AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 2001
REGISTRATION NO. 333-71098
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AUTONATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 5511
(State or Other Jurisdiction (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
73-1105145
(I.R.S. Employer Identification Number)
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110 S.E. 6TH STREET
FORT LAUDERDALE, FLORIDA 33301
(954) 769-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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JONATHAN P. FERRANDO
SENIOR VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
110 S.E. 6TH STREET
FORT LAUDERDALE, FLORIDA 33301
(954) 769-6000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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COPIES TO:
GARY P. CULLEN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, IL 60606
(312) 407-0700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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7 Rod Real Estate North, A Limited Liability Company WY 6519 84-1167321
7 Rod Real Estate South, A Limited Liability Company WY 6519 84-1167320
Abraham Chevrolet-Miami, Inc. DE 5511 65-0802822
Abraham Chevrolet-Tampa, Inc. DE 5511 65-0802820
ACER Fiduciary, Inc. DE 6411 65-0945065
Airport Dodge, Inc. FL 5511 65-1058721
Al Maroone Ford, LLC DE 5511 65-0944227
Albert Berry Motors, Inc. TX 5511 74-1487498
Allied 2000 Collision Center, Inc. TX 7538 75-2639298
Allison Bavarian CA 5511 94-2707588
All-State Rent A Car, Inc. NV 6719 88-0143152
American Way Motors, Inc. TN 5511 62-1333714
America's Car Stop CA 5511 94-3264409
AN/CF Acquisition Corp. DE 5511 65-0927849
AN/FGJE Acquisition Corp. DE 5511 65-0964276
AN/FMK Acquisition Corp. DE 5511 65-0978211
AN/MF Acquisition Corp. DE 5511 65-0961375
AN/MNI Acquisition Corp. DE 5511 65-1024377
AN/PF Acquisition Corp. DE 5511 65-0927848
AN/STD Acquisition Corp. DE 5511 65-0952134
Anderson Chevrolet CA 5511 94-1503305
Anderson Chevrolet Los Gatos, Inc. CA 5511 77-0262368
Anderson Cupertino, Inc. CA 5511 65-0770033
Anderson Dealership Group CA 6719 77-0417573
Anything on Wheels, Ltd. FL 6719 65-0715206
Appleway Chevrolet, Inc. WA 5511 91-0538143
Atrium Restaurants, Inc. FL 5812 59-2424477
Auto Ad Agency, Inc. MD 7319 52-1295158
Auto Advertising Services, Inc. DE 7319 65-1008609
Auto Car, Inc. CA 5511 68-0129623
Auto Holding Corp. DE 6719 52-2107831
Auto Mission Ltd. CA 5511 94-3141092
Auto West, Inc. CA 5511 94-2946518
AutoNation Benefits Company, Inc. FL 8741 34-1135160
AutoNation Chrysler Plymouth GP, Inc. DE 6719 65-0957163
AutoNation Chrysler Plymouth Jeep of North Houston, L.P. TX 5511 65-0957160
AutoNation Chrysler Plymouth LP, Inc. DE 6719 65-0957162
AutoNation Corporate Management Company FL 8721 65-0629697
AutoNation Denver Management, Inc. CO 6719 84-1216628
AutoNation Dodge of Pembroke Pines, Inc. DE 5511 65-0948962
AutoNation Dodge of San Antonio, L.P. TX 5511 65-0964579
AutoNation Dodge of San Antonio-GP, Inc. DE 6719 65-0964574
AutoNation Dodge of San Antonio-LP, Inc. DE 6719 65-0964580
AutoNation DS Investments, Inc. TX 6719 65-0737774
AutoNation Enterprises Incorporated FL 6719 65-0608578
AutoNation Financial Services Corp. DE 6159 65-0725080
AutoNation Fort Worth Motors, Ltd. TX 5511 **
AutoNation GM GP, LLC (f/k/a Emich Lincoln-Mercury, LLC) DE 5511 65-0944592
AutoNation GM LP, LLC (f/k/a Flemington Land Rover, LLC) DE 5511 65-0944600
AutoNation Holding Corp. DE 8741 65-0723604
AutoNation Imports Northwest, Inc. DE 5511 65-0934562
AutoNation Imports of Arapahoe, Inc. DE 5511 65-1137521
AutoNation Imports of Lithia Springs, Inc. DE 5511 65-1003051
AutoNation Imports of Longwood, Inc. DE 5511 65-1032195
AutoNation Imports of Palm Beach, Inc. DE 5511 65-1102140
AutoNation Imports of Winter Park, Inc. DE 5511 65-1032110
AutoNation Insurance Company, Inc. VT 6411 65-0908474
AutoNation LM Holding Corporation DE 8741 65-0723608
AutoNation Motors Holding Corp. DE 8741 65-1132563
AutoNation Motors of Lithia Springs, Inc. DE 5511 65-1002966
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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AutoNation Realty Corporation DE 6519 65-0711536
AutoNation USA Corporation FL 6519 65-0608572
AutoNation USA of Perrine, Inc. DE 5511 65-0899807
AutoNation USA of Virginia Beach, LLC DE 5511 65-0893906
AutoNationDirect.com, Inc. DE 7319 65-0945066
Bankston Auto, Inc. TX 6719 75-1336358
Bankston Chrysler Jeep of Frisco, L.P. TX 5511 65-1052692
Bankston CJ GP, Inc. DE 6719 65-0932849
Bankston CJ LP, Inc. DE 6719 65-1052692
Bankston Ford of Frisco, Ltd. Co. TX 5511 75-2529822
Bankston Nissan in Irving, Inc. TX 5511 75-1325663
Bankston Nissan Lewisville, Inc. DE 5511 65-0755949
Bargain Rent-A-Car CA 5511 95-3821161
Batfish Auto, LLC CO 6719 84-1268477
Batfish, LLC CO 6719 84-1261352
BBCSS, Inc. AZ 6719 58-2434441
Beach City Chevrolet Company, Inc. CA 5511 95-1879646
Beacon Motors, Inc. FL 5511 65-0582254
Bell Dodge, LLC DE 5511 52-2102862
Bengal Motor Company, Ltd. FL 5511 59-2985277
Bengal Motors, Inc. FL 6719 65-0165367
Bill Ayares Chevrolet, Inc. MD 5511 52-0579881
Bill Wallace Enterprises, Inc. FL 5511 65-0613059
Bledsoe Dodge, LLC DE 5511 65-0944613
Bob Townsend Ford, Inc. DE 5511 31-0669965
Body Shop Holding Corp. DE 6719 52-2124065
BOSC Automotive Realty, Inc. DE 6519 38-3262849
Brown & Brown Chevrolet - Superstition Springs, LLC AZ 5511 86-0904747
Brown & Brown Chevrolet, Inc. AZ 5511 86-0128003
Brown & Brown Nissan Mesa, LLC AZ 5511 86-0795376
Brown & Brown Nissan Inc. AZ 5511 86-0677220
B-S-P Automotive, Inc. TX 6719 75-1905123
Buick Mart, Inc. CA 5511 95-2260351
Buick Mart Limited Partnership GA 6719 88-0377744
Bull Motors, LLC DE 5511 65-0944614
C. Garrett, Inc. CO 6719 84-1264053
Carlisle Motors, LLC DE 5511 65-0944616
Carwell, LLC DE 5511 65-0944617
C-Car Auto Wholesalers, Inc. OK 6719 75-2691627
Central Motor Company, Ltd. FL 5511 65-0165224
Central Motors, Inc. FL 6719 65-0164841
Cerritos Body Works, Inc. CA 7538 33-0374316
Cerritos Imports, Inc. DE 5511 52-2119516
Champion Chevrolet, LLC DE 5511 65-0944618
Champion Ford, Inc. TX 5511 76-0171196
Champion Planning, Inc. TX 6719 76-0209411
Charlie Hillard, Inc. TX 5511 75-0922515
Charlie Thomas Auto Sales, Inc. TX 6719 76-0548926
Charlie Thomas Chevrolet, Inc. TX 5511 76-0006971
Charlie Thomas Chrysler-Plymouth, Inc. TX 5511 76-0010351
Charlie Thomas' Courtesy Ford, Inc. TX 5511 74-1624668
Charlie Thomas Courtesy Leasing, Inc. TX 7515 74-1850452
Charlie Thomas Ford, Inc. TX 5511 74-1189752
Chesrown Auto, LLC DE 5511 65-0944619
Chesrown Chevrolet, LLC DE 5511 65-0944620
Chesrown Collision Center, Inc. CO 7538 84-1358588
Chesrown Ford, Inc. CO 5511 84-1164224
Chevrolet World, Inc. FL 5511 59-2216673
Chuck Clancy Ford of Marietta, Inc. GA 5511 58-1675636
Cleburne Motor Company, Inc. TX 5511 75-1176012
Coastal Cadillac, Inc. FL 5511 59-3023188
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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Colonial Imports, Inc. FL 6719 59-2441958
Consumer Car Care Corporation TN 6719 62-1151481
Contemporary Cars, Inc. FL 5511 59-1635976
Cook-Whitehead Ford, Inc. FL 5511 59-1165955
Cook-Whitehead Ford, LLC DE 5511 52-2135873
Corporate Properties Holding, Inc. DE 6519 65-0948961
Costa Mesa Cars, Inc. CA 5511 33-0626084
Courtesy Auto Group, Inc. FL 5511 59-2360236
Courtesy Wholesale Corporation FL 6719 65-0630718
Covington Pike Motors, Inc. TN 5511 58-1366612
Credit Management Acceptance Corporation FL 6159 59-3052102
Cross-Continent Auto Retailers, Inc. DE 6719 75-2653095
CT Intercontinental, Inc. TX 5511 76-0222058
CT Motors, Inc. TX 5511 76-0387042
D/L Motor Company FL 5511 59-3237877
D/L Motor-HO, Inc. FL 6719 **
Deal Dodge of Des Plaines, Inc. IL 5511 36-3862968
Dealership Accounting Services, Inc. FL 8721 59-3138671
Dealership Properties, Inc. NV 6519 74-2869002
Dealership Realty Corporation TX 6519 76-0218062
Desert Buick-GMC Management Group, Inc. NV 6719 88-0265699
Desert Buick-GMC Trucks, LLC DE 5511 52-2102859
Desert Chrysler-Plymouth, Inc. DE 5511 88-0121640
Desert Dodge, Inc. NV 5511 88-0227814
Desert GMC, LLC DE 5511 52-2102860
Desert GMC-East, Inc. NV 6719 88-0223845
Desert Lincoln-Mercury, Inc. NV 5511 88-0168433
Dobbs Brothers Buick-Pontiac, Inc. TN 5511 62-1038471
Dobbs Ford of Memphis, Inc. DE 5511 65-1065025
Dobbs Ford, Inc. FL 5511 59-1584177
Dobbs Mobile Bay, Inc. AL 5511 62-1196110
Dobbs Motors of Arizona, Inc. AZ 5511 93-0929951
Dodge of Bellevue, Inc. DE 5511 94-3009590
Don Mealey Chevrolet, Inc. FL 5511 59-1553076
Don Mealey Imports, Inc. FL 5511 59-3099049
Don Mealey Oldsmobile, Inc. FL 5511 59-3172140
Don-A-Vee Jeep-Eagle, Inc. CA 5511 33-0203778
Downers Grove Dodge, Inc. DE 5511 36-2804667
Driver's Mart Worldwide, Inc. VA 6719 38-3275555
Eastgate Ford, Inc. OH 5511 31-0736141
Ed Mullinax Ford, Inc. DE 5511 34-1543105
Ed Mullinax, Inc. DE 6719 34-1543133
Edgren Motor Company, Inc. CA 5511 94-1561041
El Monte Imports, Inc. DE 5511 65-0881906
El Monte Motors, Inc. DE 5511 65-0881905
Elmhurst Auto Mall, Inc. IL 5511 36-4185090
Elmhurst Dodge, Inc. IL 5511 36-2474717
Emich Chrysler Plymouth, LLC DE 5511 65-0944625
Emich Dodge, LLC DE 5511 65-0944626
Emich Oldsmobile, LLC DE 5511 65-0944593
Emich Subaru West, LLC DE 5511 65-0944597
Empire Services Agency, Inc. FL 6719 65-0309882
Financial Services, Inc. TX 6159 76-2195488
First Team Automotive Corp. DE 6719 59-3440254
First Team Cadillac-Oldsmobile, LLC DE 5511 52-2135878
First Team Ford of Manatee, Ltd. FL 5511 59-3446538
First Team Ford, Ltd. FL 5511 59-3366156
First Team Imports, Ltd. FL 6719 59-3298470
First Team Infiniti, Ltd. FL 6719 59-2927254
First Team Jeep Eagle, Chrysler-Plymouth, Ltd. FL 5511 59-3446556
First Team Management, Inc. FL 6719 59-2714981
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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First Team Premier, Ltd. FL 6719 59-3392621
Fit Kit, Inc. CA 5511 33-0115670
Florida Auto Corp. DE 6719 65-0837116
Ford of Garden Grove Limited Partnership GA 6719 88-0377746
Ford of Kirkland, Inc. WA 5511 91-1425985
Fox Buick/Isuzu, Inc. MD 5511 52-1713116
Fox Chevrolet, Inc. MD 5511 52-0845653
Fox Hyundai, Inc. MD 5511 52-1429424
Fox, Inc. MD 5511 52-1264123
Fred Oakley Motors, Inc. DE 5511 75-1524534
Ft. Lauderdale Nissan, Inc. FL 5511 65-0273822
G.B. Import Sales & Service, LLC DE 5511 65-0944605
Gene Evans Ford, LLC DE 5511 65-0944608
George Sutherlin Nissan, Inc. GA 5511 58-2062167
Golf Mill Ford, Inc. DE 5511 36-3087611
Government Blvd. Motors, Inc. AL 5511 62-1502108
Gulf Management, Inc. FL 5511 59-3023188
Hayward Dodge, Inc. DE 5511 94-1689551
Hillard Auto Group, Inc. TX 6719 75-1965005
Hollywood Imports Limited, Inc. FL 5511 59-2025810
Hollywood Kia, Inc. FL 5511 65-0619873
Horizon Chevrolet, Inc. OH 5511 34-1245635
House of Imports, Inc. CA 5511 95-2498811
Houston Auto Imports Greenway, Ltd. TX 5511 65-0954426
Houston Auto Imports North, Ltd. TX 5511 65-0954425
Houston Imports Greenway-GP, Inc. DE 6719 65-0952169
Houston Imports Greenway-LP, Inc. DE 6719 65-0959312
Houston Imports North-GP, Inc. DE 6719 65-0952170
Houston Imports North-LP, Inc. DE 6719 65-0959311
H's Auto Body, Inc. DE 7538 65-0935702
Hub Motor Co. GA 5511 58-1091502
Irvine Imports, Inc. CA 5511 33-0374310
Irvine Toyota/Nissan/Volvo Limited Partnership GA 6719 88-0377749
Jemautco, Inc. OH 6719 31-1153168
Jerry Gleason Chevrolet, Inc. IL 5511 36-2840037
Jerry Gleason Dodge, Inc. IL 5511 36-4074146
Jim Quinlan Chevrolet Co. DE 5511 59-1055603
Jim Quinlan Ford Lincoln-Mercury, Inc. FL 5511 59-2690846
Joe MacPherson Ford CA 5511 33-0180618
Joe MacPherson Imports No.1 CA 5511 33-0745137
Joe MacPherson Infiniti CA 5511 33-0127306
Joe MacPherson Oldsmobile CA 5511 33-0293599
John M. Lance Ford, LLC DE 5511 65-0944184
J-R Advertising Company CO 7319 84-1177523
J-R Motors Company Central LLC CO 5511 84-1297225
J-R Motors Company North CO 5511 84-1167355
J-R Motors Company South CO 5511 84-1167319
J-R-M Motors Company Northwest, LLC CO 5511 84-1363627
JRJ Investments, Inc. NV 5511 88-0199942
Kelnat Advertising, Ltd. Co. FL 7319 59-2682744
Kenyon Dodge, Inc. FL 5511 59-0479520
King's Crown Ford, Inc. DE 5511 59-2018826
Kirkland Pontiac-Buick-GMC, Inc. WA 5511 91-1739519
KLJ of Nevada, Inc. NV 6719 88-0384410
L.P. Evans Motors WPB, Inc. FL 5511 59-0684221
L.P. Evans Motors, Inc. FL 5511 59-0601584
Lance Children, Inc. OH 6519 34-1789728
Les Marks Chevrolet, Inc. TX 5511 76-0375065
Lew Webb's Ford, Inc. CA 5511 33-0677560
Lew Webb's Irvine Nissan, Inc. CA 5511 33-0374313
Lexus of Cerritos Limited Partnership GA 6519 88-0378242
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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LGS Holding Company DE 6719 65-0711531
Lou Grubb Chevrolet, LLC DE 5511 52-2012866
Lou Grubb Chevrolet-Arrowhead, Inc. DE 5511 91-1933520
Lou Grubb Ford, LLC DE 5511 52-2102864
Lovern, Inc. FL 6719 65-0000148
MC/RII, LLC OH 5511 **
M S and S Toyota, Inc. FL 5511 59-1968718
MacHoward Leasing CA 5511 95-2267692
MacPherson Enterprises, Inc. CA 5511 95-2706038
Magic Acquisition Corp. DE 5511 65-0711428
Manhattan Motors, Inc. CA 5511 95-3867937
Marks Family Dealerships, Inc. TX 5511 74-1405873
Marks Transport, Inc. TX 5511 76-0444883
Maroone Car and Truck Rental Company FL 7514 65-0371429
Maroone Chevrolet Ft. Lauderdale, Inc. FL 5511 65-0721018
Maroone Chevrolet, LLC DE 5511 65-0944183
Maroone Dodge, LLC DE 5511 65-0944181
Maroone Dodge Pompano, Inc. FL 5511 65-0721014
Maroone Ford, LLC DE 5511 65-0944179
Maroone Isuzu, LLC DE 5511 65-0944178
Maroone Jeep-Eagle, Inc. DE 5511 65-0797301
Maroone Management Services, Inc. FL 6719 65-0721017
Maroone Oldsmobile, LLC DE 5511 52-2135875
Marshall Lincoln-Mercury, Inc. CO 5511 84-1382739
Mealey Holdings, Inc. FL 6719 59-3280283
Mechanical Warranty Protection, Inc. FL 6411 65-0062054
Metro Chrysler Jeep, Inc. FL 5511 59-3002195
Midway Chevrolet, Inc. TX 5511 75-1631858
Mike Hall Chevrolet, Inc. DE 5511 74-1940031
Mike Shad Chrysler Plymouth Jeep Eagle, Inc. FL 5511 65-0731779
Mike Shad Ford, Inc. FL 5511 65-0730472
Miller-Sutherlin Automotive, LLC DE 5511 65-0944177
Mission Blvd. Motors, Inc. CA 5511 94-3179980
Mr. Wheels, Inc. CA 5511 95-3050274
Mullinax East, Inc. DE 5511 34-1543140
Mullinax Ford North Canton, Inc. OH 5511 34-1706005
Mullinax Ford South, Inc. FL 5511 59-2745619
Mullinax Lincoln-Mercury, Inc. DE 5511 34-1555317
Mullinax Management, Inc. DE 6719 34-1543139
Mullinax of Mayfield, Inc. OH 5511 34-1032543
Mullinax Used Cars, Inc. OH 5521 34-1663489
Naperville Imports, Inc. DE 5511 **
Newport Beach Cars, LLC DE 5511 65-0944175
Nichols Ford, Inc. TX 5511 75-2345233
Nissan of Brandon, Inc. FL 5511 59-2872723
Northpoint Chevrolet, Inc. DE 5511 52-2124967
Northpoint Ford, Inc. DE 5511 65-0964278
Northwest Financial Group, Inc. WA 5511 91-1666832
Ontario Dodge, Inc. CA 5511 33-0380793
Orange County Automotive Imports, LLC DE 5511 65-0944636
Payton-Wright Ford Sales, Inc. TX 5511 75-1231297
Peyton Cramer Automotive CA 5511 33-0612289
Peyton Cramer Ford CA 5511 95-3410394
Peyton Cramer Infiniti CA 5511 33-0567152
Peyton Cramer Jaguar CA 5511 33-0567150
Peyton Cramer Lincoln-Mercury CA 5511 33-0679879
Pierce Automotive Corporation AZ 6719 86-0811184
Pierce, LLC DE 5511 65-0944638
Pitre Buick-Pontiac-GMC of Scottsdale, Inc. DE 5511 86-0928953
Pitre Chrysler-Plymouth-Jeep on Bell, Inc. DE 5511 86-0928950
Pitre Chrysler-Plymouth-Jeep of Scottsdale, Inc. DE 5511 86-0928955
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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Pitre Isuzu-Subaru-Hyundai of Scottsdale, Inc. DE 5511 86-0928952
Pitre Kia of Scottsdale, Inc. DE 5511 86-0928954
Plains Chevrolet, Inc. TX 5511 75-1057395
PMWQ, Inc. NV 6719 75-2748417
PMWQ, Ltd. TX 6719 75-2748419
Port City Imports, Inc. TX 5511 74-2403712
Port City Imports-HO, Inc. TX 6719 58-2490117
Port City Pontiac-GMC Trucks, Inc. TX 5511 74-2481788
Prime Auto Resources, Inc. CA 6719 33-0718037
Quality Nissan, Inc. TX 5511 75-1847218
Quantum Premium Finance Corporation FL 6159 65-0362902
Quinlan Motors, Inc. FL 5511 59-3268936
R. Coop Limited CO 6719 84-1251979
R.L. Buscher II, Inc. CO 6719 84-1171763
R.L. Buscher III, Inc. CO 6719 84-1171764
Real Estate Holdings, Inc. FL 6519 65-0789583
Republic Anderson Investment Group, Inc. CA 6159 65-0829923
Republic DM Property Acquisition Corp. DE 6519 52-2099740
Republic Resources Company DE 8741 51-0370517
Republic Risk Management Services, Inc. FL 8741 65-0782124
Resources Aviation, Inc. FL 4522 65-0858501
RI Merger Corp. CO 6719 84-1492421
RI Shelf Corp. DE 6719 65-0772300
RI/ASC Acquisition Corp. DE 7538 84-1491657
RI/BB Acquisition Corp. DE 7538 52-2127466
RI/BBNM Acquisition Corp. AZ 6719 86-0914399
RI/BRC Real Estate Corp. CA 6519 65-0942312
RI/CC Acquisition Corp. DE 6719 65-0772227
RI/DM Acquisition Corp. DE 6719 52-2099741
RI/HGMC Acquisition Corp. DE 5511 52-2110003
RI/Hollywood Nissan Acquisition Corp. DE 5511 65-0784675
RI/LLC Acquisition Corp. CO 6719 84-1268477
RI/LLC-2 Acquisition Corp. CO 6719 84-1459544
RI/PII Acquisition Corp. DE 5511 52-2124965
RI/RMC Acquisition Corp. DE 5511 52-2109998
RI/RMP Acquisition Corp. DE 5511 52-2109996
RI/RMT Acquisition Corp. DE 5511 52-2110000
RI/SBC Acquisition Corp. DE 7538 52-2124051
RI/WFI Acquisition Corporation DE 5511 52-2124969
RII Management Company DE 8741 52-2107830
Rosecrans Investments, LLC DE 6719 65-1093600
Roseville Motor Corporation CA 5511 94-2922942
RRM Corporation, Inc. DE 8721 52-2007719
RSHC, Inc. DE 6411 65-0908475
Sahara Imports, Inc. NV 5511 86-0869592
Sahara Nissan, Inc. NV 5511 88-0133547
Santa Ana Auto Center CA 5511 33-0103746
Saul Chevrolet, Inc. CA 5511 33-0507627
SCM Realty II, Inc. FL 6519 65-0611002
SCM Realty, Inc. FL 6519 59-2640748
Service Station Holding Corp. DE 6719 65-0899829
SGSCP Limited Partnership FL 6719 59-3143533
Shamrock Ford, Inc. CA 5511 94-2220473
Six Jays LLC CO 6719 84-1364768
SMI Motors, Inc. CA 5511 95-4399082
Smythe European, Inc. CA 5511 94-2633163
Southeast Lease Car, Inc. FL 7515 59-2449372
Southtown Ford, Inc. TX 5511 75-6870080
Southwest Dodge, LLC DE 5511 65-0944643
Spit Fire Properties, Inc. FL 6519 59-2484224
Spokane Mitsubishi Dealers Advertising Association, Inc. WA 7319 58-2455403
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STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
Star Motors, LLC DE 5511 65-0944646
Steakley Chevrolet, Inc. TX 5511 75-1091508
Steeplechase Motor Company TX 6519 76-0244476
Steve Moore Chevrolet Delray, LLC DE 5511 65-0944647
Steve Moore Chevrolet, LLC DE 5511 65-0944670
Steve Moore, LLC DE 5511 52-2135868
Steve Moore's Buy-Right Auto Center, Inc. FL 5511 65-0192329
Steve Rayman Pontiac-Buick-GMC-Truck, LLC DE 5511 65-0944669
Stevens Creek Motors, Inc. CA 5511 94-3010181
Sunrise Nissan of Jacksonville, Inc. FL 5511 59-3427446
Sunrise Nissan of Orange Park, Inc. FL 5511 59-1357686
Sunset Pontiac-GMC Truck South, Inc. FL 5511 59-3128431
Sunset Pontiac-GMC, Inc. MI 5511 38-1919584
Superior Nissan, Inc. NC 5511 62-1306501
Sutherlin Chrysler-Plymouth Jeep-Eagle, LLC DE 5511 65-0944667
Sutherlin Imports, Inc. GA 5511 58-1673384
Sutherlin Imports, LLC DE 5511 65-0944664
Sutherlin Nissan of Town Center, Inc. GA 5511 58-2241820
Sutherlin Nissan, LLC DE 5511 65-0944665
Tallahassee Automotive Group, Inc. FL 6719 59-3280286
Tallahassee Chrysler Plymouth, Inc. FL 6719 59-3130547
Tartan Advertising, Inc. CA 7319 33-0191704
Tasha Incorporated CA 6719 94-2512050
Taylor Jeep Eagle, LLC DE 5511 65-0944662
Team Dodge, Inc. DE 5511 65-1040982
Terry York Motor Cars, Ltd. CA 5511 95-3549353
Texan Ford Sales, Inc. TX 5511 75-2007516
Texan Ford, Inc. TX 5511 76-0207034
Texan Lincoln-Mercury, Inc. DE 5511 76-0489587
T-Five, Inc. MI 5511 38-2551793
The Consulting Source, Inc. FL 8741 59-2183874
The Pierce Corporation II, Inc. AZ 6719 86-0743383
Tinley Park A. Imports, Inc. (f/k/a Republic of Rochester, Inc.) DE 6719 52-2124968
Tinley Park J. Imports, Inc. (f/k/a Orlando Imports, Inc.) DE 5511 52-2104777
Tinley Park V. Imports, Inc. (f/k/a Emich Lincoln-Mercury, Inc.) DE 5511 84-1041105
Torrance Nissan, LLC DE 5511 65-0944661
Tousley Ford, Inc. MN 5511 41-0609970
Town & Country Chrysler Jeep, Inc. DE 5511 91-1197824
Toyota of Cerritos Limited Partnership GA 6519 88-0377743
Triangle Corporation DE 8741 52-2025037
T-West Sales & Service, Inc. NV 5511 88-0235466
Valencia Dodge CA 5511 95-3935812
Valencia Lincoln-Mercury, Inc. DE 5511 65-0730303
Valley Chevrolet, Inc. MD 5511 52-0728314
Vanderbeek Motors, Inc. CA 5511 94-2494800
Vanderbeek Olds/GMC Truck, Inc. CA 5511 68-0072435
Village Motors, LLC DE 5511 65-0944660
Vince Wiese Chevrolet, Inc. DE 5511 95-2703429
W.O. Bankston Enterprises, Inc. DE 6719 75-2296087
W.O. Bankston Lincoln-Mercury, Inc. DE 5511 75-1053127
W.O. Bankston Nissan, Inc. TX 5511 75-1279211
W.O. Bankston Paint and Body, Inc. TX 7538 75-1723194
Wallace Dodge, LLC DE 5511 65-0944659
Wallace Ford, LLC DE 5511 65-0944659
Wallace Imports, Inc. FL 6719 59-2326469
Wallace Lincoln-Mercury, LLC DE 5511 65-0944657
Wallace Nissan, LLC DE 5511 65-0944655
Webb Automotive Group, Inc. CA 6719 33-0338459
West Colton Cars, Inc. CA 5511 77-0428114
Westmont A. Imports, Inc. (f/k/a Maroone Oldsmobile II, Inc.) DE 5511 65-0725800
Westmont B. Imports, Inc. DE 5511 **
</Table>
8
<Page>
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------------------
STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ADDRESS, JURISDICTION OF INDUSTRIAL
INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
Westmont M. Imports, Inc. DE 5511 **
West Side Motors, Inc. TN 5511 62-1030139
Westgate Chevrolet, Inc. TX 5511 75-1324586
Woody Capital Investment Company II CO 6719 84-1167986
Woody Capital Investment Company III CO 6719 84-1167988
Working Man's Credit Plan, Inc. TX 6719 75-2458731
York Enterprises South, Inc. CA 5511 33-0419789
</Table>
- --------------------------------------------------------------------------------
* All Additional Registrants have the following principal executive office:
c/o AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, Florida 33301
(954) 769-6000
** Applied For
9
<Page>
This preliminary prospectus is not complete and may be changed. These securities
may not be sold until the registration statement filed with the Securities and
Exchange Commission is effective. This preliminary prospectus is not an offer to
sell nor does it seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
Subject to Completion, dated November 16, 2001
AUTONATION[symbol]
OFFER TO EXCHANGE
ALL OUTSTANDING 9% SENIOR NOTES DUE 2008
($450,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
9% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON , 2001, UNLESS WE EXTEND THE OFFER.
-----------------
AutoNation, Inc. will exchange $1,000 in principal amount of its 9% senior
notes due 2008 (the "exchange notes") for each $1,000 in principal amount of its
currently outstanding 9% senior notes due 2008 (the "outstanding notes") (the
outstanding notes and the exchange notes are collectively referred to as the
"notes") that is validly tendered and accepted by AutoNation in the exchange
offer.
-----------------
AutoNation will accept for exchange any and all of the outstanding notes
that are validly tendered prior to 12:00 midnight, New York City time,
on , 2001. The exchange offer is not conditioned on any minimum principal
amount of outstanding notes being tendered for exchange. The exchange offer is,
however, subject to other terms and conditions described in this prospectus,
which you should read carefully. Neither AutoNation nor any of its officers or
directors makes any recommendation as to whether or not you should tender your
outstanding notes in the exchange offer. You must make your own decision after
reading this document, including the discussion entitled "Risk Factors"
beginning on page 16, and consulting with your advisors based on your own
financial position and requirements. All persons holding outstanding notes are
eligible to participate in the exchange offer if they tender their outstanding
notes in a jurisdiction where the exchange offer is permitted under local law.
-----------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
16
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 2001
<Page>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
Summary..............................................................................................1
Risk Factors........................................................................................16
Information Regarding Forward-looking Statements....................................................27
The Exchange Offer..................................................................................28
Use of Proceeds.....................................................................................39
Capitalization......................................................................................39
Selected Consolidated Financial Data................................................................40
Management's Discussion and Analysis of Financial Condition and Results of Operations...............42
Business............................................................................................66
Management..........................................................................................80
Security Ownership..................................................................................84
Certain Transactions................................................................................87
Description of Certain Other Indebtedness...........................................................89
Description of the Notes............................................................................93
Material United States Federal Income Tax Considerations...........................................141
Plan of Distribution...............................................................................142
Legal Matters......................................................................................144
Experts............................................................................................144
Where You Can Find More Information................................................................145
Index to Consolidated Financial Statements.........................................................F-1
</Table>
-----------------
In this prospectus, unless otherwise stated, "AutoNation," "the company,"
"we," "us" and "our" refer to AutoNation, Inc. and its subsidiaries.
This prospectus also contains product names, trade names and trademarks
of other companies.
-----------------
This document incorporates by reference important business, financial and
other information about us that is not included in or delivered with this
document. Documents incorporated by reference are available to AutoNation
noteholders without charge, excluding all exhibits, unless specifically
incorporated by reference as exhibits in this document. See "Where You Can Find
More Information" on page 145 for a list of documents that have been
incorporated by reference into this document. Requests for these documents
should be directed to us at the following address and telephone number:
AutoNation, Inc.
AutoNation Tower
110 S.E. 6th Street
Fort Lauderdale, Florida 33301
Attn: Investor Relations (954) 769-7339
IF YOU WOULD LIKE TO REQUEST COPIES OF THESE DOCUMENTS, PLEASE DO SO BY
, 2001 IN ORDER TO RECEIVE THEM BEFORE THE EXPIRATION OF THE
EXCHANGE OFFER. In the event we extend the exchange
i
<Page>
offer, you must submit your request to receive these documents at least five
business days before the expiration date, as extended.
ii
<Page>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU IN THE SECTION ENTITLED "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 145, AS WELL AS THE INFORMATION INCORPORATED BY REFERENCE,
BEFORE MAKING AN INVESTMENT DECISION.
OUR BUSINESS
We are the largest automotive retailer in the United States. As of
September 30, 2001, we owned and operated 368 new vehicle franchises from 278
dealerships located in major metropolitan markets in 17 states, predominantly in
the Sunbelt region of the United States. Our dealerships sell new and used
vehicles. In addition, we offer financing for vehicle purchases, extended
service contracts and insurance products, as well as other aftermarket products
such as vehicle accessories. We provide a wide range of vehicle maintenance and
repair services and operate collision repair centers in most of our key markets.
We offer a full range of 35 different vehicle brands. The core brands of
vehicles that we sell, representing almost 90% of the new vehicles that we sold
in 2000, are Ford (Ford, Lincoln and Mercury), General Motors (Chevrolet,
Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep and Dodge), Toyota, Nissan and
Honda. We also sell several luxury vehicle brands including Mercedes-Benz, BMW,
Lexus and Porsche. For the twelve months ended September 30, 2001, we had
revenue of $19.5 billion and earnings before interest expense, income taxes,
depreciation and amortization from continuing operations ("EBITDA") of $839.6
million. Our common stock is traded on the New York Stock Exchange under the
symbol "AN." As of September 30, 2001, we had an equity market capitalization of
approximately $2.9 billion. We are a FORTUNE 100 company, ranking 83rd in terms
of revenue on the 2000 list.
OUR STRENGTHS
We believe that our principal strengths include the following:
INDUSTRY AND MARKET LEADERSHIP. We are the largest automotive retailer in a
highly fragmented industry. Our 2000 revenue was larger than all other public
automotive retailers' 2000 revenue combined and our equity market value at
September 30, 2001 was nearly twice that of all other public automotive
retailers combined. In addition to the size of our dealership operations, we
believe that we own some of the most recognizable and well-known dealerships in
our key markets. We are also a leading automotive retailer in our key markets in
terms of market share and brands offered. We believe that the significant scale
of our operations and the quality of our managerial talent allow us to achieve
efficiencies in our key markets by, among other things, reducing redundant
operating expenses, improving asset management and implementing and sharing best
practices across our dealerships.
DIVERSIFIED REVENUE STREAMS AND VARIABLE EXPENSE STRUCTURE. We offer a
diversified range of automotive products and services beyond new vehicles, such
as used vehicles, vehicle maintenance and repair services, extended service
contracts and insurance products, and other aftermarket products. We believe
demand for these additional products and services, which generally produce
higher gross margins as a percentage of revenue than sales of new vehicles, is
less
1
<Page>
impacted by economic cycles than demand for new vehicles. We believe this
decreases our vulnerability to adverse economic cycles.
The following chart illustrates the revenue and gross margin contributions of
each component of our business for the twelve months ended September 30, 2001:
[CHART]
<Table>
<Caption>
Revenue $ 19.5 billion Gross Margin $3.0 billion
Parts & Service 12.2% 34.7%
Used Vehicles 19.4% 14.3%
Finance & Insurance 2.4% 15.6%
New Vehicles 59.5% 32.5%
Other 6.5% 2.9%
</Table>
During the twelve months ended September 30, 2001, 67.5% of our total gross
margin originated from sales of used vehicles, parts and service, finance and
insurance products, and other aftermarket products, while these products and
services accounted for only 40.5% of our total revenue. Further, we believe that
the diversification of our portfolio of dealerships in terms of geography and
brand representation will help us weather adverse local or regional economic
cycles or problems associated with a particular brand of vehicles.
We believe that our cost structure also decreases our vulnerability to
adverse economic cycles. A significant percentage of our costs are variable,
which we expect will permit us to react quickly to changing economic conditions.
STRONG MANAGEMENT WITH EXPERIENCE IN THE INDUSTRY. We have a strong senior
management team with extensive experience in automotive retailing and
manufacturing. Our Chief Executive Officer, Mike Jackson, has 30 years of
experience in the industry, most recently serving as the President and Chief
Executive Officer of Mercedes-Benz, USA, Inc. prior to joining us in 1999. Mr.
Jackson also served as the managing partner of Euro Motorcars, an automotive
retailer in Bethesda, Maryland, for over ten years. Our President and Chief
Operating Officer, Michael E. Maroone, has over 25 years of experience in the
automotive retailing industry. Prior to our 1997 acquisition of the Maroone
Automotive Group, which was one of the largest privately-held automotive retail
groups in the United States, Mr. Maroone served as its President and Chief
Executive Officer for over 20 years. The senior management of our nine operating
districts also reflects the significant depth of our experience, with our
district managers having on average more than 20 years of experience in
automotive retailing, primarily within the local markets that they manage.
LEADING AUTOMOTIVE E-COMMERCE PLATFORM. We believe that the scale of our
bricks-and-mortar operations and our existing e-commerce infrastructure,
including our operation of the largest
2
<Page>
independent automotive retailing website, AutoNation.com, uniquely position us
to capitalize on trends in the automotive retail e-commerce marketplace by
giving us the greatest capacity to both obtain and fulfill customer leads
generated on-line. For the twelve months ended September 30, 2001, our
dealerships sold approximately 69,000 units and generated in excess of $1.7
billion in sales via the internet sales channel. We also have relationships with
prominent consumer portals such as Microsoft's MSN Carpoint and America Online,
as well as other customer lead generators, to purchase high quality leads, and
our proprietary software facilitates our dealerships' fulfillment of these
leads. We have lead referral agreements with approximately 2,500 franchises
operating from approximately 1,500 independent dealerships in 47 states to
distribute leads that are outside the scope of our dealerships' operations.
According to a survey by J.D. Power and Associates dated June 20, 2001,
AutoNation.com ranked highest in overall dealer satisfaction based on
evaluations by internet managers of various dealership on-line buying services.
OUR STRATEGY
Our business strategy consists of the following key elements:
EXPAND OUR MARGINS
While new vehicle sales will continue to be a significant component of our
operations, we are focused on developing the areas of our automotive retailing
business that produce higher margins than new vehicle sales, such as parts and
service sales, used vehicle sales, and sales of finance and insurance, and other
aftermarket products. We are emphasizing these higher-margin areas of our
business with the following strategic initiatives:
- PARTS AND SERVICE SALES AND COLLISION REPAIR SERVICES: Increasing our
parts and service sales by, among other things, (1) implementing our
team-based service process in our service facilities and our cycle
time solution in our collision centers, (2) executing comprehensive
parts and service marketing programs, (3) assuring that our
dealerships' parts requirements are fulfilled internally and (4)
developing relationships with national insurance companies to enhance
our collision repair services.
- USED VEHICLE SALES: Leveraging our significant scale in our key
markets to improve our used vehicle business by (1) completing the
implementation of our advanced vehicle inventory management system at
each of our dealerships, (2) implementing comprehensive marketing
programs in each of our districts, (3) dedicating specific management
personnel at the district level to optimize our operations and (4)
adopting standardized operating policies at our dealerships based on
our dealerships' best practices.
- FINANCE AND INSURANCE AND OTHER AFTERMARKET PRODUCT SALES: Improving
our finance and insurance and other aftermarket product business by
(1) ensuring a high level of compliance with our standard operating
practices, such as the use of our customer-friendly "full-disclosure"
finance and insurance menu, (2) increasing sales at our dealerships of
finance and insurance products offered and focusing on our
underperforming dealerships and (3) promoting further consolidation of
the retail finance sources for our customers' vehicle purchases.
3
<Page>
IMPROVE OUR OPERATING EFFICIENCY
We are leveraging our status as the largest automotive retailer in the
United States to further improve our cost structure and the utilization of our
assets. We are focusing on the following key initiatives to achieve these goals:
- REDUCE DAYS SUPPLY OF NEW AND USED VEHICLES: Decreasing the days
supply of vehicle inventory that we have at any given time at our
dealerships in order to reduce our carrying costs. We plan to achieve
this by (1) using our web-based tracking system to enable us to more
closely monitor our inventories, (2) establishing days supply targets
for each of our vehicle models, (3) managing our new and used vehicle
inventories across the dealerships within each of our markets to
optimize inventory turnover and (4) focusing our inventory purchasing
on the more popular model packages.
- DECREASE TIME TO CONVERT RECEIVABLES INTO CASH: Decreasing the amount
of time that our dealerships take to receive payment on retail
receivables (or "contracts-in-transit") by (1) adopting best practices
concerning sales and contracts-in-transit flow processing, (2)
developing and using a web-based tool to monitor our dealerships'
contracts-in-transit and (3) developing relationships with preferred
lenders who can expeditiously process our dealerships'
contracts-in-transit.
EFFECTIVELY USE FREE CASH FLOW
A key component of our strategy is to maximize the return on investment
generated by the use of the free cash flow that our business generates. We
expect to use our free cash flow to make capital investments in our current
businesses and to complete strategic dealership acquisitions in our key markets.
When dealership acquisitions are unavailable or do not provide us with an
adequate return on our investment, we may use our free cash flow to prudently
repurchase our common stock pursuant to our Board-authorized share repurchase
programs, subject to limitations contained in the indenture with respect to the
notes and our credit agreements for our two senior secured revolving credit
facilities.
GROW OUR E-COMMERCE BUSINESS
According to industry analysts, the majority of new car buyers nationwide
will consult the Internet for new car information. The Internet is generating
better-informed customers and improving the efficiency of the sales process.
During 2000, we developed relationships with certain internet service providers
and websites, including Microsoft's MSN Carpoint and America Online, as well as
other parties, to purchase leads or referrals of customers who are shopping for
a vehicle. Using our proprietary software and our website, AutoNation.com, we
provide these customer leads to our dealerships for fulfillment to the greatest
extent possible. Specially-trained internet sales personnel at our dealerships
then use our internet-based system to respond to customer inquiries, which can
be made 24 hours a day, seven days a week. During the six months ended September
30, 2001, our average customer response time during business hours was
approximately 34 minutes, which is well below reported industry average response
times.
4
<Page>
Beginning in 2000, we entered into lead referral agreements with
independent dealers to distribute customer leads that we cannot fulfill within
our dealership network. We are continuing to enter into lead referral agreements
with dealers that are able to provide fulfillment capability for vehicle brands
and geographic areas that our dealerships do not cover. As we enter into
additional lead referral agreements, we will continue to set service and other
standards that these independent dealerships must meet in order to participate
in our lead referral program.
RECENT DEVELOPMENTS
On August 10, 2001, we entered into two new senior secured revolving credit
facilities with an aggregate borrowing capacity of $500.0 million. The 364-day
revolving credit facility provides for borrowing capacity up to $200.0 million
and the five-year revolving credit facility provides for borrowing capacity up
to $300.0 million. The original lenders under these facilities were Bank of
America, N.A., The Chase Manhattan Bank, Merrill Lynch Capital Corporation,
First Union National Bank and an affiliate of Comerica Securities, Inc. These
credit facilities are secured by a pledge of the capital stock of two of our
wholly-owned subsidiaries, AutoNation Enterprises Incorporated and Auto Holding
Corp., which directly or indirectly own substantially all of our dealerships,
and are guaranteed by substantially all of our dealerships.
