AUTONATION INC /FL - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO ____________

COMMISSION FILE NUMBER 1-13107

AUTONATION, INC.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 73-1105145
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 S.E. 6TH STREET,
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
(954) 769-6000
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 23, 2000, the registrant had 361,124,289 shares of common stock
outstanding and, at such date, the aggregate market value of the shares of
common stock held by non-affiliates of the registrant was approximately
$2,191,093,195.

DOCUMENTS INCORPORATED BY REFERENCE

Part III Portions of the Registrant's Proxy Statement relating to the
2000 Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration
statements.

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INDEX
TO FORM 10-K

PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13

PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 55

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 56
Item 11. Executive Compensation...................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 56
Item 13. Certain Relationships and Related Transactions.............. 56

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 57

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PART I

ITEM 1. BUSINESS

INTRODUCTION

AutoNation, Inc. is the largest automotive retailer in the United States.
We own and operate more than 400 new vehicle franchises from dealership
locations in 26 major metropolitan markets in 19 states, predominantly in the
Sunbelt states. Our business consists primarily of the sale, financing and
servicing of new and used vehicles. We also provide other related services and
products, such as the sale of parts and accessories, extended service contracts,
aftermarket automotive products and collision repair services. The core brands
of vehicles that we sell, representing approximately 90% of the new vehicles
that we sold last year, are manufactured or distributed by General Motors
Corporation, Ford Motor Company, DaimlerChrysler Corporation, Toyota Motor
Sales, U.S.A., Inc., American Honda Motor Co., Inc. and Nissan North America,
Inc. We also sell several luxury vehicle brands, including Mercedes-Benz, BMW,
Lexus and Porsche. In total, we offer 39 different brands of vehicles.

We also have built a rapidly growing e-commerce business. On our primary
website, AutoNationDirect.com, consumers can research and arrange to purchase,
finance and insure a new or used vehicle. We offer an on-line inventory of over
100,000 vehicles, primarily from our franchised automotive dealerships. In 1999,
we sold approximately 46,000 vehicles to customers through the Internet sales
channel. Our Internet sales were generated from customer leads purchased from
third-party automotive websites and through our dealership websites and
AutoNationDirect.com.

We were incorporated in Oklahoma in 1980 and reincorporated in Delaware in
1991. Prior to 1995, we operated solely in the solid waste services business. In
late 1995 and 1996, we entered the electronic security services, automotive
retail and car rental industries through numerous acquisitions, and we changed
our corporate name to Republic Industries, Inc. In 1997, we sold the electronic
security services business to a third party. In 1998, our solid waste services
business, which we organized under the corporate name Republic Services, Inc.,
completed an initial public offering of approximately 36% of its common stock.
In 1999, we completed our separation of the solid waste services business by
selling substantially all of our remaining interest in Republic Services to the
public. We also changed our corporate name to AutoNation, Inc. in April 1999.
Upon completion of the proposed separation and distribution of our automotive
rental business, which we describe in more detail in the "Recent Developments"
section of this document, we will operate only in the automotive retail
business.

Our common stock, par value $.01 per share, is listed on New York Stock
Exchange under the symbol "AN." For information concerning our financial
condition, results of operations and related financial data, and business
combinations, you should review the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section in this document. We
describe risks relating to our business, operations, financial performance and
cash flows in the "Risk Factors" section in this document.

RECENT DEVELOPMENTS

Planned ANC Rental Spin-off. We currently own ANC Rental Corporation, an
automotive rental company that operates under the Alamo, National and CarTemps
USA brand names. ANC Rental operates in all three markets of the automotive
rental industry: leisure travel, business travel and vehicle replacement.

In 1999, we announced our intention to separate ANC Rental from our
automotive retail business and to distribute all of the shares of ANC Rental
common stock to our stockholders in the form of a tax-free dividend. We
determined that our automotive retail business and ANC Rental have distinct
financial and operating characteristics and that separating the businesses would
enable each company's management team to focus more exclusively on each
company's operations, thereby maximizing stockholder value over the long term
for each company. Additionally, we believe that the planned separation will
provide each company's management with direct incentives and accountability to
their respective public investors and will allow us to raise additional capital
through an increase in our borrowing capacity to pursue our strategic business
plan. We

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have received a ruling from the Internal Revenue Service to the effect that,
based on the conditions set forth in the ruling, the distribution of ANC Rental
stock to our stockholders would qualify as a tax-free dividend. Completion of
the proposed spin-off, however, is subject to ANC Rental securing the necessary
financing and other third-party approvals to operate as an independent
publicly-traded company, as well as certain other conditions. Upon completion of
the proposed spin-off, we intend for ANC Rental's common stock to trade on the
NYSE. We have reclassified and reported ANC Rental's business as a discontinued
operation. Accordingly, except as otherwise noted, the disclosure contained in
this document relates solely to our automotive retail business.

Closure of Our Used Vehicle Megastores. In December 1999, we made a
decision to exit the stand-alone used vehicle megastore category of our
automotive retail business by closing 23 company-owned AutoNation USA megastores
and converting our remaining stand-alone megastore facilities into new vehicle
franchises. We have completed the closure of the 23 megastores. We have also
completed the relocation of franchised new vehicle dealerships into 11 of our
former AutoNation USA megastore facilities, which we will continue to operate
exclusively as franchised new vehicle dealerships, and we are currently
converting our remaining three megastore facilities into franchised new vehicle
dealerships. We are in the process of selling the excess real property resulting
from the closure of our megastores. Eight additional AutoNation USA used vehicle
megastores are currently owned by third parties and continue to operate pursuant
to franchise agreements under which one of our wholly-owned subsidiaries acts as
the franchisor. Our exit from the used vehicle megastore category will permit us
to focus on our franchised automotive retail business.

As a result of our decision in the fourth quarter of 1999 to exit the used
vehicle megastore category, and in connection with other restructuring
activities, we incurred pre-tax restructuring and impairment charges of
approximately $443.7 million (approximately $297.9 million after tax). We
include additional details about these charges in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section in this
document, as well as in the Notes to our Consolidated Financial Statements.

Stock Repurchase Program. In 1998, our board of directors authorized the
repurchase of up to $500 million of common stock. In 1999, our board authorized
additional share repurchase programs totaling $1.25 billion, including $500
million authorized by our board in December 1999. Since the 1998 inception of
our share repurchase programs, we have repurchased 110.9 million shares of
common stock for a cumulative purchase price of approximately $1.38 billion
through February 29, 2000, leaving approximately $374.1 million remaining for
share repurchases under the program. We expect to continue repurchasing shares
under this program.

BUSINESS STRATEGY

Our business strategy consists of the following key elements:

- Build critical mass in each of our key markets.

- Leverage our significant scale to drive out costs and to become the
low-cost operator in our key markets.

- Provide a unique customer experience at our dealerships and brand the
experience under a single market brand in each local market.

- Continue growing our e-commerce business to extend our position as the
leading seller of vehicles via the Internet and develop a powerful
national brand on the Internet.

BUILD CRITICAL MASS IN EACH OF OUR KEY MARKETS

We conduct automotive retail operations in 26 major metropolitan markets in
19 states. We believe we have achieved critical mass in several of our key
markets. Our goal is to continue to build critical mass in our key markets so
that we can create economies of scale in these markets. We intend to build
critical mass in these key markets through strategic acquisitions.

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LEVERAGE OUR SIGNIFICANT SCALE TO BECOME THE LOW-COST OPERATOR

As we build critical mass in each of our key markets, we believe that we
can obtain significant cost savings through reduced marketing costs, improved
working capital management and improved fixed-cost absorption. We also are
managing the combined resources of our operations in each market in other ways
to reduce costs, become the low-cost provider and maximize the economies
resulting from our size. In this highly competitive business, we intend to
leverage our unique scale to become the low-cost operator in our core brands,
enabling us to deliver products and services to our customers at a competitive
price while increasing our return on investment.

PROVIDE A UNIQUE CUSTOMER EXPERIENCE AND ESTABLISH A POWERFUL MARKET BRAND IN
EACH OF OUR KEY MARKETS

We intend to provide a unique customer experience at our dealerships. As we
reach critical mass in each market, we intend to establish a strong market
brand. By aligning our dealerships under a single brand in each market, we
believe that we can maximize the impact of our advertising while yielding
significant efficiencies and cost savings compared to our competitors. As a
result, we believe that we can create a presence in our key markets that
convinces the automobile-buying public that an educated buying decision cannot
be made without considering our branded dealerships.

We are improving the customer experience at our dealerships in three
specific areas. First, our dealerships offer an open-book finance menu, where
the customer knows exactly what his or her base payment will be, what the
interest rate will be and what other products are available for purchase, such
as warranties. The second area is the Internet sales process, which we have
designed to provide up-front information to customers about vehicle pricing and
availability. The third area is our service business, where we have installed
advanced production systems that enable us to provide more convenient and
affordable service.

In December 1998, we launched the "Mile High Project" and converted our
franchised automotive dealerships in the Denver metropolitan market into a
single network that we branded under the "John Elway AutoNation USA" name. All
of our Denver dealerships feature common sales, service and operating practices,
including "low no-haggle pricing," and emphasize customer service and owner
retention. While we had many successes in Denver, including significant
increases in sales volume, the Mile High Project also presented many challenges.
The transition of 17 different dealerships from traditional, negotiated pricing
to "one-price/no-haggle" pricing required numerous changes to store operations
and a significant training program for our associates. Although we experienced
reduced margins and profitability after the launch of the Mile High Project, we
expect that in the first quarter of 2000, our margins and profitability in
Denver will exceed historical levels.

Using the results of our Mile High Project, we implemented a similar
project in the Tampa/ St. Petersburg, Florida market in December 1999,
consolidating most of our dealerships in that market under the "AutoWay" brand.
In implementing the most successful sales, service and operating practices from
our Denver operations, we are placing greater emphasis on maintaining margins
while operating with a one low, no haggle price and a customer friendly sales
process in Tampa/St. Petersburg. We will carefully assess our results in
Tampa/St. Petersburg and Denver in order to enhance the operating strategies
that we will adopt in our other key markets.

GROW OUR E-COMMERCE BUSINESS AND DEVELOP A NATIONAL INTERNET BRAND

We intend to continue to leverage our industry-leading fulfillment
capability via the Internet to create a national e-commerce brand emphasizing
low, one-price shopping. We believe that the combination of our automotive
retail operations, which are four times the size of our nearest competitor in
the United States today, with the on-line presence that we have built, uniquely
positions AutoNation to be the leading e-commerce company in automotive
retailing. Our e-commerce business includes our flagship AutoNationDirect.com
website, which we launched in July 1999. On AutoNationDirect.com, consumers can
research a vehicle and then browse our local dealership inventories or our
listing of over 100,000 new and used vehicles, select a vehicle and arrange
financing and insurance for the vehicle. Unlike other automotive
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websites which hand off the customer to a dealership or attempt to broker a
vehicle sale through a dealership, we have the capability to service the
customer from the moment he or she clicks onto one of our websites until the
moment the customer takes delivery of the vehicle from one of our franchised
dealerships or one of our licensed independent dealerships.

In order to capitalize on this e-commerce opportunity, we have established
an e-commerce sales force of specially-trained Internet Sales Guides based at
each of our dealerships. Our Internet Sales Guides use "Compass," a proprietary
software program, to track and service customers who come to us through the
Internet. Compass, which can alert an Internet Sales Guide as soon as an inquiry
is received from a prospective customer, can be accessed wherever Internet
service is available, 24 hours a day, seven days a week. This access allows
rapid response times to our e-commerce inquiries. Our average response time of
approximately two hours per inquiry is well below reported industry average
response times. We have also developed relationships with select third-party
automotive websites, resulting in additional sales opportunities for our
dealerships to gain market share among customers who shop through the Internet.

Our e-commerce strategy allowed us in 1999 to become the largest automotive
retailer via the Internet based on sales of vehicles by our dealerships through
Internet channels. We sold approximately 46,000 new and used vehicles via the
Internet sales channel in 1999. Our Internet sales were generated from customer
leads purchased from third-party automotive websites and through our dealership
websites and AutoNationDirect.com. Based on total revenue, our more than $1
billion in vehicle sales via the Internet sales channel in 1999 ranks us first
among all of our automotive retail competitors. In 2000, we intend to decrease
our dependence on third-party leads and increase our emphasis on generating
customers through AutoNationDirect.com and our dealership websites. In addition,
we are seeking to establish strategic partnerships and alliances to enhance our
opportunities to reach customers through the Internet. We may also make
strategic acquisitions to enhance our e-commerce business.

OPERATIONS

Our continuing operations consist of our automotive retail business. We
have classified our automotive rental business as a discontinued operation.

We own and operate more than 400 automotive franchises from dealership
locations in 19 states. We own and operate franchises granted by the
manufacturers of 39 different makes of vehicles. The core brands of vehicles
that we sell are manufactured or distributed by General Motors, Ford,
DaimlerChrysler, Toyota, Honda and Nissan. Our management structure is focused
on our local markets, where day-to-day decision-makers can be more responsive to
the needs of local customers. We have established ten districts to manage our
automotive retail business. The number of dealerships comprising each district
varies from district to district.

Each of our automotive franchises offers brand name new and used vehicles.
Customers generally have a choice of purchasing or leasing any vehicle available
in the dealerships. Each of our dealerships also offers financing for vehicle
purchases, extended service contracts and other finance and insurance products,
as well as other aftermarket products such as vehicle accessories, upgraded
sound systems and theft deterrent systems. Almost all of our dealerships have
service facilities that provide a wide range of vehicle maintenance and repair
services.

We operate each of our new vehicle dealerships under a franchise agreement
with a vehicle manufacturer. The franchise agreements grant the franchised
automotive dealership a non-exclusive right to sell the manufacturer's brand of
vehicles and offer related parts and service within a specified market area. The
franchise agreements also grant the dealerships the right to use the
manufacturer's trademarks in connection with the sale of its vehicles. The
franchise agreements impose numerous operational requirements and restrictions
on the automotive dealerships relating to inventory levels, working capital
requirements, the sales process, marketing and branding, showroom, service
facilities and signage, personnel and monthly financial reporting, among other
things. The franchise agreements also provide for termination of the agreement
by the manufacturer or non-renewal for a variety of causes, subject to
applicable state franchise laws that limit a manufacturer's right to terminate a
franchise.
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We also have entered into framework agreements with most major vehicle
manufacturers. These agreements contain provisions relating to our acquisition,
ownership structure, management, operation, and advertising and marketing of
automotive dealerships franchised by such manufacturers. The agreements also set
limits on the number of dealerships that we may acquire of the particular
manufacturer, nationally and in local markets, and contain certain restrictions
on our ability to name and brand our dealerships. In addition, some of these
framework agreements give the manufacturer the right to acquire, at fair market
value, the automotive dealerships franchised by that manufacturer under
specified circumstances in the event of a change in control of our company, the
acquisition of 20% or more of the voting stock of our company by another
manufacturer or other extraordinary corporate transactions such as a merger or
sale of all of our assets.

We acquire new vehicles directly from the manufacturers. We generally
acquire used vehicles from customer trade-ins, off-lease programs and, to a
lesser extent, auctions and other sources. At the auctions, we purchase used
vehicles through competitive bidding. We recondition used vehicles acquired for
retail sale at our dealerships using the service facilities at our dealerships.

We provide financial products and services to our customers through third
parties, including the vehicle manufacturers' captive finance companies, as well
as our automotive finance arm, AutoNation Financial Services. AutoNation
Financial Services' products include retail financing, extended service
contracts, secondary customer referral programs, vehicle protection and
maintenance programs and insurance products.

SALES AND MARKETING

We believe in providing quality services that will enable us to maintain
high levels of satisfaction from our customers. We derive our business from a
broad customer base which we believe will enable us to experience stable growth.
Our marketing efforts focus on building our business with existing customers as
well as attracting new customers.

We engage in mass marketing and advertising in various media to attract a
broad retail customer base in the markets in which we operate. We advertise
primarily through newspapers, radio, outdoor billboards and television in our
local markets. We expect to continue to realize cost savings and efficiencies
with respect to advertising expenses, due to volume discounts and other
concessions as we increase our presence within our key markets.

CUSTOMERS

As of December 31, 1999, no one customer individually comprised more than
10% of our total revenue.

REGULATIONS

Automotive Laws and Regulations

We operate in a highly regulated industry. A number of state and federal
laws and regulations affect our business. In every state in which we operate, we
must obtain various licenses in order to operate our businesses, including
sales, finance and insurance related licenses issued by state regulatory
authorities. Numerous laws and regulations govern our conduct of business,
including those relating to our sales, operating, advertising and employment
practices. These laws and regulations include state franchise laws and
regulations and other extensive laws and regulations applicable to new and used
motor vehicle dealers, as well as a variety of other laws and regulations. These
laws also include federal and state wage-hour, anti-discrimination and other
employment practices laws.

The imported automobiles we purchase are subject to United States customs
duties and, in the ordinary course of our business we may, from time to time, be
subject to claims for duties, penalties, liquidated damages, or other charges.
Our financing activities with customers are subject to federal truth-in-lending,
consumer leasing and equal credit opportunity regulations as well as state and
local motor vehicle finance laws, installment finance laws, usury laws and other
installment sales laws. All states regulate finance fees and charges that may be
paid as a result of vehicle sales.

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Our operations are also subject to the National Traffic and Motor Vehicle
Safety Act, Federal Motor Vehicle Safety Standards promulgated by the United
States Department of Transportation and various state motor vehicle regulatory
agencies. Possible penalties for violation of any of these laws include
revocation of our licenses and fines. In addition, many laws may give customers
a private cause of action.

Environmental Regulations

Our business is subject to a variety of federal, state and local
requirements that regulate public health and safety, the environment, zoning and
land use. The states in which we operate have enacted their own laws and
regulations, or are authorized to administer federal programs, governing the
management of hazardous materials, water and air emissions, solid waste
disposal, and the release and cleanup of regulated substances. In addition,
permits may be required for certain activities such as wastewater discharges and
air emissions at our facilities, and these permits are subject to renewal,
modification, and revocation. Governmental authorities can enforce compliance
with these regulatory requirements, and may seek to obtain injunctions or impose
fines and other sanctions, including criminal penalties, for alleged violations.
The United States Environmental Protection Agency and various other federal,
state and local agencies and authorities administer these regulatory and
enforcement programs.

Our business involves the use, handling, storage, and/or contracting for
recycling or disposal of materials such as motor oil and filters, transmission
fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning
products, lubricants, degreasing agents and fuel.

Water quality protection programs under the federal Water Pollution Control
Act (commonly known as the Clean Water Act), the Safe Drinking Water Act and
comparable state and local programs apply to some of our operations. Similarly,
some of our operations are subject to the federal Clean Air Act, and related
state and local laws, regarding air emissions. Various health and safety
standards, which the Occupational Safety and Health Administration of the United
States Department of Labor has promulgated, apply to our operations.

A framework has been established under the Resource Conservation and
Recovery Act for regulating the handling, transportation, treatment and disposal
of hazardous and non-hazardous solid wastes, and the management of underground
storage tanks or USTs. A number of our businesses operate USTs, which are used
primarily to store petroleum-based products. USTs are subject to periodic
testing, upgrading, and removal, and remedial action in the event of leaks or
other discharges. If a discharge occurs from USTs that we own or operate, and
migrates onto the property of others, we could be subject to liability for
clean-up costs, and other damages to third parties.

