gain included in Discontinued Operations for the three and nine months ended September 30, 2005, respectively, related to the resolution of various income tax matters.

     A federal income tax audit for 2002 through 2004 is being conducted by the IRS. The Company is routinely audited by the states in which it does business and remains under examination by various states. The Company expects additional state and federal tax adjustments in the future as it continues to work through various tax matters. The Company believes that its tax positions comply with applicable tax law, and that it has adequately provided for these matters. Included in Other Current Liabilities at September 30, 2005 and December 31, 2004, are $58.4 million and $181.3 million, respectively, provided by the Company for these matters.

     Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are based on the combined weighted-average number of common shares and common share equivalents outstanding, which includes, where appropriate, the assumed exercise of dilutive options.

     The computation of weighted-average common and common equivalent shares used in the calculation of basic and diluted earnings per share is as follows:

     At September 30, 2005 and 2004, the Company had approximately 31.4 million and 36.0 million stock options outstanding, respectively, of which 7.4 million and 9.6 million, respectively, have been excluded from the computation of diluted earnings per share since they are anti-dilutive. During the nine months ended September 30, 2005, the Company granted a total of 2.9 million stock options.

     Comprehensive income (loss) is as follows:

     The Company has a series of interest rate hedge instruments, consisting of a combination of swaps, and cap and floor options (collars) with a notional value of $800.0 million at September 30, 2005. The hedge instruments are designed to convert certain floating rate vehicle floorplan payable and portions of the Company’s mortgage facilities to fixed rate debt. The Company has $200.0 million in swaps, which started in 2004 and effectively lock in a LIBOR-based rate of 3.0%, and $600.0 million in collars that cap floating rates to a maximum LIBOR-based rate no greater than 2.4%. All of the Company’s hedge instruments mature between February 2006 and July 2006. At September 30, 2005 and 2004, net unrealized gains (losses) related to hedges included in other comprehensive gain (loss) were $1.8 million and $(3.6) million, respectively. For the three months ended September 30, 2005 and 2004, the income statement impact from interest rate hedges was additional income (expense) of $.3 million and $(.6) million, respectively. For the nine months ended September 30, 2005 and 2004, the income statement impact from interest rate hedges was an additional expense of $.9 million and $2.1 million, respectively. As of September 30, 2005, all of the Company’s derivative contracts were determined to be highly effective, and no ineffective portion was recognized in income.

     The Company acquired two automotive retail franchises and other related assets during the nine months ended September 30, 2005 and five automotive retail franchises and other related assets during the nine months ended September 30, 2004. During the nine months ended September 30, 2005 and 2004, the Company paid $6.0 million and $151.2 million, respectively, in cash for indefinite-lived franchise rights and related operating assets. During the nine months ended September 30, 2005 and 2004, the Company also paid $7.5 million and $3.1 million, respectively, in deferred purchase price for certain prior year automotive retail acquisitions.

     Purchase price allocations for business combinations for the nine months ended September 30 were as follows:

     The Company’s unaudited pro forma consolidated results of continuing operations, assuming acquisitions had occurred at January 1, 2004, are as follows for the nine months ended September 30:

     The unaudited pro forma results of continuing operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated these businesses as of the beginning of each period presented.

Legal Proceedings

     The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business, including litigation with customers, employment-related lawsuits, class actions, purported class actions and actions brought by governmental authorities.

     Many of the Company’s Texas store subsidiaries have been named in three class action lawsuits brought against the Texas Automobile Dealers Association (“TADA”) and approximately 700 new vehicle stores in Texas that are members of the TADA. The three actions allege that since January 1994, Texas dealers have deceived customers with respect to a vehicle inventory tax and violated federal antitrust and other laws as well. In April 2002, in two actions (which have been consolidated), the state court certified two classes of consumers on whose behalf the action would proceed. In October 2002, the Texas Court of Appeals affirmed the trial court’s order of class certification in the state action and the Company and other defendants appealed the ruling to the Texas Supreme Court, which, on March 26, 2004, declined to review the class certification. The defendants then petitioned the Texas Supreme Court to reconsider its denial of review of the class certification and that petition was denied on September 10, 2004. In the federal antitrust case, in March 2003, the federal court conditionally certified a class of consumers. The Company and other defendants appealed the ruling to the Fifth Circuit Court of Appeals, which on October 5, 2004, reversed the class certification order, and remanded the case back to the federal district court for further proceedings. In February 2005, the Company and the plaintiffs in both the state and federal cases agreed to settlement terms in the respective cases. The settlements are contingent upon court approval. The estimated expense of the proposed settlements is not a material amount and includes the Company’s stores issuing coupons for discounts off future vehicle purchases, refunding cash in certain circumstances, and paying attorneys’ fees and certain costs. Under the terms of the settlements, the Company’s stores would continue to itemize and pass through to the customer the cost of the inventory tax. If the settlements are not approved, the Company would then vigorously assert available defenses in connection with the TADA lawsuits. Further, the Company may have certain rights of indemnification with respect to certain aspects of these lawsuits. However, an adverse resolution of the TADA lawsuits could result in the payment of significant costs and damages and negatively impact the Company’s ability to itemize and pass through to the customer the cost of the tax in the future, which could have a material adverse effect on the Company’s future results of operations, financial condition and cash flows.

