Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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, 2000
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: 0-13107
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
- ------------------------------------------- ------------------------------------------
Common Stock, Par Value $.01 Per Share The 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. [X] Yes [ ] 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 26, 2001, the registrant had 337,146,986 shares of common
stock outstanding, of which 68,516,203 shares were held by directors and
executive officers of the registrant. As of March 26, 2001, non-affiliates of
the registrant held 268,630,783 shares of common stock with an aggregate market
value of approximately $2,243,067,038.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relating to the 2001
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEX
TO FORM 10-K
Page
-----
PART I
Item 1. Business ..................................................................... 1
Item 2. Properties ................................................................... 15
Item 3. Legal Proceedings ............................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders .......................... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .... 17
Item 6. Selected Financial Data ...................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 19
Item 8. Financial Statements and Supplementary Data .................................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................... 71
PART III
Item 10. Directors and Executive Officers of the Registrant ........................... 71
Item 11. Executive Compensation ....................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management ............... 71
Item 13. Certain Relationships and Related Transactions ............................... 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............. 71
PART I
ITEM 1. BUSINESS
INTRODUCTION
AutoNation, Inc. is the largest automotive retailer in the United States.
As of December 31, 2000, we owned and operated approximately 400 new vehicle
franchises from dealership locations in major metropolitan markets in 18
states, predominantly in the Sunbelt. Our dealerships offer new and used
vehicles for sale. We also offer 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. We also offer a wide range of vehicle maintenance and
repair services and we operate collision repair centers in most of our key
markets. The core brands of vehicles that we sell, representing almost 90% of
the new vehicles that we sold in 2000, are Ford (Ford, Lincoln and Mercury),
General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep
and Dodge), Nissan, Toyota and Honda. We also sell several luxury vehicle
brands, including Mercedes-Benz, BMW, Lexus and Porsche. In total, we offer 35
different brands of vehicles.
Although we now operate exclusively as an automotive retailer, we have
operated businesses in multiple industries over the past several years,
including the solid waste services, electronic security service, car rental and
outdoor media industries. With the tax-free spin-off to our stockholders of ANC
Rental Corporation and the sale of certain other non-core assets in 2000, which
we describe in more detail in the "Recent Developments" section of this
document, we are now focused exclusively on our operations in the automotive
retail business.
Our common stock, par value $.01 per share, is listed on The 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. You
should also review and consider the risks relating to our business, operations,
financial performance and cash flows that we describe in the "Risk Factors"
section starting on page 11 of this document.
RECENT DEVELOPMENTS
ANC Rental Spin-off. On June 30, 2000, we completed the tax-free spin-off
of ANC Rental Corporation, which operates primarily under the Alamo Rent-A-Car
and National Car Rental brand names in the leisure travel, business travel and
vehicle replacement markets of the automotive rental industry. As a result of
the spin-off, our stockholders of record as of June 16, 2000 received one share
of ANC Rental common stock for every eight shares of AutoNation common stock
they held as of such date. ANC Rental common stock is traded on The Nasdaq
Stock Market under the symbol "ANCX." 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.
Other Divestitures of Non-Core Assets. In addition to the spin-off of ANC
Rental, during 2000 we substantially completed our divestitures of other
non-core assets. During 2000, we entered into a sale-leaseback financing of our
corporate headquarters facility resulting in proceeds of approximately $52.1
million. We also completed the sale of ANC Rental's corporate headquarters
facility for approximately $18.7 million. In connection with the closure during
December 1999 of 23 company-owned AutoNation USA used vehicle megastores,
during 2000 we sold a majority of the excess real property held for or operated
in connection with our former used vehicle megastore business. We intend to
continue actively marketing the remaining excess used vehicle megastore
properties. In November 2000, we completed the divestiture of our outdoor media
business, which operated under the name Republic Media, for a sale price of
approximately $104.0 million. In connection with the sale of Republic Media, we
entered into a pre-paid
$15.0 million advertising agreement with respect to the purchaser's radio
stations, billboards and other outdoor advertising media, and, accordingly, we
received net proceeds of approximately $89.0 million in connection with the
transaction. During 2000, we also completed the sale of various non-core
franchised new vehicle dealerships for an aggregate sale price of approximately
$89.7 million. With the sale of our Flemington Automotive Group in New Jersey,
which we expect to complete in April 2001, we believe that our disposition of
significant non-core assets will be substantially complete.
BUSINESS STRATEGY
Our business strategy consists of the following key elements:
o Expand our margins by focusing on higher-margin products and
services.
o Continue to leverage our significant scale to improve our
operating efficiency, including by managing costs of our
business and improving the utilization of our assets.
o Effectively use our free cash flow to reinvest in our business
through capital investments, strategic dealership acquisitions
and share repurchases.
o Continue to grow and leverage our e-commerce business.
Expand Our Margins
While new vehicle sales will continue to be a significant component of our
operations, we intend to continue to focus on developing the areas of our
automotive retail business that produce the highest margins. In general, parts
and service sales, used vehicle sales and sales of finance, insurance and other
aftermarket products yield relatively high margins as a percentage of sales
compared to new vehicle sales. We intend to emphasize higher-margin areas of
our business with the following strategic initiatives:
(arrow) PARTS AND SERVICE SALES AND COLLISION REPAIR SERVICES:
Almost all of our dealerships have service facilities that provide a
wide range of vehicle maintenance and repair services. Additionally, we
operate collision repair centers in most of our key markets. We intend
to increase our parts and service sales by, among other things: (1)
continuing to implement our team-based service process in our service
facilities (Advanced Production Structure) and our cycle time solution
in our collision centers, (2) implementing comprehensive parts and
service marketing programs within our local markets, (3) assuring that
our dealerships' parts requirements are fulfilled through purchases
from AutoNation dealerships to the extent practicable and (4)
developing relationships with national insurance companies that
establish our dealerships and collision centers as preferred providers
of collision repair services. Accordingly, we also intend to focus on
hiring, training and retaining technicians so that we can improve our
service bay utilization and increase our parts and service sales
without the need for additional capital investment.
(arrow) USED VEHICLE SALES: Each of our dealerships offers a variety
of brand name used vehicles. We will continue to leverage our status as
the largest retailer of new vehicles in the United States to develop
competitive advantages over our principal used vehicle competitors and
to expand our used vehicle business. We believe that, with our
significant scale in our key markets, we have better access than many
of our competitors to desirable used vehicle
2
inventory. We intend to leverage our significant scale in our key
markets to improve our used vehicle business by (1) completing the
implementation at our dealerships of our advanced inventory management
system, which will permit us to source and manage used vehicle
inventories across our dealerships within a local market, (2)
implementing comprehensive used vehicle marketing programs within our
local markets, (3) dedicating specific management personnel in each of
our geographic operating districts to optimize our used vehicle
operations and (4) adopting standardized used vehicle operating
policies at our dealerships based on our dealerships' "best practices."
(arrow) FINANCE, INSURANCE AND OTHER AFTERMARKET PRODUCT SALES: Each
new or used vehicle sale presents our dealerships with the opportunity
to finance the vehicle, sell an extended service contract or other
finance and insurance product, and sell other aftermarket products,
such as vehicle accessories or a theft deterrent system. In order to
improve our finance and insurance business, we plan to (1) focus on
improving the performance of our dealerships that under-perform our
other dealerships with respect to finance and insurance operations, (2)
ensure a high level of compliance with our standard finance and
insurance operating practices, such as the use of our customer-friendly
"full-disclosure" finance and insurance menu, (3) increase sales at our
dealerships of finance and insurance products offered by our automotive
finance arm, AutoNation Financial Services, and (4) promote further
consolidation of the retail finance sources for our customers' vehicle
purchases to drive improved pricing and efficiency.
Improve Our Operating Efficiency
We plan to leverage our status as the largest automotive retailer in the
United States to further improve our cost structure and the utilization of our
assets. During 1999 and 2000, in order to improve our cost structure we shut
down our cost-intensive used vehicle megastore business and reduced our staff
by approximately 2,000 employees, of whom approximately 200 were corporate
headquarters staff. These and other cost-reduction initiatives have resulted in
cost savings and improved operating margins for us. However, we believe that we
still have important opportunities to improve our cost structure and the
utilization of our assets. We plan to focus on the following key methods to
achieve these goals:
(arrow) REDUCE DAYS SUPPLY OF NEW AND USED VEHICLES: We are focused
on managing our new and used vehicle inventories to decrease the days
supply of vehicles that we have at any given time at our dealerships,
with the objective of reducing our inventory financing interest expense
and carrying costs. We plan to achieve this by: (1) developing and
using a web-based tracking system that enables us to more closely
monitor our inventories, (2) establishing days supply targets for each
of our vehicle models, (3) managing our new and used vehicle
inventories across the dealerships within each of our markets to
optimize inventory turnover and (4) focusing our inventory purchasing
on the more popular model packages.
(arrow) DECREASE TIME TO CONVERT RECEIVABLES INTO CASH: We intend to
focus on decreasing the amount of time that our dealerships take to
receive payment on retail receivables (or "contracts-in-transit"). We
plan to accomplish this goal, in part, by (1) adopting "best practices"
concerning sales and contracts-in-transit flow processing, (2)
developing and using a web-based tool to monitor our dealerships'
contracts-in-transit and (3) developing relationships with preferred
lenders who can expeditiously process our dealerships'
contracts-in-transit. By more quickly converting our
contracts-in-transit into cash, we expect to be able to more
3
quickly use our capital to pursue our strategic initiatives, including
those described below under the "Effectively Use Free Cash Flow"
heading.
Effectively Use Free Cash Flow
A key component of our strategy is to maximize the return on investment
generated by the use of the free cash flow that our business generates. We
expect to use our free cash flow to make capital investments in our current
businesses, to complete strategic dealership acquisitions in our key markets
and to repurchase shares of our common stock pursuant to our Board-authorized
share repurchase program. The considerations in determining how we will
allocate our free cash flow among such uses include the following:
(arrow) CAPITAL INVESTMENTS: During 2000, we invested $148.2 million
on capital investments, including to upgrade and improve certain of our
dealership facilities. We expect to make additional facility and
infrastructure upgrades and improvements from time to time, such as the
construction of new vehicle dealership facilities, with a focus on
projects that we expect to provide a reasonable return on our
investment.
(arrow) STRATEGIC DEALERSHIP ACQUISITIONS: We believe that we will
have additional opportunities to acquire dealerships in our key
markets. The factors that will impact whether we make additional
strategic dealership acquisitions include the brand, location and price
of available dealerships and whether such dealerships complement and
can be integrated into our existing operations.
(arrow) SHARE REPURCHASES: During 2000, we repurchased 27.6 million
shares of our common stock for an aggregate price of $188.9 million. As
of March 26, 2001, we are authorized to repurchase up to an additional
$179.2 million of our common stock pursuant to our latest
Board-authorized share repurchase program. The decision to make
additional purchases of our stock will be based on such factors as the
market price of our common stock, the potential impact on our capital
structure and the expected return on competing uses of our capital such
as strategic dealership acquisitions and capital investments in our
current businesses.
Grow Our E-Commerce Business
Due to the scale of our operations and our e-commerce infrastructure, we
believe that we are uniquely positioned to compete in the automotive retail
e-commerce marketplace. During 2000, we developed relationships with certain
Internet service providers and websites, as well as other parties, to purchase
leads or referrals of customers who are shopping for a vehicle. Using
"Compass," our proprietary web-based lead-management software tool, we provide
these customer leads to our dealerships for fulfillment to the extent possible.
Specially-trained Internet Sales Guides at our dealerships then use the
Internet-based Compass system to respond to customer inquiries 24 hours a day,
seven days a week. During 2000, our average customer response time was
approximately 1.2 hours, which is well below reported industry average response
times.
During 2000, we also entered into lead referral agreements with over 1,600
franchises operating from more than 1,000 independent dealerships. Under these
agreements, we sell customer leads that we cannot fulfill within our dealership
network. We plan to continue to enter into lead referral agreements with
dealers that are able to provide fulfillment capability for vehicle makes and
geographic areas that our dealerships do not cover. As we enter into additional
lead referral agreements, we intend to continue
4
to set service and other standards that these independent dealerships must meet
to participate in our lead referral program.
OPERATIONS
As of December 31, 2000, we owned and operated approximately 400
automotive franchises from dealership locations in 18 states. We own and
operate franchises granted by the manufacturers of 35 different makes of
vehicles. The core brands of vehicles that we sell are Ford (Ford, Lincoln and
Mercury), General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler
(Chrysler, Jeep and Dodge), Nissan, Toyota and Honda. 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 within each
district varies from district to district.
Each of our automotive franchises offers new and used vehicles for sale.
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.
Additionally, we operate collision repair centers in most of our key markets.
Each of our dealerships acquires new vehicles for retail sale directly
from the applicable automotive manufacturer or distributor. Accordingly, we
depend in large part on the automotive manufacturers and distributors to
provide us with high quality vehicles that consumers desire and to supply us
with such vehicles at suitable locations, quantities and prices. We generally
acquire used vehicles from customer trade-ins, off-lease programs and, to a
lesser extent, auctions and other sources. We recondition used vehicles
acquired for retail sale at our dealerships' service facilities.
We provide financial products and services to our customers through third
parties, including the vehicle manufacturers' and distributors' captive finance
companies, as well as our automotive finance arm, AutoNation Financial
Services. AutoNation Financial Services' products include retail installment
loan financing, extended service contracts, vehicle protection and maintenance
programs and insurance products.
SALES AND MARKETING
In 2000, we retailed approximately 744,000 vehicles through our
dealerships. We sell a broad range of well-known vehicle makes within each of
our key markets.
Our marketing efforts focus on mass marketing in our local markets and are
designed to build our business with a broad base of repeat and new customers.
We engage in mass marketing and advertising primarily through newspapers,
radio, outdoor billboards, television and the Internet in our local markets. As
we have consolidated our dealership operations in certain of our key markets
under one local brand name, we have been able to focus our efforts on building
consumer awareness of the selected local brand name rather than on the
individual legacy names under which our dealerships operated prior to their
acquisition by us. We also have begun to develop newspaper, television and
radio advertising campaigns that we can modify for use in multiple local
markets, which we expect to result in advertising cost savings and efficiencies
that are not generally available to smaller retailers. We expect to continue to
realize cost savings and efficiencies with respect to advertising expenses, due
to our ability to obtain
5
efficiencies in developing advertising campaigns and due to our ability to gain
volume discounts and other concessions as we increase our presence within our
key markets and consolidate our dealerships under a single brand name in our
local markets.
We market our vehicle inventory via the Internet through AutoNation.com,
our dealership websites and a site co-branded with America Online. We also have
entered into lead referral agreements pursuant to which we purchase customer
leads generated by various third-party websites, including Microsoft's MSN
Carpoint, and other sources. We provide these customer leads to our dealerships
for fulfillment to the extent possible. During 2000, we entered into lead
referral agreements with over 1,600 franchises operating from more than 1,000
independent dealerships by which we sell customer leads that we cannot fulfill
within our dealership network.
AGREEMENTS WITH VEHICLE MANUFACTURERS
We have entered into framework agreements with most major vehicle
manufacturers and distributors. These agreements contain provisions relating to
our management, operation, advertising and marketing, acquisition and ownership
structure 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, regionally 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 or
distributor the right to acquire, at fair market value, the automotive
dealerships franchised by that manufacturer or distributor 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 distributor or other extraordinary corporate transactions such
as a merger or sale of all of our assets.
We operate each of our new vehicle dealerships under a franchise agreement
with a vehicle manufacturer or distributor. The franchise agreements grant the
franchised automotive dealership a non-exclusive right to sell the
manufacturer's or distributor'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 or distributor's trademarks in
connection with dealership operations. 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,
changes in management 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.
REGULATIONS
Automotive and Other 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
dealer, 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, financing,
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.
6
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. Some states regulate finance fees
and charges that may be paid as a result of vehicle sales. Claims arising out
of actual or alleged violations of law may be asserted against us or our
dealerships by individuals or governmental entities, and may expose us to
significant damages or other penalties, including revocation or suspension of
our licenses to conduct dealership operations and fines.
Our operations are 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. 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.
Environmental, Health and Safety Laws and Regulations
Our operations involve the use, handling, storage and contracting for
recycling and/or disposal of materials such as motor oil and filters,
transmission fluids, antifreeze, refrigerants, paints, thinners, batteries,
cleaning products, lubricants, degreasing agents, tires and fuel. Consequently,
our business is subject to a complex variety of federal, state and local
requirements that regulate the environment and public health and safety.
Most of our dealerships utilize aboveground storage tanks, and to a lesser
extent underground storage tanks, primarily for petroleum-based products.
Storage tanks are subject to periodic testing, containment, upgrading and
removal under the Resource Conservation and Recovery Act and its state law
counterparts. Clean-up or other remedial action may be necessary in the event
of leaks or other discharges from storage tanks or other sources. In addition,
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 govern certain discharges from some of our
operations. Similarly, certain air emissions from operations such as auto body
painting may be subject to the federal Clean Air Act, and related state and
local laws. Certain health and safety standards promulgated by the Occupational
Safety and Health Administration of the United States Department of Labor and
related state agencies also apply.
Some of our dealerships are parties to proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, typically
in connection with materials that were sent to former recycling, treatment,
and/or disposal facilities owned and operated by independent businesses. The
remediation or clean-up of facilities where the release of a regulated
hazardous substance occurred is required under CERCLA and other laws.
We incur significant costs to comply with applicable environmental, health
and safety laws and regulations in the ordinary course of our business. We do
not anticipate, however, that the costs of such compliance will have a material
adverse effect on our business, results of operations, cash flows or financial
condition, although such outcome is possible given the nature of our operations
and the extensive environmental, public health and safety regulatory framework.
7
COMPETITION
We operate in a highly competitive industry. We believe that the principal
competitive factors in the automotive retail business are location, service,
price and selection. Each of our key markets includes a large number of
well-capitalized competitors that have extensive automobile dealership
managerial experience and strong retail locations and facilities. We are
subject to competition from dealers that sell the same brands of new vehicles
that we sell and from dealers that sell other brands of new vehicles that we do
not represent in a particular market. Our new vehicle dealership competitors
have franchise agreements with the various vehicle manufacturers and, as such,
generally have access to new vehicles on the same terms as us. We also are
subject to competition from independent automobile service and repair shops and
service center chains.
