<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ___________
COMMISSION FILE NUMBER: 1-13107
AUTONATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 73-1105145
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
110 S.E. 6TH STREET
FT. LAUDERDALE, FLORIDA 33301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 769-6000
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
On November 4, 1999 the registrant had 402,895,436 outstanding shares
of common stock, par value $.01 per share.
<PAGE> 2
AUTONATION, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as
of September 30, 1999 and December 31, 1998............................................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1999
and 1998.................................................................................. 4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Nine Months Ended September 30, 1999....................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998..................................... 6
Notes to Unaudited Condensed Consolidated Financial Statements............................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................. 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 25
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES........................................................................ 26
ITEM 5. OTHER INFORMATION............................................................................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 26
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 398.9 $ 183.8
Receivables, net............................................................ 1,263.1 966.4
Inventory................................................................... 2,221.0 1,849.5
Other current assets........................................................ 98.5 61.5
-------------- --------------
Total Current Assets.................................................. 3,981.5 3,061.2
INVESTMENTS.................................................................... 185.4 167.7
PROPERTY AND EQUIPMENT, NET.................................................... 1,694.7 1,521.5
INTANGIBLE AND OTHER ASSETS, NET............................................... 2,842.3 2,092.9
NET ASSETS OF DISCONTINUED OPERATIONS.......................................... 800.7 1,568.9
-------------- --------------
$ 9,504.6 $ 8,412.2
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................ $ 162.2 $ 117.6
Accrued liabilities......................................................... 672.4 428.5
Notes payable and current maturities of
long-term debt............................................................ 1,743.3 1,344.8
Other current liabilities................................................... 157.9 106.4
-------------- --------------
Total Current Liabilities............................................. 2,735.8 1,997.3
LONG-TERM DEBT, NET OF CURRENT MATURITIES...................................... 362.5 520.9
DEFERRED INCOME TAXES.......................................................... 913.5 323.0
OTHER LIABILITIES.............................................................. 206.1 146.8
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; none issued -- --
Common stock, par value $.01 per share;
1,500,000,000 shares authorized;
474,902,392 and 467,240,307 shares
issued including shares held in
treasury, respectively................................................... 4.7 4.7
Additional paid-in capital.................................................. 4,661.3 4,628.9
Retained earnings........................................................... 1,616.9 930.9
Accumulated other comprehensive income (loss)............................... (3.3) (4.3)
Treasury stock, at cost; 69,152,226 and
9,110,400 shares held, respectively...................................... (992.9) (136.0)
-------------- --------------
Total Shareholders' Equity................................... 5,286.7 5,424.2
-------------- --------------
$ 9,504.6 $ 8,412.2
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE............................ $ 5,459.7 $ 3,508.0 $ 15,092.0 $ 9,024.0
COST OF OPERATIONS................. 4,709.7 3,003.2 13,025.0 7,770.3
------------ ------------ ------------- ------------
GROSS MARGIN....................... 750.0 504.8 2,067.0 1,253.7
SELLING,GENERAL AND
ADMINISTRATIVE EXPENSES.......... 608.6 385.1 1,677.8 993.2
------------ ------------ ------------- ------------
OPERATING INCOME................... 141.4 119.7 389.2 260.5
INTEREST INCOME.................... 6.9 4.2 15.6 6.3
INTEREST EXPENSE................... (5.3) (1.0) (21.9) (11.7)
OTHER INCOME (EXPENSE), NET........ 1.7 4.1 4.8 (.2)
------------ ------------ ------------- ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.............. 144.7 127.0 387.7 254.9
PROVISION FOR INCOME TAXES......... 52.1 45.7 139.6 91.7
------------ ------------ ------------- ------------
INCOME FROM CONTINUING
OPERATIONS...................... 92.6 81.3 248.1 163.2
------------ ------------ ------------- ------------
DISCONTINUED OPERATIONS:
Income from discontinued
operations, net of income
taxes.......................... 18.5 98.4 65.0 221.0
Gain (loss) on disposal of
segments, net of (provision)
benefit for income taxes of
$3.6 and $(531.9).............. (6.4) -- 372.9 --
------------ ------------ ------------- ------------
12.1 98.4 437.9 221.0
------------ ------------ ------------- ------------
NET INCOME......................... $ 104.7 $ 179.7 $ 686.0 $ 384.2
============ ============ ============= ============
BASIC EARNINGS PER SHARE:
Continuing operations............ $ .22 $ .18 $ .56 $ .36
Discontinued operations.......... .03 .21 .99 .49
------------ ------------ ------------- ------------
Net income....................... $ .25 $ .39 $ 1.55 $ .85
============ ============ ============= ============
DILUTED EARNINGS PER SHARE:
Continuing operations............ $ .22 $ .17 $ .55 $ .35
Discontinued operations.......... .02 .21 .98 .47
------------ ------------ ------------- ------------
Net income....................... $ .24 $ .38 $ 1.53 $ .82
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK
------ ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998............ $ 4.7 $ 4,628.9 $ 930.9 $ (4.3) $ (136.0)
Purchases of treasury stock.......... -- -- -- -- (864.0)
Issuance of treasury stock
for employee benefit
plan.............................. -- .2 -- -- 7.1
Exercise of stock options
and warrants...................... -- 28.6 -- -- --
Other comprehensive income........... -- -- -- 1.0 --
Other................................ -- 3.6 -- -- --
Net income........................... -- -- 686.0 -- --
------ ---------- ---------- ------ --------
BALANCE AT SEPTEMBER 30, 1999........... $ 4.7 $ 4,661.3 $ 1,616.9 $ (3.3) $ (992.9)
====== ========== ========== ====== ========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................................................... $ 686.0 $ 384.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................. 87.9 55.5
Income from discontinued operations....................................... (65.0) (221.0)
Gain on disposal of segments.............................................. (372.9) --
Changes in assets and liabilities, net of effects from business
combinations:
Receivables......................................................... (199.0) (222.0)
Inventory........................................................... 68.0 271.1
Other assets........................................................ 10.9 6.1
Accounts payable and accrued liabilities............................ 30.2 (73.5)
Other liabilities................................................... 75.4 (9.3)
-------- --------
321.5 191.1
-------- --------
CASH PROVIDED BY INVESTING ACTIVITIES:
Purchases of property and equipment.......................................... (168.5) (224.6)
Purchases of marketable securities........................................... (74.2) (111.8)
Sales of marketable securities............................................... 87.4 35.1
Cash used in business acquisitions, net of
cash acquired............................................................. (717.8) (593.2)
Proceeds from sale of common stock of
subsidiary................................................................ 1,779.6 1,433.6
Other........................................................................ 168.0 (.3)
-------- --------
1,074.5 538.8
-------- --------
CASH USED IN FINANCING ACTIVITIES:
Net payments under vehicle inventory
financing facilities....................................................... (5.9) (133.2)
Net payments under revolving credit
facilities................................................................. (178.0) (250.0)
Purchases of treasury stock.................................................. (859.5) (24.3)
Payments of notes payable and long-term debt................................. (108.4) (232.5)
Other........................................................................ 28.6 31.7
-------- --------
(1,123.2) (608.3)
-------- --------
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS.............................. (576.2) 74.3
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (303.4) 195.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $590.1 AND
$44.9, RESPECTIVELY.......................................................... 773.9 129.2
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $71.6 AND
$45.3, RESPECTIVELY.......................................................... $ 470.5 $ 325.1
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
include the accounts of AutoNation, Inc. and its subsidiaries (the "Company")
and have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. All significant intercompany accounts
and transactions have been eliminated. Certain information related to the
Company's organization, significant accounting policies and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These unaudited
condensed consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and the results of
operations for the periods presented and the disclosures herein are adequate to
make the information presented not misleading.
Operating results for interim periods are not necessarily indicative of
the results that can be expected for a full year. These interim financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto.
In August 1999, the Company announced its intention to separate the
Company's automotive rental subsidiary, now incorporated as ANC Rental
Corporation ("ANC") from the Company. In September 1999, the Company announced
its intention to distribute its entire interest in ANC to the Company's
stockholders on a tax-free basis in January 2000, subject to certain conditions
and consents. The Company has obtained a private letter ruling from the Internal
Revenue Service that the distribution of ANC will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended. As discussed in Note 15, Discontinued
Operations, the Company's automotive rental segment has been accounted for as
discontinued operations and, accordingly, the net assets and results of
operations have been classified as discontinued operations for all periods
presented in the accompanying unaudited condensed consolidated financial
statements.
In May 1999, the Company sold substantially all of its remaining
interest in its former solid waste subsidiary, Republic Services, Inc. ("RSG")
in a public offering resulting in proceeds of approximately $1.78 billion, net
of underwriting fees. The sale of RSG resulted in an after tax gain of
approximately $379.3 million. As discussed in Note 15, Discontinued Operations,
the Company's solid waste services segment has been accounted for as
discontinued operations and, accordingly, the gain on disposition, results of
operations and net assets at December 31, 1998 have been classified as
discontinued operations in the accompanying unaudited condensed consolidated
financial statements.
2. BUSINESS COMBINATIONS
Businesses acquired through September 30, 1999 and accounted for under
the purchase method of accounting are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
During the nine months ended September 30, 1999, the Company acquired
various businesses in the automotive retail industry which have been accounted
for under the purchase method of accounting. The Company paid approximately
$869.5 million of cash for these acquisitions, $151.7 million of which was paid
after period end and is included in accrued liabilities in the accompanying
unaudited condensed consolidated balance sheet at September 30, 1999.
7
<PAGE> 8
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following summarizes the preliminary purchase price allocations for
business combinations accounted for under the purchase method of accounting
consummated during the nine months ended September 30 related to continuing
operations:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Property and equipment........................................... $ 141.8 $ 337.0
Intangible and other assets...................................... 898.8 1,063.0
Working capital.................................................. 299.5 604.1
Debt assumed..................................................... (587.6) (897.1)
Other liabilities................................................ (34.7) (40.6)
Common stock issued.............................................. -- (473.2)
------- --------
Cash used in acquisitions, net of cash acquired.................. $ 717.8 $ 593.2
======= ========
</TABLE>
The Company's unaudited pro forma consolidated results of continuing
operations assuming acquisitions accounted for under the purchase method of
accounting had occurred as of the beginning of each period presented are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
--------- --------
<S> <C> <C>
Revenue....................................................... $16,413.6 $14,693.8
Income from continuing operations............................. 266.2 226.3
Diluted earnings per share from continuing
operations.................................................. .59 .48
</TABLE>
The unaudited pro forma consolidated results of continuing operations
are presented for informational purposes only and may not necessarily reflect
the future results of operations of the Company or what the results of
operations would have been had the Company owned and operated these businesses
as of the beginning of each period presented.
3. RECEIVABLES
The components of receivables, net of allowance for doubtful accounts
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -----------
<S> <C> <C>
Trade receivables............................................................... $ 602.7 $ 501.7
Finance receivables............................................................. 504.9 352.0
Manufacturer receivables........................................................ 134.6 86.1
Other........................................................................... 59.5 60.4
-------- --------
1,301.7 1,000.2
Less: allowance for doubtful accounts........................................... (38.6) (33.8)
-------- --------
$1,263.1 $ 966.4
======== ========
</TABLE>
8
<PAGE> 9
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Finance receivables are generated by the Company's finance subsidiary
and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Finance leases............................................... $206.3 $170.9
Installment loans............................................ 122.2 95.6
Retained interests in securitized
installment loans.......................................... 176.4 85.5
------ ------
$504.9 $352.0
====== ======
</TABLE>
The Company securitizes installment loan receivables through a $1.7
billion commercial paper warehouse facility with certain financial institutions,
as amended. During the nine months ended September 30, 1999, the Company
securitized approximately $1.21 billion of receivables under this program net of
retained interests. At September 30, 1999, $1.53 billion was outstanding under
this program.
