<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 JUNE 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)
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)
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 August 9, 1999 the registrant had 468,598,638 outstanding shares of
common stock, par value $.01 per share, including 39,979,621 shares of common
stock held in treasury.
<PAGE> 2
AUTONATION, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as
of June 30, 1999 and December 31, 1998.................................................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1999 and 1998................................. 4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Six Months Ended June 30, 1999............................................. 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 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>
JUNE 30, DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 640.1 $ 183.8
Receivables, net ......................................................... 1,240.5 966.4
Inventory ................................................................ 2,193.2 1,849.5
Other current assets ..................................................... 68.6 61.5
---------- ----------
Total Current Assets ............................................... 4,142.4 3,061.2
INVESTMENTS ................................................................. 254.4 167.7
PROPERTY AND EQUIPMENT, NET ................................................. 1,663.9 1,521.5
INTANGIBLE AND OTHER ASSETS, NET ............................................ 2,568.8 2,092.9
NET ASSETS OF DISCONTINUED OPERATIONS ....................................... 779.8 1,568.9
---------- ----------
$ 9,409.3 $ 8,412.2
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................................... $ 193.8 $ 117.6
Accrued liabilities ...................................................... 504.0 428.5
Notes payable and current maturities of
long-term debt ......................................................... 1,751.2 1,344.8
Other current liabilities ................................................ 81.0 92.5
---------- ----------
Total Current Liabilities .......................................... 2,530.0 1,983.4
LONG-TERM DEBT, NET OF CURRENT MATURITIES ................................... 44.4 520.9
DEFERRED INCOME TAXES ....................................................... 910.6 336.9
OTHER LIABILITIES ........................................................... 187.5 146.8
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;
467,443,453 and 467,240,307 shares
issued and outstanding including shares
held in treasury, respectively ......................................... 4.7 4.7
Additional paid-in capital ............................................... 4,630.8 4,628.9
Retained earnings ........................................................ 1,512.2 930.9
Accumulated other comprehensive income(loss) ............................. 31.3 (4.3)
Treasury stock, at cost; 30,011,045 and
9,110,400 shares held, respectively ................................... (442.2) (136.0)
---------- ----------
Total Shareholders' Equity ......................................... 5,736.8 5,424.2
---------- ----------
$ 9,409.3 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE ......................... $ 5,069.6 $ 3,172.6 $ 9,632.3 $ 5,516.0
COST OF OPERATIONS .............. 4,362.8 2,741.0 8,315.3 4,767.1
------------ ------------ ------------ ------------
GROSS MARGIN .................... 706.8 431.6 1,317.0 748.9
SELLING,GENERAL AND
ADMINISTRATIVE EXPENSES ...... 551.9 336.7 1,069.2 608.1
------------ ------------ ------------ ------------
OPERATING INCOME ................ 154.9 94.9 247.8 140.8
INTEREST INCOME ................. 5.3 1.7 8.7 2.1
INTEREST EXPENSE ................ (9.9) (9.8) (16.6) (10.7)
OTHER INCOME (EXPENSE), NET ..... 1.4 (2.1) 3.1 (4.3)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES .......... 151.7 84.7 243.0 127.9
PROVISION FOR INCOME TAXES ...... 54.6 30.5 87.5 46.0
------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS ................... 97.1 54.2 155.5 81.9
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Income from discontinued
operations, net of income
taxes ....................... 24.8 73.2 46.5 122.6
Gain on disposal of segment,
net of income taxes of
$535.5 million .............. 379.3 -- 379.3 --
------------ ------------ ------------ ------------
404.1 73.2 425.8 122.6
------------ ------------ ------------ ------------
NET INCOME ...................... $ 501.2 $ 127.4 $ 581.3 $ 204.5
============ ============ ============ ============
BASIC EARNINGS PER SHARE:
Continuing operations ........ $ .22 $ .12 $ .35 $ .18
Discontinued operations ...... .91 .16 .94 .28
------------ ------------ ------------ ------------
Net income ................... $ 1.13 $ .28 $ 1.29 $ .46
============ ============ ============ ============
DILUTED EARNINGS PER SHARE:
Continuing operations ........ $ .21 $ .11 $ .34 $ .18
Discontinued operations ...... .90 .16 .93 .26
------------ ------------ ------------ ------------
Net income ................... $ 1.11 $ .27 $ 1.27 $ .44
============ ============ ============ ============
</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............ -- -- -- -- (313.3)
Issuance of treasury stock
for employee benefit
plan................................ -- .2 -- -- 7.1
Exercise of stock options
and warrants........................ -- 2.7 -- -- --
Other comprehensive income............. -- -- -- 35.6 --
Other.................................. -- (1.0) -- -- --
Net income............................. -- -- 581.3 -- --
----- --------- -------- ------- -------
BALANCE AT JUNE 30, 1999.................. $4.7 $4,630.8 $1,512.2 $ 31.3 $(442.2)
===== ========= ======== ======= =======
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
---------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 581.3 $ 204.5
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................. 55.9 35.7
Income from discontinued operations ........................... (46.5) (122.6)
Gain on sale of solid waste services segment .................. (379.3) --
Changes in assets and liabilities, net of effects from business
combinations:
Receivables ............................................. (211.2) (307.0)
Inventory ............................................... (92.7) 119.0
Other assets ............................................ 15.7 (3.5)
Accounts payable and accrued liabilities ................ 78.8 (62.2)
Other liabilities ....................................... 14.1 (15.8)
----------- ---------
16.1 (151.9)
----------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment .............................. (120.1) (81.3)
Purchases of marketable securities ............................... (39.6) --
Sales of marketable securities ................................... 40.3 --
Cash used in business acquisitions, net of
cash acquired .................................................. (551.6) (306.5)
Cash received on disposal of solid waste
services segment ............................................... 1,779.6 --
Other ............................................................ 112.4 (5.1)
----------- ---------
1,221.0 (392.9)
----------- ---------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from vehicle inventory
financing facilities ........................................... 198.2 251.3
Net (payments) proceeds from revolving credit
facilities ..................................................... (500.0) 525.0
Purchases of treasury stock ...................................... (318.6) --
Payments of notes payable and long-term debt ..................... (85.7) (187.9)
Other ............................................................ 2.7 10.7
----------- ---------
(703.4) 599.1
----------- ---------
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS ................. (570.1) 31.6
----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... (36.4) 85.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $590.1 MILLION AND
$44.9 MILLION, RESPECTIVELY ...................................... 773.9 148.0
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $97.4 MILLION AND
$84.6 MILLION, RESPECTIVELY ...................................... $ 737.5 $ 233.9
=========== ===========
</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 included in the Company's most recent
Annual Report on Form 10-K.
In July 1999, the Company's Board of Directors decided that it would be
in the best interest of the Company and its stockholders to separate the
Company's automotive rental business from the Company. The Company believes the
separation will strengthen its financial condition enabling it to raise
additional capital needed to fund the execution of its automotive retail
business plan and allow management to focus solely on the automotive retail
business. The Board of Directors is exploring various strategic alternatives
regarding the form of separation. Accordingly, as discussed in Note 15,
Discontinued Operations, the Company's automotive rental segment has been
accounted for as discontinued operations and the accompanying unaudited
condensed consolidated financial statements presented herein have been restated
to report separately the net assets and operating results of these discontinued
operations.
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 June 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 six months ended June 30, 1999, the Company acquired various
businesses in the automotive retail industry. The Company paid approximately
$551.6 million of cash for these acquisitions which have been accounted for
under the purchase method of accounting.
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 six months ended June 30 related to continuing
operations:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Property and equipment.......................................... $ 118.9 $ 243.8
Intangible and other assets..................................... 549.6 721.7
Working capital................................................. 256.8 481.4
Debt assumed.................................................... (344.5) (686.6)
Other liabilities............................................... (29.2) (22.1)
Common stock issued............................................. -- (431.7)
-------- --------
Cash used in acquisitions, net of cash acquired................. $ 551.6 $ 306.5
======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
-------- ---------
<S> <C> <C>
Revenue................................................... $9,909.4 $8,854.5
Income from continuing operations......................... 159.9 120.9
Diluted earnings per share from continuing
operations.............................................. .35 .26
</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>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Trade receivables..................................... $ 621.7 $ 502.3
Finance receivables................................... 488.1 354.0
Manufacturer receivables.............................. 114.5 86.1
Other................................................. 53.2 57.8
--------- ---------
1,277.5 1,000.2
Less: allowance for doubtful accounts................. (37.0) (33.8)
--------- ---------
$1,240.5 $ 966.4
========= =========
</TABLE>
The Company securitizes installment loan receivables generated by its
automotive finance subsidiary through a $1.4 billion commercial paper warehouse
facility with certain financial institutions, as amended. During the six months
ended June 30, 1999, the Company securitized approximately $725.8 million of
receivables under this program. At June 30, 1999, aggregate receivables totaling
$1.27 billion were securitized under this program.