In general, the vehicle manufacturers have designated specific marketing
and sales areas within which only one dealer of a given vehicle line or make
operates. Under most of our framework agreements with the vehicle
manufacturers, our ability to acquire multiple dealers of a given line-make
within a particular market is limited. We are also restricted by various state
franchise laws from relocating our dealerships or establishing new dealerships
of a particular line-make within any area that is served by another dealer of
the same line-make. Accordingly, to the extent that a market has multiple
dealers of a particular line-make, as most of our key markets do with respect
to most vehicle lines we sell, we are subject to significant intra-brand
competition.
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 are attempting to establish
national or regional automotive retail chains. Additionally, certain vehicle
manufacturers are engaged in the retail sale and service of vehicles, either
independently or in conjunction with their franchised dealers, and may do so on
an expanded basis in the future, subject to various state laws that restrict or
prohibit manufacturer ownership of dealerships.
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,
including those developed by vehicle manufacturers and other dealership groups.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may cause price convergence and reduced margins for
new vehicles, used vehicles and related finance and insurance services.
INSURANCE AND BONDING
Our business exposes us to the risk of liabilities arising out of our
operations. Liabilities 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
8
purchasing change. Although we have, subject to certain limitations and
exclusions, substantial insurance, we cannot assure you that we will not be
exposed to uninsured or underinsured losses that could have a material adverse
effect on our business, 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, letters of credit and
cash deposits. Our collateral requirements may change from time to time based
on, among other things, our claims experience.
EMPLOYEES
As of December 31, 2000, we employed approximately 31,000 full time
employees, approximately 800 of whom were covered by collective bargaining
agreements. We believe that we have good relations with our employees. Due to
our dependence on the vehicle manufacturers, however, we may be adversely
affected by labor strikes or work stoppages at the manufacturers' manufacturing
facilities.
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 income to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.
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
[GRAPHIC OMITTED] SM and AutoNationSM. 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. We also have licenses pursuant to
various agreements with third parties authorizing the use and display of the
marks and/or logos of such third parties, 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 we may
renew them periodically provided that we comply with all applicable laws.
EXECUTIVE OFFICERS OF AUTONATION
We provide below information regarding each of our executive officers.
H. Wayne Huizenga, age 63, has served as our Chairman of the Board since
August 1995. He also served as our Chief Executive Officer from August 1995
until October 1996, and as Co-Chief Executive Officer from October 1996 through
September 1999. Since May 1998, Mr. Huizenga has been Chairman of the Board of
Republic Services, Inc., a solid waste services company, and served as its
Chief Executive Officer from May 1998 until December 1998. Since May 2000, Mr.
Huizenga has been Vice Chairman of ZixIt Corporation, a provider of security
services and products for Internet use. Since September 1996, Mr. Huizenga has
been Chairman of the Board of Boca Resorts, Inc., an
9
owner and operator of luxury resort hotels, a professional sports franchise and
other facilities. Since January 1995, Mr. Huizenga also has been Chairman of
the Board of Extended Stay America, Inc., an operator of extended stay lodging
facilities. Mr. Huizenga served as the Vice Chairman of Viacom Inc., a
diversified entertainment and communications company, from September 1994 until
October 1995. From April 1987 through September 1994, Mr. Huizenga served as
the Chairman of the Board and Chief Executive Officer of Blockbuster
Entertainment Corporation, a video rental company. In September 1994,
Blockbuster merged with Viacom. In 1971, Mr. Huizenga co-founded Waste
Management, Inc., a solid waste services company, and he served in various
capacities, including as President, Chief Operating Officer and director, from
its inception until 1984. Mr. Huizenga also owns the Miami Dolphins, as well as
Pro Player Stadium in South Florida, and is a director of NationsRent, Inc., a
national equipment rental company, and ANC Rental Corporation, a car rental
company that we spun off to our stockholders in June 2000.
Michael J. Jackson, age 52, has served as our Chief Executive Officer and
as one of our Directors since September 1999. From October 1998 until September
1999, Mr. Jackson served as President and Chief Executive Officer of
Mercedes-Benz USA, Inc., a North American operating unit of DaimlerChrysler AG,
a multinational automotive manufacturing company. From April 1997 until October
1999, Mr. Jackson served as President of Mercedes-Benz USA, Inc. From July 1990
until March 1997, Mr. Jackson served in various capacities at Mercedes-Benz
USA, Inc., including as Executive Vice President immediately prior to his
appointment as President of Mercedes-Benz USA, Inc. Mr. Jackson was also the
managing partner from March 1979 to July 1990 of Euro Motorcars of Bethesda,
Maryland, a regional group that owned and operated eleven automotive dealership
franchises, including Mercedes-Benz and other brands of automobiles. Prior to
joining Euro Motorcars, Mr. Jackson was a District Manager for Mercedes-Benz of
North America.
Harris W. Hudson, age 58, has served as one of our Directors since August
1995, and has served as our Vice Chairman since October 1996. From August 1995
until October 1996, Mr. Hudson served as our President. Since May 1998, Mr.
Hudson has served as Vice Chairman and Secretary of Republic Services. Mr.
Hudson founded Hudson Management Corporation, a solid waste collection company,
in 1983 and served as its Chairman of the Board, Chief Executive Officer and
President from its inception until it was acquired by AutoNation in August
1995. Mr. Hudson also serves as a director of Boca Resorts and NationsRent.
Michael E. Maroone, age 47, 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.
Craig T. Monaghan, age 44, has served as our Senior Vice President and
Chief Financial Officer since May 2000. From June 1998 to April 2000, Mr.
Monaghan was Chief Financial Officer of iVillage.com, a leading women's network
on the Internet. From 1991 until 1998, Mr. Monaghan served in various executive
capacities for Reader's Digest Association, Inc., most recently as Vice
President and Treasurer.
Patricia A. McKay, age 43, has served as our Senior Vice President -
Finance since November 1999. From November 1999 until April 2000, Ms. McKay
also served as our Acting Chief Financial Officer and Controller. 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
10
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 35, has served as our Senior Vice President,
General Counsel and Secretary since January 2000. Mr. Ferrando joined our
company in July 1996 and served in various capacities within our Legal
Department, including as Senior Vice President and General Counsel of our
Automotive Retail Group from March 1998 until January 2000. 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 acquisition and corporate finance.
Kevin P. Westfall, age 45, has served as President of AutoNation Financial
Services, our wholly owned captive finance and insurance company, since April
1997. Prior to joining AutoNation, from 1990 until 1997, Mr. Westfall served as
the President of BMW Financial Services, a captive finance company. Mr.
Westfall is a member of the Board of Directors for the American Financial
Services Association and the Consumer Banker's Association.
RISK FACTORS; FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
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. Certain statements and information set forth in this Form 10-K
or the Annual Report mailed to our stockholders with this Form 10-K, as well as
other written or oral statements made from time to time by us or by our
authorized executive officers on our behalf, constitute "forward-looking
statements" within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. We intend for our forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we set forth this
statement and these risk factors in order to comply with such safe harbor
provisions. You should note that our forward-looking statements speak only as
of the date of this Form 10-K or when made and we undertake no duty or
obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise. Although we believe that
the expectations, plans, intentions and projections reflected in our
forward-looking statements are reasonable, such statements are subject to 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. The risks, uncertainties and other factors that our
stockholders and prospective investors should consider include, but are not
limited to, the following:
The Automotive Retail Industry Is Cyclical and Is Highly Sensitive to
Changing Economic Conditions; We Are in the Midst of an Industry and General
Economic Slowdown That Could Materially Adversely Impact Our Business. Sales of
motor vehicles, particularly new vehicles, historically have been subject to
substantial cyclical variation characterized by periods of oversupply and weak
demand. We believe that many factors affect the industry, including consumer
confidence in the economy, the level of personal discretionary spending,
interest rates, fuel prices and credit availability. While 1999 and 2000 were
record years for the automotive industry in general and us specifically in
terms of volume of new vehicles sold, during 2001 the automotive industry will
likely experience significant fall-off in demand for new vehicles. We
experienced a rapid slowdown in new vehicle sales in late 2000. Industry
experts
11
have predicted a decrease in new vehicle sales in the United States during 2001
of up to ten percent or more as compared to sales during 2000. Similarly, we
expect that our new vehicle sales, the single largest component of our
aggregate revenue, will significantly decrease during 2001. In addition,
although we generate diversified revenue and profit streams from the sale of
used vehicles, financial services, vehicle service, parts and collision repair
services, which we do not expect to be adversely impacted in a general economic
downturn as dramatically as new vehicle sales, we cannot assure you that our
business will not be materially adversely affected as a result of an industry
or general economic downturn.
We Are Substantially Dependent on Vehicle Manufacturers. The success of
our dealerships is dependent on vehicle manufacturers in several key respects.
First, we rely exclusively on the various vehicle manufacturers for our new
vehicle inventory. Additionally, manufacturers generally support their
dealerships by providing direct financial assistance in various areas,
including, among others, advertising assistance and favorable inventory
financing. Beyond funds paid directly to their dealerships, the manufacturers
also have established various incentive programs designed to spur consumer
demand for their vehicles. From time to time, manufacturers modify and
discontinue these dealer assistance and consumer incentive programs, which
could have a significant adverse effect on our consolidated results of
operations and cash flows. 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
general economic downturns or recessions, increases in interest rates, labor
strikes, supply shortages, adverse publicity or product defects, 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 vehicle 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, naming and marketing of our dealerships and the
operations of our e-commerce sites, and other factors. They also grant the
manufacturer the right to terminate our franchise for a variety of causes,
subject to state laws.
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, retail financing and
consumer protection laws and regulations and federal and state environmental,
health and safety, wage-hour, anti-discrimination and other employment
practices laws and regulations. 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 or suspension of our license to operate the subject business. We
describe certain pending license revocation proceedings with respect to one of
our dealerships in California under the "Legal Proceedings" heading on page 15
of this Form 10-K. In addition, as the on-line automotive business expands,
there may be new laws and regulations 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.
We Are Subject to Numerous Legal and Administrative Proceedings. We are
involved, and will continue to be involved, in numerous legal proceedings
arising out of the conduct of our business, including litigation with
customers, employment related lawsuits and actions brought by governmental
12
authorities. We have several class action lawsuits pending against us. A
significant judgment against us or the imposition of a significant fine could
have a material adverse effect on our business, financial condition, results of
operations, cash flows and prospects. We cannot assure you with respect to the
outcome of these administrative and legal proceedings and the effect such
outcomes may have on us. We describe certain significant pending litigation
matters under the heading "Legal Proceedings" below.
We May Be Required to Perform Under Certain Credit Enhancements and
Guarantees with respect to ANC Rental Corporation. In connection with the
spin-off of ANC Rental Corporation, we agreed to provide certain guarantees and
credit enhancements with respect to certain indebtedness and certain property
and vehicle lease obligations. ANC Rental recently reported a net loss for the
fourth quarter of 2000 of $44.0 million, resulting in an aggregate net loss for
2000 of $2.0 million. To the extent that ANC Rental is not able to meet its
obligations, we are likely to be called on to perform under the guarantees and
credit enhancements we provided, which could have a material adverse effect on
our business, financial condition, cash flows and prospects.
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, and 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 publicly and privately-owned finance companies,
including those of vehicle manufacturers, and, as we describe below, on-line
automotive retailers and lead-referral companies. 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 competition in the rapidly evolving automotive retail
e-commerce business. A number of e-commerce companies and traditional
companies, including the vehicle manufacturers and other franchised dealership
groups, have established automotive-related websites over the past few years
and compete with us in two areas of our e-commerce business: (1) sales of
vehicles to retail customers via the Internet sales channel and (2) generation
and sales to other automobile dealers of customer referrals or "leads" obtained
via the Internet. Additionally, we believe that, as customers use the Internet
and gain increased access to information on prices for vehicles and related
finance and insurance products, margins for new and used vehicle sales and
related finance and insurance products may decrease, whether sales are made via
the Internet or through traditional channels. The success of our e-commerce
business will depend on our ability to develop a strategy that appeals to
Internet automobile buyers, to obtain high visibility on the Internet, whether
through our own websites or through strategic partnerships and alliances with
other e-commerce companies, and to develop and maintain a cost structure that
permits us to operate profitably.
We Need Substantial Capital. We need substantial capital to operate our
business and to execute our long-term strategy effectively. As of December 31,
2000, we had two unsecured revolving credit facilities in place in the
aggregate principal amount of $1.5 billion. One facility provides $1.0 billion
of financing under a multi-year structure and matures in April 2002. The other
facility, a $500.0 million 364-day facility that was scheduled to mature in
March 2001, was amended to provide $250.0 million of borrowing capacity until
the earlier of September 30, 2001 or the early renewal of the multi-year
facility. Additionally, as of December 31, 2000, we had approximately $2.4
billion of floor plan indebtedness outstanding under credit facilities with
various financing sources, primarily the vehicle manufacturers'
13
captive finance subsidiaries. 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. We also have
been negotiating with several of the vehicle manufacturers' captive finance
subsidiaries to provide mortgage-backed credit facilities with respect to
certain of our dealership properties. We cannot assure you that we will be able
to execute definitive loan agreements with the captives or enter into new
unsecured revolving credit facilities with sufficient capacity, or otherwise
obtain sufficient financing for our business and operations, on a timely basis
or on terms acceptable to us.
A substantial portion of our outstanding indebtedness is at floating
interest rates. At times, we have used interest rate swaps, caps and floors 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.
We May Not Be Able to Successfully Execute Our Strategy. The success of
our business model depends in large part on our ability to implement and
execute the strategic initiatives that we describe under the "Business
Strategy" heading above across all of our dealerships, and thereby obtain
business efficiencies, economies of scale and related cost savings and margin
performance improvements. These tasks are made more difficult by the fact that
the dealerships within each of our key markets were acquired from independent
organizations and historically have operated independently, with unique
business, sales and marketing practices. Accordingly, the implementation of our
strategy across each of our markets will require significant managerial focus
and time, and we cannot assure you that it will result in improved operating
performance or increased cost savings in a timely manner or at all.
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. However, the significant consolidation
in the industry in our key markets over the last several years has resulted in
fewer desirable dealerships or dealership groups being available for purchase
on reasonable terms. Although we have negotiated with the major manufacturers
limits on the number of dealerships that we may acquire nationally, regionally
or within any given market, each particular acquisition remains subject to
specific approval from the applicable vehicle manufacturer. We have approached
certain acquisition limits set forth in certain of our framework agreements,
particularly certain market limits, and may approach them in other markets in
the future as we continue to expand, although we do not believe that such
limits will materially adversely impact our ability to execute our acquisition
strategy in the foreseeable future. We cannot assure you that we will be able
to execute our growth strategy in the future by acquiring dealerships selling
desirable automotive brands at desirable locations in our key markets, or that
any such acquisitions can be completed on favorable terms.
The Loss of Key Personnel Could Affect Our Operations. Our success depends
to a significant degree upon the continued contributions of our key corporate
officers. Additionally, our success depends on the key management personnel at
our district offices and the dealerships in our local markets. 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 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.
14
We Are Subject to Residual Value Risk and Consumer Credit Risk in
Connection with Our Lease Portfolio; We Are Also Subject to Consumer Credit
Risk in Connection with Our Installment Receivables Portfolio. Through
AutoNation Financial Services, we provide installment loans to our customers
and, until mid-1999, we provided our customers an opportunity to finance
vehicles through leases with us. We are subject to residual value risk in
connection with our lease portfolio, particularly in the event of a decline in
the market value of our leased vehicles. We also are subject to consumer credit
risk in connection with our lease portfolio and our portfolio of installment
receivables. If an economic downturn occurs, we may face an increase in the
rate of payment defaults by our customers, which may have a material adverse
effect on our financial condition, results of operations and cash flows.
ITEM 2. PROPERTIES
During 2000, we entered into a sale-leaseback financing of our corporate
headquarters facility resulting in proceeds of approximately $52.1 million. We
also own or lease numerous facilities relating to our operations in 18 states.
These facilities consist primarily of automobile showrooms, display lots,
service facilities, collision repair centers, 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 connection with the closure during December 1999 of 23 company-owned
AutoNation USA used vehicle megastores, during 2000 we sold a majority of the
excess real property held for or operated in connection with the used vehicle
megastore business. We intend to continue actively marketing the remaining
excess used vehicle megastore properties.
ITEM 3. LEGAL PROCEEDINGS
In October 2000, the California Department of Motor Vehicles filed an
administrative proceeding that, among other things, alleged that two finance
and insurance managers who had been employed for approximately one year by El
Monte Motors, Inc., a wholly-owned subsidiary of ours doing business as
Gunderson Chevrolet in El Monte, California, had defrauded customers. The
California DMV seeks to have Gunderson Chevrolet's license to do business in
California either suspended or revoked. The case is scheduled for trial before
an Administrative Law Judge beginning in April 2001. Three civil class actions
and other related lawsuits have been filed against Gunderson Chevrolet based on
the allegations underlying the California DMV case. Additionally, the Los
Angeles District Attorney's Office has been conducting an investigation into
the allegations underlying the California DMV case. The class of customers to
which these actions relate may be significant. Accordingly, a settlement or an
adverse resolution of these matters may result in the payment of significant
costs and damages or the suspension or revocation of Gunderson Chevrolet's
license. Further, a resolution of the California DMV case that results in
Gunderson Chevrolet being closed, even temporarily, may subject us to
termination of the dealership's franchise agreement with General Motors.
In an action filed in state court in Palm Beach County, Florida in August
1999, Jamie R. Miranda and other plaintiffs accused one of our wholly-owned
subsidiaries, AutoNation USA Corporation, of, among other things, violating the
Florida Motor Vehicle Retail Sales Finance Act and the Florida Deceptive and
Unfair Trade Practices Act by allegedly failing to deliver executed copies of
retail installment contracts to customers of our used vehicle megastores. The
claims relate to nine of our used vehicle megastore businesses located in
Florida, eight of which have since closed and one of which is currently
operating as a new vehicle dealership. Mr. Miranda has filed the complaint on
behalf of all customers of our former Florida used vehicle megastores who
signed retail installment contracts in connection with vehicle purchases but
did not receive copies of the contracts signed by the megastores. On October
31,
15
2000, the court certified the class of customers on whose behalf the action
would proceed. We have appealed this decision to Florida's 4th District Court
of Appeals.
Several of our Texas dealership subsidiaries have been named in three
class actions brought against the Texas Automobile Dealer's Association and new
vehicle dealerships in Texas that are members of the TADA. The first of these
actions was filed in November 1997. The actions allege, among other things,
that since January 1994 Texas dealers have deceived customers with respect to a
vehicle inventory tax and violated federal antitrust and other laws as well.