In October 1999, a non-consolidated special purpose entity formed by
the Company issued $786.8 million of asset-backed notes under a $2.0 billion
shelf registration statement. Proceeds from these notes were used to refinance
installment loans previously securitized under the warehouse facility and to
securitize additional loans held by the Company. The Company provides credit
enhancement related to these notes in the form of 1% overcollateralization, a
reserve fund and a third party surety bond. Following this transaction, the
Company had approximately $880.6 million of capacity under its $1.7 billion
commercial paper warehouse facility.
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
New vehicles.................................................................... $1,549.2 $1,274.3
Used vehicles................................................................... 522.0 457.3
Parts, accessories and other.................................................... 149.8 117.9
-------- --------
$2,221.0 $1,849.5
======== ========
</TABLE>
5. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Marketable securities................................... $ 115.9 $ 96.8
Equity method investments............................... 69.5 70.9
-------- --------
$ 185.4 $ 167.7
======== ========
</TABLE>
Marketable securities at September 30, 1999 includes approximately 3.2
million shares of RSG common stock with an aggregate fair value of approximately
$33.9 million. These shares are classified as available for sale marketable
securities and carried at fair value with unrealized gains and losses included
in other comprehensive income.
9
<PAGE> 10
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Land........................................................... $ 587.8 $ 558.5
Buildings and improvements..................................... 877.5 751.2
Furniture, fixtures and equipment.............................. 383.0 319.0
-------- --------
1,848.3 1,628.7
Less: accumulated depreciation and amortization................ (153.6) (107.2)
-------- --------
$1,694.7 $1,521.5
======== ========
</TABLE>
7. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired. The cost in
excess of the fair value of net assets acquired is amortized over 40 years on a
straight-line basis. Accumulated amortization of intangible assets at September
30, 1999 and December 31, 1998 was $104.1 million and $59.7 million,
respectively.
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Vehicle inventory credit facilities; secured
by the Company's vehicle inventory.......................... $1,720.4 $1,339.2
Revolving credit facilities; interest payable
using LIBOR based rates; unsecured;
maturities through 2002..................................... 322.0 500.0
Other notes..................................................... 63.4 26.5
-------- --------
2,105.8 1,865.7
Less: current portion.......................................... (1,743.3) (1,344.8)
-------- --------
$ 362.5 $ 520.9
======== ========
</TABLE>
9. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 1999, the Company
repurchased 60.5 million shares of the Company's common stock, par value $.01
per share ("Common Stock") for an aggregate purchase price of $864.0 million
under its $1.0 billion Board authorized share repurchase program. Through
September 30, 1999, an aggregate of 69.6 million shares of Common Stock have
been acquired under this program for an aggregate purchase price of $1.0
billion. In October 1999, the Board of Directors authorized the repurchase of an
additional $250.0 million of Common Stock. Repurchases are made either pursuant
to Rule 10b-18 of the Securities Exchange Act of 1934, as amended, or in
privately negotiated transactions.
10
<PAGE> 11
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income........................................... $ 104.7 $ 179.7 $ 686.0 $ 384.2
------- ------- ------- -------
Other comprehensive income (loss):
Unrealized gain (loss) on
marketable securities,
net of income taxes............................ (26.9) .5 9.0 .5
Unrealized gain (loss) on
interest-only strip
receivables, net of income
taxes.......................................... (3.5) .4 (1.2) .4
Reclassification of realized
gains, net of income taxes..................... (.9) -- (2.4) --
Foreign currency translation
adjustments, net of income
taxes.......................................... (3.3) 3.9 (4.4) 4.4
------- ------- ------- -------
(34.6) 4.8 1.0 5.3
------- ------- ------- -------
Comprehensive income................................. $ 70.1 $ 184.5 $ 687.0 $ 389.5
======= ======= ======= =======
</TABLE>
11. INCOME TAXES
Income taxes have been provided for based upon the Company's
anticipated annual effective income tax rate.
12. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock are granted to employees and directors of the Company. Options granted
under the plans are non-qualified and are granted at a price equal to the fair
market value of the Common Stock at the date of grant. Generally, options
granted have a term of ten years from the date of grant, and vest in increments
of 25% per year over a four year period on the yearly anniversary of the grant
date.
A summary of stock option and warrant transactions for the nine months
ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE
OPTIONS WARRANTS TOTAL PRICE
------- -------- ----- ---------------
<S> <C> <C> <C> <C>
Options and warrants outstanding
at beginning of year............................... 47.3 7.3 54.6 $ 12.52
Granted.............................................. 17.0 -- 17.0 15.80
Exercised............................................ (.4) (7.3) (7.7) 3.73
Canceled............................................. (10.2) -- (10.2) 13.50
------ ---- ------
Options outstanding at
September 30, 1999................................. 53.7 -- 53.7 16.09
====== ==== ======
Options exercisable at
September 30, 1999................................. 15.1 18.54
Options available for future
grants at September 30, 1999....................... 21.4
</TABLE>
11
<PAGE> 12
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. LEGAL MATTERS
The Company is a party to various legal proceedings which have arisen
in the ordinary course of business. While the results of these matters cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the quarterly periods in
which they are resolved.
14. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings 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.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
----- ----- ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used in calculating
basic earnings per share............................. 424.4 462.8 441.5 452.6
Effect of dilutive options and
warrants............................................. 5.3 12.8 7.6 16.7
----- ----- ------ ------
Weighted average common and common
equivalent shares used in
calculating diluted earnings per
share .............................................. 429.7 475.6 449.1 469.3
===== ===== ====== ======
</TABLE>
At September 30, 1999 and 1998, the Company had approximately 25.9
million and 18.6 million stock options outstanding, respectively, which have
been excluded from the computation of diluted earnings per share since they are
anti-dilutive.
15. DISCONTINUED OPERATIONS
As a result of the Company's decision in August 1999 to separate the
Company's automotive rental business, the net assets and results of operations
for the automotive rental segment have been classified as discontinued
operations for all periods presented in the accompanying unaudited condensed
consolidated financial statements. Through September 30, 1999, the Company
incurred costs totaling approximately $6.4 million, net of income taxes,
primarily related to the separation of the rental division. These costs are
included in the gain (loss) on disposal of segment in the accompanying unaudited
condensed consolidated statements of operations.
12
<PAGE> 13
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In May 1999, the Company sold substantially all of its remaining
interest in RSG in a public offering resulting in an after tax gain of
approximately $379.3 million. Accordingly, the gain on disposition, operating
results and net assets at December 31, 1998 of the Company's former solid waste
services segment have been classified as discontinued operations in the
accompanying unaudited condensed consolidated financial statements. The minority
shareholders' interest in the net earnings of RSG and the equity of RSG as of
December 31, 1998 have been included as a reduction of income and net assets
from discontinued operations, respectively.
A summary of the net assets of discontinued operations is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
------------- ---------- --------- --------
<S> <C> <C> <C> <C>
Current assets.............................. $5,994.7 $5,345.1 $ 784.0 $6,129.1
Non-current assets.......................... 1,025.7 907.5 2,028.1 2,935.6
-------- -------- -------- --------
Total assets.............................. 7,020.4 6,252.6 2,812.1 9,064.7
-------- -------- -------- --------
Current liabilities......................... 2,773.6 3,438.6 783.8 4,222.4
Non-current liabilities..................... 3,446.1 2,075.3 729.2 2,804.5
-------- -------- -------- --------
Total liabilities......................... 6,219.7 5,513.9 1,513.0 7,026.9
-------- -------- -------- --------
Minority interest in RSG.................... -- -- 468.9 468.9
--------- -------- -------- --------
Net assets of discontinued
operations................................ $ 800.7 $ 738.7 $ 830.2 $1,568.9
======== ======== ======== ========
</TABLE>
Selected statement of operations data for the Company's discontinued
operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998
---------- --------------------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
---------- ---------- ------ --------
<S> <C> <C> <C> <C>
Revenue.................................... $1,023.3 $1,005.6 $355.0 $1,360.6
Operating income........................... 30.5 105.8 79.0 184.8
Provision for income taxes................. 10.4 36.9 27.8 64.7
Minority interest in RSG................... -- -- 16.7 16.7
Income from discontinued
operations............................... 18.5 65.6 32.8 98.4
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
AUTOMOTIVE SOLID AUTOMOTIVE SOLID
RENTAL WASTE TOTAL RENTAL WASTE TOTAL
---------- ------ ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................. $2,707.1 $552.5 $3,259.6 $2,646.1 $991.7 $3,637.8
Operating income........................ 47.0 113.5 160.5 162.6 216.2 378.8
Provision for income taxes.............. 13.8 38.8 52.6 56.6 77.2 133.8
Minority interest in RSG................ -- 21.6 21.6 -- 16.7 16.7
Income from discontinued
operations............................ 24.6 40.4 65.0 100.5 120.5 221.0
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
under Item 1. In addition, reference should be made to the Company's audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations.
In August 1999, the Company announced its intention to separate the
Company's automotive rental subsidiary, now incorporated as ANC Rental
Corporation ("ANC") from the Company. In September 1999, the Company announced
its intention to distribute its entire interest in ANC to the Company's
stockholders on a tax-free basis in January 2000, subject to certain conditions
and consents. The Company has obtained a private letter ruling from the Internal
Revenue Service that the distribution of ANC will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended. As discussed in Note 15, Discontinued
Operations, of notes to unaudited condensed consolidated financial statements,
the Company's automotive rental segment has been accounted for as discontinued
operations and, accordingly, the net assets and operating results have been
classified as discontinued operations for all periods presented in the
accompanying unaudited condensed consolidated financial statements. Through
September 30, 1999, the Company incurred costs totaling approximately $6.4
million, net of income taxes, primarily related to the separation of the rental
division. These costs are included in the gain (loss) on disposal of segment in
the accompanying unaudited condensed consolidated statements of operations. The
Company expects to incur additional costs related to the separation through the
January 2000 distribution date.
In May 1999, the Company sold substantially all of its remaining
interest in its former solid waste subsidiary, Republic Services, Inc. ("RSG")
in a public offering resulting in proceeds of approximately $1.78 billion, net
of underwriting fees. The sale of RSG resulted in an after tax gain of
approximately $379.3 million. As discussed in Note 15, Discontinued Operations,
of notes to unaudited condensed consolidated financial statements, the Company's
solid waste services segment has been accounted for as discontinued operations
and, accordingly, the gain on disposition, results of operations and net assets
at December 31, 1998 have been classified as discontinued operations in the
accompanying unaudited condensed consolidated financial statements.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses
based on financial and strategic considerations.
Businesses acquired through September 30, 1999 and accounted for under
the purchase method of accounting are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
During the nine months ended September 30, 1999, the Company acquired
various businesses in the automotive retail industry which have been accounted
for under the purchase method of accounting. The Company paid approximately
$869.5 million of cash for these acquisitions, $151.7 million of which was paid
after period end and is included in accrued liabilities at September 30, 1999.