The Comprehensive Environmental Response, Compensation, and Liability Act,
or CERCLA, provides for the clean-up of sites where a release of a hazardous
substance into the environment has occurred. Past and current owners and
operators of the site, as well as parties who transported or arranged for
disposal, collectively known as Potentially Responsible Parties or PRPs, may be
subject under CERCLA to strict, retroactive, joint and several liability for
response costs and for damages to natural resources. We could be liable under
CERCLA for the cost of cleaning up regulated substances deposited at certain
sites and for damages to nearby natural resources. Some of the entities we have
acquired were, or have been, designated as PRPs, typically as a result of
historical disposal or recycling activities. In many cases we have
indemnification rights with respect to compliance with CERCLA against the former
owners of the businesses that we have acquired, and some of the former owners
have been paying remedial costs for CERCLA cleanups. We do not expect the costs
of complying with any of the applicable environmental, health and safety laws
and regulations to have a material adverse effect on our business, results of
operations, cash flows or financial condition.

COMPETITION

We operate in a highly competitive industry. Each of our key markets
includes a large number of well-capitalized competitors that have extensive
automotive dealership managerial experience.

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According to the National Automotive Dealers Association, Automotive News
and reports of various financial analysts, the automotive retail industry is
served by approximately 22,000 franchised automotive dealerships, approximately
56,000 independent used vehicle dealers, and individual consumers who sell used
vehicles in casual private transactions primarily through classified ads and by
word of mouth. Several other public companies, as well as certain automotive
manufacturers, are attempting to establish national or regional automotive
retail chains. We believe that the principal competitive factors in the
automotive retail business are price, selection, service and location.

We believe that a growing number of consumers are utilizing the Internet,
to differing degrees, in connection with the purchase of vehicles. Accordingly,
we may face increasing competitive pressures from on-line automotive websites.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may create price convergence and reduce margins for
new and used vehicles and related finance and insurance services. In addition,
some Internet retailers have begun efforts to acquire dealership franchises in
an effort to sell vehicles direct to the customer without having to acquire them
from a dealership. Also, other franchised dealership groups have begun to align
themselves with Internet retailers and expend significant resources on Internet
compatibility, each of which could materially adversely affect our business.

INSURANCE AND BONDING

Our business exposes us to the risk of liabilities arising out of our
operations. Potential liabilities could involve, for example, claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations. We could also be subject to fines and
civil and criminal penalties in connection with alleged violations of regulatory
requirements.

The automotive retail business is also subject to substantial risk of
property loss due to the significant concentration of property values at
dealership locations. Accordingly, we have purchased liability and property
insurance subject to certain deductibles or loss retentions. We purchase
umbrella liability insurance to provide insurance in excess of our primary
insurance policies. The level of risk we retain may change in the future as
insurance market conditions or other factors affecting the economics of our
insurance purchasing change. Although we strive to operate safely and prudently
and have, subject to certain limitations and exclusions, substantial insurance,
we cannot assure you that we will not be exposed to uninsured or underinsured
losses which could have a material adverse effect on our financial condition,
results of operations or cash flows.

Provisions for retained losses and deductibles are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities on
reported and unreported claims. The insurance companies that underwrite our
insurance require that we secure our obligation for deductible reimbursements
with collateral. Our collateral requirements are set by the insurance companies
and to date have been satisfied by posting surety bonds and letters of credit.
Our collateral requirements may change from time to time based on, among other
things, our claims experience.

EMPLOYEES

As of December 31, 1999, we employed approximately 33,000 full time
employees in our automotive retail business, approximately 650 of whom were
covered by collective bargaining agreements. We believe that we have good
relations with our employees.

SEASONALITY

Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year due in part to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating results to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.

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TRADEMARKS

We own a number of registered service marks and trademarks and also have a
number of applications pending to register, among other marks, AutoNation(SM),
AutoNation USA(SM), AutoNationDirect(SM), AutoWay(SM) and It's about Lower
Prices, It's about Higher Standards, It's about Time(SM). Pursuant to agreements
with vehicle manufacturers, we have the right to use and display manufacturers'
trademarks, logos and designs at our dealerships and in our advertising and
promotional materials, subject to certain restrictions. The current
registrations of our service marks and trademarks in the United States and
foreign countries are effective for varying periods of time, and may be renewed
periodically provided that the registered owner complies with all applicable
laws.

EXECUTIVE OFFICERS OF AUTONATION

We provide below information regarding our executive officers who are not
also directors of our company. Biographical information regarding our executive
officers who are also directors of our company, namely, H. Wayne Huizenga,
Michael J. Jackson and Harris W. Hudson will be set forth in our Proxy Statement
relating to the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.

MICHAEL E. MAROONE, age 46, has served as our President and Chief Operating
Officer since August 1999. Following our acquisition of the Maroone Automotive
Group in January 1997, Mr. Maroone served as President of our New Vehicle Dealer
Division. In January 1998, Mr. Maroone was named President of our Automotive
Retail Group with responsibility for our new and used vehicle operations. Prior
to joining our company, Mr. Maroone was President and Chief Executive Officer of
the Maroone Automotive Group, one of the country's largest privately-held
automotive retail groups.

PATRICIA A. MCKAY, age 42, has served as our Senior Vice President -
Finance and Controller since November 1999. Since November 1999, Ms. McKay has
also served as our Acting Chief Financial Officer. Ms. McKay joined our company
in January 1997 as Vice President, Operations Controller. From February 1998
until November 1999, Ms. McKay served as Senior Vice President of Finance of our
Automotive Retail Group. Prior to joining our company, Ms. McKay served from
October 1988 until December 1996 in various positions with Dole Food Company,
Inc., a multinational packaged food company, most recently as Vice President of
Finance and Controller. From June 1983 through July 1988, Ms. McKay served as
Senior Audit Manager with Arthur Andersen LLP.

JONATHAN P. FERRANDO, age 34, has served as our Senior Vice President,
General Counsel and Secretary since January 2000. From March 1998 until January
2000, Mr. Ferrando served as our Senior Vice President and General Counsel of
our Automotive Retail Group. Mr. Ferrando joined our company in July 1996 as
Senior Counsel with responsibility for the legal affairs of our automotive
retail business. From January 1997 until May 1997, Mr. Ferrando served as our
Vice President and Senior Counsel. From May 1997 to February 1998, he served as
our Vice President and Associate General Counsel. Prior to joining our company,
Mr. Ferrando was a corporate attorney in Chicago, Illinois with Skadden, Arps,
Slate, Meagher & Flom, a global full service law firm, from 1991 until 1996. Mr.
Ferrando's practice at Skadden, Arps, Slate, Meagher & Flom was concentrated in
the areas of mergers and acquisitions and corporate finance.

JAMES J. DONAHUE, JR., age 43, has served as our Senior Vice
President - Corporate Communications since January 1999. Mr. Donahue served as
Vice President - Corporate Communications from February 1997 until January 1999.
Prior to joining our company, Mr. Donahue was Vice President - Corporate
Communications of Duracell International, Inc., a multinational manufacturer of
batteries from 1993 until 1997.

RISK FACTORS

Our business, financial condition, results of operations, cash flows and
prospects, and the prevailing market price and performance of our common stock,
may be adversely affected by a number of factors, including the matters
discussed below. Some of the statements and information contained throughout
this Annual Report on Form 10-K constitute "forward-looking statements" within
the meaning of the Federal

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Private Securities Litigation Reform Act of 1995. The forward-looking statements
describe our expectations, plans and intentions about our business, financial
condition, results of operations, cash flows and prospects, and involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, performance, or achievements to be materially different from any future
results, performance, or achievements, expressed or implied, by the
forward-looking statements. These risks, uncertainties and other factors include
the following:

We Face Significant Competition in the Automotive Retail Industry. We
operate in a highly competitive environment. Our competition includes publicly
and privately-owned dealerships, some of which operate large groups, any of
which may sell the same or similar makes of new and used vehicles in our markets
at competitive prices. Other competitors include franchised automotive
dealerships selling other brands of vehicles, private market buyers and sellers
of used vehicles, used vehicle dealers, service center chains, independent
service and repair shops and private and publicly-owned finance companies,
including those of automobile manufacturers, and, as we describe below, on-line
automotive retailers. Our franchise agreements generally do not give us the
exclusive right to sell a manufacturer's product within a given geographic area,
although state franchise laws do provide certain protections. These and other
competitive pressures could materially adversely affect our business, financial
condition, results of operations, cash flows and prospects.

We also face increasing competition from the rapidly growing automotive
retail e-commerce business. A number of e-commerce companies have established
automotive-related websites in the past year, and many of these companies have
access to substantial capital. One of the effects of the Internet on the
automotive retail industry has been that customers have gained increased access
to information on prices for vehicles and related finance and insurance
services, which we believe will result in price convergence as vehicle pricing
and dealer cost becomes more transparent to consumers. This may result in
reduced margins for new and used vehicle sales and related finance and insurance
services.

Our success in gaining on-line customers will depend on our ability to
obtain high visibility on the Internet, either through our own websites or
through strategic partnerships and alliances with Internet companies. However,
many Internet automotive retailers have access to substantial capital through
the public markets and venture capital financing and may be able to make a
substantial investment in Internet advertising and website technology, which may
have a material adverse effect on the success of both our e-commerce and
traditional dealership businesses.

We Will Need Substantial Additional Capital and We Have Significant
Indebtedness Outstanding. We will need substantial additional capital to
continue expanding in our key markets and to execute our strategy effectively.
We have two unsecured revolving credit facilities in place in the aggregate
principal amount of $1.5 billion. As of February 29, 2000, we have drawn
approximately $1.1 billion on these facilities and we have approximately $362.0
million available for future use, which will include, among other things,
dealership acquisitions, capital expenditures, the development of our e-commerce
business and continuing our stock repurchase program. One of our credit
facilities, in the principal amount of $500 million, will expire in March 2001,
and we cannot assure you that we will be able to renew this facility or our
other facility on terms acceptable to us.

Additionally, as of December 31, 1999, we had approximately $2.2 billion of
floor plan indebtedness outstanding under credit facilities with various
financing sources. A substantial portion of our outstanding indebtedness is at
floating interest rates. At times, we use interest rate swaps to manage the risk
of interest rate fluctuations, but a substantial increase in interest rates
could adversely affect our cost of indebtedness for borrowed money. Our floor
plan indebtedness, which we use to finance our vehicle inventory, is secured by
our vehicle inventory. This may limit our ability to borrow from other sources
or for other uses. In light of the recent declines in the price of our common
stock, we may not be able to issue shares of common stock to complete dealership
acquisitions or to raise additional capital in the future. We cannot assure you
that sufficient financing for our business and operations, and to execute our
strategic business plan, will be available on a timely basis, if at all, or on
terms acceptable to us. In the event that financing is not available or is not
available in the amounts or on terms acceptable to us, it could impede the
implementation of our business strategy and limit our ability to grow our
business or to react to changes in the automotive retail industry. This

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could have a material adverse effect on our business, financial condition,
results of operations, cash flows and prospects.

The Automotive Retail Industry Is Cyclical and Is Sensitive to Changing
Economic Conditions. Sales of motor vehicles, particularly new vehicles,
historically have been subject to substantial cyclical variation characterized
by oversupply and weak demand. We believe that many factors affect the industry,
including consumer confidence, the level of personal discretionary spending,
interest rates, fuel prices and credit availability. We note that 1999 was a
record year for the automotive industry in general and our company specifically
in terms of volume of new vehicles sold and we cannot assure you that the
industry or our company will not experience sustained periods of decline in
vehicle sales in the future as a result of the occurrence of any of the factors
described above, particularly in the event of further increases in interest
rates or fuel prices or in the event of an economic downturn.

We May Not Be Able to Successfully Roll Out Our Strategy to Other Markets
Where We Currently Operate. The success of our business model depends in large
part on our ability to brand our franchised dealerships in any given market
under a common name that is identified with a superior consumer experience. Our
ability to deliver a superior consumer experience will depend upon our access to
a wide variety of desirable new and used vehicle inventory, consumer acceptance
of the pricing philosophy we adopt in the market and our ability to consistently
deliver on a brand promise at each of our dealerships within a given market.
Since the dealerships within each of our key markets were acquired from
independent organizations and historically have operated independently, we may
have difficulty adapting common business practices across our dealerships in a
given market. Moreover, our franchise agreements and framework agreements with
automotive manufacturers contain restrictions on dealership names and,
therefore, we cannot assure you that we will be able to choose brand names in
all of our markets that are uniform and appealing to consumers.

We May Have Difficulty Expanding Through Acquisitions of Franchised
Automotive Dealerships in Our Key Markets. The growth of our automotive retail
business since our inception has been primarily attributable to acquisitions of
franchised automotive dealership groups. Although we do not expect to complete
dealership acquisitions at the same pace as we have in the past, we anticipate
that we will continue to expand our operations in our key markets through
additional acquisitions of franchised automotive dealerships. However, we face a
competitive environment in acquiring additional dealership groups, and the
significant consolidation in the industry in our key markets over the last
several years has resulted in fewer dealership groups being available for
purchase. Accordingly, we cannot assure you that we will be able to acquire
dealerships selling desirable automotive brands at desirable locations in our
key markets, or that any such acquisitions can be completed on favorable terms.
Furthermore, we cannot assure you that we will have sufficient capital to
finance proposed acquisitions.

Automotive Manufacturers May Impede Our Acquisition Strategy. Approval of
the applicable automotive manufacturer is required prior to completing any
dealership acquisition. Although we have established framework agreements with
most major manufacturers to facilitate our acquisition of dealerships operating
their franchises, we cannot assure you that these manufacturers or any other
manufacturers will approve any particular dealership acquisition or will not
otherwise seek to impose restrictions on future acquisitions, operations or
capital structure as a condition to granting their approval. Many vehicle
manufacturers also retain the right of first refusal with respect to any
proposed sale of a dealership that they franchise, meaning that the manufacturer
or its designee could complete a proposed acquisition by us on the agreed-upon
terms. In addition, we have negotiated with the major manufacturers limits on
the number of dealerships that we may acquire either nationally or in any given
market or both. We have approached these limits in some markets and may approach
them in other markets in the future as we continue to expand. We cannot assure
you that our growth strategy will be unaffected by these limits. Our ability to
complete additional acquisitions under these agreements is also limited by our
success in meeting certain sales and customer satisfaction targets set by the
manufacturers. We cannot assure you that we will be able to satisfy the
applicable operating performance requirements so that we can continue to make
acquisitions.

We May Have Difficulty Integrating Acquired Dealerships into Our
Operations. We have built a significant retail business through rapid
acquisitions of franchised automotive dealership groups in a short

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period of time. As a result of our prior acquisitions of certain large
dealership groups, we have acquired dealerships that are located in markets in
which we do not intend to focus or that sell automotive brands other than our
core brands and certain luxury brands. The successful implementation of our
business strategy will depend in part on our ability to integrate recently
acquired dealership groups into our existing dealership operations and to
dispose of non-core dealerships. The successful integration of such
recently-acquired dealership groups will depend on management's ability to
consolidate operations, integrate departments, systems and procedures and
thereby obtain business efficiencies, economies of scale and related cost
savings, while maintaining or improving operating performance. The integration
of dealership groups requires significant managerial focus and time, and we
cannot assure you that such integration will result in improved operating
performance or increased cost savings in a timely manner or at all.

We Depend on Vehicle Manufacturers for Our New Vehicle Inventory
Supply. The success of our dealerships is dependent on maintaining an adequate
inventory of desirable products at the right locations and at the right times.
We rely exclusively on the various automotive manufacturers for our new vehicle
inventory, and we cannot assure you that the manufacturers will be able to
produce vehicles that consumers desire, or to supply us with such vehicles at
the appropriate locations and at acceptable quantities and prices. Our success
is dependent, to a large extent, on the success of the applicable vehicle
manufacturer, the financing or incentive programs the manufacturer offers to
consumers and consumer demand for its products. Any event that may have a
material adverse effect on the financial condition, management, marketing,
production and distribution capabilities of the vehicle manufacturers with whom
we hold franchises, such as labor strikes, supply shortages, adverse publicity,
product defects or general economic downturns, may have a material adverse
effect on our business, results of operations, financial condition, cash flows
and prospects.

We Are Subject to Operating Restrictions Imposed by Vehicle
Manufacturers. The franchise agreements to which our dealerships are subject
and the framework agreements that we have with many major automotive
manufacturers impose significant restrictions on our ability to operate our
dealerships. These agreements provide the manufacturers with considerable
influence over the operations of our dealerships, including the level at which
we capitalize our dealerships, the condition of our dealership facilities, our
performance standards with respect to sales volume and customer satisfaction,
our selection of dealership management and other factors. They also grant the
manufacturer the right to terminate our franchise for a variety of causes,
subject to state laws. Additionally, manufacturers can restrict our ability to
relocate our franchised dealerships to more desirable locations within our key
markets. Manufacturers may attempt to impose restrictions that could limit our
ability to implement some of our strategic initiatives relating to the
operation, location, naming and marketing of our franchised dealerships, or our
e-commerce business.

The Loss of Key Personnel Could Affect Our Operations. Our success depends
to a significant degree upon the continued contributions of the dealership
management in our local markets. As we expand we will need to hire additional
qualified managers. The market for qualified employees in the industry and in
the markets in which we operate, particularly for qualified general managers and
sales and service personnel, is highly competitive and may subject us to
increased labor costs during periods of low unemployment. We also believe that
many of our sales and service personnel, particularly in the area of Internet
operations, are pursued from time to time by our competitors. The loss of a
group of key employees in any of our markets could have a material adverse
effect on our business and results of operations in that market.

We Are Subject to Extensive Governmental Regulation. The automotive retail
industry is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements and consumer protection laws.
The violation of these laws and regulations can result in administrative, civil
or criminal sanctions against us, which may include a cease and desist order
against the subject operations or even revocation of our license to operate the
subject business. Our future acquisitions may also be subject to regulation,
including antitrust review. Certain state laws impose significant restrictions
on our ability to operate our businesses, such as our ability to relocate our
dealerships to more desirable sites. Future regulations may be more stringent
and require us to incur significant additional compliance costs. We also may be
subject to increased regulatory scrutiny as we build our presence and increase
our visibility in our target markets. In addition, as the on-line automotive
business expands, there may be new laws and regulations

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adopted, or increased regulatory scrutiny and enforcement of existing laws and
regulations, that could have a material adverse effect on our e-commerce
business.

We may need to spend considerable time, effort and money to keep our
existing or acquired facilities in compliance with applicable federal, state and
local regulation of health, safety, environment, zoning and land use. If
environmental laws become more stringent, our environmental capital expenditures
and costs for environmental compliance may increase in the future. In addition,
due to the possibility of unanticipated occurrences or regulatory developments,
the amounts and timing of future environmental expenditures could vary
substantially from those currently anticipated.

We Are Subject to Various Legal and Administrative Proceedings. We are
involved, and will continue to be involved, in legal proceedings in the ordinary
course of business, including litigation with customers and employment related
lawsuits. A significant judgment against us or the imposition of a significant
fine could have a material adverse effect on our business and financial
condition. We cannot assure you with respect to the outcome of these
administrative and legal proceedings and the effect such outcomes may have on
us.