8
<PAGE> 9
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
New vehicles.......................................... $1,564.8 $1,274.3
Used vehicles......................................... 491.7 457.3
Parts, accessories and other.......................... 136.7 117.9
-------- --------
$2,193.2 $1,849.5
======== ========
</TABLE>
5. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ----------
<S> <C> <C>
Marketable securities.................................. $ 195.7 $ 96.8
Equity method investments.............................. 58.7 70.9
-------- --------
$ 254.4 $ 167.7
======== ========
</TABLE>
Marketable securities at June 30, 1999 includes approximately 3.2
million shares of RSG common stock with an aggregate fair value of approximately
$78.1 million. These shares are classified as available for sale marketable
securities and carried at fair value with unrealized gains included in other
comprehensive income.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ---------
<S> <C> <C>
Land............................................................ $ 583.1 $ 558.5
Buildings and improvements...................................... 840.7 751.2
Furniture, fixtures and equipment............................... 369.9 319.0
--------- ---------
1,793.7 1,628.7
Less: accumulated depreciation and amortization................. (129.8) (107.2)
--------- ---------
$1,663.9 $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 June 30,
1999 and December 31, 1998 was $88.1 million and $59.7 million, respectively.
9
<PAGE> 10
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- -------------
<S> <C> <C>
Vehicle inventory credit facilities; secured
by the Company's vehicle inventory.................. $1,730.1 $1,339.2
Revolving credit facilities; interest payable
using LIBOR based rates; unsecured;
maturities through 2002............................. -- 500.0
Other notes............................................. 65.5 26.5
--------- ---------
1,795.6 1,865.7
Less: current portion.................................. (1,751.2) (1,344.8)
--------- ---------
$ 44.4 $ 520.9
========= =========
</TABLE>
9. SHAREHOLDERS' EQUITY
In August 1998, the Company's Board of Directors authorized the
repurchase of up to $500.0 million of shares of the Company's common stock, par
value $.01 per share ("Common Stock") over the following 12 months. In July
1999, the Company's Board of Directors authorized the repurchase of an
additional $500.0 million of shares 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. During the six months ended June 30, 1999,
the Company repurchased 21.4 million shares of Common Stock for an aggregate
purchase price of $313.3 million. Through June 30, 1999, an aggregate of 30.5
million shares of Common Stock have been acquired under this program for an
aggregate purchase price of $449.3 million.
10. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income ....................... $ 501.2 $ 127.4 $ 581.3 $ 204.5
--------- -------- --------- --------
Other comprehensive income (loss):
Unrealized gain on marketable
securities, net of income
taxes ...................... 36.0 -- 35.9 --
Unrealized gain (loss) on
interest-only strip
receivables, net of income
taxes ...................... (.3) -- 2.3 --
Reclassification of realized
gains, net of income taxes . (.8) -- (1.5) --
Foreign currency translation
adjustments, net of income
taxes ...................... (.7) 1.4 (1.1) .5
--------- -------- --------- --------
34.2 1.4 35.6 .5
--------- -------- --------- --------
Comprehensive income ............. $ 535.4 $ 128.8 $ 616.9 $ 205.0
========= ======== ========= ========
</TABLE>
10
<PAGE> 11
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 six months
ended June 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.............................................. 14.8 -- 14.8 15.92
Exercised............................................ (.3) -- (.3) 8.32
Canceled............................................. (9.7) -- (9.7) 14.27
------ ----- -------
Options and warrants outstanding
at June 30, 1999................................ 52.1 7.3 59.4 14.46
====== ===== =======
Options and warrants exercisable
at June 30, 1999................................ 14.2 7.3 21.5 13.40
Options and warrants available
for future grants
at June 30, 1999................................ 22.4
</TABLE>
13. LEGAL MATTERS
The Company is a party to various general corporate 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.
11
<PAGE> 12
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used in calculating
basic earnings per share............................. 444.3 454.7 450.2 447.4
Effect of dilutive options and
warrants............................................. 8.8 19.2 8.8 18.6
----- ------ ------ ------
Weighted average common and common
equivalent shares used in
calculating diluted earnings per
share .............................................. 453.1 473.9 459.0 466.0
====== ====== ====== ======
</TABLE>
At June 30, 1999 and 1998, the Company had approximately 25.0 million
and 15.1 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 July 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. In addition, 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 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>
JUNE 30, DECEMBER 31,
1999 1998
---------- -------------------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Current assets.............................. $6,048.1 $5,345.1 $ 784.0 $6,129.1
Non-current assets.......................... 994.1 907.5 2,028.1 2,935.6
-------- -------- -------- --------
Total assets.............................. 7,042.2 6,252.6 2,812.1 9,064.7
-------- -------- -------- --------
Current liabilities......................... 2,782.5 3,438.6 783.8 4,222.4
Non-current liabilities..................... 3,479.9 2,075.3 729.2 2,804.5
-------- -------- -------- --------
Total liabilities......................... 6,262.4 5,513.9 1,513.0 7,026.9
-------- -------- -------- --------
Minority interest in RSG.................... -- -- 468.9 468.9
--------- --------- ------- --------
Net assets of discontinued
operations................................ $ 779.8 $ 738.7 $ 830.2 $1,568.9
======== ======== ======= ========
</TABLE>
12
<PAGE> 13
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Selected statement of operations data for the Company's discontinued
operations is as follows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------------------------------------------------------------
1999 1998
------------------------------------ -----------------------------------
Automotive Solid Automotive Solid
Rental Waste Total Rental Waste Total
---------- ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................. $892.8 $149.0 $1,041.8 $864.8 $335.9 $1,200.7
Operating income.......................... 25.5 31.4 56.9 41.4 74.4 115.8
Provision for income taxes................ 7.7 10.6 18.3 14.5 26.7 41.2
Minority interest in RSG.................. -- 5.9 5.9 -- -- --
Income from discontinued
operations........................... 13.8 11.0 24.8 25.8 47.4 73.2
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------------------------------------------------
1999 1998
------------------------------------ -----------------------------------
Automotive Solid Automotive Solid
Rental Waste Total Rental Waste Total
---------- ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue ................................. $1,683.8 $552.5 $2,236.3 $1,640.5 $636.7 $2,277.2
Operating income.......................... 16.5 113.5 130.0 56.8 137.2 194.0
Provision for income taxes................ 3.4 38.8 42.2 19.7 49.3 69.0
Minority interest in RSG.................. -- 21.6 21.6 -- -- --
Income from discontinued
operations........................... 6.1 40.4 46.5 34.9 87.7 122.6
</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
included in the Company's most recent Annual Report on Form 10-K.
In July 1999, the Company's Board of Directors decided that it would be
in the best interest of the Company and its stockholders to separate the
Company's automotive rental business from the Company. The Company believes the
separation will strengthen its financial condition enabling it to raise
additional capital needed to fund the execution of its automotive retail
business plan and allow management to focus solely on the automotive retail
business. The Board of Directors is exploring various strategic alternatives
regarding the form of separation. Accordingly, 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 the accompanying unaudited condensed consolidated
financial statements presented herein have been restated to report separately
the net assets and operating results of these discontinued operations.
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 June 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 six months ended June 30, 1999, the Company acquired various
businesses in the automotive retail industry. The Company paid approximately
$551.6 million of cash for these acquisitions which have been accounted for
under the purchase method of accounting.