14
<PAGE> 15
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of the Company's consolidated results of
operations both in gross dollars and on a diluted per share basis for the
periods indicated (in millions, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ------------------------------------
1999 1998 1999 1998
----------------- ----------------- ------------------ --------------
Diluted Diluted Diluted Diluted
Per Per Per Per
Gross Share Gross Share Gross Share Gross Share
------- ------- ------ -------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations....................... $ 92.6 $ .22 $ 81.3 $.17 $248.1 $ .55 $163.2 $.35
------ ----- ------ ---- ------ ----- ------ ----
Income from discontinued
operations:
Automotive rental.............. 18.5 .04 65.6 .14 24.6 .06 100.5 .21
Solid waste services........... -- -- 32.8 .07 40.4 .09 120.5 .26
Gain (loss) on
disposal of segment.......... (6.4) (.02) -- -- 372.9 .83 -- --
------ ----- ------ ---- ------ ----- ------ ----
12.1 .02 98.4 .21 437.9 .98 221.0 .47
------ ----- ------ ---- ------ ----- ------ ----
Net income......................... $104.7 $ .24 $179.7 $.38 $686.0 $1.53 $384.2 $.82
====== ===== ====== ==== ====== ===== ====== ====
</TABLE>
CONTINUING OPERATIONS
REPORTED OPERATING DATA:
The following table sets forth the components of revenue, with
percentages of total revenue, and gross margin, store level selling, general and
administrative expenses ("S, G & A"), store performance margin, corporate and
district overhead and operating income, with percentages of total revenue, on a
reported basis for the periods indicated (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- --------------------------------------
1999 % 1998 % 1999 % 1998 %
--------- ------ --------- ----- --------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle....................... $3,207.6 58.7 $1,904.4 54.3 $ 8,662.8 57.4 $4,818.9 53.4
Used vehicle...................... 1,220.5 22.4 907.3 25.9 3,578.7 23.7 2,473.0 27.4
Fixed operations.................. 583.9 10.7 393.0 11.2 1,642.2 10.9 962.0 10.7
Other............................. 447.7 8.2 303.3 8.6 1,208.3 8.0 770.1 8.5
-------- ----- -------- ----- --------- ----- -------- -----
$5,459.7 100.0 $3,508.0 100.0 $15,092.0 100.0 $9,024.0 100.0
======== ===== ======== ===== ========= ===== ======== =====
Gross Margin........................ $ 750.0 13.7 $ 504.8 14.4 $ 2,067.0 13.7 $1,253.7 13.9
Store S, G & A...................... 551.6 10.1 361.6 10.3 1,537.2 10.2 924.5 10.2
Store Performance Margin............ 198.4 3.6 143.2 4.1 529.8 3.5 329.1 3.7
Overhead............................ 57.0 1.0 23.5 .7 140.6 .9 68.7 .8
Operating Income.................... 141.4 2.6 119.7 3.4 389.2 2.6 260.5 2.9
</TABLE>
Revenue was $5.46 billion for the three months ended September 30, 1999
versus $3.51 billion for the comparable 1998 period, an increase of 55.6%.
Revenue was $15.09 billion for the nine months ended September 30, 1999 versus
$9.02 billion for the comparable 1998 period, an increase of 67.2%. The
increases are primarily attributed to acquisitions.
Gross margins were $750.0 million and $2.07 billion for the three and
nine months ended September 30, 1999 versus $504.8 million and $1.25 billion for
the comparable 1998 periods. The increases in aggregate dollars are primarily
due to acquisitions. Gross margins as a percentage of revenue were 13.7% for
both the three and nine months ended September 30, 1999 versus 14.4% and 13.9%
for the comparable 1998 periods. The decreases in gross margins as percentages
of revenue are primarily due to a shift in mix as a result of stronger new
vehicle sales compared to used vehicle sales.
15
<PAGE> 16
Store level selling, general and administrative expenses were $551.6
million and $1.54 billion for the three and nine months ended September 30, 1999
versus $361.6 million and $924.5 million for the comparable 1998 periods. The
increases in aggregate dollars are primarily due to acquisitions. Store level
selling, general and administrative expenses as a percentage of revenue were
10.1% and 10.2% for the three and nine months ended September 30, 1999 versus
10.3% and 10.2% for the comparable 1998 periods. The decrease in these costs as
a percentage of revenue during the three months ended September 30, 1999 is due
to better leveraging of costs.
Store performance margins were $198.4 million and $529.8 million for
the three and nine months ended September 30, 1999 versus $143.2 million and
$329.1 million for the comparable 1998 periods. The increases in aggregate
dollars are primarily due to acquisitions. Store performance margins as
percentages of revenue were 3.6% and 3.5% for the three and nine months ended
September 30, 1999 versus 4.1% and 3.7% for the comparable 1998 periods. The
decreases in store performance margins are a result of lower gross margins
offset by lower selling, general and administrative costs.
Corporate and district overhead was $57.0 million and $140.6 million
for the three and nine months ended September 30, 1999 versus $23.5 million and
$68.7 million for the comparable 1998 periods. Overhead as a percentage of
revenue was 1.0% and .9% for the three and nine months ended September 30, 1999
versus .7% and .8% for the comparable 1998 periods. The overhead increases in
aggregate dollars and as percentages of revenue are a result of the overall
growth experienced by the Company as well as investment in the Company's
business including e-commerce and network rollout. Corporate expenses which will
no longer be incurred following the separation of the automotive rental division
have been allocated to income from discontinued operations. These allocated
costs totaled approximately $4.0 million and $12.0 million for the three and
nine months ended September 30, 1999, respectively, and $3.7 million and $11.1
million for the three and nine months ended September 30, 1998, respectively.
SAME STORE OPERATING DATA:
As of September 30, 1999, the Company owned 315 stores. The following
same store operating data includes 217 stores.
The following table sets forth the components of same store revenue,
with the percentage change between periods, and same store gross margin, same
store S, G & A, and same store performance margin, with percentages of total
same store revenue and with the percentage change between periods, for the
periods indicated (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle....................... $2,139.1 $1,769.3 20.9 $5,246.9 $4,552.0 15.3
Used vehicle...................... 813.1 816.8 (.5) 2,218.4 2,288.9 (3.1)
Fixed operations.................. 381.2 366.1 4.1 968.6 907.9 6.7
Other............................. 240.4 261.1 (7.9) 686.8 710.2 (3.3)
-------- -------- -------- --------
$3,573.8 $3,213.3 11.2 $9,120.7 $8,459.0 7.8
======== ======== ======== ========
Gross Margin........................ $ 474.3 $ 443.6 6.9 $1,202.6 $1,142.0 5.3
%................................... 13.3% 13.8% (.5) 13.2% 13.5% (.3)
S, G & A............................ $ 355.9 $ 332.7 7.0 $ 908.6 $ 872.3 4.2
%................................... 10.0% 10.3% (.3) 10.0% 10.3% (.3)
Store Performance Margin............ $ 118.4 $ 110.9 6.8 $ 294.0 $ 269.7 9.0
%................................... 3.3% 3.5% (.2) 3.2% 3.2% --
</TABLE>
16
<PAGE> 17
Same store sales were $3.57 billion for the three months ended
September 30, 1999 versus $3.21 billion for the comparable 1998 period, an
increase of 11.2%. Same store sales were $9.12 billion for the nine months ended
September 30, 1999 versus $8.46 billion for the comparable 1998 period, an
increase of 7.8%. The primary components of these same store sales increases are
described below.
New vehicle same store sales increased 20.9% to $2.14 billion during
the three months ended September 30, 1999 and 15.3% to $5.25 billion during the
nine months ended September 30, 1999. The increases are primarily due to volume.
Used vehicle same store sales decreased .5% to $813.1 million during
the three months ended September 30, 1999 and 3.1% to $2.22 billion during the
nine months ended September 30, 1999. These decreases are primarily attributed
to volume at the Company's used vehicle megastores.
Fixed operations same store sales increased 4.1% to $381.2 million
during the three months ended September 30, 1999 and 6.7% to $968.6 million
during the nine months ended September 30, 1999. These increases are primarily
due to volume.
Same store other sales consist primarily of wholesale revenue. Same
store other sales decreased 7.9% to $240.4 million during the three months ended
September 30, 1999 and 3.3% to $686.8 million during the nine months ended
September 30, 1999. These variances are primarily due to a decline in wholesale
unit pricing during the periods.
Same store gross margins were $474.3 million and $1.20 billion for the
three and nine months ended September 30, 1999 versus $443.6 million and $1.14
billion for the comparable 1998 periods. Same store gross margins as a
percentage of same store total revenue were 13.3% and 13.2% for the three and
nine months ended September 30, 1999 versus 13.8% and 13.5% for the comparable
1998 periods. The decreases in same store gross margin percentages are primarily
due to a shift in mix as a result of stronger new vehicle sales compared to used
vehicle sales.
Same store selling, general and administrative expenses were $355.9
million and $908.6 million during the three and nine months ended September 30,
1999 versus $332.7 million and $872.3 million for the comparable 1998 periods.
Same store selling, general and administrative expenses as a percentage of same
store total revenue were 10.0% for both the three and nine months ended
September 30, 1999 versus 10.3% for both comparable 1998 periods. The decreases
in same store selling, general and administrative expenses are primarily due to
leveraging the overhead structure.
Same store performance margins were $118.4 million and $294.0 million
for the three and nine months ended September 30, 1999 versus $110.9 million and
$269.7 million for the comparable 1998 periods. Same store performance margins
as percentages of revenue were 3.3% and 3.2% for the three and nine months ended
September 30, 1999 versus 3.5% and 3.2% for the comparable 1998 periods. The
decrease in same store performance margins during the three months ended
September 30, 1999 is a result of the lower gross margins partially offset by
lower selling, general and administrative costs.
NON-OPERATING INCOME (EXPENSE)
INTEREST INCOME
Interest income was $6.9 million and $15.6 million for the three and
nine months ended September 30, 1999 versus $4.2 million and $6.3 million for
the comparable 1998 periods. The increases are primarily due to higher cash
balances on hand during the periods.
17
<PAGE> 18
INTEREST EXPENSE
Interest expense was incurred primarily on borrowings under the
Company's revolving credit facilities for acquisitions and share repurchases.
Interest expense was $5.3 million and $21.9 million for the three and nine
months ended September 30, 1999 versus $1.0 million and $11.7 million for the
comparable 1998 periods. The increases are primarily due to borrowings for
acquisitions and share repurchases. Interest expense related to vehicle
floorplan financing is included in cost of operations.
INCOME TAXES
The provision for income taxes was $52.1 million and $139.6 million for
the three and nine months ended September 30, 1999 versus $45.7 million and
$91.7 million for the comparable 1998 periods. Income taxes have been provided
based upon the Company's anticipated annual effective income tax rate.
RESTRUCTURING ACTIVITIES
During the year ended December 31, 1997, the Company recorded pre-tax
restructuring and other charges totaling approximately $150.0 million associated
with combining the Company's franchised automotive dealerships and used vehicle
megastore operations into one automotive retail division. At September 30, 1999,
approximately $22.4 million remained in accrued liabilities associated with
these charges.
During the nine months ended September 30, 1999, the Company spent
approximately $1.7 million of its restructuring reserves primarily related to
its closed reconditioning centers. The remaining restructuring reserves at
September 30, 1999 relate primarily to closed reconditioning centers which the
Company is marketing for sale.
DISCONTINUED OPERATIONS
AUTOMOTIVE RENTAL
As a result of the Company's decision in August 1999 to separate its
automotive rental business from the Company, the net assets and operating
results of the Company's automotive rental segment have been classified as
discontinued operations for all periods presented in the accompanying unaudited
condensed consolidated balance sheets.