Two of the cases are currently pending in Texas state courts and the third is
pending in the federal district court for the Eastern District of Texas. The
allegations involve dozens of our dealerships.
We intend to vigorously defend ourselves and assert available defenses
with respect to each of the foregoing matters. Further, we have certain
insurance coverage and rights of indemnification with respect to certain
aspects of the foregoing matters. However, a settlement or an adverse
resolution of one or more of these matters may result in the payment of
significant costs and damages and, in the case of the Gunderson Chevrolet
matter, the suspension or revocation of our dealership license, which could
have a material adverse effect on our business, financial condition, results of
operations, cash flows and prospects.
In addition to the foregoing cases, we are also a party to numerous other
legal proceedings that arose in the conduct of our business. We do not believe
that the ultimate resolution of these matters will have a material adverse
effect on our business, results of operations, financial condition or cash
flows. However, the results 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 business, financial condition, results of
operations, cash flows and prospects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of the fiscal year ended December 31, 2000.
16
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 New York Stock
Exchange 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 on the New York Stock Exchange Composite Transactions
Tape.
2000 High Low
- ---------------------------------- ---------- -----------
First Quarter .................. $ 9.31 $ 6.13
Second Quarter ................. 10.75 7.00
Third Quarter .................. 7.31 5.63
Fourth Quarter ................. 7.19 4.63
1999 High Low
- ---------------------------------- ----------- -----------
First Quarter .................. $ 16.94 $ 12.13
Second Quarter ................. 18.38 11.63
Third Quarter .................. 17.88 11.50
Fourth Quarter ................. 12.69 7.50
On March 26, 2001, the closing price of our common stock was $8.35 per
share as reported by the NYSE. On March 26, 2001, there were approximately
3,700 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.
On June 30, 2000, we completed the tax-free spin-off to our stockholders
of all of the capital stock of ANC Rental Corporation. The spin-off was
completed by issuing to each AutoNation stockholder of record as of June 16,
2000 one share of ANC Rental common stock for each eight shares of AutoNation
common stock held by such stockholder. The stock prices presented above reflect
historical stock prices during fiscal 2000 and 1999 and have not been restated
to reflect the impact on our common stock of the distribution of ANC Rental
common stock to our stockholders.
17
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,
-------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- -------------- --------------
(In millions, except per share data)
Revenue ........................... $ 20,609.6 $ 20,111.8 $ 12,664.6 $ 6,122.8 $ 2,933.7
Income (loss) from continuing
operations ...................... $ 328.1 $ (31.5) $ 225.8 $ 13.4 $ (1.1)
Net income (loss) ................. $ 329.9 $ 282.9 $ 499.5 $ 439.7 $ (6.7)
Basic earnings (loss) per share:
Continuing operations ........... $ .91 $ (.07) $ .50 $ .03 $ --
Discontinued operations ......... -- .73 .60 1.06 .08
Extraordinary charge ............ -- -- -- -- (.10)
------------ ------------- ------------ ----------- -----------
Net income (loss) ............... $ .91 $ .66 $ 1.10 $ 1.09 $ (.02)
============ ============= ============ =========== ============
Diluted earnings (loss) per share:
Continuing operations ........... $ .91 $ (.07) $ .48 $ .03 $ --
Discontinued operations ......... -- .73 .58 .99 .08
Extraordinary charge ............ -- -- -- -- (.10)
------------ ------------- ------------ ----------- ------------
Net income (loss) ............... $ .91 $ .66 $ 1.06 $ 1.02 $ (.02)
============ ============= ============ =========== ============
Total assets ...................... $ 8,830.0 $ 9,583.1 $ 8,412.2 $ 4,852.1 $ 2,229.1
Long-term debt, net ............... $ 850.4 $ 836.1 $ 520.9 $ 261.1 $ 269.3
Shareholders' equity .............. $ 3,842.5 $ 4,601.2 $ 5,424.2 $ 3,484.3 $ 1,419.9
Diluted weighted average common
shares outstanding .............. 361.4 429.8 470.9 430.9 320.9
See Notes 2, 6, 9, 10 and 11 of Notes to Consolidated Financial Statements
for discussion of business acquisitions and divestitures, shareholders' equity,
earnings (loss) per share, restructuring and impairment charges (recoveries),
net 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.
18
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.
Consolidated Results of Operations
AutoNation, Inc. is the largest automotive retailer in the United States.
As of December 31, 2000, we owned and operated approximately 400 new vehicle
franchises from dealership locations in major metropolitan markets in 18
states, predominantly in the Sunbelt. Our dealerships offer new and used
vehicles for sale. We also offer 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. We also offer a wide range of vehicle maintenance and
repair services and we operate collision repair centers in most of our key
markets. The core brands of vehicles that we sell, representing almost 90% of
the new vehicles that we sold in 2000, are Ford (Ford, Lincoln and Mercury),
General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep
and Dodge), Toyota, Nissan and Honda. We also sell several luxury vehicle
brands, including Mercedes-Benz, BMW, Lexus and Porsche. In total, we offer 35
different brands of vehicles.
During 2000, we expanded our financial reporting by providing separate
disclosure of floorplan interest expense, depreciation and amortization in the
accompanying Consolidated Income Statements. Floorplan interest expense, which
previously was presented as a component of cost of operations, is now
classified as interest expense below operating income. In addition, within
management's discussion and analysis, we have also expanded our disclosures to
provide revenue and gross margin detail by line of business. Prior periods have
been reclassified to conform with the current presentation.
The following is a summary of our Consolidated Income Statements both in
gross dollars and on a diluted per share basis for the periods indicated (in
millions, except per share data):
2000 1999 1998
------------------------- ------------------------- ------------------------
Gross Diluted Gross Diluted Gross Diluted
Dollars Per Share Dollars Per Share Dollars Per Share
----------- ----------- ----------- ----------- ----------- ----------
Income (loss) from continuing
operations ................................ $ 328.1 $ .91 $ (31.5) $ (.07) $ 225.8 $ .48
-------- ------ -------- ------ -------- ------
Income (loss) from discontinued
operations, net of income taxes:
Automotive rental ......................... 13.1 .03 ( 71.0) (.17) 108.8 .23
Solid waste services ...................... -- -- 40.4 .10 153.3 .33
Gain (loss) on disposal of segments ......... ( 11.3) (.03) 345.0 .80 11.6 .02
-------- ------ -------- ------ -------- ------
1.8 -- 314.4 .73 273.7 .58
-------- ------ -------- ------ -------- ------
Net income .................................. $ 329.9 $ .91 $ 282.9 $ .66 $ 499.5 $ 1.06
======== ====== ======== ====== ======== ======
19
The following factors have impacted our financial condition and results of
operations and may cause our reported financial data not to be indicative of
our future financial condition and operating results:
o Growth Through Acquisitions: From 1996 through 2000, we expanded our
automotive retail operations through the acquisition of franchised
automotive dealerships as discussed under the heading "Business
Acquisitions and Divestitures."
o Spin-Off of ANC Rental Corporation: In June 2000, we completed the
tax-free spin-off of our former automotive rental businesses. These
businesses have been accounted for as discontinued operations as further
discussed under the heading "Discontinued Business Segments."
o Sale of Republic Services, Inc.: In 1998, our former solid waste services
business completed an initial public offering of 36.1% of its common
stock. In 1999, we sold substantially all of our remaining interests in
Republic Services to the public. See further discussion under the heading
"Discontinued Business Segments."
o Restructuring: In 1999, we restructured certain of our operations to exit
our former used vehicle megastore business and to reduce our corporate
workforce as further discussed under the heading "Restructuring
Activities."
o Share Repurchases: Since the inception of our Board-authorized share
repurchase programs in 1998, we have repurchased 138.6 million shares of
our common stock for an aggregate price of $1.57 billion through March 26,
2001. See further discussion under the heading "Financial Condition."
Unless otherwise stated, the following discussions will focus on the
results of continuing operations, which consists of our automotive retail
business.
Same Store Operating Data:
Our historical operating results include the results of acquired
businesses from the date of acquisition for acquisitions accounted for under
the purchase method of accounting. Due to our expansion through acquisitions as
well as the impact of divestitures, year over year comparisons of our reported
operating results do not necessarily provide a meaningful representation of our
internal performance. Accordingly, we have presented below our operating
results for the years ended December 31, 2000 and 1999 on a same store basis to
better reflect our internal performance.
20
The following table sets forth: (1) the components of same store revenue,
with component percentages of total revenue; (2) the components of same store
gross margin, with gross margin percentages of applicable same store revenue;
(3) same store selling, general and administrative expenses; (4) same store
performance; and (5) retail vehicle same store unit sales for the years ended
December 31 ($ in millions):
2000 % 1999 %
--------------- --------- -------------- ---------
Revenue:
New vehicle ................... $ 10,636.9 61.5 $ 10,405.8 60.5
Used vehicle .................. 3,167.1 18.3 3,260.2 19.0
Fixed operations .............. 1,947.2 11.3 1,904.9 11.1
Finance and insurance ......... 362.8 2.1 344.1 2.0
Other ......................... 1,192.0 6.8 1,284.8 7.4
------------ ----- ----------- -----
$ 17,306.0 100.0 $ 17,199.8 100.0
============ ===== =========== =====
Gross margin:
New vehicle ................... $ 894.1 8.4 $ 875.0 8.4
Used vehicle .................. 362.2 11.4 360.1 11.0
Fixed operations .............. 830.2 42.6 799.0 41.9
Finance and insurance ......... 362.8 100.0 344.1 100.0
Other ......................... 76.4 6.4 113.6 8.8
------------ -----------
2,525.7 14.6 2,491.8 14.5
S,G&A Store ..................... 1,663.4 9.6 1,691.4 9.8
------------ -----------
Store performance ............... $ 862.3 5.0 $ 800.4 4.7
============ ===========
Retail vehicle unit sales:
New ........................... 420,000 428,000
Used .......................... 212,000 231,000
------------ -----------
632,000 659,000
============ ===========
Same store revenue was $17.31 billion for the year ended December 31, 2000
compared to $17.20 billion for the year ended December 31, 1999, an increase of
.6%. Same store gross margins were $2.53 billion for the year ended December
31, 2000 compared to $2.49 billion for the year ended December 31, 1999, an
increase of 1.4%. Same store gross margin as a percentage of same store total
revenue was 14.6% for the year ended December 31, 2000, versus 14.5% for the
year ended December 31, 1999. The primary components of same store revenue and
gross margin increases are described below.
Our new vehicle same store revenue increased 2.2% to $10.64 billion during
the year ended December 31, 2000 due to price increases of 4.1% offset by a
decrease in volume of 1.9%. New vehicle same store gross margin increased 2.2%
to $894.1 million during the year ended December 31, 2000. New vehicle same
store gross margins for 2000 and 1999 were 8.4% of same store new vehicle
revenue. In 2000, the automotive retail industry experienced strong new vehicle
unit sales until the fourth quarter when new vehicle demand dramatically
slowed. We expect lower new vehicle demand to continue in 2001, which will
likely result in significantly lower new vehicle revenue and gross margin.
The used vehicle market was softer in 2000 compared to 1999 due in part to
strong manufacturer incentives for new vehicles, especially light trucks. Same
store used vehicle revenue decreased 2.9% to $3.17 billion during the year
ended December 31, 2000. The decrease is attributable to lower volume of 8.2%
offset by 5.3% higher average prices. Despite the decline in revenue, used
vehicle same store
21
gross margin increased slightly to $362.2 million during the year ended
December 31, 2000 due to an expansion in gross margin of 40 basis points to
11.4%.
Fixed operations same store revenue increased 2.2% to $1.95 billion during
the year ended December 31, 2000 driven primarily by volume. Same store fixed
operations gross margin increased 3.9% to $830.2 million during the year ended
December 31, 2000, as a result of higher revenue coupled with margin expansion
of 70 basis points to 42.6%.
Same store finance and insurance revenue and gross margin increased 5.4%
to $362.8 million during the year ended December 31, 2000. The increase is
primarily due to a higher percentage of our customers buying finance and
insurance products.
Same store selling, general and administrative expenses were $1.66 billion
during the year ended December 31, 2000 versus $1.69 billion for the year ended
December 31, 1999. Same store selling, general and administrative expenses as a
percentage of same store total revenue were 9.6% for the year ended December
31, 2000 versus 9.8% for the year ended December 31, 1999. The decrease is
primarily due to the impact of cost-cutting initiatives and overall leveraging
of the store cost structure.
Same store performance was $862.3 million for the year ended December 31,
2000 versus $800.4 million for the year ended December 31, 1999. Same store
performance margins as a percentage of same store total revenue were 5.0% for
the year ended December 31, 2000 versus 4.7% for the year ended December 31,
1999. The increases in same store performance margins in aggregate dollars and
as percentages of same store revenue are primarily due to decreases in S,G&A,
coupled with gross margin expansion in used vehicles and fixed operations.
22
Reported Operating Data:
The following table sets forth the components of our operating results
including revenue percentages of total revenue, the components of gross margin
and retail vehicle unit sales on a reported basis for the years ended December
31 ($ in millions):
2000 % 1999 % 1998 %
--------------- --------- --------------- --------- -------------- ---------
Revenue:
New vehicle ............................ $ 12,489.3 60.6 $ 11,481.0 57.1 $ 6,775.8 53.5
Used vehicle ........................... 3,860.2 18.7 4,429.7 22.0 3,185.2 25.2
Fixed operations ....................... 2,334.9 11.3 2,222.0 11.1 1,383.2 10.9
Finance and insurance .................. 431.8 2.1 423.4 2.1 288.6 2.3
Other .................................. 1,493.4 7.3 1,555.7 7.7 1,031.8 8.1
------------ ----- ------------ ----- ----------- -----
$ 20,609.6 100.0 $ 20,111.8 100.0 $ 12,664.6 100.0
============ ===== ============ ===== =========== =====
Gross margin:
New vehicle ............................ $ 1,056.0 8.5 $ 962.3 8.4 $ 588.6 8.7
Used vehicle ........................... 438.6 11.4 449.6 10.1 379.4 11.9
Fixed operations ....................... 999.7 42.8 933.8 42.0 571.6 41.3
Finance and insurance .................. 431.8 100.0 423.4 100.0 288.6 100.0
Other .................................. 106.4 7.1 159.5 10.3 103.4 10.0
------------ ------------ -----------
3,032.5 14.7 2,928.6 14.6 1,931.6 15.3
S,G &A - Store ........................... 2,021.6 9.8 2,089.4 10.4 1,301.8 10.3
------------ ------------ -----------
Store performance ........................ 1,010.9 4.9 839.2 4.2 629.8 5.0
S,G &A - Corporate ....................... 125.2 .6 190.0 1.0 86.5 .7
S,G &A - Property carrying costs ......... 30.9 .1 -- -- -- --
Depreciation ............................. 54.7 .3 60.1 .3 40.3 .3
Amortization ............................. 79.1 .4 62.9 .3 39.6 .3
Asset impairment charges (recoveries),
net .................................... ( 3.8) -- 416.4 2.1 -- --
------------ ------------ -----------
Operating Income ......................... $ 724.8 3.5 $ 109.8 .5 $ 463.4 3.7
============ ============ ===========
Retail vehicle unit sales:
New .................................... 489,000 469,000 266,000
Used ................................... 255,000 315,000 244,000
------------ ------------ -----------
744,000 784,000 510,000
============ ============ ===========
Total revenue was $20.61 billion, $20.11 billion and $12.66 billion for
the years ended December 31, 2000, 1999 and 1998, respectively. Gross margins
were $3.03 billion, $2.93 billion and $1.93 billion for the years ended
December 31, 2000, 1999 and 1998, respectively. The primary components of these
changes are described below.
New vehicle revenue was $12.49 billion, $11.48 billion and $6.78 billion
for the years ended December 31, 2000, 1999 and 1998, respectively. New vehicle
gross margins were $1.06 billion, $962.3 million and $588.6 million or, as
percentages of new vehicle revenue, 8.5%, 8.4% and 8.7% for the years ended
December 31, 2000, 1999 and 1998, respectively. Increases are attributable to
acquisitions and higher pricing. New vehicle revenue was also impacted by an
increase in same store unit sales in 1999 and a modest decrease in same store
unit sales in 2000.
Used vehicle revenue was $3.86 billion, $4.43 billion and $3.19 billion
for the years ended December 31, 2000, 1999 and 1998, respectively. Used
vehicle gross margins were $438.6 million, $449.6 million
23
and $379.4 million or, as percentages of used vehicle revenue, 11.4%, 10.1% and
11.9% for the years ended December 31, 2000, 1999 and 1998, respectively. The
decreases in 2000 used vehicle revenue and gross margin are the result of a
decrease in units retailed from approximately 315,000 in 1999 to 255,000 in
2000 largely resulting from the closure of our used vehicle megastores. Used
vehicle gross margin percentages in 2000 increased primarily as a result of
improved management of used vehicle inventories.
Fixed operations revenue was $2.33 billion, $2.22 billion and $1.38
billion for the years ended December 31, 2000, 1999 and 1998, respectively.
Fixed operations gross margins were $999.7 million, $933.8 million and $571.6
million or, as percentages of fixed operations revenue, 42.8%, 42.0% and 41.3%
for the years ended December 31, 2000, 1999 and 1998, respectively. Increases
are attributable to acquisitions and higher pricing.
Finance and insurance revenue and gross margins were $431.8 million,
$423.4 million and $288.6 million for the years ended December 31, 2000, 1999
and 1998, respectively. The increases are due to acquisitions and a higher
percentage of our customers buying finance and insurance products.
Store selling, general and administrative expenses were $2.02 billion,
$2.09 billion and $1.30 billion or, as percentages of total revenue, 9.8%,
10.4% and 10.3% for the years ended December 31, 2000, 1999 and 1998,
respectively. The 2000 decreases are primarily due to successful implementation
of our cost-cutting initiatives. The increase as a percentage of revenue in
1999 over 1998 is primarily due to higher megastore fixed costs and costs
incurred in connection with the megastore closures and other one-time costs.
Store performance was $1.01 billion, $839.2 million and $629.8 million or,
as percentages of total revenue, 4.9%, 4.2% or 5.0% for the years ended
December 31, 2000, 1999 and 1998, respectively. The increases in aggregate
dollars are primarily due to acquisitions coupled with margin expansion. The
2000 increase as a percentage of total revenue is primarily due to lower S,G&A
expenses. The 1999 decrease as a percentage of revenue is due to lower gross
margins and higher S,G&A expenses.