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 JUNE 30, SIX MONTHS ENDED JUNE 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 .............. $ 97.1 $ .21 $ 54.2 $ .11 $ 155.5 $ .34 $ 81.9 $ .18
--------- -------- ------- ------- ------- ------ ------- ------
Income from discontinued
operations:
Automotive rental ..... 13.8 .03 25.8 .06 6.1 .01 34.9 .07
Solid waste services... 11.0 .03 47.4 .10 40.4 .09 87.7 .19
Gain on sale of RSG.... 379.3 .84 -- -- 379.3 .83 -- --
--------- -------- ------- ------- ------- ------ ------- ------
404.1 .90 73.2 .16 425.8 .93 122.6 .26
--------- -------- ------- ------- ------- ------ ------- ------
Net income ................ $ 501.2 $ 1.11 $ 127.4 $ .27 $ 581.3 $ 1.27 $ 204.5 $ .44
========= ======== ======= ======= ======= ====== ======= ======
</TABLE>
CONTINUING OPERATIONS
REPORTED OPERATING DATA:
The following table sets forth the components of revenue, with
percentages of total revenue, and gross margin, selling, general and
administrative expenses ("S, G & A") and operating income, with percentages of
total revenue, on a reported basis for the periods indicated (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
1999 % 1998 % 1999 % 1998 %
-------- ------ --------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle....................... $2,906.3 57.3 $1,710.6 53.9 $5,455.2 56.6 $2,914.5 52.8
Used vehicle...................... 1,235.3 24.4 860.8 27.1 2,358.2 24.5 1,565.6 28.4
Fixed operations.................. 549.6 10.8 323.7 10.2 1,058.3 11.0 569.1 10.3
Other............................. 378.4 7.5 277.5 8.8 760.6 7.9 466.8 8.5
--------- ------ --------- ----- --------- ------ --------- -----
$5,069.6 100.0 $3,172.6 100.0 $9,632.3 100.0 $5,516.0 100.0
========= ====== ========= ===== ========= ====== ========= =====
Gross Margin........................ $ 706.8 14.0 $ 431.6 13.6 $1,317.0 13.7 $ 748.9 13.6
S, G & A:
Divisional...................... $ 536.9 10.6 $ 327.4 10.3 $1,040.4 10.8 $ 588.3 10.7
Corporate....................... 15.0 .3 9.3 .3 28.8 .3 19.8 .3
--------- ------ --------- ----- --------- ------ --------- -----
$ 551.9 10.9 $ 336.7 10.6 $1,069.2 11.1 $ 608.1 11.0
========= ====== ========= ===== ========= ====== ========= =====
Operating Income:
Divisional...................... $ 169.9 3.4 $ 104.2 3.3 $ 276.6 2.9 $ 160.6 2.9
Corporate....................... (15.0) (.3) (9.3) (.3) (28.8) (.3) (19.8) (.3)
--------- ------ --------- ----- --------- ------ --------- -----
$ 154.9 3.1 $ 94.9 3.0 $ 247.8 2.6 $ 140.8 2.6
========= ====== ========= ===== ========= ====== ========= =====
</TABLE>
15
<PAGE> 16
SAME STORE OPERATING DATA:
The following table sets forth the components of same store revenue,
with the percentage change between periods, and same store gross margin, same
store S, G & A and same store operating income, 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle....................... $1,761.8 $1,618.8 8.8 $3,107.8 $2,782.7 11.7
Used vehicle...................... 781.9 807.8 (3.2) 1,405.4 1,472.1 (4.5)
Fixed operations.................. 325.2 305.9 6.3 587.3 541.8 8.4
Other............................. 221.1 253.8 (12.9) 446.6 435.2 2.6
-------- -------- -------- --------
$3,090.0 $2,986.3 3.5 $5,547.1 $5,231.8 6.0
======== ======== ======== ========
Gross Margin........................ $ 414.9 $ 399.7 3.8 $ 728.3 $ 698.3 4.3
Gross Margin Percentage............. 13.4% 13.4% -- 13.1% 13.3% (.2)
S, G & A............................ $ 306.1 $ 300.8 1.8 $ 552.7 $ 539.2 2.5
S, G & A Percentage................. 9.9% 10.1% (.2) 10.0% 10.3% (.3)
Operating Income.................... $ 108.8 $ 98.9 10.0 $ 175.6 $ 159.1 10.4
Operating Income Percentage......... 3.5% 3.3% .2 3.2% 3.0% .2
</TABLE>
REVENUE
Revenue on a reported basis was $5.07 billion for the three months
ended June 30, 1999 versus $3.17 billion for the comparable 1998 period, an
increase of 59.8%. Revenue on a reported basis was $9.63 billion for the six
months ended June 30, 1999 versus $5.52 billion for the comparable 1998 period,
an increase of 74.6%. The increases are primarily attributed to acquisitions.
Same store sales were $3.09 billion for the three months ended June 30,
1999 versus $2.99 billion for the comparable 1998 period, an increase of 3.5%.
Same store sales were $5.55 billion for the six months ended June 30, 1999
versus $5.23 billion for the comparable 1998 period, an increase of 6.0%. The
primary components of these same store sales increases are described below.
New vehicle same store sales increased 8.8% to $1.76 billion during the
three months ended June 30, 1999 and 11.7% to $3.11 billion during the six
months ended June 30, 1999. The increases are primarily due to volume.
Used vehicle same store sales decreased 3.2% to $781.9 million during
the three months ended June 30, 1999 and 4.5% to $1.41 billion during the six
months ended June 30, 1999. These decreases are primarily attributed to volume
at the Company's used vehicle megastores.
Fixed operations same store sales increased 6.3% to $325.2 million
during the three months ended June 30, 1999 and 8.4% to $587.3 million during
the six months ended June 30, 1999. These increases are primarily due to volume.
Same store other sales consist primarily of wholesale revenue. Same
store other sales decreased 12.9% to $221.1 million during the three months
ended June 30, 1999 and increased 2.6% to $446.6 million during the six months
ended June 30, 1999. These variances are primarily due to fluctuations in sales
of wholesale units during the periods.
GROSS MARGINS
Reported gross margins were $706.8 million and $1.32 billion for the
three and six months ended June 30, 1999 versus $431.6 million and $748.9
million for the comparable 1998 periods. The increases in aggregate dollars are
primarily due to acquisitions. Reported gross margins as a percentage of revenue
were 14.0% and 13.7% for the three and six months ended June 30, 1999 versus
13.6% for both comparable 1998 periods. The overall increases in reported gross
margins as percentages of reported revenue are primarily due to improved margins
on the sale of new vehicles.
16
<PAGE> 17
Same store gross margins were $414.9 million and $728.3 million for the
three and six months ended June 30, 1999 versus $399.7 million and $698.3
million for the comparable 1998 periods. Same store gross margins as a
percentage of same store total revenue were 13.4% and 13.1% for the three and
six months ended June 30, 1999 versus 13.4% and 13.3% for the comparable 1998
periods. The decrease in same store gross margin percentage during the six
months ended June 30, 1999 is primarily due to weakness in same store used
vehicle sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Reported divisional selling, general and administrative expenses were
$536.9 million and $1.04 billion for the three and six months ended June 30,
1999 versus $327.4 million and $588.3 million for the comparable 1998 periods.
The increases in aggregate dollars are primarily due to acquisitions. Reported
divisional selling, general and administrative expenses as a percentage of
reported revenue were 10.6% and 10.8% for the three and six months ended June
30, 1999 versus 10.3% and 10.7% for the comparable 1998 periods. The increases
in reported divisional selling, general and administrative expenses as
percentages of reported revenue are primarily due to newly acquired businesses
as well as investments in the Company's business including e-commerce and brand
development.
Same store selling, general and administrative expenses were $306.1
million and $552.7 million during the three and six months ended June 30, 1999
versus $300.8 million and $539.2 million for the comparable 1998 periods. Same
store selling, general and administrative expenses as a percentage of same store
total revenue were 9.9% and 10.0% for the three and six months ended June 30,
1999 versus 10.1% and 10.3% for the comparable 1998 periods. The decreases in
same store selling, general and administrative expenses are primarily due to
cost savings and leveraging the overhead structure.
CORPORATE EXPENSES
Corporate expenses were $15.0 million and $28.8 million for the three
and six months ended June 30, 1999 versus $9.3 million and $19.8 million for the
comparable 1998 periods. Such increases are a result of the overall growth
experienced by the Company. The Company has allocated estimated corporate
expenses which will no longer be incurred after the separation of the automotive
rental division to discontinued operations. These allocated costs totaled
approximately $4.0 million and $8.0 million for the three and six months ended
June 30, 1999, respectively, and $3.7 million and $7.4 million for the three and
six months ended June 30, 1998, respectively.
