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PART II
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
======== ====== ======== ====== ======== ======
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:
- 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."
- 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."
- 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."
- 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."
- 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
$1.57 billion through March 26, 2001. See further discussion
under the heading "Financial Condition."
Unless otherwise stated, the following discussions
will focus on the results of continuing operations, which consists
of our automotive retail business.
Same Store Operating Data:
Our historical operating results include the
results of acquired businesses from the date of acquisition for
acquisitions accounted for under the purchase method of accounting.
Due to our expansion through acquisitions as well as the impact
of divestitures, year over year comparisons of our reported operating
results do not necessarily provide a meaningful representation of
our internal performance. Accordingly, we have presented below our
operating results for the years ended December 31, 2000 and 1999
on a same store basis to better reflect our internal performance.
The following table sets forth: (1) the components
of same store revenue, with component percentages of total revenue;
(2) the components of same store gross margin, with gross margin
percentages of applicable same store revenue; (3) same store selling,
general and administrative expenses; (4) same store performance;
and (5) retail vehicle same store unit sales for the years ended
December 31 ($ 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 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 $800.4 million for the year
ended December 31, 1999. Same store performance margins as a percentage
of same store total revenue were 5.0% for the year ended December
31, 2000 versus 4.7% for the year ended December 31, 1999. The increases
in same store performance margins in aggregate dollars and as percentages
of same store revenue are primarily due to decreases in S,G&A,
coupled with gross margin expansion in used vehicles and fixed operations.
Reported Operating Data:
The following table sets forth the components
of our operating results including revenue percentages of total
revenue, the components of gross margin and retail vehicle unit
sales on a reported basis for the years ended December 31 ($ 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 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 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.
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.
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.
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 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.
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.
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 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.
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 ...................
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 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, 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.
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Form
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