On October 30, 2001, we entered into a mortgage facility with an automotive
manufacturer's captive finance subsidiary. This facility provides an aggregate
borrowing capacity of $150.0 million, of which we initially borrowed $38.5
million. We previously entered into a $150.0 million mortgage facility with
another automotive manufacturer's captive finance subsidiary on June 8, 2001.
For further descriptions of the foregoing credit facilities, see the
section of this prospectus entitled "Description of Certain Other Indebtedness"
on page 89.
-----------
Although we now operate exclusively as an automotive retailer, we have
operated businesses in multiple industries over the past several years,
including solid waste services, electronic security services, car rental and
outdoor media. With the spin-off to our stockholders of our car rental business,
ANC Rental Corporation, and the sale of certain other non-core assets in 2000,
we are now focused exclusively on our operations in the automotive retailing
business. Our principal executive offices are located at AutoNation Tower, 110
S.E. 6th Street, Fort Lauderdale, Florida 33301 and our telephone number is
(954) 769-6000. For more details about our business, see page 66. For
information regarding the risks associated with our business, see the section of
this prospectus entitled "Risk Factors" beginning on page 16.
5
<Page>
THE EXCHANGE OFFER
On August 10, 2001, we privately placed $450.0 million of 9% senior notes
due 2008. We sold the outstanding notes to the following initial purchasers:
- Merrill Lynch, Pierce, Fenner & Smith;
- Banc of America Securities LLC;
- J.P. Morgan Securities Inc.;
- First Union Securities, Inc.; and
- Comerica Securities, Inc.
These initial purchasers then sold the outstanding notes to qualified
institutional investors and to persons outside the United States.
Simultaneously with the private placement, we entered into a registration
rights agreement with the initial purchasers of the outstanding notes. Under the
registration rights agreement, we must deliver this prospectus to you and must
complete this exchange offer on or before February 21, 2002. If this exchange
offer does not take place on or before February 21, 2002, except under limited
circumstances, we must pay liquidated damages to the holders of the outstanding
notes until this exchange offer is completed.
The following is a summary of the principal terms of the exchange offer.
The exchange offer
(see page 28)................. We are offering to exchange $450.0 million
principal amount of 9% senior exchange notes
due 2008, which have been registered under
the Securities Act, for your outstanding 9%
senior notes due 2008.
All outstanding notes properly tendered and
not withdrawn will be exchanged on the terms
and subject to the conditions of the exchange
offer.
Resales of exchange notes (see
page 34)....................... We believe that, if you are not a
broker-dealer, you can offer for resale,
resell and otherwise transfer the exchange
notes without complying with the registration
and prospectus delivery requirements of the
Securities Act if:
- you acquire the exchange notes in the
ordinary course of your business;
- you are not participating, do not intend
to participate and have no arrangement or
understanding with any person to
participate, in the distribution of the
exchange notes; and
- you are not an "affiliate" of ours, as
defined in Rule 405 of the Securities
Act.
6
<Page>
By executing the letter of transmittal
relating to this offer, or by agreeing to the
terms of the letter of transmittal, you
represent to us that you satisfy each of
these conditions. If you do not satisfy any
of these conditions and you transfer any
exchange note without delivering a proper
prospectus or without qualifying for a
registration exemption, you may incur
liability under the Securities Act. Moreover,
our belief that transfers of exchange notes
would be permitted without registration or
prospectus delivery under the conditions
described above is based on SEC
interpretations given to other, unrelated
issuers in similar exchange offers. We cannot
assure you that the SEC would make a similar
interpretation with respect to our exchange
offer. We will not be responsible for or
indemnify you against any liability you may
incur under the Securities Act.
Extension of tender period;
termination; amendment (see
page 36)....................... The exchange offer and withdrawal rights will
expire at 12:00 midnight, New York City time,
, 2001, unless extended by us. You must
tender your outstanding notes prior to this
time if you want to participate in the
exchange offer. We may terminate the exchange
offer in the circumstances described on page
37. We have the right to amend the terms of
the exchange offer in any respect.
Withdrawal rights
(see page 36).................. You may withdraw outstanding notes you
tendered at any time before the exchange
offer expires. Withdrawals may not be
rescinded. If you change your mind again,
you may retender your outstanding notes by
again following the exchange offer procedures
prior to the expiration of the offer.
Conditions for
completion of the
exchange offer (see page 37). The exchange offer is subject to various
conditions. All conditions must be satisfied
or waived prior to the expiration of the
exchange offer.
Procedures for tendering
outstanding notes
(see page 31)................. We issued the outstanding notes as global
securities.
When we issued the outstanding notes, we
deposited them with Wells Fargo Bank
Minnesota, National Association, as
custodian. Wells Fargo issued a
certificateless depositary interest in the
outstanding notes, which represents a 100%
interest in the outstanding notes, to
The Depository Trust
7
<Page>
Corporation ("DTC"). Beneficial interests in
the outstanding notes, which direct or
indirect participants in the DTC hold through
the certificateless depositary interests, are
shown on records that the DTC maintains in
book-entry form.
If you wish to participate in the exchange
offer, you must transmit to Wells Fargo Bank
Minnesota, National Association, which is the
exchange agent, on or before the expiration
of the exchange offer, either:
- a completed and signed letter of
transmittal or a facsimile thereof, in
accordance with the instructions
contained in this prospectus and the
letter of transmittal, and any other
required documents; or
- a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal. The exchange agent must also
receive on or prior to the expiration of
the exchange offer either:
-- a timely confirmation of
book-entry transfer of your
outstanding notes into the
exchange agent's account at DTC,
in accordance with the procedure
for book-entry transfers; or
-- the documents necessary for
compliance with the guaranteed
delivery procedures.
Do not send letters of transmittal and
certificates representing outstanding notes
to us or to DTC. Send these documents only to
the exchange agent.
Procedures for tendering
certificated outstanding notes
(see page 31).................. If you are a holder of book-entry interests
in the outstanding notes, you are entitled
to receive, in limited circumstances, in
exchange for your book-entry interests,
certificated notes which are in equal
principal amounts to your book-entry
interests. No certificated notes are issued
and outstanding as of the date of this
prospectus. If you acquire certificated
outstanding notes prior to the expiration of
the exchange offer, you must tender your
certificated outstanding notes in accordance
with the procedures described in this
prospectus under the heading "The Exchange
Offer -- Procedures for Tendering --
Certificated Outstanding Notes."
8
<Page>
Procedures for tendering
outstanding notes held by a
broker (see page 32)........... If you hold your outstanding notes through a
broker, do not complete the letter of
transmittal. Please contact your broker
directly for instructions on how to
participate in the exchange offer.
Guaranteed delivery procedures
(see page 33).................. If you wish to tender your outstanding notes
and your outstanding notes are not
immediately available or you cannot timely
deliver your outstanding notes, the letter of
transmittal or any other documents required
by the letter of transmittal to the exchange
agent, or you cannot complete the procedure
for book-entry transfer, then on or prior to
the expiration of the exchange offer you must
tender your outstanding notes according to
the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Delivery of exchange notes....... We will deliver exchange notes by book-entry
transfer as soon as reasonably practicable
after acceptance of the outstanding notes.
If we do not accept any of your outstanding
notes for exchange, we will return them to
you as promptly as practicable after the
expiration or termination of the exchange
offer without any expense to you.
No appraisal rights
(see page 29).................. No appraisal rights are available to holders
of outstanding notes in connection with the
exchange offer. If you do not tender your
outstanding notes or we reject your tender,
you will not be entitled to any further
registration rights under the registration
rights agreement, except under limited
circumstances. Your unexchanged notes will,
however, remain outstanding and entitled to
the benefits of the indenture.
Prospectus delivery
(see page 34).................. All broker-dealers must comply with the
registration and prospectus delivery
requirements of the Securities Act. Each
broker-dealer that receives registered notes
for its own account pursuant to the exchange
offer must acknowledge that it will deliver a
prospectus in connection with any resale of
the registered notes. The letter of
transmittal accompanying this prospectus
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. We have agreed that for a
period of 180 days after consummating the
exchange offer we will make this prospectus
available to any broker-dealer for use in
connection with any resale.
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Material United States federal Your exchange of outstanding notes for
income tax considerations (see exchange notes should not be a taxable
page 141)...................... exchange for United States federal income tax
purposes. You should not recognize any
taxable gain or loss or any interest income
as a result of the exchange.
Exchange agent................... Wells Fargo Bank Minnesota, National
Association.
Risk factors (see page 16)....... You should consider carefully the matters
described in the section entitled "Risk
Factors," as well as the other information
included in this document and the documents
to which we have referred you.
Legal limitation................. We are not making any offer to sell, nor are
we soliciting any offer to buy, securities in
any jurisdiction in which the offer or sale
is not permitted.
CONSEQUENCES OF NOT EXCHANGING YOUR OUTSTANDING NOTES
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES IN THE
EXCHANGE OFFER, YOUR OUTSTANDING NOTES WILL CONTINUE TO BE SUBJECT TO THE
RESTRICTIONS ON TRANSFER CONTAINED IN THE LEGEND ON THE OUTSTANDING NOTES. IN
GENERAL, THE OUTSTANDING NOTES MAY NOT BE OFFERED OR SOLD UNLESS THEY ARE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. HOWEVER, YOU MAY OFFER
OR SELL YOUR OUTSTANDING NOTES UNDER AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. AFTER THE
EXCHANGE OFFER IS COMPLETED, YOU WILL NOT BE ENTITLED TO ANY EXCHANGE OR
REGISTRATION RIGHTS WITH RESPECT TO YOUR OUTSTANDING NOTES, EXCEPT UNDER LIMITED
CIRCUMSTANCES.
10
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SUMMARY OF THE EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes, except that the exchange notes will be registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the outstanding notes. The exchange
notes represent the same debt as the outstanding notes. Both the outstanding
notes and the exchange notes are governed by the same indenture, and the
indenture is governed by New York law.
Issuer........................... AutoNation, Inc.
Notes offered.................... $450,000,000 aggregate principal amount of 9%
senior notes due 2008.
Maturity......................... August 1, 2008.
Interest payment dates........... February 1 and August 1, beginning
February 1, 2002.
Guarantees....................... The exchange notes are guaranteed by
substantially all of our subsidiaries on a
senior basis. See "Description of Notes --
Guarantees."
Ranking.......................... The exchange notes will be unsecured and rank
equally with our unsecured senior
indebtedness and senior to our subordinated
indebtedness. Each guarantee will be
unsecured and rank equally with the unsecured
senior indebtedness of the guarantors and
senior to all subordinated indebtedness of
the guarantors. The exchange notes will be
effectively subordinated to our and our
guarantors' secured indebtedness to the
extent of the value of the assets securing
such indebtedness.
As of September 30, 2001, after giving effect
to (i) the notes, (ii) our senior credit
facilities, (iii) borrowings under our
mortgage facility executed on June 8, 2001
(but excluding the additional facility
executed on October 30, 2001) and (iv) the
repayment of certain of our outstanding
indebtedness, we and the guarantors had
$619.6 million of senior debt (excluding our
floorplan financing), all of which was
secured (other than the notes), and the
guarantors had $1.9 billion of floorplan
financing, all of which was secured.
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Optional redemption.............. Except as described below, the exchange notes
may not be redeemed at our option prior to
their maturity.
Public equity offering optional
redemption..................... Before August 1, 2004, we may redeem up to
35% of the aggregate principal amount of the
exchange notes with the net cash proceeds of
a public equity offering at 109% of the
principal amount of the exchange notes, plus
accrued interest, if at least 65% of the
aggregate principal amount of the exchange
notes originally issued remains outstanding
after such redemption.
Change of control................ If we undergo a change of control, each
noteholder may require us to repurchase some
or all of his, her or its exchange notes at a
purchase price equal to 101% of the principal
amount of the exchange notes, plus accrued
interest.
Covenants........................ The indenture governing the exchange notes
contains covenants that, among other things,
limit our ability and the ability of our
subsidiaries to:
- incur additional indebtedness;
- make restricted payments;
- create certain liens;
- sell assets;
- in the case of our restricted
subsidiaries, restrict dividends or other
payments to us;
- in the case of our restricted
subsidiaries, guarantee indebtedness;
- engage in transactions with affiliates;
- create unrestricted subsidiaries; and
- consolidate, merge or transfer all or
substantially all of our assets and the
assets of our subsidiaries on a
consolidated basis.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
the Notes" in this prospectus.
During any period in which we achieve an
investment grade rating for the exchange
notes, many of these covenants will be
suspended.
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Use of proceeds.................. There will be no proceeds payable to us or
the guarantors from this exchange offer. We
and the guarantors are conducting the
exchange offer to satisfy certain of our
obligations under the registration rights
agreement executed in connection with the
issuance of the outstanding notes.
Absence of a public market for the
exchange notes ................. The exchange notes will be new securities for
which there will not initially be a market.
As a result, the development or liquidity of
any market for the exchange notes may not
occur. The initial purchasers have advised us
that they currently intend to make a market
in the exchange notes. You should be aware,
however, that the initial purchasers are not
obligated to do so. In the event such a
market may develop, the initial purchasers
may discontinue their market making
activities at any time without notice. We do
not intend to list the exchange notes on any
securities exchange or quote them on any
automated dealer quotation system.
Risk factors...................... See "Risk Factors" beginning on page 16 and
the other information in this prospectus for
a discussion of factors you should carefully
consider before deciding to participate in
the exchange offer.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents our summary consolidated financial data. The
data presented in this table is either from or derived from the "Selected
Consolidated Financial Data" and our consolidated financial statements and notes
to those statements that are included elsewhere in this prospectus as adjusted
for the reclassification described in Note (5) below, except for the
consolidated balance sheet data as of December 31,1998 and September 30, 2000.
You should read those sections and the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a further
explanation of the financial data summarized here. The results of operations for
any interim period are not necessarily indicative of our results for a full year
($ in millions).
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED SEPT.
DEC. 31, DEC. 31, DEC. 31, SEPT. 30, 30,
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
(UNAUDITED)
CONSOLIDATED INCOME STATE
MENT DATA:
Revenue:
New vehicles..................... $ 6,775.8 $ 11,481.0 $ 12,489.3 $ 9,657.1 $ 8,804.0
Used vehicles.................... 3,185.2 4,429.7 3,860.2 2,995.0 2,928.1
Parts and service................ 1,383.2 2,222.0 2,334.9 1,763.4 1,814.2
Finance and insurance............ 288.6 423.4 431.8 331.2 363.9
Other............................ 1,031.8 1,555.7 1,493.4 1,161.1 930.4
------------------ --------------- --------------- ---------------- ----------------
Total Revenue................. 12,664.6 20,111.8 20,609.6 15,907.8 14,840.6
------------------ --------------- --------------- ---------------- ----------------
Gross Margin:
New vehicles..................... 588.6 962.3 1,056.0 805.0 715.9
Used vehicles.................... 379.4 449.6 438.6 341.0 327.0
Parts and service................ 571.6 933.8 999.7 753.0 783.9
Finance and insurance............ 288.6 423.4 431.8 331.2 363.9
Other............................ 103.4 159.5 106.4 83.3 61.7
------------------ --------------- --------------- ---------------- ----------------
Total Gross Margin............ 1,931.6 2,928.6 3,032.5 2,313.5 2,252.4
------------------ --------------- --------------- ---------------- ----------------
Operating Income.................... 463.4 109.8 724.8 564.2 503.4(4)
Floorplan interest expense.......... 107.0 125.2 199.8 146.8 107.8
Other interest expense.............. 14.0 34.9 47.7 36.2 30.6
Depreciation and
amortization..................... 79.9 123.0 133.8 101.1 110.8
Income (loss) from continuing
opertions........................ $ 225.8 $ (31.5) $ 328.1 $ 254.4 $ 225.4
OTHER FINANCIAL DATA:
EBITDA(1)........................... $ 553.5 $ 699.3 $ 902.5 $ 688.9 $ 626.0
Rental expense...................... 45.0 86.2 82.7
EBITDAR(2).......................... 598.5 785.5 985.2
Capital expenditures................ 256.7 242.3 148.2 82.8 86.3
EBITDA/Total interest expense....... 4.6x 4.4x 3.7x
EBITDA less floorplan interest/Other
interest expense................. 31.9x 16.5x 14.7x
Debt(3)/EBITDA...................... 3.4x 4.4x 3.7x
Debt less floorplan financing/EBITDA
less floorplan interest.......... 1.2x 1.5x 1.2x
OTHER OPERATING DATA:
New vehicles sold................... 286,000 469,000 489,000 383,000 336,000
Used vehicles sold.................. 244,000 315,000 255,000 199,000 194,000
</Table>
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<Table>
<Caption>
AS OF AS OF AS OF AS OF AS OF
DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1998 (5) 1999 (5) 2000 (5) 2000 (5) 2001
---- ---- ---- ---- ----
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
DATA:
Inventory........................... $ 1,849.5 $ 2,706.8 $ 2,774.4 $ 2,403.3 $ 2,248.8
Working capital..................... 1,023.2 1,044.4 874.1 922.3 739.7
Total assets........................ 8,412.2 9,583.1 8,867.3 8,509.2 8,153.1
Floorplan notes payable............. 1,339.2 2,210.6 2,454.0 1,997.7 1,921.2
Revolving credit facilities......... 500.0 669.0 615.0 669.0 --
Senior unsecured notes, net of
unamortized discount of $5.6 million -- -- -- -- 444.4
Leases and other debt............... 26.5 174.8 242.2 264.6 175.2
Shareholders' equity................ 5,424.2 4,601.2 3,842.5 3,856.0 3,878.5
OTHER OPERATING DATA:
Franchises.......................... 323 397 397 390 368
</Table>
- -----------
(1) EBITDA is defined as earnings before interest expense, income taxes,
depreciation, amortization and other non-recurring charges of $443.7
million in fiscal 1999, $(3.8) million in fiscal 2000, and $(2.2) million
and $8.1 million for the nine months ended September 30, 2000 and 2001,
respectively. While EBITDA should not be construed as a substitute for
operating income or as a better measure of liquidity than cash flows from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide
additional information with respect to our ability to meet future debt
service, capital expenditures and working capital requirements. This
measure may not be comparable to similarly titled measures reported by
other companies.
(2) EBITDAR is defined as EBITDA plus rental expense. This measure may not be
comparable to similarly titled measures reported by other companies.
(3) Debt is defined as long-term debt, including current maturities and
floorplan financing.
(4) Includes other gains of $19.3 million, primarily representing the pre-tax
gain from the sale of the Flemington dealer group in April 2001.
(5) In order to maintain consistency and comparability between the periods
presented, certain amounts, including restricted cash and floorplan notes
payable, have been reclassified from the previously reported financial
statements to conform with the financial statement presentation as of
September 30, 2001.
15
<Page>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING TO PARTICIPATE IN
THE EXCHANGE OFFER. THE CAUTIONARY STATEMENTS SET FORTH BELOW AND ELSEWHERE IN
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
FORWARD-LOOKING STATEMENTS INCLUDED IN THE SECTIONS ENTITLED "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" AND IN REPORTS FILED WITH THE SEC AND ELSEWHERE HEREIN.
RISKS RELATED TO THE EXCHANGE OFFER
YOUR FAILURE TO EXCHANGE YOUR OUTSTANDING NOTES MAY LIMIT YOUR ABILITY TO
TRANSFER YOUR NOTES.
We did not register the outstanding notes under the Securities Act or any
state securities laws, and we do not intend to do so after the exchange offer.
As a result, outstanding notes may be transferred only in limited circumstances
under the securities laws. If you do not exchange your outstanding notes in the
exchange offer by following the procedures described in this prospectus, you
will lose your right to have the outstanding notes registered under the
Securities Act, with some exceptions. If you continue to hold outstanding notes
after the exchange offer, you may be unable to sell them. Outstanding notes that
are not tendered or are tendered but not accepted will, following the exchange
offer, continue to be subject to the existing transfer restrictions.
YOU MAY FIND IT DIFFICULT TO SELL YOUR EXCHANGE NOTES.
While the outstanding notes are presently eligible for trading in the
PORTAL market of the NASD by qualified institutional buyers, there is no
existing market for the exchange notes, and we do not intend to list the
exchange notes on any securities exchange or quote them on any automated dealer
quotation system. Although the initial purchasers have informed us that they
intend to make a market in the exchange notes, they are not obligated to do so
and may discontinue any such market at any time without notice. In addition,
such market making activity may be limited during the exchange offer or during
an offering under a shelf registration statement should we decide to file one.
As a result, we can make no assurances to you as to the development, maintenance
or liquidity of any market for the exchange notes, your ability to sell the
exchange notes or the price at which you may be able to sell the exchange notes.
If such markets were to exist, future trading prices of the exchange notes may
be lower than their principal amount or purchase price and will depend on many
factors, including, among other things, prevailing interest rates, our operating
results and the market for similar securities. Historically, the market for
securities similar to the exchange notes has been subject to disruptions that
have caused substantial volatility in the prices of such securities. We cannot
assure you that, if a market develops, it will not be subject to similar
disruptions. Such a disruption may adversely affect such liquidity and trading
markets independent of our financial performance and prospects.
16
<Page>
SOME PERSONS WHO PARTICIPATE IN THIS EXCHANGE OFFER MUST DELIVER A
PROSPECTUS IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES.
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered exchange notes without compliance with the registration and
prospectus delivery requirements of the Securities Act. However, in some
instances described in this prospectus under "The Exchange Offer -- Resales of
Exchange Notes," you will remain obligated to comply with the prospectus
delivery requirements of the Securities Act to transfer your registered notes.
In these instances, if you transfer any registered note without delivering a
prospectus meeting the requirements of the Securities Act or without an
exemption from registration of your registered notes under the Securities Act,
you may incur liability under the Securities Act. We do not and will not assume,
or indemnify you against, this liability.
RISKS RELATED TO THE NOTES
THE NOTES AND THE GUARANTEES ARE UNSECURED OBLIGATIONS.
The notes are our unsecured obligations, and the guarantees are the
unsecured obligations of the guarantors. The payment of principal, premium (if
any) and interest on the notes is effectively subordinated in right of payment
to all of our secured indebtedness, and the payment of the guarantees is
effectively subordinated in right of payment to all secured indebtedness of the
guarantors, in each case to the extent of the value of the assets securing such
indebtedness. As of September 30, 2001, after giving effect to (i) the notes,
(ii) our senior credit facilities, (iii) borrowings under our mortgage facility
executed on June 8, 2001 (but excluding the additional facility executed on
October 30, 2001) and (iv) the repayment of certain of our outstanding
indebtedness, we and the guarantors had $619.6 million of senior debt (excluding
our floorplan financing), all of which was secured (other than the notes), and
the guarantors had $1.9 billion of floorplan financing, all of which was
secured. In addition, the exercise of default rights (other than rights to
demand payment in the event of default or bring suit for payment of amounts due
and payable) under certain of the guarantees are subject to requirements of
advance notice to certain of the automotive manufacturers, as set forth in the
indenture.
WE CONDUCT SUBSTANTIALLY ALL OF OUR OPERATIONS THROUGH SUBSIDIARIES.
We conduct substantially all of our operations through subsidiaries.
Distributions and intercompany transfers from our subsidiaries to us may be
restricted by covenants contained in debt agreements and other agreements to
which such subsidiaries may be subject and may be restricted by other agreements
entered into in the future and by applicable law. We cannot assure you that the
operating results of our subsidiaries at any given time will be sufficient to
make distributions to us.
THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO PURCHASE THE NOTES UPON A
CHANGE OF CONTROL.
If a change of control occurs, we cannot assure you that we will have
sufficient funds to satisfy all of our repurchase obligations under the
indenture. If we undergo certain changes of control, we may need to refinance
large amounts of our debt, including the notes, the debt under our senior credit
facilities and our mortgage facilities. If a change of control occurs, we must
offer to buy back the notes for a price equal to 101% of their principal amount,
plus accrued interest. We would fund any repurchase obligation with our
available cash, borrowings, sales of equity or funds provided by a new
controlling person. Pursuant to the terms of our senior credit facilities, we
are required to pay off the balance of the facilities
17
<Page>
before we buy back the notes. If we buy back the notes without first repaying
the balance on our senior credit facilities, we will be in default under our
senior credit facilities. In addition, any future debt that we incur may also
contain restrictions on our repurchase obligations upon a change of control. We
cannot assure you that there will be sufficient funds available for the payment
of the outstanding balance under our senior credit facilities, our future debt,
if any, and for any required repurchases of the notes if a change of control
occurs. If we fail to repurchase the notes after a change of control, we will be
in default under the indenture. These buyback requirements may also delay or
make it harder for others to obtain control of us.
BECAUSE FEDERAL AND STATE STATUTES MAY ALLOW COURTS TO VOID THE GUARANTEES
OF THE NOTES OR SUBORDINATE THE GUARANTEES TO OTHER OBLIGATIONS OF THE
GUARANTORS, YOU MAY NOT HAVE THE RIGHT TO RECEIVE PAYMENT UNDER THE GUARANTEES.
Various applicable fraudulent conveyance laws have been enacted for the
protection of creditors. A court may use these laws to subordinate or void the
subsidiary guarantees of the notes issued by any of our subsidiary guarantors.
It is also possible that under certain circumstances a court could hold that the
direct obligations of a subsidiary guaranteeing the notes could be superior to
the obligations under that guarantee.
A court could void or subordinate the guarantee of the notes by any of our
subsidiaries in favor of that subsidiary's other debts or liabilities to the
extent that the court determined that either of the following was true at the
time the subsidiary issued the guarantee:
- that subsidiary incurred the guarantee with the intent to hinder,
delay or defraud any of its present or future creditors or that such
subsidiary contemplated insolvency with a design to favor one or more
creditors to the total or partial exclusion of others; or
- that subsidiary did not receive fair consideration or reasonable
equivalent value for issuing the guarantee and, at the time it issued
the guarantee, that subsidiary:
-- was insolvent or rendered insolvent by reason of the issuance of
the guarantee;
-- was engaged or about to engage in a business or transaction for
which the remaining assets of that subsidiary constitute
unreasonably small capital; or
-- intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured.
Among other things, a legal challenge of a subsidiary's guarantee of the notes
on fraudulent conveyance grounds may focus on the benefits, if any, realized by
that subsidiary as a result of our issuance of the notes. To the extent a
subsidiary's guarantee of the notes is voided as a result of fraudulent
conveyance or held unenforceable for any other reason, the noteholders would
cease to have any claim in respect of that guarantee and would be creditors
solely of us.
18
<Page>
OUR SIGNIFICANT SHAREHOLDERS MAY SUPPORT STRATEGIES THAT ARE OPPOSED TO THE
INTERESTS OF OUR NOTEHOLDERS OR WITH WHICH YOU DISAGREE.
Certain of our shareholders, including certain of our directors, have the
power to significantly influence the results of shareholder votes and the
election of our board of directors, as well as transactions involving a
potential change of control. These shareholders may support strategies and
directions that are in their best interests or in the interests of our equity
holders in general, but that are not in the interests of our noteholders or with
which you disagree. We cannot assure you that these shareholders will not
increase their ownership percentage in the future.
RISKS RELATED TO AUTONATION AND THE AUTOMOTIVE RETAILING INDUSTRY
THE AUTOMOTIVE RETAILING INDUSTRY IS CYCLICAL AND IS SENSITIVE TO CHANGING
ECONOMIC CONDITIONS; WE ARE IN THE MIDST OF AN INDUSTRY AND GENERAL ECONOMIC
SLOWDOWN OR RECESSION THAT COULD MATERIALLY ADVERSELY IMPACT OUR BUSINESS.
Sales of motor vehicles, particularly new vehicles, historically have been
subject to substantial cyclical variation characterized by periods of oversupply
and weak demand. We believe that many factors affect the industry, including
consumer confidence in the economy, the level of personal discretionary
spending, interest rates, fuel prices, credit availability and unemployment
rates. In addition, the industry has been significantly adversely impacted by
the recent terrorist attacks in the United States and the resulting further
general economic slowdown, and could be further adversely impacted by the
outbreak of hostilities arising out of the terrorist attacks or the prospect of
such hostilities. Although 1999 and 2000 were record years for the automotive
industry, both in general and for us specifically, in terms of volume of new
vehicles sold, the automotive industry has experienced a decline in demand for
new vehicles during 2001. Prior to the recent terrorist attacks against the
United States, industry experts had predicted a decrease in new vehicle sales in
the United States during 2001 of five to ten percent as compared to sales during
2000. During the first nine months of 2001, our new vehicle revenue, the single
largest component of our aggregate revenue and the source of approximately 31.8%
of our gross margin, decreased 8.8% as compared to the same period in 2000.
Although sales of new vehicles during October 2001 were at record levels due in
large part to increased manufacturer incentives, we expect demand for new
vehicles to decrease during the foreseeable future. Our sales of used vehicles,
financial services, vehicle service, parts and collision repair services also
have been adversely impacted by the current industry and general economic
slowdown and recent events. At this time, we cannot predict the severity or
duration of the slowdown in business due in part to recent events and we cannot
assure you that our business will not be materially adversely affected if it
continues or worsens.
ANC RENTAL CORPORATION RECENTLY FILED FOR CHAPTER 11 BANKRUPTCY
PROTECTION. ACCORDINGLY, WE COULD BE REQUIRED TO PERFORM UNDER CERTAIN
CREDIT ENHANCEMENTS AND GUARANTEES WITH RESPECT TO ANC RENTAL AND WE MAY
HAVE CLAIMS UNDER CERTAIN AGREEMENTS BETWEEN ANC RENTAL AND US, ANY OF
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
CONDITION, CASH FLOWS AND PROSPECTS.
In connection with the spin-off of ANC Rental Corporation and its
subsidiaries ("ANC Rental") in June 2000, we provide certain guarantees and
credit enhancements with respect to financial and other performance obligations
of ANC Rental, including acting as a guarantor under certain motor vehicle and
real property leases between ANC Rental and Mitsubishi Motor Sales of America,
Inc. ("Mitsubishi") and acting as an indemnitor with respect to certain surety
bonds issued on ANC Rental's behalf. We are
19
<Page>
also a party to certain agreements with ANC Rental (the "ANC Rental
Agreements"), including a separation and distribution agreement, a
reimbursement agreement and a tax sharing agreement, pursuant to which both
ANC Rental and we have certain obligations. On November 13, 2001, ANC
Rental filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Wilmington,
Delaware. Accordingly, depending on the specific terms of ANC Rental's
reorganization plan and which of its obligations are discharged in
bankruptcy, among other things, we could be called on to perform under some
or all of our credit enhancements and guarantees, which could have a
material adverse effect on our business, financial condition, cash flows
and prospects. ANC Rental has been accounted for as a discontinued
operation and, accordingly, we expect that charges recorded by us pursuant
to the foregoing credit enhancements and guarantees or with respect to
claims under the ANC Rental Agreements, if any, would not impact our
reported results from continuing operations.
Under the existing terms of the motor vehicle lease agreement with
Mitsubishi referenced above, ANC Rental currently leases approximately 14,000
vehicles from Mitsubishi and may increase the number of vehicles it leases under
the agreement to approximately 27,000. Under this vehicle lease agreement, which
expires at the conclusion of the leases for model year 2002 vehicles, ANC Rental
is responsible for lease payments that we believe are currently between $4.0
million and $5.0 million per month, although such lease payments may increase to
approximately $8.0 million per month in the event that ANC Rental maximizes the
number of vehicles it leases under the agreement. We also believe that ANC
Rental typically leases vehicles under this lease agreement for a period of
approximately six to nine months per vehicle. Additionally, ANC Rental is
responsible for the return of all leased vehicles to Mitsubishi upon the
termination of the vehicle lease agreement. Under the real property leases that
we guarantee, which expire in July 2017, ANC Rental leases twelve parcels of
property from Mitsubishi at an aggregate rent of approximately $3.0 million per
year. Our indemnification obligations with respect to the surety bonds issued on
behalf of ANC Rental are capped at $29.5 million in the aggregate. In addition,
due to the bankruptcy of ANC Rental, obligations of ANC Rental under the terms
of the ANC Rental Agreements may be extinguished or our claims against them
under such agreements may be unenforceable. These claims could include
reimbursement obligations that ANC Rental may have to us in connection with
payments made by us with respect to the foregoing credit enhancements and
guarantees, as well as indemnification rights with respect to payments made by
us to the Internal Revenue Service as a result of audit adjustments in our
consolidated federal income tax returns relating to ANC Rental's automotive
rental businesses prior to the spin-off. In the event that we are called on to
perform under the foregoing credit enhancements and guarantees and we have
claims under the ANC Rental Agreements that ANC Rental does not satisfy, we
estimate that, based on our assessment of the risks involved in each matter, our
aggregate obligations under the credit enhancements, guarantees and ANC Rental
Agreements could be in the range of $50.0 million to $150.0 million. However,
the exposure is difficult to estimate and we cannot assure you that our
aggregate obligations under these credit enhancements, guarantees and ANC Rental
Agreements will not be materially above the range indicated above or that we
will not be subject to additional claims as a result of ANC Rental's bankruptcy
filing.
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WE HAVE ENGAGED IN CERTAIN TRANSACTIONS THAT MAY BE CHALLENGED BY THE IRS
AND MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION, RESULTS OF
OPERATIONS, CASH FLOWS AND ASSETS.
Over the past four years, we have engaged in certain transactions that
are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. At September 30, 2001 and December 31, 2000, we had
$890.9 million and $877.2 million, respectively, of net deferred tax
liabilities. A significant amount of our deferred tax liabilities relates to
these transactions. We believe that our tax returns appropriately reflect such
transactions. However, an unfavorable settlement or adverse resolution of
these matters could have a material adverse effect on our financial condition,
results of operations, cash flows and assets.
WE ARE SUBJECT TO RESIDUAL VALUE RISK AND CONSUMER CREDIT RISK IN
CONNECTION WITH OUR LEASE PORTFOLIO; WE ARE ALSO SUBJECT TO CONSUMER CREDIT RISK
IN CONNECTION WITH OUR INSTALLMENT RECEIVABLES PORTFOLIO.
Through AutoNation Financial Services, we provide installment loans to our
customers and, until mid-1999, we provided our customers an opportunity to
finance vehicles through leases with us. We are subject to residual value risk
in connection with our lease portfolio in the event of a decline in the market
value of our leased vehicles. We also are subject to consumer credit risk in
connection with our lease portfolio and our portfolio of installment
receivables. We are currently considering strategic alternatives to our consumer
loan origination business. A change in strategy regarding our consumer loan
origination business and/or a continuation or worsening of the current economic
downturn could have a material adverse effect on the value of our installment
receivables portfolio, our financial condition, results of operations and cash
flows.
THE INDENTURE RELATING TO THE NOTES AND OUR SENIOR CREDIT FACILITIES
RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS.
As of September 30, 2001, after giving effect to (i) the notes, (ii) our
senior credit facilities, (iii) borrowings under our mortgage facility executed
on June 8, 2001 (but excluding the additional facility executed on October 30,
2001) and (iv) the repayment of certain of our outstanding indebtedness, we and
the guarantors had $619.6 million of senior debt (excluding our floorplan
financing), all of which was secured (other than the notes), and the guarantors
had $1.9 billion of floorplan financing, all of which was secured. In addition,
the indenture and our other senior credit instruments allow us to incur certain
additional indebtedness, including a limited amount of secured indebtedness. The
indenture permits us to incur inventory financing without satisfaction of the
fixed charge coverage tests.
The indenture and our senior credit agreements contain numerous financial
and operating covenants that limit the discretion of our management with respect
to business matters. These covenants place significant restrictions on, among
other things, our ability to incur additional indebtedness, to create liens or
other encumbrances, to make certain payments and investments, and to sell or
otherwise dispose of assets and merge or consolidate with other entities. Our
senior credit facilities also require us to meet certain financial ratios and
tests that may require us to take action to reduce debt or act in a manner
contrary to our business objectives. A failure by us or our guarantors to comply
with the obligations contained in our senior credit facilities or the indenture
could result in an event of default under our senior credit facilities or the
indenture, which could permit acceleration of the related debt and acceleration
of debt under other instruments that may contain cross-acceleration or
cross-default
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provisions. If any debt is accelerated, our assets may not be sufficient to
repay in full such indebtedness and our other indebtedness, including the notes.
There can be no assurance that our future cash flow will be sufficient to
meet our obligations and commitments. If we are unable to generate sufficient
cash flow from operations in the future to service our indebtedness and to meet
our other commitments, we will be required to adopt one or more alternatives,
such as refinancing or restructuring our debt or equity capital or engaging in
asset sales. There can be no assurance that any of these actions could be
effected on a timely basis or on satisfactory terms or that these actions would
enable us to continue to satisfy our capital requirements. In addition, the
terms of our existing or future franchise agreements, framework agreements or
debt agreements, including the indenture and our senior credit facilities, may
prohibit us from adopting any of these alternatives.
OUR DEALERSHIPS ARE DEPENDENT ON THE PROGRAMS AND OPERATIONS OF VEHICLE
MANUFACTURERS AND, THEREFORE, ANY CHANGES TO SUCH PROGRAMS AND OPERATIONS MAY
ADVERSELY AFFECT OUR DEALERSHIP OPERATIONS AND, IN TURN, AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS, FINANCIAL CONDITION, CASH FLOWS AND PROSPECTS.
The success of our dealerships is dependent on vehicle manufacturers in
several key respects. First, we rely exclusively on the various vehicle
manufacturers for our new vehicle inventory. Addition ally, manufacturers
generally support their dealerships by providing direct financial assistance in
various areas, including, among others, advertising assistance and favorable
inventory financing. Beyond funds paid directly to their dealerships, the
manufacturers also have established various incentive programs designed to spur
consumer demand for their vehicles. From time to time, manufacturers modify and
discontinue these dealer assistance and consumer incentive programs, which could
have a significant adverse effect on our consolidated results of operations and
cash flows. Any event that may have a material adverse effect on the financial
condition, management, marketing, production and distribution capabilities of
the vehicle manufacturers with whom we hold franchises, such as general economic
downturns or recessions, increases in interest rates, labor strikes, supply
shortages, adverse publicity or product defects, may have a material adverse
effect on our business, results of operations, financial condition, cash flows
and prospects.
WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT, AND IF WE ARE UNABLE TO
COMPETE WITH OUR COMPETITORS, OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS, CASH FLOWS AND PROSPECTS COULD BE MATERIALLY ADVERSELY AFFECTED.
We operate in a highly competitive environment. Our competition includes
publicly and privately-owned dealerships, some of which operate large groups,
and any of which may sell the same or similar makes of new and used vehicles in
our markets at competitive prices. Other competitors include franchised
automotive dealerships selling other brands of vehicles, private market buyers
and sellers of used vehicles, used vehicle dealers, service center chains,
independent service and repair shops and publicly and privately-owned finance
companies, including those of vehicle manufacturers, and, as we describe below,
on-line automotive retailers and lead-referral companies. Our franchise
agreements generally do not give us the exclusive right to sell a manufacturer's
product within a given geographic area. Accordingly, a manufacturer may, subject
to any protection of state law, grant another dealer a franchise to start a new
dealership near one of our locations, or an existing dealer may move its
dealership to a location which would compete directly with us. These and other
competitive pressures could materially adversely affect our business, financial
condition, results of operations, cash flows and prospects.
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We also face competition in the rapidly evolving automotive retailing
e-commerce business. A number of e-commerce companies and traditional companies,
including the vehicle manufacturers and other franchised dealership groups, have
established automotive-related websites over the past few years and compete with
us in two areas of our e-commerce business: (i) sales of vehicles to retail
customers via the Internet and (ii) generation and sales to other automobile
dealers of customer referrals or "leads" obtained via the Internet.
Additionally, we believe that as customers use the Internet and gain increased
access to information on prices for vehicles and related finance and insurance
products, margins for new and used vehicle sales and related finance and
insurance products may decrease, whether sales are made via the Internet or
through traditional channels. The success of our e-commerce business will depend
on our ability to develop a strategy that appeals to on-line automobile buyers,
to obtain high visibility on the Internet, whether through our own websites or
through strategic partnerships and alliances with other e-commerce companies,
and to develop and maintain a cost structure that permits us to operate
profitably.
WE ARE SUBJECT TO RESTRICTIONS IMPOSED BY VEHICLE MANUFACTURERS WHICH MAY
ADVERSELY IMPACT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH
FLOWS AND PROSPECTS, INCLUDING OUR ABILITY TO ACQUIRE NEW DEALERSHIPS.
The franchise agreements to which our dealerships are subject and the
framework agreements that we have with many major vehicle manufacturers impose
significant restrictions on our ability to operate our dealerships. These
agreements provide the manufacturers with considerable influence over the
operations of our dealerships, including the level at which we capitalize our
dealerships, the condition of our dealership facilities, our performance
standards with respect to sales volume and customer satisfaction, our selection
of dealership management, the naming and marketing of our dealerships, the
operations of our e-commerce sites and our ability to acquire additional
dealerships. They also grant the manufacturer the right to terminate our
franchise for a variety of reasons (including any unapproved change of ownership
or management or transfer of franchise rights) and to block our future
acquisition of additional dealerships under certain circumstances (including our
failure to meet our performance targets at our existing dealerships), subject to
state laws. While we believe that we will be able to renew all of our franchise
agreements, we cannot guarantee that all of our franchise agreements will be
renewed or that the terms of the renewal will be favorable to us. In addition,
some of our framework agreements give the manufacturer or distributor the right
to acquire, at fair market value, our automotive dealerships franchised by that
manufacturer or distributor under specified circumstances in the event of a
change in control of our company, the acquisition of 20% or more of our voting
stock by another vehicle manufacturer or distributor or other extraordinary
corporate transactions such as a merger or sale of all of our assets. The
restrictions in our franchise and framework agreements also may prevent or deter
prospective acquirors from acquiring control of us, which may adversely impact
our equity value. In addition, we have granted certain manufacturers the right
to acquire, at fair market value, the automotive dealerships franchised by that
manufacturer in specified circumstances upon the exercise of remedies under the
guarantees and pledges.
OUR LONG-TERM STRATEGY REQUIRES US TO OBTAIN SUBSTANTIAL CAPITAL, WHICH, IF
WE DO NOT OBTAIN, WILL ADVERSELY AFFECT OUR PROSPECTS.
We need substantial capital to operate our business and to effectively
execute our long-term strategy. On August 10, 2001, we terminated our multi-year
unsecured revolving credit facility which provided $1.0 billion of financing and
entered into two new senior secured revolving credit facilities with
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an aggregate capacity of $500.0 million. One facility is a 364-day revolving
credit facility which provides borrowing capacity up to $200.0 million and the
other facility provides borrowing capacity up to $300.0 million and has a
five-year term. In June 2001, we entered into a mortgage facility with an
aggregate capacity of $150.0 million. As of September 30, 2001, the amount
borrowed under this facility was $116.0 million. On October 30, 2001, we entered
into an additional mortgage facility. This facility provides aggregate borrowing
capacity of $150.0 million, of which we initially borrowed $38.5 million. As of
September 30, 2001, we had approximately $1.9 billion of floorplan financing
outstanding under our floorplan credit facilities with various financing
sources, primarily the vehicle manufacturers' captive finance subsidiaries. Our
floorplan financing, which we use to finance our vehicle inventory, is secured
by our vehicle inventory. This may limit our ability to borrow from other
sources or for other uses. We intend to obtain the needed capital to operate our
business with cash on hand, through issuances of equity or debt securities and
through borrowings under our credit arrangements. We cannot, however, assure you
that we will be able to obtain sufficient financing for our business and
operations on a timely basis and on terms acceptable to us.
A substantial portion of our outstanding indebtedness is at floating
interest rates. At times, we have used interest rate swaps, caps and floors to
manage the risk of interest rate fluctuations, but a substantial increase in
interest rates could adversely affect our cost of borrowed money.
WE ARE SUBJECT TO NUMEROUS LEGAL AND ADMINISTRATIVE PROCEEDINGS, WHICH, IF
THE OUTCOMES ARE ADVERSE TO US, COULD ADVERSELY AFFECT OUR BUSINESS, OPERATING
RESULTS AND PROSPECTS.