INTEREST INCOME
Interest income was $5.3 million and $8.7 million for the three and six
months ended June 30, 1999 versus $1.7 million and $2.1 million for the
comparable 1998 periods. The increases are primarily due to higher cash balances
on hand during the periods.
INTEREST EXPENSE
Interest expense was incurred primarily on borrowings under the
Company's revolving credit facilities for acquisitions and share repurchases.
Interest expense was $9.9 million and $16.6 million for the three and six months
ended June 30, 1999 versus $9.8 million and $10.7 million for the comparable
1998 periods. Such increases are primarily due to borrowings for acquisitions
and share repurchases. Interest expense related to vehicle floorplan financing
is included in cost of operations.
17
<PAGE> 18
INCOME TAXES
The provision for income taxes was $54.6 million and $87.5 million for
the three and six months ended June 30, 1999 versus $30.5 million and $46.0
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 June 30, 1999,
approximately $22.4 million remained in accrued liabilities associated with
these charges.
During the six months ended June 30, 1999, the Company spent
approximately $1.7 million of its automotive retail reserves related to closed
operations. The remaining automotive retail reserves at June 30, 1999 relate
primarily to closed reconditioning centers which the Company is actively
marketing for sale.
DISCONTINUED OPERATIONS
AUTOMOTIVE RENTAL
As a result of the Company's decision in July 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
1999 % 1998 % 1999 % 1998 %
-------- ----- --------- ----- -------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 892.8 100.0 $ 864.8 100.0 $1,683.8 100.0 $1,640.5 100.0
Expenses:
Cost of operations................ 683.9 76.6 664.7 76.9 1,317.3 78.2 1,270.1 77.4
Selling, general and
administrative.................. 183.4 20.5 158.7 18.3 350.0 20.8 313.6 19.1
-------- ----- -------- ----- -------- ----- -------- -----
Operating income.................... $ 25.5 2.9 $ 41.4 4.8 $ 16.5 1.0 $ 56.8 3.5
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Automotive rental revenue was $892.8 million for the three months ended
June 30, 1999 versus $864.8 million for the comparable 1998 period, an increase
of 3.2%. The increase is primarily attributed to volume. Automotive rental
revenue was $1.68 billion for the six months ended June 30, 1999 versus $1.64
billion for the comparable 1998 period, an increase of 2.6%. The increase is
attributed to volume and price increases. Volume at the Company's National Car
Rental System, Inc. ("National") operations during the three and six months
ended June 30, 1999 was adversely impacted by technical issues associated with
the Company's Global Odyssey operating system ("Global Odyssey"). The Company
believes these systems issues have been substantially resolved. However, volume
at National has not returned to previous levels.
Cost of automotive rental operations was $683.9 million and $1.32
billion for the three and six months ended June 30, 1999 versus $664.7 million
and $1.27 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 76.6% and 78.2% for
the three and six months ended June 30, 1999 versus 76.9% and 77.4% for the
comparable 1998 periods. The increase in such costs as a percentage of revenue
for the six months ended June 30, 1999 is due to higher fleet costs offset by
improved fleet utilization.
18
<PAGE> 19
Selling, general and administrative expenses were $183.4 million and
$350.0 million for the three and six months ended June 30, 1999 versus $158.7
million and $313.6 million for the comparable 1998 periods. Selling, general and
administrative expenses as a percentage of revenue were 20.5% and 20.8% for the
three and six months ended June 30, 1999 versus 18.3% and 19.1% for the
comparable 1998 periods. The increases in such costs in aggregate dollars and as
percentages of revenue are due to costs associated with the Global Odyssey
system at National, increased operating costs and higher selling expenses.
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 June 30, 1999, the Company had approximately
$387.0 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 segment 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 $149.0
million and $552.5 million during the three and six months ended June 30, 1999.
Income from these discontinued operations was $11.0 million and $40.4 million
during the three and six months ended June 30, 1999. Income from discontinued
solid waste operations is presented net of minority interest.
FINANCIAL CONDITION
At June 30, 1999, the Company had $640.1 million in cash and no amounts
outstanding 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.
19
<PAGE> 20
The Company finances its automotive retail 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 June 30, 1999, the Company had
approximately $305.3 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 $434.1 million at June 30, 1999.
The Company securitizes installment loan receivables generated by its
automotive finance subsidiary through a $1.4 billion commercial paper warehouse
facility with certain financial institutions, as amended. During the six months
ended June 30, 1999, the Company securitized approximately $725.8 million of
loan receivables under this program, net of retained interests. At June 30,
1999, aggregate receivables totaling $1.27 billion were securitized 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 June 1999, the Company filed a
preliminary registration statement with the Securities and Exchange Commission
to register asset-backed securities which will refinance certain amounts
outstanding under the warehouse facility. The Company expects that the
asset-backed securities will be issued in the third or fourth quarter of 1999.
In August 1998, the Company's Board of Directors authorized the
repurchase of up to $500.0 million of shares of the Company's common stock, par
value $.01 per share ("Common Stock") over the following 12 months. In July
1999, the Company's Board of Directors authorized the repurchase of an
additional $500.0 million of shares 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. During the six months ended June 30, 1999,
the Company repurchased 21.4 million shares of Common Stock for an aggregate
purchase price of $313.3 million. Through June 30, 1999, an aggregate of 30.5
million shares of Common Stock have been acquired under this program for an
aggregate purchase price of $449.3 million.
The Company believes that it has sufficient financial resources
available to meet its anticipated capital requirements and obligations as they
come due.
CASH FLOWS
Cash and cash equivalents decreased by $36.4 million and increased by
$85.9 million during the six months ended June 30, 1999 and 1998, respectively.
The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by (used in) operating activities was $16.1 million and
($151.9) million during the six months ended June 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 proceeds from these secured vehicle financings which totaled $198.2 million
and $251.3 million during the six months ended June 30, 1999 and 1998,
respectively. Including net proceeds from these secured vehicle financings, the
Company generated positive operating cash flow of $214.3 million and $99.4
million during the six months ended June 30, 1999 and 1998, respectively.
20
<PAGE> 21
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 $551.6 million and $306.5
million for the six months ended June 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 $120.1 million and $81.3 million during the six
months ended June 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 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 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.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the six months ended June
30, 1999 and 1998 consisted of revolving credit and vehicle floorplan
financings, repayments of debt and treasury stock purchases.
During the six months ended June 30, 1999, the Company spent
approximately $318.6 million to repurchase shares of Common Stock under the
share repurchase program.
Payments of notes payable and long-term debt were $85.7 million and
$187.9 million during the six months ended June 30, 1999 and 1998, respectively.
These amounts consist primarily of the repayment of debt assumed in
acquisitions.
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used in discontinued operations during the six months ended June
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 the issue of computer programs, embedded chips and
third party suppliers that may be impacted by Y2K. 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.
21
<PAGE> 22
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,
have 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. Approximately 87% of the Company's franchised
automotive dealerships using these DMS systems have been upgraded to a compliant
version. Three percent are scheduled to complete such upgrades by the end of the
third quarter of 1999; and the remaining 10% are using a DMS system that the
vendor represents is or will be compliant with an upgrade. The Company intends
to obtain further documentation to support such compliance, as well as conduct
testing to verify compliance.
The Company is substantially complete with its assessment, analysis,
remediation and testing of its other software applications that are in use at
its AutoNation USA megastores as well as some of its franchised automotive
dealerships.
The Company has completed an inventory of its franchised automotive
dealerships and megastores to identify other business systems, products,
suppliers and embedded chips. Those issues identified are expected to be
remediated or replaced by the end of the third quarter of 1999.
Automotive Rental:
For several years, the Company, in conjunction with external
consultants, has been developing the Global Odyssey system, which will 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 expected to be completed during the third quarter of 1999.
22
<PAGE> 23
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.
Completion of remediation is expected by the end of the third quarter of 1999.
The Company has also developed a plan for its European locations, some of which
are supported by Alamo. The remaining European locations are supported by
systems developed and supported by the United Kingdom headquarters, which are
scheduled to be remediated by the end of the third quarter of 1999.
Costs To Address Y2K
To date, the Company has spent approximately $14.4 million on Y2K
efforts across all areas; of which $5.6 million relates to the Company's
continuing automotive retail operations and $8.8 million relates to the
Company's discontinued automotive rental operations. The Company currently
expects to spend a total of approximately $24.1 million when complete ($12.7
million for continuing automotive retail operations and $11.4 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 is in the process of developing comprehensive business
contingency plans, which are expected to be in place by the end of the third
quarter of 1999. These plans will be modified and updated throughout the
remainder of 1999.
