AutoNation 2003 Annual Report Download - page 56

Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 establishes a single accounting model for assets to be disposed
of by sale whether previously held and used or newly acquired. SFAS 144 retains the provisions of APB 30 for the presentation of
discontinued operations in the income statement but broadens the presentation to include a component of an entity.
Intangible Assets
The Company has adopted the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations”
(“SFAS 141”), which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method,
eliminating the pooling of interests method. Additionally, acquired intangible assets are separately recognized if the benefit of the intangible
asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer’s intent to do so.
Effective January 1, 2002, the Company also adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets” (“SFAS 142”). Goodwill and intangible assets with indefinite lives existing at June 30, 2001 were amortized
primarily over forty years on a straight-line basis until December 31, 2001. Effective January 1, 2002, such amortization ceased. Other
intangibles with definite lives continue to be amortized primarily over three to fifteen years.
Pro forma net income and earnings per share for the year ended December 31, 2001, adjusted to eliminate historical amortization of
goodwill and related tax effects, is as follows:
2001
Reported net income $232.3
Add: goodwill amortization, net of tax 59.8
Pro forma net income $292.1
Reported earnings per share:
Basic $.70
Diluted $.69
Pro forma earnings per share:
Basic $.88
Diluted $.87
The Company’s principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. The Company
generally expects its franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms,
anticipates routine renewals of the agreements without substantial cost. The contractual terms of the Company’s franchise agreements
provide for various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to renew
such franchises upon expiration so long as the dealership is in compliance with the terms of the agreement. However, in general, the states
in which the Company operates have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise
agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It is generally difficult for a
manufacturer to terminate, or not renew, a franchise under these franchise laws, which were designed to protect dealers. In addition, in the
Company’s experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated
or not renewed by the manufacturer. Accordingly, the Company believes that its franchise agreements will contribute to cash flows for the
foreseeable future and have indefinite lives under SFAS 142.
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