We are involved, and will continue to be involved, in numerous legal
proceedings arising out of the conduct of our business, including litigation
with customers, employment related lawsuits and actions brought by governmental
authorities. We have several class action and other lawsuits pending against us.
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought an action against one of our subsidiaries' dealerships for alleged
customer fraud as well as several other claims. In April 2001, the California
DMV action and a related action by the State of California were settled. As part
of the settlement, the dealership closed its sales operations for six days,
agreed to provide restitution to certain customers in the estimated amount of
approximately $1.0 million and paid $1.1 million in fines, penalties and costs.
Three purported civil class actions and other related lawsuits and claims have
been filed or made against the dealership based on the allegations underlying
the California DMV case. The class of customers to which these actions relate
may be significant.
In an action filed in Florida state court in 1999, one of our subsidiaries
was accused of violating, among other things, the Florida Motor Vehicle Retail
Sales Finance Act and the Florida Deceptive and Unfair Trade Practices Act by
allegedly failing to deliver executed copies of retail installment contracts to
customers of our former used vehicle megastores. On October 31, 2000, the court
certified the class of customers on whose behalf the action would proceed. In
July 2001, Florida's Fourth District Court of Appeals upheld the certification
of the class.
Many of our Texas dealership subsidiaries have been named in three class
actions brought against the Texas Automobile Dealer's Association ("TADA") and
new vehicle dealerships in Texas that are members of the TADA. The actions
allege that since January 1994 Texas dealers have deceived customers with
respect to a vehicle inventory tax and violated federal antitrust and other laws
as well. Two of the cases are currently pending in Texas state court and the
third is pending in the federal district court for the Eastern District of
Texas.
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In addition to the foregoing cases, we are also a party to numerous other
legal proceedings that arose in the conduct of our business. The results of
these matters and any matters brought against us in the future cannot be
predicted with certainty, and an unfavorable resolution of one or more of these
matters could have a material adverse effect on our business, financial
condition, results of operations, cash flows and prospects.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION AND IF WE ARE FOUND TO
BE IN VIOLATION OF ANY OF THESE REGULATIONS, OUR BUSINESS, OPERATING RESULTS AND
PROSPECTS COULD SUFFER.
The automotive retailing industry is subject to a wide range of federal,
state and local laws and regulations, such as local licensing requirements,
retail financing and consumer protection laws and regulations and federal and
state environmental, health and safety, wage-hour, anti-discrimination and other
employment practices laws and regulations. The violation of these laws and
regulations can result in administrative, civil or criminal sanctions against
us, which may include a cease and desist order against the subject operations or
even revocation or suspension of our license to operate the subject business. In
addition, as the on-line automotive business expands, there may be new laws and
regulations adopted, or increased regulatory scrutiny and enforcement of
existing laws and regulations, that could have a material adverse effect on our
e-commerce business. We may need to spend considerable time, effort and money to
keep our existing or acquired facilities in compliance with applicable federal,
state and local regulation of health, safety, environment, zoning and land use
regulations.
IF WE ARE NOT ABLE TO IMPLEMENT AND EXECUTE OUR STRATEGIC INITIATIVES
ACROSS ALL OF OUR DEALERSHIPS, WE MAY NOT BE ABLE TO IMPROVE OUR OPERATING
PERFORMANCE OR DECREASE OUR COST STRUCTURE.
The success of our business model depends in large part on our ability to
implement and execute our strategic initiatives across all of our dealerships
and, thereby, obtain business efficiencies, economies of scale and related cost
savings and margin performance improvements. Our strategic initiatives focus on
(i) expanding our margins by focusing on higher-margin products and services,
(ii) continuing to leverage our significant scale to improve our operating
efficiency, including managing costs of our business and improving the
utilization of our assets, (iii) effectively using our free cash flow to
reinvest in our business through capital investments, strategic dealership
acquisitions and share repurchases and (iv) continuing to grow and leverage our
e-commerce business. These tasks are made more difficult by the fact that the
dealerships within each of our key markets were acquired from independent
organizations and historically have operated independently, with unique
business, sales and marketing practices. Accordingly, the implementation of our
strategic initiatives across each of our markets will require significant
managerial focus and time, and we cannot assure you that it will result in
improved operating performance or increased cost savings in a timely manner or
at all.
WE MAY ENCOUNTER LIMITATIONS ON OUR ABILITY TO ACQUIRE AUTOMOTIVE
DEALERSHIPS IN KEY MARKETS, WHICH MAY MATERIALLY ADVERSELY AFFECT OUR ABILITY TO
EXECUTE OUR ACQUISITION STRATEGY.
The growth of our automotive retail business since our inception has been
primarily attributable to acquisitions of franchised automotive dealership
groups. The significant consolidation in the industry in our key markets over
the last several years has resulted in fewer desirable dealerships or dealership
groups being available for purchase on reasonable terms. Although we have
negotiated with the major manufacturers limits on the number of dealerships that
we may acquire nationally, regionally or within any given market, each
individual acquisition remains subject to specific approval from the applicable
vehicle manufacturer. We have approached acquisition limits set forth in a
number of our framework
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agreements, particularly regarding market limits, and may encounter additional
limitations in the future as we continue to expand. In addition, under our
franchise and framework agreements, manufacturers have the ability to block our
future acquisitions of additional dealerships under certain circumstances such
as our failure to meet certain performance levels. We cannot assure you that we
will be able to execute our growth strategy in the future by acquiring
dealerships selling desirable automotive brands at desirable locations in our
key markets or that any such acquisitions can be completed on favorable terms.
THE LOSS OF OUR OFFICERS AND SKILLED EMPLOYEES THAT WE DEPEND UPON TO
OPERATE OUR BUSINESS COULD ADVERSELY IMPACT OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS, CASH FLOWS AND PROSPECTS.
Our success depends to a significant degree on the continued contributions
of our key corporate officers. Additionally, our success depends on the key
management personnel at our district offices and the dealerships in our local
markets. The market for qualified employees in the automotive industry and in
the markets in which we operate, particularly for qualified general managers and
sales and service personnel, is highly competitive and may subject us to
increased labor costs during periods of low unemployment. We also believe that
many of our sales and service personnel are pursued from time to time by our
competitors. The loss of a group of key employees in any of our markets could
have a material adverse effect on our business and results of operations in that
market.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Our business, financial condition, results of operations, cash flows,
plans, objectives and prospects may be adversely affected by a number of
factors, including the matters discussed in the section of this prospectus
entitled "Risk Factors." Certain statements and information set forth in this
prospectus and in the documents that we have filed with the SEC and incorporated
by reference, as well as other written or oral statements made, or to be made,
from time to time by us or by our authorized executive officers on our behalf,
constitute, or will constitute, "forward-looking statements" within the meaning
of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, statements preceded by, followed by or
that include the words "believes," "expects," "anticipates," "estimates," or
other similar expressions. We intend for our forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and we set forth this
statement and the risk factors in order to comply with such safe harbor
provisions. You should note that our forward-looking statements speak only as of
the date of this prospectus or when made and we undertake no duty or obligation
to update or revise our forward-looking statements, whether as a result of new
information, future events or otherwise. Although we believe that the
expectations, plans, intentions and projections reflected in our forward-looking
statements are reasonable, such statements are subject to known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. The risks, uncertainties and other factors that you should consider
before investing in the notes include, but are not limited to, those set forth
in the sections of this prospectus entitled "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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THE EXCHANGE OFFER
BACKGROUND AND REASONS FOR THE EXCHANGE OFFER
On August 10, 2001, we privately placed $450.0 million of 9% senior notes
due 2008. Simultaneously with the sale of the outstanding notes, we entered into
a registration rights agreement relating to the outstanding notes with the
initial purchasers of the outstanding notes -- Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Banc of America Securities LLC, J.P. Morgan Securities Inc.,
First Union Securities, Inc. and Comerica Securities, Inc. Under this
registration rights agreement, we agreed to file a registration statement
regarding the exchange of the outstanding notes for notes with terms identical
in all material respects. We also agreed to use our reasonable best efforts to
cause that registration statement to become effective with the SEC.
We are conducting the exchange offer to satisfy our contractual obligations
under the registration rights agreement. The form and terms of the exchange
notes are the same as the form and terms of the outstanding notes, except that
the exchange notes will be registered under the Securities Act. As a result, the
exchange notes will not bear legends restricting their transfer and will not
contain the registration rights and liquidated damage provisions contained in
the outstanding notes. The outstanding notes provide that, if a registration
statement relating to the exchange offer has not been filed by October 24, 2001,
and declared effective by January 22, 2002, except under limited circumstances,
we will pay liquidated damages on the outstanding notes. Upon the completion of
the exchange offer, you will not be entitled to any liquidated damages on your
outstanding notes or any further registration rights under the registration
rights agreement, except under limited circumstances. The exchange offer is not
extended to holders of outstanding notes in any jurisdiction where the exchange
offer does not comply with the securities or blue sky laws of that jurisdiction.
In this section entitled "The Exchange Offer," the term "holder" means:
- any person in whose name the outstanding notes are registered on our
books;
- any other person who has obtained a properly completed bond power from
the registered holder; or
- any person whose outstanding notes are held of record by DTC and who
wants to deliver these outstanding notes by book-entry transfer at
DTC.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange up to $450.0 million total principal amount of
exchange notes for the same total principal amount of outstanding notes. The
outstanding notes must be tendered properly and not withdrawn on or before
expiration of the exchange offer, as described below. In exchange for
outstanding notes properly tendered and accepted, we will issue a like total
principal amount of up to $450.0 million in exchange notes.
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The exchange offer and withdrawal rights expire at 12:00 midnight, New York
City time, on , 2001. We may extend this deadline for any reason. We refer
to the last day on which tenders will be accepted, whether on, 2001 or any later
date to which the exchange offer may be extended, as the "expiration date." You
may tender all, some or none of your outstanding notes.
The exchange offer is not conditioned upon holders tendering a minimum
principal amount of outstanding notes. As of the date of this prospectus, $450.0
million aggregate principal amount of notes is outstanding.
You do not have any appraisal or dissenters' rights in the exchange offer.
If you do not tender outstanding notes or you tender outstanding notes that we
do not accept, your outstanding notes will remain outstanding. Any outstanding
notes will be entitled to the benefits of the indenture under which they were,
and the exchange notes will be, issued. The outstanding notes will not, however,
be entitled to any further registration rights under the registration rights
agreement, except under limited circum stances. See the section entitled "Risk
Factors -- Risks Factors Related to the Exchange Offer -- Your failure to
exchange your outstanding notes may limit your ability to transfer your notes"
for more information regarding notes outstanding after the exchange offer.
After the expiration date, we will return to you as soon as reasonably
practicable any tendered outstanding notes that we did not accept for exchange.
You will not have to pay brokerage commissions or fees or transfer taxes
for exchanging your outstanding notes if you follow the instructions in the
letter of transmittal. We will pay the charges and expenses, other than those
taxes described below, in the exchange offer. See "-- Fees and Expenses" below
for further information regarding fees and expenses.
Neither we nor any of our officers or directors makes any recommendation as
to whether or not you should tender your outstanding notes in the exchange
offer. You must make your own decision after reading this document, including
the discussion entitled "Risk Factors" beginning on page 16, and consulting with
your advisors based on your own financial position and requirements.
We have the right, in accordance with applicable law, at any time:
- to delay the acceptance of the outstanding notes;
- to terminate the exchange offer if we determine that any of the
conditions to the ex change offer has not occurred or has not been
satisfied or waived;
- to extend the expiration date of the exchange offer and keep all
outstanding notes tendered other than those notes properly withdrawn;
and
- to waive any condition or amend the terms of the exchange offer.
If we materially change the terms of the exchange offer, or if we waive a
material condition of the exchange offer, we will promptly distribute a
prospectus supplement to you disclosing the change or waiver. We also will
extend the exchange offer as required by Rule 14e-1 under the Securities
Exchange Act of 1934.
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If we exercise any of the rights listed above, we will promptly give oral
or written notice of the action to the exchange agent, and we will issue a
release to appropriate news agencies. In the case of an extension, an
announcement will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; ISSUANCE OF EXCHANGE NOTES
If all the conditions to the exchange offer are met or waived, we will
accept for exchange any and all outstanding notes that are validly tendered and
not withdrawn prior to 12:00 midnight, New York City time, on the expiration
date. We will issue $1,000 principal amount at maturity of registered notes in
exchange for each $1,000 principal amount at maturity of outstanding notes
accepted in the exchange offer. Outstanding notes may be tendered only in
minimum denominations of $1,000 principal amount. As of the date of this
prospectus, an aggregate of $450.0 million in principal amount at maturity of
the notes is outstanding. This prospectus, together with the accompanying letter
of transmittal, is first being sent on or about November , 2001, to
the nominee of the DTC and to others believed to have beneficial ownership in
the outstanding notes.
We will be deemed to have exchanged outstanding notes validly tendered and
not withdrawn when we give oral or written notice to the exchange agent of our
acceptance. The exchange agent is an agent for us for receiving tenders of
outstanding notes, letters of transmittal and related documents. The exchange
agent is also an agent for tendering holders for receiving outstanding notes,
letters of transmit tal and related documents and transmitting exchange notes to
validly tendering holders. If for any reason, we:
- delay the acceptance or exchange of any outstanding notes;
- extend the exchange offer; or
- are unable to accept or exchange notes,
then the exchange agent may, on our behalf and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered notes. Notes that the exchange agent retains
may not be withdrawn, except according to the withdrawal procedures outlined
below in the section entitled "--Withdrawal Rights."
In tendering outstanding notes, you must represent and warrant in the
letter of transmittal or in an agent's message, which is described below, that:
- you have full power and authority to tender, exchange, sell, assign
and transfer outstand ing notes;
- we will acquire good, marketable and unencumbered title to the
tendered outstanding notes, free and clear of all liens, restrictions,
charges and other encumbrances; and
- the outstanding notes tendered for exchange are not subject to any
adverse claims or proxies.
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You also must represent, warrant and agree that you will, upon request, execute
and deliver any additional documents that we or the exchange agent request to
complete the exchange, sale, assignment and transfer of the outstanding notes.
PROCEDURES FOR TENDERING
BOOK-ENTRY INTERESTS
The outstanding notes were issued as global securities. Beneficial
interests in the global securities, held by direct or indirect participants in
DTC, are shown on, and transfers of these interests are effected only through,
records maintained in book-entry form by DTC with respect to its participants.
If you hold your outstanding notes in the form of book-entry interests and
you wish to tender your outstanding notes for exchange pursuant to the exchange
offer, you must transmit to the exchange agent on or prior to the expiration
date either:
- a written or facsimile copy of a properly completed and duly executed
letter of transmit tal, including all other documents required by the
letter of transmittal, to the exchange agent at the address set forth
on the back of cover of this prospectus; or
- a computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent, in
which you acknowledge and agree to be bound by the terms of the letter
of transmittal.
In addition, in order to deliver outstanding notes held in the form of
book-entry interests:
- the exchange agent must receive a confirmation of the book-entry
transfer of such notes into the exchange agent's account at DTC on or
prior to the expiration date; or
- you must comply with the guaranteed delivery procedures described
below.
CERTIFICATED OUTSTANDING NOTES
Only registered holders of certificated outstanding notes may tender those
notes in the exchange offer. If your outstanding notes are certificated notes
and you wish to tender those notes for exchange pursuant to the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date, a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth on
the back cover of this prospectus. In addition, in order to validly tender your
certificated outstanding notes:
- the certificates representing your outstanding notes must be received
by the exchange agent on or prior to the expiration date; or
- you must comply with the guaranteed delivery procedures described
below.
31
<Page>
OUTSTANDING NOTES HELD THROUGH A BROKER
If you hold your outstanding notes through a broker, do not use the letter
of transmittal to direct the tender of your outstanding notes. You should
contact your broker directly for instructions on how to participate in the
exchange offer. Your broker must notify the DTC and cause it to transfer the
notes into the exchange agent's account in accordance with DTC procedures. The
broker must also ensure that the exchange agent receives a computer-generated
message transmitted by means of DTC's Automated Tender Offer Program system, in
which you acknowledge and agree to be bound by the terms of the letter of
transmittal before the exchange offer expires.
PROCEDURES APPLICABLE TO ALL HOLDERS
Delivery of required documents by whatever method you choose is at your
sole risk. Delivery is complete when the exchange agent actually receives the
items to be delivered. Delivery of documents to DTC in accordance with its
procedures or to us does not constitute delivery to the exchange agent. If
delivery is by mail, we recommend registered mail, return receipt requested,
properly insured, or an overnight delivery service. In all cases, you should
allow sufficient time to ensure timely delivery.
If you validly tender outstanding notes and you do not withdraw the tender
on or prior to the expiration date, you will have made an agreement with us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
SIGNATURE GUARANTEES
You do not need to endorse certificates for the outstanding notes or
provide signature guarantees on the letter of transmittal unless:
(1) someone other than the registered holder tenders the certificate; or
(2) you complete the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the letter of transmittal.
In the case of (1) or (2) above, you must sign your outstanding note or
provide a properly executed bond power. The signature on the bond power and on
the letter of transmittal must be guaranteed by an eligible institution. An
eligible institution is a member of the S.T.A.M.P. Medallion program, and
generally includes a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., a commercial bank or a trust
company having an office or a correspondent in the United States. Most banks,
brokerage firms and financial institutions are eligible institutions.
32
<Page>
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but the notes are not
immediately available, or time will not permit the notes or other required
documentation to reach the exchange agent on or before the expiration date, or
the procedure for book-entry transfer cannot be completed on a timely basis, you
may still tender your outstanding notes if:
- the tender is made through an eligible institution;
- the exchange agent receives from the eligible institution on or before
the expiration of the exchange offer, a properly completed and duly
executed notice of guaranteed delivery, substantially in the form
provided by us; and
- the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and a properly completed
letter of transmittal and all other documents required by the letter
of transmittal, within three NYSE trading days after the date of
execution of the notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand, telegram or mail
to the exchange agent and you must include a guarantee by an eligible
institution in the form set forth in the notice.
DETERMINATION OF VALIDITY
We will resolve all questions regarding the form of documents, validity,
eligibility, time of receipt and acceptance for exchange of any tendered
outstanding notes. Our resolution of these questions as well as our
interpretation of the terms and conditions of the exchange offer, including the
letter of transmittal, is final and binding on all parties. A tender of
outstanding notes is invalid until all irregularities have been cured or
waived. None of us, the exchange agent, the soliciting dealers or any other
person is under any obligation to give notice of any irregularities in tenders,
and they are not liable for failing to give any such notice. We reserve the
absolute right, in our sole and absolute discretion, to reject any tenders
determined to be in improper form or unlawful. We also reserve the absolute
right to waive any of the conditions of the exchange offer or any condition or
irregularity in the tender of outstanding notes by any holder. We need not waive
similar conditions or irregularities in the case of other holders.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless waived
by us, the person must submit proper evidence satisfactory to us, in our sole
discretion, of his or her authority to so act.
33
<Page>
RESALES OF EXCHANGE NOTES
We are exchanging the outstanding notes for exchange notes in reliance upon
the position of the staff of the SEC, set forth in interpretive letters to third
parties in other similar transactions. We will not seek our own interpretive
letter. As a result, we cannot assure you that the staff will take the same
position on this exchange offer as it did in interpretive letters to other
parties. Based on the staff's letters to other parties, we believe that holders
of exchange notes, other than broker-dealers, can offer the exchange notes for
resale, resell and otherwise transfer the exchange notes without delivering a
prospectus to prospective purchasers. However, you must acquire the exchange
notes in the ordinary course of business and have no intention of engaging in a
distribution of the exchange notes, as a "distribution" is defined by the
Securities Act.
If you are an "affiliate" of us or you intend to distribute exchange notes,
within the meaning of the Securities Act, or if you are a broker-dealer who
purchased outstanding notes from us to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, you:
- cannot rely on the staff's interpretations in the above mentioned
interpretive letters;
- cannot tender outstanding notes in the exchange offer; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act to transfer the outstanding notes, unless the
sale is exempt.
In addition, if you are a broker-dealer who acquired outstanding notes for
your own account as a result of market-making or other trading activities and
you exchange the outstanding notes for exchange notes, you must deliver a
prospectus with any resales of the exchange notes.
If you want to exchange your outstanding notes for exchange notes, you will
be required to affirm that you:
- are not an "affiliate" of us;
- are acquiring the exchange notes in the ordinary course of your
business;
- have no arrangement or understanding with any person to participate in
a distribution of the exchange notes, within the meaning of the
Securities Act; and
- are not a broker-dealer, are not engaged in, and do not intend to
engage in, a distribution of the exchange notes, within the meaning of
the Securities Act.
In addition, we may require you to provide information regarding the number
of "beneficial owners" of the outstanding notes within the meaning of Rule 13d-3
under the Exchange Act. Each broker-dealer that receives exchange notes for its
own account must acknowledge that it acquired the outstanding notes for its own
account as the result of market-making activities or other trading activities.
Each broker-dealer must further agree that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of exchange
notes. By making this acknowledgment and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" under the
Securities Act. Based on the staff's position in interpretive letters issued to
third parties, we believe that
34
<Page>
broker-dealers who acquired outstanding notes for their own accounts as a result
of market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange notes with a
prospectus meeting the requirements of the Securities Act. Accordingly, a
broker-dealer may use this prospectus to satisfy such requirements. We have
agreed that a broker-dealer may use this prospectus for a period ending 180 days
after the expiration date of the exchange offer. You should read the section
entitled "Plan of Distribution" for further information about the use of this
prospectus by broker-dealers. A broker-dealer intending to use this prospectus
in the resale of exchange notes must notify us, on or prior to the expiration
date, that it is a participating broker-dealer. This notice may be given in the
letter of transmittal or may be delivered to the exchange agent. Any
participating broker- dealer who is an "affiliate" of us may not rely on the
staff's interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act when reselling exchange
notes.
Each participating broker-dealer exchanging outstanding notes for exchange
notes agrees that, upon receipt of notice from us:
(a) that any statement contained or incorporated by reference in this
prospectus makes the prospectus untrue in any material respect;
(b) that this prospectus omits to state a material fact necessary to make
the statements contained or incorporated by reference in this
prospectus, in light of the circumstances under which they were made,
not misleading; or
(c) of the occurrence of other events specified in the registration rights
agreement,
the participating broker-dealer will suspend the sale of exchange notes. Each
participating broker-dealer agrees not to resell the exchange notes until:
(1) we have amended or supplemented this prospectus to correct the
misstatement or omission and we furnish copies of the amended or
supplemented prospectus to the participating broker-dealer; or
(2) we give notice that the sale of the exchange notes may be resumed.
If we give notice suspending the sale of exchange notes, it shall extend
the 180-day period during which this prospectus may be used by a participating
broker-dealer by the number of days between the date we give notice of
suspension and the date participating broker-dealers receive copies of the
amended or supplemented prospectus or the date we give notice resuming the sale
of exchange notes.
35
<Page>
WITHDRAWAL RIGHTS
You can withdraw tenders of outstanding notes at any time on or before the
expiration date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a notice of withdrawal or an agent's message
to the appropriate exchange agent on or before the expiration date. The notice
of withdrawal must specify the name of the person tendering the outstanding
notes to be withdrawn, the total principal amount of outstanding notes
withdrawn, and the name of the registered holder of the outstanding notes if
different from the name of the person tendering the outstanding notes. If you
delivered outstanding notes to the exchange agent, you must submit the serial
numbers of the outstanding notes to be withdrawn, and the signature on the
notice of withdrawal must be guaranteed by an eligible institution, except in
the case of outstanding notes tendered for the account of an eligible
institution. If you tendered outstanding notes as a book-entry transfer, the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of outstanding notes. You must deliver the
notice of withdrawal to the exchange agent by written, telegraphic, telex or
facsimile transmission, or by an agent's message. You may not rescind
withdrawals of tender. Outstanding notes properly withdrawn may again be
tendered at any time on or before the expiration date.
We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. None of us, the exchange agent, the soliciting dealers or any
other person is under any obligation to give notice of any irregularities in
withdrawals, and they are not liable for failing to give any such notice.
Withdrawn outstanding notes will be returned to you after withdrawal as soon as
reasonably practicable.
INTEREST ON EXCHANGE NOTES
The exchange notes will bear interest at a rate of 9% per annum. Interest
is payable semi-annually on February 1 and August 1 of each year. Holders of
exchange notes will receive interest from the date of initial issuance of the
exchange notes, plus an amount equal to the accrued interest on the outstanding
notes. Interest on the outstanding notes accepted for exchange will cease to
accrue upon issuance of the exchange notes.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
We expressly reserve the right, in our sole discretion, for any reason,
including the non-satisfaction of any of the conditions for completion described
below, to extend the period of time during which the exchange offer is open or
to amend the terms of the exchange offer in any respect. In any of these cases,
we will make a public announcement of the extension or amendment promptly.
If we materially change the terms of or information concerning the exchange
offer, we will extend the exchange offer. The SEC has stated that, as a general
rule, it believes that an offer should remain open for a minimum of five
business days from the date that notice of the material change is first given.
The length of time the exchange offer must remain open will depend on the
particular facts and circumstances.
36
<Page>
If any of the conditions indicated in the next section have not been met,
we reserve the right, in our sole discretion, so long as outstanding notes have
not been accepted for exchange, to delay the acceptance of any outstanding notes
or to terminate the exchange offer and not accept for exchange any outstanding
notes.
If we extend the exchange offer, are delayed in accepting any outstanding
notes or are unable to accept for exchange any outstanding notes under the
exchange offer for any reason, then, without affecting our rights under the
exchange offer, the exchange agent may, on our behalf, retain all outstand ing
notes tendered. These notes may not be withdrawn except as provided in the
section entitled "Withdrawal Rights" on page 36. Our reservation of the right to
delay acceptance of any outstanding notes is subject to applicable law, which
requires that we pay the consideration offered or return the outstanding notes
deposited promptly after the termination or withdrawal of the exchange offer.
We will issue a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day following any extension,
amendment, non-acceptance or termination of the previously scheduled expiration
date.
CONDITIONS TO THE EXCHANGE OFFER
We may not accept outstanding notes for exchange and may terminate or not
complete the exchange offer at any time prior to the expiration of the exchange
offer if:
- the staff of the SEC no longer allows the exchange notes to be offered
for resale, resold and otherwise transferred by holders without
compliance with the registration and prospectus delivery provisions of
the Securities Act;
- a governmental body passes any law, statute, rule or regulation which
prohibits or prevents the exchange offer;
- the SEC or any state securities authority issues a stop order
suspending the effectiveness of the registration statement or
initiates or threatens to initiate a proceeding to suspend the
effectiveness of the registration statement; or
- we are unable to obtain any governmental approval that is necessary to
complete the exchange offer.
If we reasonably believe that any of the above conditions has occurred, we may:
- terminate the exchange offer and as promptly as practicable return all
tendered outstand ing notes;
- extend the exchange offer;
- waive the unsatisfied condition and, subject to any requirement to
extend the period of time during which the exchange offer is open,
complete the exchange offer; or
- amend the terms of the exchange offer in any respect.
37
<Page>
These conditions are solely for our benefit. We may assert these conditions
with respect to all or any portion of the exchange offer regardless of the
circumstances giving rise to them. We may waive any condition in whole or in
part at any time in our discretion. Our failure to exercise our rights under any
of the above conditions does not represent a waiver of these rights. Each right
is an ongoing right that may be asserted at any time. All conditions must be
satisfied or waived prior to the expiration of the exchange offer. Any
determination by us concerning the conditions described above will be final and
binding on all parties.
EXCHANGE AGENT
We appointed Wells Fargo Bank Minnesota, National Association as exchange
agent for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for a notice of guaranteed delivery to the following
address for the exchange agent:
Corporate Trust Services
Wells Fargo Bank Minnesota, National Association
213 Court Street -- Suite 902
Middletown, CT 06457
Attention: Robert L. Reynolds - Vice President
(860) 704-6216 (telephone)
(860) 704-6219 (facsimile)
If you deliver letters of transmittal or any other required documents to an
address or facsimile number other than those listed above, your tender is
invalid.
FEES AND EXPENSES
We will pay the exchange agent reasonable and customary fees for its
services and reasonable out-of-pocket expenses. We will also pay brokerage
houses and other custodians, nominees and fiduciaries their reasonable
out-of-pocket expenses for sending copies of this prospectus and related
documents to holders of outstanding notes, and for handling or tendering for
their customers.
We will pay the transfer taxes for the exchange of the outstanding notes in
the exchange offer. If, however, exchange notes are delivered to or issued in
the name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of outstanding notes in the
exchange offer, then the tendering holder will pay the transfer taxes. If a
tendering holder does not submit satisfactory evidence of payment of taxes or
exemption from taxes with the letter of transmittal, the taxes will be billed
directly to the tendering holder.
We will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the exchange offer.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes. Accordingly, we will not recognize any gain or loss on the
exchange for accounting purposes.
38
<Page>
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the notes
pursuant to the exchange offer. The exchange offer is intended to satisfy our
obligations under the registration rights agreement.
CAPITALIZATION
The following table sets forth our short term-debt and capitalization as of
September 30, 2001. This summary should be read in conjunction with "Use of
Proceeds," "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Description of
Certain Other Indebtedness" and our consolidated financial statements, including
the accompanying notes, included elsewhere in this prospectus (in millions).
<Table>
<Caption>
AS OF SEPTEMBER
30, 2001
--------
Short-term debt:
Floorplan notes payable............................... $ 1,921.2
Current maturities of long-term debt.................. 8.3
---------------
Total short-term debt.............................. 1,929.5
---------------
Long-term debt (net of current maturities):
Credit facilities..................................... --
Mortgage facility..................................... 112.4
Senior unsecured notes, net of discount............... 444.4
Leases and other debt................................. 54.5
---------------
Total long-term debt............................... 611.3
---------------
Shareholders' equity..................................... 3,878.5
---------------
Total capitalization............................... $ 6,419.3
===============
</Table>
39
<Page>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data for the years ended
December 31, 1998, 1999 and 2000 and the selected consolidated balance sheet
data as of December 31, 1999 and 2000 are derived from AutoNation's audited
financial statements together with the notes thereto, included elsewhere in
this prospectus as adjusted for the reclassifications described in Note (5)
below. Businesses acquired through December 31, 1997 and accounted for under
the pooling of interests method of accounting have been included retroactively
in the financial statements as if the companies had operated as one entity
since inception. Businesses acquired through September 30, 2001 and accounted
for under the purchase method of accounting are included in the financial
statements from the date of acquisition. The selected consolidated balance
sheet data as of December 31, 1996 and 1997 and the selected consolidated
income statement data for the years then ended are derived from AutoNation's
audited financial statements not included herein. The selected consolidated
balance sheet data as of December 31, 1998 is derived from AutoNation's
audited financial statement not included herein as adjusted for the
reclassifications described in Note (5) below. The selected consolidated
income statement data for the nine months ended September 30, 2000 and 2001,
and the selected consolidated balance sheet data as of September 30, 2001, are
derived from AutoNation's unaudited financial statements included elsewhere in
this prospectus. The selected consolidated balance sheet as of September 30,
2000 is derived from AutoNation's unaudited financial statements not included
herein as adjusted for the reclassifications described in Note (5) below. In
the opinion of management, these unaudited financial statements reflect all
adjustments necessary for a fair presentation of our results of operations and
financial condition. All such adjustments are of a normal recurring nature.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
included elsewhere in this prospectus. Operating results for interim periods
are not necessarily indicative of the results that can be expected for a full
year ($ in millions, except per share data and statistical data).
<Table>
<Caption>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT DATA:
Revenue........................... $ 2,933.7 $ 6,122.8 $ 12,664.6 $ 20,111.8 $ 20,609.6 $ 15,907.8 $ 14,840.6
Gross margin...................... 333.3 757.8 1,931.6 2,928.6 3,032.5 2,313.5 2,252.4
Operating income.................. 5.6 (38.8) 463.4 109.8 724.8 564.2 503.4(4)
Floorplan interest expense........ * (55.2) (107.0) (125.2) (199.8) (146.8) (107.8)
Other interest expense............ (7.2) (4.5) (14.0) (34.9) (47.7) (36.2) (30.6)
Interest income................... 6.6 5.4 8.7 20.6 14.3 11.7 6.1
Other income (expense), net....... 4.2 114.5 1.5 2.2 33.4 14.1 (2.4)
Income (loss) from continuing
operations before income taxes. 9.2 21.4 352.6 (27.5) 525.0 407.0 368.7
Income (loss) from continuing
operations.................... (1.1) 13.4 225.8 (31.5) 328.1 254.4 225.4
Discontinued operations:
Income (loss) from discontinued
operations, net of income taxes 26.0 196.3 262.1 (30.6) 13.1 1.8 --
Gain (loss) on disposal of
segments, net of income taxes -- 230.0 11.6 345.0 (11.3) -- --
Net income........................ (6.7) 439.7 499.5 282.9 329.9 256.2 225.4
Basic earnings (loss) per share:
Continuing operations.......... -- 0.03 0.50 (0.07) 0.91 0.70 0.67
Discontinued operations........ 0.08 1.06 0.60 0.73 -- 0.01 --
Extraordinary charge........... (0.10) -- -- -- -- -- --
Net income..................... (0.02) 1.09 1.10 0.66 0.91 0.71 0.67
Weighted average common shares
outstanding.................. 320.9 403.1 455.1 429.8 361.3 363.2 336.5
</Table>
40
<Page>
<Table>
<Caption>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
Diluted earnings (loss) per
share:
Continuing operations.......... -- 0.03 0.48 (0.07) 0.91 0.70 0.67
Discontinued operations........ 0.08 0.99 0.58 0.73 -- 0.01 --
Extraordinary charge........... (0.10) -- -- -- -- -- --
Net income..................... (0.02) 1.02 1.06 0.66 0.91 0.71 0.67
Weighted average common shares
Outstanding.................... 320.9 430.9 470.9 429.8 361.4 363.4 338.2
OTHER FINANCIAL DATA:
EBITDA(1)......................... 27.3 269.9 553.5 699.3 902.5 688.9 626.0
Depreciation and
amortization................... 10.9 38.8 79.9 123.0 133.8 101.1 110.8
Capital expenditures.............. 68.1 210.0 256.7 242.3 148.2 82.8 86.3
Earnings(3)/Fixed
charges(2)..................... 1.9x 3.7x 3.6x 3.2x 2.9x 3.0x 3.4x
</Table>
<Table>
<Caption>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1996 1997 1998 (5) 1999 (5) 2000 (5) 2000 (5) 2001
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
DATA:
Inventory......................... $ 381.1 $ 1,081.3 $ 1,849.5 $ 2,706.8 $ 2,774.4 $ 2,403.3 $ 2,248.8
Working capital................... 388.8 768.7 1,023.2 1,044.4 874.1 922.3 739.7
Total assets...................... 2,229.1 4,852.1 8,412.2 9,583.1 8,867.3 8,509.2 8,153.1
Floorplan notes payable........... 225.7 472.5 1,339.2 2,210.6 2,454.0 1,997.7 1,921.2
Revolver.......................... 150.0 250.0 500.0 669.0 615.0 669.0 --
Senior unsecured notes, net of
unamortized discount of $5.6
million -- -- -- -- -- -- 444.4
Leases and other debt............. 230.5 14.6 26.5 174.8 242.2 264.6 175.2
Total current liabilities......... 470.5 752.5 1,997.3 3,134.2 3,178.6 2,769.9 2,643.0
Long-term debt, net of current
maturities 269.3 261.1 520.9 836.1 850.4 926.7 611.3
Shareholders' equity.............. 1,419.9 3,484.3 5,424.2 4,601.2 3,842.5 3,856.0 3,878.5
</Table>
- -----------
(1) EBITDA is defined as earnings before interest expense, income taxes,
depreciation, amortization and other non-recurring charges of $443.7
million in fiscal 1999, $(3.8) million in fiscal 2000, and $(2.2) million
and $8.1 million for the nine months ended September 30, 2000 and 2001,
respectively. While EBITDA should not be construed as a substitute for
operating income or as a better measure of liquidity than cash flows from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to our ability to meet future debt service,
capital expenditures and working capital requirements. This measure may
not be comparable to similarly titled measures reported by other companies.
(2) Fixed charges are defined as interest expense (including amortized interest
and debt discounts), calculated rental expense interest, and certain
subsidiary dividends, if any.
(3) Earnings are defined as pretax income from continuing operations, net of
non-recurring charges, plus fixed charges less interest capitalized.
(4) Includes other gains of $19.3 million, primarily representing the pre-tax
gain from the sale of the Flemington dealer group in April 2001.
(5) In order to maintain consistency and comparability between the periods
presented, certain amounts, including restricted cash and floorplan notes
payable, have been reclassified from the previously reported financial
statements to conform with the financial statement presentation as of
September 30, 2001.
* Floorplan interest expense is included in gross margin in 1996.
41
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are the largest automotive retailer in the United States. As of
September 30, 2001, we owned and operated 368 new vehicle franchises from 278
dealerships located in major metropolitan markets in 17 states, predominantly in
the Sunbelt region of the United States. Our dealerships sell new and used
vehicles. In addition, we offer financing for vehicle purchases, extended
service contracts and insurance products, as well as other aftermarket products
such as vehicle accessories. We provide a wide range of vehicle maintenance and
repair services and operate collision repair centers in most of our key markets.
We offer a full range of 35 different vehicle brands. The core brands of
vehicles that we sell, represent ing almost 90% of the new vehicles that we sold
in 2000, are Ford (Ford, Lincoln and Mercury), General Motors (Chevrolet,
Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep and Dodge), Toyota, Nissan and
Honda. We also sell several luxury vehicle brands, including Mercedes-Benz, BMW,
Lexus and Porsche.
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of our consolidated income statements in gross
dollars for the periods indicated (in millions):
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS NINE MONTHS
DEC. 31, DEC. 31, DEC. 31, ENDED SEPT. 30, ENDED SEPT. 30,
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
(UNAUDITED)
Income (loss) from continuing
operations........................ $ 225.8 $ (31.5) $ 328.1 $ 254.4 $ 225.4
---------- ---------- ---------- --------------- ---------------
Income (loss) from discontinued
operations, net of income
taxes:
Automotive rental.............. 108.8 (71.0) 13.1 1.8 --
Solid waste services........... 153.3 40.4 -- -- --
Gain (loss) on disposal of
segments..................... 11.6 345.0 (11.3) -- --
---------- ---------- ---------- --------------- ---------------
273.7 314.4 1.8 1.8 --
---------- ---------- ---------- --------------- ---------------
Net income........................... $ 499.5 $ 282.9 $ 329.9 $ 256.2 $ 225.4
========== ========== ========== =============== ===============
</Table>
42
<Page>
The following factors have impacted our financial condition and results of
operations and may cause our reported financial data not to be indicative of our
future financial condition and operating results:
- GROWTH THROUGH ACQUISITIONS: From 1996 through 2001, we expanded our
automotive retail operations through the acquisition of franchised
automotive dealerships as discussed under the heading "Business
Acquisitions and Divestitures."
- SPIN-OFF OF ANC RENTAL CORPORATION: In June 2000, we completed the
tax-free spin-off of our former automotive rental business. This
business has been accounted for as a discontinued operation as further
discussed under the heading "Discontinued Business Segments."
- SALE OF REPUBLIC SERVICES, INC.: In 1998, our former solid waste
services business completed an initial public offering of 36.1% of its
common stock. In 1999, we sold substantially all of our remaining
interests in Republic Services to the public. See further discussion
under the heading "Discontinued Business Segments."
- RESTRUCTURING: In 1999, we restructured certain of our operations to
exit our former used vehicle megastore business and to reduce our
corporate workforce as further discussed under the heading
"Restructuring Activities."
- SHARE REPURCHASES: Since the inception of our Board-authorized share
repurchase programs in 1998, we have repurchased 148.9 million shares
of our common stock for an aggregate price of $1.7 billion through
September 30, 2001. See further discussion under the heading
"Financial Condition."
Unless otherwise stated, the following discussions will focus on the
results of continuing operations, which consists of our automotive retail
business.
SAME STORE OPERATING DATA:
Our historical operating results include the results of acquired businesses
from the date of acquisition for acquisitions accounted for under the purchase
method of accounting. Due to our expansion through acquisitions as well as the
impact of divestitures, year over year comparisons of our reported operating
results do not necessarily provide a meaningful representation of our internal
performance. Accordingly, we have presented below our operating results for the
nine months ended September 30, 2001 and 2000 and the years ended December 31,
2000 and 1999 on a same store basis to better reflect our internal performance.
Historical same store operating results include the results of businesses which
were owned and operated by us during all or part of the fiscal periods included
in the comparison.
43
<Page>
The following table sets forth: (1) the components of same store revenue,
with component percentages of total revenue; (2) the components of same store
gross margin, with gross margin percentages of applicable same store revenue;
(3) same store selling, general and administrative expenses; (4) same store
performance; and (5) retail vehicle same store unit sales for the nine months
ended September 30 and years ended December 31 ($ in millions):
<Table>
<Caption>
YEAR ENDED YEAR ENDED NINE MONTHS NINE MONTHS
DEC. 31, DEC. 31, ENDED SEPT. 30, ENDED SEPT. 30,
1999 % 2000 % 2000 % 2001 %
---- -- ---- -- ---- --- ---- ---
(UNAUDITED)
Revenue:
New vehicle............. $ 10,405.8 60.5 $ 10,636.9 61.5 $ 9,234.3 61.3 $ 8,351.7 59.3
Used vehicle............ 3,260.2 19.0 3,167.1 18.3 2,798.5 18.5 2,774.1 19.7
Parts and service....... 1,904.9 11.1 1,947.2 11.3 1,668.0 11.1 1,723.9 12.3
Finance and insurance... 344.1 2.0 362.8 2.1 316.5 2.1 342.3 2.4
Other................... 1,284.8 7.4 1,192.0 6.8 1,051.3 7.0 883.2 6.3
------------- ------- -------------- ------- ---------------- ------- --------------- -------
Total revenue........ 17,199.8 100.0 17,306.0 100.0 15,068.6 100.0 14,075.2 100.0
------------- ------- -------------- ------- ---------------- ------- --------------- -------
Gross margin:
New vehicle............. 875.0 8.4 894.1 8.4 773.4 8.4 680.8 8.2
Used vehicle............ 360.1 11.0 362.2 11.4 318.3 11.4 305.9 11.0
Parts and service....... 799.0 41.9 830.2 42.6 711.7 42.7 745.4 43.2
Finance and insurance... 344.1 100.0 362.8 100.0 316.5 100.0 342.3 100.0
Other................... 113.6 8.8 76.4 6.4 68.1 6.5 54.3 6.1
------------- ------- -------------- ------- ---------------- ------- --------------- -------
Total gross margin... 2,491.8 14.5 2,525.7 14.6 2,188.0 14.5 2,128.7 15.1
S,G&A STORE................ 1,691.4 9.8 1,663.4 9.6 1,437.7 9.5 1,461.3 10.4
------------- ------- -------------- ------- ---------------- ------- --------------- -------
Store performance.......... $ 800.4 4.7 $ 862.3 5.0 $ 750.3 5.0 $ 667.4 4.7
============= ======= ============== ======= ================ ======= =============== =======
Retail vehicle unit sales:
New..................... 428,000 420,000 366,000 317,000
Used.................... 231,000 212,000 186,000 184,000
------------- -------------- ---------------- ---------------
659,000 632,000 552,000 501,000
============= ============== ================ ===============
</Table>
Overall, our same store revenues and volume decreased during the nine
months of 2001 as compared to the same period in the prior year, primarily due
to lower overall demand in the marketplace and other factors described below.
TOTAL. Same store revenue was $14.1 billion for the nine months ended
September 30, 2001 compared to $15.1 billion for the nine months ended September
30, 2000, a decrease of 6.6%. Same store revenue was $17.3 billion for the year
ended December 31, 2000 compared to $17.2 billion for the year ended December
31, 1999, an increase of 0.6%. Same store gross margin was $2.1 billion for the
nine months ended September 30, 2001 compared to $2.2 billion for the nine
months ended September 30, 2000, a decrease of 2.7%. Same store gross margin was
$2.5 billion for the years ended December 31, 2000 and 1999. Same store gross
margin as a percentage of same store total revenue was 15.1% for the nine months
ended September 30, 2001 versus 14.5% for the same period in the prior year.