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.
23
<PAGE> 24
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 under Item 7 of the Company's most
recent Annual Report on Form 10-K.
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 $1.31 billion contractually
maturing through 2005 which effectuate a variable to fixed rate swap at a
weighted average rate of 5.30% at June 30, 1999. Variable rates on the
underlying portfolio are indexed to the Commercial Paper Nonfinancial rate.
DISCONTINUED OPERATIONS
At June 30, 1999, notional principal amounts related to interest rate
swaps (variable to fixed rate) were $1.05 billion maturing as follows: $450.0
million in the remainder of 1999; $300.0 million in 2000; $100.0 million in
2001; and $200.0 million in 2003. As of June 30, 1999, the weighted average
fixed rate payment on variable to fixed rate swaps was 5.80%. 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 June 30, 1999, the
Company issued an aggregate of 37,000 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1999 Annual Meeting of Stockholders on May 25, 1999,
the stockholders of the Company voted upon and elected the following directors
and approved and adopted the following proposals:
<TABLE>
<CAPTION>
(A) DIRECTOR NOMINEE VOTES CAST FOR VOTES WITHHELD
---------------- -------------- --------------
<S> <C> <C>
H. Wayne Huizenga 343,652,129 31,122,187
Steven R. Berrard 343,239,539 31,534,777
Harris W. Hudson 343,637,387 31,136,929
Robert J. Brown 340,694,508 34,079,808
J.P. Bryan 343,728,093 31,046,223
Rick L. Burdick 340,692,843 34,081,473
Michael G. DeGroote 343,677,253 31,097,063
George D. Johnson, Jr. 343,093,085 31,681,231
John J. Melk 343,690,477 31,083,839
Irene B. Rosenfeld 343,725,903 31,048,413
</TABLE>
(B) To approve and adopt the Company's 1999 Senior Executive Bonus
Plan (359,116,744 votes were cast for this matter, 12,959,345
votes were cast against this matter, there were 2,698,227
abstentions and there were no broker non- votes).
(C) To ratify the appointment of Arthur Andersen LLP as the
Company's independent public accountants for 1999 (372,922,759
votes were cast for this matter, 1,077,390 votes were cast
against this matter, there were 774,167 abstentions and there
were no broker non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1* Third Amended and Restated Certificate of Incorporation of
AutoNation, Inc., as amended.
3.2* Bylaws of AutoNation, Inc., as amended to date.
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).
26
<PAGE> 27
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).
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).
27.1* Financial Data Schedule for the Three Months ended
June 30, 1999 (for SEC use only)
27.2* Financial Data Schedule for the Three Months ended
June 30, 1998 (restated for discontinued operations)
(for SEC use only)
_________________
* Filed herewith
(b) Reports on Form 8-K:
Form 8-K, dated April 6, 1999 (filed April 7, 1999), Item 5,
reporting that the Company changed its corporate name to
AutoNation, Inc.
Form 8-K, dated May 3, 1999 (filed May 14, 1999), Item 2,
reporting that the Company closed the sale of 100 million shares
of Class A common stock of Republic Services, Inc. ("RSG"), the
Company's former solid waste subsidiary, in a public offering.
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.
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: August 13, 1999
28
<PAGE> 1
Exhibit 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REPUBLIC INDUSTRIES, INC.
Republic Industries, Inc., a corporation organized and existing under
the laws of the State of Delaware, (the "Corporation"), does hereby certify as
follows:
(a) The name of the Corporation is Republic Industries, Inc. and the
original Certificate of Incorporation of the Corporation was originally filed
with the office of the Secretary of State of the State of Delaware on May
30,1991.
(b) This Third Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware (the "Act") and restates,
integrates and amends the provisions of the Certificate of Incorporation, as
amended and restated to date, of the Corporation.
(c) The text of the Certificate of Incorporation of the Corporation, as
heretofore amended or restated, is hereby amended and restated to read in its
entirety as follows:
FIRST: The name of the Corporation is:
Republic Industries, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,
county of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the businesses or purposes to be conducted or
promoted is:
To conduct any lawful business, to exercise any lawful purpose and
power, and to engage in any lawful act or activity for which corporations
may be organized under the Act or by any other law of Delaware or by this
Certificate of Incorporation together with any powers incidental thereto,
so far as such powers and privileges are necessary or convenient to the
conduct, promotion or attainment of the businesses or purposes of the
Corporation.
FOURTH: The total number of shares of all classes of stock which this
Corporation shall have authority to issue is 1,505,000,000 shares, consisting
of 1,500,000,000 shares of Common Stock, par value $0.01 per share, and
<PAGE> 2
5,000,000 shares of Preferred Stock, par value $0.01 per share. The aggregate
par value of all the shares of all classes of stock which this Corporation has
the authority to issue is $15,050,000.
A. COMMON STOCK. The shares of Common Stock shall have no preemptive or
preferential rights of subscription concerning further issuance or
authorization of any securities of the Corporation. Each share of Common Stock
shall entitle the holder thereof to one vote, in person or by proxy. The
holders of the Common Stock shall be entitled to receive dividends if, as and
when declared by the Board of Directors. The Common Stock may be issued from
time to time in one or more series and shall have such other relative,
participant, optional or special rights, qualifications, limitations or
restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such Common Stock from time to time
adopted by the Board of Directors pursuant to authority so to adopt which is
hereby vested in the Board of Directors.
B. PREFERRED STOCK. The Preferred Stock may be issued from time to time in one
or more series and (a) may have such voting powers, full or limited, or may be
without voting powers; (b) may be subject to redemption at such time or times
and at such prices; (c) may be entitled to receive dividends (which may be
cumulative or non cumulative) at such rate or rates, on such conditions, and at
such times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or series of stock; (d) may have such
rights upon the dissolution of, or upon any distribution of the assets of, the
Corporation; (e) may be made convertible into, or exchangeable for, shares of
any other class or classes or of any other series of the same or any other
class or classes of stock of the Corporation, at such price or prices or at
such rates of exchange, and with such adjustments; and (f)shall have such other
relative, participating, optional or special rights, qualifications,
limitations or restrictions thereof, as shall hereafter be stated and expressed
in the resolution or resolutions providing for the issuance of such Preferred
Stock from time to time adopted by the Board of Directors pursuant to authority
so to do which is hereby vested in the Board of Directors.
At any time and from time to time when authorized by resolution of the
Board of Directors and without any action by its stockholders, the Corporation
may issue or sell any shares of its stock of any class or series, whether out
of the unissued shares thereof authorized by the Certificate of Incorporation,
as amended, or out of shares of its stock acquired by it after the issue
thereof, and whether or not the shares thereof so issued or sold shall confer
upon the holders thereof the right to exchange or convert such shares for or
into other shares of stock of the Corporation of any class or classes or any
series thereof. When similarly authorized, but without any action by its
stockholders, the Corporation may issue or grant rights, warrants or options,
in bearer or registered or such other form as the Board of Directors may
determine, for the purchase of shares of the stock of any class or series of
2
<PAGE> 3
the Corporation within such period of time, or without limit as to time, of
such aggregate number of shares, and at such price per share, as the Board of
Directors may determine. Such rights, warrants or options may be issued or
granted separately or in connection with the issue of any bonds, debentures,
notes, obligations or other evidences of indebtedness or shares of the stock of
any class or series of the Corporation and for such consideration and on such
terms and conditions as the Board of Directors, in its sole discretion, may
determine. In each case, the consideration to be received by the Corporation
for any such shares so issued or sold shall be fixed from time to time by the
Board of Directors.
FIFTH: Except as may otherwise be provided in this Certificate or in the
Bylaws of the Corporation, as the same may be amended from time to time, the
Board of Directors shall have all powers and authority which may be granted to
aboard of directors of a corporation under the Act, including but not limited
to the following:
(a) to adopt, amend or repeal the Bylaws of the Corporation;
(b) to authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation;
(c) to set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created;
(d) to designate one or more committees;
(e) to sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other
corporation or corporations, as the Board of Directors shall deem
expedient and for the best interest of the Corporation, when and as
authorized by the shareholders entitled to vote thereon;
(f) to provide indemnification for directors, officers, employees,
and/or agents of the Corporation to the fullest extent permitted by law,
subject however, to the rules against limitation on liability of directors
as set forth in Section 102 of the Act, as amended from time to time; and
(g) to determine from time to time whether and to what extent, and at
what times and places and under what conditions and regulations, the
accounts and books of the Corporation or any of them, shall be opened to
the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation,
except as conferred by the Act or authorized by the Board of Directors, or
by a resolution of the stockholders.