Corporate S,G&A was $125.2 million, $190.0 million and $86.5 million or,
as a percentage of total revenue, .6%, 1.0% and .7%, for the years ended
December 31, 2000, 1999 and 1998, respectively. The 2000 decrease is primarily
due to successful implementation of our 1999 cost-cutting initiatives as
described in "Restructuring Activities" below. The 1999 increase 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.
Depreciation and amortization were $133.8 million, $123.0 million and
$79.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Depreciation and amortization as percentages of revenue were .7%,
.6% and .6% for the years ended December 31, 2000, 1999 and 1998, respectively.
S,G&A - Property carrying costs represents costs associated with megastore
and other properties held for sale. We incurred $30.9 million of property
carrying costs during the year ended December 31, 2000. We expect these costs
to be less than $10 million in 2001.
Discontinued Business Segments
On June 30, 2000, we completed the spin-off of our former automotive
rental businesses, which have been organized under ANC Rental Corporation, by
distributing 100% of ANC Rental's common
24
stock to AutoNation's stockholders as a tax-free dividend. As a result of the
spin-off, AutoNation stockholders received one share of ANC Rental common stock
for every eight shares of AutoNation common stock owned as of the June 16, 2000
record date. As discussed in Note 11, Discontinued Operations, of the Notes to
Consolidated Financial Statements, ANC Rental has been accounted for as
discontinued operations in the accompanying Consolidated Financial Statements
and accordingly, the operating results of ANC Rental have been classified as
discontinued operations in the accompanying Consolidated Financial Statements.
In July 1998, our former solid waste subsidiary, Republic Services, Inc.,
completed an initial public offering of 36.1% of its common stock. In May 1999,
we sold substantially all of our interest in Republic Services in a public
offering. As discussed in Note 11, Discontinued Operations, of the Notes to
Consolidated Financial Statements, our former solid waste services segment has
been accounted for as discontinued operations and accordingly, the operating
results of Republic Services have been classified as discontinued operations in
the accompanying Consolidated Financial Statements.
See Note 11, Discontinued Operations, of the Notes to Consolidated
Financial Statements, for further discussion of these discontinued operations.
Business Acquisitions and Divestitures
From 1996 through 1999, we aggressively expanded our automotive retail
operations through the acquisition of franchised automotive dealerships.
However, we did not complete in 2000 and do not expect to complete in 2001
acquisitions at the same pace as we have in the past. Future acquisitions will
primarily target single dealerships or small dealership groups focused in key
existing markets.
During the year ended December 31, 2000, we acquired various automotive
retail businesses. We paid approximately $190.9 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting. During 2000, we also paid approximately $122.4 million in deferred
purchase price for certain prior year automotive retail acquisitions. At
December 31, 2000, we accrued approximately $24.5 million of deferred purchase
price due to former owners of acquired businesses.
As described below under the heading "Restructuring Activities", we have
been divesting of certain non-core franchised automotive dealerships. During
2000, we received approximately $89.7 million of cash from the divestiture of
certain dealerships. We have signed a definitive agreement to sell our
Flemington dealer group. We expect to complete the sale in the second quarter
of 2001. Following the sale of the Flemington group, we will have substantially
completed our non-core dealership divestiture plan.
In November 2000, we completed the divestiture of our outdoor media
business for a purchase price of approximately $104.0 million. In connection
with the sale, we entered into a prepaid $15.0 million advertising agreement
and therefore, we received net proceeds of $89.0 million. A pre-tax gain of
$53.5 million was recognized on the sale.
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 1999, we also paid approximately $34.9 million in deferred
purchase price for certain prior year automotive retail acquisitions. During
1999, we received approximately $131.3 million of cash from the divestiture of
various automotive dealerships.
25
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 paid approximately $804.3 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 1998, we received approximately $55.1 million of cash from
the divestiture of various automotive dealerships.
See Note 2, Business Acquisitions and Divestitures, of the Notes to
Consolidated Financial Statements, for further discussion of business
combinations.
Restructuring Activities
During the fourth quarter of 1999, we approved a plan to restructure
certain of our operations. The restructuring plan was comprised of the
following major components: (1) exiting the used vehicle megastore business;
and (2) reducing the corporate workforce. The restructuring plan also included
divesting of certain non-core franchised dealerships. 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 in 1999 of which
$416.4 million appears as Asset Impairment Charges (Recoveries), Net in our
1999 Consolidated Income Statement. These pre-tax charges include $286.9
million of asset impairment charges; $103.3 million of reserves for residual
value guarantees for closed lease properties; $26.2 million of severance and
other exit costs; and $27.3 million of inventory related costs. The $286.9
million asset impairment charge consists of: $244.9 million of megastore and
other property impairments; $26.6 million of goodwill impairment reserves for
the divestiture of certain non-core franchised automotive dealerships; and
$15.4 million of information systems impairments. Of the $443.7 million
restructuring reserve recorded, $10.8 million of severance was paid in 1999 and
$53.7 million of asset impairments and write-offs were recorded during the
fourth quarter of 1999.
We intend to complete the sale of our Flemington dealer group during the
second quarter of 2001 as described under the heading, "Business Acquisitions
and Divestitures," resulting in the substantial completion of our non-core
dealership divestiture plan. We continue to dispose of our closed megastores
and other properties through sales to third parties. Although we are
aggressively marketing these closed properties, the ultimate disposition will
not be substantially completed until late 2001. Revenue for the operations
disposed or to be disposed was $923.5 million, $2.12 billion and $1.70 billion
during 2000, 1999 and 1998, respectively. Operating income for the operations
disposed or to be disposed was $21.8 million, $15.5 million and $12.9 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
26
The following summarizes activity in the restructuring and impairment
reserves for the year ended December 31, 2000:
Deductions
Balance Amounts Charged -------------------------- Balance
Reserve December 31, 1999 (Credited) to Income Cash Non-cash December 31, 2000
- ----------------------------- ------------------- --------------------- ------------- ------------ ------------------
Asset reserves:
Asset impairment .......... $ 263.3(1) $ (15.0) $ -- $ (86.9) $ 161.4
Inventory ................. 15.0 -- -- (15.0) --
Accrued liabilities:
Property lease residual
value guarantees ......... 103.3 (14.8) (88.5) -- --
Severance and other exit
costs .................... 17.3 9.4 (22.7) (2.8) 1.2
Finance lease residual
value write-down .......... -- 16.6 -- (16.6) --
----------- --------- --------- ---------- ---------
$ 398.9 $ (3.8) $ (111.2) $ (121.3) $ 162.6
=========== ========= ========== ========== =========
- ----------
(1) Includes $19.7 million of reserves that had been established on these
properties prior to the 1999 restructuring and impairment charges
recorded.
The following summarizes the components of the $3.8 million amount
credited to income during the year ended December 31, 2000:
Properties Placed Back Net Gain on Additional
into Service or Retained Sold Properties Impairment Charges Other Total
-------------------------- ----------------- -------------------- --------- ------------
Asset reserves:
Asset impairment .......... $ (23.2) $ (3.4) $ 11.6 $ -- $ (15.0)
Accrued liabilities:
Property lease residual
value guarantees ......... (13.0) (1.8) -- -- (14.8)
Severance and other
exit costs ............... -- -- -- 9.4 9.4
Finance lease residual
value write-down .......... -- -- -- 16.6 16.6
--------- -------- ------- ----- ---------
$ (36.2) $ (5.2) $ 11.6 $ 26.0 $ (3.8)
========= ======== ======= ====== =========
During 2000, certain events occurred which caused us to re-evaluate our
plans with respect to various retail properties. As a result, certain megastore
properties were placed back in service and we decided to retain certain
dealerships that had been held for sale. Accordingly, based on our
re-evaluation of the fair value of the properties, we determined that the asset
impairment and lease residual value reserves for these properties were no
longer necessary and we were required to reverse the related estimated reserves
totaling $36.2 million back into income. An additional impairment charge of
$11.6 million was recognized primarily related to a decision in 2000 to close
one additional megastore property as part of the overall restructuring plan.
During 2000, we also recognized an impairment charge totaling $16.6 million
associated with the deterioration in residual values of finance lease
receivables. We discontinued writing finance leases in mid-1999 and the
majority of the leases terminate in late 2001.
27
Non-Operating Income (Expense)
Floorplan Interest Expense
Floorplan interest expense was $199.8 million, $125.2 million, and $107.0
million for the years ended December 31, 2000, 1999, and 1998, respectively. The
increases are due to higher floorplan debt associated with higher inventory
levels and higher interest rates. In 2001, we expect to take numerous steps to
reduce inventory levels and related floorplan interest expense.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under our
revolving credit facilities. Other interest expense was $47.7 million, $34.9
million, and $14.0 million for the years ended December 31, 2000, 1999, and
1998, respectively. The increases are due to higher average borrowings along
with higher interest rates.
Interest Income
Interest income was $14.3 million, $20.6 million and $8.7 million for the
years ended December 31, 2000, 1999 and 1998, respectively. The decrease in
2000 is primarily due to lower cash and investment balances on hand. The
increase in 1999 was the result of interest earned on funds temporarily
invested from the proceeds of the sale of substantially all of our interest in
Republic Services.
Other Income, Net
Other income, net, for the year ended December 31, 2000, was $33.4 million
and primarily included gains of approximately $24.0 million on the sale of
approximately 3.1 million shares of common stock of our former solid waste
subsidiary, Republic Services, and a gain of approximately $53.5 million on the
sale of our former outdoor media business, offset by a $30.0 million valuation
write-down related to an equity-method investment in a privately-held auto
salvage and parts recycling business.
Income Taxes
The provision for income taxes from continuing operations was $196.9
million, $4.0 million and $126.8 million for the years ended December 31, 2000,
1999 and 1998, respectively. The effective income tax rate was 37.5% and 36.0%
for the years ended December 31, 2000 and 1998. Although we reported a pre-tax
loss from continuing operations in 1999, an income tax provision of $4.0
million was recorded due to the effect of certain non-deductible expenses
primarily associated with the restructuring and impairment charges. We
anticipate that our effective income tax rate will increase to between 38% and
39% in 2001.
Financial Condition
At December 31, 2000, we had $82.2 million in cash and cash equivalents.
As of December 31, 2000, we had two unsecured revolving credit facilities in
place in the aggregate of $1.5 billion under which $615.0 million was
outstanding. The unsecured revolving credit facilities may be used for general
corporate purposes. One facility provides $1.0 billion of financing under a
multi-year structure and matures April 2002. The other, a $500.0 million
364-day facility was amended prior to its scheduled maturity in March 2001 to
provide $250.0 million of capacity until the earlier of September 30, 2001 or
the early renewal of the multi-year facility. We also have been negotiating
with several of the vehicle
28
manufacturers' captive finance subsidiaries to provide mortgage-backed credit
facilities for specific dealership properties.
We finance our vehicle inventory through secured financings, primarily
floorplan facilities, with vehicle manufacturers' captive finance subsidiaries
as well as independent financial institutions and, until recently, a
bank-sponsored commercial paper conduit facility that matured January 19, 2001,
and was not renewed. As of December 31, 2001, committed capacity of the
facilities was approximately $3.5 billion.
We are the lessee under a lease facility that was established to acquire
and develop our former megastores properties. As originally structured, the
facility had been accounted for as an operating lease and included residual
value guarantees. In 1999, certain properties under the facility were reflected
as capital leases. In connection with our 1999 restructuring activities
previously described, as of December 31, 1999, we accrued an estimate of the
liability under the residual value guarantee totaling approximately $103.3
million. In September 2000, we funded the remaining lease residual value
guarantee obligation to the lessor, reduced the facility size from $500.0
million to $210.0 million and amended the terms of the facility through the
notification of our intention to exercise the option to purchase the leased
properties at the end of the term. As a result of the amendment, all of the
leases have now been accounted for as capital leases, with the property and
related debt included in the accompanying 2000 Consolidated Balance Sheet. At
December 31, 2000, $175.8 million was outstanding under this facility and is
included in Long-Term Debt in the accompanying Consolidated Balance Sheet. Of
the $175.8 million outstanding, $115.2 million is associated with operating
properties and $60.6 million is attributable to properties held for sale. The
facility matures April 2002.
We securitize installment loan receivables through a $1.0 billion
commercial paper warehouse facility with certain financial institutions. In
September 2000, we decreased the capacity of the commercial paper warehouse
facility from $1.7 billion to $1.0 billion. During the year ended December 31,
2000, we securitized approximately $580.1 million of loan receivables under
this program, net of retained interests. At December 31, 2000, we have
approximately $576.3 million outstanding under this program, net of retained
interests. We have entered into certain interest rate derivative transactions
with certain financial institutions to manage the impact of interest rate
changes on securitized installment loan receivables. Proceeds from
securitizations are primarily used to repay borrowings under our revolving
credit facilities.
We also securitize installment loan receivables through the issuance of
asset-backed notes through a non-consolidated special purpose entity under a
$2.0 billion shelf registration statement. Through December 31, 2000, $1.48
billion, net of retained interests, has been issued and approximately $521.5
million remains to be issued under this program. Proceeds from these notes are
used to refinance installment loans previously securitized under the warehouse
facility and to securitize additional loans held by us. We provide credit
enhancement related to these notes in the form of over collateralization, a
reserve fund and a third party surety bond. We retain responsibility for
servicing the loans for which we are paid a servicing fee. During 2000,
approximately $691.7 million in additional asset-backed notes were issued, net
of retained interests, and at December 31, 2000, $1.0 billion was outstanding
under this program. We intend to provide for additional capacity through an
additional or subsequent shelf registration.
Installment loans sold under these programs are nonrecourse beyond our
retained interests. See Note 13, Asset Securitizations, of the Notes to
Consolidated Financial Statements for further discussion. We expect to continue
to securitize installment loan receivables under these facilities and/or other
programs.
29
During the year ended December 31, 2000, we repurchased 27.6 million
shares of our common stock, par value $.01 per share, under our Board
authorized share repurchase program for an aggregate purchase price of $188.9
million. We repurchased 91.0 million shares of common stock during 1999 for an
aggregate purchase price of $1.16 billion. We repurchased 9.1 million shares of
common stock during 1998 for an aggregate purchase price of $136.0 million.
Through December 31, 2000, an aggregate of 127.7 million shares of common stock
had been repurchased under our share repurchase programs, authorized by our
Board of Directors in 1998 and 1999, for an aggregate purchase price of $1.48
billion. As of March 26, 2001, we repurchased an additional 10.9 million shares
of common stock for an aggregate purchase price of $87.8 million, leaving
approximately $179.2 million available for share repurchases under the latest
authorized 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. We will evaluate share repurchases in 2001
based upon financial and other investment considerations.
In connection with the ANC Rental spin-off, we made certain capital
contributions to ANC Rental prior to the spin-off. These contributions include
cash of approximately $200.0 million and the net assets of an insurance
subsidiary. We also entered into various agreements with ANC Rental that set
forth the terms of the distribution and other agreements governing our
relationship with ANC Rental after the spin-off. As a result of the spin-off,
our equity as of December 31, 2000, was reduced by the net assets of ANC Rental
totaling $894.4 million. The equity adjustment resulting from the spin-off is
subject to further adjustment resulting from changes in estimated shared assets
and liabilities of AutoNation and ANC Rental and certain other matters.
However, such adjustments, if any, are not expected to be significant.
In connection with the spin-off, we agreed to continue to provide ANC
Rental with guarantees and other credit enhancements with respect to certain
indebtedness and certain property and vehicle lease obligations. We receive
fees for providing these guarantees commensurate with market rates. To the
extent that ANC Rental is not able to meet its obligations, we would be likely
to be called on to perform under guarantees and credit enhancements provided by
us, which could have a material adverse effect on our business, consolidated
results of operations, financial condition and/or cash flows.
We have taken steps during 2000 to further strengthen our balance sheet,
including selling non-core assets and redeploying proceeds into our core
business. During 2000 we entered into a sale-leaseback financing of our
corporate headquarters facility resulting in proceeds of approximately $52.1
million. Additionally, during 2000 we sold an office building which is occupied
by ANC Rental, resulting in proceeds of approximately $18.7 million. As
previously described, in November 2000 we completed the sale of our outdoor
media business and expect to complete the sale of our Flemington dealer group
in the second quarter of 2001.
At December 31, 2000 and 1999, we had $877.2 million and $804.8 million,
respectively, of net deferred tax liabilities. We provide for deferred income
taxes in our Consolidated Balance Sheets 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. Over the
past four years we have engaged in certain transactions that are of a type that
the Internal Revenue Service has recently indicated it intends to challenge. We
believe that our tax returns appropriately reflect such transactions. At the
present time, it is impossible to predict the outcome of any challenge if the
IRS determines to challenge the tax reporting of such transactions.
30
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 increased (decreased) by $(153.8) million,
$(490.0) million and $598.3 million during the years ended December 31, 2000,
1999 and 1998, respectively. The major components of these changes are
discussed below.
Cash Flows from Operating Activities
Cash provided by operating activities was $281.5 million, $47.2 million
and $217.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
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 under
these secured vehicle financings which totaled $159.4 million, $429.7 million
and $65.1 million during the years ended December 31, 2000, 1999 and 1998,
respectively. Including net proceeds under these secured vehicle financings, we
generated operating cash flow of $440.9 million, $476.9 million and $282.9
million during the years ended 2000, 1999 and 1998, respectively.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash provided by
(used in) business acquisitions and divestitures, capital additions, property
dispositions, net activity of installment loan receivables and other
transactions as further described below.
Cash used in business acquisitions was $313.3 million, $914.0 million and
$804.3 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The decrease in cash used in business acquisitions was primarily
due to our shift in 2000 to acquire single dealerships or small dealership
groups focused in key existing markets. Cash used in business acquisitions
during 2000 includes $122.4 million in deferred purchase price for certain
prior year automotive retail acquisitions. See "Business Acquisitions and
Divestitures" in Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 2, Acquisitions and Divestitures, of the
Notes to Consolidated Financial Statements for a further discussion of business
combinations.
Capital expenditures were $148.2 million, $242.3 million and $256.7
million during the years ended December 31, 2000, 1999 and 1998, respectively.
The decrease in capital expenditures in 2000 is due to the megastore closures
and fewer acquisitions.
Proceeds from the sale of property and equipment and assets held for sale
were $129.9 million, $88.4 million and $12.3 million during the years ended
December 31, 2000, 1999, and 1998, respectively. The increase is primarily due
to the sales of megastore and other properties held for sale and the sale of
the building occupied by ANC Rental. Cash received from business divestitures
was $178.7 million, $131.3 million, and $55.1 million for the years ended
December 31, 2000, 1999, and 1998, respectively.
