AutoNation 2003 Annual Report Download - page 54

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Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
AutoNation, Inc. (the “Company”) is the largest automotive retailer in the United States. As of December 31, 2003, the Company owned
and operated 367 new vehicle franchises from 283 stores 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.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of AutoNation, Inc. and its subsidiaries. All of the Company’s
automotive dealership subsidiaries are indirectly wholly owned by the parent company, AutoNation, Inc. However, independent third parties
have minority ownership interests in certain of the Company’s non-dealership subsidiaries. The total amount of minority ownership interest
is not material to the Company’s financial position, results of operations, or cash flows. The Company operates in a single industry
segment, automotive retailing. All intercompany accounts and transactions have been eliminated.
As further discussed in Note 24, Prior Year Reclassifications and Disaggregations, of Notes to Consolidated Financial Statements,
certain amounts have been reclassified from the previously reported financial statements. The reclassifications include the reclassification of
certain amounts within Intangible Assets, Net and Deferred Income Taxes and Other Tax Liabilities. Certain revenue related to corporate
volume incentives which were previously included in Other Revenue have been reclassified to Finance and Insurance Revenue.
Additionally, Used Vehicle Revenue and Cost of Sales have been adjusted to include the results of wholesale operations that were previously
included in Other Revenue and Cost of Sales.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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 Consolidated Financial Statements include allowances
for doubtful accounts, used vehicle and parts inventory valuation reserve, reserves for chargebacks against revenue recognized from the sale
of finance and insurance products, certain assumptions related to intangible and long-lived assets, reserves for self-insurance programs,
reserves for certain legal proceedings, and reserves for estimated tax liabilities.
Cumulative Effect of Accounting Change
As of January 1, 2003, the Company adopted Emerging Issues Task Force (“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 the Company, 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 tax, totaling $14.6 million to reflect the deferral of certain allowances, primarily floorplan
assistance, into inventory cost. The impact of this accounting change for the year ended December 31, 2003 was an increase of $3.3 million
in Cost of Sales. On a comparable basis, the impact of this accounting change for the years ended December 31, 2002 and 2001 would have
been an
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