3
<PAGE> 4
SIXTH: The Board of Directors shall consist of one or more members. The
number of directors shall be fixed by, or in the manner provided in, the
Bylaws. At the annual meeting of stockholders in 1996 and at each annual
meeting of stockholders thereafter, the respective terms of all of the
directors then serving in office shall expire at the meeting, and successors to
the directors shall be elected to hold office until the next succeeding annual
meeting. Existing directors may be nominated for election each year for a
successive term, in the manner provided in the Bylaws. Each director shall hold
office for the term for which he is elected and qualified or until his
successor shall have been elected and qualified or until his earlier
resignation, removal from office or death.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of the Act or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under the
provisions of Section 279 of the Act, order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the court
directs. If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the compromise or arrangement and the
reorganization shall, if sanctioned by the court to which the application has
been made, be binding on all the creditors or class of creditors and/or on all
the stockholders or class of stockholders of this Corporation, as the case may
be, and also on this Corporation.
EIGHTH: To the extent permitted by law, no contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purposes, if:
4
<PAGE> 5
(a) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved by vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
NINTH: The Corporation reserves the right to amend or repeal any provision
contained herein, add any additional provisions hereto, increase or decrease
the number of authorized shares of stock, or restate this Certificate of
Incorporation in its entirety in the manner now or hereafter prescribed by the
Act.
TENTH: Except as otherwise required by law or as otherwise provided in
this Certificate of Incorporation or in the Bylaws of the Corporation, any
matter properly submitted to a vote of the stockholders at a meeting of
stockholders duly convened at which there is a quorum present shall be deemed
approved up on an affirmative vote of the holders of a majority of the
outstanding shares of Common Stock present at the meeting, in person or by
proxy. No holders of any class of stock other than Common Stock shall be
entitled to vote upon any matter, except as may be required by law, this
Certificate of Incorporation, or the Bylaws of the Corporation. Written ballots
shall not be required for the election of directors.
ELEVENTH: In addition to any other indemnification granted to directors of
the Corporation contained in this Certificate of Incorporation, the Bylaws of
the Corporation, or adopted by resolution of the stockholders or directors of
the Corporation, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided however, that this indemnification shall
not eliminate or limit the liability of a director for any breach of the
director's duty of loyalty to the Corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or a
5
<PAGE> 6
knowing violation of law, or payment of any unlawful dividend or for any
unlawful stock purchase or redemption, or for any transaction from which the
director derived an improper personal benefit.
IN WITNESS WHEREOF, the undersigned has caused this Third Amended and
Restated Certificate of Incorporation to be executed this 13th day of May,
1997.
Republic Industries, Inc.
By: /s/ H. Wayne Huizenga
-----------------------------------
H. Wayne Huizenga
Chairman of the Board and Co-Chief
Executive Officer
6
<PAGE> 7
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
AUTONATION, INC.
WITH AND INTO
REPUBLIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 253 of the
General Corporation of Law of the State of Delaware
- --------------------------------------------------------------------------------
Republic Industries, Inc., a Delaware corporation (the "Company"), does
hereby certify the following facts relating to the merger (the "Merger") of
AutoNation, Inc., a Delaware corporation (the "Subsidiary"), with and into the
Company, with the Company remaining as the surviving corporation:
First: The Company is incorporated pursuant to the General Corporation
Law of the State of Delaware (the "DGCL"). The Subsidiary is incorporated
pursuant to the DGCL.
Second: The Company owns all of the outstanding shares of each class of
capital stock of the Subsidiary.
Third: The Board of Directors of the Company, by the following
resolutions duly adopted on November 2, 1998, determined to merge the Subsidiary
with and into the Company pursuant to Section 253 of the DGCL;
WHEREAS, Republic Industries, Inc., a Delaware corporation (the
"Company"), owns all of the outstanding shares of the capital stock of
AutoNation, Inc., a Delaware corporation ("Subsidiary"); and
WHEREAS, the Board of Directors of the Company has deemed it advisable
that the Subsidiary be merged with and into the Company pursuant to Section 253
of the General Corporation Law of the State of Delaware; and
NOW, THEREFORE, BE IT AND IT HEREBY IS RESOLVED, that the Subsidiary be
merged with and into the Company (the "Merger"); and it is further
RESOLVED, that by virtue of the Merger and without any action on the
part of the holder thereof, each then outstanding share of common stock of the
Company shall remain unchanged and continue to remain outstanding as one share
of common stock of the Company, held by the person who was the holder of such
share of common stock of the Company immediately prior to the Merger; and it is
further
<PAGE> 8
RESOLVED, that by virtue of the Merger and without any action on the
part of the holder thereof, each then outstanding share of common stock of the
Subsidiary shall be canceled and no consideration shall be issued in respect
thereof; and it is further
RESOLVED, that the proper officers of the Company be, and they hereby
are, authorized and directed to make, execute and acknowledge, in the name and
under the corporate seal of the Company, a certificate of ownership and merger
for the purpose of effecting the Merger and to file the same in the office of
the Secretary of State of the State of Delaware, and to do all other acts and
things that may be necessary to carry out and effectuate the purpose and intent
of the resolutions relating to the Merger; and it is further
RESOLVED, that upon the filing of the Certificate of Merger, Article
FIRST of the Third Amended and Restated Certificate of Incorporation of the
Company shall be amended in its entirety to read as follows:
"The name of the corporation is AutoNation, Inc."
IN WITNESS WHEREOF, the Company has caused this Certificate of
Ownership and Merger to be executed by its duly authorized officer this 5th day
of April, 1999.
REPUBLIC INDUSTRIES, INC.
By: /s/ James O. Cole
-------------------------------------
James O. Cole
Senior Vice President, General
Counsel and Secretary
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
AUTONATION, INC.
ARTICLE I
Offices
Section 1.1 Registered Office. The registered office of
AUTONATION, INC., a Delaware corporation (the "Corporation"), shall be located
at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
Section 1.2 Offices. The Corporation may establish or discontinue,
from time to time, such other offices and places of business within or without
the State of Delaware as the Board of Directors deem proper for the conduct of
the Corporation's business.
ARTICLE II
Meetings Of Shareholders
Section 2.1 Annual Meeting. An annual meeting of shareholders for
the purpose of electing directors and transacting such other business as may
come before it shall be held at such place, within or without the State of
Delaware, on such date and at such time as shall be designated by the Board of
Directors or the President.
Section 2.2 Special Meetings. Special meetings of shareholders,
unless otherwise prescribed by statute, may be called by the Board of Directors
or by the President. Business transacted at any special meeting of the
shareholders shall be limited to the purposes stated in the notice.
Section 2.3 Notice of Meetings. Written notice of each meeting of
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at the shareholder's address as it appears on the stock books of
the Corporation. The notice shall state the time and the place of the meeting
and shall be given not less than ten (10) nor more than sixty (60) days before
the day of the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears on the records of the Corporation. In
the case of a special meeting, the notice shall state the purpose or purposes
for which the meeting is being called. Whenever notice is required to be given
hereunder, a written waiver of notice signed by the shareholder entitled to
notice, whether before or after the time stated in the notice, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
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waiver of notice of such meeting except when a person attends for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
Section 2.4 Quorum and Adjournment. The presence, in person or by
proxy, of the holders of a majority of the voting power of the outstanding
shares of stock entitled to vote on every matter that is to be voted on,
without regard to class or series, shall constitute a quorum at all meetings of
the shareholders. In the absence of a quorum, the holders of a majority of the
voting power of such shares of stock present in person or by proxy may adjourn
such meeting, from time to time, without notice other than announcement at the
meeting (unless otherwise required by law), until a quorum shall attend. At any
meeting reconvened after such adjournment at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called, but only those shareholders entitled to vote at the meeting
as originally called shall be entitled to vote at any reconvened meeting,
unless a new record date for such meeting is fixed.