Matters Relating to Imported Products May Affect Our Operations. A
significant portion of our business involves the sale of vehicles, parts or
vehicles composed of parts that are manufactured outside the United States. As a
result, our operations are subject to customary risks of importing merchandise,
including fluctuations in the value of currencies, import duties, exchange
controls, trade restrictions, work stoppages and general political and economic
conditions in foreign countries. The United States or the countries from which
our products are imported may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adjust presently prevailing quotas, duties or
tariffs, which could affect our operations and our ability to purchase imported
vehicles or parts.

We May Not Be Able to Complete the Spin-off of ANC Rental. We currently
report ANC Rental's business as a discontinued operation. We intend to separate
ANC Rental from our automotive retail business and distribute all of the shares
of ANC Rental stock to our stockholders in the form of a tax-free dividend.
Completion of the proposed spin-off, however, is subject to ANC Rental securing
the necessary financing and other third-party approvals to operate as an
independent publicly-traded company as well as certain other conditions. If we
are unable to separate ANC Rental through a spin-off or otherwise, we would need
to continue to operate and finance ANC Rental's business and, consequently, our
borrowing capacity would be more limited, our management's focus would be
diverted from our automotive retail operations and we would be subject to the
risks associated with the automotive rental business, including those described
below.

The operations of ANC Rental are subject to a number of risks which may
affect its business or results of operations, including the following: ANC
Rental has substantial debt; competition in the automotive rental industry may
impact ANC Rental's prices or market share; ANC Rental may have difficulty
obtaining financing necessary to operate its business; ANC Rental has
experienced difficulty with its computer operating system; ANC Rental's business
strategy, focusing on high levels of service emphasizing speed and choice, may
cause a decline in its business volume; ANC Rental's fleet is subject to
manufacturer repurchase programs and residual value risk which may impact its
ability to purchase or dispose of its fleet; the automotive rental business is
seasonal and highly sensitive to economic conditions, particularly fuel costs
and fuel supplies, and ANC Rental may need to add administrative and executive
personnel.

ANC Rental experienced a loss from operations of $76.3 million, and a net
loss after interest and taxes of $71.0 million, during the year ended December
31, 1999. Contributing to the loss for fiscal 1999 were several events,
including but not limited to, (1) provisions for plans to restructure ANC
Rental's operations through the consolidation of its North American
headquarters, the reduction of 250 non-field personnel, the rationalization of
fleet inventory and the consolidation of some of ANC Rental's unprofitable
locations; (2) allowances for doubtful accounts on certain past due receivables;
and (3) operational matters such as renegotiation of some of ANC Rental's
international supply agreements and higher fleet and administrative costs. These
events contributed to a fourth-quarter loss from operations of $123.3 million.
We expect ANC Rental to incur a loss from operations in the first quarter of
2000, which will significantly exceed its first-quarter operating loss of $9.0
million in 1999.

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ITEM 2. PROPERTIES

We own our corporate headquarters building, which is located in Fort
Lauderdale, Florida. We also own or lease numerous facilities relating to our
operations in 19 states. These facilities consist primarily of automobile
showrooms, display lots, service facilities, collision repair shops, supply
facilities, automobile storage lots, parking lots and offices. We believe that
our facilities are sufficient for our needs and are in good repair.

In December 1999, we closed 23 of our used vehicle megastores. We are
actively marketing these properties for sale along with other excess real estate
of which we intend to dispose.

ITEM 3. LEGAL PROCEEDINGS

By letter in January 1996, Acme Commercial Corp. d/b/a CarMax, The Auto
Superstore, accused our wholly-owned subsidiary, AutoNation USA Corporation, of
infringing CarMax's trademark rights by using the marks "AutoNation USA" and
"The Better Way to Buy a Car." AutoNation denied these allegations and in
February 1996, filed suit in the U.S. District Court for the Southern District
of Florida seeking a declaratory judgment that its use and registration of these
marks does not violate any of the rights of CarMax. In October 1996, CarMax
filed a counterclaim against AutoNation seeking damages and an order enjoining
AutoNation from using certain marks, including the marks "AutoNation USA" and
"The Better Way to Buy a Car." In November 1998, following a jury trial, the
court entered a judgment in favor of AutoNation USA and against CarMax with
respect to the marks in question. In December 1998, CarMax filed a notice of
appeal of the trial court's decision with the U.S. Court of Appeals for the
Eleventh Circuit. In December 1999, the Eleventh Circuit ruled in our favor by
affirming per curiam the lower court's dismissal of this matter. To our
knowledge, no further appeals have been filed in this matter.

A patent infringement suit naming us as a defendant was filed in January
2000 in the U.S. District Court for the Eastern District of Texas by an
individual, Allan Konrad, who holds three patents allegedly covering
intranet/internet use. Mr. Konrad also owns a fourth patent application
allegedly covering e-commerce. Thirty-eight other companies, including General
Motors, Ford and DaimlerChrysler are codefendants in this litigation. We procure
all products and services related to this infringement allegation from suppliers
and we believe that we are entitled to be indemnified by these suppliers for any
loss that may result from this litigation. The technology covered in the Konrad
patents relates to computer system configuration and a method of using that
configuration. More specifically, a local host (personal workstation), remote
host (server), a network connecting the local host to the remote host, and
various computer service functionalities are claimed to be covered by these
patents. Technology of this type is widely used by us and its continued use is
required.

We are a party to numerous other legal proceedings which arose in the
ordinary course of business. We do not believe that the ultimate resolution of
these matters, as well as the matters described above, will have a material
adverse effect on our business, results of operations, financial condition or
cash flows. However, the results of any of these matters cannot be predicted
with certainty, and an unfavorable resolution of one or more of these matters
could have a material adverse effect on our consolidated results of operations
or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1999.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

MARKET INFORMATION, HOLDERS AND DIVIDENDS

Since April 6, 1999, our common stock has traded on the NYSE under the
symbol "AN." From June 20, 1997 until April 5, 1999 our common stock traded on
the NYSE under the symbol "RII." The following table sets forth, for the periods
indicated, the high and low prices per share of the common stock as reported by
the NYSE.

HIGH LOW
---- ---

1999
First Quarter............................................... $16 15/16 $12 1/8
Second Quarter.............................................. 18 3/8 11 5/8
Third Quarter............................................... 17 7/8 11 1/2
Fourth Quarter.............................................. 12 11/16 7 1/2
1998
First Quarter............................................... $29 $19 3/16
Second Quarter.............................................. 30 22 15/16
Third Quarter............................................... 27 13 3/4
Fourth Quarter.............................................. 18 3/8 10

On March 23, 2000, the closing price of our common stock was $8 1/16 per
share as reported by the NYSE. On March 23, 2000, there were approximately 4,400
holders of record of our common stock.

We have not declared or paid any cash dividends on our common stock during
our two most recent fiscal years. We currently intend to retain our earnings for
future growth and, therefore, we do not anticipate paying cash dividends in the
foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

You should read the following Selected Financial Data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our Consolidated Financial Statements and Notes thereto and other
financial information included elsewhere in this Form 10-K.

AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Revenue...................................... $20,111.8 $12,664.6 $6,122.8 $2,933.7 $2,361.7
Income (loss) from continuing operations..... (31.5) 225.8 13.4 (1.1) 17.1
Net income (loss)............................ 282.9 499.5 439.7 (6.7) 34.6
Basic earnings (loss) per share:
Continuing operations...................... $ (.07) $ .50 $ .03 $ -- $ .07
Discontinued operations.................... .73 .60 1.06 .08 .06
Extraordinary charge....................... -- -- -- (.10) --
--------- --------- -------- -------- --------
Net income (loss).......................... $ .66 $ 1.10 $ 1.09 $ (.02) $ .13
========= ========= ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations...................... $ (.07) $ .48 $ .03 $ -- $ .06
Discontinued operations.................... .73 .58 .99 .08 .07
Extraordinary charge....................... -- -- -- (.10) --
--------- --------- -------- -------- --------
Net income (loss).......................... $ .66 $ 1.06 $ 1.02 $ (.02) $ .13
========= ========= ======== ======== ========
Total assets................................. $ 9,613.4 $ 8,412.2 $4,852.1 $2,229.1 $1,378.0
Long-term debt............................... 836.1 520.9 261.1 269.3 69.7
Shareholders' equity......................... 4,601.2 5,424.2 3,484.3 1,419.9 789.0

See Notes 2, 6, 10 and 11 of Notes to Consolidated Financial Statements for
discussion of business combinations, shareholders' equity, restructuring and
impairment charges and discontinued operations, respectively, and their effect
on comparability of year-to-year data. See "Item 5. Market for the Registrant's
Common Equity and Related Stockholder Matters" for a discussion of our dividend
policy.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion in conjunction with the
"Introduction", "Recent Developments", "Business Strategy" and "Risk Factors"
sections of this Form 10-K and our Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K.

DISCONTINUED BUSINESS SEGMENTS

In August 1999, we announced our intention to separate our automotive
rental businesses, which have been organized under ANC Rental Corporation, from
our automotive retail businesses. We intend to distribute our entire interest in
ANC Rental to our stockholders on a tax-free basis, subject to, among other
things, ANC Rental securing the necessary financing and third party approvals to
operate as an independent public company, as well as certain other conditions.
We have obtained a private letter ruling from the Internal Revenue Service that,
subject to the conditions set forth in the letter, the distribution of ANC
Rental will qualify as a tax-free distribution for federal income tax purposes
under Section 355 of the Internal Revenue Code of 1986, as amended. As discussed
in Note 11, Discontinued Operations, of Notes to Consolidated Financial
Statements, our automotive rental segment has been accounted for as discontinued
operations and the accompanying Consolidated Financial Statements presented
herein have been restated to report separately the net assets and operating
results of these discontinued operations. Upon completion of the planned ANC
Rental distribution, our consolidated shareholders' equity will be reduced by
the net assets of ANC Rental as of the distribution date.

In July 1998, we completed an initial public offering of 36.1% of the
common stock of our former solid waste subsidiary, Republic Services, Inc. In
May 1999, we sold substantially all of our remaining interest in Republic
Services in a public offering. As discussed in Note 11, Discontinued Operations,
of Notes to Consolidated Financial Statements, our former solid waste services
segment has been accounted for as discontinued operations and accordingly, the
gain on disposition, operating results and net assets at December 31, 1998 have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.

In October 1997, we sold our former electronic security services division.
As discussed in Note 11, Discontinued Operations, of Notes to Consolidated
Financial Statements, the operating results and gain on disposition of our
former electronic security services segment have been classified as discontinued
operations in the accompanying Consolidated Financial Statements.

BUSINESS COMBINATIONS

We have established framework agreements with various manufacturers that
allow us to acquire franchised automotive dealerships subject to various limits
and conditions. Since 1996, we have aggressively expanded our automotive retail
operations through the acquisition of franchised automotive dealerships. We
currently expect that we will continue to complete acquisitions of franchised
automotive dealerships during 2000. However, we do not expect to complete
acquisitions at the same pace we have in the past. Acquisitions to be completed
in 2000 will tend to be single dealerships or small dealership groups focused in
key markets in which we already conduct operations, or strategic acquisitions to
enhance our e-commerce business.

Businesses acquired through December 31, 1999 and accounted for under the
purchase method of accounting are included in our Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in our Consolidated Financial Statements as if the companies had
operated as one entity since inception.

During the year ended December 31, 1999, we acquired various automotive
retail businesses. We paid approximately $879.1 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting.

During the year ended December 31, 1998, we acquired various businesses in
the automotive retail, automotive rental and solid waste services industries.
With respect to continuing operations, we issued approximately 21.9 million
shares of our common stock, par value $.01 per share, valued at $473.2 million
and
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paid approximately $727.0 million in cash for acquisitions accounted for under
the purchase method of accounting. With respect to discontinued operations, we
issued approximately 3.4 million shares of common stock valued at $68.0 million
and paid approximately $494.4 million in cash and certain properties for
acquisitions accounted for under the purchase method of accounting.

During the year ended December 31, 1997, we acquired various businesses in
the automotive retail, automotive rental, solid waste services and electronic
security services industries. With respect to continuing operations, we issued
approximately 43.6 million shares of common stock valued at $739.1 million and
paid approximately $84.6 million in cash for acquisitions accounted for under
the purchase method of accounting and issued approximately 23.6 million shares
of common stock for acquisitions accounted for under the pooling of interests
method of accounting. With respect to discontinued operations, we issued
approximately 10.1 million shares of common stock valued at $224.3 million and
paid approximately $163.9 million in cash and notes for acquisitions accounted
for under the purchase method of accounting and issued approximately 59.9
million shares of common stock for acquisitions accounted for under the pooling
of interests method of accounting.

See Note 2, Business Combinations, of Notes to Consolidated Financial
Statements, for further discussion of business combinations.

SHARE REPURCHASES

In 1998, our board of directors authorized the repurchase of up to $500.0
million of our common stock. In 1999, our board authorized additional share
repurchase programs totaling $1.25 billion, including $500.0 million authorized
in December 1999. Since the 1998 inception of our share repurchase programs, we
have repurchased 110.9 million shares of common stock for a cumulative purchase
price of $1.38 billion through February 29, 2000 leaving approximately $374.1
million remaining for share repurchases under the program. We expect to continue
repurchasing shares under this program. Repurchases are made pursuant to Rule
10b-18 of the Securities Exchange Act of 1934, as amended.

CONSOLIDATED RESULTS OF OPERATIONS

The following is a summary of our consolidated results of operations both
in gross dollars and on a diluted per share basis for the periods indicated (in
millions, except per share data):

1999 1998 1997
---------------- ---------------- ----------------
DILUTED DILUTED DILUTED
PER PER PER
GROSS SHARE GROSS SHARE GROSS SHARE
------ ------- ------ ------- ------ -------

Income (loss) from continuing operations....... $(31.5) $(.07) $225.8 $ .48 $ 13.4 $ .03
------ ----- ------ ------ ------ -----
Income (loss) from discontinued operations, net
of income taxes:
Automotive rental......................... (71.0) (.17) 108.8 .23 51.2 .12
Solid waste services...................... 40.4 .10 153.3 .33 135.6 .31
Electronic security services.............. -- -- -- -- 9.5 .02
Gain on disposal of segments.............. 345.0 .80 11.6 .02 230.0 .54
------ ----- ------ ------ ------ -----
314.4 .73 273.7 .58 426.3 .99
------ ----- ------ ------ ------ -----
Net income..................................... $282.9 $ .66 $499.5 $ 1.06 $439.7 $1.02
====== ===== ====== ====== ====== =====

Income (loss) from continuing operations in 1999 and 1997 includes
restructuring and impairment charges and a 1997 non-recurring gain from the sale
of certain marketable securities further described below.

CONTINUING OPERATIONS

We are the largest automotive retailer in the United States. We own and
operate more than 400 new vehicle franchises from dealership locations in 26
major metropolitan markets in 19 states, predominantly in

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20

the Sunbelt states. Our business consists primarily of the sale, financing and
servicing of new and used vehicles. We also provide other related services and
products, such as the sale of parts and accessories, extended service contracts,
aftermarket automotive products and collision repair services. The core brands
of vehicles that we sell are manufactured or distributed by General Motors
Corporation, Ford Motor Company, DaimlerChrysler Corporation, Toyota Motor
Sales, U.S.A., Inc., American Honda Motor Co., Inc. and Nissan North America,
Inc. We also sell several luxury vehicle brands, including Mercedes-Benz, BMW,
Lexus and Porsche. In total, we offer 39 different brands of vehicles.

Our historical operating results include the results of acquired businesses
from the date of acquisition for acquisitions accounted for under the purchase
method of accounting. Due to our aggressive expansion through acquisitions, year
over year comparisons of our reported operating results do not provide a
meaningful representation of our internal performance. Accordingly, we have
presented below our operating results for the years ended December 31, 1999 and
1998 on a same store basis to better represent our internal performance.

Same Store Operating Data:

The following table sets forth the components of same store revenue, with
the percentage change between periods, and same store gross margin, same store
selling, general and administrative expenses and same store performance margin,
with percentages of total same store revenue and with the percentage change
between periods, for the years ended December 31 (in millions):

1999 1998 % CHANGE
--------- --------- --------

Revenue:
New vehicle...................................... $ 7,349.7 $ 6,426.5 14.4
Used vehicle..................................... 2,921.0 2,990.4 (2.3)
Fixed operations................................. 1,372.2 1,288.1 6.5
Other............................................ 922.1 969.3 (4.9)
--------- ---------
$12,565.0 $11,674.3 7.6
========= =========
Gross margin....................................... $ 1,654.9 $ 1,577.4 4.9
%.................................................. 13.2% 13.5% (0.3)
S, G & A........................................... $ 1,268.9 $ 1,205.6 5.3
%.................................................. 10.1% 10.3% (0.2)
Store performance margin........................... $ 386.0 $ 371.8 3.8
%.................................................. 3.1% 3.2% (0.1)

Overall, our same store performance margins increased 3.8% to $386.0
million during 1999, primarily due to increases in same store sales partially
offset by decreased gross margins and other factors described below.

Same store sales were $12.57 billion for the year ended December 31, 1999
versus $11.67 billion for the year ended December 31, 1998, an increase of 7.6%.
The primary components of the same store sales increase are described below.

In 1999, the automotive retail industry experienced a record level of new
vehicle unit sales volume representing an increase of 8.7% over 1998. Our new
vehicle same store sales increased 14.4% to $7.35 billion during the year ended
December 31, 1999 due to an increase in unit volume of 11.5% and price increases
of 2.9%.

The used vehicle market has been less robust due, in part, to strong
manufacturer incentives for new vehicles which we expect to continue in 2000.
Used vehicle same store sales at our used vehicle megastores and our franchised
stores decreased 2.3% to $2.92 billion during the year ended December 31, 1999
due to a decrease in unit volume of 6.4% offset by price increases of 4.1%. A
1.9% increase in used vehicle revenue at our franchised stores was more than
offset by a decline in used vehicle revenue at our used vehicle megastores. As
described below under the heading "Restructuring Activities", we have exited the
used vehicle megastore business.

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21

Fixed operations same store sales increased 6.5% to $1.37 billion during
the year ended December 31, 1999. The increase is primarily volume driven.

Same store other sales consist primarily of wholesale revenue. Same store
other sales decreased 4.9% to $922.1 million during the year ended December 31,
1999. The decrease is primarily due to a decline in wholesale unit pricing
during the period.

Same store gross margins were $1.65 billion for the year ended December 31,
1999 versus $1.58 billion for the year ended December 31, 1998. Same store gross
margins as a percentage of same store total revenue were 13.2% for the year
ended December 31, 1999 versus 13.5% for the year ended December 31, 1998. The
decrease in same store gross margin percentage is primarily due to a shift in
product mix as a result of stronger new versus used vehicle sales and, to a
lesser extent, decreases in used vehicle margins. As described above, we believe
that consumer demand for used vehicles has decreased relative to demand for new
vehicles due in part to aggressive manufacturer incentive programs.

Same store selling, general and administrative expenses were $1.27 billion
during the year ended December 31, 1999 versus $1.21 billion for the year ended
December 31, 1998. Same store selling, general and administrative expenses as a
percentage of same store total revenue were 10.1% for the year ended December
31, 1999 versus 10.3% for the year ended December 31, 1998. The decrease is
primarily due to better overall leveraging of the overhead structure, although
selling, general and administrative expenses increased in the latter half of
1999 due to the implementation of various corporate-wide initiatives. We have
shifted our focus away from many of these initiatives, however, and more towards
margin performance and on driving costs out of our business. To this end, in
late 1999, we took dramatic steps to reduce our cost structure as described in
greater detail under the heading "Restructuring Activities" below.