A summary of the Company's automotive rental operations is as follows
for the periods indicated (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1999 % 1998 % 1999 % 1998 %
-------- ----- -------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $1,023.3 100.0 $1,005.6 100.0 $2,707.1 100.0 $2,646.1 100.0
Expenses:
Cost of operations................ 763.9 74.6 721.0 71.7 2,081.1 76.9 1,991.1 75.3
Selling, general and
administrative.................. 228.9 22.4 178.8 17.8 579.0 21.4 492.4 18.6
-------- ----- -------- ----- -------- ----- -------- -----
Operating income.................... $ 30.5 3.0 $ 105.8 10.5 $ 47.0 1.7 $ 162.6 6.1
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Automotive rental revenue was $1.02 billion for the three months ended
September 30, 1999 versus $1.01 billion for the comparable 1998 period, an
increase of 1.8%. The increase is primarily attributed to volume offset by price
decreases. Automotive rental revenue was $2.71 billion for the nine months ended
September 30, 1999 versus $2.65 billion for the comparable 1998 period, an
increase of 2.3%. The increase is primarily attributed to volume.
18
<PAGE> 19
Cost of automotive rental operations was $763.9 million and $2.08
billion for the three and nine months ended September 30, 1999 versus $721.0
million and $1.99 billion for the comparable 1998 periods. The increases in
aggregate dollars are primarily due to higher fleet costs. Cost of automotive
rental operations as a percentage of automotive rental revenue was 74.6% and
76.9% for the three and nine months ended September 30, 1999 versus 71.7% and
75.3% for the comparable 1998 periods. The increases in such costs as
percentages of revenue are primarily due to lower pricing and higher fleet
costs.
Selling, general and administrative expenses were $228.9 million and
$579.0 million for the three and nine months ended September 30, 1999 versus
$178.8 million and $492.4 million for the comparable 1998 periods. The increases
in aggregate dollars are primarily due to higher marketing costs, volume driven
selling expenses, costs associated with the Global Odyssey system and other
system related costs. Selling, general and administrative expenses as a
percentage of revenue were 22.4% and 21.4% for the three and nine months ended
September 30, 1999 versus 17.8% and 18.6% for the comparable 1998 periods. The
increases in these costs as percentages of revenue during the periods are due to
the factors described above as well as lower pricing.
The Company finances vehicle purchases for its domestic automotive
rental operations primarily through commercial paper and medium-term note
financings. The Company's $2.39 billion commercial paper program is comprised of
a $1.99 billion single-seller program and a $400.0 million bank-sponsored
multi-seller commercial paper conduit facility. Borrowings under this program
are secured by eligible vehicle collateral and bear interest at market based
commercial paper rates. As of September 30, 1999, the Company had approximately
$461.8 million of availability under this program. In February 1999, the Company
issued $1.8 billion of rental vehicle asset-backed medium-term notes consisting
of $550.0 million floating rate notes maturing through 2003; $750.0 million
5.88% fixed rate notes maturing through 2003; and $500.0 million 6.02% fixed
rate notes maturing through 2005. In May 1999, the Company issued $700.0 million
of floating rate asset-backed medium-term notes maturing through 2005. The
Company fixed the effective interest rate on the $1.25 billion floating rate
notes at 6.03% through the use of certain derivative transactions. The Company
expects to continue to fund its revenue earning vehicle purchases with secured
vehicle financings.
The Company's automotive rental operations and particularly the leisure
travel market is highly seasonal. In these operations, the third quarter, which
includes the peak summer travel months, has historically been the strongest
quarter of the year. During the peak season, the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on its annual performance. The first and fourth quarters
for the Company's automotive rental operations are generally the weakest, when
there is limited leisure travel and a greater potential for adverse weather
conditions. Many of the operating expenses such as rent, general insurance and
administrative personnel are fixed and cannot be reduced during periods of
decreased rental demand.
SOLID WASTE SERVICES
In May 1999, the Company sold substantially all of its remaining
interest in RSG resulting in an after tax gain of approximately $379.3 million.
Accordingly, the gain on disposition, operating results and net assets of the
Company's former solid waste services segment have been classified as
discontinued operations in the accompanying unaudited condensed consolidated
financial statements. Revenue from these discontinued operations was $552.5
million during the nine months ended September 30, 1999. Income from these
discontinued operations was $40.4 million during the nine months ended September
30, 1999. Income from discontinued solid waste operations is presented net of
minority interest.
19
<PAGE> 20
FINANCIAL CONDITION
At September 30, 1999, the Company had $398.9 million in cash and $1.11
billion available under its $1.5 billion unsecured revolving credit facilities
which may be used for general corporate purposes. In May 1999, the Company sold
substantially all of its remaining interest in RSG in a public offering
resulting in net proceeds of approximately $1.78 billion. Proceeds from the sale
were used to repay non-vehicle debt, to finance acquisitions, to acquire shares
under the Company's share repurchase program and to invest in the Company's
business.
The Company finances its vehicle inventory through secured financings
including floor plan facilities with manufacturer captive finance companies as
well as a $500.0 million bank-sponsored multi-seller commercial paper conduit
facility. At September 30, 1999, the Company had approximately $278.4 million of
availability under the commercial paper conduit facility. In connection with the
development of the Company's AutoNation USA megastores, the Company is the
lessee under a $500.0 million operating lease facility established to acquire
and develop properties used in its business. The Company has guaranteed the
residual value of the properties under this facility which guarantee totaled
approximately $434.0 million at September 30, 1999.
The Company securitizes installment loan receivables generated by its
automotive finance subsidiary through a $1.7 billion commercial paper warehouse
facility with certain financial institutions, as amended. During the nine months
ended September 30, 1999, the Company securitized approximately $1.21 billion of
loan receivables under this program, net of retained interests. At September 30,
1999, $1.53 billion was outstanding under this program. The Company has entered
into certain interest rate derivative transactions with certain financial
institutions to manage the impact of interest rate changes on securitized
installment loan receivables. Installment loans sold under this program are
nonrecourse beyond the Company's retained interests. Proceeds from the
securitization were primarily used to repay borrowings under the Company's
revolving credit facilities and to invest in the Company's business. The Company
expects to continue to securitize receivables under this facility and/or other
programs.
In October 1999, a non-consolidated special purpose entity formed by
the Company issued $786.8 million of asset-backed notes under a $2.0 billion
shelf registration statement. Proceeds from these notes were used to refinance
installment loans previously securitized under the warehouse facility and to
securitize additional loans held by the Company. The Company provides credit
enhancement related to these notes in the form of 1% overcollateralization, a
reserve fund and a third party surety bond. Following this transaction, the
Company had approximately $880.6 million of capacity under its $1.7 billion
commercial paper warehouse facility.
During the nine months ended September 30, 1999, the Company
repurchased 60.5 million shares of the Company's common stock, par value $.01
per share ("Common Stock") for an aggregate purchase price of $864.0 million
under its $1.0 billion Board authorized share repurchase program. Through
September 30, 1999, an aggregate of 69.6 million shares of Common Stock have
been acquired under this program for an aggregate purchase price of $1.0
billion. In October 1999, the Board of Directors authorized the repurchase of an
additional $250.0 million of Common Stock. Repurchases are made either pursuant
to Rule 10b-18 of the Securities Exchange Act of 1934, as amended, or in
privately negotiated transactions.
The Company's automotive rental operations are financed through various
revenue earning vehicle and working capital debt facilities. The Company
provides certain guarantees related to these financings. For a transition period
following the distribution of ANC in January 2000, the Company may continue to
provide certain guarantees until ANC is able to amend or replace certain debt
facilities.
The Company believes that it has sufficient financial resources
available to meet its anticipated capital requirements and obligations as they
come due.
20
<PAGE> 21
CASH FLOWS
Cash and cash equivalents decreased by $303.4 million and increased by
$195.9 million during the nine months ended September 30, 1999 and 1998,
respectively. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $321.5 million and $191.1
million during the nine months ended September 30, 1999 and 1998, respectively.
Cash flows from operating activities include purchases of retail
vehicle inventory which are separately financed through secured vehicle
financings. Accordingly, the Company measures its operating cash flow including
net payments under these secured vehicle financings which totaled $5.9 million
and $133.2 million during the nine months ended September 30, 1999 and 1998,
respectively. Including net payments under these secured vehicle financings, the
Company generated operating cash flow of $315.6 million and $57.9 million during
the nine months ended September 30, 1999 and 1998, respectively.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash used for
business acquisitions, capital additions and other transactions as further
described below.
Cash used in business acquisitions was $717.8 million and $593.2
million for the nine months ended September 30, 1999 and 1998, respectively. In
addition, as discussed under "Cash Flows from Financing Activities," the Company
repaid debt assumed in acquisitions. See "Business Combinations" of Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 2, Business Combinations, of notes to unaudited condensed consolidated
financial statements for a further discussion of businesses acquired.
Capital additions were $168.5 million and $224.6 million during the
nine months ended September 30, 1999 and 1998, respectively.
The Company expects capital expenditures and cash used in business
acquisitions to increase during the remainder of 1999 due to expansion of the
Company's business. The Company intends to finance capital expenditures and
business acquisitions through cash on hand, revolving credit facilities and
other financings.
In July 1998, the Company's former solid waste subsidiary, RSG,
completed an initial public offering resulting in net proceeds of approximately
$1.43 billion. In May 1999, the Company sold substantially all of its remaining
interest in RSG in a public offering resulting in proceeds of approximately
$1.78 billion. Proceeds from the offerings were used to repay non-vehicle debt,
finance acquisitions, acquire shares under the Company's share repurchase
program and invest in the Company's business.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the nine months ended
September 30, 1999 and 1998 consisted of revolving credit and vehicle floorplan
financings, repayments of debt and treasury stock purchases.
During the nine months ended September 30, 1999 and 1998, the Company
spent approximately $859.5 million and $24.3 million, respectively to repurchase
shares of Common Stock under the share repurchase program.
Payments of notes payable and long-term debt were $108.4 million and
$232.5 million during the nine months ended September 30, 1999 and 1998,
respectively. These amounts consist primarily of the repayment of debt assumed
in acquisitions.
21
<PAGE> 22
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used in discontinued operations during the nine months ended
September 30, 1999 consists primarily of cash used by RSG for acquisitions.
SEASONALITY
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.
YEAR 2000
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000 ("Y2K").
The Company is addressing Y2K issues associated with computer programs, embedded
chips and third party suppliers. The Company has developed a dedicated Y2K
Project Office to coordinate compliance efforts and ensure that the project
status is monitored and reported throughout the organization.
The Company has identified four core phases in preparing for Y2K:
Assessment -- In the assessment phase, an inventory is performed of
software, hardware, telecommunications equipment and embedded chip technology.
Also, critical systems and vendors are identified and prioritized.
Analysis -- In the analysis phase, each system or item assessed as
critical is reviewed to determine Y2K compliance. Key vendors are also evaluated
at this time to determine their compliance status.
Remediation -- In the remediation phase, modifications or replacements
are made to critical systems and equipment to make them Y2K-compliant or the
systems and/or vendors are replaced with compliant systems or vendors. Decisions
are also made as to whether changes are necessary or feasible for key
third-party suppliers.
Testing and Validation -- In this phase, the Company prepares, executes
and verifies the testing of critical systems.
The Company has developed plans to correct Y2K issues and, to date, has
made progress as follows:
Automotive Retail:
The Company's franchised automotive dealerships and AutoNation USA
megastores use one of six Dealer Management Systems ("DMS"), which perform the
core functions of a dealership's operations. The assessment and analysis of
these systems is complete indicating, subject to verification and testing, that
the DMS systems provided by these vendors are Y2K compliant or will be Y2K
compliant with an upgrade. Substantially all of the Company's franchised
automotive dealerships using these DMS systems have been upgraded to a compliant
version.