     In addition to the foregoing cases, the Company is also a party to numerous other legal proceedings that arose in the conduct of its business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its financial condition, results of operations or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

Other Matters

     The Company, acting through its subsidiaries, is the lessee under many real-estate leases that provide for the use by the Company’s subsidiaries of their respective store premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, the Company enters into agreements with third parties in connection with the sale of assets or businesses in which it agrees to indemnify the purchaser or related parties from certain liabilities or costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, liability would be limited by the terms of the applicable agreement.

     From time to time, primarily in connection with dispositions of automotive stores, the Company’s subsidiaries assign or sublet to the store purchaser the subsidiaries’ interest in any real property leases associated with such stores. In general, the Company’s subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, the Company and its subsidiaries generally remain subject to the terms of any guarantees made by the Company and its subsidiaries in connection with such leases. Although the Company generally has indemnification rights against the assignee or sublessee in the event of non-performance under these leases, as well as certain defenses, and the Company presently has no reason to believe that it or its subsidiaries will be called on to perform any material obligations under any such assigned leases or subleases, the Company estimates that lessee rental payment obligations during the remaining terms of such assigned leases or subleases are currently approximately $75 million at September 30, 2005. The Company and its subsidiaries also may be called on to perform other obligations under these leases, such as environmental remediation of the leased premises or repair of the leased premises upon termination of the lease, although the Company presently has no reason to believe that it or its subsidiaries will be called on to so perform and such obligations cannot be quantified at this time. The Company’s exposure under these leases is difficult to estimate and there can be no assurance that any performance of the Company or its subsidiaries required under these leases would not have a material adverse effect on the Company’s financial condition and cash flows.

     In the ordinary course of business, the Company is required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of the Company’s performance, which totaled $118.1 million at September 30, 2005.

     In the ordinary course of business, the Company is subject to numerous state and federal laws and regulations, including automotive, environmental, health and safety and other laws and regulations. The Company does not anticipate that the costs of compliance with such laws and regulations will have a material adverse effect on its business, consolidated results of operations, cash flows or financial condition, although such outcome is possible given the nature of the Company’s operations and the extensive legal and regulatory framework applicable to its business. The Company does not have any material known environmental commitments or contingencies.

     Discontinued operations are related to stores that were sold or for which the Company has entered into a definitive agreement to sell. Generally, the sale of a store is completed within 60 to 90 days after a definitive agreement is signed. The accompanying Unaudited Consolidated Financial Statements for all the periods presented have been adjusted to classify these stores as discontinued operations. Also included in results from discontinued operations is a gain from an income tax adjustment related to items previously reported in discontinued operations. Selected income statement data for the Company’s discontinued operations is as follows:

     A summary of the total assets and liabilities of discontinued operations included in Other Current Assets and Other Current Liabilities is as follows:

     The following discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K.

     AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of September 30, 2005, we owned and operated 347 new vehicle franchises from 270 stores primarily located in major metropolitan markets in 17 states, predominantly in the Sunbelt region of the United States. Our stores, which we believe include some of the most recognizable and well-known in our key markets, sell 35 different brands of new vehicles. The core brands of vehicles that we sell are manufactured by Ford, General Motors, DaimlerChrysler, Toyota, Nissan, Honda and BMW.

     We operate in a single industry segment, automotive retailing. We offer a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products and other aftermarket products. We also arrange financing for vehicle purchases through third-party finance sources. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, reducing operating expenses, leveraging our market brands and advertising, improving asset management and sharing and implementing best practices across all of our stores.