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 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
31
under our share repurchase programs and invest in our business. During 2000, we
sold substantially all of our remaining common stock of Republic Services,
resulting in proceeds of approximately $48.2 million.
Funding of installment loan receivables, net of collections, totaled
$562.3 million, $1,578.6 million and $965.5 million in 2000, 1999 and 1998,
respectively. Related proceeds from securitization of installment loan
contracts were $720.3 million, $1,599.4 million and $706.4 million in 2000,
1999 and 1998, respectively. We continue to evaluate the appropriate levels of
installment loan fundings.
We intend to finance capital expenditures, business acquisitions, and
funding of installment loan receivables through cash flow from operations, our
revolving credit facilities, asset-backed securitized facilities and other
financings.
Cash Flows from Financing Activities
Cash flows from financing activities include revolving credit and vehicle
inventory financings, repayments of acquired debt, treasury stock purchases and
other transactions as further described below.
We have repurchased approximately 27.6 million, 91.0 million, and 9.1
million shares of our common stock during the years ended December 31, 2000,
1999, and 1998, respectively, for an aggregate price of approximately $188.9
million, $1.16 billion, $136.0 million, respectively, under our Board approved
share repurchase programs.
During the year ended December 31, 2000, we repaid approximately $197.0 of
debt obligations primarily related to amounts financed under a $210.0 million
lease facility (amended September 2000 from the original capacity of $500.0
million). See Note 3, Notes Payable and Long-Term Debt, of the Notes to
Consolidated Financial Statements for further discussion.
During 2000, we entered into a sale-leaseback transaction involving our
corporate headquarter facility which resulted in net proceeds of approximately
$52.1 million.
We will continue to evaluate the best use of our operating cash flow
between capital expenditures, share repurchases and acquisitions.
Cash Flows from Discontinued Operations
Cash (used in) provided by discontinued operations was as follows during
the years ended December 31:
2000 1999 1998
------------- ------------- -------------
Automotive rental ............ $ (227.0) $ (160.3) $ (129.2)
Solid waste services ......... -- (546.0) 580.6
---------- ---------- ----------
$ (227.0) $ (706.3) $ 451.4
========== ========== ==========
Cash used in our former automotive rental business during 2000 consists
primarily of cash used to replace maturing letters of credit which provide
credit enhancement for ANC Rental's vehicle financing.
32
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. 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. At December 31, 2000, we did not have any
outstanding interest rate swaps.
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. At times, 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.
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
-------------------------------------------------------------------------------------------
December 31, 2000 2001 2002 2003 2004 2005 Thereafter Total
- --------------------------------- -------------- ------------ ------------ ------------ ---------- ------------ -------------
(Liability/(asset) in millions)
CONTINUING OPERATIONS:
Variable rate debt .............. $ 2,416.7 $ 790.8 $ -- $ -- $ -- $ -- $ 3,207.5
Average interest rates ......... 6.77% 6.67% -- -- -- --
Interest rate caps(1) ........... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3
Average rate ................... 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Interest rate floors(1) ......... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3
Average rate ................... 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Fair Value
December 31,
December 31, 2000 2000
- --------------------------------- -------------
(Liability/(a
asset) in
millions)
CONTINUING OPERATIONS:
Variable rate debt .............. $ 3,207.5
Average interest rates .........
Interest rate caps(1) ........... $ (2.6)
Average rate ...................
Interest rate floors(1) ......... $ 14.3
Average rate ...................
33
Expected Maturity Date
------------------------------------------------------------------------------------------
December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total
- ---------------------------------- ------------- ----------- ------------ ------------ ----------- ------------ -------------
(Liability/(asset) in millions)
CONTINUING OPERATIONS:
Variable rate debt ............... $ 2,240.9 $ 2.3 $ 821.5 $ -- $ -- $ -- $ 3,064.7
Average interest rates ......... 7.12% 7.58% 7.86% -- -- --
Interest rate swaps .............. $ 150.0 -- -- -- -- -- $ 150.0
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
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
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
Average interest rates ......... 6.00% 6.50% 5.56% 6.72% -- 6.71%
Interest rate swaps .............. $ 300.0 $ 100.0 -- $ 200.0 -- -- $ 600.0
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
Average rate ................... -- -- -- 5.73% -- 6.26%
Interest rate floors ............. -- -- -- $ 550.0 -- $ 700.0 $ 1,250.0
Average rate ................... -- -- -- 5.73% -- 6.26%
Fair Value
December 31,
December 31, 1999 1999
- ---------------------------------- -------------
(Liability/(a
asset) in
millions)
CONTINUING OPERATIONS:
Variable rate debt ............... $ 3,064.7
Average interest rates .........
Interest rate swaps .............. $ (.1)
Average pay rate ...............
Average receive rate ...........
Interest rate caps(1) ............ $ (18.5)
Average rate ...................
Interest rate floors(1) .......... $ 7.7
Average rate ...................
DISCONTINUED
OPERATIONS:
Variable rate debt ............... $ 2,889.0
Average interest rates .........
Interest rate swaps .............. $ (6.8)
Average pay rate ...............
Average receive rate ...........
Interest rate caps ............... $ (66.4)
Average rate ...................
Interest rate floors ............. $ 15.2
Average rate ...................
- ----------
(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 $576.3 million and $1.01 billion
at December 31, 2000 and 1999, respectively.
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.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In
June 2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, 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 instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133, as amended, is
34
effective for fiscal years beginning after June 15, 2000. SFAS 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid instruments. We have adopted SFAS 133 as of January 1, 2001.
By requiring the use of fair value accounting, adoption of SFAS 133 could cause
increased volatility in earnings in future periods. We continue to enter into
derivative contracts, which we believe will help minimize this volatility. In
addition, we are evaluating other instruments that would effectively hedge our
floating rate debt which we believe will qualify for hedge accounting. See
further discussion in Note 1, Summary of Significant Accounting Policies, of
the Notes to Consolidated Financial Statements.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- a Replacement of FASB No. 125" ("SFAS
140"). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. SFAS 140 disclosure requirements are effective for fiscal years
ending after December 15, 2000, and have been included in Note 13, Asset
Securitizations, of the Notes to Consolidated Financial Statements. Accounting
for transfers and servicing of financial assets and extinguishment of
liabilities under SFAS 140 is effective for transactions occurring after March
31, 2001. Although additional interpretive guidance is expected from the FASB,
we do not expect the adoption of SFAS 140, as currently interpreted, will have
a material impact on our Consolidated Financial Statements. See further
discussion in Note 13, Asset Securitizations, of the Notes to Consolidated
Financial Statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Our revenue recognition policy
is in accordance with the provisions of SAB 101. Adoption of the provisions of
SAB 101 did not have a material impact on our consolidated financial position,
results of operations or cash flows as of and for the year ended December 31,
2000.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests
in Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among
other things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 is
effective for fiscal quarters beginning after March 15, 2001. We plan to adopt
EITF 99-20 on April 1, 2001. We do not expect adoption of EITF 99-20 to have a
material impact on our consolidated financial position, results of operations
or cash flows.
In September 2000, the FASB issued an Exposure Draft entitled "Business
Combinations and Intangible Assets" which was revised in February 2001. The
Exposure Draft, if adopted, would prohibit the pooling method of accounting for
business combination transactions and would require that intangible assets in
excess of the fair value of net assets, goodwill, not be amortized. Goodwill
would be reduced only if found to be impaired or if associated with assets to
be sold or otherwise disposed. The FASB is expected to issue a final statement
in 2001. During 2000, we recorded amortization expense of approximately $73.7
million relating to goodwill. This statement, if issued as proposed, would
preclude future amortization of existing and any future goodwill on a
prospective basis from the date of issuance.
Forward-Looking Statements
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,
35
including the matters discussed below. Certain statements and information set
forth in this Form 10-K or the Annual Report mailed to our stockholders with
this Form 10-K, as well as other written or oral statements made from time to
time by us or by our authorized executive officers on our behalf, constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. We intend for our forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and we set forth this statement and these risk factors in order to comply with
such safe harbor provisions. You should note that our forward-looking
statements speak only as of the date of this Form 10-K or when made and we
undertake no duty or obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
Although we believe that the expectations, plans, intentions and projections
reflected in our forward-looking statements are reasonable, such statements are
subject to 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. The risks, uncertainties and other
factors that our stockholders and prospective investors should consider
include, but are not limited to, the following: the automotive retail industry
is cyclical and is highly sensitive to changing economic conditions; we are in
the midst of an industry and general economic slowdown that could materially
adversely impact our business; we are substantially dependent on vehicle
manufacturers; we are subject to operating restrictions imposed by vehicle
manufacturers; we are subject to extensive governmental regulation; we are
subject to numerous legal and administrative proceedings; we may be required to
perform under certain credit enhancements and guarantees with respect to ANC
Rental Corporation; we face significant competition in the automotive retail
industry; we need substantial capital; we may not be able to successfully
execute our strategy; we may have difficulty expanding through acquisitions of
franchised automotive dealerships in our key markets; the loss of key personnel
could affect our operations; we are subject to residual value risk and consumer
credit risk in connection with our lease portfolio; and we are also subject to
consumer credit risk in connection with our installment receivables portfolio.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----
Report of Independent Certified Public Accountants ...................................... 38
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............................ 39
Consolidated Income Statements for each of the Three Years Ended December 31, 2000 ...... 40
Consolidated Statements of Shareholders' Equity for each of the Three Years Ended
December 31, 2000 ..................................................................... 41
Consolidated Statements of Cash Flows for each of the Three Years Ended December 31,
2000 .................................................................................. 42
Notes to Consolidated Financial Statements .............................................. 43
Financial Statement Schedule II, Valuation and Qualifying Accounts and Reserves, for each
of the Three Years Ended December 31, 2000 ............................................ 74
37
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,
2000 and 1999, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated 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 consolidated 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, 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 26, 2001.
38
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(In millions, except share data)
2000 1999
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 82.2 $ 218.6
Receivables, net ...................................................... 1,108.8 1,179.5
Inventory ............................................................. 2,769.2 2,706.8
Other current assets .................................................. 216.0 165.6
---------- ----------
Total Current Assets ................................................. 4,176.2 4,270.5
INVESTMENTS ............................................................. 38.8 175.8
PROPERTY AND EQUIPMENT, NET ............................................. 1,538.1 1,360.4
INTANGIBLE ASSETS, NET .................................................. 2,920.2 2,831.0
OTHER ASSETS ............................................................ 156.7 218.8
NET ASSETS OF DISCONTINUED OPERATIONS ................................... -- 726.6
---------- ----------
$ 8,830.0 $ 9,583.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 143.2 $ 163.1
Accrued liabilities ................................................... 453.0 622.9
Notes payable and current maturities of long-term debt ................ 2,423.5 2,218.3
Other current liabilities ............................................. 121.6 129.9
---------- ----------
Total Current Liabilities ............................................ 3,141.3 3,134.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES ............................... 850.4 836.1
DEFERRED INCOME TAXES ................................................... 877.2 804.8
OTHER LIABILITIES ....................................................... 118.6 206.8
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; 475,559,195 and 474,965,676 shares issued and outstanding
including shares held in treasury, respectively ...................... 4.8 4.7
Additional paid-in capital ............................................ 4,664.7 4,661.5
Retained earnings ..................................................... 649.3 1,213.8
Accumulated other comprehensive income ................................ 1.0 6.6
Treasury stock, at cost; 127,473,709 and 99,602,444 shares held,
respectively ......................................................... (1,477.3) (1,285.4)
---------- ----------
Total Shareholders' Equity ........................................... 3,842.5 4,601.2
---------- ----------
$ 8,830.0 $ 9,583.1
========== ==========
The accompanying notes are an integral part of these statements.
39
AUTONATION, INC.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31,
(In millions, except per share data)
2000 1999 1998
--------------- --------------- ---------------
REVENUE ..................................................... $ 20,609.6 $ 20,111.8 $ 12,664.6
COST OF OPERATIONS .......................................... 17,577.1 17,183.2 10,733.0
----------- ----------- -----------
GROSS MARGIN ................................................ 3,032.5 2,928.6 1,931.6
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................................. 2,177.7 2,279.4 1,388.3
DEPRECIATION ................................................ 54.7 60.1 40.3
AMORTIZATION ................................................ 79.1 62.9 39.6
ASSET IMPAIRMENT CHARGES (RECOVERIES), NET .................. (3.8) 416.4 --
------------ ----------- ------------
OPERATING INCOME ............................................ 724.8 109.8 463.4
FLOORPLAN INTEREST EXPENSE .................................. (199.8) (125.2) (107.0)
OTHER INTEREST EXPENSE ...................................... (47.7) (34.9) (14.0)
INTEREST INCOME ............................................. 14.3 20.6 8.7
OTHER INCOME, NET ........................................... 33.4 2.2 1.5
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ....................................... 525.0 (27.5) 352.6
PROVISION FOR INCOME TAXES .................................. 196.9 4.0 126.8
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .................... 328.1 (31.5) 225.8
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes .................................................... 13.1 (30.6) 262.1
Gain (loss) on disposal of segments, net of income taxes of
$(1.4), $516.9 and $8.4, respectively .................... (11.3) 345.0 11.6
------------ ------------ ------------
1.8 314.4 273.7
------------ ------------ ------------
NET INCOME .................................................. $ 329.9 $ 282.9 $ 499.5
============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations ..................................... $ 0.91 $ (.07) $ .50
Discontinued operations ................................... -- .73 .60
------------ ------------- ------------
Net income ................................................ $ 0.91 $ .66 $ 1.10
============ ============= ============
Weighted average common shares outstanding ................ 361.3 429.8 455.1
============ ============= ============
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations ..................................... $ 0.91 $ (.07) $ .48
Discontinued operations ................................... -- .73 .58
------------ ------------- ------------
Net income ................................................ $ 0.91 $ .66 $ 1.06
============ ============= ============
Weighted average common shares outstanding ................ 361.4 429.8 470.9
============ ============= ============
The accompanying notes are an integral part of these statements.
40
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
(In millions)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury Comprehensive
Stock Capital Earnings Income (Loss) Stock Income (Loss)
-------- ------------ ------------ --------------- ------------- --------------
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)
Adjustments to 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 Republic Services ...... -- 998.5 -- -- --
Purchases of treasury stock .................... -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of
$4.8 million ................................. .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)
Adjustments to 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 $1.1
million ...................................... -- 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)
------ ---------- --------- ------ ----------
Comprehensive income (loss):
Net income ..................................... -- -- 329.9 -- -- $ 329.9
--------
Other comprehensive income (loss):
Foreign currency translation adjustments ..... -- -- -- -- -- 6.4
Adjustments to marketable securities and
interest-only strip receivables ............. -- -- -- -- -- (12.0)
--------
Other comprehensive loss ..................... -- -- -- (5.6) -- (5.6)
--------
Comprehensive income ........................ -- -- -- -- -- $ 324.3
========
Purchases of treasury stock .................... -- -- -- -- (188.9)
Spin-off of ANC Rental Corporation ............. -- -- (894.4) -- --
Exercise of stock options and warrants,
including income tax benefit of
$1.0 million ................................. .1 2.2 -- -- --
Other .......................................... -- 1.0 -- -- (3.0)
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 2000 .................... $ 4.8 $ 4,664.7 $ 649.3 $ 1.0 $ (1,477.3)
====== ========== ========= ====== ==========
The accompanying notes are an integral part of these statements.
41
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
2000 1999 1998
------------ ------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income .................................................................... $ 329.9 $ 282.9 $ 499.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................... 133.8 123.0 79.9
Deferred income tax provision (benefit) ..................................... 91.3 (127.2) 12.2
Non-cash restructuring and impairment (recovery) ............................ (6.9) 432.9 --
Gain on sale of marketable securities, net .................................. (23.7) (4.5) --
Valuation write-down on equity-method investment ............................ 30.0 -- --
Gain on sale of subsidiary .................................................. (53.5) -- --
Income from discontinued operations ......................................... (1.8) (314.4) (273.7)
Changes in assets and liabilities, net of effects from business combinations:
Receivables ................................................................ (28.1) (140.9) (148.4)
Inventory .................................................................. (37.2) (380.8) 66.5
Other assets ............................................................... (33.9) 42.0 (23.0)
Accounts payable and accrued liabilities ................................... (162.3) (33.3) (85.2)
Other liabilities .......................................................... 43.9 167.5 90.0
--------- ---------- ---------
281.5 47.2 217.8
--------- ---------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment ........................................... (148.2) (242.3) (256.7)
Proceeds from sale of property and equipment and assets held for sale ......... 129.9 88.4 12.3
Purchases of marketable securities ............................................ (.9) (88.6) (193.6)
Funding of installment loan receivables, net of collections ................... (562.3) (1,578.6) (965.5)
Proceeds from sales of installment loan receivables ........................... 720.3 1,599.4 706.4
Sales of marketable securities ................................................ 91.6 116.7 94.1
Cash used in business acquisitions, net of cash acquired ...................... (313.3) (914.0) (804.3)
Cash received from business divestitures ...................................... 178.7 131.3 55.1
Cash received on disposal of solid waste services segment ..................... -- 1,779.6 1,433.6
Restricted cash deposits ...................................................... (76.6) (51.2) (39.2)
Other ......................................................................... (.4) (15.2) (64.1)
--------- ---------- ---------
18.8 825.5 ( 21.9)
--------- ---------- ---------
CASH USED IN FINANCING ACTIVITIES:
Net proceeds under vehicle inventory financing facilities ..................... 159.4 429.7 65.1
Net proceeds (payments) under revolving credit facilities ..................... (54.0) 169.0 250.0
Purchases of treasury stock ................................................... (188.9) (1,158.0) (136.0)
Payments of notes payable and long-term debt .................................. (197.0) (126.1) (260.3)
Proceeds from sale-leaseback financing ........................................ 52.1 -- --
Other ......................................................................... 1.3 29.0 32.2
--------- ---------- ---------
(227.1) (656.4) (49.0)
--------- ---------- ---------
CASH PROVIDED BY CONTINUING OPERATIONS ......................................... 73.2 216.3 146.9
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS ............................. (227.0) (706.3) 451.4
--------- ---------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (153.8) (490.0) 598.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$17.4, $590.1 AND $44.9, RESPECTIVELY ......................................... 236.0 726.0 127.7
--------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD, INCLUDING CASH
AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF $17.4 and
$590.1 AT DECEMBER 31, 1999 AND 1998, RESPECTIVELY ............................ $ 82.2 $ 236.0 $ 726.0
========= ========== =========
The accompanying notes are an integral part of these statements.
