AutoNation 2003 Annual Report Download - page 75

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Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax-free spin-off of ANC Rental Corporation (“ANC Rental”), which operated its former
rental business. In connection with the spin-off, the Company agreed to provide certain guarantees on behalf of ANC Rental. On
November 13, 2001, ANC Rental filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the
U.S. Bankruptcy Court in Wilmington, Delaware. In May 2003, the bankruptcy court approved a settlement agreement among AutoNation,
ANC Rental and the Committee of Unsecured Creditors in the bankruptcy that resolved potential claims relating to ANC Rentals’ bankruptcy,
including potential claims against the Company arising out of the spin-off of ANC Rental (the “Settlement Agreement”). On October 14,
2003, with the approval of the bankruptcy court, substantially all of ANC Rental’s assets (the “Rental Business”) were sold to an entity
controlled by Cerberus Capital Management, L.P.
Following the sale, and pursuant to the Settlement Agreement, the Company continues to guarantee $29.5 million, and has committed
to guarantee up to an additional $10.5 million, in surety bonds supporting obligations of the Rental Business until December 2006. The
Company also is obligated to pay one-half of any permanent reduction of such guarantee obligations, or up to $20 million, to a trust
established for the benefit of the unsecured creditors in the bankruptcy. As a result of the Company’s guarantees and potential payment
obligations as described above, it incurred a pre-tax charge of $20.0 million ($12.3 million after-tax) included in Loss from Discontinued
Operations in the accompanying Consolidated Income Statements during 2003. The $20.0 million pre-tax charge is comprised of estimated
exposure under the current guarantees and potential payment obligations and $4.4 million for the estimated fair value of the potential
additional $10.5 million in guarantees.
In addition, based on the Settlement Agreement and assessment of the risks involved in each matter, and excluding the after-tax charge
of $12.3 million, the Company estimates remaining potential pre-tax financial exposure related to ANC Rental of up to $20 million
($12 million after-tax).
In 2001, in connection with ANC Rental’s bankruptcy, the Company was called on to perform under certain real property leases between
ANC Rental and Mitsubishi for which it had provided guarantees. The Company agreed to assume real property leases, which expire in
2017, in order to control and attempt to mitigate its exposure relating thereto. In the fourth quarter of 2001, the Company incurred a pre-tax
charge of $20.0 million included in Income (Loss) from Discontinued Operations in the accompanying 2001 Consolidated Income Statement
to reflect its assumption of these leases with Mitsubishi and certain other costs. The Company continues to manage certain leased properties
assumed.
Selected income statement data for the Company’s automotive rental discontinued operations is as follows:
2003 2002 2001
Revenue $ — $ — $ —
Pre-tax loss (20.0) — (20.0)
Benefit from income taxes (7.7) — (7.3)
Loss from discontinued operations $(12.3) $ — $(12.7)
67