Same store gross margin as a percentage of same store total revenue was 14.6%
for the year ended December 31, 2000 versus 14.5% for the year ended December
31, 1999. The primary components of same store revenue and gross margin changes
are described below.
44
<Page>
NEW VEHICLE. New vehicle same store revenue decreased 9.6% to $8.4
billion during the nine months ended September 30, 2001, as compared to the
same period in 2000, due to a unit volume decrease of 13.4% partially offset
by a 3.8% increase in prices. New vehicle same store revenue increased 2.2% to
$10.6 billion during the year ended December 31, 2000 due to price increases
of 4.1% offset by a decrease in volume of 1.9%. Primarily due to the decline
in volume and related floorplan assistance which has been impacted by
declining interest rates, new vehicle same store gross margin decreased 12.0%
to $680.8 million for the nine months ended September 30, 2001. New vehicle
same store gross margin increased 2.2% to $894.1 million during the year ended
December 31, 2000. Our new vehicle sales were impacted by the lower demand
experienced in the overall automotive retail industry this year, predominantly
in the domestic product lines. New vehicle sales came to a near standstill
directly following the terrorist attacks of September 11, 2001. The
introduction of significant manufacturer incentives greatly increased the pace
of new vehicle sales during October. However, we expect that the industry may
experience a slower pace of new vehicle sales in November and December.
Additionally, we currently anticipate that new vehicle sales in the United
States will decrease by an estimated 5% to 10% in 2002.
USED VEHICLE. Same store used vehicle revenue decreased 0.9% to $2.8
billion during the nine months ended September 30, 2001 as compared to the same
period in 2000. The used vehicle market was softer in the first nine months of
2001 compared to the same period in 2000 and in 2000 compared to 1999 due in
part to strong manufacturer incentives for new vehicles, especially light
trucks. Same store used vehicle revenue decreased 2.9% to $3.2 billion during
the year ended December 31, 2000. This decrease is attributable to lower volume
of 8.2% offset by 5.3% higher average prices. Used vehicle same store gross
margin decreased 3.9% to $305.9 million for the nine months ended September 30,
2001 as compared to the same period in 2000. Used vehicle same store gross
margin increased slightly to $362.2 million during the year ended December 31,
2000, as compared to the same period in 1999, due to an expansion in gross
margin percentage of 40 basis points to 11.4%.
PARTS AND SERVICE. Parts and service same store revenue increased 3.4% to
$1.7 billion during the nine months ended September 30, 2001 as compared to the
same period in 2000, driven by volume as well as price increases. Parts and
service same store revenue increased 2.2% from the prior year to $1.9 billion in
2000. Same store parts and service gross margin increased 4.7% to $745.4 million
for the nine months ended September 30, 2001, as compared to the same period in
2000, as a result of higher revenue coupled with a margin expansion of 50 basis
points due to our efforts to increase pricing and manage costs. Gross margin for
same store parts and service increased 3.9% to $830.2 million in 2000 as a
result of the higher revenue coupled with a margin expansion of 70 basis points
to 42.6%.
FINANCE AND INSURANCE. In the nine months ended September 30, 2001, same
store finance and insurance revenue and gross margin (representing pure
commissions) increased 8.2% to $342.3 million, as compared to the nine months
ended September 30, 2000. Same store finance and insurance revenue and gross
margin increased 5.4% to $362.8 million during the year ended December 31, 2000
compared to 1999. These increases are primarily due to a higher percentage of
our customers buying finance and insurance products as well as increased
pricing.
45
<Page>
OTHER REVENUE. Same store other revenue decreased by 16.0% from $1.1
billion to $883.2 million for the nine months ended September 30, 2001 compared
to the same period in 2000. This revenue decrease primarily reflects a reduction
in wholesale revenues due to a decrease in the number of units wholesaled. Same
store other revenue was $1.2 billion and $1.3 billion for the years ended
December 31, 2000 and 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Same store selling, general
and administrative expenses were $1.5 billion and $1.4 billion, or 10.4% and
9.5% of same store total revenue, for the nine months ended September 30, 2001
and 2000, respectively. This increase as a percentage of revenue is primarily
due to the shift in revenue mix as well as increased advertising, compensation
and other miscellaneous expenses. Same store selling, general and administrative
expenses were $1.7 billion during the years ended December 31, 2000 and December
31, 1999. Same store selling, general and administrative expenses as a
percentage of same store total revenue were 9.6% for the year ended December 31,
2000 versus 9.8% for the year ended December 31, 1999. This decrease is
primarily due to the impact of cost-cutting initiatives and overall leveraging
of the store cost structure.
STORE PERFORMANCE MARGIN. Same store performance margins were $667.4
million and $750.3 million or, as a percentage of same store revenue, 4.7% and
5.0% for the nine months ended September 30, 2001 and 2000, respectively. Same
store performance margin was $862.3 million for the year ended December 31, 2000
versus $800.4 million for the year ended December 31, 1999. Same store
performance margins as a percentage of same store total revenue were 5.0% for
the year ended December 31, 2000 versus 4.7% for the year ended December 31,
1999. The increases for 2000 in same store performance margins and same store
performance margin as percentages of same store revenue are primarily due to
decreases in selling, general and administrative expenses, coupled with gross
margin expansion in used vehicles and parts and service.
REPORTED OPERATING DATA:
The following table sets forth: (1) the components of revenue, with
component percentages of total revenue; (2) the components of gross margin, with
gross margin percentages of applicable revenue; (3) selling, general and
administrative expenses; (4) store performance; and (5) retail vehicle unit
sales for the nine months ended September 30 and years ended December 31 ($ in
millions):
46
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS
DEC. 31, DEC. 31, DEC. 31, ENDED SEPT 30,
1998 % 1999 % 2000 % 2000 %
---- - ---- - ---- - ---- -
(UNAUDITED)
Revenue:
New vehicle.......... $ 6,775.8 53.5 $ 11,481.0 57.1 $ 12,489.3 60.6 $ 9,657.1 60.7
Used vehicle......... 3,185.2 25.2 4,429.7 22.0 3,860.2 18.7 2,995.0 18.8
Parts and service.... 1,383.2 10.9 2,222.0 11.1 2,334.9 11.3 1,763.4 11.1
Finance and
insurance......... 288.6 2.3 423.4 2.1 431.8 2.1 331.2 2.1
Other................ 1,031.8 8.1 1,555.7 7.7 1,493.4 7.3 1,161.1 7.3
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total revenue..... 12,664.6 100.0 20,111.8 100.0 20,609.6 100.0 15,907.8 100.0
---------- ----- ----------- ----- ----------- ----- ----------- -----
Gross margin:
New vehicle.......... 588.6 8.7 962.3 8.4 1,056.0 8.5 805.0 8.3
Used vehicle......... 379.4 11.9 449.6 10.1 438.6 11.4 341.0 11.4
Parts and service.... 571.6 41.3 933.8 42.0 999.7 42.8 753.0 42.7
Finance and
insurance 288.6 100.0 423.4 100.0 431.8 100.0 331.2 100.0
Other................ 103.4 10.0 159.5 10.3 106.4 7.1 83.3 7.2
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total gross
margin.......... 1,931.6 15.3 2,928.6 14.6 3,032.5 14.7 2,313.5 14.5
S,G&A--Store............ 1,301.8 10.3 2,089.4 10.4 2,021.6 9.8 1,530.0 9.6
---------- ----- ----------- ----- ----------- ----- ----------- -----
Store performance.... 629.8 5.0 839.2 4.2 1,010.9 4.9 783.5 4.9
S,G&A--Corporate........ 86.5 0.7 190.0 1.0 156.1 0.7 120.4 0.7
Depreciation............ 40.3 0.3 60.1 0.3 54.7 0.3 42.4 0.3
Amortization............ 39.6 0.3 62.9 0.3 79.1 0.4 58.7 0.4
Asset impairment
charges (recoveries),
net.................. -- -- 416.4 2.1 (3.8) -- (2.2) --
Other gains............. -- -- -- -- -- -- -- --
---------- ----- ----------- ----- ----------- ----- ----------- -----
Operating Income........ $ 463.4 3.7 $ 109.8 0.5 $ 724.8 3.5 $ 564.2 3.5
========== ===== =========== ===== =========== ===== =========== =====
Retail vehicle unit
sales:
New.................. 286,000 469,000 489,000 383,000
Used................. 244,000 315,000 255,000 199,000
---------- ----------- ----------- -----------
530,000 784,000 744,000 582,000
========== =========== =========== ===========
<Caption>
NINE MONTHS
ENDED SEPT. 30,
2001 %
---- -
Revenue:
New vehicle.......... $ 8,804.0 59.3
Used vehicle......... 2,928.1 19.7
Parts and service.... 1,814.2 12.2
Finance and
insurance 363.9 2.5
Other................ 930.4 6.3
----------- -----
Total revenue..... 14,840.6 100.0
----------- -----
Gross margin:
New vehicle.......... 715.9 8.1
Used vehicle......... 327.0 11.2
Parts and service.... 783.9 43.2
Finance and insurance 363.9 100.0
Other................ 61.7 6.6
----------- -----
Total gross
margin.......... 2,252.4 15.2
S,G&A--Store............ 1,543.5 10.4
----------- -----
Store performance.... 708.9 4.8
S,G&A--Corporate........ 105.9 0.7
Depreciation............ 50.0 0.3
Amortization............ 60.8 0.4
Asset impairment
charges (recoveries),
net.................. 8.1 0.1
Other gains............. (19.3) (0.1)
----------- -----
Operating Income........ $ 503.4 3.4
=========== =====
Retail vehicle unit
sales:
New.................. 336,000
Used................. 194,000
-----------
530,000
===========
</Table>
Overall we experienced a decrease in revenue in the first nine months of
2001 compared to the same period in the prior year primarily due to lower
overall demand in the marketplace and other factors described below.
47
<Page>
TOTAL. Total revenue was $14.8 billion for the nine months ended September
30, 2001 compared to $15.9 billion for the nine months ended September 30, 2000,
a decrease of 6.7%. Total revenue was $20.6 billion, $20.1 billion and $12.7
billion for the years ended December 31, 2000, 1999 and 1998, respectively.
Total gross margin was $2.3 billion for the nine months ended September 30, 2001
and 2000. Gross margins were $3.0 billion, $2.9 billion and $1.9 billion for the
years ended December 31, 2000, 1999 and 1998, respectively. The primary
components of these changes are described below.
NEW VEHICLE. As compared to the nine months ended September 30, 2000, new
vehicle revenue decreased 8.8% to $8.8 billion during the nine months ended
September 30, 2001 primarily due to volume decreases of 12.3%. New vehicle
revenue was $12.5 billion, $11.5 billion and $6.8 billion for the years ended
December 31, 2000, 1999 and 1998, respectively. During the first nine months of
2001, we sold 336,000 new vehicles versus 383,000 new vehicles in the comparable
2000 period. Consistent with the volume decrease, new vehicle gross margin
decreased 11.1% to $715.9 million for the nine months ended September 30, 2001
versus the same period in 2000. New vehicle gross margins were $1.1 billion,
$962.3 million and $588.6 million or, as percentages of new vehicle revenue,
8.5%, 8.4% and 8.7% for the years ended December 31, 2000, 1999 and 1998,
respectively. Increases in revenue and gross margins are attributable to
acquisitions and higher pricing. New vehicle revenue was also impacted by an
increase in same store unit sales in 1999 and a modest decrease in same store
unit sales in 2000.
USED VEHICLE. Used vehicle sales decreased 2.2% to $2.9 billion during the
nine months ended September 30, 2001 as compared to the same period during 2000.
This decrease reflects lower unit volumes which were down 2.5% during the nine
months ended September 30, 2001. Used vehicle revenue was $3.9 billion, $4.4
billion and $3.2 billion for the years ended December 31, 2000, 1999 and 1998,
respectively. Used vehicle gross margin decreased 4.1% to $327.0 million during
the nine months ended September 30, 2001 from $341.0 million for the same period
in 2000. Used vehicle gross margin percentage was 11.2% of used vehicle revenue
for the nine months ended September 30, 2001, a decline of 20 basis points from
the comparable period in 2000. Used vehicle gross margins were $438.6 million,
$449.6 million and $379.4 million or, as percentages of used vehicle revenue,
11.4%, 10.1% and 11.9% for the years ended December 31, 2000, 1999 and 1998,
respectively. The decreases in 2000 used vehicle revenue and gross margin are
the result of a decrease in units retailed from approximately 315,000 in 1999 to
255,000 in 2000 largely resulting from the closure of our used vehicle
megastores.
PARTS AND SERVICE. Parts and service revenue increased 2.9% to $1.8 billion
for the nine months ended September 30, 2001. Parts and service revenue was $2.3
billion, $2.2 billion and $1.4 billion for the years ended December 31, 2000,
1999 and 1998, respectively. In the nine month period ended September 30, 2001,
parts and service gross margin was $783.9 million versus $753.0 million for the
same period in 2000 or, as a percentage of parts and service revenue, 43.2% and
42.7%, respectively. Parts and service gross margins were $999.7 million, $933.8
million and $571.6 million or, as percent ages of parts and service revenue,
42.8%, 42.0% and 41.3% for the years ended December 31, 2000, 1999 and 1998,
respectively. These increases since 1998 are attributable to acquisitions and
higher pricing.
48
<Page>
FINANCE AND INSURANCE. Finance and insurance revenue and gross margin
(representing pure commissions) increased 9.9% to $363.9 million during the nine
months ended September 30, 2001 as compared to the same period in 2000. Finance
and insurance revenue and gross margins were $431.8 million, $423.4 million and
$288.6 million for the years ended December 31, 2000, 1999 and 1998,
respectively. These increases are due to acquisitions and a higher percentage of
our customers buying finance and insurance products.
OTHER REVENUE. Other revenue decreased 19.9% from $1.2 billion to $930.4
million during the nine months ended September 30, 2001 as compared to the same
period in 2000. Other revenue was $1.5 billion, $1.6 billion and $1.0 billion
for the years ended December 31, 2000, 1999 and 1998, respectively.
STORE SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Store level selling,
general and administra tive expenses were $1.5 billion, or 10.4% of total
revenue, and $1.5 billion, or 9.6% of total revenue, for the nine months ended
September 30, 2001 and 2000, respectively. Store selling, general and administra
tive expenses were $2.0 billion, $2.1 billion and $1.3 billion or, as
percentages of total revenue, 9.8%, 10.4% and 10.3% for the years ended December
31, 2000, 1999 and 1998, respectively. The 2000 decreases are primarily due to
successful implementation of our cost-cutting initiatives. The increase as a
percentage of revenue in 1999 over 1998 is primarily due to higher megastore
fixed costs and costs incurred in connection with the megastore closures and
other one-time costs.
STORE PERFORMANCE MARGIN. Store performance margins were $708.9 million and
$783.5 million or, as a percentage of total revenue, 4.8% and 4.9% for the nine
months ended September 30, 2001 and 2000, respectively. Store performance
margins were $1.0 billion, $839.2 million and $629.8 million or, as percentages
of total revenue, 4.9%, 4.2% or 5.0% for the years ended December 31, 2000, 1999
and 1998, respectively. The increases in aggregate dollars are primarily due to
acquisitions coupled with margin expansion. The 2000 increase as a percentage of
total revenue is primarily due to lower selling, general and administrative
expenses. The 1999 decrease as a percentage of revenue is due to lower gross
margin percentages and higher selling, general and administrative expenses.
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Corporate selling,
general and administrative expenses decreased by $14.5 million, or 12.0%, to
$105.9 million during the nine months ended September 30, 2001 as compared to
the same period in 2000. The decrease is primarily the result of the continued
disposal of excess properties. As a percentage of total revenue, corporate
selling, general and administrative expenses were 0.7% for the nine months ended
September 30, 2001 and 2000. Corporate selling, general and administrative
expenses were $156.1 million, $190.0 million and $86.5 million or, as a
percentage of total revenue, 0.7%, 1.0% and 0.7%, for the years ended December
31, 2000, 1999 and 1998, respectively. The 2000 decrease is primarily due to
successful implementation of our 1999 cost-cutting initiatives as described in
"Restructuring Activities" below, partially offset by the property carrying
costs associated with megastore and other properties held for sale. The 1999
increase is primarily due to increased headcount and spending for various
corporate initiatives that have been curtailed or eliminated in conjunction with
our 1999 restructuring activities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization were $110.8
million and $101.1 million, respectively, at September 30, 2001 and 2000. The
increase is primarily a function of acquisitions closed during 2000.
Depreciation and amortization were $133.8 million, $123.0 million and $79.9
million for the years ended December 31, 2000, 1999 and 1998, respectively. For
the nine months ended September 30, 2001 and 2000, depreciation and amortization
percentages of revenue were 0.7%. Depreciation and amortization, as percentages
of revenue, were 0.7%, 0.6% and 0.6% for the years ended December 31, 2000, 1999
and 1998, respectively.
49
<Page>
OTHER GAINS. Other gains of $19.3 million for the nine months ended
September 30, 2001 primarily represent the pre-tax gain from the sale of the
Flemington dealer group in April 2001.
DISCONTINUED BUSINESS SEGMENTS
On June 30, 2000, we completed the spin-off of our former automotive rental
businesses, which had been organized under ANC Rental Corporation, by
distributing 100% of ANC Rental's common stock to AutoNation's stockholders as a
tax-free dividend. As a result of the spin-off, AutoNation stockholders received
one share of ANC Rental common stock for every eight shares of AutoNation common
stock owned as of June 16, 2000. ANC Rental has been accounted for as
discontinued operations and, accordingly, the operating results of ANC Rental
have been classified as discontinued operations in our consolidated financial
statements. During the nine months ended September 2000, we recorded income from
discontinued operations totaling $1.8 million net of income taxes. Such amount
represents the excess of previously estimated losses of $22.1 million, which
were accrued in the fourth quarter of 1999, over actual losses.
In July 1998, our former solid waste services subsidiary, Republic
Services, Inc., completed an initial public offering of 36.1% of its common
stock. In May 1999, we sold substantially all of our interest in Republic
Services in a public offering. Our former solid waste services segment has been
accounted for as discontinued operations and, accordingly, the operating results
of Republic Services have been classified as discontinued operations in the
accompanying consolidated financial statements.
BUSINESS ACQUISITIONS AND DIVESTITURES
From 1996 through 1999, we aggressively expanded our automotive retail
operations through the acquisition of franchised automotive dealerships.
However, we did not complete in 2000 and do not expect to complete in 2001
acquisitions at the same pace as we have in the past. We currently expect that
future acquisitions will primarily target single dealerships or small dealership
groups focused in our key existing markets.
Since the beginning of 2000, we acquired various automotive retail
businesses. We paid approximately $72.7 million and $190.9 million in cash for
these acquisitions during the nine months ended September 30, 2001 and the year
ended December 31, 2000, respectively, all of which were accounted for under the
purchase method of accounting. We also paid approximately $10.5 million and
$122.4 million in deferred purchase price for certain prior year automotive
retail acquisitions during the nine months ended September 30, 2001 and the year
ended December 31, 2000, respectively. At December 31, 2000, we had
approximately $24.5 million of deferred purchase price due to former owners of
acquired businesses.
During the year ended December 31, 1999, we acquired various automotive
retail businesses. We paid approximately $879.1 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting. During 1999, we also paid approximately $34.9 million in deferred
purchase price for certain prior year automotive retail acquisitions. During
1999, we received approxi mately $131.3 million of cash from the divestiture of
various automotive dealerships.
50
<Page>
During the year ended December 31, 1998, we acquired various businesses in
the automotive retail, automotive rental and solid waste services industries.
With respect to continuing operations, we issued approximately 21.9 million
shares of our common stock, valued at $473.2 million, and paid approximately
$804.3 million in cash for acquisitions accounted for under the purchase method
of accounting. With respect to discontinued operations, we issued approximately
3.4 million shares of common stock, valued at $68.0 million, and paid
approximately $494.4 million in cash and certain properties for acquisitions
accounted for under the purchase method of accounting. During 1998, we received
approximately $55.1 million of cash from the divestiture of various automotive
dealerships.
As described below under the heading "Restructuring Activities," we have
been divesting certain non-core franchised automotive dealerships. During 2000,
we received approximately $89.7 million of cash from the divestiture of these
dealerships. In April 2001, we completed the sale of our Flemington dealer group
for net proceeds of $59.0 million, which substantially completed our non-core
dealership divestiture plan. In the normal course of business, we will
periodically divest dealerships that do not meet certain operational, financial,
or strategic criteria. Revenue for the operations disposed or to be disposed,
including the Flemington dealer group, was $147.5 million and $774.0 million
during the nine months ended September 30, 2001 and 2000, respectively. Revenue
for the operations disposed or to be disposed was $923.5 million, $2.1 billion
and $1.7 billion during 2000, 1999 and 1998, respectively. Operating income
(loss) for the operations disposed or to be disposed was ($0.2) million and
$20.6 million for the nine months ended September 30, 2001 and 2000,
respectively. Operating income for the operations disposed or to be disposed was
$21.8 million, $15.5 million and $12.9 million for the years ended December 31,
2000, 1999 and 1998, respectively.
In November 2000, we completed the divestiture of our outdoor media
business for a purchase price of approximately $104.0 million. In connection
with the sale, we entered into a prepaid $15.0 million advertising agreement
and, therefore, we received net proceeds of $89.0 million. A pre-tax gain of
$53.5 million was recognized on the sale.
RESTRUCTURING ACTIVITIES
During the fourth quarter of 1999, we approved a plan to restructure
certain of our operations. The restructuring plan was comprised of the following
major components: (1) exiting the used vehicle megastore business and (2)
reducing the corporate workforce. The restructuring plan also included divesting
certain non-core franchised dealerships. Approximately 2,000 positions were
eliminated as a result of the restructuring plan, of which 1,800 were megastore
positions and 200 were corporate positions. These restructuring activities
resulted in pre-tax charges of $443.7 million in 1999 of which $416.4 million
appears as asset impairment charges, net in our 1999 consolidated income
statement. These pre-tax charges include: $286.9 million of asset impairment
charges; $103.3 million of reserves for residual value guarantees for closed
lease properties; $26.2 million of severance and other exit costs and $27.3
million of inventory related costs. The $286.9 million asset impairment charge
consists of: $244.9 million of megastore and other property impairments; $26.6
million of goodwill impairment reserves for the divestiture of certain non-core
franchised automotive dealerships and $15.4 million of information systems
impairments. Of the $443.7 million restructuring reserve recorded, $10.8 million
of severance was paid in 1999 and $53.7 million of asset impairments and
write-offs were recorded during the fourth quarter of 1999.
We continue to dispose of our closed megastores, including closed lease
properties, through sales to third parties. At September 30, 2001, properties
with total asset value of $87.2 million
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remain to be sold of the total $285.3 million identified as part of the
restructuring plan. These properties continue to be aggressively marketed. Their
ultimate disposition is expected to be completed in 2002.
The following summarizes activity in the restructuring and impairment
reserves for the year ended December 31, 2000 (in millions):
<Table>
<Caption>
AMOUNTS
CHARGED DEDUCTIONS
BALANCE (CREDITED) TO ---------- BALANCE
DECEMBER 31, 1999 INCOME CASH NON-CASH DECEMBER 31, 2000
----------------- ------ ---- -------- -----------------
RESERVE
- -------
Asset reserves:
Asset impairment.......... $ 263.3 (1) $ (15.0) $ -- $ (86.9) $ 161.4
Inventory................. 15.0 -- -- (15.0) --
Accrued liabilities:
Property lease
residual value
guarantees.............. 103.3 (14.8) (88.5) -- --
Severance and other
exit costs............. 17.3 9.4 (22.7) (2.8) 1.2
Finance lease residual
value write-down......... -- 16.6 -- (16.6) --
------------- -------------- --------- --------- -------------
$ 398.9 $ (3.8) $ (111.2) $ (121.3) $ 162.6
============= ============== ========= ========= =============
</Table>
- -------------------
(1) Includes $19.7 million of reserves that had been established on these
properties prior to the 1999 restructuring and impairment charges recorded.
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The following summarizes the components of the $3.8 million credited to
income during the year ended December 31, 2000 (in millions):
<Table>
<Caption>
PROPERTIES
PLACED
BACK INTO ADDITIONAL
SERVICE OR NET GAIN ON IMPAIRMENT
RETAINED SOLD PROPERTIES CHARGES OTHER TOTAL
-------- --------------- ------- ----- -----
Asset reserves
$ --
Asset impairment........................... $ (23.2) $ (3.4) $ 11.6 $ (15.0)
Accrued liabilities:
Property lease residual value
guarantees............................... (13.0) (1.8) -- -- (14.8)
Severance and other exit costs............. -- -- -- 9.4 9.4
Finance lease residual value
write-down................................. -- -- -- 16.6 16.6
--------- ------------- --------- ------ --------
$ (36.2) $ (5.2) $ 11.6 $ 26.0 $ (3.8)
========= ============= ========= ====== ========
</Table>
During 2000, certain events occurred which caused us to re-evaluate our
plans with respect to various retail properties. As a result, certain megastore
properties were placed back in service as franchised new vehicle dealerships and
we decided to retain certain dealerships that had been held for sale.
Accordingly, based on our re-evaluation of the fair value of the properties, we
determined that the asset impairment and lease residual value reserves for these
properties were no longer necessary and we were required to reverse the related
estimated reserves totaling $36.2 million back into income. An additional
impairment charge of $11.6 million was recognized primarily related to a
decision in 2000 to close one additional megastore property as part of the
overall restructuring plan. During 2000, we also recognized an impairment charge
totaling $16.6 million associated with the deterioration in residual values of
finance lease receivables. We discontinued writing finance leases in mid-1999
and the majority of the leases terminate in late 2001.
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The following summarizes activity in the restructuring and impairment
reserves for the nine months ended September 30, 2001 (in millions):
<Table>
<Caption>
AMOUNTS
CHARGED
BALANCE TO DEDUCTIONS BALANCE
DECEMBER 31, 2000 INCOME CASH NON-CASH SEPTEMBER 31, 2001
----------------- ------ ---- -------- ------------------
RESERVE
- -------
Asset reserves:
Asset impairment............ $ 161.4 $ 3.7 $ -- $ (73.9) $ 91.2
Accrued liabilities:
Severance and other exit
costs.................... 1.2 0.3 (0.9) -- 0.6
Finance lease residual value
write-down.................. -- 4.1 -- (4.1) --
----------------- --------------- ------- --------- -----------------
$ 162.6 $ 8.1 $ (0.9) $ (78.0) $ 91.8
================= =============== ======= ========= =================
</Table>
The following summarizes the components of the $8.1 million charged to
income during the nine months ended September 30, 2001 (in millions):
<Table>
<Caption>
NET GAIN ON ADDITIONAL
SOLD IMPAIRMENT
PROPERTIES CHARGES OTHER TOTAL
---------- ------- ----- -----
Asset reserves
Asset impairment.................... $ (1.6) $ 5.3 $ -- $ 3.7
Accrued liabilities:
Severance and other exit costs...... -- -- 0.3 0.3
Finance lease residual value
write-down.......................... -- -- 4.1 4.1
---------- --------- ------- -------
$ (1.6) $ 5.3 $ 4.4 $ 8.1
========== ========= ======= =======
</Table>
During the first nine months of 2001, we recognized an additional
impairment charge totaling $5.3 million based on the re-evaluation of the fair
value of certain properties. Additionally, we recognized an impairment charge
totaling $4.1 million associated with the deterioration in residual values of
finance lease receivables. We discontinued writing finance leases in mid-1999
and the majority of the leases terminate in late 2001.
For the nine months ended September 30, 2000, a net $2.2 million was
credited to income as restructuring and impairment recovery consisting of a
credit of $20.7 million for property placed back into service, $3.4 million net
gain on sold properties, and a charge of $21.9 million primarily related to an
impairment charge of $16.6 million due to the deterioration in residual values
of finance lease receivables.
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NON-OPERATING INCOME AND EXPENSE
FLOORPLAN INTEREST EXPENSE. Floorplan interest expense was $107.8 million
and $146.8 million for the nine months ended September 30, 2001 and 2000,
respectively. The decrease was due to reduced floorplan financing rates as well
as lower floorplan debt associated with lower inventory levels. These same
factors have adversely impacted floorplan assistance, which is reflected in new
vehicle gross margin. We plan to maintain lower levels of inventory which,
coupled with lower interest rates, should result in decreased floorplan interest
expense this year. Floorplan interest expense was $199.8 million, $125.2 million
and $107.0 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increases are due to higher floorplan financing associated
with higher inventory levels and higher interest rates.
OTHER INTEREST EXPENSE. During the nine months ended September 30, 2001,
other interest expense was incurred primarily on borrowings under our revolving
credit facilities and the outstanding notes sold in August 2001. Other interest
expense was $30.6 million and $36.2 million for the nine months ended September
30, 2001 and 2000, respectively. This decrease was due to lower average
borrowings as well as lower interest rates. Going forward, with the issuance of
the notes, we will be less sensitive to changing interest rates due to a higher
ratio of fixed versus floating rate obligations. Other interest expense was
$47.7 million, $34.9 million and $14.0 million for the years ended December 31,
2000, 1999 and 1998, respectively. These increases are due to higher average
borrowings along with higher interest rates.
INTEREST INCOME. Interest income was $6.1 million and $11.7 million for the
nine months ended September 30, 2001 and 2000, respectively. This decrease is
primarily the result of lower average cash and investment balances. Interest
income was $14.3 million, $20.6 million and $8.7 million for the years ended
December 31, 2000, 1999 and 1998, respectively. The decrease in 2000 is
primarily due to lower cash on hand and investment balances. The increase in
1999 was the result of interest earned on funds temporarily invested from the
proceeds of the sale of substantially all of our interest in Republic Services.
OTHER INCOME (EXPENSE), NET. For the nine months ended September 30, 2001,
other expense, net, was $2.4 million. Other income, net, for the year ended
December 31, 2000, was $33.4 million and primarily included gains of
approximately $24.0 million on the sale of approximately 3.1 million shares of
common stock of our former solid waste subsidiary, Republic Services, and a gain
of approximately $53.5 million on the sale of our former outdoor media business,
offset by a $30.0 million valuation write- down related to an equity-method
investment in a privately-held auto salvage and parts recycling business.
INCOME TAXES. The provision for income taxes from continuing operations was
$143.3 million and $152.6 million for the nine months ended September 30, 2001
and 2000, respectively. The provision for income taxes from continuing
operations was $196.9 million, $4.0 million and $126.8 million for the years
ended December 31, 2000, 1999 and 1998, respectively. The effective income tax
rate was 37.5% and 36.0% for the years ended December 31, 2000 and 1998.
Although we reported a pre-tax loss from continuing operations in 1999, an
income tax provision was recorded due to the effect of certain non-deductible
expenses primarily associated with the restructuring and impairment charges.
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FINANCIAL CONDITION
At September 30, 2001, we had $89.1 million of unrestricted cash and cash
equivalents. We had a multi-year unsecured revolving credit facility which
provided $1.0 billion of financing and was scheduled to mature in April 2002
that was repaid in full and terminated on August 10, 2001. Another facility
provided $250.0 million of borrowing capacity until its termination on June 29,
2001. On August 10, 2001, we entered into two new senior secured revolving
credit facilities with an aggregate capacity of $500.0 million. One facility is
a 364-day revolving credit facility which provides borrowing capacity up to
$200.0 million at a LIBOR-based interest rate. The other facility provides
borrowing capacity up to $300.0 million at a LIBOR-based interest rate and has a
five-year term. These facilities are secured by a pledge of the capital stock of
two of our subsidiaries and are guaranteed by substantially all of our
subsidiaries.
On August 10, 2001, we sold $450.0 million of 9.0% senior unsecured notes
due August 1, 2008 at a price of 98.731% of face value. The notes are guaranteed
by substantially all of our subsidiaries.
We used the net proceeds of the note offering and borrowings under the new
revolving credit facilities to repay outstanding amounts under the $1.0 billion
revolving credit facility and certain other debt and will use any additional
amounts to finance capital expenditures, strategic acquisitions, working capital
and other general corporate purposes.
In June 2001, we entered into a mortgage facility with an automotive
manufacturer's captive finance subsidiary with an aggregate capacity of $150.0
million. As of September 30, 2001, the amount outstanding under this mortgage
facility was $116.0 million. The facility has a ten-year term, bears interest at
a LIBOR-based rate and is secured by mortgages on certain of our dealerships'
real property.
In October 2001, we entered into a mortgage facility with an additional
automotive manufacturer's captive finance subsidiary with an aggregate capacity
of $150.0 million, of which we initially borrowed $38.5 million. This facility
has a five-year term, bears interest at a LIBOR-based rate and is secured by
mortgages on certain of our dealerships' real property.
We finance our vehicle inventory through secured financings, primarily
floorplan facilities, with vehicle manufacturers' captive finance subsidiaries
as well as independent financial institutions and, until recently, a
bank-sponsored commercial paper conduit facility that matured January 19, 2001
and was not renewed. As of September 30, 2001, capacity of the facilities was
approximately $3.5 billion. We finance our used vehicles through our cash flow
from operations and our credit facilities.
We were the lessee under a lease facility that was established to acquire
and develop our former megastores' properties. As originally structured, the
facility had been accounted for as an operating lease and included residual
value guarantees. In 1999, certain properties under the facility were reflected
as capital leases. In connection with our 1999 restructuring activities
previously described, as of December 31, 1999 we accrued an estimate of the
liability under the residual value guarantee totaling approximately $103.3
million. In September 2000, we funded the remaining lease residual value
guarantee obligation to the lessor, reduced the facility size from $500.0
million to $210.0 million and amended the terms of the facility through the
notification of our intention to exercise the option to purchase the leased
properties at the end of the term. As a result of the amendment, all of the
leases had been accounted for as capital leases, with the property and related
debt included in our consolidated balance sheet. On August 10, 2001, we prepaid
and terminated this facility.
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We securitize installment loan receivables through a $625.0 million
commercial paper warehouse facility with unrelated financial institutions. In
September 2001, we decreased the capacity of the commercial paper warehouse
facility from $1.0 billion to $625.0 million. During the nine months ended
September 30, 2001, we sold installment note receivables of $397.5 million under
this program, net of retained interests. During the year ended December 31,
2000, we securitized approximately $580.1 million of loan receivables under this
program, net of retained interests. At September 30, 2001, we had $75.4 million
outstanding under this program, net of retained interests. We have entered into
certain interest rate derivative transactions with certain financial
institutions to manage the impact of interest rate changes on securitized
installment loan receivables. Proceeds from securitizations are primarily used
to repay borrowings under our revolving credit facilities.
We also securitize installment loan receivables through the issuance of
asset-backed notes through a non-consolidated special purpose entity under a
shelf registration statement. In August 2001, we amended the shelf registration
statement relating to this program to provide aggregate capacity of $2.0
billion. Proceeds from the notes issued under this program are used to refinance
installment loans under the warehouse facility and additional loans held by us.
We provide credit enhancement related to these notes in the form of 1.0% over
collateralization, a reserve fund and a third party surety bond. We retain
responsibility for servicing the loans for which we are paid a servicing fee.
During 2000, approximately $691.7 million in additional asset-backed notes were
issued, net of retained interests. In September 2001, we issued $850.0 million
in asset-backed notes under this program. At September 30, 2001, $1.5 billion
was outstanding under this program.
The rate at which we are originating loans has slowed during 2001 due to
the implementation of more restrictive credit policies and, more recently,
unprecedented levels of financing incentives being offered by vehicle
manufacturers. In addition, eroding consumer confidence, increasing
unemployment, and the risk of a further softening economy could increase
consumer credit risk. As such, we are currently considering strategic
alternatives to our consumer loan origination business. We believe that our
retained interests in securitized installment loans of $146.0 million as of
September 30, 2001 are fairly stated. However, a change in strategy regarding
our consumer loan origination business and/or a continuation or worsening in the
economic factors mentioned above could have a material adverse impact on the
value of these retained interests.
During the nine months ended September 30, 2001, we repurchased 21.2
million shares of our common stock for an aggregate purchase price of $192.2
million. Through September 30, 2001, an aggregate of 148.9 million shares of
common stock have been acquired under our share repurchase programs for an
aggregate purchase price of $1.7 billion, leaving approximately $74.9 million
available for share repurchases under the programs. Additionally, on October 24,
2001, our Board of Directors authorized the repurchase of up to an additional
$250.0 million of our common stock. During the year ended December 31, 2000, we
repurchased 27.6 million shares of our common stock for an aggregate purchase
price of $188.9 million. We repurchased 91.0 million shares of common stock
during 1999 for an aggregate purchase price of $1.2 billion. We repurchased 9.1
million shares of common stock during 1998 for an aggregate purchase price of
$136.0 million. We will evaluate further share repurchases during the remainder
of 2001 based upon financial and other investment considerations. However, our
ability to repurchase shares will be limited by the terms of the indenture
relating to these notes and our senior credit facilities.
In connection with the ANC Rental spin-off, we made certain capital
contributions to ANC Rental prior to the spin-off. These contributions included
cash of approximately $200.0 million and the
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net assets of an insurance subsidiary. We also entered into various agreements
with ANC Rental that set forth the terms of the distribution and other
agreements governing our relationship with ANC Rental after the spin-off. As a
result of the spin-off, our equity as of December 31, 2000, was reduced by the
net assets of ANC Rental totaling $894.4 million. The equity adjustment
resulting from the spin-off is subject to further adjustment resulting from
changes in estimated shared assets and liabilities of AutoNation and ANC Rental
and certain other matters. However, the equity adjustments arising from changes
in the estimated shared assets and liabilities of AutoNation and ANC Rental, if
any, are not expected to be significant.
In connection with the spin-off of ANC Rental Corporation and its
subsidiaries ("ANC Rental") in June 2000, we provide certain guarantees and
credit enhancements with respect to financial and other performance
obligations of ANC Rental, including acting as a guarantor under certain
motor vehicle and real property leases between ANC Rental and Mitsubishi
Motor Sales of America, Inc. ("Mitsubishi") and acting as an indemnitor
with respect to certain surety bonds issued on ANC Rental's behalf. We are
also a party to certain agreements with ANC Rental (the "ANC Rental
Agreements"), including a separation and distribution agreement, a
reimbursement agreement and a tax sharing agreement, pursuant to which both
ANC Rental and we have certain obligations. On November 13, 2001, ANC
Rental filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Wilmington,
Delaware. Accordingly, depending on the specific terms of ANC Rental's
reorganization plan and which of its obligations are discharged in
bankruptcy, among other things, we could be called on to perform under some
or all of our credit enhancements and guarantees, which could have a
material adverse effect on our business, financial condition, cash flows
and prospects. ANC Rental has been accounted for as a discontinued
operation and, accordingly, we expect that charges recorded by us pursuant
to the foregoing credit enhancements and guarantees or with respect to
claims under the ANC Rental Agreements, if any, would not impact our
reported results from continuing operations.
Under the existing terms of the motor vehicle lease agreement with
Mitsubishi referenced above, ANC Rental currently leases approximately 14,000
vehicles from Mitsubishi and may increase the number of vehicles it leases under
the agreement to approximately 27,000. Under this vehicle lease agreement, which
expires at the conclusion of the leases for model year 2002 vehicles, ANC Rental
is responsible for lease payments that we believe are currently between $4.0
million and $5.0 million per month, although such lease payments may increase to
approximately $8.0 million per month in the event that ANC Rental maximizes the
number of vehicles it leases under the agreement. We also believe that ANC
Rental typically leases vehicles under this lease agreement for a period of
approximately six to nine months per vehicle. Additionally, ANC Rental is
responsible for the return of all leased vehicles to Mitsubishi upon the
termination of the vehicle lease agreement. Under the real property leases that
we guarantee, which expire in July 2017, ANC Rental leases twelve parcels of
property from Mitsubishi at an aggregate rent of approximately $3.0 million per
year. Our indemnification obligations with respect to the surety bonds issued on
behalf of ANC Rental are capped at $29.5 million in the aggregate. In addition,
due to the bankruptcy of ANC Rental, obligations of ANC Rental under the terms
of the ANC Rental Agreements may be extinguished or our claims against them
under such agreements may be unenforceable. These claims could include
reimbursement obligations that ANC Rental may have to us in connection with
payments made by us with respect to the foregoing credit enhancements and
guarantees, as well as indemnification rights with respect to payments made by
us to the Internal Revenue Service as a result of audit adjustments in our
consolidated federal income tax returns relating to ANC Rental's automotive
rental businesses prior to the spin-off. In the event that we are called on to
perform under the foregoing credit enhancements and guarantees and we have
claims under the ANC Rental Agreements that ANC Rental does not satisfy, we
estimate that, based on our assessment of the
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risks involved in each matter, our aggregate obligations under the credit
enhancements, guarantees and ANC Rental Agreements could be in the range of
$50.0 million to $150.0 million. However, the exposure is difficult to estimate
and we cannot assure you that our aggregate obligations under these credit
enhancements, guarantees and ANC Rental Agreements will not be materially above
the range indicated above or that we will not be subject to additional claims as
a result of ANC Rental's bankruptcy filing.
We have taken steps since 2000 to further strengthen our balance sheet,
including selling non-core assets and redeploying proceeds into our core
business. In April 2001, we completed the sale of our Flemington dealer group
which substantially completed our non-core dealership divestiture plan. During
2000, we entered into a sale-leaseback financing of our corporate headquarters
facility resulting in proceeds of approximately $52.1 million. Additionally,
during 2000, we sold an office building, which is occupied by ANC Rental,
resulting in proceeds of approximately $18.7 million. As previously described,
in November 2000 we completed the sale of our outdoor media business for a
purchase price of $104.0 million. In connection with the sale, we entered into a
prepaid $15.0 million advertising agreement and, therefore, we received net
proceeds of $89.0 million.
At September 30, 2001 and December 31, 2000, we had $890.9 million and
$877.2 million, respectively, of net deferred tax liabilities. We provide for
deferred income taxes in our consolidated financial statements to show the
effect of temporary differences between the recognition of revenue and
expenses for financial and income tax reporting purposes and between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Over the past four years, we have engaged in certain transactions
that are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. A significant amount of our deferred tax liabilities
relates to these transactions. We believe that our tax returns appropriately
reflect such transactions. However, an unfavorable settlement or adverse
resolution of these matters could have a material adverse effect on our
financial condition, results of operations, cash flows and assets.
CASH FLOWS
Cash and cash equivalents increased (decreased) by $4.5 million and
$(102.4) million during the nine months ended September 30, 2001 and 2000,
respectively. Cash and cash equivalents increased (decreased) by $(153.8)
million, $(490.0) million and $598.3 million during the years ended December 31,
2000, 1999 and 1998, respectively. The major components of these changes are
discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $409.4 million and $330.9 million
during the nine months ended September 30, 2001 and 2000, respectively. Cash
provided by operating activities was $281.5 million, $47.2 million and $217.8
million for the years ended December 31, 2000, 1999 and 1998, respectively.
Cash flows from operating activities include purchases of vehicle inventory
which are separately financed through secured vehicle financings. Accordingly,
we measure our operating cash flow to include net proceeds/(payments) under
these secured vehicle financings which totaled $(493.0) million and $(231.8)
million during the nine months ended September 30, 2001 and 2000, respectively;
and
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$159.4 million, $429.7 million and $65.1 million during the years ended December
31, 2000, 1999 and 1998, respectively. Including net proceeds/(payments) under
these secured vehicle financings, we generated operating cash flow of $ 409.4
million and $330.9 million during the nine months ended September 30, 2001 and
2000, respectively; and $440.9 million, $476.9 million and $282.9 million during
the years ended 2000, 1999 and 1998, respectively.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities consist primarily of cash used for
business acquisitions and divestitures, capital additions, property
dispositions, net activity of installment loan receivables and other
transactions as further described below.
