AutoNation 2003 Annual Report Download - page 55

Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
increase of $4.7 million and a decrease of $11.6 million, respectively, in Cost of Sales. Additionally, the adoption of EITF 02-16 impacted the
accounting for certain manufacturers’ advertising allowances resulting in a reclassification that increased Selling, General and Administrative
expenses and, correspondingly, reduced Cost of Sales by $18.6 million for the year ended December 31, 2003 to now reflect these
allowances as a reduction of Cost of Sales. On a comparable basis, the reclassification to increase Selling, General and Administrative
Expenses and to reduce Cost of Sales for the years ended December 31, 2002 and 2001 would have been $19.5 million and $21.4 million,
respectively.
Inventory
Inventory consists primarily of new and used vehicles held for sale valued using the specific identification method, net of reserves. Cost
includes acquisition, reconditioning and transportation expenses. Parts and accessories are valued at lower of cost (first-in, first-out) or
market, net of reserves.
Investments
Investments, included in Other Assets in the accompanying Consolidated Balance Sheets, consist of marketable securities. Restricted
investments, included in Restricted Assets, consist primarily of marketable corporate and government debt securities. Marketable securities
include investments in debt and equity securities and are primarily classified as available for sale and are stated at fair value with unrealized
gains and losses included in Other Comprehensive Income (Loss) in the Company’s Consolidated Balance Sheets. Other-than-temporary
declines in investment values are recorded as a component of Other Income (Expense), Net in the Company’s Consolidated Income
Statements. Fair value is estimated based on quoted market prices. Equity-method investments represent investments in 50% or less
owned automotive-related businesses over which the Company has the ability to exercise significant influence. The Company records its
initial equity-method investments at cost and subsequently adjusts the carrying amounts of the investments for the Company’s share of the
earnings or losses of the investee after the acquisition date as a component of Other Income (Expense), Net in the Company’s Consolidated
Income Statements. The Company continually assesses whether equity-method investments should be evaluated for possible impairment
by use of an estimate of the related future undiscounted cash flows. The Company measures impairment losses based upon the amount by
which the carrying amount of the investment exceeds the fair value.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in Other Income (Expense), Net in the
Consolidated Income Statements.
Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. The estimated useful lives
are: twenty to forty years for buildings and improvements, three to fifteen years for equipment and five to ten years for furniture and fixtures.
The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful
life of property and equipment or whether the remaining balance of property and equipment should be evaluated for possible impairment. The
Company uses an estimate of the related undiscounted cash flows over the remaining life of the property and equipment in assessing
whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of
the asset exceeds the fair value. Fair values generally are estimated using prices for similar assets and/or discounted cash flows.
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