AutoNation 2003 Annual Report Download - page 74

Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 1997 and 1999, the Company engaged in certain transactions with tax implications that the IRS had challenged. Approximately
$551 million of the net deferred tax liabilities and $120 million of other tax accruals within Deferred Income Taxes and Other Tax Liabilities at
December 31, 2002 relate to these transactions, including a significant portion that relates to a transaction that generally had the effect of
accelerating projected tax deductions relating to health and welfare benefits to which the Company would have been entitled upon providing
such benefits in the future, and which deductions it was foregoing. In March 2003, the Company entered into a settlement agreement with
the IRS with respect to the tax treatment of these transactions. Under the agreement, the Company agreed to pay the IRS net aggregate
payments of approximately $470 million, which included an initial net payment of approximately $350 million due in March 2004 and three
subsequent net payments of approximately $40 million each due March 2005, 2006, and 2007, respectively. As a result of the settlement,
the Company recognized an income tax benefit of $127.5 million from the reduction of previously recorded tax liabilities. The Company
continues to be under federal income tax audit for the years 1997 through 2001.
In July 2003, the Company made a $366 million prepayment of the initial installment due March 2004 (net payment of $336 million,
including a $30 million income tax benefit for the interest deduction). At December 31, 2003, the amounts owed to the IRS as part of the
settlement total $124.0 million and are included in the Balance Sheet caption Deferred Income Taxes and Other Tax Liabilities. This amount
includes interest from the time of the affected tax returns to December 31, 2003. The Company recorded interest expense on the IRS tax
settlement payables totaling $12.1 million for the year ended December 31, 2003.
During 2003, the Company recorded net benefits to the provision for income taxes totaling $13.4 million primarily related to favorable
adjustments and settlements of various tax obligations offset by increases in valuation allowances.
As a matter of course, the Company is regularly audited by various taxing authorities and from time to time, these audits result in
proposed assessments where the ultimate resolution may result in the Company owing additional taxes. The Company believes that its tax
positions comply with applicable tax law and that it has adequately provided for any reasonably foreseeable outcome related to these matters.
Included in Other Current Liabilities at December 31, 2003 and Deferred Income Taxes and Other Tax Liabilities at December 31, 2002 are
$307.3 million and $361.3 million, respectively, provided by the Company for these matters. The amounts are reflected in Other Current
Liabilities at December 31, 2003 since the Company believes it is possible that these matters may be resolved within the next year.
15. EARNINGS PER SHARE
The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per
share is as follows for the years ended December 31:
2003 2002 2001
Weighted average shares outstanding used in calculating basic
earnings per share 279.5 316.7 333.4
Effect of dilutive options and warrants 7.5 4.8 1.8
Weighted average common and common equivalent shares used in
calculating diluted earnings per share 287.0 321.5 335.2
As of December 31, 2003 the Company had employee stock options outstanding of 42.9 million of which 6.6 million have been excluded
from the computation of diluted earnings per share since they are anti-dilutive. As of December 31, 2002 and 2001, outstanding employee
stock options totaling 18.8 million and 46.1 million, respectively, have been excluded since they were anti-dilutive.
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