Cash used in business acquisitions was $83.2 million and $242.8 million for
the nine months ended September 30, 2001 and 2000, respectively. The decrease in
cash used was primarily due to the effect of a planned reduction in acquisition
activity for 2001. Cash used in business acquisitions was $313.3 million, $914.0
million and $804.3 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The decrease in cash used in business acquisitions was primarily
due to our shift in 2000 to acquire single dealerships or small dealership
groups focused in key existing markets. Cash used in business acquisitions
during 2000 includes $122.4 million in deferred purchase price for certain prior
year automotive retail acquisitions.
Capital expenditures were $86.3 million and $82.8 million during the nine
months ended September 30, 2001 and 2000, respectively. Capital expenditures
were $148.2 million, $242.3 million and $256.7 million during the years ended
December 31, 2000, 1999 and 1998, respectively. The decrease in capital
expenditures in 2000 was due to the megastore closures and fewer acquisitions.
For the nine month period ended September 30, 2001, proceeds from the sale
of property and equipment and assets held for sale were $78.0 million compared
to $112.7 million for the same period in 2000. Proceeds from the sale of
property and equipment and assets held for sale were $129.9 million, $88.4
million and $12.3 million during the years ended December 31, 2000, 1999 and
1998, respectively. The increase is primarily due to the sales of megastore and
other properties held for sale and the sale of the building occupied by ANC
Rental. Cash received from business divestitures was $61.2 million and $77.5
million for the nine months ended September 30, 2001 and 2000, respectively.
Cash received from business divestitures was $178.7 million, $131.3 million and
$55.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
In July 1998, our former solid waste subsidiary, Republic Services,
completed an initial public offering resulting in proceeds of approximately $1.4
billion. In May 1999, we sold substantially all of our interest in Republic
Services in a public offering resulting in proceeds of approximately $1.8
billion. During 2000, we sold substantially all of our remaining common stock of
Republic Services, resulting in proceeds of approximately $48.2 million.
Proceeds from the initial public offering and the sales of our remaining
interest in Republic Services were used to repay non-vehicle debt, finance
acquisitions, acquire shares under our share repurchase programs and invest in
our business.
Funding of installment loan receivables, net of collections, totaled $444.2
million and $451.4 million for the nine months ended September 30, 2001 and
2000, respectively; and $562.3 million, $1.6 billion and $1.0 billion in 2000,
1999 and 1998, respectively. Related proceeds from securitization of installment
loan contracts were $514.0 million and $585.1 million for the nine months
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ended September 30, 2001 and 2000, respectively; and $720.3 million, $1.6
billion and $706.4 million in 2000, 1999 and 1998, respectively. We continue to
evaluate the appropriate levels of installment loan fundings.
During the nine months ended September 30, 2001, we invested restricted
cash deposits under various insurance programs in restricted investments.
We believe that our funds generated through future operations and
availability of borrowings under our floorplan facilities (or any replacements
thereof), our revolving credit facilities and our mortgage facilities will be
sufficient to fund our debt service and working capital requirements and any
seasonal operating requirements for the foreseeable future. We intend to finance
capital expenditures, business acquisitions and funding of installment loan
receivables through cash flow from operations, our revolving credit facilities,
asset-backed securitized facilities and other financings.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities include revolving credit financings
and payments, proceeds from unsecured senior notes issued, repayments of
acquired debt, treasury stock purchases and other transactions as further
described below.
We have repurchased approximately 21.2 million, 27.6 million, 91.0 million,
and 9.1 million shares of our common stock during the nine months ended
September 30, 2001 and the years ended December 31, 2000, 1999 and 1998,
respectively, for approximately $192.2 million, $188.9 million, $1.2 billion and
$136.0 million, respectively, under our Board approved share repurchase
programs.
During the year ended December 31, 2000, we repaid approximately $197.0
million of debt obligations primarily related to amounts financed under a $210.0
million lease facility (amended September 2000 from the original capacity of
$500.0 million). On August 10, 2001, we prepaid and terminated this facility.
During 2000, we entered into a sale-leaseback transaction involving our
corporate headquarters facility which resulted in net proceeds of approximately
$52.1 million.
We will continue to evaluate the best use of our operating cash flow
between capital expenditures, acquisitions and share repurchases.
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by (used in) discontinued operations was as follows during
the periods shown (in millions):
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
(UNAUDITED)
Automotive rental........... $ (129.2) $ (160.3) $ (227.0) $ (223.4) $ --
Solid waste services........ 580.6 (546.0) -- -- --
----------- ----------- ---------- --------- -----
$ 451.4 $ (706.3) $ (227.0) $ (223.4) $ --
=========== =========== ========== ========= =====
</Table>
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Cash used in our former automotive rental business during 2000 consists
primarily of cash used to replace maturing letters of credit that provide credit
enhancement for ANC REntal's vehicle financing.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about our market sensitive financial
instruments and constitutes "forward-looking statements." All items described
are non-trading.
Our primary market risk exposure is changing interest rates. Our policy is
to manage interest rates through the use of a combination of fixed and floating
rate debt. Interest rate derivatives may be used to adjust interest rate
exposures when appropriate, based upon market conditions. These derivatives
consist of interest rate swaps, caps and floors which are entered into with a
group of financial institutions with investment grade credit ratings, thereby
minimizing the risk of credit loss. At September 30, 2001, we did not have any
derivatives hedging corporate debt with variable interest rate exposure.
We have entered into a series of interest rate caps and floors with an
aggregate notional amount of $84.6 million contractually maturing through 2007
to manage the impact of interest rate changes on securitized installment loan
receivables. Expected maturity dates for interest rate caps and floors in the
table below are based upon the estimated repayment of the underlying receivables
after considering estimated prepayments and credit losses. Average rates on
interest rate caps and floors are based upon contractual rates. At times, we use
variable to fixed interest rate swaps to manage the impact of interest rate
changes on our variable rate revolving credit and vehicle inventory financing
facilities. Expected maturity dates for variable rate debt and interest rate
swaps in the table below are based upon contractual maturity dates. Average pay
rates under interest rate swaps are based upon contractual fixed rates. Average
interest rates on variable rate debt and average variable receivable rates under
interest rate swaps are based on implied forward rates in the yield curve at the
reporting date. In addition, in 2001, we entered into a series of forward
starting swaps with a maximum aggregate notional amount of $14.0 million
contractually maturing through 2007 which effectuate a fixed to variable rate
swap at a weighted average rate of 5.51%. Variable rates on the underlying
portfolio are indexed to the Commercial Paper Nonfinancial rate.
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Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and, thus, approximate current market rates.
The fair value of interest rate swaps, caps and floors is determined from dealer
quotations and represents the discounted future cash flows through maturity or
expiration using current rates. The fair value is effectively the amount we
would pay or receive to terminate the agreements (liability/(asset) in
millions).
<Table>
<Caption>
EXPECTED MATURITY DATE
----------------------
FAIR VALUE
DECEMBER 31,
DECEMBER 31, 2000 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
----------------- ---- ---- ---- ---- ---- ---------- ----- ----
CONTINUING OPERATIONS:
Variable rate debt........ $ 2,416.7 $ 790.8 $ -- $ -- $ -- $ -- $ 3,207.5 $ 3,207.5
Average rate.............. 6.77% 6.67% -- -- -- --
Interest rate cap (1)..... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3 $ (2.6)
Average rate.............. 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Interest rate floors(1)... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3 $ 14.3
Average rate.............. 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
</Table>
- -------------------
(1) Interest rate caps and floors are used to hedge installment loan finance
receivables securitized under an off-balance sheet commercial paper
warehouse facility. The amount outstanding under this commercial paper
facility was $576.3 million at December 31, 2000.
SEASONALITY
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year due in part to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating results to be
generally lower in our first and fourth quarters as compared to our second and
third quarters. Comparisons of our sales and operating results between different
quarters within a single year are, therefore, not necessarily indicators of our
future performance.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
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accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement, to
the extent effective, and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133, as amended, is effective for fiscal years beginning after
June 15, 2000. SFAS 133 must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid instruments. We adopted SFAS
133 as of January 1, 2001. By requiring the use of fair value accounting,
adoption of SFAS 133 could cause increased volatility in earnings in future
periods. We continue to enter into derivative contracts which we believe will
help minimize this volatility. In addition, we are evaluating other instruments
that would effectively hedge our floating rate debt which we believe will
qualify for hedge accounting.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities--a Replacement of FASB No. 125" ("SFAS 140").
SFAS 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
SFAS 140 disclosure requirements are effective for fiscal years ending after
December 15, 2000 and have been included in Note 13, Asset Securitizations, of
the Notes to the Consolidated Financial Statements. Accounting for transfers and
servicing of financial assets and extinguishment of liabilities under SFAS 140
is effective for transactions occurring after March 31, 2001. Although
additional interpretive guidance is expected from the FASB, the initial adoption
of SFAS 140 did not have a material impact on our consolidated financial
statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Our revenue recognition policy is in accordance with the provisions
of SAB 101. Adoption of the provisions of SAB 101 did not have a material impact
on our consolidated financial position, results of operations or cash flows.
In 2000, the Emerging Issues Task Force of the FASB reached a consensus on
EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets"
("EITF 99-20"). EITF 99-20 specifies, among other things, how a transferor that
retains an interest in a securitization transaction should account for interest
income and impairment. EITF 99-20 is effective for fiscal quarters beginning
after March 15, 2001. We adopted EITF 99-20 as of April 1, 2001. The adoption of
EITF 99-20 did not have a material impact on our consolidated financial
position, results of operations or cash flows.
On June 30, 2001 the FASB finalized and in July 2001 issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
We have adopted the provisions of SFAS 141 which require all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method, eliminating the pooling of interests method. Additionally,
acquired intangible assets should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the acquirer's intent to do so.
SFAS 142, upon adoption, eliminates goodwill amortization over its
estimated useful life. However, goodwill will be subject to at least an annual
assessment for impairment by applying a
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fair-value based test. Intangible assets with definitive lives will need to be
amortized over their useful lives.
The provisions of SFAS 142 apply immediately to all acquisitions completed
after June 30, 2001. Goodwill and intangible assets with indefinite lives
existing at June 30, 2001 will continue to be amortized until December 31, 2001.
Effective January 1, 2002 such amortization will cease, as companies are
required to adopt the new rules on such date. By the end of the first quarter of
calendar year 2002, companies must begin to perform an impairment analysis of
intangible assets. Furthermore, companies must complete the first step of the
goodwill transition impairment test by June 30, 2002. Any impairment noted must
be recorded at the date of adoption restating first quarter results, if
necessary. Impairment charges, if any, that result from the application of the
above tests would be recorded as the cumulative effect of a change in accounting
principle in the first quarter of the year ending December 31, 2002.
Although we estimate that the changes in goodwill amortization as a result
of the adoption of SFAS 142 will result in an estimated $0.14 per share increase
in 2002 earnings per share, we will not be able to determine the ultimate impact
of this Statement on our consolidated financial statements until such time as we
apply its provisions.
In August, 2001 the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 supercedes Statements of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed of" and Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effect of the Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"). SFAS 144 establishes a single accounting model for
assets to be disposed of by sale whether previously held and used or newly
acquired. SFAS 144 retains the provisions of APB 30 for the presentation of
discontinued operations in the income statement but broadens the presentation to
include a component of an entity. SFAS 144 is effective for fiscal years
beginning after December 15, 2001 and the interim periods within. We do not
believe that the adoption of SFAS 144 will have a material impact on our
consolidated financial position, results of operations or cash flows.
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BUSINESS
OVERVIEW
We are the largest automotive retailer in the United States. As of
September 30, 2001, we owned and operated 368 new vehicle franchises from 278
dealerships located in major metropolitan markets in 17 states, predominantly in
the Sunbelt region of the United States. Our dealerships sell new and used
vehicles. In addition, we offer financing for vehicle purchases, extended
service contracts and insurance products, as well as other aftermarket products
such as vehicle accessories. We provide a wide range of vehicle maintenance and
repair services and operate collision repair centers in most of our key markets.
We offer a full range of 35 different vehicle brands. The core brands of
vehicles that we sell, representing almost 90% of the new vehicles that we sold
in 2000, are Ford (Ford, Lincoln and Mercury), General Motors (Chevrolet,
Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep and Dodge), Toyota, Nissan and
Honda. We also sell several luxury vehicle brands including Mercedes-Benz, BMW,
Lexus and Porsche.
BUSINESS STRENGTHS
We believe that our principal strengths include the following:
INDUSTRY AND MARKET LEADERSHIP. We are the largest automotive retailer in a
highly fragmented industry. Our 2000 revenue was larger than all other public
automotive retailers' 2000 revenue combined and our equity market value at
September 30, 2001 was nearly twice that of all other public automotive
retailers combined. In addition to the size of our dealership operations, we
believe that we own some of the most recognizable and well-known dealerships in
our key markets. We are also a leading automotive retailer in our key markets in
terms of market share and brands offered. We believe that the significant scale
of our operations and the quality of our managerial talent allow us to achieve
efficiencies in our key markets by, among other things, reducing redundant
operating expenses, improving asset management and implementing and sharing best
practices across our dealerships.
DIVERSIFIED REVENUE STREAMS AND VARIABLE EXPENSE STRUCTURE. We offer a
diversified range of automotive products and services beyond new vehicles, such
as used vehicles, vehicle maintenance and repair services, extended service
contracts and insurance products, and other aftermarket products. We believe
demand for these additional products and services, which generally produce
higher gross margins as a percentage of revenue than sales of new vehicles, is
less impacted by economic cycles than demand for new vehicles. We believe this
decreases our vulnerability to adverse economic cycles. The following chart
illustrates the revenue and gross margin contributions of each component of our
business for the twelve months ended September 30, 2001:
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[GRAPH]
<Table>
<Caption>
Revenue $19.5 Gross Margin $3.0
billion billion
Parts & Service 12.2% 34.7%
Used Vehicles 19.4% 14.3%
Finance & Insurance 2.4% 15.6%
New Vehicles 59.5% 32.5%
Other 6.5% 2.9%
</Table>
During the twelve months ended September 30, 2001, 67.5% of our total gross
margin originated from sales of used vehicles, parts and service, finance and
insurance products, and other aftermarket products, while these products and
services accounted for only 40.5% of our total revenue. Further, we believe that
the diversification of our portfolio of dealerships in terms of geography and
product representation will help us weather adverse local or regional economic
cycles or problems associated with a particular brand of vehicles.
Notwithstanding a decrease of 8.8% in our new vehicle revenues during the first
nine months of 2001 as compared to the same period in 2000, our gross margin
percent age increased from 14.5% to 15.2% during these same periods.
We believe that our cost structure also decreases our vulnerability to
adverse economic cycles. A significant percentage of our costs are variable,
which we expect will permit us to react quickly to changing economic conditions.
STRONG MANAGEMENT WITH EXPERIENCE IN THE INDUSTRY. We have a strong senior
management team with extensive experience in automotive retailing and
manufacturing. Our Chief Executive Officer, Mike Jackson, has 30 years of
experience in the industry, most recently serving as the President and Chief
Executive Officer of Mercedes-Benz, USA, Inc. prior to joining us in 1999. Mr.
Jackson also served as the managing partner of Euro Motorcars, an automotive
retailer in Bethesda, Maryland, for over ten years. Our President and Chief
Operating Officer, Michael E. Maroone, has over 25 years of experience in the
automotive retailing industry. Prior to our 1997 acquisition of the Maroone
Automotive Group, which was one of the largest privately-held automotive retail
groups in the United States, Mr. Maroone served as its President and Chief
Executive Officer for over 20 years. The senior management of our nine
operating districts also reflects the significant depth of our experience, with
our district managers having on average more than 20 years of experience in
automotive retailing, primarily within the local markets that they manage.
LEADING AUTOMOTIVE E-COMMERCE PLATFORM. We believe that the scale of our
bricks-and-mortar operations and our existing e-commerce infrastructure,
including our operation of the largest independent automotive retailing website,
AutoNation.com, uniquely position us to capitalize on trends in the automotive
retail e-commerce marketplace by giving us the greatest capacity to both obtain
and fulfill customer leads generated on-line. For the twelve months ended
September 30, 2001, our dealerships sold approximately 69,000 units and
generated in excess of $1.7 billion in sales via the internet sales channel. We
believe that we are also a leading purchaser of customer leads generated through
third-party websites.
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We also have relationships with prominent consumer portals such as Microsoft's
MSN Carpoint and America Online, as well as other customer lead generators, to
purchase high quality leads, and our proprietary software facilitates our
dealerships' fulfillment of these leads. We have lead referral agreements with
approximately 2,500 franchises operating from approximately 1,500 independent
dealerships in 47 states to distribute leads that are outside the scope of our
dealerships' operations. According to a survey by J.D. Power and Associates
dated June 20, 2001, AutoNation.com ranked highest in overall dealer
satisfaction based on evaluations by internet managers of various dealership on-
line buying services.
BUSINESS STRATEGY
Based on our established strengths, we are pursuing the following
strategies for future growth in our business:
- Expand our margins by focusing on higher-margin products and services.
- Continue to leverage our significant scale to improve our operating
efficiency, including managing costs of our business and improving the
utilization of our assets.
- Effectively use our free cash flow to reinvest in our business through
capital investments, strategic dealership acquisitions and share
repurchases.
- Continue to grow and leverage our e-commerce business.
We have implemented the following strategies in certain of our districts
and are in the process of instituting them on a nationwide basis in all of our
dealerships.
EXPAND OUR MARGINS
While new vehicle sales will continue to be a significant component of our
operations, we are focused on developing the areas of our automotive retailing
business that produce higher margins than new vehicle sales such as parts and
service sales, used vehicle sales, and sales of finance and insurance, and other
aftermarket products. We are emphasizing these higher-margin areas of our
business with the following strategic initiatives:
- PARTS AND SERVICE SALES AND COLLISION REPAIR SERVICES: Almost all of
our dealerships have service facilities that provide a wide range of
vehicle maintenance and repair services. Additionally, we operate
collision repair centers in most of our key markets. We are increasing
our parts and service sales by, among other things, (1) continuing to
implement our team-based service process in our service facilities by
instituting our Advanced Production Structure, whereby a repair team
services different parts of a vehicle simultaneously, and our cycle
time solution in our collision centers, (2) implementing comprehensive
parts and service marketing programs within our local markets, (3)
assuring that our dealerships' parts requirements are fulfilled
through purchases from our dealerships to the extent practicable and
(4) developing relationships
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with national insurance companies that establish our dealerships and
collision centers as preferred providers of collision repair services.
Accordingly, we are focusing on hiring, training and retaining
technicians so that we can improve our service bay utilization and
increase our parts and service sales without the need for additional
capital investment.
- USED VEHICLE SALES: Each of our dealerships offers a variety of brand
name used vehicles. We are leveraging our status as the largest
retailer of new vehicles in the United States to develop competitive
advantages over our principal used vehicle competitors and to expand
our used vehicle business. We believe that, with our significant scale
in our key markets, we have better access than many of our competitors
to desirable used vehicle inventory. We are leveraging our significant
scale in our key markets to improve our used vehicle business by (1)
completing the implementation of our advanced vehicle inventory
management system at each of our dealerships, which permits us to
source and manage used vehicle inventories across our dealerships
within a local market, (2) implementing comprehensive used vehicle
marketing programs in each of our districts, (3) dedicating specific
management personnel in each of our geographic operating districts to
optimize our used vehicle operations and (4) adopting standardized
used vehicle operating policies at our dealerships based on our
dealerships' best practices.
- FINANCE AND INSURANCE AND OTHER AFTERMARKET PRODUCT SALES: Each new or
used vehicle sale presents our dealerships with the opportunity to
finance the vehicle, sell an extended service contract or an insurance
product and sell other aftermarket products, such as vehicle
accessories or a theft deterrent system. In order to improve our
finance and insurance business, we are (1) focusing on improving the
performance of our dealerships that underperform relative to our other
dealerships, (2) ensuring a high level of compliance with our standard
finance and insurance operating practices, such as the use of our
customer-friendly "full-disclosure" finance and insurance menu, (3)
increasing sales at our dealerships of finance and insurance products
and (4) promote further consolidation of the retail finance sources
for our customers' vehicle purchases to drive improved pricing and
efficiency. For example, through AutoNation Financial Services, we
have achieved a greater degree of penetration in our finance and
insurance business by identifying preferred lenders across our network
of dealerships which allows us to negotiate more attractive terms and
conditions.
IMPROVE OUR OPERATING EFFICIENCY
We are leveraging our status as the largest automotive retailer in the
United States to further improve our cost structure and the utilization of our
assets. We are focusing on the following key initiatives to achieve these goals:
- REDUCE DAYS SUPPLY OF NEW AND USED VEHICLES: We are dedicated to
managing our new and used vehicle inventories to decrease the days
supply of vehicles that we have at any given time at our dealerships,
with the objective of reducing our inventory financing interest
expense and carrying costs. We plan to achieve this by (1) using our
web-based tracking system to enable us to more closely monitor our
inventories, (2) establishing days supply targets for each of our
vehicle models, (3) managing our new and used
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vehicle inventories across the dealerships within each of our markets
to optimize inventory turnover and (4) focusing our inventory
purchasing on the more popular model packages.
- DECREASE TIME TO CONVERT RECEIVABLES INTO CASH: We are focused on
decreasing the amount of time that our dealerships take to receive
payment on retail receivables (or "contracts-in-transit"). We plan to
accomplish this goal, in part, by (1) adopting best practices
concerning sales and contracts-in-transit flow processing, (2)
developing and using a web-based tool to monitor our dealerships'
contracts-in-transit and (3) developing relationships with preferred
lenders who can expeditiously process our dealerships'
contracts-in-transit. By more quickly converting our
contracts-in-transit into cash, we expect to be able to more quickly
use our capital to pursue our strategic initiatives, including those
described below under the "Effectively Use Free Cash Flow" heading.
EFFECTIVELY USE FREE CASH FLOW
A key component of our strategy is to maximize the return on investment
generated by the use of the free cash flow that our business generates. We
expect to use our free cash flow to make capital investments in our current
businesses and to complete strategic dealership acquisitions in our key markets.
When dealership acquisitions are unavailable or do not provide us with an
adequate return on our investment, we may use our free cash flow to prudently
repurchase our common stock pursuant to our Board-authorized share repurchase
program, subject to limitations contained in the indenture agreement with
respect to these notes and our credit agreements for our two senior secured
revolving credit facilities. The considerations in determining how we will
allocate our free cash flow among such uses include the following:
- CAPITAL INVESTMENTS: We invested $148.2 million and $86.3 million in
the periods ended December 31, 2000 and September 30, 2001,
respectively, on capital investments, including to upgrade and improve
certain of our dealership facilities. We expect to make additional
facility and infrastructure upgrades and improvements from time to
time, such as the construction of new vehicle dealership facilities,
with a focus on projects that we expect to provide a reasonable return
on our investments.
- STRATEGIC DEALERSHIP ACQUISITIONS: We believe that we will have
additional opportunities to acquire dealerships in our key markets.
The factors that will impact whether we make additional strategic
dealership acquisitions include the brand, location and price of
available dealerships and whether such dealerships complement and can
be integrated into our existing operations.
- SHARE REPURCHASES: During the nine months ended September 30, 2001, we
repurchased 21.2 million shares of our common stock for an aggregate
purchase price of $192.2 million. During 2000, we repurchased 27.6
million shares of our common stock for an aggregate price of $188.9
million. As of September 30, 2001, we were authorized to repurchase up
to an additional $74.9 million. Additionally, on October 24, 2001, our
board of directors authorized the repurchase of up to an additional
$250.0 million of our common stock. The decision to make additional
purchases of our stock will be based on such factors as the market
price of our common stock, the potential impact on our capital
structure and the expected return on competing uses of our capital
such as strategic dealership acquisitions and capital investments in
our current businesses.
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GROW OUR E-COMMERCE BUSINESS
According to industry analysts, the majority of new car buyers nationwide
will consult the Internet for new car information. The Internet is generating
better-informed customers and improving the efficiency of the sales process.
Using "Compass," our proprietary web-based lead-management software tool, and
our website, AutoNation.com, we provide these customer leads to our dealerships
for fulfillment to the greatest extent possible. In addition, during 2000, we
developed relationships with certain Internet service providers and websites,
including Microsoft's MSN Carpoint and America Online, as well as other parties,
to purchase leads or referrals of customers who are shopping for a vehicle.
Specially-trained internet sales personnel at our dealerships then use our
internet-based Compass system to respond to customer inquiries, which can be
made 24 hours a day, seven days a week. During the six months ended September
30, 2001, our average customer response time during business hours was
approximately 34 minutes, which is well below reported industry average response
times.
Beginning in 2000, we entered into lead referral agreements with
approximately 2,500 franchises operating from approximately 1,500 independent
dealerships in 47 states. Under these agreements, we distribute customer leads
that we cannot fulfill within our dealership network. We are continuing to enter
into lead referral agreements with dealers that are able to provide fulfillment
capability for vehicle brands and geographic areas that our dealerships do not
cover. As we enter into additional lead referral agreements, we will continue to
set service and other standards that these independent dealerships must meet in
order to participate in our lead referral program.
THE INDUSTRY
With approximately $1.0 trillion in new and used vehicle sales and parts
and service, automotive retailing is the largest retail trade sector, accounting
for approximately 7.0% of U.S. gross domestic product. The industry is highly
fragmented, with the top ten automotive retailing groups accounting for only
6.0% of total industry revenue. Additionally, it is estimated that there are
approximately 22,000 franchised new vehicle dealerships nationwide. The
following chart illustrates the revenue breakdown of the automotive retailing
industry:
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[GRAPH]
<Table>
USED VEHICLE SALES
$363 BILLION 38%
NEW VEHICLE SALES
$380 BILLION 39%
PARTS AND SERVICES
$219 BILLION 23%
</Table>
New and used vehicle sales accounted for approximately $743.0 billion in
2000. New car volume in 2000 was at a high of 17.4 million units, representing
a compounded annual growth rate of 3.4% since 1995. Total value of new car
sales increased from $292.0 billion in 1995 to $380.0 billion in 2000, or 5.5%
per year. During 2001 the automotive industry has experienced a significant
decline in demand for new vehicles as compared to 2000. The used car market
has grown at a slower but steadier rate of 2.3% per year based on total value
of used car sales, with franchised dealers accounting for 16.1 million units
in 2000.
In addition to new and used vehicles, dealerships offer a wide range of
other products and services, including repair and warranty work, replacement
parts, extended warranty coverage and financing and credit insurance. The parts
and service business has grown 4.7% per year since 1995. In 1999 franchised
dealers contributed $68.0 billion of the parts and services industry.
Significant consolidation in the automotive retail industry is relatively
recent, with the majority of the consolidation having taken place over only the
last six years. Approximately 94% of the industry's market share still remains
in the hands of smaller regional and independent dealerships. With approximately
22,000 individual dealerships in operation, we expect consolidation in the
industry to continue as dealership owners seek exit strategies or become subject
to capital constraints.
OPERATIONS
As of September 30, 2001, we owned and operated 368 new vehicle franchises
from dealership located in 17 states. We own and operate franchises granted by
the manufacturers of 35 different makes of vehicles. The core brands of vehicles
that we sell are Ford (Ford, Lincoln and Mercury), General Motors (Chevrolet,
Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep and Dodge), Toyota, Nissan and
Honda. Our management structure is focused on our local markets, where
day-to-day decision-makers can be more responsive to the needs of local
customers. We have established nine districts to manage our automotive retailing
business. The number of dealerships within each district varies from district to
district.
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Each of our automotive franchises offers new and used vehicles for sale.
Each of our dealerships also offers financing for vehicle purchases, extended
service contracts and other finance and insurance products, as well as other
aftermarket products such as vehicle accessories. Almost all of our dealerships
have service facilities that provide a wide range of vehicle maintenance and
repair services. Additionally, we operate collision repair centers in most of
our key markets.
Each of our dealerships acquires new vehicles for retail sale directly from
the applicable automotive manufacturer or distributor. Accordingly, we depend in
large part on the automotive manufacturers and distributors to provide us with
high quality vehicles that consumers desire and to supply us with such vehicles
at suitable locations, quantities and prices. We generally acquire used vehicles
from customer trade-ins, off-lease programs and, to a lesser extent, auctions
and other sources. We recondition used vehicles acquired for retail sale at our
dealerships' service facilities.
We provide certain financial products and services to our customers through
third parties, including the vehicle manufacturers' and distributors' captive
finance companies, as well as our automotive finance arm, AutoNation Financial
Services. AutoNation Financial Services' products include retail installment
loan financing, extended service contracts, vehicle protection and maintenance
programs, and insurance products.
DISPOSITION OF NON-CORE ASSETS
ANC RENTAL SPIN-OFF. On June 30, 2000, we completed the tax-free spin-off
of ANC Rental Corporation, which operates primarily under the Alamo Rent-A-Car
and National Car Rental brand names in the leisure travel, business travel and
vehicle replacement markets of the automotive rental industry. As a result of
the spin-off, our stockholders of record as of June 16, 2000 received one share
of ANC Rental common stock for every eight shares of AutoNation common stock
they held as of such date. ANC Rental common stock is traded on The Nasdaq Stock
Market under the symbol "ANCX." We have reclassified and reported ANC Rental's
business as a discontinued operation. Accordingly, except as otherwise noted,
the disclosure contained in this document relates solely to our automotive
retailing business.
OTHER DIVESTITURES OF NON-CORE ASSETS. In addition to the spin-off of ANC
Rental, during 2000 we substantially completed our divestitures of other
non-core assets. During 2000, we entered into a sale-leaseback financing of our
corporate headquarters facility resulting in proceeds of approximately $52.1
million. We also completed the sale of ANC Rental's corporate headquarters
facility for approximately $18.7 million. In connection with the closure during
December 1999 of 23 company-owned AutoNation USA used vehicle megastores we sold
a majority of the excess real property held for or operated in connection with
our former used vehicle megastore business during 2000. We intend to continue
actively marketing the remaining excess used vehicle megastore properties. In
November 2000, we completed the divestiture of our outdoor media business, which
operated under the name Republic Media, for a sale price of approximately $104.0
million. In connection with the sale of Republic Media, we entered into a
pre-paid $15.0 million advertising agreement with respect to the purchaser's
radio stations, billboards and other outdoor advertising media, and,
accordingly, we received net proceeds of approximately $89.0 million in
connection with the transaction. During 2000, we also completed the sale of
various non-core franchised new vehicle dealerships for an aggregate sale price
of approximately $89.7 million. In April of 2001, we disposed of our New
Jersey-based Flemington Automotive Group because its geographic location and
lack of focus on higher margin products and services were not in accordance with
our business strategy. We believe that our disposition of significant non-core
assets is substantially complete.
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INSURANCE AND BONDING
Our business exposes us to the risk of liabilities arising out of our
operations. Liabilities involve, for example, claims of employees, customers or
third parties for personal injury or property damage occurring in the course of
our operations. We could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
The automotive retailing business is also subject to substantial risk of
property loss due to the significant concentration of property values at
dealership locations. Accordingly, we have purchased liability and property
insurance subject to certain deductibles or loss retentions. We purchase
umbrella liability insurance to provide insurance in excess of our primary
insurance policies. The level of risk we retain may change in the future as
insurance market conditions or other factors affecting the economics of our
insurance purchasing change. Although we have, subject to certain limitations
and exclusions, substantial insurance, we cannot assure you that we will not be
exposed to uninsured or underinsured losses that could have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
Provisions for retained losses and deductibles are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities on
reported and unreported claims. The insurance companies that underwrite our
insurance require that we secure our obligation for deductible reimbursements
with collateral. Our collateral requirements are set by the insurance companies
and to date, have been satisfied by posting surety bonds, letters of credit and
cash deposits. Our collateral requirements may change from time to time based
on, among other things, our claims experience.
SALES AND MARKETING
We sold approximately 744,000 vehicles through our dealerships in 2000 and
approximately 530,000 vehicles during the first nine months of 2001. We sell a
broad range of well-known vehicle makes within each of our markets.
Our marketing efforts focus on mass marketing in our local markets and are
designed to build our business with a broad base of repeat and new customers. We
engage in mass marketing and advertising primarily through newspapers, radio,
outdoor billboards, television and the Internet in our local markets. As we have
consolidated our dealership operations in certain of our key markets under one
local brand name in conjunction with our trademarks, we have been able to focus
our efforts on building consumer awareness of the selected local brand name
rather than on the individual legacy names under which our dealerships operated
prior to their acquisition by us. We also have begun to develop newspaper,
television and radio advertising campaigns that we can modify for use in
multiple local markets, which we expect to result in advertising cost savings
and efficiencies that are not generally available to smaller retailers. We
expect to continue to realize cost savings and efficiencies with respect to
advertising expenses, due to our ability to obtain efficiencies in developing
advertising campaigns and due to our ability to gain volume discounts and other
concessions as we increase our presence within our key markets and consolidate
our dealerships under a single brand name in our local markets.
We market our vehicle inventory via the Internet through AutoNation.com,
our dealership websites and a site co-branded with America Online. We also have
entered into lead referral agreements
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pursuant to which we purchase customer leads generated by various third-party
websites, including Microsoft's MSN Carpoint, and other sources. We provide
these customer leads to our dealerships for fulfillment to the extent possible.
To the extent our dealerships cannot fulfill our customer leads, we have lead
referral agreements with approximately 2,500 franchises operating from
approximately 1,500 independent dealerships in 47 states.
AGREEMENTS WITH VEHICLE MANUFACTURERS
We have entered into framework agreements with most major vehicle
manufacturers and distributors. These agreements contain provisions relating to
our management, operation, advertising and marketing, acquisition and ownership
structure of automotive dealerships franchised by such manufacturers. The
agreements also set limits on the number of dealerships that we may acquire of
the particular manufacturer, nationally, regionally and in local markets, and
contain certain restrictions on our ability to name and brand our dealerships
and certain requirements pertaining to our operating performance, which, if we
do not satisfy, may adversely impact our ability to make further acquisitions of
such manufacturer's dealerships. In addition, some of these framework agreements
give the manufacturer or distributor the right to acquire, at fair market value,
the automotive dealerships franchised by that manufacturer or distributor under
specified circumstances in the event of a change in control of our company, the
acquisition of 20% or more of the voting stock of our company by another
manufacturer or distributor or other extraordinary corporate transactions such
as a merger or sale of all of our assets.
We operate each of our new vehicle dealerships under a franchise agreement
with a vehicle manufacturer or distributor. The franchise agreements grant the
franchised automotive dealership a non-exclusive right to sell the
manufacturer's or distributor's brand of vehicles and offer related parts and
service within a specified market area. The franchise agreements also grant the
dealerships the right to use the manufacturer's or distributor's trademarks in
connection with dealership operations. The franchise agreements impose numerous
operational requirements and restrictions on the automotive dealerships relating
to inventory levels, working capital requirements, the sales' process, marketing
and branding, showroom, service facilities and signage, personnel, changes in
management and monthly financial reporting, among other things. The franchise
agreements also provide for termination of the agreement by the manufacturer or
non-renewal for a variety of causes, subject to applicable state franchise laws
that limit a manufacturer's right to terminate a franchise.
COMPETITION
We operate in a highly competitive industry. We believe that the principal
competitive factors in the automotive retailing business are location, service,
price and selection. Each of our markets includes a large number of
well-capitalized competitors that have extensive automobile dealership
managerial experience and strong retail locations and facilities. We are subject
to competition from dealers that sell the same brands of new vehicles that we
sell and from dealers that sell other brands of new vehicles that we do not
represent in a particular market. Our new vehicle dealership competitors have
franchise agreements with the various vehicle manufacturers and, as such,
generally have access to new vehicles on the same terms as us. We also are
subject to competition from independent automobile parts and service shops and
service center chains. We believe that the principal competitive factors in the
service and repair industry are price, the use of factory-approved replacement
parts, the familiarity with dealers' makes and customer service. In addition to
competition for vehicle sales and service, we face competition in our finance
and insurance business. We believe the principal competitive factors in the
finance and insurance businesses are convenience, interest rates and contract
terms.
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In general, the vehicle manufacturers have designated specific marketing
and sales areas within which only one dealer of a given vehicle line or make may
operate. Under most of our framework agreements with the vehicle manufacturers,
our ability to acquire multiple dealers of a given line-make within a particular
market is limited. We are also restricted by various state franchise laws from
relocating our dealerships or establishing new dealerships of a particular
line-make within any area that is served by another dealer of the same
line-make. Accordingly, to the extent that a market has multiple dealers of a
particular line-make as most of our key markets do with respect to most vehicle
lines we sell, we are subject to significant intra-brand competition.
According to the National Automotive Dealers Association, Automotive News
and reports of various financial analysts, the automotive retail industry is
served by approximately 22,000 franchised automotive dealerships, approximately
56,000 independent used vehicle dealers and individual consumers who sell used
vehicles in casual private transactions primarily through classified ads and by
word of mouth. Several other public companies are establishing national or
regional automotive retail chains. Additionally, certain vehicle manufacturers
are engaged in the retail sale and service of vehicles, either independently or
in conjunction with their franchised dealers, and may do so on an expanded basis
in the future, subject to various state laws that restrict or prohibit
manufacturer ownership of dealerships.
We believe that a growing number of consumers are utilizing the Internet,
to differing degrees, in connection with the purchase of vehicles. Accordingly,
we may face increasing competitive pressures from on-line automotive websites,
including those developed by vehicle manufacturers and other dealership groups.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may cause price convergence and reduced margins for
new vehicles, used vehicles and related finance and insurance services.
REGULATIONS
AUTOMOTIVE AND OTHER LAWS AND REGULATIONS
We operate in a highly regulated industry. A number of state and federal
laws and regulations affect our business. In every state in which we operate, we
must obtain various licenses in order to operate our businesses, including
dealer, sales, finance and insurance related licenses issued by state regulatory
authorities. Numerous laws and regulations govern our conduct of business,
including those relating to our sales, operating, financing, advertising and
employment practices. These laws and regulations include state franchise laws
and regulations and other extensive laws and regulations applicable to new and
used motor vehicle dealers, as well as a variety of other laws and regulations.
These laws also include federal and state wage-hour, anti-discrimination and
other employment practices laws.
Our financing activities with customers are subject to federal
truth-in-lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other installment sales' laws. Some states regulate finance fees
and charges that may be paid as a result of vehicle sales. Claims arising out of
actual or alleged violations of law may be asserted against us or our
dealerships by individuals or governmental entities and may expose us to
significant damages or other penalties, including revocation or suspension of
our licenses to conduct dealership operations and fines.
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Our operations are subject to the National Traffic and Motor Vehicle Safety
Act, Federal Motor Vehicle Safety Standards promulgated by the United States
Department of Transportation and various state motor vehicle regulatory
agencies. The imported automobiles we purchase are subject to United States
customs duties and, in the ordinary course of our business we may, from time to
time, be subject to claims for duties, penalties, liquidated damages or other
charges.
ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS
Our operations involve the use, handling, storage and contracting for
recycling and/or disposal of materials such as motor oil and filters,
transmission fluids, antifreeze, refrigerants, paints, thinners, batteries,
cleaning products, lubricants, degreasing agents, tires and fuel. Consequently,
our business is subject to a complex variety of federal, state and local
requirements that regulate the environment and public health and safety.
Most of our dealerships utilize aboveground storage tanks, and to a lesser
extent underground storage tanks, primarily for petroleum-based products.
Storage tanks are subject to periodic testing, containment, upgrading and
removal under the Resource Conservation and Recovery Act and its state law
counterparts. Clean-up or other remedial action may be necessary in the event of
leaks or other discharges from storage tanks or other sources. In addition,
water quality protection programs under the federal Water Pollution Control Act
(commonly known as the Clean Water Act), the Safe Drinking Water Act and
comparable state and local programs govern certain discharges from some of our
operations. Similarly, certain air emissions from operations such as auto body
painting may be subject to the federal Clean Air Act and related state and local
laws. Certain health and safety standards promulgated by the Occupational
Safety and Health Administration of the United States Department of Labor and
related state agencies also apply.
Some of our dealerships are parties to proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, typically in
connection with materials that were sent to former recycling, treatment and/or
disposal facilities owned and operated by independent businesses. The
remediation or clean-up of facilities where the release of a regulated hazardous
substance occurred is required under CERCLA and other laws.
We incur significant costs to comply with applicable environmental, health
and safety laws and regulations in the ordinary course of our business. We do
not anticipate, however, that the costs of such compliance will have a material
adverse effect on our business, results of operations, cash flows or financial
condition, although such outcome is possible given the nature of our operations
and the extensive environmental, public health and safety regulatory framework.
PROPERTIES
During 2000, we entered into a sale-leaseback financing of our corporate
headquarters facility resulting in proceeds of approximately $52.1 million. We
also own or lease numerous facilities relating to our operations in 17 states.
These facilities consist primarily of automobile showrooms, display lots,
service facilities, collision repair centers, supply facilities, automobile
storage lots, parking lots and offices. We believe that our facilities are
sufficient for our needs and are in good repair in all material respects.
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In connection with the closure during December 1999 of 23 company-owned
AutoNation USA used vehicle megastores, during 2000, we sold a majority of the
excess real property held for or operated in connection with the used vehicle
megastore business. We intend to continue actively marketing the remaining
excess used vehicle megastore properties.
TRADEMARKS
We own a number of registered service marks and trademarks and also have a
number of applications pending to register, among other marks,
AutoNation[symbol](SM) and AutoNation(SM). Pursuant to agreements with vehicle
manufacturers, we have the right to use and display manufacturers' trade marks,
logos and designs at our dealerships and in our advertising and promotional
materials, subject to certain restrictions. We also have licenses pursuant to
various agreements with third parties authorizing the use and display of the
marks and/or logos of such third parties, subject to certain restrictions. The
current registrations of our service marks and trademarks in the United States
and foreign countries are effective for varying periods of time, which we may
renew periodically, provided that we comply with all applicable laws.
EMPLOYEES
As of September 30, 2001, we employed approximately 31,000 full time
employees, approximately 800 of whom were covered by collective bargaining
agreements. We believe that we have good relations with our employees. Due to
our dependence on the vehicle manufacturers, however, we may be adversely
affected by labor strikes or work stoppages at the manufacturers' manufacturing
facilities.
SEASONALITY
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year due in part to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating income to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.
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LEGAL PROCEEDINGS
We are involved, and will continue to be involved, in numerous legal
proceedings arising out of the conduct of our business, including litigation
with customers, employment related lawsuits and actions brought by governmental
authorities. We have several class action and other lawsuits pending against us.
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought an action against one of our subsidiaries' dealerships for alleged
customer fraud as well as several other claims. In April 2001, the California
DMV action and a related action by the State of California were settled. As part
of the settlement, the dealership closed its sales operations for six days,
agreed to provide restitution to certain customers in the estimated amount of
approximately $1.0 million and paid $1.1 million in fines, penalties and costs.
Three purported civil class actions and other related lawsuits and claims have
been filed or made against the dealership based on the allegations underlying
the California DMV case.
In an action filed in Florida state court in 1999, one of our
subsidiaries was accused of violating, among other things, the Florida Motor
Vehicle Retail Sales Finance Act and the Florida Deceptive and Unfair Trade
Practices Act by allegedly failing to deliver executed copies of retail
installment contracts to customers of our former used vehicle megastores. On
October 31, 2000, the court certified the class of customers on whose behalf
the action would proceed. In July 2001, Florida's Fourth District Court of
Appeals upheld the certification of the class.
Many of our Texas dealership subsidiaries have been named in three class
actions brought against the Texas Automobile Dealer's Association and new
vehicle dealerships in Texas that are members of the TADA. The actions allege
that since January 1994 Texas dealers have deceived customers with respect to a
vehicle inventory tax and violated federal antitrust and other laws as well. Two
of the cases are currently pending in Texas state court and the third is pending
in the federal district court for the Eastern District of Texas.