42
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
AutoNation, Inc. (the "Company") is the largest automotive retailer in the
United States. As of December 31, 2000, the Company owned and operated
approximately 400 new vehicle franchises from dealerships in 18 states,
predominantly in major metropolitan markets in the Sunbelt states. The
Company's dealerships offer new and used vehicles for sale. Each dealership
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. The Company's dealerships also offer service facilities that provide a
wide range of vehicle maintenance and repair services, and operate collision
repair centers in most key markets.
On June 30, 2000, the Company completed the spin-off of its former
automotive rental businesses, organized under ANC Rental Corporation ("ANC
Rental"), by distributing 100% of ANC Rental's common stock to AutoNation's
stockholders as a tax-free dividend. As a result of the spin-off, AutoNation
stockholders received one share of ANC Rental common stock for every eight
shares of AutoNation common stock owned as of the June 16, 2000 record date. As
discussed in Note 11, Discontinued Operations, the Company's former automotive
rental segment has been accounted for as discontinued operations in the
accompanying Consolidated Financial Statements and accordingly, the net assets
and operating results of ANC Rental for the periods prior to disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.
In July 1998, the Company's former solid waste subsidiary, Republic
Services, Inc., completed an initial public offering of 36.1% of its common
stock. In May 1999, the Company sold substantially all of its interest in
Republic Services 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 in the accompanying Consolidated
Financial Statements and accordingly, operating results of Republic Services
for the periods prior to disposition have been classified as discontinued
operations in the accompanying Consolidated Financial Statements.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries. The Company operates in a single
industry segment, automotive retailing. All intercompany accounts and
transactions have been eliminated. In order to maintain consistency and
comparability between periods presented, floorplan interest expense,
depreciation and amortization and certain other amounts have been reclassified
from the previously reported financial statements to conform to the financial
statement presentation of the current period.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
43
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Receivables
The components of receivables, net of allowance for doubtful accounts, at
December 31 are as follows:
2000 1999
----------- -----------
Contracts in transit and vehicle receivables ......... $ 407.5 $ 391.9
Finance receivables .................................. 350.2 441.5
Trade receivables .................................... 119.6 121.2
Manufacturer receivables ............................. 131.2 134.1
Other ................................................ 135.4 133.3
--------- ---------
1,143.9 1,222.0
Less: allowance for doubtful accounts ................ (35.1) (42.5)
--------- ---------
$ 1,108.8 $ 1,179.5
========= =========
Finance receivables consist of the following at December 31:
2000 1999
------------ -----------
Finance leases, net ......................................... $ 147.8 $ 196.3
Installment loans ........................................... 50.3 83.8
Retained interests in securitized installment loans ......... 152.1 161.4
--------- --------
$ 350.2 $ 441.5
========= ========
The Company sells installment loan finance receivables in securitization
transactions with unrelated financial institutions. When the Company sells
receivables in securitizations, it retains interest-only strips, one or more
subordinated tranches, servicing rights, and cash reserve accounts, all of
which are retained interests in the securitized receivables. Gains or losses on
the sale of the receivables depend in part on the previous carrying amount of
the financial assets involved in the transfer, allocated between the assets
sold and the retained interests based on their relative fair value at the date
of transfer. Gains or losses from the sale of the receivables are recognized in
the period in which sales occur. Interest-only strips are carried at fair value
and marked to market as a component of other comprehensive income unless an
other than temporary impairment occurs in the valuation of the interest-only
strip in which case the impairment is recorded in the Consolidated Income
Statements. Retained interests in the securitized receivables are carried at
allocated carrying amounts and periodically assessed for impairment. Servicing
assets are initially recorded at allocated carrying amounts and subsequently
amortized over the servicing period and periodically assessed for impairment.
The Company generally estimates fair value utilizing valuation models based on
the present value of future expected cash flows estimated using the Company's
best estimate and historical experience of the key assumptions including credit
losses, voluntary prepayment speeds, forward yield curve, and discount rates
commensurate with the risks involved.
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." In September 2000, SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
Replacement of FASB No. 125" ("SFAS 140") was
44
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
issued. SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. SFAS 140 disclosure requirements are effective for fiscal years
ending after December 15, 2000, and have been included in Note 13, Asset
Securitizations. Accounting for transfers and servicing of financial assets and
extinguishment of liabilities under SFAS 140 is effective for transactions
occurring after March 31, 2001. Although additional interpretive guidance is
expected from the Financial Accounting Standards Board ("FASB"), the Company
does not expect the adoption of the accounting requirements of SFAS 140, as
currently interpreted, will have a material impact on its consolidated
financial position, results of operations or cash flows.
As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, during 2000, an impairment charge totaling $16.6 million
related to the deterioration of vehicle residual values associated with finance
lease receivables was recognized. Finance lease originations were discontinued
in mid-1999 and the majority of the remaining leases terminate in late 2001.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests
in Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among
other things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 is
effective for fiscal quarters beginning after March 15, 2001. The Company plans
to adopt EITF 99-20 on April 1, 2001. The Company does not expect adoption of
EITF 99-20 to have a material impact on its consolidated financial position,
results of operations or cash flows.
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 entity'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:
2000 1999
------------- -------------
New vehicles ......................... $ 2,295.8 $ 2,085.0
Used vehicles ........................ 317.9 470.1
Parts, accessories and other ......... 155.5 151.7
---------- ----------
$ 2,769.2 $ 2,706.8
========== ==========
45
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Other Current Assets
Other current assets consist primarily of restricted cash deposits related
to insurance programs totaling $160.8 million and $91.9 million at December 31,
2000 and 1999, respectively.
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. Other-than-temporary declines in investment values are
recorded as a component of Other Income, Net in the Company's Consolidated
Income Statements. Fair value is estimated based on quoted market prices.
Equity-method investments represent investments in 50% or less owned
automotive-related 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, Net in the Company's
Consolidated Income Statements. The Company continually assesses whether
equity-method investments should be evaluated for possible impairment by use of
an estimate of the related undiscounted cash flows. The Company measures
impairment losses based upon the amount by which the carrying amount of the
asset exceeds the fair value.
A summary of investments at December 31 is as follows:
2000 1999
--------- -----------
Marketable securities ............. $ 5.2 $ 106.2
Equity-method investments ......... 33.6 69.6
------ --------
$ 38.8 $ 175.8
====== ========
Investments in marketable securities at December 31 are as follows:
2000
------------------------------------------------
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------------ ------------ -------
Corporate debt securities ......... $ .6 $ -- $-- $ .6
Equity securities ................. 3.1 1.5 -- 4.6
----- ---- -- -----
$ 3.7 $ 1.5 $-- $ 5.2
===== ===== === =====
46
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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
======== ====== ======= =======
Proceeds from sales of available-for-sale securities were $91.6 million,
$116.7 million and $94.1 million for the years ended December 31, 2000, 1999
and 1998, respectively. Gross realized gains and losses of $24.0 million and
$.3 million, respectively were recognized for the year ended December 31, 2000.
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. In 2000, the
Company recognized a pre-tax $30.0 million valuation write-down to an
equity-method investment in a privately-held salvage and parts recycling
business which has been reflected in Other Income, Net in the accompanying 2000
Consolidated Income Statement.
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 and
amortization are removed from the accounts and any resulting gain or loss is
reflected in the Consolidated Income Statements.
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 and amortization are 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:
2000 1999
----------- -----------
Land .................................................... $ 596.2 $ 529.7
Buildings and improvements .............................. 827.4 670.9
Furniture, fixtures and equipment ....................... 282.3 310.5
--------- ---------
1,705.9 1,511.1
Less: accumulated depreciation and amortization ......... (167.8) (150.7)
--------- ---------
$ 1,538.1 $ 1,360.4
========= =========
The Company continually 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
47
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
of property 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
(Recoveries), Net, 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.
Additionally, during 2000, the Company sold an office building which is
occupied by ANC Rental, resulting in proceeds of approximately $18.7 million
and a pre-tax gain of $2.3 million reflected in Other Income, Net in the
accompanying 2000 Consolidated Income Statement.
Intangible Assets
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net assets acquired, including cost in excess of
the fair value of net assets not identified with specific acquired businesses,
or enterprise-level intangible assets. 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 $195.4 million and $122.5 million at
December 31, 2000 and 1999, 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. The Company measures
impairment losses based upon the amount by which the carrying amount of the
asset exceeds the fair value.
In September 2000, the FASB issued an Exposure Draft entitled "Business
Combinations and Intangible Assets" which was revised in February 2001. The
Exposure Draft, if adopted, would prohibit the pooling method of accounting for
business combination transactions and would require that intangible assets in
excess of the fair value of net assets, goodwill, not be amortized. Goodwill
would be reduced only if found to be impaired or if associated with assets to
be sold or otherwise disposed. The FASB is expected to issue a final statement
in 2001. During 2000, the Company recorded amortization expense of
approximately $73.7 million relating to goodwill. This statement, if issued as
proposed, would preclude future amortization of existing and any future
goodwill on a prospective basis from the date of issuance.
Other Assets
Other assets consist primarily of megastore and other properties held for
sale. As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company recognized an impairment charge in 1999 to
write-down the carrying value of properties held for sale to fair value. Assets
held for sale totaled approximately $138.8 million and $212.0 million at
December 31, 2000 and December 31, 1999, respectively.
48
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Insurance
Under self-insurance programs, the Company retains various levels of
aggregate loss limits, per claim deductibles and claims handling expenses as
part of its various insurance programs, including property and casualty and
employee medical benefits. Costs in excess of this retained risk per claim are
insured under various contracts with third party insurance carriers. The
ultimate costs of these retained insurance risks are estimated by management
and by actuarial evaluation based on historical claims experience, adjusted for
current trends and changes in claims-handling procedures.
Revenue Recognition
Revenue consists of sales of new and used vehicles and related finance and
insurance ("F&I") products, sales from fixed operations (parts, service and
body shop), sales of other products including wholesale units and retail
financing. The Company recognizes revenue in the period in which products are
sold or services are provided. Revenue on finance products represents fees
earned by the Company for notes placed with financial institutions in
connection with customer vehicle purchases financed and is recognized upon
acceptance of credit by the financial institution. Revenue on insurance
products sold on behalf of third party insurance companies in connection with
vehicle sales is recognized upon sale. An estimated allowance for chargebacks
against revenue recognized from sales of F&I products is established during the
period in which the related revenue is recognized. Revenue from retail
financing and certain loan origination costs are recognized over the term of
the contract using the interest method until the Company securitizes its
installment loans.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company's revenue
recognition policy is in accordance with the provisions of SAB 101. Adoption of
the provisions of SAB 101 did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows as of and
for the year ended December 31, 2000.
A summary of the Company's revenue by major products and services for the
years ended December 31 is as follows:
2000 1999 1998
-------------- -------------- -------------
New vehicles ............. $ 12,489.3 $ 11,481.0 $ 6,775.8
Used vehicles ............ 3,860.2 4,429.7 3,185.2
Fixed operations ......... 2,334.9 2,222.0 1,383.2
F&I, net ................. 431.8 423.4 288.6
Other .................... 1,493.4 1,555.7 1,031.8
----------- ----------- ----------
$ 20,609.6 $ 20,111.8 $ 12,664.6
=========== =========== ==========
Derivative Financial Instruments
The Company utilizes interest rate derivatives to manage the impact of
interest rate changes on securitized installment loan receivables. To a limited
extent, the Company has utilized interest rate
49
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 does not use derivative financial instruments for trading purposes.
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 later
terminated, any resulting gain or loss is recognized in earnings upon
termination.
Interest rate swaps are used at times 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, 2000 or 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In
June 2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, 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 instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
If SFAS 133 had to be applied to all derivative contracts in place on
December 31, 2000, including those embedded in other contracts, total assets
and total liabilities would have increased by approximately $14.3 million. The
Company does not expect there to be a material cumulative effect in earnings or
other comprehensive income from adoption of SFAS 133 as of January 1, 2001.
By requiring the use of fair value accounting, adoption of SFAS 133 could
cause increased volatility in earnings of future periods.
50
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Advertising
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. At December 31, 2000, the Company had
approximately $15.0 million of prepaid advertising costs associated with the
sale of the Company's former outdoor media business as discussed in Note 2,
Business Acquisitions and Divestitures. No advertising costs were capitalized
at December 31, 1999. Advertising expense was $186.5 million, $212.2 million
and $158.0 million for the years ended December 31, 2000, 1999 and 1998,
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 Acquisitions and Divestitures, and other non-cash
transactions are excluded from the accompanying Consolidated Statements of Cash
Flows.
The Company made interest payments of approximately $264.3 million, $175.2
million and $190.2 million for the years ended December 31, 2000, 1999 and
1998, respectively, including interest on vehicle inventory financing. The
Company made income tax payments of approximately $49.9 million, $84.2 million
and $139.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
As further discussed in Note 3, Notes Payable and Long-Term Debt, the
Company amended the terms of an existing lease facility and as a result, the
underlying leases have been accounted for as capital leases in 2000, with the
property and related debt included in the accompanying Consolidated Balance
Sheets.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Businesses acquired through December 31, 2000 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition.
During the year ended December 31, 2000, the Company acquired various
automotive retail businesses. The Company paid approximately $190.9 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting. During 2000, the Company also paid approximately $122.4
million in deferred purchase price for certain prior year automotive retail
acquisitions. At December 31, 2000, the Company accrued approximately $24.5
million of deferred purchase price due to former owners of acquired businesses.
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 1999, the Company also paid approximately $34.9
million in deferred purchase price for certain prior year automotive retail
acquisitions.
51
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. BUSINESS ACQUISITIONS AND DIVESTITURES -- (Continued)
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, valued at $473.2 million and paid approximately $804.3 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.
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:
2000 1999 1998
---------- ----------- -------------
Property and equipment ........................................... $ 21.9 $ 145.5 $ 403.5
Intangible and other assets ...................................... 169.0 942.7 1,290.8
Working capital .................................................. 111.5 450.3 744.0
Debt assumed ..................................................... (109.2) (623.8) (1,085.1)
Other liabilities ................................................ (2.3) (35.6) (75.7)
Common stock issued .............................................. -- -- (473.2)
-------- -------- ----------
Cash used in business acquisitions, net of cash acquired ......... $ 190.9 $ 879.1 $ 804.3
======== ======== ==========
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:
2000 1999
-------------- --------------
Revenue .............................................................. $ 21,113.1 $ 22,379.3
Income (loss) from continuing operations ............................. $ 328.8 $ (12.0)
Diluted earnings (loss) per share from continuing operations ......... $ .91 $ (.03)
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.
As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company has been divesting of certain non-core
franchised automotive dealerships. During 2000, the Company received
approximately $89.7 million of cash from the divestiture of franchised
automotive dealerships. Gains and losses on divestitures are included in Asset
Impairment Charges (Recoveries) in the accompanying Consolidated Income
Statements and were not material during 2000. The Company signed a definitive
agreement to sell its Flemington dealer group. The Company expects to complete
the sale in the second quarter of 2001.
52
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. BUSINESS ACQUISITIONS AND DIVESTITURES -- (Continued)
In November 2000, the Company completed the divestiture of its outdoor
media business for a purchase price of approximately $104.0 million. In
connection with the sale, the Company entered into a prepaid $15.0 million
advertising agreement and therefore, received net proceeds of $89.0 million.
The Company recognized a pre-tax gain of $53.5 million on the sale which has
been included in Other Income, Net in the accompanying 2000 Consolidated Income
Statement.
Cash received from the divestiture of franchised automotive dealerships in
1999 and 1998 was $131.3 million and $55.1 million, respectively. Gains and
losses on divestitures, other than those recorded in the Company's 1999
restructuring and impairment charges, were not material in 1999 and 1998.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 is as follows:
2000 1999
------------- --------------
Vehicle inventory credit facilities;
secured by the Company's vehicle inventory;
interest payable at LIBOR based rates;
interest rates of 7.7% and 6.6% at
December 31, 2000 and 1999, respectively ......... $ 2,416.7 $ 2,210.6
$1.5 billion unsecured revolving credit facilities;
interest payable using LIBOR based rates;
interest rates of 7.6% and 6.6% at
December 31, 2000 and 1999, respectively ......... 615.0 669.0
Other debt; secured by real property,
equipment and other assets; interest ranging
from 7.5% to 8.0%; maturing through 2010 ......... 242.2 174.8
---------- -----------
3,273.9 3,054.4
Less: current maturities ......................... (2,423.5) (2,218.3)
---------- -----------
$ 850.4 $ 836.1
========== ===========
As of December 31, 2000, the Company had $615.0 million drawn under two
unsecured revolving credit facilities totaling $1.5 billion. One facility
provides $1.0 billion of financing under a multi-year structure and matures
April 2002. The other facility, a $500.0 million 364-day facility, was amended
prior to its scheduled maturity in March 2001 to provide $250.0 million of
borrowing capacity until the earlier of September 30, 2001 or the early renewal
of the Company's multi-year $1.0 billion facility. 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, 2000 and 1999.
The Company finances vehicle inventory through secured financings,
primarily floorplan facilitities, with manufacturers' captive finance
subsidiaries, as well as independent financial institutions, and, until
recently, a bank-sponsored commercial paper conduit facility that matured
January 19, 2001, and was not renewed. As of December 31, 2000, committed
capacity of the facilities was approximately $3.5 billion.
53
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. NOTES PAYABLE AND LONG-TERM DEBT -- (Continued)
The Company is a lessee under a $500.0 million lease facility that was
established primarily to acquire and develop the Company's former megastore
properties. As originally structured, the facility had been accounted for as an
operating lease and included residual value guarantees. In 1999, certain
properties under the facility were reflected as capital leases. In connection
with the Company's 1999 restructuring activities described in Note 10,
Restructuring and Impairment Charges (Recoveries), Net, the Company accrued an
estimate of the liability under the residual value guarantees totaling
approximately $103.3 million as of December 31, 1999. At December 31, 1999,
$469.7 million was funded under this facility of which $152.5 million was
accounted for as capital leases and the remaining $317.2 million was accounted
for as operating leases. In September 2000, the Company funded its remaining
lease residual value guarantee obligation to the lessor, reduced the facility
size to $210.0 million and amended the terms of the facility by exercising its
option to purchase the leased properties at the end of the lease term. As a
result of the lease amendment, the remaining leases were required to be
accounted for as capital leases with the property and related debt reflected on
the balance sheet. As of December 31, 2000, $175.8 million was outstanding
under this facility and is included in Long-Term Debt in the accompanying 2000
Consolidated Balance Sheet. Of the $175.8 million outstanding, $115.2 million
is associated with operating properties and $60.6 million is attributable to
properties held for sale. The facility matures April 2002. Interest payments
are LIBOR based.
