AutoNation 2005 Annual Report Download - page 53

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Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Current Liabilities
Other Current Liabilities consist of various items payable within one year including, among other items, accruals for payroll and benefits,
sales taxes, finance and insurance chargeback liabilities, deferred revenue, accrued expenses, and customer deposits. Other Current
Liabilities also includes other tax accruals, totaling $54.5 million and $181.3 million at December 31, 2005 and 2004, respectively. See
Note 11, Income Taxes, of Notes to Consolidated Financial Statements for additional discussion of income taxes.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for stock-
based employee compensation arrangements whereby compensation cost related to stock options is generally not recognized in determining
net income. Had compensation cost for the Company’s stock option plans been determined pursuant to Statement of Financial Accounting
Standards No. 123, “Accounting for Stock Based Compensation,” the Company’s net income and earnings per share would have decreased
accordingly. Using the Black-Scholes option pricing model for all options granted, the Company’s pro forma net income, pro forma earnings
per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows for the years ended
December 31:
2005 2004 2003
Net income, as reported $496.5 $433.6 $479.2
Pro forma stock-based employee compensation cost, net of taxes (10.4) (11.8) (17.4)
Pro forma net income $486.1 $421.8 $461.8
Basic earnings per share, as reported $1.89 $1.63 $1.71
Pro forma stock-based employee compensation cost $(.04) $(.04) $(.06)
Pro forma basic earnings per share $1.85 $1.58 $1.65
Diluted earnings per share, as reported $1.85 $1.59 $1.67
Pro forma stock-based employee compensation cost $(.04) $(.04) $(.06)
Pro forma diluted earnings per share $1.81 $1.55 $1.61
Pro forma weighted average fair value of options granted $7.74 $7.20 $6.51
Risk free interest rates 3.69- 4.10% 3.12- 3.93% 3.30- 3.83%
Expected dividend yield — — —
Expected lives 5 years 5 years 5 years
Expected volatility 33% 37% 40%
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R, “Share-Based Payment,” a revision of
SFAS 123. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding its interpretation of SFAS 123R. The
standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees.
In accordance with the revised statement and related guidance, the Company will begin to recognize the expense attributable to stock options
granted or vested subsequent to December 31, 2005 using the modified prospective method in the first quarter of 2006. The Company will
continue using the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period of
the grant. The Company expects compensation expense during 2006 related to stock based awards consistent with the pro forma disclosures
under SFAS 123 above for 2005.
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