In addition to the foregoing cases, we are also a party to numerous other
legal proceedings that arose in the conduct of our business. The results of
these matters and any matters brought against us in the future cannot be
predicted with certainty and an unfavorable resolution of one or more of these
matters could have a material adverse effect on our business, financial
condition, results of operations, cash flows and prospects.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
directors and our executive officers as of the date of this prospectus.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
H. Wayne Huizenga 63 Chairman of the Board*
Mike Jackson 52 Chief Executive Officer and Director*
Harris W. Hudson 59 Vice Chairman of the Board
Robert J. Brown 66 Director
J.P. Bryan 61 Director
Rick L. Burdick 50 Director
Michael G. DeGroote 68 Director
George D. Johnson, Jr. 59 Director
John J. Melk 65 Director
Irene B. Rosenfeld 48 Director
Michael E. Maroone 47 President and Chief Operating Officer*
Craig T. Monaghan 44 Senior Vice President and Chief Financial Officer*
Patricia A. McKay 43 Senior Vice President-Finance*
Jonathan P. Ferrando 35 Senior Vice President, General Counsel and
Secretary*
Allan D. Stejskal 42 Senior Vice President-Operations*
</Table>
- -----------
* Executive Officer
We provide below information regarding each of our executive officers and
directors.
H. WAYNE HUIZENGA has served as our Chairman of the Board since August
1995. He also served as our Chief Executive Officer from August 1995 until
October 1996, and as Co-Chief Executive Officer from October 1996 through
September 1999. Since May 1998, Mr. Huizenga has been Chairman of the Board of
Republic Services, Inc., a solid waste services company, and served as its Chief
Executive Officer from May 1998 until December 1998. Since May 2000, Mr.
Huizenga has been Vice Chairman of ZixIt Corporation, a provider of security
services and products for Internet use. Since September 1996, Mr. Huizenga has
been Chairman of the Board of Boca Resorts, Inc., an owner and operator of
luxury resort hotels and other facilities. Since August 1995, Mr. Huizenga also
has been Chairman of the Board of Extended Stay America, Inc., an operator of
extended stay lodging facilities. Mr. Huizenga served as the Vice Chairman of
Viacom Inc., a diversified entertainment and communications company, from
September 1994 until October 1995. From April 1987 through September 1994, Mr.
Huizenga served as the Chairman of the Board and Chief Executive Officer of
Blockbuster Entertainment Corporation, a video rental company. In September
1994, Blockbuster merged with Viacom. In 1971, Mr. Huizenga co-founded Waste
Management, Inc., a solid waste services company, and he served in various
capacities,
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including as President, Chief Operating Officer and director, from its inception
until 1984. Mr. Huizenga owns the Miami Dolphins, as well as Pro Player Stadium
in South Florida, and is a director of NationsRent, Inc., a national equipment
rental company, and ANC Rental Corporation, a car rental company that we spun
off to our stockholders in June 2000.
MIKE JACKSON has served as our Chief Executive Officer and as one of our
Directors since September 1999. From October 1998 until September 1999, Mr.
Jackson served as President and Chief Executive Officer of Mercedes-Benz USA,
Inc., a North American operating unit of DaimlerChrysler AG, a multinational
automotive manufacturing company. From April 1997 until October 1999, Mr.
Jackson served as President of Mercedes-Benz USA, Inc. From July 1990 until
March 1997, Mr. Jackson served in various capacities at Mercedes-Benz USA, Inc.,
including as Executive Vice President immediately prior to his appointment as
President of Mercedes-Benz USA, Inc. Mr. Jackson was also the managing partner
from March 1979 to July 1990 of Euro Motorcars of Bethesda, Maryland, a regional
group that owned and operated eleven automotive dealership franchises, including
Mercedes-Benz and other brands of automobiles. Prior to joining Euro Motorcars,
Mr. Jackson was a District Manager for Mercedes-Benz of North America.
HARRIS W. HUDSON has served as one of our Directors since August 1995, and
has served as our Vice Chairman since October 1996. From August 1995 until
October 1996, Mr. Hudson served as our President. Since May 1998, Mr. Hudson has
served as Vice Chairman and Secretary of Republic Services. Mr. Hudson founded
Hudson Management Corporation, a solid waste collection company, in 1983 and
served as its Chairman of the Board, Chief Executive Officer and President from
its inception until it was acquired by AutoNation in August 1995. Mr. Hudson
also serves as a director of Boca Resorts and NationsRent.
ROBERT J. BROWN has served as one of our Directors since May 1997. Mr.
Brown has served as Chairman and Chief Executive Officer of B&C Associates,
Inc., a management consulting, marketing research and public relations firm,
since 1973. Mr. Brown also serves as a director of Duke Energy Corporation,
Wachovia Corporation and Sonoco Products Company.
J.P. BRYAN has served as one of our Directors since May 1991. From January
1995 to February 1998, Mr. Bryan served as President and Chief Executive Officer
of Gulf Canada Resources, Ltd., which is engaged in oil and gas exploration and
production. Since 1998, Mr. Bryan has served as Senior Managing Director of
Torch Energy Advisors, Inc., an outsourcing and service provider to the oil and
gas industry, and Mr. Bryan served as its Chief Executive Officer from 1981 to
1996 and as its Chairman of the Board from 1981 to 1994. Mr. Bryan also serves
on the Board of Directors of Bellwether Exploration Company, an oil and gas
exploration company, and ANC Rental.
RICK L. BURDICK has been one of our Directors since May 1991. Since 1988,
Mr. Burdick has been a partner in Akin, Gump, Strauss, Hauer & Feld, L.L.P., a
global full service law firm. Mr. Burdick serves as a member of the firm's
Executive Committee, Chairman of the firm's Corporate and Securities Department
and Partner-In-Charge of the Washington office. Mr. Burdick also serves as a
director of Century Business Services, Inc., a provider of outsourced business
services to small and medium-sized companies in the United States.
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MICHAEL G. DEGROOTE has been one of our Directors since 1991 and served as
Vice Chairman of our Board from August 1995 until October 1996. Mr. DeGroote
served as our Chairman of the Board and President from August 1991 until August
1995, and as our Chief Executive Officer from May 1991 until August 1995. Since
April 1995, Mr. DeGroote has served as Chairman of the Board of Century Business
Services. Mr. DeGroote also served as President and Chief Executive Officer of
Century Business Services from April 1995 until October 1996 and from November
1997 until April 1999, and he served as Chief Executive Officer from April 1999
until October 2000.
GEORGE D. JOHNSON, JR. has served as one of our Directors since November
1995. Since January 1995, Mr. Johnson has served as President and Chief
Executive Officer of Extended Stay America. From August 1993 until January 1995,
Mr. Johnson served in various executive positions with Blockbuster Entertainment
Group and, prior to its merger with Viacom, with Blockbuster, including as
President of the Consumer Products Division and as a director of Blockbuster.
Mr. Johnson serves as a director of Extended Stay America, Duke Energy
Corporation and Boca Resorts.
JOHN J. MELK has served as one of our Directors since August 1995. Mr. Melk
has been Chairman and Chief Executive Officer of H2O Plus, Inc., a bath and skin
care product manufacturer and retail distributor, since 1988. Mr. Melk also
serves as a director of Extended Stay America. Additionally, he is Chairman and
Chief Executive Officer of Fisher Island Holdings, LLC, which owns the
development rights of Fisher Island, Florida. Mr. Melk also previously served as
a director and Vice Chairman of Blockbuster prior to its merger with Viacom in
September 1994. Mr. Melk has been a private investor in various businesses since
March 1984 and prior to March 1984 he held various positions with Waste
Management and its subsidiaries, including President of Waste Management
International, plc., a subsidiary of Waste Management.
IRENE B. ROSENFELD has served as one of our Directors since March 1999. Ms.
Rosenfeld has been President of Kraft Canada, Inc., a subsidiary of Kraft Foods,
Inc., a diversified food company, since 1996, and in May 2000 was also named
Group Vice President of Kraft Foods and President of Operations, Information
Systems, Technology, Canada, Mexico & Puerto Rico. From 1991 until 1996, Ms.
Rosenfeld served in various executive positions with Kraft Foods, including as
Executive Vice President/General Manager of the Desserts and Snacks Division
from 1994 to 1996 and as Executive Vice President/General Manager of the
Beverages Division from 1991 to 1994. Ms. Rosenfeld also serves as a Trustee of
Cornell University.
MICHAEL E. MAROONE has served as our President and Chief Operating Officer
since August 1999. Following our acquisition of the Maroone Automotive Group in
January 1997, Mr. Maroone served as President of our New Vehicle Dealer
Division. In January 1998, Mr. Maroone was named President of our Automotive
Retail Group with responsibility for our new and used vehicle operations. Prior
to joining our company, Mr. Maroone was President and Chief Executive Officer of
the Maroone Automotive Group, one of the country's largest privately-held
automotive retail groups.
CRAIG T. MONAGHAN has served as our Senior Vice President and Chief
Financial Officer since May 2000. From June 1998 to April 2000, Mr. Monaghan was
Chief Financial Officer of iVillage.com, a leading women's network on the
Internet. From 1991 until 1998, Mr. Monaghan served in various executive
capacities for Reader's Digest Association, Inc., most recently as Vice
President and Treasurer.
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PATRICIA A. MCKAY has served as our Senior Vice President--Finance since
November 1999. From November 1999 until April 2000, Ms. McKay also served as our
Acting Chief Financial Officer and Controller. Ms. McKay joined our company in
January 1997 as Vice President, Operations Controller. From February 1998 until
November 1999, Ms. McKay served as Senior Vice President of Finance of our
Automotive Retail Group. Prior to joining our company, Ms. McKay served from
October 1988 until December 1996 in various positions with Dole Food Company,
Inc., a multinational packaged food company, most recently as Vice President of
Finance and Controller. From June 1983 through July 1988, Ms. McKay served as an
Audit Manager with Arthur Andersen LLP, most recently as a Senior Audit Manager.
JONATHAN P. FERRANDO has served as our Senior Vice President, General
Counsel and Secretary since January 2000. Mr. Ferrando joined our company in
July 1996 and served in various capacities within our Legal Department,
including as Senior Vice President and General Counsel of our Automotive Retail
Group from March 1998 until January 2000. Prior to joining our company, Mr.
Ferrando was a corporate attorney in Chicago, Illinois with Skadden, Arps,
Slate, Meagher & Flom, a global full service law firm, from 1991 until 1996. Mr.
Ferrando's practice at Skadden, Arps, Slate, Meagher & Flom was concentrated in
the areas of mergers and acquisitions and corporate finance.
ALLAN D. STEJSKAL has served as our Senior Vice President of Operations
since September 2001. Upon joining us in September 2000, Mr. Stejskal was
appointed Senior Vice President, e-Commerce. Prior to joining our company, Mr.
Stejskal led the automotive industry e-Commerce efforts at Automatic Data
Processing, Inc., a leading national provider of computerized transaction
processing, data communication and information services, as Vice President,
Dealer Services Division, a position he held since February 1998. From March
1995 to February 1998, Mr. Stejskal was Vice President and General Manager of
the Wholesale Distribution Services Division of ADP.
Mr. Hudson is married to Mr. Huizenga's sister. Otherwise, there are no
family relationships between any of our Directors.
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SECURITY OWNERSHIP
The following table sets forth certain information as of October 31, 2001
with respect to the beneficial ownership of our stock by: (1) each person who is
known to us to be a beneficial owner of more than 5% of our stock outstanding;
(2) each of our Directors; (3) our Chief Executive Officer and our four highest
paid executive officers during 2000; and (4) all of our current Directors and
executive officers as a group. As of October 31, 2001, there were 324,719,803
shares of our common stock outstanding. References to stock options in the
footnotes to the following table reflect an adjustment made in connection with
the spin-off to our stockholders of ANC Rental Corporation with respect to any
stock options granted prior to August 1, 2000.
<Table>
<Caption>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
------------------
NAMES (1) NUMBER PERCENT
- --------- ------ -------
ESL Investments, Inc. (2).................................... 76,738,300 23.6%
One Lafayette Place
Greenwich, CT 06830
Subsidiaries of FMR Corp. (3)................................ 45,521,177 14.0%
82 Devonshire Street
Boston, MA 02109
H. Wayne Huizenga (4)........................................ 17,266,482 5.2%
Mike Jackson (5)............................................. 796,422 *
Harris W. Hudson (6)......................................... 17,151,088 5.3%
Robert J. Brown (7).......................................... 197,455 *
J.P. Bryan (8)............................................... 130,785 *
Rick L. Burdick (9).......................................... 130,785 *
Michael G. DeGroote (10)..................................... 9,872,769 3.0%
George D. Johnson, Jr. (11).................................. 1,140,890 *
John J. Melk (12)............................................ 1,188,570 *
Irene B. Rosenfeld (13)...................................... 97,549 *
Michael E. Maroone (14)...................................... 4,709,891 1.4%
Craig T. Monaghan (15)....................................... 109,476 *
Patricia A. McKay (16)....................................... 219,072 *
All Directors and executive officers as a group
(15 persons) (17).......................................... 53,133,840 15.8%
</Table>
- -------------
* Less than 1%
(1) Unless otherwise indicated, the address of each person or entity is c/o
AutoNation, Inc., 110 S.E. 6th Street, Fort Lauderdale, Florida, 33301.
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(2) The aggregate amount of our stock beneficially owned by ESL Investments,
Inc. consists of: (a) 40,819,475 shares owned by ESL Partners, L.P., (b)
7,922,202 shares owned by ESL Limited, (c) 1,443,026 shares owned by ESL
Institutional Partners, L.P., (d) 9,553,597 shares owned by ESL Investors,
L.L.C., (e) 8,000,000 shares owned by Courtesy Partners, L.P. and (f)
9,000,000 shares owned by CBL Partners, L.P. This information is based on a
Schedule 13D filed by ESL Partners, L.P. on October 30, 2001.
(3) Includes: (a) 38,068,437 shares owned by Fidelity Management & Research
Company, (b) 2,418,310 shares owned by Fidelity Management Trust Company
and (c) 509,000 shares owned by Fidelity International Limited. Fidelity
Management and Research and Fidelity Management Trust are wholly-owned
subsidiaries of FMR Corp. This information is based on an amendment to
Schedule 13G filed by FMR Corp. on March 9, 2001. FMR Corp. and Fidelity
International expressly disclaim that they are acting as a "group" for
purposes of Section 13(d) under the Exchange Act.
(4) The aggregate amount of our stock beneficially owned by Mr. Huizenga
consists of: (a) 2,929 shares owned directly, (b) 9,894,219 shares owned by
Huizenga Investments Limited Partnership, a Nevada limited partnership
controlled by Mr. Huizenga, and (c) vested options to purchase 7,369,334
shares.
(5) The aggregate amount of our stock beneficially owned by Mr. Jackson
consists of: (a) 30,000 shares owned directly and (b) vested options to
purchase 766,422 shares.
(6) The aggregate amount of our stock beneficially owned by Mr. Hudson consists
of: (a) 15,696,779 shares beneficially owned by Harris W. Hudson Limited
Partnership, a Nevada limited partner ship controlled by Mr. Hudson, and
(b) vested options to purchase 1,454,309 shares.
(7) The aggregate amount of our stock beneficially owned by Mr. Brown consists
of: (a) 200 shares owned by Mr. Brown and his wife as joint tenants and (b)
vested options to purchase 197,255 shares.
(8) The aggregate amount of our stock beneficially owned by Mr. Bryan consists
of vested options to purchase 130,785 shares.
(9) The aggregate amount of our stock beneficially owned by Mr. Burdick
consists of vested options to purchase 130,785 shares.
(10) The aggregate amount of our stock beneficially owned by Mr. DeGroote
consists of: (a) 9,631,200 shares owned by Westbury (Bermuda) Ltd., a
Bermuda corporation controlled by Mr. DeGroote, and (b) vested options to
purchase 241,569 shares.
(11) The aggregate amount of our stock beneficially owned by Mr. Johnson
consists of: (a) 899,321 shares owned by GDJ, Jr. Investments Limited
Partnership, a Nevada limited partnership controlled by Mr. Johnson, and
(b) vested options to purchase 241,569 shares.
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(12) The aggregate amount of our stock beneficially owned by Mr. Melk consists
of: (a) 122,001 shares owned directly, (b) 825,000 shares owned by JJM
Republic Limited Partnership, of which Mr. Melk is the general partner and
his three adult children are limited partners, and (c) vested options to
purchase 241,569 shares.
(13) The aggregate amount of our stock beneficially owned by Ms. Rosenfeld
consists of vested options to purchase 97,549 shares.
(14) The aggregate amount of our stock beneficially owned by Mr. Maroone
consists of: (a) 3,353,988 shares beneficially owned by Michael Maroone
Family Partnership, a Nevada limited partnership controlled by Mr. Maroone,
(b) 1,492 shares held through the AutoNation 401(k) Plan and (c) vested
options to purchase 1,354,411 shares.
(15) The aggregate amount of our stock beneficially owned by Mr. Monaghan
consists of: (a) vested options to purchase 109,436 shares and (b) 40
shares held through the AutoNation 401(k) Plan.
(16) The aggregate amount of our stock beneficially owned by Ms. McKay consists
of: (a) vested options to purchase 217,691 shares and (b) 1,381 shares held
through the AutoNation 401(k) Plan.
(17) The aggregate amount of our stock beneficially owned by all Directors and
executive officers as a group includes: (a) 4,137 shares held through the
AutoNation 401(k) Plan and (b) vested options to purchase 12,674,066
shares.
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CERTAIN TRANSACTIONS
The following is a summary of agreements and transactions among certain
related parties and us. It is our policy that transactions with related parties
must be on terms that, on the whole, are no less favorable than terms that would
be available from unrelated parties. Based on our experience, we believe that
all of the transactions described below met that standard at the time the
transactions were effected. The amounts disclosed for the following transactions
are estimates based on our records and other information currently available to
us.
Mr. Huizenga owns the Miami Dolphins and Pro Player Stadium, a professional
sports stadium in South Florida. Since the beginning of 2000, we paid an
aggregate of approximately $493,000 to the Miami Dolphins and Pro Player Stadium
in exchange for certain marketing services for our dealerships and for the use
of executive suites and tickets to events at Pro Player Stadium. We expect to
continue to use their marketing services, executive suites and tickets
throughout the remainder of 2001.
We lease an executive suite at the National Car Rental Center, a sports
arena in Broward County, Florida, that is owned by Boca Resorts, Inc. Mr.
Huizenga is the Chairman of the Board of Boca Resorts and beneficially owns
approximately 18% of Boca Resorts' outstanding stock. Under the lease agreement,
we paid Boca Resorts approximately $114,000 during 2000, plus incidental costs,
and approximately $128,000, plus incidental costs, for the use of the executive
suite during 2001.
Boca Resorts also owns and operates various resort hotels, including a
hotel in Fort Lauderdale, Florida, at which we have hosted from time to time
meetings of our key managers. Since the beginning of 2000, we paid Boca Resorts
approximately $207,000 for the use of conference facilities and lodging
accommodations at its hotels in connection with our management meetings.
In 2000, we engaged the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. for various legal services. Mr. Burdick is a partner in that law firm. We
expect this relationship to continue throughout the remainder of 2001.
During 2000, we hired the management consulting, marketing research and
public relations firm of B&C Associates, Inc. for certain management consulting
services. Mr. Brown, a member of our board of directors, is the Chairman, Chief
Executive Officer and principal owner of B&C Associates. Since the beginning of
2000, we paid B&C Associates approximately $140,000. We expect this relationship
to continue throughout the remainder of 2001.
Since the beginning of 2000, we purchased approximately $1,037,000 of
pre-employment drug screening services from Psychemedics Corporation. Mr.
Huizenga owns approximately 11.1% of Psychemedics' outstanding common stock. We
expect to continue to utilize Psychemedics to perform customary pre-employment
drug screenings throughout the remainder of 2001.
National Car Rental Company is a party to an agreement with Boca Resorts
pursuant to which National purchased the naming rights of the National Car
Rental Center. Until the tax-free spin-off of ANC Rental Corporation to our
stockholders was completed in June 2000, National was one of our subsidiaries.
During the time that we owned National in 2000, it paid approximately $1.1
million to Boca Resorts for such naming rights. In addition, National used
executive suites at the arena during 2000.
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In connection with our spin-off of ANC Rental in June 2000, we entered into
a distribution agreement, a tax sharing agreement and various lease agreements,
transitional service agreements, purchase agreements and other arrangements with
ANC Rental. Messrs. Huizenga and Bryan are directors of ANC Rental and several
of our directors own stock of ANC Rental. At the time of the spin- off, we owned
ANC Rental's corporate headquarters facility and, accordingly, we agreed to
lease these facilities to ANC Rental following the spin-off for approximately
$1.6 million per year. Toward the end of 2000, we sold ANC Rental's headquarters
facility, so we are no longer its landlord. We also agreed to lease certain
portions of our computer data center to ANC Rental for approximately $870,000
per year. In connection with the spin-off, we also agreed to provide guarantees
and credit enhancements for certain ANC Rental indebtedness and other
obligations, for which ANC Rental paid us a fee of approximately $350,000 during
2000 and approximately $930,000 since the beginning of 2001. On November 13,
2001, ANC Rental filed voluntary petitions for reorganization under Chapter 11
of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Wilmington,
Delaware. A further discussion of the guarantees and credit enhancements we
provide with respect to ANC Rental is set forth under the heading "Risk
Factors-Risks Related to AutoNation and the Automotive Retailing Industry" on
page 18.
ANC Rental agreed to purchase most of its model year 2000 vehicles, and at
least 100,000 model year 2001 vehicles, through certain of our dealerships.
During 2000, ANC Rental purchased approximately 245,000 vehicles through us
under these agreements, generating a mark-up fee for us of approximately $1.5
million. Additionally, ANC Rental provides us certain transitional services,
including computer and administrative services, and we provide ANC Rental
similar services. In 2000, ANC Rental paid us approximately $650,000 and we paid
ANC Rental approximately $180,000 for such services. ANC Rental also agreed to
buy automotive parts from us following the spin-off, and paid us approximately
$7.5 million for parts purchases made during 2000. ANC Rental also leases space
from certain of our dealerships to operate its local car rental businesses.
Since the beginning of 2000, ANC Rental paid our dealerships an aggregate of
approximately $590,000 under such leases.
In March 2000, we purchased a jet from Republic Services, Inc. Messrs.
Huizenga and Hudson are Chairman of the Board and Vice Chairman of the Board and
Secretary, respectively, of Republic Services. We paid approximately $4.7
million for the jet, which we believe approximated its fair market value. In
January 2001, we sold the jet back to Republic Services for approximately the
same amount, which was based on its then current net asset value plus the agreed
upon value of certain repairs performed by us immediately prior to the sale.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
THE SENIOR SECURED CREDIT FACILITIES
GENERAL. On August 10, 2001, we entered into two new senior secured
revolving credit facilities with an aggregate borrowing capacity of $500.0
million. The original lenders under these facilities were Bank of America, N.A.,
The Chase Manhattan Bank, Merrill Lynch Capital Corporation, First Union
National Bank and an affiliate of Comerica Securities, Inc. These facilities are
secured by a pledge of the capital stock of two of our wholly-owned
subsidiaries, AutoNation Enterprises Incorporated and Auto Holding Corp., which
subsidiaries directly or indirectly own substantially all of our dealerships,
and are guaranteed by substantially all of our subsidiaries.
AMOUNT AND PURPOSE OF LOANS. Our senior secured credit facility provides
for two different facilities in an aggregate amount of $500.0 million. The
364-day revolving credit facility provides for borrowing capacity up to $200.0
million. The multi-year revolving credit facility provides for borrowing
capacity of up to $300.0 million, which includes a $75.0 million sublimit for
the issuance of standby letters of credit and a $50.0 million sublimit for swing
line loans. We intend to use these facilities for working capital, capital
expenditures, acquisitions and other general corporate purposes. We also used
these facilities to prepay certain existing indebtedness under our previous
credit facility.
INTEREST AND INTEREST OPTIONS. Other than swing line loans issued pursuant
to the multi-year revolving credit facility, we have the option of borrowing at
an interest rate equal to one of the following options:
- The higher of (i) the Bank of America prime rate and (ii) the Federal
Funds rate plus 0.50%, plus the applicable margin or
- LIBOR plus the applicable margin.
Swing line loans bear interest at a rate equal to the higher of (i) the
Bank of America prime rate and (ii) the Federal Funds rate plus 0.50%, plus the
applicable margin.
We may select interest periods of one week or one, two, three, six or
twelve months for LIBOR loans, subject to availability with the participating
lenders. We will be required to pay interest at the end of the selected interest
period, but no less frequently than quarterly.
MATURITY. The 364-day revolving credit facility terminates August 9, 2002,
the 364th day following the closing of the senior credit facilities. In the
event that the 364-day revolving facility is not renewed and provided that no
event of default under the senior credit facilities has occurred and is then
continuing, the outstanding principal amount of loans under the 364-day
revolving facility on such maturity date may, at our election, be converted to a
term loan which will be repayable in a single payment one year from the then
applicable maturity date.
The multi-year revolving facility terminates and all amounts outstanding
thereunder will be due and payable on August 10, 2006.
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AVAILABILITY. Revolving loans under the senior credit facilities (including
swing line loans) may be made, and letters of credit may be issued, on a
revolving basis in each case subject to availability and the satisfaction of
certain conditions precedent to funding, as described below.
COLLATERAL. Our senior secured credit facilities are secured by a pledge of
the capital stock of two of our wholly-owned subsidiaries, AutoNation
Enterprises Incorporated and Auto Holding Corp., which subsidiaries are holding
companies for substantially all of our dealerships.
GUARANTEES. Our senior secured facilities are guaranteed by substantially
all of our current subsidiaries including substantially all of our current and
future dealership subsidiaries.
OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS. We will be able to prepay
the senior credit facilities in whole or in part at any time without premium or
penalty, subject to reimbursement of the lenders' breakage and redeployment
costs in the case of prepayment of LIBOR borrowings. We will also be able to
cancel the unutilized portion of any commitment under the senior credit
facilities in excess of the competitive bid loans, the swing line loans and the
stated amount of all letters of credit in whole or in part without premium or
penalty.
CONDITIONS. We will have to meet certain conditions at the dates we obtain
any borrowings including:
- a reaffirmation of representations and warranties made under the
senior credit facilities; and
- that there has been no default that is continuing.
FINANCIAL AND OPERATING COVENANTS. We are subject to financial and
operating covenants including a maximum leverage ratio, a maximum balance sheet
leverage ratio and a minimum interest coverage ratio.
EVENTS OF DEFAULT. Events of default include:
- nonpayment of principal, interest, fees or other amounts due under the
senior credit facilities;
- failure to comply with covenants of the senior credit agreements
(subject to any applicable cure periods);
- material inaccuracy of representations and warranties set forth in the
senior credit agreements;
- defaults in other material agreements and indebtedness;
- bankruptcy and insolvency events with respect to us or our
subsidiaries;
- a material judgment against us remains undischarged for a period of
time;
- the actual invalidity of any loan documentation or security interests
or any assertion by us or any of our subsidiaries of such invalidity;
or
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- a change of control of us.
THE FLOORPLAN FACILITIES
We currently have in place a number of floorplan credit facilities with
various manufacturers, including Ford Motor Credit Company, General Motors
Acceptance Corporation, Chrysler Financial Company, Toyota Motor Credit
Corporation and other financial institutions. Each dealership subsidiary has its
own agreement with the manufacturers for its inventory financing needs. As of
September 30, 2001, there was an aggregate of $1.9 billion outstanding under our
floorplan facilities. Typically new vehicle floorplan financing exceeds the
related inventory balances. The inventory balance is generally reduced by the
manufacturers' purchase discounts. Manufacturer purchase discounts are standard
in the industry, typically occur on all new vehicle purchases, and are not used
to offset the related floorplan financing obligation. These discounts are
aggregated and generally paid to us by the manufacturers on a quarterly basis.
The related floorplan financing becomes due as vehicles are sold.
We make monthly interest payments on the amount financed under our
floorplan facilities but are not required to make loan principal repayments
prior to the sale of the vehicles. We also receive floorplan interest assistance
from various manufacturers which is recognized as a reduction of cost of
operations when earned. The underlying notes are demand notes and the payments
under these notes are due when the related vehicles are sold and are
collateralized by vehicle inventories and, in some cases, other assets of the
applicable dealership subsidiary.
THE MORTGAGE FACILITIES
GENERAL. On June 8, 2001, we executed a Master Loan Agreement with an
automotive manufacturer's captive finance subsidiary for a $150.0 million
mortgage facility (the "June Facility"). On October 30, 2001, we executed a
Master Loan Agreement with another automotive manufacturer's captive finance
subsidiary for a $150.0 million mortgage facility (the "October Facility").
These facilities constitute senior debt secured by mortgages on certain of our
dealerships' real property.
AMOUNT AND PURPOSE OF LOANS. The mortgage facilities provide for aggregate
borrowing capacity of up to $300.0 million. We intend to use the proceeds of the
mortgage facilities for working capital purposes, which may include, but are not
limited to, dealership real property acquisitions in the ordinary course of
business and capital expenditures. We also used the June Facility to prepay
certain existing indebtedness under our previous credit facility.
INTEREST. The mortgage facilities provide for LIBOR based interest rates.
MATURITY. The June Facility provides for a ten year maturity. The October
Facility provides for a five year maturity.
COLLATERAL. Our mortgage facilities are secured by mortgages on certain of
our dealerships' real property. Each lender is loaning money to us based on a
formula of 80% loan to our specified real property value.
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OPTIONAL PREPAYMENT. We will be able to prepay the mortgage facilities in
whole or in part at any time subject to certain prepayment penalties.
CONDITIONS TO ADVANCES. The mortgage facilities contain usual and customary
conditions that must be met at the dates we obtain any borrowings.
COVENANTS. The mortgage facilities contain usual and customary covenants.
EVENTS OF DEFAULT. Events of default under each of the mortgage facilities
include:
- nonpayment of all or any portion of any installment of indebtedness
under the mortgage facility as and when the same shall become due and
payable;
- failure to comply with covenants of the mortgage facility (subject to
any applicable cure periods);
- bankruptcy and insolvency events with respect to us or any of our
subsidiaries that have co-borrowed amounts under the mortgage
facility;
- material inaccuracy of representations and warranties set forth in the
mortgage facility;
- defaults in other material agreements and indebtedness; and
- a material unpaid judgment against us or against any of our
subsidiaries that has co-borrowed amounts under the mortgage
facility.
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DESCRIPTION OF THE NOTES
The outstanding notes were, and the exchange notes will be, issued under an
Indenture dated as of August 10, 2001 among the Company, the Guarantors and
Wells Fargo Bank Minnesota, National Association, as Trustee. The terms of the
notes include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. A copy of the
indenture is an exhibit to the registration statement to which this prospectus
forms a part. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions."
MATURITY, PRINCIPAL AND INTEREST
The notes mature on August 1, 2008, and are unsecured senior obligations of
the Company. The Indenture provides, in addition to the $450.0 million aggregate
principal amount of notes being issued on the Issue Date, for the issuance of
additional notes, at any time and from time to time after the Issue Date, having
identical terms to the notes offered hereby, subject to compliance with the
covenant "Limitation on Indebtedness." Any such additional notes will be issued
on the same terms and will constitute part of the same series of securities as
the notes issued on the Issue Date and will vote together as one series on all
matters with the notes issued on the Issue Date. Each note bears interest at 9%
from August 10, 2001 or from the most recent interest payment date on which
interest has been paid, payable semiannually in arrears on February 1 and August
1 in each year, commencing February 1, 2002.
The Company will pay interest to the Person in whose name the note (or any
predecessor note) is registered at the close of business on the July 15 or
January 15 immediately preceding the relevant interest payment date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes will be exchangeable and transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the corporate trust office of the Trustee). Payment of
interest also may be made at the option of the Company by check mailed to the
Person entitled to such interest as shown on the security register.
GUARANTEES
Payment of the notes is guaranteed by the Guarantors, jointly and
severally, fully and unconditionally, on a senior basis.
- The Guarantors are comprised of substantially all of the direct and
indirect Restricted Subsidiaries of the Company.
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- In addition, if any Restricted Subsidiary of the Company becomes a
guarantor or obligor in respect of any other Indebtedness of the
Company or any of the Restricted Subsidiaries, the Company shall
cause such Restricted Subsidiary to enter into a supplemental
indenture in which such Restricted Subsidiary shall agree to guarantee
the Company's obligations under the notes.
If the Company defaults in payment of the principal of, premium, if any, or
interest on the notes, each of the Guarantors will be unconditionally, jointly
and severally, obligated to duly and punctually pay the principal of, premium,
if any, and interest on the notes.
The obligations of each Guarantor under its Guarantee are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under its Guarantee will be entitled to a contribution
from any other Guarantor in a pro rata amount based on the net assets of each
Guarantor determined in accordance with GAAP.
Notwithstanding the foregoing, in certain circumstances a Guarantee of a
Guarantor may be released pursuant to the provisions of subsection (b) under
"--Certain Covenants--Limitation on Issuances of Guarantees of Indebtedness."
The Company also may, at any time, cause a Restricted Subsidiary to become a
Guarantor by executing and delivering a supplemental indenture providing for the
guarantee of payment of the notes by such Restricted Subsidiary on the basis
provided in the Indenture.
OPTIONAL REDEMPTION
Except as described below, the notes will not be redeemable by the Company
prior to maturity.
At any time prior to August 1, 2004, the Company, at its option, may use
the net cash proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 35% of the aggregate principal amount of notes issued under the
Indenture at a redemption price equal to 109% of the aggregate principal amount
of the notes redeemed, plus accrued and unpaid interest, if any, to the
redemption date (subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date). At least 65% of the
aggregate principal amount of notes issued under the Indenture must remain
outstanding immediately after the occurrence of such redemption. In order to
effect this redemption, the Company must mail a notice of redemption no later
than 30 days after the closing of the related Public Equity Offering and must
complete such redemption within 60 days of the closing of the Public Equity
Offering.
If less than all of the notes are to be redeemed, the Trustee shall select
the notes to be redeemed in compliance with the requirements of the principal
national security exchange, if any, on which the notes are listed, or if the
notes are not listed, on a pro rata basis, by lot or by any other method the
Trustee shall deem fair and reasonable. notes redeemed in part must be redeemed
only in integral multiples of $1,000. Redemption pursuant to the provisions
relating to a Public Equity Offering must be made on a pro rata basis or on as
nearly a pro rata basis as practicable (subject to the procedures of DTC or any
other depositary).
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SINKING FUND
The notes will not be entitled to the benefit of any sinking fund.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require that the Company purchase all or any part (in integral multiples of
$1,000) of such holder's notes pursuant to a Change of Control Offer. In the
Change of Control Offer, the Company will offer to purchase all of the notes, at
a purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the principal amount of such notes, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date") (subject to the rights of holders of record on relevant record dates to
receive interest due on an interest payment date).
Within 30 days of any Change of Control or, at the Company's option, prior
to such Change of Control but after it is publicly announced, the Company must
notify the Trustee and give written notice of the Change of Control to each
holder of notes, by first-class mail, postage prepaid, at his address appearing
in the security register. The notice must state, among other things,
- that a Change of Control has occurred and the date of such event;
- the circumstances and relevant facts regarding such Change of Control,
including information with respect to PRO FORMA historical income,
cash flow and capitalization after giving effect to such Change of
Control;
- the purchase price and the purchase date which shall be fixed by the
Company on a business day no earlier than 30 days nor later than 60
days from the date the notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act;
- that any note not tendered will continue to accrue interest;
- that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change
of Control Purchase Date; and
- other procedures that a holder of notes must follow to accept a Change
of Control Offer or to withdraw acceptance of the Change of Control
Offer.
If a Change of Control Offer is made, the Company may not have available
funds sufficient to pay the Change of Control Purchase Price for all of the
notes that might be delivered by holders of the notes seeking to accept the
Change of Control Offer. The failure of the Company to make or consummate the
Change of Control Offer or pay the Change of Control Purchase Price when due
will give the Trustee and the holders of the notes the rights described under
"Events of Default."
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In addition to the obligations of the Company under the Indenture with
respect to the notes in the event of a Change of Control, substantially all of
the long-term Indebtedness of the Company also contains, and any future
indebtedness will likely contain, an event of default upon a Change of Control
as defined therein which obligates the Company to repay amounts outstanding
under such indebtedness upon an acceleration of the Indebtedness issued
thereunder.
The definition of "Change of Control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company. The term "all or substantially all" as used
in the definition of "Change of Control" has not been interpreted under New York
law (which is the governing law of the Indenture) to represent a specific
quantitative test. Therefore, if holders of the notes elected to exercise their
rights under the Indenture and the Company elected to contest such election, it
is not clear how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to repurchase such
holder's notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The provisions of the Indenture will not afford holders of the notes the
right to require the Company to repurchase the notes in the event of a highly
leveraged transaction or transactions with the Company's management or its
Affiliates, including a reorganization, restructuring, merger or similar
transaction (including an acquisition of the Company by management or its
affiliates) involving the Company that may adversely affect holders of the
notes, if such transaction is not a transaction defined as a Change of Control.
A transaction involving the Company's management or its Affiliates, or a
transaction involving a recapitalization of the Company, will result in a Change
of Control if it is the type of transaction specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
described in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
RANKING
The notes are the unsecured senior obligations of the Company, and the
Indebtedness represented by the notes and the payment of principal of, premium,
if any, and interest on the notes will rank equally in right of payment with all
other existing and future unsubordinated indebtedness of the Company and senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The notes are effectively subordinated to secured Indebtedness of the
Company as to the assets securing such Indebtedness, including the indebtedness
under the Credit Agreements, which is secured by a first priority lien on the
Capital Stock of two of the Company's subsidiaries, which subsidiaries are the
holding companies for substantially all of the Company's dealerships as
described under "Description of Certain Other Indebtedness."
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The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the notes) is unsecured, ranks
equally in right of payment with all other senior indebtedness of such Guarantor
and ranks senior in right of payment to all subordinated indebtedness of such
Guarantor.
As of September 30, 2001, after giving effect to (i) the notes, (ii) the
Company's senior credit facilities, (iii) borrowings under the mortgage facility
and (iv) the repayment of certain of the Company's outstanding indebtedness, the
Company and the Guarantors had $175.2 million of senior indebtedness (excluding
the notes and the Company's floorplan financing), all of which was secured and
the Guarantors had $1.9 billion of floorplan financing, all of which was
secured.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, create, issue, incur, assume,
guarantee or otherwise in any manner become directly or indirectly liable for
the payment of or otherwise incur, contingently or otherwise (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness), unless such
Indebtedness is incurred by the Company or any Guarantor or constitutes Acquired
Indebtedness of a Restricted Subsidiary and, in each case, the Company's
Consolidated Fixed Charge Coverage Ratio for the most recent four full fiscal
quarters for which financial statements are available immediately preceding the
incurrence of such Indebtedness taken as one period is equal to or greater than
2.0:1.0.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following (collectively, the "Permitted Indebtedness"):
(1) Indebtedness of the Company (and guarantees by Guarantors of such
Indebtedness) under the Credit Facilities in an aggregate principal
amount at any one time outstanding not to exceed the greater of (a)
$750 million and (b) the Borrowing Base;
(2) Indebtedness of the Company pursuant to the notes issued on the Issue
Date (and any notes issued in exchange therefor) and Indebtedness of
any Guarantor pursuant to a Guarantee of such notes;
(3) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date;
(4) Indebtedness of the Company or a Guarantor owing to a Restricted
Subsidiary; PROVIDED that any Indebtedness of the Company or a
Guarantor owing to a Restricted Subsidiary that is not a Guarantor,
except pursuant to the customary cash management procedures of the
Company and its Restricted Subsidiaries, is made pursuant to an
intercompany note and is unsecured and, other than with respect to
Indebtedness owed to AutoNation Cayman Insurance Company, Ltd. with
respect to capital and surplus, is subordinated in right of payment
from and after such time as the notes shall become due and payable
(whether at Stated Maturity, acceleration or otherwise) to the payment
and performance of the Company's obligations under the notes or such
Guarantor's obligations under its
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guarantee; PROVIDED, FURTHER, that any disposition, pledge or transfer
of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Restricted Subsidiary) shall be deemed to be
an incurrence of such Indebtedness by the Company or other obligor not
permitted by this clause (4);
(5) Indebtedness of a Restricted Subsidiary that is not a Guarantor owing
to the Company or another Restricted Subsidiary; PROVIDED that (except
pursuant to the customary cash management procedures of the Company
and its Restricted Subsidiaries) any such Indebtedness is made
pursuant to an intercompany note; PROVIDED, FURTHER, that (a) any
disposition, pledge or transfer of any such Indebtedness to a Person
(other than a disposition, pledge or transfer to the Company or a
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the obligor not permitted by this clause (5), and (b)
any transaction pursuant to which any Restricted Subsidiary, which has
Indebtedness owing to the Company or any other Restricted Subsidiary,
ceases to be a Restricted Subsidiary shall be deemed to be the
incurrence of Indebtedness by such Restricted Subsidiary that is not
permitted by this clause (5);
(6) guarantees of any Restricted Subsidiary made in accordance with the
provisions of "--Limitation on Issuances of Guarantees of
Indebtedness";
(7) obligations of the Company or any Guarantor entered into in the
ordinary course of business
(a) pursuant to Interest Rate Agreements designed to protect the
Company or any Restricted Subsidiary against fluctuations in
interest rates in respect of Indebtedness of the Company or any
Restricted Subsidiary as long as such obligations do not exceed
the payment obligations of such Indebtedness then outstanding,
(b) under any Currency Hedging Agreements, relating to (1)
Indebtedness of the Company or any Restricted Subsidiary and/or
(2) obligations to purchase or sell assets or properties, in each
case, incurred in the ordinary course of business of the Company
or any Restricted Subsidiary; PROVIDED, HOWEVER, that such
Currency Hedging Agreements do not increase the Indebtedness or
other obligations of the Company or any Restricted Subsidiary
outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder or
(c) under any Commodity Price Protection Agreements which do not
increase the amount of Indebtedness or other obligations of the
Company or any Restricted Subsidiary outstanding other than as a
result of fluctuations in commodity prices or by reason of fees,
indemnities and compensation payable thereunder;
(8) Indebtedness of the Company or any Restricted Subsidiary represented
by Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition
(including in connection with an acquisition of a business by means of
stock purchase, merger or otherwise) or development of real or
personal, movable or immovable property in each case incurred for the
purpose of
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financing or refinancing all or any part of the purchase price or cost
of construction or improvement of property used in the business of the
Company, in an aggregate principal amount pursuant to this clause (8)
not to exceed the greater of (a) $100 million and (b) 10% of the
Company's Consolidated Tangible Net Worth; PROVIDED that the principal
amount of any Indebtedness permitted under this clause (8) did not in
each case at the time of incurrence exceed the Fair Market Value, as
determined by the Company in good faith, of the acquired or
constructed asset or improvement so financed;
(9) Vehicle Inventory Indebtedness;
(10) obligations arising from agreements by the Company or a Restricted
Subsidiary to provide for indemnification, customary purchase price
closing adjustments, earn-outs or other similar obligations, in each
case, incurred in connection with the acquisition or disposition of
any business or assets of a Restricted Subsidiary;
(11) Indebtedness evidenced by letters of credit or similar obligations in
the ordinary course of business to support the Company's or any
Restricted Subsidiary's insurance or self-insurance obligations for
workers' compensation and other similar insurance coverages;
(12) Vehicle Receivables Indebtedness;
(13) Indebtedness of the Company or any Guarantor under one or more
Mortgage Facilities in an aggregate principal amount not to exceed
$500 million at any one time outstanding less any amounts outstanding
under the lease facility that was established primarily to acquire and
develop the Company's former megastore properties;
(14) Indebtedness of the Company and its Restricted Subsidiaries in
addition to that described in clauses (1) through (13) above, and any
renewals, extensions, substitutions, refinancings or replacements of
such Indebtedness, so long as the aggregate principal amount of all
such Indebtedness shall not exceed $100 million outstanding at any one
time in the aggregate;
(15) obligations in respect of letters of credit, performance and surety
bonds and completion guarantees provided by the Company or any
Restricted Subsidiary of the Company in the ordinary course of
business; and
(16) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness
incurred pursuant to the ratio test in the first paragraph of this
covenant or described in clauses (2) and (3) of this definition of
"Permitted Indebtedness," including any successive refinancings so
long as the borrower under such refinancing is the Company or, if not
the Company, the same as the borrower of the Indebtedness being
refinanced and the aggregate principal amount of Indebtedness
represented thereby (or if such Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original
issue price of such Indebtedness plus any accreted value attributable
thereto since the original issuance of such Indebtedness) is not
increased by such refinancing plus the lesser of (a) the stated amount
of any premium or other payment required to be paid in connection with
such a refinancing
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pursuant to the terms of the Indebtedness being refinanced or (b) the
amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such refinancing.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by this
covenant, the Company in its sole discretion shall classify or later reclassify
in whole or in part such item of Indebtedness and only be required to include
the amount of such Indebtedness as one of such types.