Same store performance margins were $386.0 million for the year ended
December 31, 1999 versus $371.8 million for the year ended December 31, 1998.
Same store performance margins as a percentage of same store total revenue were
3.1% for the year ended December 31, 1999 versus 3.2% for the year ended
December 31, 1998. The decrease in same store performance margins is a result of
lower gross margins partially offset by lower selling, general and
administrative costs described above.

Reported Operating Data:

The following table sets forth the components of revenue, with percentages
of total revenue, and gross margin, store level S,G&A, store performance margin,
corporate and district overhead, restructuring and impairment charges and
operating income (loss), with percentages of total revenue, on a reported basis
for the years ended December 31 (in millions):

1999 % 1998 % 1997 %
--------- ----- --------- ----- -------- -----

Revenue:
New vehicle.............................. $11,703.5 58.2 $ 6,879.1 54.3 $3,683.7 60.2
Used vehicle............................. 4,631.0 23.0 3,326.3 26.3 1,496.7 24.4
Fixed operations......................... 2,222.0 11.1 1,383.2 10.9 519.5 8.5
Other.................................... 1,555.3 7.7 1,076.0 8.5 422.9 6.9
--------- ----- --------- ----- -------- -----
$20,111.8 100.0 $12,664.6 100.0 $6,122.8 100.0
========= ===== ========= ===== ======== =====
Gross margin............................... $ 2,712.2 13.5 $ 1,755.0 13.8 $ 663.8 10.9
Store S, G & A............................. 2,105.4 10.5 1,304.4 10.3 597.7 9.8
Store performance margin................... 606.8 3.0 450.6 3.5 66.1 1.1
Overhead................................... 205.8 1.0 94.3 .7 75.1 1.2
Restructuring and impairment charges....... 416.4 2.1 -- -- 85.0 1.4
Operating income (loss).................... (15.4) (.1) 356.3 2.8 (94.0) (1.5)

Revenue was $20.11 billion, $12.66 billion and $6.12 billion for the years
ended December 31, 1999, 1998 and 1997, respectively. The increases are
primarily volume driven due to acquisitions and same store sales increases
previously described.

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22

Gross margins were $2.71 billion, $1.76 billion and $663.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increases in
aggregate dollars are primarily due to acquisitions. Excluding inventory related
restructuring costs described below, gross margins as a percentage of revenue
were 13.6%, 13.8% and 11.9% for the years ended December 31, 1999, 1998 and
1997, respectively. The 1999 decrease in gross margin as a percentage of revenue
is primarily due to a shift in product mix as a result of strong new versus used
vehicle sales and, to a lesser extent, decreases in used vehicle margins due in
part to strong new vehicle sales. The 1998 increase in gross margin as a
percentage of revenue is primarily due to reduced inventory costs, product mix
and the acquisition of dealerships that generated higher gross margins than our
pre-existing dealerships.

Store selling, general and administrative expenses were $2.11 billion,
$1.30 billion and $597.7 million or, as percentages of revenue, 10.5%, 10.3% and
9.8% for the years ended December 31, 1999, 1998 and 1997, respectively. The
increases in aggregate dollars are primarily due to acquisitions. The 1999 and
1998 increases as percentages of revenue are primarily due to higher megastore
fixed costs and, in 1999, costs incurred in connection with the megastore
closures and other one-time costs.

Store performance margins were $606.8 million, $450.6 million and $66.1
million or, as percentages of revenue, 3.0%, 3.5% and 1.1% for the years ended
December 31, 1999, 1998 and 1997, respectively. The increases in aggregate
dollars are primarily due to acquisitions. The 1999 decrease as a percentage of
revenue is due to lower gross margins and increased S,G&A expenses as described
above. The 1998 increase as a percentage of revenue is due to increased gross
margins partially offset by higher S,G&A expenses.

Corporate and district overhead was $205.8 million, $94.3 million and $75.1
million or, as a percentage of revenue, 1.0%, .7% and 1.2%, for the years ended
December 31, 1999, 1998 and 1997, respectively. The increases in aggregate
dollars are a result of the overall growth we experienced during our aggressive
acquisition growth phase as well as various corporate initiatives. The 1999
increase as a percentage of revenue is primarily due to increased headcount and
spending for various corporate initiatives which have been curtailed or
eliminated in conjunction with our 1999 restructuring activities further
described below. The 1998 decrease as a percentage of revenue is primarily due
to better leveraging of overhead costs on an expanded revenue base. We expect
our 2000 overhead costs as a percentage of revenue to return to 1998 levels.
Corporate expenses which will no longer be incurred following the separation of
the automotive rental division have been allocated to income from discontinued
operations. These allocated costs totaled approximately $16.0 million, $14.8
million and $9.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

Restructuring Activities

During the fourth quarter of 1999, we approved a plan to restructure
certain of our operations. The restructuring plan is comprised of the following
major components: (1) exiting the used vehicle megastore business by immediately
closing 23 of our used vehicle megastores and converting the six remaining
stores into new vehicle franchises (eight used vehicle megastores had previously
been converted); and (2) reducing the corporate workforce. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in a pre-tax charge of $443.7 million, the majority of which
is non-cash. Approximately $416.4 million appears as restructuring and
impairment charges in our 1999 Consolidated Statement of Operations and consists
of: $390.2 million of asset impairment charges and $26.2 million of termination
benefits and other exit costs. The remaining $27.3 million represents inventory
related costs associated with the used vehicle megastore closures and is
included in cost of operations in our 1999 Consolidated Statement of Operations.
The $390.2 million asset impairment charge consists of: $348.2 million of used
vehicle megastore and other property impairments (including $103.3 million of
reserves for guaranteed lease residual values for properties leased under our
$500.0 million lease facility described below); and $42.0 million of information
systems and other impairments.

Our 1999 operating results include revenue and operating losses of $1.45
billion and $14.1 million, respectively, associated with the operations to be
disposed. We will dispose of our closed megastore and other

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23

properties primarily through sale to independent third parties. Although we
intend to aggressively market these properties, the ultimate disposition could
exceed one year. Expected annual carrying costs associated with closed
properties total approximately $40.4 million and will be charged to expense in
future periods as incurred.

These restructuring and impairment charges are primarily non-cash asset
impairment charges which are not expected to result in a material future cash
outlay except for the property carrying costs described above. Through December
31, 1999, we have spent approximately $10.8 million of these charges primarily
for severance benefits and have recorded $312.4 million of these charges against
certain assets. As of December 31, 1999, approximately $120.5 million remained
in accrued liabilities related primarily to reserves for residual value
guarantees described above. We intend to fund our residual value guarantee
obligation primarily using cash received from the sale of owned properties.

During the year ended December 31, 1997, we recorded approximately $150.0
million of pre-tax charges associated with consolidating our automotive retail
operations. Approximately $85.0 million of these charges appear as restructuring
and impairment charges in our 1997 Consolidated Statement of Operations and
consists of: $42.5 million for consolidation of information systems; $25.3
million related to relocating or closing certain operations; and $17.2 million
of severance and other costs. The remaining $65.0 million of these charges
relates to inventory consolidation and is included in cost of operations in our
1997 Consolidated Statement of Operations. During the year ended December 31,
1998, we reduced our estimated restructuring reserves for information systems
and increased our estimated reserves for closed operations by approximately
$21.0 million. The decrease in the information systems reserve is a result of
our decision to eliminate or delay the conversion of certain systems. The
increase in the reserve for closed operations is due to our decision to close
our vehicle reconditioning centers. Approximately $32.0 million of the $85.0
million charge was spent on restructuring activities and the remaining $53.0
million was applied against certain assets. Included in the 1999 restructuring
and impairment charges described above are $30.1 million of additional estimated
impairment losses related to the closed reconditioning centers and other
properties held for sale.

NON-OPERATING INCOME (EXPENSE)

Interest Income

Interest income was $20.6 million, $8.8 million and $5.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increases are
primarily the result of investments in marketable securities.

Interest Expense

Interest expense was incurred primarily on borrowings under our revolving
credit facilities for general corporate purposes. Interest expense was $34.9
million, $14.0 million and $4.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. The increases are due to higher average borrowings.

Other Income, Net

Other income for the year ended December 31, 1997 consists primarily of a
$102.3 million pre-tax gain from the May 1997 sale of our 15.0 million shares of
ADT Limited common stock, net of fees and expenses. Such shares of ADT Limited
common stock were received in March 1997 upon our exercise of a warrant which
became exercisable upon termination of our agreement to acquire ADT Limited by
mutual agreement of the parties in September 1996.

Income Taxes

The provision for income taxes from continuing operations was $4.0 million,
$126.8 million and $8.0 million for the years ended December 31, 1999, 1998 and
1997, respectively. The effective income tax rate was 14.6%, 36.0% and 37.4% for
the years ended December 31, 1999, 1998 and 1997, respectively. Although we
reported a pre-tax loss from continuing operations in 1999, an income tax
provision of $4.0 million has been recorded due to the effect of certain
non-deductible expenses primarily associated with the restructuring and

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24

impairment charges. We anticipate that our effective income tax rate will
increase to between 37% and 38% in 2000.

FINANCIAL CONDITION

At December 31, 1999, we had $369.3 million in cash and cash equivalents
and approximately $775.8 million of availability under our $1.5 billion
unsecured revolving credit facilities which we may use for general corporate
purposes. As of February 29, 2000, we had approximately $362.0 million of
availability under our $1.5 billion unsecured revolving credit facilities. In
March 2000, we entered into a new $500.0 million 364-day unsecured bank
revolving credit facility to replace our existing 364-day facility which matured
in March 2000. This facility complements the $1.0 billion bank revolving credit
facility maturing in April 2002.

We have vehicle inventory financing and other credit facilities to fund our
operations. We have a $500.0 million bank-sponsored multi-seller commercial
paper conduit facility to finance new and used vehicle inventory. As of December
31, 1999, approximately $224.4 million was outstanding under this facility. This
facility supplements the new and used vehicle inventory finance facilities
provided by vehicle manufacturer captive finance companies.

We are the lessee under a $500.0 million lease facility that was
established to acquire and develop the used vehicle megastores and other
properties. At December 31, 1999, $469.7 million was funded under this facility
of which $152.5 million has been accounted for as capital leases and the
remaining $317.2 million has been accounted for as operating leases. We have
guaranteed the residual value of the properties under this facility. This
guarantee totaled approximately $413.3 million at December 31, 1999. As
previously described, we have closed certain megastores and other properties,
some of which are leased under this facility. We have accrued $103.3 million as
part of our 1999 restructuring and impairment charges representing our estimated
liability for the residual value of the closed properties. As previously
described, we expect to fund our residual value guarantee obligation primarily
using proceeds from the sale of owned properties.

We have a $1.7 billion commercial paper warehouse facility with unrelated
financial institutions for the securitization of installment loan finance
receivables. At December 31, 1999, we had approximately $687.4 million of
capacity under this program. We retain risk on the receivables securitized only
up to our retained interest. Proceeds from securitizations are primarily used to
repay borrowings under our revolving credit facilities. We expect to continue to
securitize receivables under this facility and/or other programs. We have
entered into interest rate derivative transactions with certain financial
institutions to manage the impact of interest rate changes on securitized
installment loan receivables. These derivative transactions consist of a series
of interest rate caps and floors which effectuate a variable to fixed rate swap.
The weighted average fixed rate under these derivatives was 6.13% at December
31, 1999. Variable rates on the underlying portfolio are indexed to the
Commercial Paper Nonfinancial Rate.

In October 1999, we formed a non-consolidated special purpose entity that
issued $786.8 million of asset-backed notes under a $2.0 billion shelf
registration statement. The weighted average fixed interest rate on these notes
was 6.61%. Proceeds from these notes were used to refinance installment loans
previously securitized under the $1.7 billion warehouse facility discussed above
and to securitize additional loans. We provide credit enhancement related to
these notes in the form of 1% overcollateralization, a reserve fund and a third
party surety bond. We retain responsibility for servicing the loans for which we
are paid a servicing fee.

Since the 1998 inception of our board authorized $1.75 billion cumulative
share repurchase programs through December 1999, we repurchased 100.1 million
shares of our common stock under these programs for an aggregate purchase price
of $1.29 billion. We have repurchased and expect to continue repurchasing shares
under these programs.

Our discontinued automotive rental operations are financed through various
revenue earning vehicle and working capital debt facilities. We provide various
credit enhancements related to this financing in the form of guarantees and
letters of credit. At December 31, 1999, letters of credit totaling $465.0
million which mature through September 2000 were outstanding related to this
financing. In February 2000, we contributed $180.0 million of capital to ANC
Rental to replace maturing letters of credit. ANC Rental's ultimate financing
structure may include additional capital funding from us and/or credit support
in the form of guarantees or letters of credit.

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25

We believe that we have sufficient operating cash flow and other financial
resources necessary to meet our anticipated capital requirements and obligations
as they come due.

CASH FLOWS

Cash and cash equivalents (decreased) increased by ($377.9) million, $644.7
million and ($215.5) million during the years ended December 31, 1999, 1998 and
1997, respectively. The major components of these changes are discussed below.

Cash Flows from Operating Activities

Cash provided by (used in) operating activities was $.9 million, ($34.2)
million and ($517.7) million for the years ended December 31, 1999, 1998 and
1997, respectively. Cash used in operating activities was substantially higher
in 1997 primarily due to the development of the used vehicle megastores.

Cash flows from operating activities include purchases of vehicle inventory
which are separately financed through secured vehicle financings. Accordingly,
we measure our operating cash flow including net proceeds (payments) under these
secured vehicle financings which totaled $460.1 million, $65.1 million and
($239.7) million during the years ended December 31, 1999, 1998 and 1997,
respectively. Including net proceeds (payments) under these secured vehicle
financings, the Company generated (used) operating cash flow of $461.0 million,
$30.9 million and ($757.4) million during the years ended 1999, 1998 and 1997,
respectively.

Cash Flows from Investing Activities

Cash flows from investing activities consist primarily of cash used for
business acquisitions, capital additions and other transactions as further
described below.

Cash used in business acquisitions was $879.1 million, $727.0 million and
$84.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase in cash used in business acquisitions from 1997 to
1998 was primarily due to our shift away from the use of our common stock to pay
for acquisitions. As previously described, we currently expect that we will
continue to complete acquisitions of franchised automotive dealerships during
2000, although such acquisitions will tend to be single dealerships or small
dealership groups focused in our key existing markets. We believe this strategy
will result in substantially less cash to be used in business acquisitions in
2000. See "Business Combinations" of Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 2, Business Combinations,
of Notes to Consolidated Financial Statements for a further discussion of
business combinations.

Capital expenditures were $242.3 million, $244.4 million and $210.0 million
during the years ended December 31, 1999, 1998 and 1997, respectively. We expect
capital expenditures to decrease in 2000 due to the megastore closures, fewer
acquisitions and other factors.

In July 1998, our former solid waste subsidiary, Republic Services,
completed an initial public offering resulting in proceeds of approximately
$1.43 billion. In May 1999, we sold substantially all of our remaining interest
in Republic Services in a public offering resulting in proceeds of approximately
$1.78 billion. Proceeds from the offerings were used to repay non-vehicle debt,
finance acquisitions, acquire shares under our share repurchase programs and
invest in our business.

In October 1997, we sold our electronic security services division for
approximately $610.0 million. In March 1997, we exercised our warrant to acquire
15.0 million common shares of ADT Limited for $20 per share. In May 1997, we
sold the 15.0 million ADT Limited common shares for $27.50 per share to certain
institutional investors.

We intend to finance capital expenditures and business acquisitions through
cash flow from operations, our revolving credit facilities and other financings.

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Cash Flows from Financing Activities

Cash flows from financing activities include revolving credit and vehicle
floor plan financings, repayments of acquired debt, treasury stock purchases and
other transactions as further described below.

During the year ended December 31, 1999, we repurchased approximately 91.0
million shares of our common stock for an aggregate price of approximately $1.16
billion under our Board approved share repurchase programs.

During the year ended December 31, 1998, we repurchased approximately 9.1
million shares of our common stock for an aggregate price of approximately
$136.0 million under our Board approved share repurchase program.

During the year ended December 31, 1997, we sold 15.8 million shares of our
common stock in a private placement transaction resulting in net proceeds of
approximately $552.7 million.

Cash Flows from Discontinued Operations

Cash (used in) provided by discontinued operations was as follows during
the years ended December 31:

1999 1998 1997
------- ------- -------

Automotive rental......................................... $(106.8) $(129.2) $(184.5)
Solid waste services...................................... (536.7) 558.4 31.0
Electronic security services.............................. -- -- (48.0)
------- ------- -------
$(643.5) $ 429.2 $(201.5)
======= ======= =======

Cash used in our discontinued automotive rental business consists primarily
of capital expenditures for systems and airport location improvements. Cash
(used in) provided by our former solid waste services business primarily
represents bank borrowings in 1998 to fund acquisitions completed in 1999.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The tables below provide information about our market sensitive financial
instruments and constitute "forward-looking statements". All items described are
non-trading.

Our primary market risk exposure is changing interest rates, primarily in
the United States. We do not have material market risk exposures relative to
changes in foreign exchange rates. Our policy is to manage interest rates
through the use of a combination of fixed and floating rate debt. Interest rate
derivatives may be used to adjust interest rate exposures when appropriate,
based upon market conditions. These derivatives consist of interest rate swaps,
caps and floors which are entered into with a group of financial institutions
with investment grade credit ratings, thereby minimizing the risk of credit
loss.

In our continuing operations, we use variable to fixed interest rate swaps
to manage the impact of interest rate changes on our variable rate revolving
credit and vehicle inventory financing facilities. Expected maturity dates for
variable rate debt and interest rate swaps in the tables below are based upon
contractual maturity dates. Average pay rates under interest rate swaps are
based upon contractual fixed rates. Average interest rates on variable rate debt
and average variable receive rates under interest rate swaps are based on
implied forward rates in the yield curve at the reporting date. In addition, we
have entered into a series of interest rate caps and floors contractually
maturing through 2006 to manage the impact of interest rate changes on
securitized installment loan receivables. Expected maturity dates for interest
rate caps and floors in the tables below are based upon the estimated repayment
of the underlying receivables after considering estimated prepayments and credit
losses. Average rates on interest rate caps and floors are based upon
contractual rates.

In our discontinued automotive rental operations, we use variable to fixed
interest rate swap agreements and interest rate caps and floors to manage the
impact of interest rate changes on our variable rate revenue earning vehicle
debt. Expected maturity dates for variable rate debt and interest rate
derivatives in the tables below are based upon contractual maturity dates.
Average pay rates under interest rate swaps are based upon

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27

contractual fixed rates. Average interest rates on variable rate debt and
average variable receive rates under interest rate swaps are based on implied
forward rates in the yield curve at the reporting date. Average rates on
interest rate caps and floors are based upon contractual rates.

Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and, thus, approximate current market rates.
The fair value of interest rate swaps, caps and floors is determined from dealer
quotations and represents the discounted future cash flows through maturity or
expiration using current rates. The fair value is effectively the amount we
would pay or receive to terminate the agreements.