The Company is substantially complete with its assessment, analysis,
remediation and testing of its other software applications, other business
systems, products suppliers and embedded chips in use at its AutoNation USA
megastores as well as some of its franchised automotive dealerships.
22
<PAGE> 23
Automotive Rental:
For several years, the Company, in conjunction with external
consultants, has been developing the Global Odyssey system, which may replace
substantially all rental systems, as well as the applicable hardware and
operating systems. This system was designed to be Y2K compliant and Y2K testing
was completed prior to the recent implementation of the Global Odyssey
reservation, operations and financial systems at National's domestic operations
prior to the end of 1998. The Global Odyssey fleet system was implemented at
National's North American locations during the first quarter of 1999.
Alamo has completed remediation of all of its existing systems. Testing
is substantially complete but will continue throughout the remainder of 1999.
The Automotive Rental Division has assessed the majority of its North
American rental locations to identify other critical business systems, products
and vendors, including embedded chip issues. Remediation is ongoing to modify or
replace business systems, products and vendors that are not Y2K compliant.
Remediation was substantially complete as of September 1999. The Company has
also developed a plan for its European operations, some of which are supported
by Alamo. The remaining European operations are supported by systems developed
and supported by the United Kingdom headquarters. Analysis and testing of these
systems was substantially completed in October 1999.
CarTemps USA has only one automated mission critical application.
Analysis and testing was completed in October 1999.
Costs To Address Y2K
Through September 30, 1999, the Company has spent approximately $20.3
million on Y2K efforts across all areas; of which $9.5 million relates to the
Company's continuing automotive retail operations and $10.8 million relates to
the Company's discontinued automotive rental operations. The Company currently
expects to spend a total of approximately $21.9 million upon completion ($11.0
million for continuing automotive retail operations and $10.9 million for
discontinued automotive rental operations); $4.5 million of which has or is
expected to be incurred as automotive retail capital expenditures and
depreciated accordingly. Automotive rental amounts exclude costs associated with
replacing the Company's automotive rental systems with Global Odyssey since the
Global Odyssey implementation was planned in advance and not accelerated as a
result of Y2K. The Company expects to fund Y2K costs through operating cash
flow. All system modification costs associated with Y2K will be expensed as
incurred. Y2K expenditures vary significantly in project phases and vary
depending on remedial methods used. Past expenditures in relation to total
estimated costs should not be considered or relied on as a basis for estimating
progress to completion for any element of the Y2K project.
Risks and Contingency Plans
The Company presently believes that upon remediation of its business
software applications, embedded technology, and compliance by key vendors the
Y2K issue will not present a materially adverse risk to the Company's future
consolidated results of operations, liquidity and capital resources. However, if
such remediation is not completed in a timely manner, the Company believes that
the most likely worst case scenario would be a delay or disruption in the
delivery of products, including but not limited to, the supply of new vehicles
and/or original equipment manufacturer replacement (OEM) parts to the Retail
and/or Rental divisions. Either of these conditions could have a material
adverse impact on the Company's operations including, but not limited to, loss
of revenue, increased operating costs, loss of customers or suppliers, or other
significant disruptions to the Company's business.
The Company has developed comprehensive business contingency plans for
all mission critical business processes. These plans have been completed and
will be updated throughout the remainder of 1999.
23
<PAGE> 24
Determining the Y2K readiness of third party products and business
dependencies requires pursuit, collection and appraisal of voluntary statements
made or provided by those parties, if available, together with independent
factual research. The Company has identified its material third-party
relationships and has surveyed these parties. The results are being analyzed as
surveys are received. Although the Company has taken, and will continue to take,
reasonable efforts to gather information to determine and verify the readiness
of products and dependencies, there can be no assurances that reliable
information will be offered or otherwise available. In addition, verification
methods (including testing methods) may not be reliable or fully implemented.
Accordingly, notwithstanding the foregoing efforts, there are no assurances that
the Company is correct in its determination or belief that a product
(information technology and other computerized equipment) or a business
dependency (including a supplier, distributor or ancillary industry group) is
Y2K ready.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS 133 beginning January 1, 2001. The Company has not yet quantified the
impact of adopting SFAS 133 on the Company's consolidated financial statements.
However, SFAS 133 could increase volatility in earnings and other comprehensive
income.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, competition in the Company's product lines; the ability to integrate and
successfully operate acquired businesses and the risks associated with such
businesses; the dependence on vehicle manufacturers to approve franchised
automotive dealership acquisitions and the restrictions imposed by vehicle
manufacturers on franchised automotive dealership acquisitions and operations;
the risk of unfavorable economic conditions on the Company's operations; the
ability to obtain financing on acceptable terms to finance the Company's
operations and growth strategy and for the Company to operate within the
limitations imposed by financing arrangements; the risks and cost associated
with complying with the date change in the year 2000; the ability to develop and
implement operational and financing systems to manage rapidly growing
operations; and other factors contained in the Company's filings with the
Securities and Exchange Commission.
24
<PAGE> 25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information about the Company's market sensitive
financial instruments constitutes a "forward-looking statement." The Company's
major market risk exposure is changing interest rates, primarily in the United
States. Due to its limited foreign operations, the Company does not have
material market risk exposures relative to changes in foreign exchange rates.
The Company's policy is to manage interest rates through 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. The Company uses interest
rate caps and floors to manage the impact of interest rate changes on
securitized installment loan receivables. With respect to the Company's
discontinued automotive rental operations, the Company uses variable to fixed
interest rate swaps and interest rate caps/floors to manage the impact of
interest rate changes on the Company's variable rate revenue earning vehicle
debt.
Reference is made to the Company's quantitative disclosures about
market risk as of December 31, 1998 included in the Company's Form 8-K dated
October 21, 1999.
CONTINUING OPERATIONS
The Company has entered into certain interest rate derivative
transactions with certain financial institutions to manage the impact of
interest rate changes on securitized automotive retail installment loan
receivables. These derivative transactions consist of a series of interest rate
caps and floors with an aggregate notional amount of $1.59 billion contractually
maturing through 2005 which effectuate a variable to fixed rate swap at a
weighted average rate of 5.70% at September 30, 1999. Variable rates on the
underlying portfolio are indexed to the Commercial Paper Nonfinancial rate.
DISCONTINUED OPERATIONS
At September 30, 1999, notional principal amounts related to interest
rate swaps (variable to fixed rate) were $1.0 billion maturing as follows:
$400.0 million in the remainder of 1999; $300.0 million in 2000; $100.0 million
in 2001; and $200.0 million in 2003. As of September 30, 1999, the weighted
average fixed rate payment on variable to fixed rate swaps was 5.78%. Variable
rates received are indexed to the Commercial Paper Nonfinancial rate. The
Company also has entered into certain derivative transactions to manage the
impact of interest rate changes on variable rate rental vehicle asset backed
medium-term notes. These derivatives consist of interest rate caps and floors
with a notional amount of $1.25 billion maturing through 2005 which fix the
effective rate on the underlying debt at 6.03%. Variable rates are indexed to
LIBOR.
25
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Shares:
All transactions listed below involve the issuance of shares of Common
Stock by the Company in reliance upon Section 4(2) of the Securities Act of
1933, as amended.
From time to time throughout the three months ended September 30, 1999,
the Company issued an aggregate of 7,302,373 shares of Common Stock to certain
warrant holders in connection with the exercise of warrants to purchase shares
of Common Stock at exercise prices ranging from $1.13 to $3.50.
ITEM 5. OTHER INFORMATION
On September 24, 1999, Michael J. Jackson was appointed Chief Executive
Officer of the Company, to replace H. Wayne Huizenga and Steven R. Berrard who
resigned as Co-Chief Executive Officers on September 24, 1999. In addition, Mr.
Jackson was elected to the Company's Board of Directors in October 1999 to
replace Mr. Berrard, who resigned from the Board of Directors in October 1999.
Mr. Huizenga will remain as Chairman of the Board of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Third Amended and Restated Certificate of Incorporation of
AutoNation, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1999).
3.2 Bylaws of AutoNation, Inc., as amended to date (incorporated
by reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1999).
4.1 Master Motor Vehicle Lease and Servicing Agreement dated as of
February 26, 1999 among National Car Rental System, Inc. as
lessee, National Car Rental Financing Limited Partnership as
lessor, and AutoNation, Inc. as guarantor (incorporated by
reference to Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended March 31, 1999).
4.2 Series 1999-1 Supplement dated as of February 26, 1999 between
National Car Rental Financing Limited Partnership ("NFLP"),
and The Bank of New York, as Trustee (the "Trustee") to the
Base Indenture, dated as of April 30, 1996 between NFLP and
the Trustee, as amended by the supplement and amendment to the
Base Indenture, dated as of December 20, 1996, between NFLP
and the Trustee (incorporated by reference to Exhibit 4.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1999).
4.3 Base Indenture dated as of February 26, 1999 between ARG
Funding Corp. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.3 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31,
1999).
4.4 Series 1999-1 Supplement dated as of February 26, 1999 between
ARG Funding Corp, and The Bank of New York as Trustee to the
ARG Base Indenture (incorporated by reference to Exhibit 4.4
to the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1999).
26
<PAGE> 27
4.5 Third Amended and Restated Master Collateral Agency Agreement
dated as of February 26, 1999 among National Car Rental
System, Inc., Alamo Rent-A-Car, Inc. and Spirit Rent-A-Car,
Inc. d/b/a CarTemps USA, Alamo Financing, L.P., National Car
Rental Financing Limited Partnership and CarTemps Financing,
L.P., as lessor grantors, AutoNation, Inc., as master
servicer, and Citibank, N.A., as master collateral agent
(incorporated by reference to Exhibit 4.5 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31,
1999).
10.1* Letter Agreements dated March 26 and July 29, 1999 between
AutoNation, Inc. and Michael E. Maroone, President and Chief
Operating Officer.
10.2* Separation Agreement dated June 24, 1999 and effective
September 24, 1999 for Steven R. Berrard, Co-Chief Executive
Officer.
10.3* Separation Agreement dated July 30, 1999 for John H. Costello,
President.
10.4* Letter Agreement dated September 22, 1999 between AutoNation,
Inc. and Michael J. Jackson, Chief Executive Officer.
27.1* Financial Data Schedule for the Nine Months ended September
30, 1999 (for SEC use only)
27.2* Financial Data Schedule for the Nine Months ended September
30, 1998 (restated for discontinued operations) (for SEC use
only)
- -------------------------------
*Filed herewith
(b) Reports on Form 8-K:
Form 8-K, dated June 30, 1999 (filed July 1, 1999), Item 5,
reporting that the Company is searching for a new Chief Executive
Officer.
Form 8-K, dated and filed August 5, 1999, Item 5, reporting that
the Company plans to separate its automotive rental division that
includes Alamo Rent-A-Car, Inc., National Car Rental and CarTemps
USA. In addition, the Company announced that Michael E. Maroone
was named as the Company's President and Chief Operating Officer
Form 8-K, dated August 30, 1999 (filed August 31, 1999), Item 5,
reporting that William E. Lobeck will step down as President of
the Company's Automotive Rental Group. The rental group, which
includes National Car Rental, Alamo Rent-A-Car and CarTemps USA,
will report to AutoNation's Chief Financial Officer, Michael S.
Karsner, until a permanent successor is named.
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant, AutoNation, Inc., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUTONATION, INC.
