AutoNation 2003 Annual Report Download - page 36

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Table of Contents
bankruptcy court, substantially all of ANC Rental’s assets (the “Rental Business”) were sold to an entity controlled by Cerberus Capital
Management, L.P.
Following the sale, and pursuant to the Settlement Agreement, we continue to guarantee $29.5 million, and have committed to
guarantee up to an additional $10.5 million, in surety bonds supporting obligations of the Rental Business until December 2006. We also are
obligated to pay one-half of any permanent reduction of such guarantee obligations, or up to $20 million, to a trust established for the benefit
of the unsecured creditors in the bankruptcy. As a result of our guarantees and potential payment obligations as described above, we incurred
a pre-tax charge of $20.0 million ($12.3 million after-tax) included in Loss from Discontinued Operations in the accompanying Consolidated
Income Statements during 2003. The $20.0 million pre-tax charge is comprised of estimated exposure under the current guarantees and
potential payment obligations and $4.4 million for the estimated fair value of the potential additional $10.5 million in guarantees.
In addition, based on the Settlement Agreement and assessment of the risks involved in each matter, and excluding the 2003 after-tax
charge of $12.3 million, we estimate remaining potential pre-tax financial exposure related to ANC Rental of up to $20 million ($12 million
after-tax).
As a matter of course, we are regularly audited by various tax authorities. From time to time, these audits result in proposed
assessments. Other tax accruals totaled $307.3 million and $361.3 million at December 31, 2003 and 2002, respectively, and relate to
various tax matters where the ultimate resolution may result in us owing additional tax payments. These matters are expected to be resolved
within the next two years. We believe that our tax positions comply with applicable tax law and that we have adequately provided for any
reasonably foreseeable outcome related to these matters. See Note 14, Income Taxes, of Notes to Consolidated Financial Statements for
additional discussion of income taxes, including the impact of our March 2003 settlement with the IRS.
Cash Flows
Cash and cash equivalents increased (decreased) by $(5.4) million, $48.1 million and $43.5 million during the years ended
December 31, 2003, 2002 and 2001, respectively. The major components of these changes are discussed below.
Cash Flows from Operating Activities
Cash provided by operating activities was $263.9 million, $542.5 million and $540.1 million for the years ended December 31, 2003,
2002 and 2001, 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 new vehicle inventory. The decrease in 2003 compared to 2002 was
driven mainly by the IRS settlement payment of $366.0 million.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash used in capital additions, activity from business acquisitions, property
dispositions, activity from our former installment loan portfolio (all of which was sold in 2003), purchases and sales of investments and other
transactions as further described below.
Capital expenditures, excluding property operating lease buy-outs, were $123.5 million, $163.4 million and $156.5 million during the
years ended December 31, 2003, 2002 and 2001, respectively. Approximately half of our capital investments during 2003 related to required
improvements of our existing stores. The balance of our capital investments during 2003 related to upgrades to existing stores and
construction of new stores. We will make additional facility and infrastructure upgrades and improvements from time to time as we identify
projects that are required to maintain our current business or that we expect to provide us with acceptable rates of return. We expect capital
expenditures in 2004 to be in line with 2003, excluding acquisition-related spending and opportunistic lease buy-outs.
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