EXPECTED MATURITY DATE FAIR VALUE
-------------------------------------------------------------------- DECEMBER 31,
DECEMBER 31, 1999: 2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------------------ -------- ------ ------ ------ ------ ---------- -------- ------------
(LIABILITY/(ASSET) IN MILLIONS)

CONTINUING OPERATIONS:
Variable rate debt............. $2,240.9 $ 2.3 $821.5 $ -- $ -- $ -- $3,064.7 $3,064.7
Average interest rates....... 6.53% 6.57% 6.82% -- -- --
Interest rate swaps............ 150.0 -- -- -- -- -- 150.0 (.1)
Average pay rate............. 5.96% -- -- -- -- --
Average receive rate......... 5.82% -- -- -- -- --
Interest rate caps(1).......... 197.1 220.6 229.9 202.4 145.4 21.9 1,017.3 (18.5)
Average rate................. 6.15% 6.15% 6.15% 6.15% 6.15% 6.15%
Interest rate floors(1)........ 197.1 220.6 229.9 202.4 145.4 21.9 1,017.3 7.7
Average rate................. 6.10% 6.10% 6.10% 6.10% 6.10% 6.10%
DISCONTINUED OPERATIONS:
Variable rate debt............. $1,600.8 $ 3.2 $ 35.0 $550.0 $ -- $700.0 $2,889.0 $2,889.0
Average interest rates....... 6.00% 6.50% 5.56% 6.72% -- 6.71%
Interest rate swaps............ 300.0 100.0 -- 200.0 -- -- 600.0 (6.8)
Average pay rate............. 5.96% 5.63% -- 5.59% -- --
Average receive rate......... 6.67% 7.32% -- 7.50% -- --
Interest rate caps............. -- -- -- 550.0 -- 700.0 1,250.0 (66.4)
Average rate................. -- -- -- 5.73% -- 6.26%
Interest rate floors........... -- -- -- 550.0 -- 700.0 1,250.0 15.2
Average rate................. -- -- -- 5.73% -- 6.26%

EXPECTED MATURITY DATE FAIR VALUE
---------------------------------------------------------------------- DECEMBER 31,
DECEMBER 31, 1998: 1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------------------ -------- -------- ------ ------ ------ ---------- -------- ------------
(LIABILITY/(ASSET) IN MILLIONS)

CONTINUING OPERATIONS:
Variable rate debt........... $1,339.2 $ -- $ -- $500.0 $ -- $ -- $1,839.2 $1,839.2
Average interest rates..... 5.81% -- -- 6.57% -- --
Interest rate swaps.......... -- -- -- -- 100.0 -- 100.0 1.7
Average pay rate........... -- -- -- -- 5.60% --
Average receive rate....... -- -- -- -- 5.65% --
Interest rate caps(1)........ 287.2 192.6 146.1 90.3 20.9 -- 737.1 (8.9)
Average rate............... 5.47% 5.47% 5.47% 5.47% 5.47% --
Interest rate floors(1)...... 287.2 192.6 146.1 90.3 20.9 -- 737.1 7.1
Average rate............... 4.61% 4.61% 4.61% 4.61% 4.61% --
DISCONTINUED OPERATIONS:
Variable rate debt........... $3,043.8 $1,263.3 $ 3.2 $ 38.0 $503.1 $35.9 $4,887.3 $4,887.3
Average interest rates..... 5.73% 5.54% 5.31% 5.83% 6.42% 5.21%
Interest rate swaps.......... 650.0 1,000.0 250.0 150.0 400.0 -- 2,450.0 45.3
Average pay rate........... 5.83% 5.94% 6.15% 5.88% 5.64% --
Average receive rate....... 5.19% 5.41% 5.53% 5.53% 5.53% --

- ---------------

(1) In our continuing operations, interest rate caps and floors are used to
hedge installment loan finance receivables securitized under an off-balance
sheet commercial paper warehouse facility. Amounts outstanding under this
commercial paper facility were $1.01 billion and $676.1 million at December
31, 1999 and 1998, respectively.

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28

SEASONALITY

Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year in part due to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating results to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.

YEAR 2000

We believe that all of our systems are operating and that no material Year
2000 issues have been encountered. We are also presently unaware of any third
party Year 2000 issues that would materially affect our financial condition or
results of operations. Nevertheless, if any Year 2000 issues presently unknown
to us occur with us or with third party products and business dependencies, we
may experience a delay or disruption in the delivery of products, including but
not limited to, the supply of new vehicles and/or original equipment
manufacturer replacement parts. Either of these conditions could have a material
adverse impact on our financial condition and results of operations including,
but not limited to, loss of revenue, increased operating costs, loss of
customers or suppliers, or other significant disruptions to our business.

We spent approximately $21.0 million on Year 2000 efforts across all areas,
of which $10.0 million relates to our continuing automotive retail operations
and $11.0 million relates to our discontinued automotive rental operations. We
do not expect to incur any material future Year 2000 related costs.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. We will adopt
SFAS 133 beginning January 1, 2001. We have not yet quantified the impact of
adopting SFAS 133 on our consolidated financial statements. However, SFAS 133
could increase volatility in earnings and other comprehensive income.

DISCONTINUED OPERATIONS

Automotive Rental

As a result of our decision to separate ANC Rental, the net assets and
operating results of our rental segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements. We have accrued a loss on disposition of the rental segment totaling
$34.1 million, net of income taxes. This represents the estimated losses from
operations through the expected distribution date and costs associated with the
planned spin-off.

ANC Rental primarily rents vehicles on a daily or weekly basis through
Alamo Rent-A-Car, Inc., National Car Rental System, Inc. and CarTemps USA. Our
automotive rental operations and particularly the leisure travel market are
highly seasonal. In these operations, the third quarter, which includes the peak
summer travel months, has historically been the strongest quarter of the year.
During the peak season, ANC Rental increases its rental fleet and workforce to
accommodate increased rental activity. As a result, any occurrence that disrupts
travel patterns during the summer period could have a material adverse effect on
ANC Rental's business, results of operations, cash flows and financial
condition. The first and fourth quarters

26
29

for ANC Rental's operations are generally the weakest, when there is limited
leisure travel and a greater potential for adverse or unseasonable weather
conditions. Many of the operating expenses such as rent, general insurance and
administrative personnel are fixed and cannot be reduced during periods of
decreased rental demand.

A summary of ANC Rental's operations is as follows for the years ended
December 31 (in millions):

1999 1998 1997
-------- -------- --------

Revenue.................................................. $3,542.3 $3,453.6 $3,055.1
Expenses:
Cost of operations..................................... 2,785.3 2,622.9 2,337.5
Selling, general and administrative.................... 792.8 651.8 553.5
Restructuring and other charges........................ 40.5 -- 78.0
-------- -------- --------
Operating income (loss).................................. (76.3) 178.9 86.1
Interest expense......................................... (14.3) (8.0) (6.6)
Interest and other income (expense)...................... 2.4 (.8) 6.0
-------- -------- --------
Income (loss) before income taxes........................ (88.2) 170.1 85.5
Provision (benefit) for income taxes..................... (18.8) 61.3 31.8
-------- -------- --------
Income (loss) before extraordinary charge................ (69.4) 108.8 53.7
Extraordinary charge, net of income taxes................ (1.6) -- (2.5)
-------- -------- --------
Net income (loss)........................................ $ (71.0) $ 108.8 $ 51.2
======== ======== ========

Revenue was $3.54 billion for the year ended December 31, 1999, $3.45
billion for the year ended December 31, 1998 and $3.06 billion for the year
ended December 31, 1997. The increase in 1999 over 1998 of $88.7 million or 2.6%
is due to a 3.2% increase in volume offset by a .6% reduction in price. The
increase in 1998 over 1997 of $398.5 million, or 13.0%, is a result of
acquisitions which accounted for 10.3% and volume and price which accounted for
2.7%.

Cost of operations was $2.79 billion for the year ended December 31, 1999,
$2.62 billion for the year ended December 31, 1998 and $2.34 billion for the
year ended December 31, 1997, or, as a percentage of revenue, 78.6% for the year
ended December 31, 1999, 76.0% for the year ended December 31, 1998 and 76.5%
for the year ended December 31, 1997. The increase in cost of operations for
1999 is due primarily to higher fleet costs and the recognition of certain
non-recurring expenses related to ANC Rental's restructuring plan discussed
below. The increase in 1998 is primarily due to acquisitions and maintaining a
larger fleet. The increase in cost of operations as a percentage of revenue in
1999 is due to higher fleet costs and the recognition of the non-recurring
restructuring expense in 1999 combined with a slightly lower average rental rate
in 1999 compared to 1998. The decrease in such expenses as a percentage of
revenue in 1998 is a result of revenue improvement from rental rate increases
over 1997.

Selling, general and administrative expenses were $792.8 million for the
year ended December 31, 1999, $651.8 million for the year ended December 31,
1998 and $553.5 million for the year ended December 31, 1997, or, as a
percentage of automotive rental revenue, 22.4% for the year ended December 31,
1999, 18.8% for the year ended December 31, 1998, and 18.1% for the year ended
December 31, 1997. The increase in 1999 over 1998 in aggregate dollars is
primarily due to higher administration costs and information system costs in
part associated with implementing and remediating a new system, Global Odyssey,
at National, higher selling and marketing expenses and higher commissions. The
1998 increase in aggregate dollars over 1997 is primarily due to acquisitions
and costs associated with implementing Global Odyssey. The 1999 and 1998
increases in selling, general and administrative expenses as percentages of
revenue are primarily due to costs associated with implementing and remediating
Global Odyssey and higher selling costs. As previously described, ANC Rental's
S,G&A expenses include allocations of AutoNation corporate overhead totaling
approximately $16.0 million, $14.8 million and $9.6 million for the years ended
December 31, 1999, 1998 and 1997, respectively.

27
30

In the fourth quarter of 1999, ANC Rental approved and implemented a plan
to restructure certain of its operations. Included in the plan are actions to
(1) consolidate the North American headquarters, (2) reduce non-field headcount
as a result of the consolidation of the North American headquarters, (3)
renegotiate certain existing international vehicle supply agreements and
rationalize revenue earning vehicle fleet, (4) exit and consolidate certain
unprofitable or marginally profitable operating locations both domestically and
internationally. ANC Rental anticipates substantially completing the
restructuring plan prior to December 31, 2000. During the year ended December
31, 1999, ANC Rental recorded a restructuring charge of approximately $40.5
million related to the consolidation of the North American operations,
renegotiation of fleet agreements and closing of certain locations. These
charges primarily include severance costs, asset impairments for idled
facilities, costs related to non-cancelable leases and costs related to the
closure and disposition of certain unprofitable operations. At December 31,
1999, $21.7 million of the restructuring charge remains accrued with most costs
to be incurred by the end of 2000, excluding certain lease commitments.

Separately, ANC Rental has incurred additional charges approximating $18.4
million related to the renegotiation of certain international supply
arrangements as well as rationalization of existing fleet and costs related to
employee retention payments to be made during the restructuring plan.

During the year ended December 31, 1997, ANC Rental recorded approximately
$78.0 million of restructuring and other charges associated with integrating
automotive rental operations. These charges primarily include costs related to
elimination of redundant information systems, fleet consolidation, closure or
sale of duplicate rental facilities and other non-recurring expenses. As of
December 31, 1999, approximately $11.5 million of restructuring reserves
remained accrued related to certain contractual obligations for closed locations
which extend through 2002.

ANC Rental finances vehicle purchases for its domestic automotive rental
operations through commercial paper and medium-term note financings. ANC Rental
currently has a $1.89 billion single-seller commercial paper program. Borrowings
under this program are secured by eligible vehicle collateral and bear interest
at market-based commercial paper rates. As of February 29, 2000, ANC Rental had
approximately $547.2 million of availability under this program.

As of December 31, 1999, approximately 69% of ANC Rental's worldwide fleet
was acquired under repurchase programs. Repurchase programs allow ANC Rental to
require counterparties to repurchase vehicles held for periods up to 24 months.
ANC Rental expects to continue to fund its revenue earning vehicle purchases
with secured vehicle financings.

In 1999, ANC Rental issued $2.5 billion of rental vehicle asset-backed
medium-term notes consisting of $1.25 billion floating rate notes maturing
through 2005; $750.0 million 5.88% fixed rate notes maturing through 2003; and
$500.0 million 6.02% fixed rate notes maturing through 2005. ANC Rental fixed
the effective interest rate on the $1.25 billion floating rate notes at 6.03%
through the use of certain derivative transactions. Letters of credit totaling
$70.0 million currently provide credit enhancement for these notes. Proceeds
from the notes were used to refinance amounts outstanding under the commercial
paper programs.

ANC Rental uses interest rate swap and interest rate caps and floors to
manage the impact of interest rate changes on variable rate revenue earning
vehicle debt. At December 31, 1999, notional principal amounts related to
revenue earning vehicle debt interest rate swaps (variable to fixed rate) were
$600.0 million. As of December 31, 1999, the weighted average fixed rate payment
on variable to fixed rate swaps was 5.78%. Variable rates received are indexed
to the Commercial Paper Nonfinancial Rate. Notional principal amounts related to
interest rate caps and floors as of December 31, 1999 were both $1.25 billion.
The interest rate caps and floors effectuate a variable to fixed rate swap at a
weighted average rate of 5.77% as of December 31, 1999. Variable rates on
interest rate caps and floors are indexed to LIBOR.

Solid Waste Services

In July 1998, we completed an initial public offering of 36.1% of Republic
Services resulting in net proceeds of $1.43 billion. We sold substantially all
of our remaining interest in RSG in May 1999 resulting in an after tax gain of
approximately $377.0 million. Accordingly, the gain on disposition, operating
results and

28
31

net assets at December 31, 1998 of our former solid waste services segment have
been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Revenue from these discontinued
operations was $552.5 million in 1999 for the period prior to the disposition
and $1.37 billion and $1.13 billion for the years ended December 31, 1998 and
1997, respectively. Income from these discontinued operations, net of minority
interest, was $40.4 million in 1999 for the period prior to disposition and
$153.3 million and $135.6 million for the years ended December 31, 1998 and
1997, respectively.

Electronic Security Services

In October 1997, we sold our electronic security services division
resulting in an after tax gain of approximately $230.0 million. In 1999 and
1998, we recognized additional after tax gains of approximately $2.1 million and
$11.6 million, respectively, related to finalizing the gain on disposition. The
operating results and gain on disposition of our former electronic security
services segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements. Revenue and net
income from the electronic security services segment was $83.8 million and $9.5
million in 1997 for the period prior to disposition, respectively.

See Note 11, Discontinued Operations, of Notes to Consolidated Financial
Statements, for further discussion of these discontinued operations.

FORWARD LOOKING STATEMENTS

Our business, financial condition, results of operations, cash flows and
future prospects, and the prevailing market price and performance of our common
stock, may be adversely affected by a number of factors, including the matters
discussed below. Some of the statements and information contained throughout
this Annual Report on Form 10-K constitute "forward-looking statements" within
the meaning of the Federal Private Securities Litigation Reform Act of 1995. You
can identify these forward-looking statements by the use of terms including
"may," "will," "should," "expect," "anticipate," "believe," "estimate" or
"continue" or variations of those terms, or the use of those terms in the
negative, or words of similar import in the context presented. The
forward-looking statements describe known and unknown risks, uncertainties and
other factors which may cause our actual results, performance, or achievements
to be materially different from any future results, performance, or
achievements, expressed or implied, by the forward-looking statements. These
risks, uncertainties and other factors include the following: we face
significant competition in the automotive retail industry; we will need
substantial additional capital and we have significant indebtedness outstanding;
the automotive retail industry is cyclical and is sensitive to changing economic
conditions; the automotive retail industry is highly seasonal; we may not be
able to successfully rollout our strategy to other markets where we currently
operate; we may have difficulty expanding through acquisitions of franchised
automotive dealerships in our key markets; automotive manufacturers may impede
our acquisition strategy; we may have difficulty integrating acquired
dealerships into our operations; we depend on vehicle manufacturers for our new
vehicle inventory supply; we are subject to operating restrictions imposed by
vehicle manufacturers; the loss of key personnel could affect our operations; we
are subject to extensive governmental and environmental regulation; we are
subject to various legal and administrative proceedings, matters relating to
imported products may affect our operations; and our ability to complete the
spin-off of ANC Rental.

29
32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Certified Public Accountants.......... 31
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 32
Consolidated Statements of Operations for Each of the Three
Years Ended December 31, 1999............................. 33
Consolidated Statements of Shareholders' Equity for Each of
the Three Years Ended December 31, 1999................... 34
Consolidated Statements of Cash Flows for Each of the Three
Years Ended December 31, 1999............................. 35
Notes to Consolidated Financial Statements.................. 36
Financial Statement Schedule II, Valuation and Qualifying
Accounts and Reserves, for Each of the Three Years Ended
December 31, 1999......................................... 60

30
33

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of AutoNation, Inc.:

We have audited the accompanying consolidated balance sheets of AutoNation,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AutoNation,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Fort Lauderdale, Florida,
March 27, 2000.

31
34

AUTONATION, INC.

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)

1999 1998
-------- --------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 369.3 $ 183.8
Receivables, net.......................................... 1,151.0 966.4
Inventory................................................. 2,706.8 1,849.5
Other current assets...................................... 73.8 61.5
-------- --------
Total Current Assets.............................. 4,300.9 3,061.2
INVESTMENTS................................................. 175.8 167.7
PROPERTY AND EQUIPMENT, NET................................. 1,360.4 1,216.4
INTANGIBLE ASSETS, NET...................................... 2,831.0 2,080.9
OTHER ASSETS................................................ 218.7 317.1
NET ASSETS OF DISCONTINUED OPERATIONS....................... 726.6 1,568.9
-------- --------
$9,613.4 $8,412.2
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 163.1 $ 117.6
Accrued liabilities....................................... 622.9 428.5
Notes payable and current maturities of long-term debt.... 2,248.7 1,344.8
Other current liabilities................................. 129.8 106.4
-------- --------
Total Current Liabilities......................... 3,164.5 1,997.3
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 836.1 520.9
DEFERRED INCOME TAXES....................................... 804.8 323.0
OTHER LIABILITIES........................................... 206.8 146.8
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized;
none issued............................................ -- --
Common stock, par value $.01 per share; 1,500,000,000
shares authorized; 474,965,676 and 467,240,307 shares
issued and outstanding including shares held in
treasury, respectively................................. 4.7 4.7
Additional paid-in capital................................ 4,661.5 4,628.9
Retained earnings......................................... 1,213.8 930.9
Accumulated other comprehensive income (loss)............. 6.6 (4.3)
Treasury stock, at cost; 99,602,444 and 9,110,400 shares
held, respectively..................................... (1,285.4) (136.0)
-------- --------
Total Shareholders' Equity........................ 4,601.2 5,424.2
-------- --------
$9,613.4 $8,412.2
======== ========

The accompanying notes are an integral part of these statements.

