AutoNation 2003 Annual Report Download - page 39

Table of Contents
Contractual Payment Obligations
The following table summarizes our payment obligations under certain contracts at December 31, 2003 (in millions):
Payments Due by Period
After 5
Total 1 Year 2-3 Years 4-5 Years Years
Floorplan notes payable (Note 3)* $2,809.8 $2,809.8 $ — $ — $ —
Notes payable and long-term debt
(Note 8)* 824.4 15.9 155.1 508.5 144.9
Operating lease commitments (Note 9)* 405.6 63.9 104.1 79.3 158.3
IRS tax settlement payable (Note 14)* 124.0 — 82.7 41.3 —
Acquisition purchase price
commitments 86.0 81.9 4.1 — —
Lease buy-out commitments 77.3 77.3 — — —
Purchase obligations 85.2 59.9 13.9 4.7 6.7
Total $4,412.3 $3,108.7 $359.9 $633.8 $309.9
* See Notes to Consolidated Financial Statements.
In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as
financial guarantees of our performance. At December 31, 2003, surety bonds, letters of credit and cash deposits totaled $87.2 million,
including $56.4 million letters of credit, and have various expiration dates. We do not currently provide cash collateral for outstanding letters
of credit. We have negotiated a letter of credit line as part of our multi-year revolving credit facility. Under the terms of the letter of credit line,
the amount available to be borrowed under this revolving credit facility is reduced on a dollar-for-dollar basis by the cumulative face amount of
any outstanding letters of credit. Due to changes in insurance requirements, letters of credit outstanding are expected to be in the range of
$60 million to $80 million in 2004.
As further discussed under the heading “Financial Condition,” in connection with ANC Rental’s spin-off, we provide certain credit
enhancements and guarantees with respect to financial and other performance obligations of ANC Rental. The timing of when these
obligations will be satisfied is difficult to estimate, although we believe it is likely that the majority will be satisfied in the next three years.
As further discussed under the heading “Financial Condition,” there are 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.
Seasonality
Our operations generally experience higher volumes of vehicle sales and service in the second and third quarters of each year due in part
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 conditions.
Accordingly, we expect our revenue and operating results to be generally lower in our first and fourth quarters as compared to our second and
third quarters. However, revenue may be impacted significantly from quarter to quarter by other factors unrelated to season, such as
automotive manufacturer incentives programs.
New Accounting Pronouncements
As of January 1, 2003, we adopted EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor.” EITF 02-16, as it applies to us, addresses the recognition of certain manufacturer allowances and requires that
manufacturer allowances be treated as a reduction of inventory cost unless specifically identified as reimbursement for services or costs
incurred. The adoption of EITF 02-16 resulted in a cumulative effect of accounting change, net of $9.1 million of income
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