Section 2.5 Officers at Shareholders' Meetings. The Chairman of the
Board of Directors shall preside at all meetings of shareholders. In his
absence, the chairman shall be elected as the first order of business by the
holders of a majority of the shares of stock in attendance and entitled to vote
at the meeting.
Section 2.6 List of Shareholders Entitled to Vote. At least ten (10)
days before every meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each shareholder and the number of shares registered in the name of
each shareholder, shall be prepared by or for the Secretary and shall be open
to the examination of any shareholder for any purpose germane to the meeting,
during ordinary business hours, either at a place within the city where the
meeting is to be held, whish place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
Such list shall be available for inspection at the meeting.
Section 2.7 Fixing Date for Shareholders of Record. In order that
the Corporation may identify the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
of Directs may fix, in advance, a record date, which shall not be less than ten
(10) days nor more than sixty (60) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. If no record date is
fixed, the record for determining shareholders entitled to notice of or to vote
at a meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice of the meeting is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. The record date for determining shareholders entitled to
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express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the Corporation having custody of the minute books of
the Corporation. The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 2.8 Voting and Proxies. Subject to the provisions for fixing
the date for shareholders of record:
(a) Each shareholder shall at every meeting of the
shareholders be entitled to one vote for each share of stock held by that
shareholder having voting rights as to the matter being voted upon, except as
otherwise specified in the Certificate of Incorporation.
(b) Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for that
shareholder by proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy expressly provides for a longer
period.
(c) Each matter properly presented to any meeting of
shareholders shall be decided by the affirmative vote of the holders of a
majority of the voting power of the shares of stock present in person or by
proxy and entitled to vote on the matter.
Section 2.9 Inspectors of Election. The Corporation shall, in advance
of any meeting of shareholders, appoint one or more inspectors of election, who
may be employees of the Corporation, to act at the meeting or any adjournment
thereof and to make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. In the event that no inspector so appointed or designated is able to act
at a meeting of shareholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to
the best of his or her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital stock of the
Corporation outstanding and the voting power of each such share, (ii) determine
the shares of capital stock of the Corporation represented at the meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
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<PAGE> 4
determination of the number of shares of capital stock of the Corporation
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification and report shall specify such other information as may be
required by law. In determining the validity and counting of proxies and
ballots cast at any meeting of shareholders of the Corporation, the inspectors
may consider such information as is permitted by applicable law. No person who
is a candidate for an office at an election may serve as an inspector at such
election.
Section 2.10 Conduct of Meetings. The date and time of the opening and
the closing of the polls for each matter upon which the shareholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors of the Corporation may adopt by resolution such
rules and regulations for the conduct of the meeting of shareholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting
of shareholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to shareholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of shareholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
Section 2.11 Consent of Shareholders in Lieu of Meeting. Any action
that may be taken at any annual or special meeting of shareholders may be taken
without a meeting, without a prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the shareholders
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of such action
without a meeting by less than unanimous written consent shall be given to each
shareholder who did not consent thereto in writing.
ARTICLE III
Directors
Section 3.1 Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. The number of directors that shall constitute the whole Board shall
be fixed from time to time by resolution of the shareholders or the Board of
Directors and shall consist of not more than twelve (12) members. At the annual
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<PAGE> 5
meeting of stockholders in 1996 and at each annual meeting of stockholders
thereafter, the respective terms of all of the directors then serving in office
shall expire at the meeting, and successors to the directors shall be elected
to hold office until the next succeeding annual meeting. Existing directors may
be nominated for election each year for a successive term, in the manner
provided in these Bylaws. Each director shall hold office for the term for
which he is elected and qualified or until his successor shall have been
elected and qualified or until his earlier resignation, removal from office or
death. The Board of Directors may from time to time establish minimum
qualifications for eligibility to become a director. Those qualifications may
include, but shall not be limited to, a prerequisite stock ownership in the
Corporation.
Section 3.2 Place of Meetings. Meetings of the Board of Directors may
be held at any place, within or without the State of Delaware, from time to
time as designated by the Chairman of the Board or by the body or person
calling such meeting.
Section 3.3 Annual Meeting. As soon as practicable after each annual
meeting of shareholders and without further notice, the directors elected at
such meeting shall hold the annual meeting of the Board of Directors at the
place at which such meeting of shareholders took place, provided a majority of
the whole Board of Directors is present. If such a majority is not present,
such meeting may be held at any other time or place which may be specified in a
notice given in the manner provided for special meetings of the Board of
Directors or in a waiver of notice thereof.
Section 3.4 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as may be determined by the Board of
Directors. No notice shall be required for any regular meeting.
Section 3.5 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief Executive
Officer or the President. Notice of any special meeting shall be mailed to each
director at that director's residence or usual place of business not later than
three (3) days before the day on which the meeting is to be held, or shall be
given to that director by telegraph, telecopier or other method of electronic
transmission, by overnight express mail service, personally, or by telephone,
not later than twenty-four (24) hours before the time of such meeting. Notice
of any meeting of the Board of Directors need not be given to any director if
that director signs a written waiver thereof either before or after the time
stated therein. Attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except when the director attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 3.6 Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the Board of Directors
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the Board of Directors or of
such committee.
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Section 3.7 Presiding Officer and Secretary at Meetings. Each meeting
of the Board of Directors shall be presided over by the Chairman of the Board
of Directors, or in his or her absence, by the Vice Chairman of the Board, the
Chief Executive Officer or the President, in that order, and if none is
present, then by such member of the Board of Directors as shall be chosen at
the meeting.
Section 3.8 Quorum. A majority of the total authorized number of
directors shall constitute a quorum for the transaction of business. In the
absence of a quorum, a majority of those present (or if only one be present,
then that one) may adjourn the meeting, without notice other than announcement
at the meeting, until such time as a quorum is present. The vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 3.9 Meeting by Telephone. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board of Directors
or of such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
Such participation shall constitute presence in person at such meeting.
Section 3.10 Compensation. Directors shall receive such compensation
and expense reimbursements for their services as directors or as members of
committees as set by the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation
therefor.
Section 3.11 Resignations. Any director, member of a committee or
officer of the Corporation may resign at any time by giving written notice
thereof to the Chairman of the Board or the President. Such resignation shall
be effective at the time of its receipt, unless a date certain is specified for
it to take effect. Acceptance of any resignation shall not be necessary to make
it effective.
Section 3.12 Removal of Directors. No director may be removed without
cause before the expiration of his or her term of office except by vote of the
shareholders at a meeting called for such a purpose.
Section 3.13 Filling of Vacancies. In case of a vacancy created by an
increase in the number of directors or any vacancy created by death, removal,
or resignation, the vacancy or vacancies may be filled either (a) by the Board
of Directors, or (b) by the shareholders. In the case of a director appointed
to fill a vacancy created by an increase in the ' number of directors, the
director so appointed shall hold office for the term to which his predecessor
was elected or until his successor is elected. In the case of a director
appointed to fill a vacancy created by the death, removal or resignation of a
director, the newly appointed director shall hold office for the term to which
his predecessor was elected or until his successor is elected.
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ARTICLE IV
Committees
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each such committee
to consist of one or more directors of the Corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in such
resolution or resolutions and to the extent permitted by law, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have such power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation under Sections 251 or 252 of the Delaware Corporation Law which
involves the Corporation, recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger.
ARTICLE V
The Officers
Section 5.1 Designation. The Corporation shall have such officers with
such titles and duties as set forth in these Bylaws or in a resolution of the
Board of Directors adopted on or after the effective date of these Bylaws.
Section 5.2 Election and Qualification. The officers of the
Corporation shall be elected by the Board of Directors and, if specifically
determined by the Board of Directors, may consist of a Chairman of the Board,
Vice Chairman of the Board, Chief Executive Officer, President, Chief Operating
Officer, Chief Financial Officer, one or more Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers and agents as the Board of Directors may deem advisable. None of
the officers of the Corporation need be directors.
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Section 5.3 Term of Office. Officers shall be chosen in such manner
and shall hold their off ice for such term as determined by the Board of
Directors. Each officer shall hold office from the time of his or her election
and qualification to the time at which his or her successor is elected and
qualified, or until his or her earlier resignation, removal or death.
Section 5.4 Resignation. Any officer of the Corporation may resign at
any time by giving written notice of such resignation to the Chairman of the
Board of Directors or to the President. Any such resignation shall take effect
at the time specified therein or, if no time be specified, upon receipt thereof
by the Chairman of the Board of Directors or the President. The acceptance of
such resignation shall not be necessary to make it effective.