32
35

AUTONATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)

1999 1998 1997
--------- --------- --------

REVENUE..................................................... $20,111.8 $12,664.6 $6,122.8
COST OF OPERATIONS.......................................... 17,399.6 10,909.6 5,459.0
--------- --------- --------
GROSS MARGIN................................................ 2,712.2 1,755.0 663.8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 2,311.2 1,398.7 672.8
RESTRUCTURING AND IMPAIRMENT CHARGES........................ 416.4 -- 85.0
--------- --------- --------
OPERATING INCOME (LOSS)..................................... (15.4) 356.3 (94.0)
INTEREST INCOME............................................. 20.6 8.8 5.4
INTEREST EXPENSE............................................ (34.9) (14.0) (4.5)
OTHER INCOME, NET........................................... 2.2 1.5 114.5
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES....................................... (27.5) 352.6 21.4
PROVISION FOR INCOME TAXES.................................. 4.0 126.8 8.0
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... (31.5) 225.8 13.4
--------- --------- --------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes.................................................. (30.6) 262.1 196.3
Gain on disposal of segments, net of income taxes of
$516.9 in 1999, $8.4 in 1998 and $233.7 in 1997........ 345.0 11.6 230.0
--------- --------- --------
314.4 273.7 426.3
--------- --------- --------
NET INCOME.................................................. $ 282.9 $ 499.5 $ 439.7
========= ========= ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ (.07) $ .50 $ .03
Discontinued operations................................... .73 .60 1.06
--------- --------- --------
Net income................................................ $ .66 $ 1.10 $ 1.09
========= ========= ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ (.07) $ .48 $ .03
Discontinued operations................................... .73 .58 .99
--------- --------- --------
Net income................................................ $ .66 $ 1.06 $ 1.02
========= ========= ========

The accompanying notes are an integral part of these statements.

33
36

AUTONATION, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)

ACCUMULATED
OTHER
COMPRE- COMPRE-
ADDITIONAL HENSIVE HENSIVE
COMMON PAID-IN RETAINED INCOME TREASURY INCOME
STOCK CAPITAL EARNINGS (LOSS) STOCK (LOSS)
------ ---------- -------- ----------- --------- -------

BALANCE AT DECEMBER 31, 1996................ $3.4 $1,387.6 $ 27.1 $ 1.8 $ --
Comprehensive income (loss):
Net income.............................. -- -- 439.7 -- -- $439.7
Other comprehensive loss -- foreign
currency translation adjustments...... -- -- -- (4.7) -- (4.7)
------
Comprehensive income.................. -- -- -- -- -- $435.0
======
Sales of common stock..................... .2 552.5 -- -- --
Stock issued in acquisitions.............. .6 962.8 -- -- --
Exercise of stock options and warrants,
including income tax benefit of $32.7... .1 92.0 -- -- --
Distributions to former owners of pooled
companies............................... -- -- (31.4) -- --
Other..................................... -- 56.6 (4.0) -- --
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1997................ 4.3 3,051.5 431.4 (2.9) --
Comprehensive income (loss):
Net income.............................. -- -- 499.5 -- -- $499.5
------
Other comprehensive income (loss):
Foreign currency translation
adjustments........................ -- -- -- -- -- (1.6)
Unrealized gains on marketable
securities and interest-only strip
receivables........................ -- -- -- -- -- .2
------
Other comprehensive loss.............. -- -- -- (1.4) -- (1.4)
------
Comprehensive income............... -- -- -- -- -- $498.1
======
Stock issued in acquisitions.............. .3 540.9 -- -- --
Sale of common stock of RSG............... -- 998.5 -- -- --
Purchases of treasury stock............... -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of $4.8.... .1 38.0 -- -- --
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1998................ 4.7 4,628.9 930.9 (4.3) (136.0)
Comprehensive income (loss):
Net income.............................. -- -- 282.9 -- -- $282.9
------
Other comprehensive income (loss):
Foreign currency translation
adjustments........................ -- -- -- -- -- (1.9)
Unrealized gains on marketable
securities and interest-only strip
receivables........................ -- -- -- -- -- 12.8
------
Other comprehensive income............ -- -- -- 10.9 -- 10.9
------
Comprehensive income............... -- -- -- -- -- $293.8
======
Purchases of treasury stock............... -- -- -- -- (1,158.0)
Issuance of treasury stock for employee
benefit plan............................ -- .1 -- -- 10.4
Exercise of stock options and warrants,
including income tax benefit of $.4..... -- 28.5 -- -- --
Other..................................... -- 4.0 -- -- (1.8)
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1999................ $4.7 $4,661.5 $1,213.8 $ 6.6 $(1,285.4)
==== ======== ======== ===== =========

The accompanying notes are an integral part of these statements.

34
37

AUTONATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)

1999 1998 1997
--------- --------- -------

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income................................................ $ 282.9 $ 499.5 $ 439.7
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization of property and
equipment............................................ 60.1 40.1 23.2
Amortization of intangible assets...................... 62.9 39.6 15.6
Deferred income tax provision (benefit)................ (127.2) 12.2 75.9
Non-cash restructuring and impairment charges.......... 432.9 -- 118.6
Gain on sale of marketable securities.................. (4.5) -- (102.3)
Income from discontinued operations.................... (314.4) (273.7) (426.3)
Changes in assets and liabilities, net of effects from
business acquisitions:
Receivables.......................................... (98.7) (400.4) (125.5)
Inventory............................................ (380.8) 66.5 (207.6)
Other assets......................................... 42.0 (23.0) 30.6
Accounts payable and accrued liabilities............. (68.2) (85.2) (100.7)
Other liabilities.................................... 113.9 90.2 (258.9)
--------- --------- -------
.9 (34.2) (517.7)
--------- --------- -------
CASH PROVIDED BY INVESTING ACTIVITIES:
Cash used in business acquisitions, net of cash
acquired............................................... (879.1) (727.0) (84.6)
Purchases of property and equipment....................... (242.3) (244.4) (210.0)
Purchases of marketable securities........................ (88.6) (193.6) (300.0)
Sales of marketable securities............................ 116.8 94.1 402.3
Proceeds from sale of common stock of RSG................. 1,779.6 1,433.6 --
Cash received on disposal of electronic security
division............................................... -- -- 610.0
Other..................................................... 204.4 (64.0) .2
--------- --------- -------
890.8 298.7 417.9
--------- --------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of long-term debt and notes payable.............. (126.1) (260.3) (335.5)
Net proceeds (payments) from vehicle inventory financing
facilities............................................. 460.1 65.1 (239.7)
Net proceeds from revolving credit facilities............. 169.0 250.0 100.0
Purchases of treasury stock............................... (1,158.0) (136.0) --
Sales of common stock..................................... -- -- 552.7
Other..................................................... 28.9 32.2 8.3
--------- --------- -------
(626.1) (49.0) 85.8
--------- --------- -------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS............ 265.6 215.5 (14.0)
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS.......... (643.5) 429.2 (201.5)
--------- --------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (377.9) 644.7 (215.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$590.1, $44.9 AND $256.3 RESPECTIVELY..................... 773.9 129.2 344.7
--------- --------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD, INCLUDING CASH
AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF $26.7,
$590.1 AND $44.9, RESPECTIVELY............................ $ 396.0 $ 773.9 $ 129.2
========= ========= =======

The accompanying notes are an integral part of these statements.

35
38

AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries (the "Company"). All intercompany accounts
and transactions have been eliminated.

In August 1999, the Company announced its intention to separate the
Company's automotive rental businesses, which have been organized under ANC
Rental Corporation ("ANC Rental"), from the Company. The Company intends to
distribute its entire interest in ANC Rental to the Company's stockholders on a
tax-free basis, subject to, among other things, ANC Rental securing the
necessary financing and third party approvals to operate as an independent
public company as well as certain other conditions. The Company has obtained a
private letter ruling from the Internal Revenue Service that, subject to the
conditions set forth in the letter, the distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended. As discussed in Note 11, Discontinued
Operations, the Company's automotive rental segment has been accounted for as
discontinued operations and the accompanying Consolidated Financial Statements
presented herein have been restated to report separately the net assets and
operating results of these discontinued operations.

In July 1998, the Company completed an initial public offering of 36.1% of
the common stock of the Company's former solid waste subsidiary, Republic
Services, Inc. ("RSG"). In May 1999, the Company sold substantially all of its
remaining interest in RSG in a public offering. As discussed in Note 11,
Discontinued Operations, the Company's former solid waste services segment has
been accounted for as discontinued operations and accordingly, the gain on
disposition, operating results and net assets at December 31, 1998 have been
classified as discontinued operations in the accompanying Consolidated Financial
Statements presented herein.

In October 1997, the Company sold its former electronic security services
division. As discussed in Note 11, Discontinued Operations, the Company's former
electronic security services segment has been accounted for as discontinued
operations and accordingly the operating results and gain on disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements presented herein.

In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements to conform with the financial statement presentation of the
current period.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

36
39
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECEIVABLES

The components of receivables, net of allowance for doubtful accounts, at
December 31 are as follows:

1999 1998
-------- --------

Contracts in transit........................................ $ 422.3 $ 298.9
Finance receivables......................................... 413.1 352.0
Trade receivables........................................... 166.5 202.8
Manufacturer receivables.................................... 134.1 86.1
Other....................................................... 57.5 60.4
-------- --------
1,193.5 1,000.2
Less: allowance for doubtful accounts....................... (42.5) (33.8)
-------- --------
$1,151.0 $ 966.4
======== ========

Finance receivables at December 31 are as follows:

1999 1998
------ ------

Finance leases.............................................. $196.3 $170.9
Installment loans........................................... 83.8 95.6
Retained interests in securitized installment loans......... 133.0 85.5
------ ------
$413.1 $352.0
====== ======

The Company has a $1.7 billion commercial paper warehouse facility with
unrelated financial institutions for the securitization of installment loan
finance receivables. During the years ended December 31, 1999 and 1998, the
Company securitized approximately $1.4 billion and $698.8 million of loan
receivables under this program, net of retained interests, respectively.
Installment loans sold under this program are nonrecourse beyond the Company's
retained interests. The Company sells its receivables to a commercial paper
conduit, but retains responsibility for servicing the loans for which it is paid
a servicing fee. The Company retains a subordinated interest in the sold
receivables and the future excess cash flow from the loan portfolio after
required interest payments, servicing and other fees and expenses. The Company
provides additional credit enhancement in the form of restricted cash deposits.
At December 31, 1999, $1.01 billion was outstanding under this program. As
further discussed in Note 12, Derivative Financial Instruments, the Company
enters into interest rate protection agreements to manage the impact of interest
rate changes on amounts securitized.

In October 1999, a non-consolidated special purpose entity formed by the
Company issued $786.8 million of asset-backed notes under a $2.0 billion shelf
registration statement. Proceeds from these notes were used to refinance
installment loans previously securitized under the warehouse facility and to
securitize additional loans held by the Company. The Company provides credit
enhancement related to these notes in the form of 1% overcollateralization, a
reserve fund and a third party surety bond. The Company retains responsibility
for servicing the loans for which it is paid a servicing fee.

The Company accounts for the sale of receivables in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
Gains or losses from the sales of finance receivables are recognized in the
period in which sales occur. In determining the gain or loss for each sale, the
Company allocates the book value of the loan portfolio between amounts sold and
retained interests based upon relative fair values. The Company's retained
interests in securitized installment loan receivables consist of retained
interests in sold principal, interest-only strip receivables representing the
present value of future excess cash flow and servicing assets. Retained
interests in the sold principal are carried at allocated carrying amounts and
subsequently assessed for impairment. Interest-only strip receivables are
carried at fair value and marked to market as a component of

37
40
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other comprehensive income. Servicing assets are initially recorded at allocated
carrying amounts and subsequently amortized over the servicing period and
assessed for impairment.

INVENTORY

Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition,
reconditioning and transportation expenses. Parts and accessories are valued at
the factory list price which approximates lower of cost (first-in, first-out) or
market.

Inventory acquired in business acquisitions is recorded at fair value.
Adjustments to convert from the acquired company's accounting method (generally
last-in, first-out) to the Company's accounting method are recorded as an
adjustment to the cost in excess of the fair value of net assets acquired.

A summary of inventory at December 31 is as follows:

1999 1998
-------- --------

New vehicles................................................ $2,085.0 $1,274.3
Used vehicles............................................... 470.1 457.3
Parts, accessories and other................................ 151.7 117.9
-------- --------
$2,706.8 $1,849.5
======== ========

INVESTMENTS

Investments consist of marketable securities and investments in businesses
accounted for under the equity method. Marketable securities include investments
in debt and equity securities classified as available for sale and are stated at
fair value with unrealized gains and losses included in other comprehensive
income. Fair value is estimated based on quoted market prices. Equity method
investments represent investments in 50% or less owned automotive businesses
over which the Company has the ability to exercise significant influence. The
Company records its initial equity method investments at cost and subsequently
adjusts the carrying amounts of the investments for the Company's share of the
earnings or losses of the investee after the acquisition date as a component of
other income in the Company's Consolidated Statements of Operations.

A summary of investments at December 31 is as follows:

1999 1998
------ ------

Marketable securities....................................... $106.2 $ 96.8
Equity method investments................................... 69.6 70.9
------ ------
$175.8 $167.7
====== ======

Investments in marketable securities at December 31 are as follows:

1999
----------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----- ---------- ---------- ------

U.S. government debt securities.................... $37.2 $ -- $ (.6) $ 36.6
Corporate debt securities.......................... 21.5 -- (.4) 21.1
Equity securities.................................. 27.4 21.1 -- 48.5
----- ----- ----- ------
$86.1 $21.1 $(1.0) $106.2
===== ===== ===== ======

38
41
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1998
----------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----- ---------- ---------- ------

U.S. government debt securities.................... $70.6 $-- $(.6) $70.0
Corporate debt securities.......................... 26.8 -- -- 26.8
----- ---- ---- -----
$97.4 $-- $(.6) $96.8
===== == ==== =====

At December 31, 1999, aggregate maturities of debt securities are as
follows:

FAIR
COST VALUE
----- -----

Due in 2 - 5 years.......................................... $55.7 $54.7
Due in 6 - 10 years......................................... 3.0 3.0
----- -----
$58.7 $57.7
===== =====

Proceeds from sales of available for sale securities were $116.8 million,
$94.1 million and $402.3 million for the years ended December 31, 1999, 1998 and
1997, respectively. Gross realized gains and losses of $5.3 million and $.8
million, respectively were recognized for the year ended December 31, 1999.
Gross realized gains and losses were not material for the year ended December
31, 1998. During the year ended December 31, 1997, proceeds from sales of $402.3
million and realized gains of $102.3 million were recognized on the sale of 15.0
million common shares of ADT Limited. Such shares of ADT Limited common stock
were received in March 1997 upon the Company's exercise of a warrant which
became exercisable upon termination of the Company's agreement to acquire ADT
Limited by mutual agreement of the parties in September 1996.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.

The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for equipment and five to ten years for
furniture and fixtures.

A summary of property and equipment at December 31 is as follows:

1999 1998
-------- --------

Land........................................................ $ 529.7 $ 431.3
Buildings and improvements.................................. 670.9 594.3
Furniture, fixtures and equipment........................... 310.5 284.1
-------- --------
1,511.1 1,309.7
Less: accumulated depreciation and amortization............. (150.7) (93.3)
-------- --------
$1,360.4 $1,216.4
======== ========

The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property

39
42
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and equipment should be evaluated for possible impairment. The Company uses an
estimate of the related undiscounted cash flows over the remaining life of the
property and equipment in assessing whether an asset has been impaired. The
Company measures impairment losses based upon the amount by which the carrying
amount of the asset exceeds the fair value. Fair values generally are estimated
using prices for similar assets and/or discounted cash flows. As described in
Note 10, Restructuring and Impairment Charges, the Company recognized an
impairment charge in 1999 for the write-down of certain megastore and other
properties held for sale to fair value. Properties held for sale are included in
other assets as described below.

INTANGIBLE ASSETS

Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net assets acquired. The cost in excess of the fair
value of net assets is amortized over forty years on a straight-line basis.
Accumulated amortization of intangible assets was $122.5 million and $59.7
million at December 31, 1999 and 1998, respectively.

The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing whether intangible assets have been impaired.

OTHER ASSETS

Other assets consist primarily of megastore and other properties held for
sale. As described in Note 10, Restructuring and Impairment Charges, the Company
recognized an impairment charge in 1999 for the write-down of the carrying value
of properties held for sale to fair value. Assets held for sale totaled
approximately $212.0 million and $305.1 million at December 31, 1999 and 1998,
respectively.

REVENUE RECOGNITION

Revenue consists of sales of new and used vehicles and related finance and
insurance products, sales from fixed operations (parts, service and body shop)
and sales of other products including wholesale units. The Company recognizes
revenue over the period in which products are sold or services are provided. An
estimated allowance for chargebacks against revenue recognized from sales of
finance and insurance products is established during the period in which related
revenue is recognized.

A summary of the Company's revenue by major products and services for the
years ended December 31 is as follows:

1999 1998 1997
--------- --------- --------

New vehicles........................................... $11,703.5 $ 6,879.1 $3,683.7
Used vehicles.......................................... 4,631.0 3,326.3 1,496.7
Fixed operations....................................... 2,222.0 1,383.2 519.5
Other.................................................. 1,555.3 1,076.0 422.9
--------- --------- --------
$20,111.8 $12,664.6 $6,122.8
========= ========= ========

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes interest rate derivatives to manage the impact of
interest rate changes on borrowings under the Company's variable rate vehicle
inventory and revolving credit facilities. The Company also utilizes interest
rate derivatives to manage the impact of interest rate changes on securitized
installment loan receivables. The Company does not use derivative financial
instruments for trading purposes.

40
43
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Derivative financial instruments entered into concurrently with
securitizations are accounted for at fair value as part of the proceeds received
in the determination of the gain or loss on sale. If a derivative financial
instrument entered into concurrently with a securitization is terminated, any
resulting gain or loss is recognized in earnings upon termination.

Interest rate swaps are used to manage the impact of interest rate changes
on vehicle inventory and revolving credit facility borrowings. Under interest
rate swaps, the Company agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate interest amounts
calculated by reference to an agreed notional principal amount. Income or
expense under these instruments is recorded on an accrual basis as an adjustment
to the yield of the underlying exposures over the periods covered by the
contracts. If an interest rate swap is terminated early, any resulting gain or
loss is deferred and amortized as an adjustment of the cost of the underlying
exposure position over the remaining periods originally covered by the
terminated swap. If all or part of an underlying position is terminated, the
related pro-rata portion of any unrecognized gain or loss on the swap is
recognized in income at that time as part of the gain or loss on the
termination. Amounts receivable or payable under the agreements are included in
receivables or accrued liabilities in the accompanying Consolidated Balance
Sheets and were not material at December 31, 1999 or 1998.

ADVERTISING

The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were capitalized at
December 31, 1999 or 1998. Advertising expense was $212.2 million, $158.0
million and $94.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

STATEMENTS OF CASH FLOWS

The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents unless the investments
are legally or contractually restricted for more than three months. The effect
of non-cash transactions related to business combinations, as discussed in Note
2, Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.

The Company made interest payments of approximately $175.2 million, $190.2
million and $76.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively, including interest on vehicle inventory financing. The Company
made income tax payments of approximately $84.2 million, $139.8 million and
$59.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 137 amends SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS 133 beginning January 1, 2001. The Company has not yet quantified the
impact of adopting SFAS 133 on the Company's consolidated financial statements.
However, SFAS 133 could increase volatility in earnings and other comprehensive
income.

41
44
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. BUSINESS COMBINATIONS

Businesses acquired through December 31, 1999 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception.

During the year ended December 31, 1999, the Company acquired various
automotive retail businesses. The Company paid approximately $879.1 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting.

