Biggest Auto Dealer Restates Cash Flow

AutoNation moves cash flows relating to certain car payables from operating to financing.
Stephen TaubMarch 1, 2006

Following similar moves by two other auto retailers, AutoNation, Inc. said it will restate its financials for 2003 and 2004 to reclassify cash flows tied to “floorplan financing” arrangements.

Indeed, restatements involving such financing—a common practice among auto dealers—has been gaining a higher profile in recent months, accounting expert Jack Ciesielski recently wrote on his blog, “The AAO Weblog.”

Floorplan arrangements are “the financing of auto inventory with a third-party lender, as opposed to being financed by the auto manufacturer through trade payables,” he explained. “Trade payables that finance a purchase of inventory would be included in the operating section of the cash flow statement. Transactions involving floor plan financing belong in the financing section of the cash flow statement.”

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In announcing its restatement, AutoNation said it would reclassify cash flows relating to certain vehicle floorplan payables from operating cash flows to financing cash flows. Two other auto retailers that recently made such changes are Group 1 Automotive and United Auto Group.

AutoNation, the largest car dealership in the United States, stated that the revisions wouldn’t affect previously reported earnings, earnings per share, revenues, or assets. The change in presentation also will not affect the company’s compliance with any financial covenant or debt instrument, it contends.

A Securities and Exchange Commission staff comment letter concerning the commission’s customary review of the company’s annual report spurred the restatement, according to the company.

Autonation’s dealership arms finance practically all of their new vehicle inventories with revolving floorplan notes payable, according to the company. The notes are financed by lenders affiliated with the vehicle manufacturer with which the subsidiary holds a franchise.

“To a lesser extent, our dealership subsidiaries obtain new vehicle floorplan financing from lenders that are not affiliated with the manufacturer with which a subsidiary holds a franchise, and in very limited circumstances our dealerships obtain floorplan financing with respect to used vehicles,” it elaborated in a regulatory filing.

The company previously reported all cash flows tied to changes in vehicle floorplan payable–whether with trade lenders or non-trade lenders–as operating activities in its cash-flow statement and all amounts due under its vehicle floorplan payable in its consolidated balance sheets.

The company asserted that there’s no evidence that the
restatement stems from any material noncompliance by the company caused by misconduct.