Section 5.5 Removal. Any officer may be removed at any time, with or
without cause, by the Board of Directors.
Section 5.6 Compensation. The compensation of each officer shall be
determined by the Board of Directors.
Section 5.7 The Chairman and the Vice Chairman of the Board of
Directors. Unless otherwise specifically determined by resolution by the Board
of Directors, the Chairman of the Board and the Vice Chairman of the Board
shall not be officers of the Corporation as such. The Chairman of the Board
shall, subject to the direction and oversight of the Board, oversee the
business plans and policies of the Corporation, and shall oversee the
implementation of those business plans and policies The Chairman shall report
to the Board, shall preside at meetings of the Board of Directors and of its
Executive Committee, and shall have general authority to execute bonds, deeds
and contracts in the name of and on behalf of the Corporation. In the absence
or disability of the Chairman, the Vice Chairman shall be vested with and shall
perform all powers and duties of the Chairman.
Section 5.8 Chief Executive Officer. The Chief Executive Officer
shall, subject to the direction of the Board, establish and implement the
business plans, policies and procedures of the Corporation. The Chief Executive
Officer shall report to the Board, shall preside over meetings of the Board in
the absence of the Chairman or Vice Chairman of the Board, and shall have
general authority to execute bonds, deeds and contracts in the name of and on
behalf of the Corporation and in general to exercise all the powers generally
appertaining to the Chief Executive Officer of a corporation.
Section 5.9 President, Chief Operating Officer and Chief Financial
Officer. The President, the Chief Operating Officer and the Chief Financial
Officer shall have such duties as shall be assigned to each from time to time
by the Chairman of the Board, the Chief Executive Officer and by the Board.
During the absence of the Chairman of the Board or the Vice Chairman of the
Board or during their inability to act, the President shall exercise the powers
and shall perform the duties of the Chairman of the Board, subject to the
direction of the Board of Directors.
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Section 5.10 Vice President. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Board of Directors.
Section 5.11 Secretary. The Secretary shall attend meetings of the
Board of Directors and shareholders and record votes and minutes of such
proceedings, subject to the direction of the Chairman; assist in issuing calls
for meetings of shareholders and directors; keep the seal of the Corporation
and affix it to such instruments as may be required from time to time; keep the
stock transfer books and other books and records of the Corporation; act as
stock transfer agent for the Corporation; attest the Corporation's execution of
instruments when requested and appropriate; make such reports to the Board of
Directors as are properly requested; and perform such other duties incident to
the office of Secretary and those that may be otherwise assigned to the
Secretary from time to time by the President or the Chairman of the Board of
Directors.
Section 5.12 Treasurer. The Treasurer shall have custody of all
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit or disburse all moneys and other property in the name and to the
credit of the Corporation as may be designated by the President or the Board of
Directors. The Treasurer shall render to the President and the Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his or her transactions as Treasurer and of
the financial condition of the Corporation. The Treasurer shall perform other
duties incident to the office of Treasurer as the President or the Board of
Directors shall from time to time designate.
Section 5.13 Other Officers. Each other officer of the Corporation
shall have such powers and shall perform such duties as shall be assigned to
him or her by the Board of Directors.
ARTICLE VI
Certificates of Stock,
Transfers of Stock and
Registered Shareholders
Section 6.1 Stock Certificates. The interest of each holder of stock
of the Corporation shall be evidenced by a certificate or certificates signed
by or in the name of the Corporation by the Chairman of the Board of Directors,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation
certifying the number of shares owned by the holder thereof in the Corporation.
Any of or all of the signatures on the certificate may be a facsimile. If any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may be issued by the Corporation with the same effect as if he/she
were such officer, transfer agent or registrar at the date of issuance.
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Section 6.2 Classes/Series of Stock. The Corporation may issue one or
more classes of stock or one or more series of stock within any class thereof,
as stated and expressed in the Certificate of Incorporation or of any amendment
thereto, any or all of which classes may be stock with par value or stock
without par value. The powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, in accordance with the General
Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each shareholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 6.3 Transfer of Stock. Subject to the transfer restrictions
permitted by Section 202 of the General Corporation Law of the State of
Delaware and to stop transfer orders directed in good faith by the Corporation
to any transfer agent to prevent possible violations of federal or state
securities laws, rules or regulations, the shares of stock of the Corporation
shall be transferable upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such
transfer the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other persons as the directors may designate, by who they
shall be cancelled, and new certificates shall be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
Section 6.4 Holders of Record. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice of the contrary.
Section 6.5 Lost, Stolen, Destroyed, or Mutilated Certificates. A new
certificate of stock may be issued to replace a certificate theretofore issued
by the Corporation, alleged to have been lost, stolen, destroyed or mutilated,
and the Board of Directors or the President may require the owner of the lost
or destroyed certificate or his or her legal representatives, to give such sum
as they may direct to indemnify the Corporation against any expense or loss it
may incur on account of the alleged loss of any such certificate.
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Section 6.6 Dividends. Subject to the provisions of the Certificate of
Incorporation and applicable law, the directors may, out of funds legally
available therefor at any annual, regular, or special meeting, declare
dividends upon the capital stock of the Corporation as and when they deem
expedient. Dividends may be paid in cash, in property, or in shares of stock of
the Corporation. Before declaring any dividends there may be set apart out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time in their discretion deem proper working capital to
serve as a reserve fund to meet contingencies or as equalizing dividends or for
such other purposes as the directors shall deem in the best interest of the
Corporation.
ARTICLE VII
Indemnification of Officers,
Directors, Employees and Agents
Section 7.1 Indemnification Other Than in Action by or in Right of
Corporation. To the fullest extent and in the manner permitted by the laws of
the State of Delaware and specifically as is permitted under Section 145 of the
General Corporation Law of the State of Delaware or its successor or any other
law which may hereafter be enacted granting to a corporation the powers of
indemnification, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the Corporation,
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was serving at the written request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit, or proceeding if he acted in
good faith and in a manner he reasonably believed to be in and not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in and not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 7.2 Indemnification in Action by or in Right of Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the written request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the defense or
11
<PAGE> 12
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 7.3 Further Indemnity. Employees and agents of the Corporation
may be indemnified by the Corporation as authorized by, and upon such terms and
conditions as deemed appropriate by, the Board of Directors. To the extent that
a director, officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Section 7.1 or 7.2 above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith.
Section 7.4 Limitations on Indemnify. (a) Any indemnification under
the provision of Section 7.1 or 7.2 above, unless ordered by a court, shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 7.1 or 7.2, as applicable. Such determination shall be made:
(i) by a majority vote of the directors who were not parties
to such action, suit or proceeding, even though less than a quorum; or
(ii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion; or
(iii) by the shareholders.
(b) The Corporation shall be required to indemnify a person seeking
indemnification under Section 7.1 or 7.2 hereof in connection with a proceeding
(or part thereof) commenced by such person only if the commencement of such
proceeding (or part thereof) by the person was authorized by the Board of
Directors of the Corporation.
Section 7.5 Advance of Indemnification Expenses. Expenses incurred by
an officer or director in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the specific case upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
the provisions of this Article VII. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
12
<PAGE> 13
Section 7.6 Other Indemnification. The indemnification herein provided
shall not limit the Corporation from providing any other indemnification
permitted by law nor shall it be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.7 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against and incurred by him or her in any such capacity, or arising
out of his or her status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability under these provisions.
Section 7.8 Other Entities. For the purposes of this section,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provision
of this section with respect to the resulting or surviving corporation as
he/she would have with respect to such constituent corporation if its separate
existence had continued.
ARTICLE VIII
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 Corporate Seal. The corporate seal shall be in such form
as the Board of Directors may from time to time prescribe and the same may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
Section 8.3 Severability. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of the
remaining provisions hereof.
13
<PAGE> 14
ARTICLE IX
Amendment of Bylaws
These Bylaws may be made, altered, or repealed, or new bylaws may be
adopted by the shareholders or the Board of Directors.
Approval of Directors
The foregoing Bylaws were authorized by the Directors of AutoNation,
Inc., a Delaware corporation, on the 2nd day of November, 1998.
/s/ James O. Cole
--------------------------
James O. Cole
Secretary
14
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