The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Redeemable
Stock in the form of additional shares of the same class of Redeemable Stock
will not be deemed to be an incurrence of Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
cause or permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock
or in options, warrants or other rights to acquire shares of such
Qualified Capital Stock);
(2) purchase, redeem, defease or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital
Stock of any Affiliate of the Company (other than Capital Stock of any
Restricted Subsidiary of the Company) or options, warrants or other
rights to acquire such Capital Stock;
(3) make any principal payment on, or repurchase, redeem, defease, retire
or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness;
(4) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than (a) to the Company
or any of its Restricted Subsid iaries or (b) dividends or
distributions made by a Restricted Subsidiary on a pro rata basis to
all stockholders of such Restricted Subsidiary); or
(5) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (1) through (5) above, other
than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") (the amount of any such Restricted Payment,
if other than cash, shall be the Fair Market Value of the assets proposed to be
transferred, as determined either by (a) the board of directors of the Company
and evidenced by a board resolution or (b) the Board Designee and evidenced by a
certificate (or committee resolution, as the case may be), in each case whose
determination shall be conclusive), unless
(1) immediately before and immediately after giving effect to such
proposed Restricted
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Payment on a PRO FORMA basis, no Default or Event of Default shall
have occurred and be continuing;
(2) immediately before and immediately after giving effect to such
Restricted Payment on a PRO FORMA basis, the Company could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
the provisions described under "--Limitation on Indebtedness"; and
(3) after giving effect to the proposed Restricted Payment, the aggregate
amount of all such Restricted Payments declared or made after the
Issue Date and all Designation Amounts does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter in which the Issue Date
occurs and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment (or,
if such aggregate cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss);
(B) the aggregate Net Cash Proceeds received after the Issue Date by
the Company either (1) as capital contributions in the form of
common equity to the Company or (2) from the issuance or sale
(other than to any of its Subsidiaries) of Qualified Capital
Stock of the Company or any options, warrants or rights to
purchase such Qualified Capital Stock of the Company (except, in
each case, to the extent such proceeds are used to purchase,
redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (2) or (3) of paragraph
(b) below) (and excluding the Net Cash Proceeds from the issuance
of Qualified Capital Stock financed, directly or indirectly,
using funds borrowed from the Company or any Subsidiary until and
to the extent such borrowing is repaid);
(C) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified
Capital Stock of the Company (and excluding the Net Cash Proceeds
from the exercise of any options, warrants or rights to purchase
Qualified Capital Stock financed, directly or indirectly, using
funds borrowed from the Company or any Subsidiary until and to
the extent such borrowing is repaid);
(D) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its
Restricted Subsidiaries into or for Qualified Capital Stock of
the Company plus, to the extent such debt securities or
Redeemable Capital Stock was issued after the Issue Date, the
aggregate of the Net Cash Proceeds from its original issuance
(and excluding the Net Cash Proceeds from the conversion or
exchange of debt securities or Redeemable Capital Stock financed,
directly or indirectly, using funds borrowed from the Company or
any Subsidiary until and to the extent such borrowing is repaid);
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(E) (a) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an
amount (to the extent not included in Consolidated Net Income)
equal to 100% of the aggregate net proceeds (including the fair
market value of assets other than cash) received by the Company
and its Restricted Subsidiaries, less the cost of the disposition
of such Investment and net of taxes; and
(b) in the case of the designation of an Unrestricted Subsidiary
as a Restricted Subsidiary (as long as the designation of such
Subsidiary as an Unrestricted Subsidiary was deemed a Restricted
Payment), the Fair Market Value of the Company's interest in such
Subsidiary; PROVIDED that such amount shall not in any case
exceed the amount of the Restricted Payment deemed made at the
time the Subsidiary was designated as an Unrestricted Subsidiary
plus any additional amounts contributed or loaned to the
Unrestricted Subsidiary which were deemed Restricted Payments;
and
(F) $100.0 million.
(b) Notwithstanding the foregoing, and in the case of clauses (2) through
(4) and (9) below, so long as no Default or Event of Default is continuing or
would arise therefrom, the foregoing provisions shall not prohibit the following
actions (each of clauses (1) through (9) being referred to as a "Permitted
Payment"):
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this covenant and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this
covenant;
(2) the repurchase, redemption or other acquisition or retirement for
value of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of
a conversion right or privilege in connection with which cash is paid
in lieu of the issuance of fractional shares or scrip), or out of the
Net Cash Proceeds of (A) a substantially concurrent issuance and sale
for cash (other than to a Subsidiary) of other shares of Qualified
Capital Stock of the Company or (B) an issuance and sale for cash
(other than to any Subsidiary), which issuance and sale was done in
contemplation of such repurchase, redemption, acquisition or
retirement of, other shares of Qualified Capital Stock of the Company;
PROVIDED that the Net Cash Proceeds from the issuance of such shares
of Qualified Capital Stock are excluded from clause (3)(B) of
paragraph (a) of this covenant;
(3) the repurchase, redemption, defeasance, retirement or acquisition for
value or payment of principal of any Subordinated Indebtedness in
exchange for, or in an amount not in excess of the Net Cash Proceeds
of (A) a substantially concurrent issuance and sale for cash (other
than to any Subsidiary of the Company) of any Qualified Capital Stock
of the Company or (B) an issuance and sale for cash (other than to any
Subsidiary of the Company), which issuance and sale was done in
contemplation of such repurchase, redemption, defeasance, retirement
or acquisition, of any Qualified Capital Stock of the
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Company, PROVIDED that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are excluded from clause (3)(B) of
paragraph (a) of this covenant;
(4) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (a "refinancing") through the substantially concurrent
issuance of new Subordinated Indebtedness of the Company or a
Guarantor, PROVIDED that any such new Subordinated Indebtedness
(a) shall be in a principal amount that does not exceed the principal
amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof,
then such lesser amount as of the date of determination), plus
the lesser of (1) the stated amount of any premium or other
payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (2)
the amount of premium or other payment actually paid at such time
to refinance the Indebtedness, plus, in either case, the amount
of expenses of the Company or such Guarantor incurred in
connection with such refinancing;
(b) has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the notes;
(c) has a Stated Maturity for its final scheduled principal payment
later than the Stated Maturity for the final scheduled principal
payment of the notes;
(d) is expressly subordinated in right of payment to the notes or the
Guarantee of such Guarantor, as the case may be, at least to the
same extent as the Subordinated Indebtedness to be refinanced;
(5) the purchase, redemption or other acquisition or retirement for value
of any class of Capital Stock of the Company from employees, former
employees, directors or former directors of the Company or any
Subsidiary pursuant to the terms of the agreements pursuant to which
such Capital Stock was acquired in an amount not to exceed $5.0
million in the aggregate in any calendar year;
(6) the repurchase, redemption or other acquisition or retirement for
value of Capital Stock of the Company issued pursuant to acquisitions
by the Company to the extent required by or needed to comply with the
requirements of any of the Manufacturers with which the Company or a
Restricted Subsidiary is a party to a franchise agreement;
(7) the payment of the contingent purchase price of an acquisition to the
extent such payment would be deemed a Restricted Payment;
(8) the payment of the deferred purchase price, including holdbacks (and
the receipt of any corresponding consideration therefor), of an
acquisition to the extent such payment would have been permitted by
the Indenture at the time of such acquisition; and
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(9) additional Restricted Payments not to exceed $5.0 million in the
aggregate.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with or for the benefit of any Affiliate of the Company
(other than the Company, a Wholly Owned Restricted Subsidiary or a Restricted
Subsidiary that is a Guarantor) unless such transaction or series of related
transactions is entered into in good faith and in writing and
(1) such transaction or series of related transactions is on terms or
pursuant to arrangements that existed as of the Issue Date;
(2) such transaction or series of related transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than those that would be available in a comparable
transaction in arm's-length dealings with an unrelated third party,
(3) with respect to any transaction or series of related transactions not
covered by clause (1) above involving aggregate value in excess of $10
million, the Company delivers an officers' certificate to the Trustee
certifying that such transaction or series of related transactions
complies with clause (2) above, and
(4) with respect to any transaction or series of related transactions not
covered by clause (1) above involving aggregate value in excess of $20
million, either
(a) such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the
board of directors of the Company, or in the event there is only
one Disinterested Director, by such Disinterested Director, or
(b) the Company delivers to the Trustee a written opinion of an
investment banking firm of national standing or other recognized
independent expert with experience appraising the terms and
conditions of the type of transaction or series of related
transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the
Company or such Restricted Subsidiary from a financial point of
view;
PROVIDED, HOWEVER, that this provision shall not apply to (i) employee benefit
arrangements with any officer or director of the Company, including under any
stock option or stock incentive plans, entered into in the ordinary course of
business; (ii) any transaction permitted as a Restricted Payment or Permitted
Payment or Permitted Investment pursuant to the covenant described in
"Limitation on Restricted Payments"; (iii) the payment of customary fees to
directors of the Company and its Restricted Subsidiaries; (iv) any transaction
with any officer or member of the board of directors of the Company involving
indemnification arrangements; and (v) loans or advances to officers of the
Company in the ordinary course of business not to exceed $2.5 million in any
calendar year.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create, incur or affirm any
Lien of any kind upon any property or assets (including any intercompany notes)
of the Company or any Restricted Subsidiary owned on the
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Issue Date or acquired thereafter, or assign or convey any right to receive any
income or profits therefrom, unless the notes (or a Guarantee in the case of
Liens of a Guarantor) are directly secured equally and ratably with (or, in the
case of Subordinated Indebtedness, prior or senior thereto, with the same
relative priority as the notes shall have with respect to such Subordinated
Indebtedness) the obligation or liability secured by such Lien except for any
Permitted Liens.
Notwithstanding the foregoing, any Lien securing the notes granted pursuant
to this covenant shall be automatically and unconditionally released and
discharged upon the release by the holders of the Pari Passu Indebtedness or
Subordinated Indebtedness described above of their Lien on the property or
assets of the Company or any Restricted Subsidiary (including any deemed release
upon payment in full of all obligations under such Indebtedness, at such time as
the holders of all such Pari Passu Indebtedness or Subordinated Indebtedness
also release their Lien on the property or assets of the Company or such
Restricted Subsidiary, or upon any sale, exchange or transfer to any Person not
an Affiliate of the Company of the property or assets secured by such Lien, or
of all of the Capital Stock held by the Company or any Restricted Subsidiary in,
or all or substantially all the assets of, any Restricted Subsidiary creating
such Lien.
LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate an Asset Sale unless (1) at least 75% of the consideration from such
Asset Sale other than Asset Swaps is received in cash or Cash Equivalents and
(2) the Company or such Restricted Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the shares or
assets subject to such Asset Sale (as determined by either (a) the board of
directors of the Company and evidenced by a board resolution or (b) the Board
Designee and evidenced by a certificate (or committee resolution, as the case
may be), in each case whose determination shall be conclusive); PROVIDED that
the amount of:
(i) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary in connection with such transfer that
are within 10 days converted, sold or exchanged by the Company or
such Restricted Subsidiary into cash (to the extent of the cash
received);
(ii) any Designated Noncash Consideration received by the Company or any
of its Restricted Subsidiaries in the Asset Sale; and
(iii) any payment, or assumption, of Indebtedness which is related to the
assets sold in the Asset Sale
shall be deemed "cash" for purposes of this provision.
With respect to an Asset Swap constituting as Asset Sale, the Company or
any Restricted Subsidiary shall be required to receive in cash (as such term is
deemed to be defined for purposes of this clause (a)) or Cash Equivalents an
amount equal to 75% of the proceeds of the Asset Sale which do not consist of
like-kind assets acquired with the Asset Swap.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Indebtedness under the Credit
Facilities, the Mortgage Facilities, the Vehicle Receivables Indebtedness and/or
the Vehicle Inventory Indebtedness then outstanding as required by the terms
thereof, or the Company determines not to apply such Net Cash Proceeds to the
permanent
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prepayment of such Indebtedness under the Credit Facilities, the Mortgage
Facilities, the Vehicle Receivables Indebtedness and/or the Vehicle Inventory
Indebtedness, or if no such Indebtedness under the Credit Facilities, the
Mortgage Facilities, the Vehicle Receivables Indebtedness and/or the Vehicle
Inventory Indebtedness is then outstanding, then the Company or a Restricted
Subsidiary may within 30 days before or 365 days after the Asset Sale invest the
Net Cash Proceeds in properties and other assets that (as determined by either
(a) the board of directors of the Company and evidenced by a board resolution or
(b) the Board Designee and evidenced by a certificate (or committee resolution,
as the case may be), in each case whose determination shall be conclusive)
replace the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in a Permitted Business of the Company
or its Restricted Subsidiaries. The amount of such Net Cash Proceeds not used or
invested within 365 days of the Asset Sale as set forth in this paragraph
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $25 million, the
Company will apply the Excess Proceeds to the repayment of the notes and any
other Pari Passu Indebtedness outstanding with similar provisions requiring the
Company to make an offer to purchase such Indebtedness with the proceeds from
any Asset Sale as follows:
(A) the Company will make an offer to purchase (an "Offer") from all
holders of the notes in accordance with the procedures set forth in
the Indenture in the maximum principal amount (expressed as a multiple
of $1,000) of notes that may be purchased out of an amount (the "Note
Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount
of the notes, and the denominator of which is the sum of the
outstanding principal amount (or accreted value in the case of
Indebtedness issued with original issue discount) of the notes and
such Pari Passu Indebtedness (subject to proration in the event such
amount is less than the aggregate Offered Price (as defined herein) of
all notes tendered) and
(B) to the extent required by such Pari Passu Indebtedness to permanently
reduce the principal amount of such Pari Passu Indebtedness, the
Company will make an offer to purchase or otherwise repurchase or
redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Note Amount; PROVIDED that in no event will the
Company be required to make a Pari Passu Offer in a Pari Passu Debt
Amount exceeding the principal amount of such Pari Passu Indebtedness
plus the amount of any premium required to be paid to repurchase such
Pari Passu Indebtedness. The offer price for the notes will be payable
in cash in an amount equal to 100% of the principal amount of the
notes plus accrued and unpaid interest, if any, to the date (the
"Offer Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price of the notes tendered pursuant
to the Offer is less than the Note Amount relating thereto or the
aggregate amount of Pari Passu Indebtedness that is purchased in a
Pari Passu Offer is less than the Pari Passu Debt Amount, the Company
may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of notes and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the notes to be purchased on a pro rata
basis. Upon the completion of the purchase of all the notes tendered
pursuant to an Offer and the completion of a Pari Passu Offer, the
amount of Excess Proceeds, if any, shall be reset at zero.
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(d) If the Company becomes obligated to make an Offer pursuant to clause
(c) above, the notes and the Pari Passu Indebtedness shall be purchased by the
Company, at the option of the holders thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 30 days and not later
than 60 days from the date the notice of the Offer is given to holders, or such
later date as may be necessary for the Company to comply with the requirements
under the Exchange Act.
(e) The Indenture will provide that the Company will comply with the
applicable securities laws or regulations in connection with an Offer.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS. (a) The Company will
not cause or permit any Restricted Subsidiary (which is not a Guarantor),
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company or any Restricted
Subsidiary unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Guarantee of
the notes on the same terms as the guarantee of such Indebtedness except that
(A) such guarantee need not be secured unless required pursuant to "--Limitation
on Liens" and (B) if such Indebtedness is by its terms expressly subordinated to
the notes, any such assumption, guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated to such
Restricted Subsidiary's Guarantee of the notes at least to the same extent as
such Indebtedness is subordinated to the notes.
(b) Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary
of the notes shall provide by its terms that it (and all Liens securing the
same) shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which transaction is in compliance
with the terms of the Indenture and such Restricted Subsidiary is released from
all guarantees, if any, by it of other Indebtedness of the Company or any
Restricted Subsidiary, (ii) the Designation of a Restricted Subsidiary as an
Unrestricted Subsidiary in compliance with the Indenture and (iii) with respect
to any Guarantees created after the Issue Date, the release by the holders of
the Indebtedness of the Company described in clause (a) above of their guarantee
by such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness), at such time as (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
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LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to
(1) pay dividends or make any other distribution on its Capital Stock or
any other interest or participation in or measured by its profits,
(2) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary,
(3) make any Investment in the Company or any Wholly Owned Restricted
Subsidiary, or
(4) transfer any of its properties or assets to the Company or any Wholly
Owned Restricted Subsidiary.
However, this covenant will not prohibit any encumbrance or restriction (1)
pursuant to an agreement in effect on the Issue Date; (2) with respect to a
Restricted Subsidiary that is not a Restricted Subsidiary of the Company on the
Issue Date, in existence at the time such Person becomes a Restricted Subsidiary
of the Company and not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary, PROVIDED that such encumbrances and
restrictions are not applicable to the Company or any Restricted Subsidiary or
the properties or assets of the Company or any Restricted Subsidiary other than
such Subsidiary(ies) which is (are) becoming a Restricted Subsidiary(ies); (3)
contained in any Acquired Indebtedness or other agreement of an entity or
related to assets acquired by or merged into or consolidated with the Company or
any Restricted Subsidiary so long as such encumbrance or restriction was not
entered into in contemplation of the acquisition, merger or consolidation
transaction; (4) customary provisions contained in an agreement that has been
entered into for the sale or other disposition of all or substantially all of
the Capital Stock or assets of a Restricted Subsidiary; PROVIDED, HOWEVER that
the restrictions are applicable only to such Restricted Subsidiary or assets;
(5) any encumbrance or restriction existing under or by reason of applicable
law, including any applicable laws governing Restricted Subsidiaries of the
Company which underwrite and/or reinsure insurance products; (6) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any Restricted Subsidiary; (7) covenants in franchise
agreements and/or framework agreements with Manufacturers customary for
franchise agreements and/or framework agreements in the automobile retailing
industry; (8) any encumbrances or restrictions in security agreements securing
Indebtedness (other than Subordinated Indebtedness) of a Restricted Subsidiary
permitted to be incurred under the Indenture (including any Vehicle Inventory
Indebtedness) (to the extent that such Liens are otherwise incurred in
accordance with "--Limitation on Liens") that restrict the transfer of property
subject to such agreements, PROVIDED that any such encumbrance or restriction is
released to the extent the underlying Lien is released or the related
Indebtedness is repaid; and (9) under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (1) through (8), or in this clause (9),
PROVIDED that the terms and conditions of any such encumbrances or restrictions
are no more restrictive in any material respect than those under or pursuant to
the agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced.
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LIMITATION ON UNRESTRICTED SUBSIDIARIES. The Company may designate after
the Issue Date any Subsidiary as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"--Limitation on Restricted Payments" above in an amount (the
"Designation Amount") equal to the greater of (1) the net book value
of the Company's interest in such Subsidiary calculated in accordance
with GAAP or (2) the Fair Market Value of the Company's interest in
such Subsidiary as determined in good faith by either (a) the board of
directors of the Company and evidenced by a board resolution or (b)
the Board Designee and evidenced by a certificate (or committee
resolution, as the case may be), in each case whose determination
shall be conclusive;
(c) the Company would be permitted under the Indenture to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to the covenant described under "--Limitation on Indebtedness" at the
time of such Designation (assuming the effectiveness of such
Designation);
(d) such Unrestricted Subsidiary does not own any Capital Stock in any
Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or indirectly,
with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, provided that an Unrestricted Subsidiary may provide a
Guarantee for the notes; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Company
or any Restricted Subsidiary unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the
Company or, in the event such condition is not satisfied, the value of
such agreement, contract, arrangement or understanding to such
Unrestricted Subsidiary shall be deemed a Restricted Payment.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
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The Indenture will also provide that the Company shall not and shall not
cause or permit any Restricted Subsidiary to at any time
(a) provide credit support for, guarantee or subject any of its property
or assets (other than the Capital Stock of any Unrestricted
Subsidiary) to the satisfaction of, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) (other than Permitted
Investments in Unrestricted Subsidiaries) or
(b) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary. For purposes of the foregoing, the
Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to be the Designation of all of the
Subsidiaries of such Subsidiary as Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the Indenture;
and
(c) unless such redesignated Subsidiary shall not have any Indebtedness
outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed
Revocation, and after giving pro forma effect to the incurrence of any
such Indebtedness of such redesignated Subsidiary as if such
Indebtedness was incurred on the date of the Revocation, the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "--Limitation
on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
PROVISION OF FINANCIAL STATEMENTS. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to Section 13(a) or 15(d) if the Company
were so subject, such documents to be filed with the Commission on or prior to
the date (the "Required Filing Date") by which the Company would have been
required so to file such documents if the Company were so subject.
The Company will also in any event (a) within 15 days of each Required
Filing Date file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to either of such Sections and (b) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request and
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payment of the reasonable cost of duplication and delivery, supply copies of
such documents to any prospective holder at the Company's cost.
If any Guarantor's financial statements would be required to be included in
the financial statements or footnotes filed or delivered pursuant to the
Indenture if the Company were subject to Section 13(a) or 15(d) of the Exchange
Act, the Company shall include such Guarantor's financial statements (or include
such financial statements in a footnote) in any filing or delivery pursuant to
the Indenture.
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (1) payment of principal, premium and interest; (2)
maintenance of an office or agency in The City of New York; (3) arrangements
regarding the handling of money held in trust; (4) maintenance of corporate
existence; (5) payment of taxes and other claims; (6) maintenance of properties;
and (7) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or "group" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) of Persons, or
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions, if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a Consolidated basis to any other
Person or "group" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) of Persons, unless at the time and after giving effect thereto
(1) either (a) the Company will be the continuing corporation (in the case
of a consolidation or merger involving the Company) or (b) the Person
(if other than the Company) formed by such consolidation or into which
the Company is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis (the "Surviving
Entity") will be duly organized and validly existing under the laws of
the United States of America, any state thereof or the District of
Columbia and such Person expressly assumes, by a supplemental
indenture, in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the notes and the Indenture and the
Registration Rights Agreement, as the case may be, and the notes and
the Indenture and the Registration Rights Agreement will remain in
full force and effect as so supplemented (and any Guarantees will be
confirmed as applying to such Surviving Entity's obligations);
(2) immediately after giving effect to such transaction on a PRO FORMA
basis (and treating any Indebtedness not previously an obligation of
the Company or any of its Restricted Subsidiaries which becomes the
obligation of the Company or any of its Restricted Subsidiaries as a
result of such transaction as having been incurred at the time of such
transaction), no Default or Event of Default will have occurred and be
continuing;
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(3) immediately after giving effect to such transaction on a PRO FORMA
basis, the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions of "--Certain Covenants--Limitation on Indebtedness";
(4) at the time of the transaction each Guarantor, if any, unless it is
the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantee shall apply to
such Person's obligations under the Indenture and the notes; and
(5) at the time of the transaction the Company or the Surviving Entity
will have delivered, or caused to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each to the effect
that such consolidation, merger, transfer, sale, assignment,
conveyance, transfer, lease or other transaction and the supplemental
indenture in respect thereof comply with the Indenture and that all
conditions precedent therein provided for relating to such transaction
have been complied with.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the continuing corporation, the successor Person formed
or remaining or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company and the
Company will be discharged (other than in a transaction that results in the
transfer of assets constituting or accounting for less than 95% of the
Consolidated assets (as of the last balance sheet date available to the Company)
of the Company or the Consolidated revenue of the Company (as of the last
12-month period for which financial statements are available)) from all
obligations and covenants under the Indenture and the notes and the Registration
Rights Agreement.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(1) there shall be a default in the payment of any interest on any note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(2) there shall be a default in the payment of the principal of (or
premium, if any, on) any note at its Maturity (upon acceleration,
optional or mandatory redemption, if any, required repurchase or
otherwise);
(3) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the
Indenture or any Guarantee (other than a default in the performance,
or breach, of a covenant or agreement which is specifically dealt with
in clause (1), (2) or in clause (b) or (c) of this clause (3)) and
such default or breach shall continue for a period of 30 days after
written notice has been given, by certified mail, (1) to the Company
by the Trustee or (2) to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the outstanding notes;
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(b) there shall be a default in the performance or breach of the
provisions described in "--Consolidation, Merger, Sale of Assets"; or
(c) the Company shall have failed to make or consummate a Change of
Control Offer in accordance with the provisions of "Purchase of Notes
Upon a Change of Control";
(4) (a) any default in the payment of the principal, premium, if any, or
interest on any Indebtedness shall have occurred under any of the
agreements, indentures or instruments under which the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of
$25 million when the same shall become due and payable in full and
such default shall have continued after any applicable grace period
and shall not have been cured or waived and, if not already matured at
its final maturity in accordance with its terms, the holder of such
Indebtedness shall have the right to accelerate such Indebtedness or
(b) an event of default as defined in any of the agreements,
indentures or instruments described in clause (a) of this clause (4)
shall have occurred and the Indebtedness thereunder, if not already
matured at its final maturity in accordance with its terms, shall have
been accelerated;
(5) any Guarantee from any Guarantor that is a Significant Restricted
Subsidiary shall for any reason cease to be, or shall for any reason
be asserted in writing by such Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms,
except to the extent contemplated by the Indenture and any such
Guarantee;
(6) one or more judgments, orders or decrees of any court or regulatory or
administrative agency for the payment of money in excess of $25
million, either individually or in the aggregate (exclusive of any
portion of any such payment covered by insurance), shall be rendered
against the Company or any Restricted Subsidiary or any of their
respective properties and shall not be discharged and there shall have
been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect;
(7) any holder or holders of at least $25 million in aggregate principal
amount of Indebtedness of the Company or any Restricted Subsidiary
after a default under such Indebtedness shall notify the Trustee of
the intended sale or disposition of any assets of the Company or any
Restricted Subsidiary that have been pledged to or for the benefit of
such holder or holders to secure such Indebtedness or shall commence
proceedings, or take any action (including by way of set-off), to
retain in satisfaction of such Indebtedness or to collect on, seize,
dispose of or apply in satisfaction of Indebtedness, assets of the
Company or any Restricted Subsidiary (including funds on deposit or
held pursuant to lock-box and other similar arrangements);
(8) there shall have been the entry by a court of competent jurisdiction
of (a) a decree or order for relief in respect of the Company or any
Significant Restricted Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or (b) a decree or order adjudging
the Company or any Significant Restricted Subsidiary bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant
Restricted Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any
Significant Restricted
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Subsidiary or of any substantial part of their respective properties,
or ordering the winding up or liquidation of their affairs, and any
such decree or order for relief shall continue to be in effect, or any
such other decree or order shall be unstayed and in effect, for a
period of 60 consecutive days; or
(9) (a) the Company or any Significant Restricted Subsidiary
commences a voluntary case or proceeding under any applicable
Bankruptcy Law or any other case or proceeding to be adjudicated
bankrupt or insolvent,
(b) the Company or any Significant Restricted Subsidiary consents to
the entry of a decree or order for relief in respect of the
Company or such Significant Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy
Law or to the commencement of any bankruptcy or insolvency case
or proceeding against it,
(c) the Company or any Significant Restricted Subsidiary files a
petition or answer or consent seeking reorganization or relief
under any applicable federal or state law,
(d) the Company or any Significant Restricted Subsidiary (1) consents
to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or such
Significant Restricted Subsidiary or of any substantial part of
their respective properties, (2) makes an assignment for the
benefit of creditors or (3) admits in writing its inability to
pay its debts generally as they become due, or
(e) the Company or any Significant Restricted Subsidiary takes any
corporate action in furtherance of any such actions in this
paragraph (9).
If an Event of Default (other than as specified in clauses (8) and (9) of
the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount of the notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all notes to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by the holders of the
notes) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (8) or (9) of the prior paragraph occurs and is continuing,
then all the notes shall IPSO FACTO become and be due and payable immediately in
an amount equal to the principal amount of the notes, together with accrued and
unpaid interest, if any, to the date the notes become due and payable, without
any declaration or other act on the part of the Trustee or any holder.
Thereupon, the Trustee may, at its discretion, proceed to protect and enforce
the rights of the holders of notes by appropriate judicial proceedings.
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After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of notes outstanding by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(a) the Company has paid or deposited with the Trustee a sum sufficient to
pay (1) all sums paid or advanced by the Trustee under the Indenture
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (2) all overdue interest on
all notes then outstanding, (3) the principal of, and premium, if any,
on any notes then outstanding which have become due otherwise than by
such declaration of acceleration and interest thereon at the rate
borne by the notes and (4) to the extent that payment of such interest
is lawful, interest upon overdue interest at the rate borne by the
notes;
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest on the notes which have become due
solely by such declaration of acceleration, have been cured or waived
as provided in the Indenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the notes outstanding may on behalf of the holders of all outstanding notes
waive any past default under the Indenture and its consequences, except a
default (1) in the payment of the principal of, premium, if any, or interest on
any note (which may only be waived with the consent of each holder of notes
affected) or (2) in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each note
affected by such modification or amendment.
No holder of any of the notes has any right to institute any proceedings
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding notes. Such limitations do not, however,
apply to a suit instituted by a holder of a note for the enforcement of the
payment of the principal of, premium, if any, or interest on such note on or
after the respective due dates expressed in such note.
The Company is required to notify the Trustee within five business days of
the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 60 days after the end of each fiscal
quarter and not more than 120 days after the end of each fiscal year, a written
statement as to compliance with the Indenture, including whether or not any
Default has occurred. The
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Trustee is under no obligation to exercise any of the rights or powers vested in
it by the Indenture at the request or direction of any of the holders of the
notes unless such holders offer to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred thereby.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions, but if it acquires any conflicting
interest it must eliminate such conflict upon the occurrence of an Event of
Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the notes
discharged with respect to the outstanding notes ("defeasance"). Such defeasance
means that the Company, any such Guarantor and any other obligor under the
Indenture shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding notes, except for
(1) the rights of holders of such outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such
notes when such payments are due,
(2) the Company's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, and the maintenance of an office or agency for payment
and money for security payments held in trust,
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
(4) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and any Guarantor released with respect to
certain covenants that are described in the Indenture ("covenant defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or an Event of Default with respect to the notes. In the event
covenant defeasance occurs, certain events (not including non-payment,
bankruptcy and insolvency events) described under "Events of Default" will no
longer constitute an Event of Default with respect to the notes.
In order to exercise either defeasance or covenant defeasance,
(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the notes cash in United States dollars,
U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm, to pay
and discharge the principal of, premium, if any, and interest on the
outstanding notes on the Stated Maturity;
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(b) in the case of defeasance, the Company shall have delivered to the
Trustee an opinion of independent counsel in the United States stating
that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such
opinion of independent counsel in the United States shall confirm
that, the holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(c) in the case of covenant defeasance, the Company shall have delivered
to the Trustee an opinion of independent counsel in the United States
to the effect that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be continuing
either (a) on the date of such deposit (other than a Default or Event
of Default solely resulting from the borrowing of funds to be applied
to such deposit); or (b) insofar as clauses (8) and (9) under the
first paragraph under "--Events of Default" are concerned, at any time
during the period ending on the 91st day after the date of deposit;
(e) such defeasance or covenant defeasance shall not cause the Trustee for
the notes to have a conflicting interest as defined in the Indenture
and for purposes of the Trust Indenture Act with respect to any
securities of the Company or any Guarantor;
(f) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any
other material agreement or instrument (other than, to the extent set
forth in clause (d) above, the Indenture) to which the Company or any
Restricted Subsidiary is a party or by which it is bound;
(g) such defeasance or covenant defeasance shall not result in the trust
arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless
such trust shall be registered under such Act or exempt from
registration thereunder;
(h) the Company will have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that after the
91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
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(i) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the notes or any Guarantee
over the other creditors of the Company or any Guarantor with the
intent of defeating, hindering, delaying or defrauding creditors of
the Company, any Guarantor or others; and
(j) the Company will have delivered to the Trustee an officers'
certificate and an opinion of independent counsel, each stating that
all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
notes as expressly provided for in the Indenture) as to all outstanding notes
under the Indenture when
(a) either
(1) all such notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid
or notes whose payment has been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the
Indenture) have been delivered to the Trustee for cancellation or
(2) all notes not theretofore delivered to the Trustee for
cancellation (a) have become due and payable, (b) will become due
and payable at their Stated Maturity within one year, or (c) are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company;
(b) the Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in United
States dollars sufficient to pay and discharge the entire indebtedness
on the notes not theretofore delivered to the Trustee for
cancellation, including principal of, premium, if any, and accrued
interest at such Maturity, Stated Maturity or redemption date;
(c) the Company or any Guarantor has paid or caused to be paid all other
sums payable under the Indenture by the Company and any Guarantor; and
(d) the Company has delivered to the Trustee an officers' certificate and
an opinion of independent counsel each stating that (1) all conditions
precedent under the Indenture relating to the satisfaction and
discharge of such Indenture have been complied with and (2) such
satisfaction and discharge will not result in a breach or violation
of, or constitute a default under, the Indenture or any other material
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agreement or instrument to which the Company, any Guarantor or any
Subsidiary is a party or by which the Company, any Guarantor or any
Subsidiary is bound.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority in aggregate principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for notes); PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the holder of each
outstanding note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, or change to an earlier date any redemption date of, or
waive a default in the payment of the principal of, premium, if any,
or interest on, any such note or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the
principal of any such note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the redemption date);
(2) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with "Certain Covenants--Limitation on Sale of Assets" or
the obligation of the Company to make and consummate a Change of
Control Offer in the event of a Change of Control in accordance with
"Purchase of Notes Upon a Change of Control," including, in each case,
amending, changing or modifying any definitions related thereto;
(3) reduce the percentage in principal amount of such outstanding notes,
the consent of whose holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver
or compliance with certain provisions of the Indenture;
(4) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to
increase the percentage of such outstanding notes required for such
actions or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each
such note affected thereby;
(5) except as otherwise permitted under "Consolidation, Merger, Sale of
Assets," consent to the assignment or transfer by the Company or any
Guarantor of any of its rights and obligations under the Indenture; or
(6) amend or modify any of the provisions of the Indenture in any manner
which subordinates the notes issued thereunder in right of payment to
any other Indebtedness of the Company or which subordinates any
Guarantee in right of payment to any other Indebtedness of the
Guarantor issuing any such Guarantee.
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Notwithstanding the foregoing, without the consent of any holders of the
notes, the Company, any Guarantor, any other obligor under the notes and the
Trustee may modify or amend the Indenture:
(1) to evidence the succession of another Person to the Company or a
Guarantor, and the assumption by any such successor of the covenants
of the Company or such Guarantor in the Indenture and in the notes and
in any Guarantee in accordance with "--Consolidation, Merger, Sale of
Assets";
(2) to add to the covenants of the Company, any Guarantor or any other
obligor upon the notes for the benefit of the holders of the notes or
to surrender any right or power conferred upon the Company or any
Guarantor or any other obligor upon the notes, as applicable, in the
Indenture, in the notes or in any Guarantee;
(3) to cure any ambiguity, or to correct or supplement any provision in
the Indenture, the notes or any Guarantee which may be defective or
inconsistent with any other provision in the Indenture, the notes or
any Guarantee or make any other provisions with respect to matters or
questions arising under the Indenture, the notes or any Guarantee;
PROVIDED that, in each case, such provisions shall not adversely
affect the interest of the holders of the notes;
(4) to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust
Indenture Act;
(5) to add a Guarantor under the Indenture;
(6) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or
(7) to mortgage, pledge, hypothecate or grant a security interest in favor
of the Trustee for the benefit of the holders of the notes as
additional security for the payment and performance of the Company's
and any Guarantor's obligations under the Indenture, in any property,
or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required
to be granted to the Trustee pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount of the notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
FALL AWAY EVENT
In the event of the occurrence of a Fall Away Event and no Default or Event
of Default exists, the covenants and provisions described above under "Purchase
of Notes Upon a Change of Control Event," "Certain Covenants--Limitation on
Indebtedness," "--Limitation on Restricted Payments," "--Limitation on
Transactions with Affiliates," "--Limitation on Sale of Assets," "--Limitation
on Dividends and Other Payment Restrictions Affecting Subsidiaries,"
"--Limitation on Unrestricted Subsidiaries" and the requirement set forth in
clause (3) of "Consolidation, Merger, Sale of Assets" shall each no longer be in
effect. Notwithstanding the foregoing, if the notes cease to have an Investment
Grade rating from either Moody's or Standard & Poor's, then the foregoing
provisions of the Indenture shall be reinstituted as of and from the date of
such rating decline.
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GOVERNING LAW
The Indenture, the notes and the Guarantees are governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as Trustee with such conflict or resign as Trustee.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any holder of notes unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (1) existing at the
time such Person becomes a Restricted Subsidiary or (2) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition, as the case may be, except
for Indebtedness of a Person or any of its Subsidiaries that is repaid
substantially concurrently or in connection with the time such Person becomes a
Restricted Subsidiary of the Company or substantially concurrently or in
connection with the time of the acquisition of assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"AFFILIATE" means, with respect to any specified Person: (1) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (2) any other Person that
owns, directly or indirectly, 10% or more of any class or series of such
specified Person's (or any of such Person's direct or indirect parent's) Capital
Stock or any officer or director of any such other Person or, with respect to
any natural Person, any person having a relationship with such Person by blood,
marriage or adoption not more remote than first cousin; or (3) any other Person
10% or more of the Voting Stock of which is beneficially owned or held directly
or indirectly by such specified
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Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASSET SALE" means any sale, issuance, conveyance, transfer (other than as
security), lease (other than operating leases entered into in the ordinary
course of business) or other disposition (including, without limitation, by way
of merger, consolidation or sale and leaseback transaction) (collectively, a
"transfer"), directly or indirectly, in one or a series of related transactions,
of:
(1) any Capital Stock of any Restricted Subsidiary (including by way of
merger or consolidation);
(2) all or substantially all of the properties and assets of any division
or line of business of the Company or any Restricted Subsidiary; or
(3) any other properties or assets of the Company or any Restricted
Subsidiary other than in the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and/or assets
(A) that is governed by the provisions described under "Consolidation,
Merger, Sale of Assets,"
(B) that is by the Company to any Wholly Owned Restricted Subsidiary, or
by any Restricted Subsidiary to the Company or any Wholly Owned
Restricted Subsidiary in accordance with the terms of the Indenture,
(C) that would be within the definition of a "Restricted Payment" under
the "Limitation on Restricted Payments" covenant and would be
permitted to be made as a Restricted Payment (and shall be deemed a
Restricted Payment) under such covenant,
(D) that, in the reasonable determination of the Company, consist of
obsolete or worn-out property or property no longer used in the
Company's or any Restricted Subsidiary's business in the ordinary
course of business,
(E) that is a sale of receivables pursuant to documentation relating to
Vehicle Receivables Indebtedness incurred in the ordinary course of
business,
(F) as a result of governmental requirements or franchise and/or framework
agreements, which properties and/or assets were acquired by the
Company after the Issue Date as part of a larger acquisition of
properties and/or assets that was permitted by the Indenture, or
(G) the Fair Market Value of which in the aggregate does not exceed $10
million in any transaction or series of related transactions.
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"ASSET SWAP" means the exchange by the Company or a Restricted Subsidiary
of a portion of its property, business or assets, in the ordinary course of
business, for property, businesses or assets which, or Capital Stock of a Person
all or substantially all of whose assets, are a type used in a Permitted
Business, or a combination of any property, business or assets or Capital Stock
of such a Person and cash or Cash Equivalents.
"AUTOMOBILE RETAILING ACTIVITIES" means new and used vehicle retailing,
wholesaling, leasing, financing, servicing and related activities.
"AVERAGE LIFE TO STATED MATURITY" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (1) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (2)
the sum of all such principal payments.
"BANKRUPTCY LAW" means Title 11, United States Bankruptcy Code of 1978, or
any similar United States federal or state law or foreign law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"BOARD DESIGNEE" shall mean a designee of the board of directors of the
Company (including a committee of the board of directors) who shall be granted
authority by the board of directors pursuant to a board resolution to make
certain determinations with respect to the Indenture as specified herein.
"BORROWING BASE" means, as of any date on which Indebtedness is proposed to
be incurred, the sum of (x) 65% of the book value of the accounts receivable of
the Company and its Restricted Subsidiaries as reflected on their latest
available balance sheet and (y) 35% of the book value of the property, plant and
equipment of the Company and its Restricted Subsidiaries as of such balance
sheet date, in each case calculated on a consolidated basis and in accordance
with GAAP, and which are not, as of such balance sheet date and as of the date
of such proposed incurrence of Indebtedness, subject to any Liens which secure
Indebtedness.
"CAPITAL LEASE OBLIGATION" of any Person means all monetary obligations of
such Person and its Restricted Subsidiaries on a Consolidated basis under any
capital lease of (or other agreement conveying the right to use) real or
personal property which, in accordance with GAAP, is required to be recorded as
a capitalized lease obligation.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations, rights in or other equivalents (however designated) of such
Person's capital stock, other equity interests whether now outstanding or issued
after the date of the Indenture, partnership interests (whether general or
limited), limited liability company interests, any other interest or
participation that confers on a Person that right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person,
including any Preferred Stock, and any rights (other than debt securities
convertible into Capital Stock), warrants or options exchangeable for or
convertible into such Capital Stock.
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"CASH EQUIVALENTS" means
(1) any evidence of Indebtedness issued or directly and fully guaranteed
or insured by the United States or any agency or instrumentality
thereof,
(2) deposits, certificates of deposit or acceptances of any financial
institution that is a member of the Federal Reserve System and whose
senior unsecured debt is rated at least "A-1" by Standard & Poor's or
at least "P-1" by Moody's,
(3) commercial paper with a maturity of 365 days or less issued by a
corporation (other than an Affiliate or Subsidiary of the Company)
organized and existing under the laws of the United States of America,
any state thereof or the District of Columbia and rated at least "A-1"
by Standard & Poor's and at least "P-1" by Moody's,
(4) repurchase agreements and reverse repurchase agreements relating to
marketable direct obligations issued or unconditionally guaranteed by
the United States or issued by any agency thereof and backed by the
full faith and credit of the United States maturing within 365 days
from the date of acquisition, and
(5) money market funds which invest substantially all of their assets in
securities described in the preceding clauses (1) through (4).
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have beneficial ownership of all shares that
such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, of 50% or more of the total outstanding Voting Stock of
the Company;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the
Company (together with any new directors whose election to such board
or whose nomination for election by the stockholders of the Company
was approved by a vote of 66 2'3% of the directors then still in
office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of such board of
directors then in office;
(3) the Company consolidates with or merges with or into any Person, or
any Person consolidates with or merges into or with the Company, in
any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where
the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock of the surviving Person which is not
Redeemable Capital Stock representing a majority of the voting power
of all Voting Stock of such Surviving Person immediately after giving
effect to such issuance;
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(4) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act); or
(5) the Company is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the
provisions described under "--Consolidation, Merger, Sale of Assets."
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Securities Act, Exchange Act and Trust
Indenture Act then the body performing such duties at such time.