During 2000, the Company entered into a sale-leaseback transaction
involving its corporate headquarters facility that resulted in net proceeds of
approximately $52.1 million. This transaction has been accounted for as a
financing lease, wherein the property remains on the books and continues to be
depreciated. The gain on this transaction will be recognized subsequent to the
ten-year lease term. The Company has the option to renew the lease at the end
of the lease term subject to certain conditions.
At December 31, 2000, aggregate maturities of notes payable and long-term
debt were as follows:
2001 ..................................................... $ 2,423.5
2002 ..................................................... 797.7
2003 ..................................................... 4.3
2004 ..................................................... 3.9
2005 ..................................................... 4.2
Thereafter ............................................... 40.3
----------
$ 3,273.9
==========
4. INCOME TAXES
The Company and its subsidiaries file consolidated federal tax returns.
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.
54
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. INCOME TAXES -- (Continued)
The components of the provision for income taxes from continuing
operations for the years ended December 31 are as follows:
2000 1999 1998
----------- ----------- -----------
Current:
Federal .............................. $ 101.3 $ 108.4 $ 105.5
State ................................ 4.3 22.8 9.1
Federal and state deferred ............ 91.3 (111.2) 26.7
Change in valuation allowance ......... -- (16.0) (14.5)
-------- -------- --------
Provision for income taxes ............ $ 196.9 $ 4.0 $ 126.8
======== ======== ========
A reconciliation of the provision 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:
2000 1999 1998
----------- ---------- -----------
Provision (benefit) for income taxes at statutory rate of 35% ......... $ 183.8 $ (9.6) $ 123.4
Non-deductible expenses ............................................... 5.8 28.6 10.3
State income taxes, net of federal benefit ............................ 10.1 1.0 7.6
Change in valuation allowance ......................................... -- (16.0) (14.5)
Other, net ............................................................ (2.8) -- --
-------- ------- --------
Provision for income taxes ............................................ $ 196.9 $ 4.0 $ 126.8
======== ======= ========
Components of the net deferred income tax liability at December 31 are as
follows:
2000 1999
----------- -----------
Deferred income tax liabilities:
Book basis in property over tax basis ................. $ 360.8 $ 336.1
Expenses deducted for tax, amortized for book ......... 689.3 705.6
Deferred income tax assets:
Net operating losses .................................. (3.6) (4.2)
Accruals not currently deductible ..................... (278.6) (342.0)
Valuation allowance ................................... 109.3 109.3
-------- --------
Net deferred income tax liability ....................... $ 877.2 $ 804.8
======== ========
At December 31, 2000, the Company had available domestic net operating
loss carryforwards primarily related to acquired businesses of approximately
$9.4 million which begin to expire in the year 2011. In assessing the
realizability of deferred 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.
55
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. INCOME TAXES -- (Continued)
Over the past four years, the Company has engaged in certain transactions
that are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. The Company believes that its tax returns appropriately
reflect such transactions. At the present time, it is impossible to predict the
outcome of any challenge if the IRS determines to challenge the tax reporting
of such transactions.
5. OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss), net of
income taxes, are as follows for the years ended December 31:
2000 1999 1998
------------------------------- ------------------------------- -----------------------------
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) ............... $ 6.4 $ -- $ 6.4 $ (1.9) $ -- $ (1.9) $ (1.6) $ -- $ (1.6)
Unrealized gain (loss) on
marketable securities and
interest-only strips ......... (14.2) 5.3 (8.9) 23.1 (8.3) 14.8 .7 (.2) .5
Reclassification of realized
losses (gains) ............... (7.1) 4.0 (3.1) (3.0) 1.0 (2.0) (.4) .1 (.3)
------- ---- ------ ------- ------ ------- ------ ----- ------
Other comprehensive
income (loss) ................ $ (14.9) $ 9.3 $ (5.6) $ 18.2 $ (7.3) $ 10.9 $ (1.3) $ (.1) $ (1.4)
======= ===== ====== ======= ====== ======= ====== ===== ======
- ----------
(1) Foreign currency translation adjustments relate to the Company's former
automotive rental businesses.
Accumulated other comprehensive income (loss) consists of the following at
December 31:
2000 1999
-------- ---------
Foreign currency translation adjustments .............................. $ -- (6.4)
Unrealized gain on marketable securities and interest-only strips ..... 1.0 13.0
---- ----
$ 1.0 $ 6.6
===== ======
6. SHAREHOLDERS' EQUITY
During the year ended December 31, 2000, the Company repurchased 27.6
million shares of its common stock, par value $.01 per share, under its Board
authorized share repurchase program for an aggregate purchase price of $188.9
million. The Company repurchased 91.0 million shares of common stock during
1999 for an aggregate purchase price of $1.16 billion. The Company repurchased
9.1 million shares of common stock during 1998 for an aggregate purchase price
of $136.0 million. Through December 31, 2000, an aggregate of 127.7 million
shares of common stock have been repurchased under the Company's share
repurchase programs, authorized by the Company's Board of Directors in 1998 and
1999, for an aggregate purchase price of $1.48 billion. As of March 26, 2001,
the Company repurchased an additional 10.9 million shares of common stock for
an aggregate purchase price of $87.8 million, leaving
56
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. SHAREHOLDERS' EQUITY -- (Continued)
approximately $179.2 million available for share repurchases under the latest
authorized program. Repurchases are made pursuant to Rule 10b-18 of the
Securities Exchange Act of 1934, as amended.
As discussed in Note 11, Discontinued Operations, the Company completed
the tax-free spin-off of ANC Rental on June 30, 2000. As a result of the
spin-off, the Company's retained earnings were reduced by the net assets of ANC
Rental totaling $894.4 million. The equity adjustment resulting from the
spin-off is subject to further adjustment resulting from changes in estimated
shared assets and liabilities of AutoNation and ANC Rental and certain other
matters. However, such adjustments, if any, are not expected to be significant.
During the year ended December 31, 1998, the Company's former solid waste
subsidiary, Republic Services, completed an initial public offering of
approximately 36.1% of its outstanding common stock, resulting in net proceeds
of approximately $1.43 billion. In 1999, the Company sold substantially all of
its interest in Republic Services in a public offering resulting in proceeds of
approximately $1.78 billion. During 2000, the Company sold substantially all of
the remaining holdings of common stock of Republic Services resulting in
proceeds of approximately $48.2 million. A related pre-tax gain of $24.0
million has been reflected in Other Income, Net, in the accompanying 2000
Consolidated Income Statement.
The Company has five 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 options to purchase
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 on the trading day
immediately prior to 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 re-pricing. Effective June 30, 2000, in conjunction with the
tax-free spin-off of ANC Rental, options to purchase approximately 2.8 million
shares of common stock held by employees of ANC Rental were canceled. In
addition, the Company's Board of Directors, in accordance with the terms of the
stock option plans, authorized the adjustment of employee stock options to
reflect the market effect on AutoNation's common stock resulting from the
spin-off. All other terms of the existing options, including the vesting
schedules, were unchanged.
57
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. STOCK OPTIONS AND WARRANTS -- (Continued)
A summary of stock option and warrant transactions is as follows for the
years ended December 31:
2000 1999 1998
---------------------- ---------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ----------- ---------- ----------- -------- ----------
Options and warrants outstanding at
beginning of period ................... 50.9 $ 15.84 54.6 $ 12.52 48.1 $ 15.67
Granted ................................. 12.5 6.91 17.0 15.80 16.9 21.89
Exercised ............................... (.6) 2.16 (7.8) 3.73 (9.3) 3.62
Canceled ................................ (10.2) 14.14 (12.9) 13.90 (1.1) 25.34
Spin-off adjustment ..................... 4.6 (1.57) -- -- -- --
------ --------- ------ -------- ----- --------
Options and warrants outstanding at end
of period ............................. 57.2 $ 12.74 50.9 $ 15.84 54.6 $ 12.52
====== ========= ====== ======== ===== ========
Options and warrants exercisable at end
of period ............................. 32.7 $ 14.59 15.4 $ 18.58 18.8 $ 11.27
Options available for future grants ..... 25.3 24.1 28.2
The following table summarizes information about outstanding and
exercisable stock options at December 31, 2000:
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
- --------------------------- -------- ------------- ----------- -------- ----------
$1.02-$11.17 .......... 19.4 7.68 $ 8.35 6.7 $ 10.63
$11.51-$14.39 ......... 28.1 6.42 12.60 17.0 12.29
$14.56-$35.88 ......... 9.7 5.61 21.89 9.0 21.84
---- ---- -------- ---- --------
57.2 6.71 $ 12.74 32.7 $ 14.59
==== ==== ======== ==== ========
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 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:
58
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. STOCK OPTIONS AND WARRANTS -- (Continued)
2000 1999 1998
-------------- -------------- --------------
Pro forma net income ......................................... $ 285.4 $ 199.5 $ 368.5
Pro forma diluted earnings per share ......................... $ .79 $ .46 $ .81
Pro forma weighted average fair value of options granted ..... $ 2.96 $ 6.87 $ 13.87
Risk free interest rates ..................................... 5.07-5.15% 6.34-6.38% 4.76-4.82%
Expected dividend yield ...................................... -- -- --
Expected lives ............................................... 5-7 years 5-7 years 5-7 years
Expected volatility .......................................... 40% 40% 40%
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought action against one of the Company's California dealerships for
alleged customer fraud as well as several other claims. The California DMV
seeks to have the dealership's license to do business in California suspended
or revoked. The case is scheduled for trial beginning in April 2001. Three
civil class actions and other related lawsuits have been filed against the
dealership based on the allegations underlying the California DMV case. In
addition, the Los Angeles District Attorney's Office has been conducting an
investigation into the allegations underlying the California DMV case. The
Company intends to vigorously defend itself in these matters.
In an action filed in Florida state court in 1999, a wholly-owned
subsidiary of the Company was accused of violating the Florida Motor Vehicle
Retail Sales Finance Act and the Florida Deceptive and Unfair Trade Practices
Act by allegedly failing to deliver executed copies of retail installment
contracts to customers of the Company's used vehicle megastores. In October
2000, the court certified the class of customers on whose behalf the action
would proceed. The Company has appealed this decision and intends to vigorously
defend itself in this matter.
Several of the Company's Texas dealerships have been named in three class
actions brought against the Texas Automobile Dealer's Association ("TADA") and
new vehicle dealerships in Texas that are members of the TADA. The actions
allege, among other things, that since January 1994 Texas dealers have deceived
customers with respect to a vehicle inventory tax and violated federal
antitrust and other laws as well. These cases are currently pending in Texas
State courts and federal district court. The Company intends to vigorously
defend itself in these matters.
In addition to the above, the Company is a party to numerous other legal
proceedings that arose in the ordinary course of business.
The Company has certain insurance coverage and rights of indemnification.
The Company does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's business, consolidated results
of operations, financial condition or cash flows. However, the results 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 the
Company's business, consolidated results of operations, financial condition
and/or cash flows.
59
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. COMMITMENTS AND CONTINGENCIES -- (Continued)
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 $82.7
million, $86.2 million and $45.0 million for the years ended December 31 2000,
1999 and 1998, respectively.
Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 2000 are as follows:
Year Ending December 31:
2001 .................................................... $ 71.9
2002 .................................................... 63.6
2003 .................................................... 53.9
2004 .................................................... 40.5
2005 .................................................... 32.5
Thereafter .............................................. 158.0
-------
$ 420.4
=======
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. At December 31, 2000, surety
bonds and letters of credit totaled $27.2 million and have various expiration
dates.
In the ordinary course of business, the Company is subject to numerous
laws and regulations, including automotive, environmental, health and safety
and other laws and regulations. The Company does not anticipate that the costs
of such compliance will have a material adverse effect on its business,
consolidated results of operations, cash flows or financial condition although
such outcome is possible given the nature of the Company's operations and the
extensive legal and regulatory framework applicable to its business.
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.
60
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. EARNINGS (LOSS) PER SHARE -- (Continued)
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share is as
follows for the years ended December 31:
2000 1999 1998
---------- ---------- ----------
Weighted average shares outstanding used in calculating basic
earnings per share ........................................ 361.3 429.8 455.1
Effect of dilutive options and warrants ..................... .1 -- 15.8
----- ----- -----
Weighted average common and common equivalent shares used
in calculating diluted earnings per share ................. 361.4 429.8 470.9
===== ===== =====
At December 31, 2000, the Company had employee stock options outstanding
of approximately 57.2 million of which 56.9 million have been excluded from the
computation of diluted earnings per share since they are anti-dilutive. At
December 31, 1999 and 1998, outstanding employee stock options of approximately
50.9 and 4.8 million, respectively, have been excluded since they are
anti-dilutive.
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan was comprised of
the following major components: (1) exiting the used vehicle megastore
business; and (2) reducing the corporate workforce. The restructuring plan also
included divesting of certain non-core franchised dealerships. 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 in 1999,
of which $416.4 million appears as Asset Impairment Charges (Recoveries), Net
in the Company's 1999 Consolidated Income Statements. These pre-tax charges
include $286.9 million of asset impairment charges; $103.3 million of reserves
for residual value guarantees for closed lease properties; $26.2 million of
severance and other exit costs; and $27.3 million of inventory related costs.
The $286.9 million asset impairment charge consists of: $244.9 million of
megastore and other property impairments; $26.6 million of goodwill impairment
reserves for the divestiture of certain non-core franchised automotive
dealerships; and $15.4 million of information systems impairments. Of the
$443.7 million restructuring reserve recorded, $10.8 million of severance was
paid in 1999 and $53.7 million of asset impairments and write-offs were
recorded during the fourth quarter of 1999.
The Company intends to complete the sale of its Flemington dealer group
during the second quarter of 2001 as previously described in Note 2, Business
Acquisitions and Divestitures, resulting in the substantial completion of its
non-core dealership divestiture plan. Closed megastores and other properties
are being disposed of through sales to third parties. Although these properties
are being aggressively marketed, their ultimate disposition will not be
substantially completed until late 2001. Revenue for the operations disposed or
to be disposed was $923.5 million, $2.12 billion and $1.70 billion during 2000,
1999 and 1998 respectively. Operating income for the operations disposed or to
be disposed was $21.8 million, $15.5 million and $12.9 million for the years
ended December 31, 2000, 1999 and 1998 respectively.
61
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET -- (Continued)
The following summarizes activity in the Company's restructuring and
impairment reserves for the year ended December 31, 2000:
Deductions
Balance Amounts Charged --------------------------- Balance
Reserve December 31, 1999 (Credited) to Income Cash Non-cash December 31, 2000
- ----------------------------- ------------------- --------------------- ------------ ------------ ------------------
Asset reserves:
Asset impairment .......... $ 263.3(1) $ (15.0) $ -- $ (86.9) $ 161.4
Inventory ................. 15.0 -- -- (15.0) --
Accrued liabilities:
Property lease residual
value guarantees ......... 103.3 (14.8) (88.5) -- --
Severance and other
exit costs ............... 17.3 9.4 (22.7) (2.8) 1.2
Finance lease residual
value write-down .......... -- 16.6 -- (16.6) --
------------ --------- ------- ------- ---------
$ 398.9 $ (3.8) $(111.2) $(121.3) $ 162.6
============ ========= ======= ======= =========
- ----------
(1) Includes $19.7 million of reserves that had been established on these
properties prior to the 1999 restructuring and impairment charges
recorded.
The following summarizes the components of the $3.8 million amount
credited to income during the year ended December 31, 2000:
Properties Placed Back Net Gain on Additional
into Service or Retained Sold Properties Impairment Charges Other Total
-------------------------- ----------------- -------------------- --------- -----------
Asset reserves:
Asset impairment ........... $ (23.2) $ (3.4) $ 11.6 $ -- $(15.0)
Accrued liabilities:
Property lease residual
value guarantees ......... (13.0) (1.8) -- -- (14.8)
Severance and other
exit costs ............... -- -- -- 9.4 9.4
Finance lease residual
value write-down ........... -- -- -- 16.6 16.6
------- ------ ------ ------ ------
$ (36.2) $ (5.2) $ 11.6 $ 26.0 $ (3.8)
======= ====== ====== ====== ======
During 2000, certain events occurred which caused the Company to
re-evaluate its plans with respect to various retail properties. As a result,
certain megastore properties were placed back in service and the Company
decided to retain certain dealerships that had been held for sale. Accordingly,
based upon the Company's re-evaluation of the fair values of the properties,
the Company determined that the asset impairment and lease residual value
reserves for these properties were no longer necessary and the Company was
required to reverse the related estimated reserves totaling $36.2 million back
into income. An additional impairment charge of $11.6 million was recognized
primarily related to a decision in 2000 to close one additional megastore
property as part of the overall restructuring plan. During 2000, the Company
also recognized an impairment charge totaling $16.6 million associated
62
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET -- (Continued)
with the deterioration in residual values of finance lease receivables. The
Company discontinued writing finance leases in mid-1999 and the majority of the
leases terminate in late 2001.
11. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax-free spin-off of ANC
Rental. Accordingly, the net assets and operating results of ANC Rental have
been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Income from discontinued
operations during the year ended December 31, 2000, is net of previously
estimated losses of $22.1 million which were accrued in 1999 and additional
costs associated with the spin-off totaling $11.3 million recorded in 2000. In
1999, the Company recorded a loss related to ANC Rental of $34.1 million, net
of income taxes, representing the estimated loss from operations through the
expected distribution date and costs associated with the spin-off.
In connection with the spin-off, the Company made certain capital
contributions to ANC Rental prior to the spin-off. These contributions include
cash of approximately $200.0 million and the net assets of an insurance
subsidiary. The Company also entered into various agreements with ANC Rental
which set forth the terms of the distribution and other agreements governing
the Company's relationship with ANC Rental after the spin-off. As a result of
the spin-off, the Company's equity was reduced by the net assets of ANC Rental
totaling $894.4 million.
In connection with the spin-off, the Company agreed to continue to provide
ANC Rental with guarantees and other credit enhancements, currently with
respect to certain indebtedness and certain property and vehicle lease
obligations. The Company receives fees for providing these guarantees
commensurate with market rates. To the extent that ANC Rental is not able to
meet its obligations, the Company would be likely to be called on to perform
under guarantees and credit enhancements provided by the Company, which could
have a material adverse effect on the Company's business, consolidated results
of operations, financial condition and/or cash flows.