During the year ended December 31, 1998, the Company acquired various
businesses in the automotive retail, solid waste services and automotive rental
industries. With respect to continuing operations, the Company issued
approximately 21.9 million shares of the Company's common stock, par value $.01
per share ("Common Stock"), valued at $473.2 million and paid approximately
$727.0 million in cash for acquisitions accounted for under the purchase method
of accounting. With respect to discontinued operations, the Company issued
approximately 3.4 million shares of Common Stock valued at $68.0 million and
paid approximately $494.4 million in cash and certain properties for
acquisitions accounted for under the purchase method of accounting.

During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. With respect to continuing operations,
the Company issued approximately 43.6 million shares of Common Stock valued at
$739.1 million and paid approximately $84.6 million in cash for acquisitions
accounted for under the purchase method of accounting and issued approximately
23.6 million shares of Common Stock for acquisitions accounted for under the
pooling of interests method of accounting. With respect to discontinued
operations, the Company issued approximately 10.1 million shares of Common Stock
valued at $224.3 million and paid approximately $163.9 million in cash and notes
for acquisitions accounted for under the purchase method of accounting and
issued approximately 59.9 million shares of Common Stock for acquisitions
accounted for under the pooling of interests method of accounting.

The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting related to continuing
operations for the years ended December 31 were as follows:

1999 1998 1997
------- --------- -------

Property and equipment................................... $ 145.5 $ 372.3 $ 468.8
Intangible and other assets.............................. 942.7 1,239.7 824.9
Working capital.......................................... 450.3 735.8 198.4
Debt assumed............................................. (623.8) (1,074.5) (618.3)
Other liabilities........................................ (35.6) (73.1) (50.1)
Common stock issued...................................... -- (473.2) (739.1)
------- --------- -------
Cash used in business acquisitions, net of cash
acquired............................................... $ 879.1 $ 727.0 $ 84.6
======= ========= =======

The Company's unaudited pro forma consolidated results of continuing
operations assuming acquisitions accounted for under the purchase method of
accounting had occurred at the beginning of each period presented are as follows
for the years ended December 31:

1999 1998
--------- ---------

Revenue..................................................... $21,454.8 $19,588.1
Income (loss) from continuing operations.................... (15.3) 306.3
Diluted earnings (loss) per share from continuing
operations................................................ (.04) .65

42
45
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unaudited pro forma results of continuing operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of each
period presented.

3. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt at December 31 are as follows:

1999 1998
--------- ---------

Vehicle inventory credit facilities; secured by the
Company's vehicle inventory; interest rates of 6.6% and
5.8% at December 31, 1999 and 1998, respectively.......... $ 2,212.6 $ 1,339.2
$1.5 billion unsecured revolving credit facilities; interest
payable using LIBOR based rates; interest rates of 6.6%
and 5.4% at December 31, 1999 and 1998, respectively;
$500.0 million matures March 2000; $1.0 billion matures
April 2002................................................ 669.0 500.0
Other debt; secured by real property, equipment and other
assets; interest ranging from 6.0% to 9.0%; maturing
through 2009.............................................. 203.2 26.5
--------- ---------
3,084.8 1,865.7
Less: current portion....................................... (2,248.7) (1,344.8)
--------- ---------
$ 836.1 $ 520.9
========= =========

The Company's revolving credit facilities require, among other items, that
the Company maintain certain financial ratios and comply with certain financial
covenants. The Company was in compliance with these ratios and covenants at
December 31, 1999.

In March 2000, the Company entered into a new $500.0 million 364-day
unsecured bank revolving credit facility to replace its existing 364-day
facility which matured in March 2000. This facility will be used for general
corporate purposes and complements the $1.0 billion bank revolving credit
facility maturing in April 2002.

The Company has a $500.0 million bank-sponsored multi-seller commercial
paper conduit facility to finance new and used vehicle inventory. At December
31, 1999, approximately $224.4 million was outstanding under this facility. The
facility supplements the new and used vehicle inventory finance facilities
provided by vehicle manufacturer captive finance companies.

Interest expense on vehicle inventory credit facilities is included as a
component of cost of operations in the accompanying Consolidated Statements of
Operations.

At December 31, 1999, aggregate maturities of notes payable and long-term
debt are as follows:

2000........................................................ $2,248.7
2001........................................................ 7.2
2002........................................................ 823.7
2003........................................................ 1.0
2004........................................................ .9
Thereafter.................................................. 3.3
--------
$3,084.8
========

43
46
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.

Certain businesses acquired in 1997 and accounted for under the pooling of
interests method of accounting were subchapter S corporations for income tax
purposes. The subchapter S corporation status of these companies was terminated
effective with the closing date of the acquisitions. For purposes of these
Consolidated Financial Statements, federal and state income taxes have been
recorded as if these companies had filed subchapter C corporation tax returns
for the pre-acquisition periods, and the current income tax expense is reflected
as an increase to additional paid-in capital.

The components of the provision for income taxes from continuing operations
for the years ended December 31 are as follows:

1999 1998 1997
------- ------ ------

Current:
Federal................................................... $ 108.4 $105.5 $(63.5)
State..................................................... 22.8 9.1 (4.4)
Federal and state deferred.................................. (111.2) 26.7 75.9
Change in valuation allowance............................... (16.0) (14.5) --
------- ------ ------
Provision for income taxes.................................. $ 4.0 $126.8 $ 8.0
======= ====== ======

A reconciliation of the provision (benefit) for income taxes calculated
using the statutory federal income tax rate to the Company's provision for
income taxes from continuing operations for the years ended December 31 is as
follows:

1999 1998 1997
------ ------ -----

Provision (benefit) for income taxes at statutory rate of
35%....................................................... $ (9.6) $123.4 $ 7.6
Non-deductible expenses..................................... 28.6 10.3 2.6
State income taxes, net of federal benefit.................. 1.0 7.6 .5
Change in valuation allowance............................... (16.0) (14.5) --
Other, net.................................................. -- -- (2.7)
------ ------ -----
Provision for income taxes.................................. $ 4.0 $126.8 $ 8.0
====== ====== =====

Components of the net deferred income tax liability at December 31 are as
follows:

1999 1998
------- -------

Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 336.1 $ 244.8
Expenses deducted for tax, not for book................... 705.6 144.8
Deferred income tax assets:
Net operating losses...................................... (4.2) (33.6)
Accruals not currently deductible......................... (342.0) (163.0)
Valuation allowance......................................... 109.3 130.0
------- -------
Net deferred income tax liability........................... $ 804.8 $ 323.0
======= =======

At December 31, 1999, the Company had available domestic net operating loss
carryforwards of approximately $11.1 million which begin to expire in the year
2010. In assessing the realizability of deferred

44
47
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
provides valuation allowances to offset portions of deferred tax assets due to
uncertainty surrounding the future realization of such deferred tax assets. The
Company adjusts the valuation allowance in the period management determines it
is more likely than not that deferred tax assets will or will not be realized.
Future decreases to the valuation allowance may be allocated to reduce
intangible assets associated with business acquisitions accounted for under the
purchase method of accounting.

5. OTHER COMPREHENSIVE INCOME

The changes in the components of other comprehensive income (loss), net of
income taxes, for the years ended December 31 are as follows:

1999 1998 1997
------------------------- ------------------------- -------------------------
PRE-TAX TAX NET PRE-TAX TAX NET PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT
------- ------ ------ ------- ------ ------ ------- ------ ------

Foreign currency translation
adjustments.................... $(1.9) $ -- $(1.9) $(1.6) $ -- $(1.6) $(4.7) $-- $(4.7)
Unrealized gain (loss) on
marketable securities and
interest-only strip
receivables.................... 20.1 (7.3) 12.8 .3 (.1) .2 -- -- --
----- ----- ----- ----- ---- ----- ----- --- -----
Other comprehensive income
(loss)......................... $18.2 $(7.3) $10.9 $(1.3) $(.1) $(1.4) $(4.7) $-- $(4.7)
===== ===== ===== ===== ==== ===== ===== === =====

Accumulated other comprehensive income (loss) at December 31 is as follows:

1999 1998
----- -----

Foreign currency translation adjustments.................... $(6.4) $(4.5)
Unrealized gain on marketable securities and interest-only
strip receivables......................................... 13.0 .2
----- -----
$ 6.6 $(4.3)
===== =====

No material reclassification adjustments were recorded in 1999 or 1998.
During the year ended December 31, 1997, the Company reclassified unrealized
holding gains totaling approximately $65.0 million, net of income taxes of
approximately $37.3 million, to realized gains in connection with the sale of
the shares of ADT Limited common stock in May 1997.

6. SHAREHOLDERS' EQUITY

During the year ended December 31, 1999, the Company's Board of Directors
authorized additional share repurchase programs increasing the cumulative share
repurchase programs to $1.75 billion from $500.0 million authorized in 1998. The
Company repurchased 91.0 million shares of Common Stock during 1999 for an
aggregate purchase price of $1.16 billion. Repurchases are made pursuant to Rule
10b-18 of the Securities Exchange Act of 1934, as amended.

During the year ended December 31, 1998, the Company's former solid waste
subsidiary, RSG, completed an initial public offering of approximately 36.1% of
its outstanding common stock, resulting in net proceeds of approximately $1.43
billion. In addition, in August 1998, the Company's Board of Directors
authorized the repurchase of up to $500.0 million of Common Stock over the
following 12 months. During the year ended December 31, 1998, the Company
repurchased 9.1 million shares of Common Stock for an aggregate purchase price
of $136.0 million under the Board authorized share repurchase program.

During the year ended December 31, 1997, the Company sold 15.8 million
shares of Common Stock in a private placement transaction resulting in net
proceeds of approximately $552.7 million. In addition, in May

45
48
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1997, the Company's Certificate of Incorporation was amended to increase the
number of authorized shares of Common Stock from 500.0 million to 1.5 billion
shares.

The Company has 5.0 million authorized shares of preferred stock, par value
$.01 per share, none of which are issued or outstanding. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
establish the rights, preferences and dividends.

7. STOCK OPTIONS AND WARRANTS

The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the quoted market price of the Common Stock at the date of grant. Generally,
options granted will have a term of 10 years from the date of grant, and will
vest in increments of 25% per year over a four-year period on the yearly
anniversary of the grant date. In October 1998, the Company's Board of Directors
approved the repricing of approximately 32.1 million employee stock options to
$12.75 per share, equal to the closing price of the Company's Common Stock on
the last business day prior to the date of the repricing. Option holders were
precluded from exercising any of their repriced options prior to January 2,
2000. All other terms of the existing options, including the vesting schedules,
were unchanged.

A summary of stock option and warrant transactions is as follows for the
years ended December 31:

1999 1998 1997
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------

Options and warrants outstanding at
beginning of period....................... 54.6 $12.52 48.1 $15.67 52.5 $7.63
Granted..................................... 17.0 15.80 16.9 21.89 15.2 28.52
Exercised................................... (7.8) 3.73 (9.3) 3.62 (18.7) 3.24
Canceled.................................... (12.9) 13.90 (1.1) 25.34 (.9) 24.59
----- ----- -----
Options and warrants outstanding at end of
period.................................... 50.9 15.84 54.6 12.52 48.1 15.67
===== ===== =====
Options and warrants exercisable at end of
period.................................... 15.4 18.58 18.8 11.27 26.8 8.71
Options available for future grants......... 24.1 28.2 14.0

The following table summarizes information about outstanding and
exercisable stock options at December 31, 1999:

OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE(YRS.) PRICE SHARES PRICE
- ------------------------ ------ ----------- --------- ------ ---------

$1.13 - $12.38.......................... 7.2 5.28 $11.08 6.2 $10.97
12.75.................................. 19.2 7.54 12.75 -- --
12.88 - 41.88.......................... 24.5 7.75 19.65 9.2 23.72
---- ---- ------ ---- ------
50.9 7.32 $15.84 15.4 $18.58
==== ==== ====== ==== ======

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 SFAS No. 123,
"Accounting for Stock-Based

46
49
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 after December 31, 1994, 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:

1999 1998 1997
---------- ---------- ----------

Pro forma net income........................... $ 199.5 $ 368.5 $ 375.3
Pro forma diluted earnings per share........... .46 .81 .88
Pro forma weighted average fair value of
options granted.............................. 6.87 13.87 10.03
Risk free interest rates....................... 6.34-6.38% 4.76-4.82% 5.74-5.78%
Expected lives................................. 5-7 years 5-7 years 5-7 years
Expected volatility............................ 40% 40% 40%

8. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, accused the Company's wholly-owned subsidiary, AutoNation USA
Corporation of infringing CarMax's trademark rights by using the marks
"AutoNation USA(SM)" and "The Better Way to Buy a Car(SM)." The Company denied
such allegations and on February 5, 1996, filed suit in the U.S. District Court
for the Southern District of Florida seeking a declaratory judgment that its use
and registration of such marks do not violate any of the rights of CarMax. On or
about October 11, 1996, CarMax filed a counterclaim against the Company seeking
damages and an order enjoining the Company from using certain marks, including
the marks "AutoNation USA" and "The Better Way to Buy a Car." On November 5,
1998, following a jury trial, the court entered a judgment in favor of
AutoNation USA and against CarMax with respect to the marks in question. On
December 2, 1998, CarMax filed a notice of appeal of the trial court's decision
with the U.S. Court of Appeals for the Eleventh Circuit. In December 1999, the
Eleventh Circuit affirmed per curiam the lower court's dismissal of this matter.
To the Company's knowledge, no further appeals have been filed in this matter.

The Company is a party to numerous other legal proceedings which arose in
the ordinary course of business. The Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on the Company's
consolidated results of operations, financial condition or cash flows. However,
the results of these matters cannot be predicted with certainty and unfavorable
resolution of one or more of these matters could have a material adverse effect
on the Company's consolidated results of operations, financial condition and/or
cash flows.

LEASE COMMITMENTS

The Company leases real property, equipment and software under various
operating leases most of which have terms from 1 to 25 years.

Expenses under real property, equipment and software leases were $86.2
million, $45.0 million and $12.0 million for the years ended December 31, 1999,
1998 and 1997, respectively.

47
50
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 1999 are as follows:

Year Ending December 31:
2000........................................................ $ 91.0
2001........................................................ 81.0
2002........................................................ 58.0
2003........................................................ 45.8
2004........................................................ 36.5
Thereafter.................................................. 149.6
------
$461.9
======

The Company is the lessee under a $500.0 million lease facility that was
established to acquire and develop the Company's used vehicle megastores and
other properties. At December 31, 1999, $469.7 million was funded under this
facility of which $152.5 million has been accounted for as capital leases and
the remaining $317.2 million has been accounted for as operating leases. The
Company has guaranteed the residual value of the properties under this facility
which guarantee totaled approximately $413.3 million at December 31, 1999. As
described in Note 10, Restructuring and Impairment Charges, the Company has
closed certain megastore and other properties, some of which are leased under
this facility. The Company has accrued $103.3 million as part of its 1999
restructuring and impairment charges representing its estimated liability under
the residual value guarantee for the closed properties.

OTHER MATTERS

In the normal course of business, the Company is required to post
performance and surety bonds, letters of credit, and/or cash deposits as
financial guarantees of the Company's performance. To date, the Company has
satisfied financial responsibility requirements for regulatory agencies by
making cash deposits, obtaining surety bonds or by obtaining bank letters of
credit. At December 31, 1999, surety bonds and letters of credit totaling $261.3
million expire through 2007; $138.5 million of which relate to ANC Rental's
operations.

The Company provides credit enhancement related to ANC Rental's vehicle
financing in the form of guarantees and letters of credit. At December 31, 1999,
letters of credit totaling $465.0 million which mature through September 2000
were outstanding related to this financing. In February 2000, the Company
contributed $180.0 million of capital to ANC Rental which was used to replace
maturing letters of credit.

9. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise or conversion of options and warrants.
In computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method.

48
51
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share for the
years ended December 31 is as follows:

1999 1998 1997
----- ----- -----

Weighted average shares outstanding used in calculating
basic earnings per share.................................. 429.8 455.1 403.1
Effect of dilutive options and warrants..................... -- 15.8 27.8
----- ----- -----
Weighted average common and common equivalent shares used in
calculating diluted earnings per share.................... 429.8 470.9 430.9
===== ===== =====

At December 31, 1999, total outstanding employee stock options of
approximately 50.9 million have been excluded from the computation of diluted
earnings per share since they are anti-dilutive due to the 1999 loss from
continuing operations. At December 31, 1998 and 1997, the Company had
approximately 4.8 million and 5.4 million stock options outstanding,
respectively, which have been excluded from the computation of diluted earnings
per share since they are anti-dilutive.

10. RESTRUCTURING AND IMPAIRMENT CHARGES

During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan is comprised of
the following major components: (1) exiting the used vehicle megastore business
by immediately closing 23 of the Company's megastores and converting six others
into new vehicle franchises (eight used vehicle megastores had previously been
converted); and (2) reducing the corporate workforce. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in pre-tax charges of $443.7 million. Approximately $416.4
million appears as restructuring and impairment charges in the Company's 1999
Consolidated Statement of Operations and consists of: $390.2 million of asset
impairment charges and $26.2 million of termination benefits and other exit
costs. The remaining $27.3 million represents inventory related costs associated
with the megastore closures and is included in cost of operations in the
Company's 1999 Consolidated Statement of Operations. The $390.2 million asset
impairment charge consists of: $348.2 million of megastore and other property
impairments (including $103.3 million of reserves for guaranteed lease residual
values for properties leased under the Company's $500.0 million lease facility
described in Note 8, Commitments and Contingencies); and $42.0 million of
information systems and other impairments.

The Company will dispose of its closed properties primarily through sale to
independent third parties. Although the Company intends to aggressively market
these properties, the ultimate disposition could exceed one year. Expected
annual carrying costs associated with closed properties total approximately
$40.4 million and will be charged to expense in future periods as incurred.
Operating results for the operations to be disposed for the years ended December
31 are as follows:

1999 1998 1997
-------- -------- ------

Revenue................................................... $1,445.7 $1,133.0 $495.9
Operating loss............................................ (14.1) (1.1) (34.6)

Through December 31, 1999, the Company has spent approximately $10.8
million of these charges primarily for severance benefits and has recorded
$312.4 million of these charges against certain assets. As of December 31, 1999,
approximately $120.5 million remained in accrued liabilities related primarily
to reserves for leased properties.

During the year ended December 31, 1997, the Company recorded pre-tax
charges of approximately $150.0 million associated with consolidating the
Company's automotive retail operations. Approximately $85.0 million appears as
restructuring and impairment charges in the Company's 1997 Consolidated
49
52
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statement of Operations and consists of: $42.5 million for consolidation of
information systems; $25.3 million related to relocating or closing certain
operations; and $17.2 million of severance and other costs. The remaining $65.0
million of this charge relates to inventory consolidation and is included in
cost of operations in the Company's 1997 Consolidated Statement of Operations.
During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for closed operations by approximately $21.0 million. The decrease in
the information systems reserve is a result of the Company's decision to
eliminate or delay the conversion of certain systems. The increase in the
reserve for closed operations is due to the Company's decision to close its
reconditioning centers and relocate the reconditioning operations to the
Company's AutoNation USA megastores. Approximately $32.0 million of the $85.0
million charge was spent on restructuring activities and the remaining $53.0
million was applied against certain assets. Included in the 1999 restructuring
and impairment charges described above are $30.1 million of additional estimated
impairment losses related to the closed reconditioning centers and other
properties held for sale.

