AutoNation 2001 Annual Report Download - page 39

and excluding the liabilities associated with the $20.0 million charge we
incurred in the fourth quarter of 2001, our remaining potential pre-tax
financial exposure related to ANC Rental may be in the range of $25.0 million to
$60.0 million. However, the exposure is difficult to estimate and we cannot
assure you that our aggregate obligations under these credit enhancements,
guarantees and ANC Rental Agreements will not be materially above the range
indicated above or that we will not be subject to additional claims as a result
of ANC Rental's bankruptcy filing, which could have a material adverse effect on
our business, financial condition, cash flows and prospects.
At December 31, 2001 and 2000, we had $853.8 million and $877.2 million,
respectively, of net deferred tax liabilities. We provide for deferred income
taxes in our Consolidated Balance Sheets 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. In 1997 and
1999, we engaged in certain transactions that are of a type that the Internal
Revenue Service has indicated it intends to challenge. Approximately $680
million of the net deferred tax liabilities relate to these transactions,
including a significant portion that relates to a transaction that generally had
the effect of accelerating certain future deductions. The amount of foregone tax
deductions in 2001 relating to that transaction was approximately $44 million.
These transactions are currently under review by the Internal Revenue Service.
We believe that our tax returns appropriately reflect such transactions, and
that we have established adequate reserves with respect to any tax liabilities
relating to these transactions. However, an unfavorable settlement or adverse
resolution of these matters could have a material adverse effect on our
financial condition, results of operations and cash flows.
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CASH FLOWS
Changes in floorplan notes payable, which previously were classified as
financing activities, have been reclassified to operating activities in the
accompanying Statements of Cash Flows to provide a more meaningful
representation of our operating activities.
Cash and cash equivalents increased (decreased) by $43.5 million, $(153.6)
million and $(489.9) million during the years ended December 31, 2001, 2000 and
1999, respectively. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $540.1 million, $431.4 million
and $478.6 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
Cash flows from operating activities include net income adjusted for
non-cash items and the effects of changes in working capital including changes
in floorplan notes payable which directly relate to vehicle inventory. The 2001
change in inventory, net of floorplan notes payable, is attributable to lower
inventory levels maintained in 2001 as compared to 2000. The 2001 change in
other liabilities is the result of megastore and other exit payments made in
2000 as part of 1999 restructuring activities.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash provided by
(used for) capital additions, property dispositions, net activity of installment
loan receivables, purchases and sales of investments and other transactions as
further described below and business acquisitions and divestitures.
Capital expenditures were $163.6 million, $138.7 million and $242.3 million
during the years ended December 31, 2001, 2000 and 1999, respectively. The 2001
increase in capital expenditures is primarily due to amounts expended on store
renovations and technology upgrades. Approximately half of our capital