By: /s/ Mary E. Wood
--------------------------------
Mary E. Wood
VICE PRESIDENT AND
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: November 12, 1999
28
<PAGE> 1
EXHIBIT 10.1
(REPUBLIC
INDUSTRIES
LOGO)
March 26, 1999
Mr. Michael Maroone
2665 Hackney Road
Weston, FL 33301
Dear Mike,
We are pleased that you have committed to stay on as President of the Retail
Group through March of 1999. In consideration for this commitment and consistent
with our discussion at the time we acquired your company we will take all
necessary action to cause your stock options to continue to vest in the event
that your employment with the Company is terminated for any reason (whether by
the Company or you) after March 1999. This obligation will cover all options
granted to you through the end of January 1999. You will be entitled to exercise
these options at any time during the term set forth in your award letters.
Sincerely,
/s/ Steven R. Berrard
Steven R. Berrard
SRB/da
<PAGE> 2
July 29, 1999
Mr. Michael E. Maroone
AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Dear Mike:
Wayne asked that I confirm with you the following regarding your promotion:
POSITION: President and Chief Operating Officer
START DATE: July 30, 1999
ANNUAL SALARY: $850,000 payable bi-weekly. Future increases to be determined
in normal course.
ANNUAL BONUS: Up to 70% of base salary to be paid on the achievement of
mutually agreed upon goals and objectives.
STOCK OPTIONS: In addition to those currently held by you, the Company will
give you an additional grant of options to acquire 250,000
shares of AutoNation, Inc.'s common stock at an exercise price
of $14.6875, the closing price of the stock on July 28, 1999,
the day immediately preceding the grant date, July 29, 1999.
These options will be granted under the Company's 1998
Employee Stock Option Plan (the "Plan"). Under the Plan, stock
options vest at a rate of twenty-five percent per year during
an employee's term of employment beginning on the first
anniversary date of the grant. Subject to the discretion of
the Compensation Committee, in 2000 and future years you will
be awarded options in amounts commensurate with your position.
As all employees are employees at will, it is not our practice to enter into
employment agreements; therefore, this letter comprises the terms of our
understanding. Please confirm your agreement by signing both originals in the
space provided below and returning both to me as soon as possible. I will then
have H. Wayne Huizenga, AutoNation's Chairman, sign both originals and return
one to you.
<PAGE> 3
Mr. Michael E. Maroone
July 29, 1999
Page 2
Congratulations and best of luck in your new position!
Sincerely,
/s/ James O. Cole
James O. Cole
AGREED:
/s/ Michael E. Maroone /s/ H. Wayne Huizenga
- ------------------------------ ------------------------------
Michael E. Maroone H. Wayne Huizenga
7/29/99 7/30/99
- ------------------------------ ------------------------------
Date Date
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT (this "Agreement"), is dated as of this 24th day of June,
1999, by and between AutoNation, Inc., a Delaware corporation ("AutoNation"),
and Steven R. Berrard, a Florida resident ("Berrard").
W I T N E S S E T H :
WHEREAS, Berrard has served AutoNation as an officer since May 8, 1996 and
as Co-Chief Executive Officer since October 23, 1996.
WHEREAS, in accordance with this Agreement, Berrard's employment as an
executive officer of AutoNation will be terminated by mutual agreement of the
parties.
WHEREAS, Berrard and AutoNation desire to set forth herein certain
agreements between them with respect to Berrard's termination as an executive
officer of AutoNation.
NOW, THEREFORE, in consideration of the mutual promises and the covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. RESIGNATION OF EMPLOYMENT. The foregoing recitals are true and correct
and are part of this Agreement. The terms and conditions of this Agreement have
been approved by the Board of Directors of AutoNation, and this Agreement is
enforceable in accordance with its terms against the parties. The termination of
Berrard's employment as Co-Chief Executive Officer of AutoNation shall be
effective (the "Effective Date") on the earlier of (i) September 30, 1999, (ii)
such date as AutoNation publicly announces the appointment of a successor, other
than H. Wayne Huizenga, to serve as the Chief Executive Officer of AutoNation,
or (iii) such other date as the parties may mutually agree upon in writing.
2. SEVERANCE COMPENSATION AND BENEFITS. Berrard shall receive the following
severance compensation and benefits:
(a) So long as Berrard is in compliance in all material respects with
the terms of paragraph 10 of this Agreement, as severance compensation,
AutoNation shall continue to pay Berrard his current base salary at the rate of
$1,000,000 per year until the third anniversary of the Effective Date (the
"Severance Period"), payable in biweekly or such other installments as is in
accordance with AutoNation's normal payroll practices, and subject to all
applicable tax withholding requirements and other deductions. Berrard shall not
be entitled to any bonuses during the Severance Period. Berrard shall have no
obligation to mitigate the severance compensation by seeking other employment,
and no amount of any other compensation earned by Berrard in any other
<PAGE> 2
capacity during the Severance Period shall offset or reduce AutoNation's
obligation to pay the severance compensation to him.
(b) During the Severance Period, Berrard and his dependents shall be
entitled to continue to participate in AutoNation's group insurance and benefit
plans with the same coverages, service credits and other benefits as he had
received prior to the date hereof, except with respect to stock options (which
are discussed in paragraph 2(c) below), and on the same terms and conditions
that executive officers of AutoNation are generally subject to. The cost of any
and all premiums for dependent coverages (to the extent currently paid by
Berrard) otherwise payable by an executive officer of AutoNation for the
coverages and benefits provided to Berrard shall be deducted from the
installment payments made to Berrard under paragraph 2(a) above.
(c) Berrard has been granted options to purchase a total of 2,792,982
shares of common stock under AutoNation's various Stock Option Plans
(collectively, the "Plans"), 1,328,635 of which have previously vested, and
1,464,347 of which will hereby be accelerated and vested as of the Effective
Date, as set forth below, nothwithstanding anything to the contrary in any of
the Plans or stock option agreements entered into by Berrard at the time of the
grants:
<TABLE>
<CAPTION>
As of the As of the
Number Date Effective
of Shares Per Hereof, Date,
Underlying Share Number Number
Options Exercise Of Options of Options Expiration
Grant Date Granted Price ($) Vested Vested Date
---------- ----------- --------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
05/08/96 428,572 17.50 321,429 428,572 05/08/06
10/22/96 500,000 28.25 250,000 500,000 10/22/06
01/02/97 614,410 28.625 307,206 614,410 01/02/07
01/02/98 450,000 22.0625 450,000 450,000 01/02/08
01/06/99 800,000 15.9375 -0- 800,000 01/06/09
</TABLE>
Notwithstanding Berrard's termination of employment as provided hereunder, the
vested options as set forth above shall be eligible to be exercised by Berrard
for the duration of their respective original terms (in each case, 10 years from
the date of grant thereof as set forth above), and shall not expire or be
terminated earlier as a result of the termination of Berrard's employment with
AutoNation hereunder. During the Severance Period, Berrard shall have the same
rights with regard to his vested options that active, then current executive
officers as a class have with respect to their vested stock options, including
with respect to any repricing of vested options. At all times, the options shall
be adjusted appropriately and automatically for any changes in the securities
underlying the options, including stock splits, dividends and other
reclassifications of any nature. Berrard acknowledges that he has no further
claim or entitlement to be awarded any future additional grant
2
<PAGE> 3
of options under the Plans or any other stock option plan of AutoNation.
AutoNation agrees that it will not set off its obligations under the Plans or
this Agreement against any obligation which Berrard may have under this
Agreement or otherwise to AutoNation, and AutoNation further agrees that it will
not cancel, forfeit or otherwise refuse to allow Berrard to duly exercise his
stock options. Upon exercise by Berrard of any of his stock options and payment
in full for the underlying shares, AutoNation shall deliver certificates for
such shares to Berrard within five days to the address which he specifies in the
exercise notice.
(d) In the event of Berrard's death or incapacity during the Severance
Period, the severance compensation, benefits and stock options described above
shall be paid or provided to, or be exercisable by, as the case may be, his
estate, personal representative or guardian.
3. COOPERATION; RECORDS; CONFIDENTIALITY. During the Severance Period,
Berrard agrees to make himself available to AutoNation and its officers for
consultation on a reasonable basis from time to time as to any and all matters
which he worked on while an officer of AutoNation, provided that AutoNation
shall reimburse Berrard for his reasonable expenses incurred in providing such
consultation and making himself available, including attorney's fees and costs,
if necessary (e.g., if Berrard is required to be deposed as a witness in any
litigation involving AutoNation). AutoNation acknowledges that Berrard may
engage in other full-time employment and AutoNation agrees that it will use its
best efforts to attempt to minimize the amount of time which it shall require of
him. Berrard agrees that all confidential records, files and documents of
AutoNation shall remain in AutoNation's possession and that he shall not remove
any of the same from AutoNation's premises, without the prior consent of
AutoNation. At all times hereafter, Berrard agrees to maintain the
confidentiality of all proprietary, secret, confidential and other non-public
information concerning AutoNation, including without limitation, any management,
sales, promotional or marketing plans, programs, techniques, practices or
strategies, any expansion plans in existing or new markets or for new or
expanded products, services or lines of business, and any financial statements,
monthly operating reports, budgets, projections and other financial information.
Neither Berrard nor AutoNation shall publicly disclose the contents of this
Agreement, except to the extent required under applicable law.
4. NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ETC. During the Severance
Period, except as authorized by AutoNation, Berrard shall not give any
interviews or speeches primarily concerning AutoNation, nor shall Berrard,
directly or indirectly, prepare or assist any person or entity in the
preparation of any books, articles, television or motion picture productions or
other creations concerning AutoNation, including, without limitation, any
material concerning any person, whether or not fictional, whom any member of the
public might associate with AutoNation (regardless of whether or not there shall
appear any disclaimer purporting to disassociate such fictitious person from
AutoNation). Notwithstanding the foregoing, Berrard may publicly state factual
information about his employment with AutoNation in providing others with
background and resume information about himself, in public filings with the SEC
when required with respect to other issuers
3
<PAGE> 4
for which such disclosure about him is required, and in similar contexts, in all
cases consistent with the information set forth in the press release referred to
in paragraph 9 below. During the Severance Period and thereafter, Berrard agrees
that he shall not, in any communications with any third party, criticize,
ridicule or make any statement which disparages or is derogatory of AutoNation
or any of AutoNation's affiliates or any of its or their officers, directors,
agents or employees, and AutoNation agrees that it shall not, in any
communications with any third party, criticize, ridicule or make any statement
which disparages or is derogatory of Berrard.
5. FULL SATISFACTION AND RELEASES. The parties agree that, except as
otherwise provided in this Agreement, this Agreement severs all relationships
between them and shall act as a mutual release of all claims of any nature which
one party may have against the other party as of the Effective Date, except that
the following claims shall not be released hereby: (i) claims by either party
against the other under or pursuant to this Agreement, (ii) claims by Berrard
under applicable law in respect of statutory employment rights (such as COBRA or
ERISA claims), and (iii) claims or rights of Berrard under law or AutoNation's
certificate of incorporation and bylaws to indemnification against third party
claims arising with respect to his service as an officer and director of
AutoNation prior to the Effective Date. AutoNation agrees to maintain its
existing or substantially comparable directors and officers insurance coverage
in place for at least five years following the Effective Date, to the extent the
premiums therefor are not more than 200% of the cost of existing premiums, and
agrees to keep the same or broader indemnification rights in place under its
bylaws for at least five years following the Effective Date, to the extent
allowed by applicable law.
6. SEC FILING. Berrard shall timely file a Form 4 with the Securities and
Exchange Commission reporting that he is no longer an executive officer of
AutoNation as of the Effective Date. After the Effective Date, AutoNation shall
cease to refer to or include Berrard as an executive officer in any of its SEC
filings or press releases.