11. DISCONTINUED OPERATIONS

As a result of the Company's decision to separate its automotive rental
business, the net assets and operating results of the Company's automotive
rental segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements. The Company has
recorded a loss on disposition of the rental segment totaling $34.1 million, net
of income taxes, representing the estimated loss from operations through the
expected distribution date and costs associated with the planned spin-off.

In July 1998, the Company's former solid waste services subsidiary, RSG,
completed an initial public offering of 36.1% of its outstanding common stock
resulting in net proceeds of approximately $1.43 billion. In May 1999, the
Company sold substantially all of its remaining interest in RSG in a public
offering resulting in net proceeds of approximately $1.78 billion and an after
tax gain of approximately $377.0 million. Accordingly, the gain on disposition,
operating results through the date of disposition and net assets at December 31,
1998 of RSG have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements.

In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. In 1999 and 1998, the Company recognized additional after tax
gains of approximately $2.1 million and $11.6 million, respectively, related to
finalizing the gain on disposition. The operating results through the date of
disposition and gain on disposition of the electronic security services segment
have been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements.

50
53
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the net assets of discontinued operations as of December 31 is
as follows:

1999 1998
------------ --------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
------------ ---------- -------- --------

Current assets............................... $5,349.3 $5,345.1 $ 784.0 $6,129.1
Non-current assets........................... 1,000.2 907.5 2,028.1 2,935.6
-------- -------- -------- --------
Total assets....................... 6,349.5 6,252.6 2,812.1 9,064.7
-------- -------- -------- --------
Current liabilities.......................... 2,235.8 3,438.6 783.8 4,222.4
Non-current liabilities...................... 3,387.1 2,075.3 729.2 2,804.5
-------- -------- -------- --------
Total liabilities.................. 5,622.9 5,513.9 1,513.0 7,026.9
-------- -------- -------- --------
Minority interest............................ -- -- 468.9 468.9
-------- -------- -------- --------
Net assets of discontinued operations........ $ 726.6 $ 738.7 $ 830.2 $1,568.9
======== ======== ======== ========

Selected statement of operations data for the Company's discontinued
operations for the years ended December 31 is as follows:

1999 1998
------------------------------- --------------------------------
AUTOMOTIVE SOLID AUTOMOTIVE SOLID
RENTAL WASTE TOTAL RENTAL WASTE TOTAL
---------- ------ -------- ---------- -------- --------

Revenue................. $3,542.3 $552.5 $4,094.8 $3,453.6 $1,369.1 $4,822.7
Operating income
(loss)................ (76.3)(1) 113.5 37.2 178.9 299.3 478.2
Provision (benefit) for
income taxes.......... (18.8) 38.8 20.0 61.3 105.3 166.6
Minority interest in
RSG................... -- 21.6 21.6 -- 33.9 33.9
Income (loss) from
discontinued
operations............ (71.0) 40.4 (30.6) 108.8 153.3 262.1

1997
--------------------------------------------
AUTOMOTIVE SOLID ELECTRONIC
RENTAL WASTE SECURITY TOTAL
---------- -------- ---------- --------

Revenue................. $3,055.1 $1,127.7 $83.8 $4,266.6
Operating income
(loss)................ 86.1(2) 211.5 14.7 312.3
Provision (benefit) for
income taxes.......... 31.8 76.9 5.2 113.9
Minority interest in
RSG................... -- -- -- --
Income (loss) from
discontinued
operations............ 51.2 135.6 9.5 196.3

- ---------------

(1) Includes pre-tax restructuring and other charges of $58.9 million in 1999
primarily related to ANC Rental's consolidation of its North American
operations and other restructuring activities.
(2) Includes pre-tax restructuring and other charges of $78.0 million in 1997
related to integrating the automotive rental operations.

12. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses interest rate swap agreements to manage the impact of
interest rate changes on borrowings under the Company's variable rate vehicle
inventory and revolving credit facilities. At December 31, 1999, notional
principal amounts related to interest rate swaps (variable to fixed rate) were
$150.0 million maturing in 2000. At December 31, 1999, the weighted average
fixed rate payment on variable to fixed rate swaps was 5.96%. Variable rates are
indexed to LIBOR.

The Company has also entered into interest rate derivative transactions
with certain financial institutions to manage the impact of interest rate
changes on securitized installment loan receivables. These derivative
transactions consist of a series of interest rate caps and floors with an
aggregate notional amount of $1.02 billion contractually maturing through 2006
which effectuate a variable to fixed rate swap at a weighted average rate of
6.13% at December 31, 1999. Variable rates on the underlying portfolio are
indexed to the Commercial Paper Nonfinancial Rate.

The amounts exchanged by the counterparties to interest rate derivatives
are based upon the notional amounts and other terms, generally related to
interest rates, of the derivatives. While notional amounts of interest rate
derivatives form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Company's exposure as an end user
of derivative financial instruments.

51
54
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is exposed to credit related losses in the event of
non-performance by counterparties to derivative financial instruments. The
Company monitors the credit worthiness of the counterparties and presently does
not expect default by any of the counterparties. The Company does not obtain
collateral in connection with its derivative financial instruments.

The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 13, Fair Value of Financial Instruments, for the fair
value of derivatives.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore cannot be determined with
precision. The assumptions used have a significant effect on the estimated
amounts reported.

The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:

- Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable and fixed rate debt: The amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.

- Installment loans receivable and retained interests in securitized
receivables: The fair value of installment loans receivable and retained
interests in securitized receivables are estimated based upon the
discounted value of the future cash flows expected to be received.
Significant assumptions used to estimate the fair value at December 31,
1999 and 1998 are as follows: discount rate -- 9.64% and 8.13%;
cumulative loss rate -- 4.49% and 1.97%; and prepayment rate -- 1.5% per
month.

- Interest rate swaps, caps and floors: The fair value of interest rate
swaps, caps and floors is determined from dealer quotations and
represents the discounted future cash flows through maturity or
expiration using current rates, and is effectively the amount the Company
would pay or receive to terminate the agreements.

The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which carrying
amounts approximate fair value, as of December 31:

1999 1998
---------------- ----------------
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ----- -------- -----

Installment loans receivable........................... $83.8 $84.8 $95.6 $99.2
Retained interests in securitized receivables:
Principal............................................ 70.4 70.6 44.2 44.6
Interest-only strips................................. 51.8 51.8 38.2 38.2
Servicing assets..................................... 10.8 10.4 3.1 3.1
Interest rate caps..................................... -- 18.5 -- 8.9
Interest rate floors................................... -- (7.7) -- (7.1)
Interest rate swaps.................................... -- .1 -- (1.7)

52
55
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. BUSINESS AND CREDIT CONCENTRATIONS

The Company owns and operates franchised automotive dealerships in the
United States.

Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
with considerable influence over the operations of the dealership and generally
provide for termination of the franchise agreement for a variety of causes. The
success of any franchised automotive dealership is dependent, to a large extent,
on the financial condition, management, marketing, production and distribution
capabilities of the vehicle manufacturers of which the Company holds franchises.
At December 31, 1999 and 1998, the Company had receivables from manufacturers of
$134.1 million and $86.1 million, respectively.

The Company purchases substantially all of its new vehicles from various
manufacturers at the prevailing prices charged by the manufacturers to all
franchised dealers. The Company's sales volume could be adversely impacted by
the manufacturers' inability to supply the dealerships with an adequate supply
of vehicles.

Concentrations of credit risk with respect to non-manufacturer trade
receivables are limited due to the wide variety of customers and markets in
which the Company's products are sold as well as their dispersion across many
different geographic areas in the United States. Consequently, at December 31,
1999, the Company does not consider itself to have any significant
non-manufacturer concentrations of credit risk.

15. QUARTERLY INFORMATION (UNAUDITED)

The Company's operations generally experience higher volumes of vehicle
sales in the second and third quarters of each year in part due to consumer
buying trends and the introduction of new vehicle models. Also, demand for cars
and light trucks is generally lower during the winter months than in other
seasons, particularly in regions of the United States where dealerships may be
subject to harsh winters. Accordingly, the Company expects revenue and operating
results to be generally lower in the first and fourth quarters as compared to
the second and third quarters.

Operating income (loss) in the fourth quarter of 1999 includes
restructuring and impairment charges of $443.7 million, as described in Note 10,
Restructuring and Impairment Charges.

The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1999 and 1998.

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------

Revenue........................................... 1999 $4,562.7 $5,069.6 $5,459.7 $5,019.8
1998 2,343.4 3,172.6 3,508.0 3,640.6
Operating income (loss)........................... 1999 92.9 154.9 141.4 (404.6)
1998 45.9 94.9 119.7 95.8
Income (loss) from continuing operations.......... 1999 58.4 97.1 92.6 (279.6)
1998 27.7 54.2 81.3 62.6
Basic earnings (loss) per share from continuing
operations...................................... 1999 .13 .22 .22 (.71)
1998 .06 .12 .18 .13
Diluted earnings (loss) per share from continuing
operations...................................... 1999 .13 .21 .22 (.71)
1998 .06 .11 .17 .13
Net income (loss)................................. 1999 80.1 501.2 104.7 (403.1)
1998 77.1 127.4 179.7 115.3

53
56
AUTONATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth, for the periods indicated, the high and low
prices per share of the Company's Common Stock as reported by the New York Stock
Exchange.

HIGH LOW
---- ---

1999
First Quarter............................................... $16 15/16 $12 1/8
Second Quarter.............................................. 18 3/8 11 5/8
Third Quarter............................................... 17 7/8 11 1/2
Fourth Quarter.............................................. 12 11/16 7 1/2
1998
First Quarter............................................... $29 $19 3/16
Second Quarter.............................................. 30 22 15/16
Third Quarter............................................... 27 13 3/4
Fourth Quarter.............................................. 18 3/8 10

54
57

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

55
58

PART III

Except for biographical information regarding our executive officers who
are not also directors of our company, which appears on page 8 of this document,
the information required by Items 10, 11, 12 and 13 of Part III of Form 10-K
will be set forth in our Proxy Statement relating to the 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.

56
59

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements of the Company are set forth in Part II, Item 8.

(2) Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for each of the three years ended December 31, 1999 is
submitted herewith.

(3) Exhibits -- See Index to Exhibits included elsewhere in this document.

(b) Reports on Form 8-K.

Current Report on Form 8-K filed December 14, 1999 and dated December 13,
1999, Item 5, reporting AutoNation's decision to exit the used vehicle megastore
category, a related announcement of a pre-tax charge to earnings to be taken in
the fourth quarter and the Board of Directors' authorization to repurchase an
additional $500 million shares of the company's common stock.

Current Report on Form 8-K filed October 22, 1999 and dated October 21,
1999, Item. 5, reporting AutoNation's plans to separate its automotive rental
business and filing Selected Financial Data, MD&A and audited consolidated
financial statements restated to present the automotive rental business as
discontinued operations.

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60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

REGISTRANT:

AutoNation, Inc.

By: /s/ MICHAEL J. JACKSON
------------------------------------
Michael J. Jackson
Chief Executive Officer and Director

March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ H. WAYNE HUIZENGA Chairman of the Board March 30, 2000
- -----------------------------------------------------
H. Wayne Huizenga

/s/ MICHAEL J. JACKSON Chief Executive Officer and March 30, 2000
- ----------------------------------------------------- Director (Principal Executive
Michael J. Jackson Officer)

/s/ PATRICIA A. MCKAY Senior Vice March 30, 2000
- ----------------------------------------------------- President -- Finance and
Patricia A. McKay Controller, and Acting Chief
Financial Officer (Principal
Financial Officer and
Principal Accounting Officer)

/s/ HARRIS W. HUDSON Vice Chairman and Director March 30, 2000
- -----------------------------------------------------
Harris W. Hudson

/s/ ROBERT J. BROWN Director March 30, 2000
- -----------------------------------------------------
Robert J. Brown

/s/ J.P. BRYAN Director March 30, 2000
- -----------------------------------------------------
J.P. Bryan

/s/ RICK L. BURDICK Director March 30, 2000
- -----------------------------------------------------
Rick L. Burdick

/s/ MICHAEL G. DEGROOTE Director March 30, 2000
- -----------------------------------------------------
Michael G. DeGroote

/s/ GEORGE D. JOHNSON, JR. Director March 30, 2000
- -----------------------------------------------------
George D. Johnson, Jr.

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61

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JOHN J. MELK Director March 30, 2000
- -----------------------------------------------------
John J. Melk

/s/ IRENE B. ROSENFELD Director March 30, 2000
- -----------------------------------------------------
Irene B. Rosenfeld

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62

AUTONATION, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)

BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
CLASSIFICATIONS OF YEAR INCOME DEDUCTIONS OTHER OF YEAR
--------------- --------- ---------- ---------- ------- -------

Allowance for doubtful accounts:
1999.................................... $33.8 $ 13.4 $ (9.4)(2) $ 4.7(1) $ 42.5
1998.................................... 8.5 1.8 (3.1)(2) 26.6(1) 33.8
1997.................................... 2.4 1.4 (1.6)(2) 6.3(1) 8.5
Restructuring reserves(3):
1999.................................... 24.1 416.4 (12.5)(5) (307.5)(4) 120.5
1998.................................... 46.0 --(6) (15.5)(5) (6.4)(4) 24.1
1997.................................... -- 85.0 (14.8)(5) (24.2)(4) 46.0

- ---------------

(1) Allowance of acquired businesses.
(2) Accounts written off.
(3) Included under the caption "Accrued Liabilities" in the accompanying
Consolidated Balance Sheets.
(4) Primarily asset write-offs.
(5) Primarily cash payments of costs associated with restructuring activities.
(6) During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for closed operations by approximately $21.0 million.

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63

EXHIBIT INDEX

EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------

2.1 -- Agreement and Plan of Merger and Reorganization, dated May
30, 1991, by and between Republic Waste Industries, Inc., an
Oklahoma corporation, and Republic Waste Industries, Inc., a
Delaware corporation (incorporated by reference to Exhibit
3.1 to AutoNation's Annual Report on Form 10-K for the year
ended December 31, 1991).
2.2* -- U.S. Purchase Agreement relating to the sale of Class A
Common Stock of Republic Services, Inc., dated as of April
27, 1999.
2.3* -- International Purchase Agreement relating to the sale of
Class A Common Stock of Republic Services, Inc., dated as of
April 27, 1999.
3.1 -- Third Amended and Restated Certificate of Incorporation of
AutoNation, Inc. (incorporated by reference to Exhibit 3.1
to AutoNation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
3.2 -- Bylaws of AutoNation, Inc., as amended to date (incorporated
by reference to Exhibit 3.2 to AutoNation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999).
4.1 -- Credit Facilities and Reimbursement Agreement dated as of
April 23, 1997, by and among Republic Industries, Inc., and
Republic Resources Company, as Borrowers, NationsBank,
National Association (South), as Arranger and Administrative
Agent, Various Co-Agents Listed Therein and Various Lenders
Listed Therein (incorporated by reference to Exhibit 4.22 to
AutoNation's Current Report on Form 8-K, dated June 13,
1997).
4.2 -- Master Motor Vehicle Lease and Servicing Agreement dated as
of February 26, 1999 among National Car Rental System, Inc.
as lessee, National Car Rental Financing Limited Partnership
as lessor, and AutoNation, Inc. as guarantor (incorporated
by reference to Exhibit 4.1 to AutoNation's Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 1999).
4.3 -- Series 1999-1 Supplement dated as of February 26, 1999
between National Car Rental Financing Limited Partnership
("NFLP"), and The Bank of New York, as Trustee (the
"Trustee") to the Base Indenture, dated as of April 30, 1996
between NFLP and the Trustee, as amended by the supplement
and amendment to the Base Indenture, dated as of December
20, 1996, between NFLP and the Trustee (incorporated by
reference to Exhibit 4.2 to AutoNation's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1999).
4.4 -- Base Indenture dated as of February 26, 1999 between ARG
Funding Corp. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.3 to AutoNation's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999).
4.5 -- Series 1999-1 Supplement dated as of February 26, 1999
between ARG Funding Corp. and The Bank of New York as
Trustee to the ARG Base Indenture (incorporated by reference
to Exhibit 4.4 to AutoNation's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999).
4.6 -- Third Amended and Restated Master Collateral Agency
Agreement dated as of February 26, 1999 among National Car
Rental System, Inc., Alamo Rent-A-Car, Inc. and Spirit
Rent-A-Car, Inc. d/b/a CarTemps USA, Alamo Financing, L.P.,
National Car Rental Financing Limited Partnership and
CarTemps Financing, L.P., as lessor grantors, AutoNation,
Inc. as master servicer and Citibank, N.A., as master
collateral agent (incorporated by reference to Exhibit 4.5
to AutoNation's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1999).
10.1 -- AutoNation, Inc. 1990 Stock Option and Stock Purchase Plan
(incorporated by reference to Exhibit 10.1(a) to
AutoNation's Registration Statement on Form S-1 Commission
File No. 33-37191).
10.2 -- AutoNation, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.42 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1992).

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64

EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------

10.3 -- AutoNation, Inc. 1995 Amended and Restated Employee Stock
Option Plan (incorporated by reference to Exhibit 10.9 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.4 -- AutoNation, Inc. Amended and Restated 1995 Non-Employee
Director Stock Option Plan (incorporated by reference to
Exhibit 10.10 to AutoNation's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.5 -- AutoNation, Inc. Amended and Restated 1997 Employee Stock
Option Plan (incorporated by reference to Exhibit 10.19 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.6 -- AutoNation, Inc. Amended and Restated 1998 Employee Stock
Option Plan (incorporated by reference to Exhibit 10.20 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.7 -- Letter Agreements dated March 26, 1999 and July 29, 1999
between AutoNation, Inc. and Michael E. Maroone, President
and Chief Operating Officer (incorporated by reference to
Exhibit 10.1 of AutoNation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.8 -- Separation Agreement dated June 24, 1999 and effective
September 24, 1999 for Steven R. Berrard, former Co-Chief
Executive Officer (incorporated by reference to Exhibit 10.2
of AutoNation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
10.9 -- Letter Agreement dated September 22, 1999 between
AutoNation, Inc. and Michael J. Jackson, Chief Executive
Officer (incorporated by reference to Exhibit 10.4 of
AutoNation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
10.10* -- Separation Agreement effective December 31, 1999 for James
O. Cole, former Senior Vice President, General Counsel and
Secretary.
10.11 -- Separation Agreement dated July 30, 1999 for John R.
Costello, former President (incorporated by reference to
Exhibit 10.3 of AutoNation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.12 -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated November 18, 1997 (incorporated by
reference to Exhibit 10.25 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.13 -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated November 18, 1997
(incorporated by reference to Exhibit 10.26 to AutoNation's
Annual Report on Form 10-K for the year ended December 31,
1997).
10.14 -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated December 16, 1998
(incorporated by reference to Exhibit 10.22 to AutoNation's
Annual Report on Form 10-K for the year ended December 31,
1998).
10.15 -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated December 16, 1998 (incorporated by
reference to Exhibit 10.23 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1998).
21.1* -- Subsidiaries of AutoNation, Inc.
23.1* -- Consent of Arthur Andersen LLP.
27.1* -- 1999 Financial Data Schedule (for SEC use only).

- ---------------

* Filed herewith.

62