AutoNation 2005 Annual Report Download - page 36

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Table of Contents
chases are made pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Future share repurchases are also subject to
limitations contained in the indenture relating to our senior unsecured notes.
On June 30, 2000, we completed the tax-free spin-off of ANC Rental Corporation (“ANC Rental”), which operated our former rental
business. In connection with the spin-off, we agreed to provide certain guarantees on behalf of ANC Rental. In 2001, ANC Rental filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In 2003, the bankruptcy court approved a settlement
agreement among AutoNation, ANC Rental and the Committee of Unsecured Creditors in the bankruptcy.
Pursuant to the Settlement Agreement, we continued to guarantee $29.5 million, and committed to guarantee up to an additional
$10.5 million, in surety bonds supporting obligations of the Rental Business until December 2006. In 2004, we were released from our
$29.5 million guarantee obligation and our remaining $10.5 million surety bond guarantee obligations. This triggered an obligation under the
Settlement Agreement for us to pay $20 million (one-half of the permanent reduction of the surety bond guarantee obligations) to a trust
established for the benefit of the unsecured creditors in the bankruptcy, which payment was made in 2004. We had previously incurred a pre-
tax charge of $20.0 million ($12.3 million after-tax) for this liability included in Loss from Discontinued Operations in the accompanying
Consolidated Income Statements during 2003.
As a matter of course, we are regularly audited by various tax authorities. From time to time, these audits result in proposed
assessments. Other tax accruals totaled $54.5 million and $181.3 million at December 31, 2005 and 2004, respectively, and relate to
various tax matters where the ultimate resolution may result in us owing additional tax payments. We believe that our tax positions comply
with applicable tax law and that we have adequately provided for these matters. We completed the federal income tax audit for the years 1997
through 2001 and a federal income tax audit for 2002 through 2004 is being conducted by the IRS. We remain under examination by various
states. We could experience additional state and federal tax adjustments in the future as we continue to work through various tax matters.
Once we resolve our open tax matters, we expect our base effective tax rate to be approximately 39.5%. See Note 11, Income Taxes, of Notes
to Consolidated Financial Statements for additional discussion of income taxes.
Cash Flows
Cash and cash equivalents increased (decreased) by $135.6 million, $(66.9) million and $(8.0) million during the years ended
December 31, 2005, 2004 and 2003, respectively. The major components of these changes are discussed below. We have revised our 2004
and 2003 Consolidated Statements of Cash Flows to separately disclose the operating, investing and financing cash flows attributable to our
discontinued operations. We had previously reported these amounts on a combined basis.
We have restated certain amounts in the 2004 and 2003 Consolidated Statements of Cash Flows from operating activities to financing
activities to comply with Statement of Financial Accounting Standards (“SFAS”) 95, “Statement of Cash Flows,” as a result of recent
comments to us from the Securities and Exchange Commission. For the years ended December 31, 2004 and 2003, $(144.1) million
(consisting of $(143.3) million in continuing operations and $(.8) million in discontinued operations) and $(121.2) million (consisting of
$(121.3) million in continuing operations and $.1 million in discontinued operations), respectively, which were previously reported as
operating activities are reported as a component of financing activities to reflect the net cash flow uses for floorplan facilities with lenders other
than the automotive manufacturers’ captive finance subsidiaries for that franchise (“non-trade lenders”). This change had the effect of
increasing net cash from operating activities with the related offset in net cash from financing activities.
Cash Flows from Operating Activities
Cash provided by operating activities was $579.9 million, $563.6 million and $481.3 million for the years ended December 31, 2005,
2004 and 2003, respectively.
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