7. SUCCESSOR. Berrard shall assist in the recruitment and selection of a
successor (other than H. Wayne Huizenga) who will serve as AutoNation's Chief
Exeuctive Officer, to the extent requested by the Chairman or any committee of
the board of directors of AutoNation formed for that purpose.
8. BOARD SERVICE. Berrard shall continue to serve as a member of the Board
of Directors of AutoNation and shall be a non-executive Vice Chairman of the
Board, provided that he may resign at any time by notice to the Chairman after
the Effective Date.
9. PRESS RELEASE. Berrard and AutoNation shall mutually agree on the text
of any press release to be issued by AutoNation to announce the termination of
his employment with AutoNation, but he acknowledges that AutoNation shall have
final control over the timing of such press release.
10. NON-COMPETE AND NON-SOLICITATION. Berrard agrees that for a period of
three (3) years following the Effective Date, except with the prior written
consent of AutoNation, Berrard shall not
4
<PAGE> 5
directly or indirectly (whether individually or as a partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or
stockholder of or lender to any company or business entity or otherwise), for
any reason:
(a) engage in any automotive consumer business in any market in the
United States, including franchised automotive dealerships, used
vehicle dealerships, automotive maintenance, parts, collision repair,
salvage or auction businesses, internet or other e-commerce businesses
which sell, market, generate sales leads for, finance or insure retail
vehicles, or vehicle rental businesses (collectively, the "Automotive
Business"); or
(b) request, advise or induce any material customer or material
vendor of the AutoNation Group to withdraw, curtail or cancel any such
customer's or vendor's business with the AutoNation Group; or
(c) (i) solicit for employment, or knowingly permit any company or
business directly or indirectly controlled by or affiliated with him to
solicit for employment, any person who is employed in Fort Lauderdale,
Florida by the AutoNation Group at that time, or in any manner seek to
induce any such person to leave his or her employment with the
AutoNation Group, or (ii) employ, or permit any company or business
directly or indirectly controlled by or affiliated with him to employ,
any person who is employed in Fort Lauderdale, Florida by the
AutoNation Group at that time or who was so employed within one year
prior to that time, provided, however, that Berrard, or any company or
business directly or indirectly controlled by him, may employ any
person at any time after such person has been terminated (with or
without cause) by AutoNation. For purposes hereof, "controlled by or
affiliated with" shall mean any company or business, including, but not
limited to, New River Capital Partners and Gerald Stevens, Inc., for
which and so long as Berrard both (i) beneficially owns more than 10%
of the outstanding equity, including for purposes of such calculation
the underlying shares of all options, warrants, convertible securities
and other rights to purchase securities held by Berrard, AND (ii) is a
general partner, director or executive officer. Berrard agrees to have
written policies in place at companies or businesses that are
controlled by or affiliated with him that such companies or businesses
are not to solicit or employ persons in contravention of this paragraph
10(c). In the event Berrard or a company or business controlled by or
affiliated with him hires a current or former employee of AutoNation in
violation of this paragraph 10(c), AutoNation shall provide prompt
written notice to Berrard, and if such employee is not terminated by
the company or business controlled by or affiliated with Berrard within
thirty (30) days following the date of such notice, then AutoNation
shall only have the right to cease making any further payments of
severance compensation to Berrard pursuant to paragraph 2(a) above and
the right to seek injunctive relief, but shall not have the right to
seek other relief (including damages).
5
<PAGE> 6
Notwithstanding the foregoing, (i) Berrard's beneficial ownership of
less than five percent (5%) of the outstanding shares of stock of any
corporation having a class of equity securities actively traded on a national
securities exchange or over-the-counter market, including for purposes of such
calculation the underlying shares of all options, warrants, convertible
securities and other rights to purchase securities held by Berrard, shall not be
deemed, in and of itself, to violate the prohibitions of paragraph 10(a), (ii)
if any business or company (on a consolidated basis with all of its
majority-owned subsidiaries) derives less than five percent (5%) of its annual
revenue from the Automotive Business as defined above, such business or company
shall not be deemed for purposes of paragraph 10(a) to be engaged in the
Automotive Business, (iii) if Berrard beneficially owns or acquires less than
25% of a privately-held business or company, which is not engaged in the
Automotive Business, and he is at all times a passive investor with no board
representation, management authority or other special rights to control
operations of such business or company, and such business or company enters the
Automotive Business and winds up deriving more than five percent (5%) of its
annual revenue from the Automotive Business, then Berrard shall sell, transfer
or otherwise divest himself of his beneficial ownership in such business or
company within six months or else he shall be deemed to be in violation of
paragraph 10(a), (iv) Berrard, or any company or business directly or indirectly
controlled by him, may solicit for employment and employ Dee Atkinson at any
time, and (v) Berrard may directly or indirectly invest in any business
(provided paragraphs 10(a), (b) and (c) above are complied with) together with
any present or former director, officer, agent or employee of AutoNation or
otherwise engage in arm's length business transactions with such persons.
11. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. It
supersedes all prior negotiations, letters, agreements and understandings
relating to the subject matter hereof.
(b) CHOICE OF LAW. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Florida.
(c) EFFECT OF WAIVER. The failure of any party at any time or times to
require performance of any provision of this Agreement will in no manner affect
the right to enforce the same. The waiver by any party of any breach of any
provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(d) SEVERABILITY. The invalidity, illegality or unenforceability of any
provision or provisions of this Agreement will not affect any other provision of
this Agreement, which will remain in full force and effect, nor will the
invalidity, illegality or unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event that any one or
more of the provisions contained in this Agreement or any portion thereof shall
for any reason be held to be
6
<PAGE> 7
invalid, illegal or unenforceable in any respect, this Agreement shall be
reformed, construed and enforced as if such invalid, illegal or unenforceable
provision had never been contained herein.
(e) EXCLUSIVE VENUE AND JURISDICTION. Any suit, action or proceeding
with respect to this Agreement shall be brought in the courts of Broward County
in the State of Florida or in the U.S. District Court for the Southern District
of Florida. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding.
(f) BINDING NATURE. This Agreement will be binding upon the parties and
will inure to the benefit of any successor or successors of AutoNation. This
Agreement is not assignable by Berrard.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
(h) NOTICES. All notices which either party shall be required or
permitted to make or give under this Agreement shall be in writing and shall be
sufficiently made or given if sent by personally delivery, by certified mail,
return receipt requested or by nationally recognized overnight courier service,
addressed as set forth below, unless a notice of a change of address has been
previously given in accordance with the foregoing:
If to Berrard: Steven R. Berrard
New River Capital Partners
One Financial Plaza, Suite 1101
One S.E. Third Avenue
Fort Lauderdale, FL 33394
With a copy to: Kozyak & Throckmorton, P.A.
2800 First Union Financial Center
200 South Biscayne Boulevard
Miami, FL 33131
Attn: Harley S. Tropin, Esq.
If to AutoNation: AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Attn: Chairman
7
<PAGE> 8
With a copy to: AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Attn: General Counsel
(i) ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to the other that (a) before executing this Agreement, said party
has fully informed itself of the terms, contents, conditions and effects of this
Agreement; (b) said party has relied solely and completely upon its own judgment
in executing this Agreement; (c) said party has had the opportunity to seek and
has obtained the advice of its own counsel before executing this Agreement; (d)
said party has acted voluntarily and of its own free will in executing this
Agreement; (e) said party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is the result of
arm's length negotiations conducted by and among the parties and their
respective counsel.
[signatures on next page]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AUTONATION, INC.
By: /s/ H. WAYNE HUIZENGA
--------------------------------------
H. Wayne Huizenga,
Chairman
/s/ STEVEN R. BERRARD
--------------------------------------
STEVEN R. BERRARD
9
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
---------
THIS AGREEMENT (this "Agreement"), is dated as of this 30th day of
July, 1999, by and between AutoNation, Inc., a Delaware corporation
("AutoNation"), and John H. Costello ("Costello").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Costello has served AutoNation as an executive officer since
December 15, 1998.
WHEREAS, in accordance with this Agreement, Costello's employment as an
executive officer of AutoNation will be terminated by mutual agreement of the
parties.
WHEREAS, Costello and AutoNation desire to set forth herein certain
agreements between them with respect to Costello's termination as an executive
officer of AutoNation.
NOW, THEREFORE, in consideration of the mutual promises and the
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. TERMINATION OF EMPLOYMENT. The foregoing recitals are true and
correct and are part of this Agreement. The terms and conditions of this
Agreement have been approved by the Board of Directors of AutoNation, and this
Agreement is enforceable in accordance with its terms against the parties. The
termination of Costello's employment as President of AutoNation shall be
effective (the "Effective Date") on July 30, 1999. Costello will remain at
AutoNation for a short time after the Effective Date, up to but not later than
August 31, 1999, to wrap up his affairs.
2. SEVERANCE COMPENSATION AND BENEFITS. Costello shall receive the
following severance compensation and benefits:
(a) A lump sum payment of TWO MILLION ONE HUNDRED THOUSAND
DOLLARS ($2,100,000.00) payable on the Effective Date.
(b) For the period commencing on the Effective Date and ending
December 31, 1999, Costello and his dependents shall be entitled to continue to
participate in AutoNation's group health and welfare benefit plans (as such
plans may be amended from time to time by AutoNation) on the same terms and
conditions as similarly-situated employees of AutoNation are subject to, and so
long as they are available to similarly-situated employees of AutoNation. The
usual and customary premium for medical and dental coverage will be payable in a
lump sum payment by Costello to AutoNation upon receipt of an invoice from
AutoNation. Beginning on the first of the month following the cessation of group
plan coverage, Costello shall be eligible for continuation of AutoNation's group
medical and dental coverage as set forth in the Consolidated Omnibus Budget
Reconciliation Act of 1985. As of the Effective Date, Costello
<PAGE> 2
will no longer be eligible to participate in the following employee benefit
programs offered by AutoNation: (i) vacation benefits; (ii) 401(k); (iii) short
term or long term disability benefits; (iv) travel and accident benefits; (v) or
life or dependent life insurance.
(c) Costello has been granted options to purchase a total of
1,000,000 shares of common stock under AutoNation's various Stock Option Plans,
none of which have previously vested. All of Costello's options shall be
cancelled as of the Effective Date.
3. COOPERATION; RECORDS; CONFIDENTIALITY. During the period commencing
the Effective Date and ending on December 15, 2001 (the "Severance Period"),
Costello agrees to make himself available to AutoNation and its officers for
consultation on a reasonable basis from time to time as to any and all matters
which he worked on while an officer of AutoNation, provided that AutoNation
shall reimburse Costello for his reasonable expenses incurred in providing such
consultation and making himself available, including attorney's fees and costs,
if necessary (e.g., if Costello is required to be deposed as a witness in any
litigation involving AutoNation). AutoNation acknowledges that Costello may
engage in other full-time employment and AutoNation agrees that it will use its
best efforts to attempt to minimize the amount of time which it shall require of
him. Costello agrees that all confidential records, files and documents of
AutoNation shall remain in AutoNation's possession and that he shall not remove
any of the same from AutoNation's premises, without the prior written consent of
AutoNation. At all times hereafter, Costello agrees to maintain the
confidentiality of all proprietary, secret, confidential and other non-public
information concerning AutoNation, including any management, sales, promotional
or marketing plans, programs, or strategies, any expansion plans in existing or
new markets or for new or expanded products, services or lines of business, and
any financial statements, monthly operating reports, budgets, projections and
other financial information. Neither Costello nor AutoNation shall publicly
disclose the contents of this Agreement, except to the extent required under
applicable law.
4. NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ETC. During the
Severance Period, except as authorized by AutoNation, Costello shall not give
any interviews or speeches primarily concerning AutoNation, nor shall Costello,
directly or indirectly, prepare or assist any person or entity in the
preparation of any books, articles, television or motion picture productions or
other creations concerning AutoNation, including any material concerning any
person, whether or not fictional, whom any member of the public might associate
with AutoNation (regardless of whether or not there shall appear any disclaimer
purporting to disassociate such fictitious person from AutoNation).
Notwithstanding the foregoing, Costello may publicly state factual information
about his employment with AutoNation in providing others with background and
resume information about himself, in public filings with the SEC when required
with respect to other issuers for which such disclosure about him is required,
and in similar contexts, in all cases consistent with the information set forth
in the press release referred to in paragraph 9 below. During the Severance
Period and thereafter, Costello agrees that he shall not, in any communications
with any third party, criticize, ridicule or make any statement which disparages
or is derogatory of AutoNation or any of AutoNation's affiliates or any of its
or their officers, directors, agents or employees, and AutoNation agrees that
it, its officers and directors shall not, in any communications with any third
party, criticize, ridicule or make any statement which disparages or is
derogatory of Costello.
2
<PAGE> 3
5. FULL SATISFACTION AND RELEASES. The parties agree that, except as
otherwise provided in this Agreement, this Agreement severs all relationships
between them and shall act as a mutual release of all claims of any nature which
one party may have against the other party as of the Effective Date, except that
the following claims shall not be released hereby: (i) claims by either party
against the other under or pursuant to this Agreement, (ii) claims by Costello
under applicable law in respect of statutory employment rights (such as COBRA or
ERISA claims), and (iii) claims or rights of Costello under law or AutoNation's
certificate of incorporation and bylaws to indemnification against third party
claims arising with respect to his service as an officer and director of
AutoNation prior to the Effective Date. AutoNation agrees to maintain its
existing or substantially comparable directors and officers insurance coverage
in place for at least three years following the Effective Date, and agrees to
keep the same or broader indemnification rights in place under its bylaws for at
least five years following the Effective Date, to the extent allowed by
applicable law.
6. SEC FILING. AutoNation will prepare a Form 4 for Costello to file on
a timely basis with the Securities and Exchange Commission reporting that he is
no longer an executive officer of AutoNation as of the Effective Date. After the
Effective Date, AutoNation shall cease to refer to or include Costello as an
executive officer in any of its SEC filings or press releases.
7. PRESS RELEASE. Costello and AutoNation shall mutually agree on the
text of any press release to be issued by AutoNation to announce the termination
of his employment with AutoNation, but he acknowledges that AutoNation shall
have final control over the timing of such press release.
8. NON-COMPETE AND NON-SOLICITATION. Costello agrees that during the
Severance Period, except with the prior written consent of AutoNation, Costello
shall not, directly or indirectly (whether individually or as a partner, joint
venturer, officer, director, employee, consultant, agent, independent contractor
or stockholder of or lender to any company or business entity or otherwise), for
any reason:
(a) engage in the automotive retail or rental consumer business in any
market in the United States, franchised automotive dealerships, used vehicle
dealerships, collision repair, Internet or other e-commerce businesses which
sell or which have as a primary purpose the generation of sales leads (i.e.
Autobytel, Autoweb) to sell retail vehicles, or vehicle rental businesses
(collectively, the "Automotive Business"); or
(b) request, advise or induce any material customer or material vendor
of the AutoNation Group to withdraw, curtail or cancel any such customer's or
vendor's business with the AutoNation Group; or
(c) (i) without the prior written consent of AutoNation, which consent
will not be unreasonably withheld, solicit for employment, or knowingly permit
any company or business directly or indirectly controlled by or affiliated with
him to solicit for employment, any person who is employed by AutoNation, in Fort
Lauderdale, Florida or in any manner seek to induce any such person to leave his
or her employment with AutoNation, or (ii) employ, or permit any
3
<PAGE> 4
company or business directly or indirectly controlled by or affiliated with him
to employ, any person who is employed by AutoNation in Fort Lauderdale, Florida
or who was so employed within one year prior to that time, provided, however,
that Costello, or any company or business directly or indirectly controlled by
him, may employ any person at any time after such person has been terminated
(with or without cause) by AutoNation.
9. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters, agreements and understandings
relating to the subject matter hereof.
(b) CHOICE OF LAW. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Florida.
(c) EFFECT OF WAIVER. The failure of any party at any time or times
to require performance of any provision of this Agreement will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(d) SEVERABILITY. The invalidity, illegality or unenforceability of
any provision or provisions of this Agreement will not affect any other
provision of this Agreement, which will remain in full force and effect, nor
will the invalidity, illegality or unenforceability of a portion of any
provision of this Agreement affect the balance of such provision. In the event
that any one or more of the provisions contained in this Agreement or any
portion thereof shall for any reason beheld to be invalid, illegal or
unenforceable in any respect, this Agreement shall be reformed, construed an
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
(e) EXCLUSIVE VENUE AND JURISDICTION. Any suit, action or proceeding
with respect to this Agreement shall be brought in the courts of Broward County
in the State of Florida or in the U.S. District Court for the Southern District
of Florida. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding.
(f) BINDING NATURE. This Agreement will be binding upon the parties
and will inure to the benefit of any successor or successors of AutoNation. This
Agreement is not assignable by Costello.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
(h) NOTICES. All notices which either party shall be required or
permitted to make
4
<PAGE> 5
or give under this Agreement shall be in writing and shall be sufficiently made
or given if sent by personally delivery, by certified mail, return receipt
requested or by nationally recognized overnight courier service, addressed as
set forth below, unless a notice of a change of address has been previously
given in accordance with the foregoing:
If to Costello: John H. Costello
2450 Del Lago Drive
Fort Lauderdale, FL 33316
If to AutoNation: AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Attn: Chairman
With a copy to: AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Attn: General Counsel
(i) ARM'S LENGTH NEGOTIATIONS. Each party herein expressly
represents and warrants to the other that (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advice of its own counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
AUTONATION, INC.
By: /s/ H. Wayne Huizenga
-----------------------------------
H. Wayne Huizenga
Chairman
/s/ JOHN H. COSTELLO
---------------------------------
JOHN H. COSTELLO
5
<PAGE> 1
EXHIBIT 10.4
(AUTONATION(tm) LOGO)
September 22, 1999
Mr. Mike Jackson
Via Facsimile: (201) 573-6770
Dear Mike:
This letter will confirm our offer of employment as follows:
POSITION: Chief Executive Officer
START DATE: September 24, 1999
TERM: Three years.
ANNUAL SALARY: $1,000,000 payable bi-weekly. Future salary increases to be
determined in normal course.
SIGNING BONUS: $250,000 payable on your start date, which bonus will be
subject to applicable taxes.
ANNUAL BONUS: Up to 100% of base salary ($1,000,000) to be paid on the
achievement of mutually agreed upon goals and objectives
during the first quarter of each year.
STOCK OPTIONS: An initial grant of 1,000,000 stock options effective
September 24, 1999, subject to your agreement that your next
stock option grant will take place in January, 2001 or such
other date the Committee makes its Year 2001 annual grant of
stock options to key employees of the Company. These options
will be granted under the Company's Employee Stock Option
Plans (the "Plans"). Under the Plans, stock options vest at a
rate of twenty-five percent per year during an employee's term
of employment beginning on the first anniversary date of the
grant. Subject to the discretion of the Committee, in 2001 and
future years you will be awarded options in amounts
commensurate with your position.
<PAGE> 2
Mr. Mike Jackson
September 22, 1999
Page 2
SALARY CONTINUATION: If your employment is terminated for any reason other than
"cause" at any time prior to expiration of the term of this
Agreement, you will be entitled to receive your base salary
for the remainder of the three year term of this Agreement.
For the year of any such termination, you will also be
entitled to receive a pro-rated bonus relating to your
performance prior to termination. In addition to the base
salary payment, all stock options held by you will continue
to vest during the 12 month period immediately following
such termination and you shall have two months from the end
of such 12 month period to exercise all vested options.
During the remaining term of this Agreement, you and your
dependents shall be entitled to continue to participate in
the Company's group health and welfare benefits plans (as
such plans may be amended from time to time by the Company)
with you and the Company continuing to pay such respective
portions of the premiums as you and the Company paid during
your employment. All of the foregoing shall be contingent
upon your execution of a general waiver and release of all
claims.
AIRPLANE PRIVILEGES: During your employment, in consideration of your personal
safety, you will have up to 100 hours use per year of
corporate aircraft for personal travel subject to the cost
of such travel being included in your annual W2 form.
RELOCATION: The Company will provide you with relocation assistance to
be agreed upon in moving you, your family and your personal
property to South Florida. Additionally, the Company will
provide temporary living arrangements and commute expenses
between Ft. Lauderdale and your current home through
January, 2000.
BENEFITS: You will be eligible to participate in the Company's group
benefit programs effective on the first day of the month
coincident with or following the completion of thirty days
service.
<PAGE> 3
Mr. Mike Jackson
September 22, 1999
Page 3
DRUG SCREENING: In connection with the Company's goal to provide a
"drug-free workplace," a successful completion of the
Company's hair analysis drug screening process is required.
CONFIDENTIALITY AND Employment is contingent upon your signing the
NON-COMPETE Company's Confidentiality and Non-Compete Agreement.
AGREEMENT
Please confirm your acceptance of this offer by signing in the space provided
below and then returning one original signed copy to me as soon as possible.
We are pleased to have you as part of our team.
Sincerely,
/s/ James O. Cole
James O. Cole
ACCEPTED:
/s/ Mike Jackson
- ---------------------------
Mike Jackson
9/23/99
- ---------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 398,900
<SECURITIES> 0
<RECEIVABLES> 1,301,700
<ALLOWANCES> 38,600
<INVENTORY> 2,221,000
<CURRENT-ASSETS> 3,981,500
<PP&E> 1,848,300
<DEPRECIATION> 153,600
<TOTAL-ASSETS> 9,504,600
<CURRENT-LIABILITIES> 2,735,800
<BONDS> 362,500
0
0
<COMMON> 4,700
<OTHER-SE> 5,282,000
<TOTAL-LIABILITY-AND-EQUITY> 9,504,600
<SALES> 15,092,000
<TOTAL-REVENUES> 15,092,000
<CGS> 13,025,000
<TOTAL-COSTS> 13,025,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,900
<INCOME-PRETAX> 387,700
<INCOME-TAX> 139,600
<INCOME-CONTINUING> 248,100
<DISCONTINUED> 437,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686,000
<EPS-BASIC> 1.55
<EPS-DILUTED> 1.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 183,800
<SECURITIES> 0
<RECEIVABLES> 1,000,200
<ALLOWANCES> 33,800
<INVENTORY> 1,849,500
<CURRENT-ASSETS> 3,061,200
<PP&E> 1,628,700
<DEPRECIATION> 107,200
<TOTAL-ASSETS> 8,412,200
<CURRENT-LIABILITIES> 1,997,300
<BONDS> 520,900
0
0
<COMMON> 4,700
<OTHER-SE> 5,419,500
<TOTAL-LIABILITY-AND-EQUITY> 8,412,200
<SALES> 9,024,000
<TOTAL-REVENUES> 9,024,000
<CGS> 7,770,300
<TOTAL-COSTS> 7,770,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,700
<INCOME-PRETAX> 254,900
<INCOME-TAX> 91,700
<INCOME-CONTINUING> 163,200
<DISCONTINUED> 221,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,200
<EPS-BASIC> .85
<EPS-DILUTED> .82
</TABLE>