In July 1998, the Company's former solid waste services subsidiary,
Republic Services, 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 Republic Services in a public offering resulting in net proceeds of
approximately $1.78 billion and an after tax gain of approximately $377.0
million. Accordingly, operating results of Republic Services for the period
prior to disposition have been classified as discontinued operations in the
accompanying Consolidated Financial Statements.
In October 1997, the Company sold its electronic security division
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.
63
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. DISCONTINUED OPERATIONS -- (Continued)
A summary of the net assets of discontinued operations as of December 31,
1999 for the automotive rental businesses is as follows:
Current assets ................................ $ 5,349.3
Non-current assets ............................ 1,000.2
----------
Total assets ................................. 6,349.5
Current liabilities ........................... 2,235.8
Non-current liabilities ....................... 3,387.1
----------
Total liabilities ............................ 5,622.9
----------
Net assets of discontinued operations ......... $ 726.6
==========
Selected income statement data for the Company's discontinued operations
for the years ended December 31 is as follows:
2000 1999
------------ ----------------------------------------------
Automotive Automotive Solid
Rental Rental Waste Total
------------ ------------------- ------------ -------------
Revenue .................... $ 1,721.2 $ 3,542.3 $ 552.5 $ 4,094.8
========== ============ ========= =========
Pre-tax income ............. (14.8) (88.2)(1) 100.8 12.6
Provision (benefit)
for income taxes ......... (5.8) (18.8) 38.8 20.0
Extraordinary
charge, net of
income taxes ............. -- 1.6 -- 1.6
Minority interest in
RSG ...................... -- -- 21.6 21.6
---------- ------------ --------- ---------
Net income (loss) .......... (9.0) (71.0) 40.4 (30.6)
Previously estimated
and accrued losses 22.1 -- -- --
---------- ------------ --------- ---------
Income (loss) from
discontinued
operations ............... $ 13.1 $ (71.0) $ 40.4 $ (30.6)
========== ============ ========= ==========
1998
--------------------------------------------
Automotive Solid
Rental Waste Total
-------------- -------------- --------------
Revenue .................... $ 3,453.6 $ 1,369.1 $ 4,822.7
=========== =========== ===========
Pre-tax income ............. 170.1 292.5 462.6
Provision (benefit)
for income taxes ......... 61.3 105.3 166.6
Extraordinary
charge, net of
income taxes ............. -- -- --
Minority interest in
RSG ...................... -- 33.9 33.9
----------- ----------- -----------
Net income (loss) .......... 108.8 153.3 262.1
Previously estimated
and accrued losses -- -- --
----------- ----------- -----------
Income (loss) from
discontinued
operations ............... $ 108.8 $ 153.3 $ 262.1
=========== =========== ===========
- ----------
(1) Includes pre-tax restructuring and other charges of $40.5 million in 1999
primarily related to ANC Rental's consolidation of its North American
operations and other restructuring activities.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has 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 $576.3 million contractually maturing through 2006 which effectuate a
variable to fixed rate swap at a weighted average rate of 6.62% at December 31,
2000. Variable rates on the underlying portfolio are indexed to the Commercial
Paper Nonfinancial Rate.
64
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. DERIVATIVE FINANCIAL INSTRUMENTS -- (Continued)
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.
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 14, Fair Value of Financial Instruments, for the fair
value of derivatives.
13. ASSET SECURITIZATIONS
The Company securitizes installment loan receivables through a $1.0
billion commercial paper warehouse facility with unrelated financial
institutions. During 2000, the Company sold unsecured installment loan finance
receivables of $580.1 million under this program, net of retained interests.
The Company continues to service and receive annual servicing fees on the
outstanding balance of securitized receivables. The Company also retains a
subordinated interest in the sold receivables and the rights to future cash
flows arising from the receivables after the investors receive their
contractual return. The Company provides additional credit enhancement in the
form of restricted cash deposits. At December 31, 2000, $576.3 million was
outstanding under this program, net of retained interests. As further discussed
in Note 12, Derivative Financial Instruments, the Company enters into interest
rate protection agreements to manage the interest rate changes on amounts
securitized and on the Company's retained interests.
The Company also securitizes installment loan receivables through the
issuance of asset-backed notes through a non-consolidated special purpose
entity under a $2.0 billion shelf registration statement. Through December 31,
2000, $1.48 billion has been issued and approximately $521.5 million remains to
be issued under this program. The Company uses proceeds from these notes 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 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.
During 2000, approximately $691.7 million in additional asset-backed notes were
issued and at December 31, 2000, $1.0 billion was outstanding under this
program, net of retained interests.
These transactions typically result in the recording of a securitization
asset in the form of an interest-only strip which represents the present value
of the future residual cash flows from securitized receivables. The investors
and the securitization trusts have no recourse to the Company's assets for
failure of
65
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. ASSET SECURITIZATIONS -- (Continued)
debtors to pay when due except to the extent of the Company's rights to future
cash flow and any subordinated interest the Company retains.
In 2000, recognized pre-tax gains on the securitization of installment
loan receivables were not material to the Company's Consolidated Financial
Statements.
A summary of cash flows received from securitization trusts for the year
ended December 31, 2000, were as follows:
Proceeds from securitizations under warehouse facility ........ $ 580.1
Proceeds from securitizations under shelf registration ........ 691.7
Servicing fees received ....................................... 17.4
Other cash flows received on retained interests(1) ............ 70.7
Purchases of assets from warehouse facility ................... (639.6)
--------
$ 720.3
========
- ----------
(1) Other cash flows primarily include cash flows from interest-only strips and
other retained interests, excluding servicing fees.
The key economic assumptions used in measuring the retained interests and
net initial gains or losses at the date of securitization resulting from
securitizations completed during the year ended December 31, 2000 were as
follows:
Description: Assumption(1)
- ------------ --------------
Voluntary prepayment speed (ABS) ........................... 1.33%
Weighted-average life (in years) ........................... 1.72
Expected credit losses (annual rate) ....................... 1.08%
Discount rate on residual cash flows (annual rate) ......... 9.50%
Yield (interest rate on receivables) ....................... 12.05%
Variable rate to investors ................................. 7.39%
- ----------
(1) The weighted-average rates for securitizations entered into during the
period for securitizations of loans with similar characteristics.
At December 31, 2000, the carrying value (current fair value) of the
interest-only strips was $68.5 million, with a weighted-average life of 1.58
years. The sensitivity of the current fair value of the residual cash flows to
10 percent and 20 percent unfavorable changes in assumptions are presented in
the table below. These sensitivities are hypothetical and should not be
considered to be predictive of future performance. The effect of a variation in
a particular assumption on the fair value of the residual cash flow is
calculated independently from any change in another assumption. In reality,
changes in one factor may contribute to changes in another (for example,
increases in market interest rates may result in lower prepayments and
increased credit losses), which might magnify or counteract the sensitivities.
Furthermore, the estimated fair values as disclosed should not be considered
indicative of future earnings on these assets. The current annual rate
assumptions reflect expected performance of the total loans securitized as of
December 31, 2000.
66
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. ASSET SECURITIZATIONS -- (Continued)
$ Effect on Interest-Only Strip of
----------------------------------
Current 10% Change 20% Change
Description: Rate Assumption in Assumption in Assumption
- ------------ ----------------- --------------- ----------------
Voluntary prepayment speed (ABS) ................. 1.16% $ 2.4 $ 4.8
Expected credit losses (annual rate) ............. 1.06% $ 2.2 $ 4.3
Discount rate on residual cash flows
(annual rate) .................................. 9.50% $ 1.0 $ 1.9
Variable rate to investors (annual rate) ......... 7.30% $ 16.6 $ 32.9
As of December 31, 2000, the Company had expected static pool credit
losses of 2.28%, which would have averaged to an annual rate of 1.13%.
The following summarizes information about managed or securitized
installment loans and delinquencies and net credit losses at December 31, 2000:
Total Principal Principal Amount of Loans
Amount of Loans 60 Days or More Past Due
----------------- --------------------------
Loans securitized .......................... $ 1,619.2 $ 7.8
Loans retained on balance sheet ............ 50.3 .4
---------- ------
Total loans managed or securitized ......... $ 1,669.5 $ 8.2
========== ======
Net credit losses are charge-offs less recoveries and are based on total
installment loans managed or securitized. Net credit losses during the year
ended December 31, 2000 totaled $31.5 million.
14. 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:
o Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable rate debt: the amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.
o 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
67
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
used to estimate the fair value at December 31, 2000 and 1999 are as
follows: discount rate -- 9.51% and 9.64%; cumulative loss rate -- 2.39%
and 1.93%; and prepayment rate -- 1.16% and 1.50%.
o 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:
2000 1999
------------------------ ------------------------
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
- ----------------------------------------------- ---------- ----------- ---------- -----------
Installment loans receivable ................. $ 50.3 $ 53.9 $ 83.8 $ 84.8
Retained interests in securitized receivables:
Principal .................................. $ 76.1 $ 76.7 $ 101.4 $ 101.3
Interest-only strips ....................... $ 68.5 $ 68.5 $ 51.8 $ 51.8
Servicing assets ........................... $ 7.5 $ 7.9 $ 8.2 $ 8.2
Interest rate caps ........................... -- $ 2.6 -- $ 18.5
Interest rate floors ......................... -- $ (14.3) -- $ (7.7)
Interest rate swaps .......................... -- -- -- $ .1
15. 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
or distributors 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 or distributors of which the Company holds franchises. At
December 31, 2000 and 1999, the Company had receivables from manufacturers or
distributors of $131.2 million and $134.1 million, respectively.
The Company purchases substantially all of its new vehicles from various
manufacturers or distributors at the prevailing prices to all franchised
dealers. The Company's sales volume could be adversely impacted by the
manufacturers' or distributors' 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
68
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. BUSINESS AND CREDIT CONCENTRATIONS -- (Continued)
their dispersion across many different geographic areas in the United States.
Consequently, at December 31, 2000, the Company does not consider itself to
have any significant non-manufacturer concentrations of credit risk.
16. 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 (Recoveries), Net.
The following is an analysis of certain items in the Consolidated Income
Statements by quarter for 2000 and 1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
Revenue .......................................... 2000 $ 5,230.2 $ 5,339.5 $ 5,338.1 $ 4,701.8
1999 $ 4,562.7 $ 5,069.6 $ 5,459.7 $ 5,019.8
Operating income (loss) .......................... 2000 $ 163.0 $ 203.9 $ 197.3 $ 160.6
1999 $ 120.1 $ 183.1 $ 170.3 $ (363.7)
Income (loss) from continuing operations ......... 2000 $ 64.7 $ 96.6 $ 93.1 $ 73.7
1999 $ 58.4 $ 97.1 $ 92.6 $ (279.6)
Basic earnings (loss) per share from
continuing operations(1) ........................ 2000 $ .18 $ .27 $ .26 $ .21
1999 $ .13 $ .22 $ .22 $ (.71)
Diluted earnings (loss) per share from
continuing operations(1) ........................ 2000 $ .18 $ .27 $ .26 $ .21
1999 $ .13 $ .21 $ .22 $ (.71)
Net income (loss) ................................ 2000 $ 62.3 $ 100.8 $ 93.1 $ 73.7
1999 $ 80.1 $ 501.2 $ 104.7 $ (403.1)
- ----------
(1) Quarterly basic and diluted earnings (loss) per share from continuing
operations may not equal earnings per share for the year as reported in
the Consolidated Income Statements due to the effect of the calculation of
weighted-average common stock equivalents on a quarterly basis.
69
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. QUARTERLY INFORMATION (UNAUDITED) -- (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
----------- -----------
2000
First Quarter ................ $ 9.31 $ 6.13
Second Quarter ............... $ 10.75 $ 7.00
Third Quarter ................ $ 7.31 $ 5.63
Fourth Quarter ............... $ 7.19 $ 4.63
High Low
------- -------
1999
First Quarter ................ $ 16.94 $ 12.13
Second Quarter ............... $ 18.38 $ 11.63
Third Quarter ................ $ 17.88 $ 11.50
Fourth Quarter ............... $ 12.69 $ 7.50
On June 30, 2000, the Company completed the tax-free spin-off to its
stockholders of all of the capital stock of ANC Rental. The spin-off was
completed by issuing to each of the Company's stockholder of record as of June
16, 2000 one share of ANC Rental common stock for each eight shares of
AutoNation common stock held by such stockholder. The stock prices presented
above reflect historical stock prices during fiscal 2000 and 1999 and have not
been restated to reflect the distribution of ANC Rental common stock to the
Company's stockholders.
70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information required by Item 10 (other than the information required
by Item 401 of Regulation S-K with respect to our executive officers, which is
set forth under Part I of this Annual Report on Form 10-K), Item 11, Item 12
and Item 13 of Part III of Form 10-K will be set forth in our Proxy Statement
relating to the 2001 Annual Meeting of Stockholders and is incorporated herein
by reference.
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, 2000 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 15, 2000 and dated December 8,
2000, Item 5, reporting the adoption of AutoNation's amended and restated
by-laws.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has 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
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below 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, 2001
- ------------------------------
H. Wayne Huizenga
/S/ MICHAEL J. JACKSON Chief Executive Officer and Director March 30, 2001
- ------------------------------ (Principal Executive Officer)
Michael J. Jackson
/S/ CRAIG T. MONAGHAN Senior Vice President and March 30, 2001
- ------------------------------ Chief Financial Officer
Craig T. Monaghan (Principal Financial Officer)
/S/ PATRICIA A. MCKAY Senior Vice President-Finance March 30, 2001
- ------------------------------ (Principal Accounting Officer)
Patricia A. McKay
/S/ HARRIS W. HUDSON Vice Chairman and Director March 30, 2001
- ------------------------------
Harris W. Hudson
/S/ ROBERT J. BROWN Director March 30, 2001
- ------------------------------
Robert J. Brown
/S/ J. P. BRYAN Director March 30, 2001
- ------------------------------
J. P. Bryan
/S/ RICK L. BURDICK Director March 30, 2001
- ------------------------------
Rick L. Burdick
/S/ MICHAEL G. DEGROOTE Director March 30, 2001
- ------------------------------
Michael G. DeGroote
72
Signature Title Date
- -------------------------------------------------------- ---------- ---------------
/S/ GEORGE D. JOHNSON, JR. Director March 30, 2001
- ------------------------------
George D. Johnson, Jr.
/S/ JOHN J. MELK Director March 30, 2001
- ------------------------------
John J. Melk
/S/ IRENE B. ROSENFELD Director March 30, 2001
- ------------------------------
Irene B. Rosenfeld
73
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:
2000 ................... $ 42.5 $ 8.4 $ (14.7) (2) $ (1.1) $ 35.1
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
Restructuring reserves(3):
2000 ................... $ 120.6 $ (5.4) $ (111.2) (5) $ (2.8) $ 1.2
1999 ................... $ 24.1 $ 416.4 $ (12.4) (5) $ (307.5) (4) $ 120.6
1998 ................... $ 46.0 $ --(6) $ (15.5) (5) $ (6.4) (4) $ 24.1
- ----------
(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 the relocation of certain operations by approximately $21.0
million.
74
EXHIBIT INDEX
Exhibits Description of Exhibits
- ---------- ------------------------------------------------------------------------------------------
2.1 Separation and Distribution Agreement dated June 30, 2000, between AutoNation, Inc. and
ANC Rental Corporation (incorporated by reference to Exhibit 2.1 to AutoNation's
Current Report on Form 8-K dated June 30, 2000).
2.2 Separation and Distribution Agreement dated June 30, 1998, between Republic Industries, Inc.
(now known as AutoNation, Inc.) and Republic Services, Inc. (incorporated by reference to
Exhibit 10.1 of AutoNation's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
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 Amended and Restated Bylaws of AutoNation, Inc. (incorporated by reference to Exhibit
3.2 to AutoNation's Current Report on Form 8-K dated December 8, 2000).
4.1* Amended and Restated Credit Facilities and Reimbursement Agreement dated as of
March 12, 1999, by and among Republic Industries, Inc. (now known as AutoNation,
Inc.), and Republic Resources Company, as Borrowers, NationsBank, N.A. as Adminis-
trative Agent, Various Co-Agents Listed Therein and Various Lenders Listed Therein, and
Amendment Agreement No. 1 thereto dated October 22, 1999.
10.1 AutoNation, Inc. 1991 Stock Option Plan, as amended to date (incorporated by reference
to Exhibit 10.1 to AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000).
10.2 AutoNation, Inc. 1995 Amended and Restated Employee Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 10.2 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.3 AutoNation Enterprises Incorporated Amended and Restated 1995 Employee Stock Option
Plan, as amended to date (incorporated by reference to Exhibit 10.3 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
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, as amended
to date (incorporated by reference to Exhibit 10.4 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.6 AutoNation, Inc. Amended and Restated 1998 Employee Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 10.5 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.7* AutoNation, Inc. 1999 Senior Executive Bonus Plan.
10.8 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).
10.9 Employment Agreement dated August 1, 2000, between AutoNation, Inc. and Michael E.
Maroone, President and Chief Operating Officer (incorporated by reference to Exhibit 10.1
to AutoNation's Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
10.10 Letter Agreement dated March 26, 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).
10.11 Letter Agreement dated April 18, 2000 between AutoNation, Inc. and Craig T. Monaghan,
Chief Financial Officer (incorporated by reference to Exhibit 10.6 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
10.12 Tax Sharing Agreement dated June 30, 2000 between AutoNation, Inc. and ANC Rental
Corporation (incorporated by reference to Exhibit 10.1 to AutoNation's Current Report on
Form 8-K dated June 30, 2000).
75
Exhibits Description of Exhibits
- ------------ -----------------------------------------------------------------------------------------
10.13 Benefits Agreement dated June 30, 2000 between AutoNation, Inc. and ANC Rental
Corporation (incorporated by reference to Exhibit 10.2 to AutoNation's Current Report on
Form 8-K dated June 30, 2000).
10.14 Reimbursement Agreement dated June 30, 2000 between AutoNation, Inc. and ANC
Rental Corporation (incorporated by reference to Exhibit 10.3 to AutoNation's Current
Report on Form 8-K dated June 30, 2000).
10.15 Tax Indemnification and Allocation Agreement dated June 30, 1998, between Republic Industries,
Inc. (now known as AutoNation, Inc.) and Republic Services, Inc. (incorporated by reference to
Exhibit 10.4 of Republic Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
21.1* Subsidiaries of AutoNation, Inc.
23.1* Consent of Arthur Andersen LLP.
- ----------
* Filed herewith
76