     The automotive retailing industry historically has been subject to substantial cyclical variation characterized by periods of oversupply of new vehicles and weak consumer demand, although the impact on retailers has been mitigated in recent years by historically low interest rates (which have recently been increasing and are expected to continue increasing) and high manufacturer incentives and discount programs. We believe that many factors affect industry-wide sales of new vehicles and retailers’ gross profit margins, including consumer confidence in the economy, the level of manufacturers’ excess production capacity, manufacturer incentives (and consumers’ reaction to such offers), intense industry competition, interest rates, the prospects of war, other international conflicts or terrorist attacks, severe weather conditions, the level of personal discretionary spending, product quality, affordability and innovation, fuel prices, credit availability, unemployment rates, the number of consumers whose vehicle leases are expiring and the length of consumer loans on existing vehicles.

     During the three months ended September 30, 2005 and 2004, we had net income from continuing operations of $180.2 million and $155.4 million, respectively, and diluted earnings per share of $.45 and $.35, respectively. The Company’s results were positively impacted by revenue growth, gross margin increases, share repurchases and continued leverage of the Company’s cost structure. During the third quarter of 2004, store volumes were impacted by four hurricanes that caused temporary store closings and substantial disruption of our business throughout Florida and the Southeast. We were not significantly affected by hurricanes during the third quarter of 2005. However, in the fourth quarter Hurricane Wilma has impacted our South Florida operations where we have 33 dealerships, representing approximately 20% of our national business. We have had a short-term disruption to our South Florida business and are in the process of assessing the damage to our property and equipment, inventory and overall operations of our business. While we do not expect a long-term effect on our business, there can be no assurance that Hurricane Wilma will not materially impact our business and results of operations during the fourth quarter of 2005. In June 2005, General Motors announced an “employee pricing for everyone” program, which was followed in July 2005 with similar programs introduced by Ford and Chrysler. Although these programs helped drive increases in volume, we focused on expanding gross profit per vehicle retailed through lower and more balanced new vehicle inventories. Industry new vehicles sales were adversely impacted in October 2005 as a result of items such as the end of manufacturer employee pricing programs, higher gas prices and rising interest rates as well as the impact of Hurricanes Katrina and Wilma. Industry new vehicles sales are difficult to predict and may continue to be adversely affected for the remainder of 2005 by these or other factors.

     Additionally, we recognized a $9.4 million benefit during the three months ended September 30, 2005 related to the resolution of various tax matters. During the three months ended September 30, 2005, we had income from discontinued operations totaling $9.2 million, net of income taxes. We recognized a $3.0 million gain included in discontinued operations primarily related to the resolution of various income tax matters. We also recognized a loss of $6.2 million, net of income taxes, related to stores that were sold or for which we have entered a definitive agreement to sell. Certain amounts reflected in the accompanying Unaudited Consolidated Financial

Statements for the three and nine months ended September 30, 2005 and 2004 have been adjusted to classify the results of the stores described above as discontinued operations.

     For the nine months ended September 30, 2005 and 2004, we had net income from continuing operations of $490.2 million and $457.3 million, respectively, and diluted earnings per share of $1.17 and $1.03, respectively. During 2005, we recognized a $16.2 million benefit related to the resolution of various tax matters. The results for the nine months ended September 30, 2005 include $9.1 million or $.03 per share after-tax ($15.1 million pre-tax) of premium and deferred costs recognized as Other Interest Expense related to the repurchase of $101.1 million (face value) of our 9% senior unsecured notes. Additionally, the results for the nine months ended September 30, 2005 were impacted by higher floorplan interest expense primarily resulting from higher short-term interest rates partially offset by lower average new vehicle inventory balances. The net inventory carrying benefit (floorplan interest expense net of floorplan assistance recognized from manufacturers) for the nine months ended September 30, 2005 was $9.8 million, a decrease of $20.5 million compared to the same period in 2004. We expect to have similar negative trends for the remainder of 2005.

     During the nine months ended September 30, 2005, we had income from discontinued operations totaling $106.0 million, net of income taxes, which includes a $110.4 million gain primarily related to the resolution of various income tax matters.

     During the nine months ended September 30, 2005, we acquired 9.4 million shares of our common stock in the open market for an aggregate purchase price of $187.2 million. The indenture for our senior notes contains restrictions on our ability to make share repurchases. See further discussion under the heading “Financial Condition.” During the nine months ended September 30, 2005, 6.6 million shares of our common stock were issued upon the exercise of stock options resulting in proceeds of $76.7 million.

     Historical operating results include the results of acquired businesses from the date of acquisition.

     The following table details net inventory carrying costs consisting of floorplan assistance earned, a component of new vehicle gross profit, and floorplan interest expense.

     We have presented below our operating results on a same store basis to reflect our internal performance. Same store operating results include the results of stores for identical months in both years included in the comparison, starting with the first month of ownership or operation.