"COMMODITY PRICE PROTECTION AGREEMENT" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"COMPANY" means AutoNation, Inc., a corporation incorporated under the laws
of Delaware, until a successor Person shall have become such pursuant to the
applicable provisions of the Indenture, and thereafter "Company" shall mean such
successor Person.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" of any Person means, for any
period, the ratio of
(a) the sum of Consolidated Net Income (Loss), and in each case to the
extent deducted in computing Consolidated Net Income (Loss) for such
period, Consolidated Interest Expense, Consolidated Income Tax Expense
and Consolidated Non-cash Charges for such period, of such Person and
its Restricted Subsidiaries on a Consolidated basis, all determined in
accordance with GAAP, less all noncash items increasing Consolidated
Net Income for such period and less all cash payments during such
period relating to noncash charges that were added back to
Consolidated Net Income in determining the Consolidated Fixed Charge
Coverage Ratio in any prior period to
(b) the sum of Consolidated Interest Expense for such period and cash and
noncash dividends paid on any Redeemable Capital Stock or cash
dividends paid on any Preferred Stock that is not Redeemable Capital
Stock of such Person and its Restricted Subsidiaries during such
period,
in each case after giving PRO FORMA effect (as determined in accordance with
Article 11 of Regulation S-X under the Securities Act or any successor
provision) without duplication to
(1) the incurrence of the Indebtedness giving rise to the need to make
such calculation and (if applicable) the application of the net
proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds
occurred, on the first day of such period;
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(2) the incurrence, repayment or retirement of any other Indebtedness by
the Company and its Restricted Subsidiaries since the first day of
such period as if such Indebtedness was incurred, repaid or retired at
the beginning of such period (except that, in making such computation,
the amount of Indebtedness under any revolving credit facility shall
be computed based upon the average daily balance of such Indebtedness
during such period);
(3) in the case of Acquired Indebtedness or any acquisition occurring at
the time of the incurrence of such Indebtedness, the related
acquisition, assuming such acquisition had been consummated on the
first day of such period; and
(4) any acquisition or disposition by the Company and its Restricted
Subsidiaries of any company or any business or any assets out of the
ordinary course of business, whether by merger, stock purchase or sale
or asset purchase or sale, and any related repayment of Indebtedness,
in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of
such period;
provided that
(1) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a PRO FORMA
basis and (A) bearing a floating interest rate shall be computed as if
the rate in effect on the date of computation had been the applicable
rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at
the option of such Person, a fixed or floating rate of interest, shall
be computed by applying at the option of such Person either the fixed
or floating rate and
(2) in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a PRO FORMA basis shall be computed based
upon the average daily balance of such Indebtedness during the
applicable period.
"CONSOLIDATED INCOME TAX EXPENSE" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, without duplication,
for any period, the sum of
(a) the interest expense of such Person and its Restricted Subsidiaries
for such period (determined in accordance with GAAP), on a
Consolidated basis (including interest under any Vehicle Inventory
Indebtedness), including, without limitation,
(1) amortization of debt discount,
(2) the net costs associated with Interest Rate Agreements and
Currency Hedging Agreements (including amortization of
discounts),
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(3) the interest portion of any deferred payment obligation, and
(4) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance financing,
plus
(b) (1) the interest component of the Capital Lease Obligations
(determined in accordance with GAAP) of such Person and its
Restricted Subsidiaries during such period and
(2) all capitalized interest of such Person and its Restricted
Subsidiaries plus
(c) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio, the interest expense determined in accordance with GAAP under
any Guaranteed Debt of such Person and any Restricted Subsidiary to
the extent not included under clause (a) above, whether or not paid by
such Person or its Restricted Subsidiaries.
"CONSOLIDATED NET INCOME (LOSS)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period on a Consolidated basis as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (or loss), by
excluding, without duplication,
(1) all extraordinary gains or losses net of taxes (less all fees and
expenses relating thereto),
(2) the portion of net income (or loss) of such Person and its Restricted
Subsidiaries on a Consolidated basis allocable to minority interests
in unconsolidated Persons or Unrestricted Subsidiaries to the extent
that cash dividends or distributions have not actually been received
by such Person or one of its Consolidated Restricted Subsidiaries,
(3) net income (or loss) of any Person combined with such Person or any of
its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination,
(4) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan,
(5) gains or losses, net of taxes (less all fees and expenses relating
thereto), in respect of dispositions of assets other than in the
ordinary course of business,
(6) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its
stockholders,
(7) any restoration to net income of any contingency reserve, except to
the extent provision for such reserve was made out of income accrued
at any time following the Issue Date, or
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(8) any net gain arising from the acquisition of any securities or
extinguishment, under GAAP, of any Indebtedness of such Person.
"CONSOLIDATED NON-CASH CHARGES" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Restricted Subsidiaries on a Consolidated basis for such period, as
determined in accordance with GAAP (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period).
"CONSOLIDATED TANGIBLE NET WORTH" of any Person means, at any time, for
such Person and its Restricted Subsidiaries on a Consolidated basis, an amount
computed equal to (a) the Consolidated stockholders' equity of the Person and
its Restricted Subsidiaries, minus (b) all Intangible Assets of the Person and
its Restricted Subsidiaries, in each case as of such time. For the purposes
hereof, "Intangible Assets" means intellectual property, goodwill and other
intangible assets, in each case determined in accordance with GAAP.
"CONSOLIDATION" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Restricted Subsidiaries if and to the
extent such accounts would normally be consolidated with those of such Person,
all in accordance with GAAP. The term "Consolidated" shall have a similar
meaning.
"CREDIT AGREEMENTS" means, collectively, the 364-day revolving credit
agreement providing for borrowings of up to $200 million and the multi-year
credit agreement providing for borrowings of up to $300 million, in each case to
be entered into among the Company, as borrower, the Guarantors, as guarantors,
Bank of America, N.A., as administrative agent and lender, The Chase Manhattan
Bank and Merrill Lynch Capital Corporation, as syndication agents and lenders,
First Union National Bank, as documentation agent and lender, and the other
lenders party thereto from time to time, dated as of the Issue Date, as such
agreements, in whole or in part, in one or more instances, may be amended,
renewed, extended, substituted, refinanced, restructured, replaced, supplemented
or otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing).
"CREDIT FACILITIES" means one or more debt facilities or commercial paper
facilities, in each case with banks or other financial institutions or
institutional lenders, or other Persons which provide, originate or arrange debt
or commercial paper facilities, providing for revolving credit loans, term
loans, receivables financing or letters of credit, including the Credit
Agreements, in each case in existence from time to time as such facilities, in
whole or in part, in one or more instances, may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewals, extensions, substitutions, refinancings, restructurings, replacements,
supplements or other modifications of the foregoing).
"CURRENCY HEDGING AGREEMENTS" means one or more of the following agreements
which shall be entered into by one or more financial institutions: foreign
exchange contracts, currency swap agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash
consideration received by the Company or any of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated pursuant to an officer's
certificate, setting forth the basis of the valuation. The aggregate Fair Market
Value of the Designated Noncash Consideration, taken together with the Fair
Market Value at the time of receipt of all other Designated Noncash
Consideration received, may not exceed the greater of (x) $50 million in the
aggregate or (y) 5.0% of the Company's Consolidated Tangible Net Worth over the
term of the notes, at the time of the receipt of the Designated Noncash
Consideration (with the Fair Market Value being measured at the time received
and without giving effect to subsequent changes in value).
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series
of related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"ELIGIBLE SPECIAL PURPOSE ENTITY" means any Person which is or is not a
Subsidiary of the Company which has been formed by or for the benefit of the
Company or any Subsidiary for the purpose of (i) financing or refinancing,
leasing, selling or securitizing Vehicles or related receivables and which
finances, refinances or securitizes Vehicles or related receivables of, leases
Vehicles to or purchases Vehicles or related receivables from the Company or any
Subsidiary; or (ii) financing or refinancing consumer receivables, leases, loans
or retail installment contracts.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or any successor
statute, and the rules and regulations promulgated by the Commission thereunder.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length free market transaction between
an informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value shall be determined
by either (a) the board of directors of the Company acting in good faith and
shall be evidenced by a board resolution or (b) the Board Designee and evidenced
by a certificate (or committee resolution, as the case may be), in each case
whose determination shall be conclusive.
"FALL AWAY EVENT" means the notes shall have achieved Investment Grade
status and the Company delivers to the Trustee an officer's certificate
certifying that the foregoing condition has been satisfied.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means generally
accepted accounting principles and interpretations thereof in the United States,
consistently applied, which are in effect on the Issue Date.
"GUARANTEE" means the guarantee by any Guarantor of the Company's Indenture
Obligations.
"GUARANTEED DEBT" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement
(1) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness,
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(2) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss,
(3) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without
requiring that such property be received or such services be
rendered),
(4) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial
condition of the debtor or to cause such debtor to achieve
certain levels of financial performance or
(5) otherwise to assure a creditor against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"GUARANTOR" means any Subsidiary which is a guarantor of the notes,
including any Person that is required after the date of the Indenture to execute
a guarantee of the notes pursuant to the "Limitation on Liens" covenant or the
"Limitation on Issuance of Guarantees of Indebtedness" covenant until a
successor replaces such party pursuant to the applicable provisions of the
Indenture and, thereafter, shall mean such successor.
"INDEBTEDNESS" means, with respect to any Person, without duplication,
(1) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course
of business, but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters
of credit issued under letter of credit facilities, acceptance
facilities or other similar facilities,
(2) all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments,
(3) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables
arising in the ordinary course of business,
(4) all obligations under Interest Rate Agreements, Currency Hedging
Agreements or Commodity Price Protection Agreements of such Person,
(5) all Capital Lease Obligations of such Person,
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(6) all Indebtedness referred to in clauses (1) through (5) above of other
Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien,
upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness,
(7) all Guaranteed Debt of such Person,
(8) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends,
(9) Preferred Stock of any Restricted Subsidiary of the Company, and
(10) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any liability of the types referred to in
clauses (1) through (9) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"INDENTURE OBLIGATIONS" means the obligations of the Company and any other
obligor under the Indenture or under the notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the notes, according to the respective terms
thereof.
"INTEREST RATE AGREEMENTS" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"INVESTMENT" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"INVESTMENT GRADE" means, with respect to the notes, a credit rating of at
least Baa3 (or the equivalent) by Moody's, together with a rating of at least
BBB- (or the equivalent) by Standard & Poor's.
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"ISSUE DATE" means the original issue date of the notes offered by this
prospectus under the Indenture.
"LIEN" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof, and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired. A Person will be deemed
to own subject to a Lien any property which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement, Capital
Lease Obligation or other title retention agreement.
"MANUFACTURER" means a vehicle manufacturer which is a party to a
dealership franchise agreement with the Company or any Restricted Subsidiary.
"MATURITY" means, when used with respect to the notes, the date on which
the principal of the notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity or the redemption date and
whether by declaration of acceleration, Offer in respect of Excess Proceeds,
Change of Control Offer in respect of a Change of Control, call for redemption
or otherwise.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"MORTGAGE FACILITIES" means one or more debt facilities in each case with
banks, manufacturers and/or other entities providing for borrowings secured
primarily by real property in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time;
provided, that the value of the security securing such debt facilities shall
not, at the time such debt facilities are entered into, exceed 100% of the
aggregate principal amount of the Indebtedness in respect of such debt
facilities.
"NET CASH PROCEEDS" means
(a) with respect to any Asset Sale by any Person, the aggregate cash
proceeds received by the Company or any of its Restricted Subsidiaries
(including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset
Sale), net of
(1) brokerage commissions and other reasonable fees and expenses
(including fees and expenses of counsel and investment bankers)
related to such Asset Sale,
(2) provisions for all taxes payable as a result of such Asset Sale,
(3) payments made to retire Indebtedness where such Indebtedness is
secured by the assets or properties that are the subject of such
Asset Sale,
(4) amounts required to be paid to any Person (other than the Company
or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and
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(5) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with
such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee and
(b) with respect to any issuance or sale of Capital Stock or options,
warrants or rights to purchase Capital Stock, or debt securities or
Capital Stock that has been converted into or exchanged for Capital
Stock as referred to under "--Certain Covenants--Limitation on
Restricted Payments," the proceeds of such issuance or sale in the
form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or
other assets when disposed of for, cash or Cash Equivalents (except to
the extent that such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary), net of attorney's fees,
accountant's fees and brokerage, consultation, underwriting and other
fees and expenses actually incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"PARI PASSU INDEBTEDNESS" means (a) any Indebtedness of the Company that is
equal in right of payment to the notes and (b) with respect to any Guarantee,
Indebtedness of a Guarantor which ranks equal in right of payment to such
Guarantor's Guarantee.
"PERMITTED BUSINESS" means the lines of business conducted by the Company
and its Restricted Subsidiaries on the Issue Date and businesses reasonably
related, complementary or ancillary thereto, including reasonably related
extensions or expansions thereof.
"PERMITTED INVESTMENT" means
(1) Investments in any Guarantor or any Wholly Owned Restricted
Subsidiary that is not a Guarantor or any Person that, as a
result of or in connection with such Investment, (a) becomes a
Guarantor or a Wholly Owned Restricted Subsidiary that is not a
Guarantor or (b) is merged or consolidated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Guarantor or any Wholly Owned
Restricted Subsidiary that is not a Guarantor;
(2) Indebtedness of the Company or a Restricted Subsidiary described
under clauses (4), (5), (6) and (7) of the definition of
"Permitted Indebtedness";
(3) Investments in any of the notes;
(4) Cash Equivalents;
(5) Investments acquired by the Company or any Restricted Subsidiary
in connection with an Asset Sale permitted under "--Certain
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Covenants--Limitation on Sale of Assets" to the extent such
Investments are non-cash proceeds as permitted under such
covenant;
(6) Investments in existence on the Issue Date;
(7) any Investment to the extent the consideration therefor consists
of Qualified Capital Stock of the Company;
(8) Investments representing Capital Stock or obligations issued to
the Company or any Restricted Subsidiary in the course of the
good faith settlement of claims against any other Person by
reason of a composition or readjustment of debt or a
reorganization of any debtor;
(9) prepaid expenses advanced to employees in the ordinary course of
business or other loans or advances to employees in the ordinary
course of business not to exceed $2.5 million in the aggregate at
any one time outstanding;
(10) accounts receivable arising and trade credit granted in the
ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof in connection with
accounts of financially troubled Persons to the extent reasonably
necessary in order to prevent or limit loss;
(11) any security or debt instrument retained by the Company or any
Subsidiary in connection with the creation of Vehicle Receivables
Indebtedness or Vehicle Inventory Indebtedness which security or
debt instrument represents a residual interest in assets sold or
transferred to an Eligible Special Purpose Entity;
(12) consumer loans and leases entered into, purchased or otherwise
acquired by the Company or its Subsidiaries, as lender, lessor or
assignee, as applicable, related to Automobile Retailing
Activities;
(13) Investments constituting the purchase of Capital Stock of a
Restricted Subsidiary by the Company or another Restricted
Subsidiary;
(14) deposits, including interest-bearing deposits, maintained in the
ordinary course of business with floorplan lenders; and
(15) in addition to the Investments described in clauses (1) through
(14) above, Investments in an amount not to exceed $25 million in
the aggregate at any one time outstanding.
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In connection with any assets or property contributed or transferred to any
Person as an Investment, such property and assets shall be equal to the Fair
Market Value (as determined by either (a) the board of directors of the Company
and evidenced by a board resolution or (b) the Board Designee and evidenced by a
certificate (or committee resolution, as the case may be), in each case whose
determination shall be conclusive) at the time of Investment.
"PERMITTED LIEN" means:
(a) any Lien existing as of the Issue Date;
(b) any Lien securing the Credit Facilities incurred pursuant to clause
(1) of the definition of "Permitted Indebtedness"; PROVIDED that such
Liens are limited to pledges of Capital Stock of Restricted
Subsidiaries of the Company;
(c) any Lien arising by reason of
(1) any judgment, decree or order of any court, so long as such Lien
is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not
have expired;
(2) taxes, governmental assessments or similar governmental charges
or levies not yet delinquent or which are being contested in good
faith;
(3) security for payment of workers' compensation, unemployment
insurance and other governmental insurance or benefits and/or
other insurance arrangements;
(4) good faith deposits in connection with bids, tenders, statutory
obligations, leases, contracts (other than contracts for the
payment of money);
(5) zoning restrictions, easements, licenses, reservations, title
defects, rights of others for rights of way, utilities, sewers,
electric lines, telephone or telegraph lines, and other similar
purposes, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of
title (and with respect to leasehold interests, mortgages,
obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent
of the lessee), none of which materially impairs the use of any
parcel of property material to the operation of the business of
the Company or any Subsidiary or the value of such property for
the purpose of such business;
(6) deposits to secure public or statutory obligations, or in lieu of
surety or appeal bonds; or
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(7) operation of law in favor of mechanics, carriers, warehousemen,
landlords, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business for sums which are
not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the
collection thereof;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of
such Indebtedness by the Company or any Restricted Subsidiary;
PROVIDED that the Lien shall attach only to the assets of the related
acquired entity and its Restricted Subsidiaries and not assets of the
Company and its Restricted Subsidiaries generally;
(e) any Lien to secure the performance bids, trade contracts, leases
(including, without limitation, statutory and common law landlord's
liens), statutory obligations, surety and appeal bonds, letters of
credit and other obligations of a like nature and incurred in the
ordinary course of business of the Company or any Subsidiary;
(f) any Lien securing Indebtedness permitted to be incurred under Interest
Rate Agreements, Currency Hedging Agreements or Commodity Price
Protection Agreements or otherwise incurred to hedge interest rate
risk or currency or commodity pricing risk;
(g) any Lien securing Capital Lease Obligations or Purchase Money
Obligations in existence as of the Issue Date and/or incurred in
accordance with the Indenture (including clause (8) of the definition
of "Permitted Indebtedness") and which are incurred or assumed solely
in connection with the acquisition, development or construction of
real or personal, movable or immovable property within 180 days of
such incurrence or assumption; PROVIDED that such Liens only extend to
such acquired, developed or constructed property, such Liens secure
Indebtedness in an amount not in excess of the original purchase price
or the original cost of any such assets or repair, addition or
improvement thereto, and the incurrence of such Indebtedness is
permitted by the "Limitation on Indebtedness" covenant;
(h) any Lien securing any Vehicle Inventory Indebtedness and/or Vehicle
Receivables Indebtedness;
(i) Liens securing Indebtedness under Mortgage Facilities permitted to be
incurred pursuant to clause (13) of the definition of "Permitted
Indebtedness";
(j) other Liens securing Indebtedness in an aggregate amount not to exceed
the greater of (x) $100 million and (y) 10% of the Company's
Consolidated Tangible Net Worth; and
(k) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (j)
so long as no additional collateral is granted as security thereby.
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"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock (other than Redeemable Capital Stock) of the Company with gross cash
proceeds to the Company of at least $50 million pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-4 (or any
successor form covering substantially the same transactions), Form S-8 (or any
successor form covering substantially the same transactions) or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets (including real property) related to the business of the Company and the
Restricted Subsidiaries and any additions and accessions thereto, which are
purchased (including in connection with the acquisition of a business by means
of stock purchase, merger or otherwise) or developed by the Company or a
Restricted Subsidiary at any time after the notes are issued; PROVIDED that
(1) the security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is
created (collectively a "Purchase Money Security Agreement")
shall be entered into within 180 days after the purchase or
substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased
or acquired, any additions or accessions thereto or any proceeds
therefrom,
(2) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto
and except in respect of fees and other obligations in respect of
such Indebtedness and
(3) the aggregate outstanding principal amount of Indebtedness
secured thereby (determined on a per asset basis in the case of
any additions and accessions) shall not at the time such Purchase
Money Security Agreement is entered into exceed 100% of the
purchase price to the Company or a Restricted Subsidiary of the
assets subject thereto.
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
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"REDEEMABLE CAPITAL STOCK" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the final Stated Maturity of the
principal of the notes or is redeemable at the option of the holder thereof at
any time prior to such final Stated Maturity (other than upon a change of
control of or sale of assets by the Company in circumstances where the holders
of the notes would have similar rights), or is convertible into or exchangeable
for debt securities at any time prior to such final Stated Maturity at the
option of the holder thereof.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the board of directors of the Company by a board resolution
delivered to the Trustee as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "Certain Covenants--Limitation on
Unrestricted Subsidiaries."
"SECURITIES ACT" means the Securities Act of 1933, or any successor
statute, and the rules and regulations promulgated by the Commission thereunder.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of determination,
any Restricted Subsidiary that represents 10% or more of the Company's total
consolidated assets at the end of the most recent fiscal quarter for which
financial information is available or 10% or more of the Company's consolidated
net revenue or consolidated operating income for the most recent four quarters
for which financial information is available.
"STANDARD & POOR'S" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., and its successors.
"STATED MATURITY" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Guarantor subordinated in right of payment to the notes or such Guarantor's
Guarantee, as the case may be.
"SUBSIDIARY" of a Person means
(1) any corporation more than 50% of the outstanding voting power of
the Voting Stock of which is owned or controlled, directly or
indirectly, by such Person or by one or more other Subsidiaries
of such Person, or by such Person and one or more other
Subsidiaries thereof, or
(2) any limited partnership of which such Person or any Subsidiary of
such Person is a general partner, or
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(3) any other Person in which such Person, or one or more other
Subsidiaries of such Person, or such Person and one or more other
Subsidiaries, directly or indirectly, have more than 50% of the
outstanding partnership or similar interests or have the power,
by contract or otherwise, to direct or cause the direction of the
policies, management and affairs thereof.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, or any
successor statute.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "Certain
Covenants--Limitation on Unrestricted Subsidiaries."
"UNRESTRICTED SUBSIDIARY INDEBTEDNESS" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary
(1) as to which neither the Company nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of the Company or any
such Restricted Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such
Indebtedness), except Guaranteed Debt of the Company or any
Restricted Subsidiary to any Affiliate, in which case (unless the
incurrence of such Guaranteed Debt resulted in a Restricted
Payment at the time of incurrence) the Company shall be deemed to
have made a Restricted Payment equal to the principal amount of
any such Indebtedness to the extent guaranteed at the time such
Affiliate is designated an Unrestricted Subsidiary and
(2) which, upon the occurrence of a default with respect thereto,
does not result in, or permit any holder of any Indebtedness of
the Company or any Restricted Subsidiary to declare, a default on
such Indebtedness of the Company or any Restricted Subsidiary or
cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; PROVIDED that notwithstanding the foregoing
any Unrestricted Subsidiary may guarantee the notes.
"VEHICLE INVENTORY INDEBTEDNESS" means Indebtedness (including pursuant to
a commercial paper program) incurred by the Company, any Restricted Subsidiary
or any Eligible Special Purpose Entity to purchase, lease, finance or refinance
or guaranty the purchasing, leasing, financing or refinancing of Vehicles in the
ordinary course of business of the Company and its Restricted Subsidiaries or
related receivables, which Indebtedness (x) is secured by the Vehicles or
related receivables so financed, to the extent, at any date of determination
thereof, the amount of such Indebtedness does not exceed the depreciated book
value of such Vehicles or the book value of such related receivables as
determined in accordance with GAAP applied on a consistent basis or (y) is
unsecured and provides for a borrowing base which may not exceed 85% of the
value of such Vehicles.
"VEHICLE RECEIVABLES INDEBTEDNESS" means Indebtedness (including pursuant
to a commercial paper program) incurred by any Eligible Special Purpose Entity
to finance, refinance or guaranty the financing or refinancing of consumer
receivables, leases, loans or retail installment contracts incurred in the sale,
transfer or lease of Vehicles; PROVIDED (x) such Indebtedness shall in
accordance with GAAP not appear as an asset or liability on the balance sheet of
the Company or any of its Restricted Subsidiaries; (y) no assets other than the
Vehicles, consumer receivables, leases, loans, retail installment contracts or
139
<Page>
related proceeds (including, without limitation, proceeds from insurance,
Vehicles and other obligations under such receivables, leases, loans or retail
installment contracts) to be financed or refinanced secure such Indebtedness;
and (z) neither the Company nor any of its other Restricted Subsidiaries shall
incur any liability with respect to such Indebtedness other than liability
arising by reason of (1) a breach of a representation or warranty or customary
indemnities, in each case contained in any instrument relating to such
Indebtedness or (2) customary interests retained by the Company and/or its
Restricted Subsidiaries in such Indebtedness.
"VEHICLES" means all now existing or hereafter acquired new and used
automobiles, sport utility vehicles, trucks and vans of all types and
descriptions, whether held for sale, lease, rental or operational purposes,
which relate to the Company's or any Restricted Subsidiary's Automobile
Retailing Activities.
"VOTING STOCK" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary all the
Capital Stock (other than directors' qualifying shares) of which is owned by the
Company or another Wholly Owned Restricted Subsidiary.
140
<Page>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material U.S. federal income tax
consequences associated with the exchange of outstanding notes for the exchange
notes issued in the exchange offer. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, judicial
authorities, published positions of the Internal Revenue Service (the "IRS") and
other applicable authorities, all as in effect on the date hereof and all of
which are subject to change or differing interpretations (possibly with
retroactive effect). The discussion does not address all of the tax consequences
that may be relevant to a particular holder or to certain holders subject to
special treatment under U.S. federal income tax laws (including, but not limited
to, certain financial institutions, partner ships or other pass-through
entities, insurance companies, broker-dealers and persons holding their notes as
part of a "straddle," "hedge," or "conversion transaction"). This discussion is
limited to persons that hold their notes as capital assets. We have not sought,
and do not intend to seek, a ruling from the IRS regarding the matters discussed
herein. Our counsel has not rendered any legal opinion regarding any tax
consequences relating to us or to an investor in the notes.
The exchange of the outstanding notes for the exchange notes issued in the
exchange offer should not be treated as an "exchange" for U.S. federal income
tax purposes because the exchange notes issued in the exchange offer should not
be considered to differ materially in kind or extent from the outstanding notes.
Rather, the notes issued in the exchange offer received by a holder should be
treated as a continuation of the outstanding notes in the hands of such holder.
As a result there should be no U.S. federal income tax consequences to holders
exchanging the outstanding notes for the exchange notes issued in the exchange
offer, and any exchanging holder of outstanding notes should have the same tax
basis and holding period in, and income in respect of, the exchange notes as
such holder had in the outstanding notes immediately prior to the exchange.
PROSPECTIVE HOLDERS OF THE EXCHANGE NOTES BEING ISSUED IN THE EXCHANGE
OFFER ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING SUCH HOLDERS' OUTSTANDING NOTES FOR THE EXCHANGE
NOTES BEING ISSUED IN THE EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
141
<Page>
PLAN OF DISTRIBUTION
The exchange offer is not being made to, nor will we accept tenders of or
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdictions.
Based on interpretations by the SEC set forth in no-action letters issued
to third parties, we believe that the exchange notes issued pursuant to the
exchange offer in exchange for the outstanding notes may be offered for resale,
resold and otherwise transferred by the holders thereof, other than any holder
which is (A) an "affiliate" of us within the meaning of Rule 405 under the
Securities Act, (B) a broker-dealer who acquired notes directly from us or (C) a
broker-dealer who acquired notes as a result of market-making or other trading
activities, without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such exchange notes are acquired
in the ordinary course of such holders' business, and such holders are not
engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such exchange
notes. However, broker-dealers receiving the exchange notes in the exchange
offer will be subject to a prospectus delivery requirement with respect to
resales of such exchange notes. To date, the SEC has taken the position that
these broker-dealers may fulfill their prospectus delivery requirements with
respect to transactions involving an exchange of securities such as the exchange
pursuant to the exchange offer, other than a resale of an unsold allotment from
the sale of the outstanding notes to the initial purchasers, with the prospectus
contained in the exchange offer registration statement. Pursuant to the
registration rights agreement, we have agreed to permit these broker-dealers to
use this prospectus in connection with the resale of such exchange notes.
Each holder of the outstanding notes who wishes to exchange its outstanding
notes for exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The Exchange Offer -- Resales of Exchange
Notes."
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the consummation of the exchange offer, we
will use our commercially reasonable efforts to make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until ______, 2001, all dealers effecting transactions
in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that partici pates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the
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meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
other than commissions or concessions of any broker-dealers and will indemnify
the holders of the securities, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the exchange notes offered by this prospectus will be
passed upon for us by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
EXPERTS
The consolidated balance sheets as of December 31, 2000 and 1999 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2000, included
in this prospectus and elsewhere in the Registration Statement, have been
audited by Arthur Andersen LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
144
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WHERE YOU CAN FIND MORE INFORMATION
AutoNation, Inc. files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may inspect and copy such
material at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may also obtain copies of such material from
the SEC at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition,
reports, proxy statements and other information concerning AutoNation can be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005, where our common stock is listed.
We have filed a registration statement on Form S-4 under the Securities
Act, as amended, of which this document forms a part, to register the exchange
notes to be issued to noteholders whose outstanding notes are accepted for
exchange pursuant to the exchange offer. This prospectus, and the related letter
of transmittal, constitute our offer to exchange. This document does not contain
all of the information set forth in the registration statement, selected
portions of which are omitted in accordance with the rules and regulations of
the SEC. For further information pertaining to us and the notes, reference is
made to the registration statement and its exhibits. Statements contained in
this document or in any document incorporated by reference as to the contents of
any contract or other document referred to within this document or other
documents that are incorporated by reference are not necessarily complete and,
in each instance, reference is made to the applicable contract or other document
filed as an exhibit to the registration statement or otherwise filed with the
SEC. Each statement contained in this document is qualified in its entirety by
reference to the underlying documents.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
http://www.sec.gov.
INCORPORATION BY REFERENCE
The following documents that we have filed with the SEC (File No. 1-13107)
are incorporated into this document by reference:
- Notice of Annual Meeting and Proxy Statement on Schedule 14A, filed
April 9, 2001;
- Current Report on Form 8-K, filed March 7, 2001;
- Current Report on Form 8-K, filed July 20, 2001;
- Current Report on Form 8-K, filed August 2, 2001; and
- Current Report on Form 8-K, filed October 31, 2001.
We also incorporate by reference all future filings we make with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of
1934 on or after the date of this prospectus and prior to the closing of the
offering made hereby. Such documents will become a part of this prospectus from
the date that the documents are filed with the SEC. Any statement contained
herein or in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified
145
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or superseded for the purposes of this prospectus to the extent that a statement
contained in any subsequently filed document which is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
146
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Certified Public Accountants............................... F-2
Consolidated Balance Sheets...................................................... F-3
Consolidated Income Statements................................................... F-4
Consolidated Statements of Shareholders' Equity.................................. F-5
Consolidated Statements of Cash Flows............................................ F-6
Notes to Consolidated Financial Statements for the
Fiscal Years 1998, 1999 and 2000.............................................. F-7
Unaudited Condensed Consolidated Balance Sheet................................... F-44
Unaudited Condensed Consolidated Income Statements............................... F-45
Unaudited Condensed Consolidated Statement of Shareholders' Equity............... F-46
Unaudited Condensed Consolidated Statements of Cash Flows........................ F-47
Notes to Unaudited Condensed Consolidated Financial Statements for the
Nine Months Ended September 30, 2001.......................................... F-48
</Table>
F-1
<Page>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of AutoNation, Inc.:
We have audited the accompanying consolidated balance sheets of AutoNation,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AutoNation,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 2001 (except with respect to the matters discussed in Note 17, as to
which the date is November 16, 2001).
F-2
<Page>
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
<Table>
<Caption>
1999 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 218.6 $ 82.2
Receivables, net...................................... 1,179.5 1,108.8
Inventory............................................. 2,706.8 2,769.2
Other current assets.................................. 165.6 216.0
----------- -----------
Total Current Assets............................... 4,270.5 4,176.2
Investments.............................................. 175.8 38.8
Property and equipment, net.............................. 1,360.4 1,538.1
Intangible assets, net................................... 2,831.0 2,920.2
Other assets............................................. 218.8 156.7
Net assets of discontinued operations.................... 726.6 --
----------- -----------
$ 9,583.1 $ 8,830.0
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 163.1 $ 143.2
Accrued liabilities................................... 622.9 453.0
Notes payable and current maturities of long-term debt 2,218.3 2,423.5
Other current liabilities............................. 129.9 121.6
----------- -----------
Total Current Liabilities.......................... 3,134.2 3,141.3
LONG-TERM DEBT, NET OF CURRENT
MATURITIES............................................ 836.1 850.4
DEFERRED INCOME TAXES.................................... 804.8 877.2
OTHER LIABILITIES........................................ 206.8 118.6
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized; none issued..................... -- --
Common stock, par value $0.01 per share;
1,500,000,000 shares authorized; 474,965,676 and
475,559,195 shares issued and outstanding including
shares held in treasury, respectively.............. 4.7 4.8
Additional paid-in capital............................ 4,661.5 4,664.7
Retained earnings..................................... 1,213.8 649.3
Accumulated other comprehensive income................ 6.6 1.0
Treasury stock, at cost; 99,602,444 and 127,473,709
shares held, respectively.......................... (1,285.4) (1,477.3)
----------- -----------
Total Shareholders' Equity......................... 4,601.2 3,842.5
----------- -----------
$ 9,583.1 $ 8,830.0
=========== ===========
</Table>
The accompanying notes are an integral part of these statements.
F-3
<Page>
AUTONATION, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
1998 1999 2000
----------- ----------- -----------
REVENUE........................................... $ 12,664.6 $ 20,111.8 $ 20,609.6
COST OF OPERATIONS................................ 10,733.0 17,183.2 17,577.1
----------- ----------- -----------
GROSS MARGIN...................................... 1,931.6 2,928.6 3,032.5
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES....................................... 1,388.3 2,279.4 2,177.7
DEPRECIATION...................................... 40.3 60.1 54.7
AMORTIZATION...................................... 39.6 62.9 79.1
ASSET IMPAIRMENT CHARGES
(RECOVERIES), NET.............................. -- 416.4 (3.8)
----------- ----------- -----------
OPERATING INCOME.................................. 463.4 109.8 724.8
FLOORPLAN INTEREST EXPENSE........................ (107.0) (125.2) (199.8)
OTHER INTEREST EXPENSE............................ (14.0) (34.9) (47.7)
INTEREST INCOME................................... 8.7 20.6 14.3
OTHER INCOME, NET................................. 1.5 2.2 33.4
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES................. 352.6 (27.5) 525.0
PROVISION FOR INCOME TAXES........................ 126.8 4.0 196.9
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS..................................... 225.8 (31.5) 328.1
----------- ----------- -----------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of
income taxes................................... 262.1 (30.6) 13.1
Gain (loss) on disposal of segments, net of income
taxes of $8.4, $516.9 and $(1.4), respectively 11.6 345.0 (11.3)
----------- ----------- -----------
273.7 314.4 1.8
----------- ----------- -----------
NET INCOME........................................ $ 499.5 $ 282.9 $ 329.9
=========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations............................. $ 0.50 $ (0.07) $ 0.91
Discontinued operations........................... 0.60 0.73 --
----------- ----------- -----------
Net income........................................ $ 1.10 $ 0.66 $ 0.91
=========== =========== ===========
Weighted average common shares outstanding........ 455.1 429.8 361.3
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations............................. $ 0.48 $ (0.07) $ 0.91
Discontinued operations........................... 0.58 0.73 --
----------- ----------- -----------
Net income........................................ $ 1.06 $ 0.66 $ 0.91
=========== =========== ===========
Weighted average common shares outstanding........ 470.9 429.8 361.4
=========== =========== ===========
</Table>
The accompanying notes are an integral part of these statements.
F-4
<Page>
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN MILLIONS)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK INCOME (LOSS)
-------- ---------- ---------- ------------- ---------- -------------
BALANCE AT DECEMBER 31, 1997.................... $ 4.3 $ 3,051.5 $ 431.4 $ (2.9) $ --
Comprehensive income (loss):
Net income................................... -- -- 499.5 -- -- $ 499.5
-------------
Other comprehensive income (loss):
Foreign currency translation adjustments.. -- -- -- -- -- (1.6)
Adjustments to marketable securities and
interest-only strip receivables......... -- -- -- -- -- 0.2
-------------
Other comprehensive loss.................. -- -- -- (1.4) -- (1.4)
-------------
Comprehensive income.................... -- -- -- -- -- $ 498.1
=============
Stock issued in acquisitions................. 0.3 540.9 -- -- --
Sale of common stock of Republic Services.... -- 998.5 -- -- --
Purchases of treasury stock............... -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of
$4.8 million............................... 0.1 38.0 -- -- --
-------- ---------- ---------- ------------- ----------
BALANCE AT DECEMBER 31, 1998.................... 4.7 4,628.9 930.9 (4.3) (136.0)
-------- ---------- ---------- ------------- ----------
Comprehensive income (loss):
Net income................................... -- -- 282.9 -- -- $ 282.9
-------------
Other comprehensive income (loss):
Foreign currency translation adjustments.. -- -- -- -- -- (1.9)
Adjustments to marketable securities and
interest-only strip receivables......... -- -- -- -- -- 12.8
-------------
Other comprehensive income................ -- -- -- 10.9 -- 10.9
-------------
Comprehensive income.................... -- -- -- -- -- $ 293.8
=============
Purchases of treasury stock.................. -- -- -- -- (1,158.0)
Issuance of treasury stock for employee
benefit plan............................... -- 0.1 -- -- 10.4
Exercise of stock options and warrants,
including income tax benefit of
$1.1 million............................... -- 28.5 -- -- --
Other........................................ -- 4.0 -- -- (1.8)
-------- ---------- ---------- ------------- ----------
BALANCE AT DECEMBER 31, 1999.................... 4.7 4,661.5 1,213.8 6.6 (1,285.4)
-------- ---------- ---------- ------------- ----------
Comprehensive income (loss):
Net income................................... -- -- 329.9 -- -- $ 329.9
-------------
Other comprehensive income (loss):
Foreign currency translation adjustments.... -- -- -- -- -- 6.4
Adjustments to marketable securities and
interest-only strip receivables........... -- -- -- -- -- (12.0)
-------------
Other comprehensive loss.................... -- -- -- (5.6) -- (5.6)
-------------
Comprehensive income...................... -- -- -- -- -- $ 324.3
=============
Purchases of treasury stock.................. -- -- -- -- (188.9)
Spin-off of ANC Rental Corporation........... -- -- (894.4) -- --
Exercise of stock options and warrants,
including income tax benefit of
$1.0 million............................... 0.1 2.2 -- -- --
Other........................................ -- 1.0 -- -- (3.0)
-------- ---------- ---------- ------------- ----------
BALANCE AT DECEMBER 31, 2000.................... $ 4.8 $ 4,664.7 $ 649.3 $ 1.0 $ (1,477.3)
======== ========== ========== ============= ==========
</Table>
The accompanying notes are an integral part of these statements.
F-5
<Page>
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<Table>
<Caption>
1998 1999 2000
------------- ------------- -------------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income............................................... $ 499.5 $ 282.9 $ 329.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 79.9 123.0 133.8
Deferred income tax provision (benefit)............... 12.2 (127.2) 91.3
Non-cash restructuring and impairment
(recovery).......................................... -- 432.9 (6.9)
Gain on sale of marketable securities, net............ -- (4.5) (23.7)
Valuation write-down on equity-method investment...... -- -- 30.0
Gain on sale of subsidiary............................ -- -- (53.5)
Income from discontinued operations................... (273.7) (314.4) (1.8)
Changes in assets and liabilities, net of effects from
business combinations:
Receivables......................................... (148.4) (140.9) (28.1)
Inventory........................................... 66.5 (380.8) (37.2)
Other assets........................................ (23.0) 42.0 (33.9)
Accounts payable and accrued liabilities............ (85.2) (33.3) (162.3)
Other liabilities................................... 90.0 167.5 43.9
------------- ------------- -------------
217.8 47.2 281.5
------------- ------------- -------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment...................... (256.7) (242.3) (148.2)
Proceeds from sale of property and equipment and assets
held for sale.......................................... 12.3 88.4 129.9
Purchases of marketable securities....................... (193.6) (88.6) (0.9)
Funding of installment loan receivables, net of
collections............................................ (965.5) (1,578.6) (562.3)
Proceeds from sales of installment loan receivables...... 706.4 1,599.4 720.3
Sales of marketable securities........................... 94.1 116.7 91.6
Cash used in business acquisitions, net of cash acquired. (804.3) (914.0) (313.3)
Cash received from business divestitures................. 55.1 131.3 178.7
Cash received on disposal of solid waste services segment 1,433.6 1,779.6 --
Restricted cash deposits................................. (39.2) (51.2) (76.6)
Other.................................................... (64.1) (15.2) (0.4)
------------- ------------- -------------
(21.9) 825.5 18.8
------------- ------------- -------------
CASH USED IN FINANCING ACTIVITIES:
Net proceeds under vehicle inventory financing facilities 65.1 429.7 159.4
Net proceeds (payments) under revolving credit facilities 250.0 169.0 (54.0)
Purchases of treasury stock.............................. (136.0) (1,158.0) (188.9)
Payments of notes payable and long-term debt............. (260.3) (126.1) (197.0)
Proceeds from sale-leaseback financing................... -- -- 52.1
Other.................................................... 32.2 29.0 1.3
------------- ------------- -------------
(49.0) (656.4) (227.1)
------------- ------------- -------------
CASH PROVIDED BY CONTINUING OPERATIONS...................... 146.9 216.3 73.2
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS.......... 451.4 (706.3) (227.0)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 598.3 (490.0) (153.8)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$44.9, $590.1 AND $17.4, RESPECTIVELY.................... 127.7 726.0 236.0
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD, INCLUDING CASH
AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$17.4 AND $590.1 AT DECEMBER 31, 1999 AND
1998, RESPECTIVELY....................................... $ 726.0 $ 236.0 $ 82.2
============= ============= =============
</Table>
The accompanying notes are an integral part of these statements.
F-6
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
INTRODUCTION
The audited consolidated balance sheets of AutoNation, Inc. and its
subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 2000 included herein
were included in the Company's 2000 Annual Report on Form 10-K. The following
notes to consolidated financial statements relate to the audited three-year
period ended December 31, 2000.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The Company is the largest automotive retailer in the United States. As of
December 31, 2000, the Company owned and operated approximately 400 new vehicle
franchises from dealerships in 18 states, predominantly in major metropolitan
markets in the Sunbelt states. The Company's dealerships offer new and used
vehicles for sale. Each dealership also offers financing for vehicle purchases,
extended service contracts and other finance and insurance products, as well as
other aftermarket products such as vehicle accessories, upgraded sound systems
and theft-deterrent systems. The Company's dealerships also offer service
facilities that provide a wide range of vehicle maintenance and repair services,
and operate collision repair centers in most key markets.
On June 30, 2000, the Company completed the spin-off of its former
automotive rental businesses, organized under ANC Rental Corporation ("ANC
Rental"), by distributing 100% of ANC Rental's common stock to AutoNation's
stockholders as a tax-free dividend. As a result of the spin-off, AutoNation
stockholders received one share of ANC Rental common stock for every eight
shares of AutoNation common stock owned as of the June 16, 2000 record date. As
discussed in Note 11, Discontinued Operations, the Company's former automotive
rental segment has been accounted for as discontinued operations in the
accompanying Consolidated Financial Statements and accordingly, the net assets
and operating results of ANC Rental for the periods prior to disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.
In July 1998, the Company's former solid waste subsidiary, Republic
Services, Inc., completed an initial public offering of 36.1% of its common
stock. In May 1999, the Company sold substantially all of its interest in
Republic Services in a public offering. As discussed in Note 11, Discontinued
Operations, the Company's former solid waste services segment has been accounted
for as discontinued operations in the accompanying Consolidated Financial
Statements and accordingly, operating results of Republic Services for the
periods prior to disposition have been classified as discontinued operations in
the accompanying Consolidated Financial Statements.
F-7
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries. The Company operates in a single industry
segment, automotive retailing. All intercompany accounts and transactions have
been eliminated. In order to maintain consistency and comparability between
periods presented, floorplan interest expense, depreciation and amortization and
certain other amounts have been reclassified from the previously reported
financial statements to conform to the financial statement presentation of the
current period.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
RECEIVABLES
The components of receivables, net of allowance for doubtful accounts, at
December 31 are as follows:
<Table>
<Caption>
1999 2000
-------------- --------------
Contracts in transit and vehicle receivables..................... $ 391.9 $ 407.5
Finance receivables.............................................. 441.5 350.2
Trade receivables................................................ 121.2 119.6
Manufacturer receivables......................................... 134.1 131.2
Other............................................................ 133.3 135.4
-------------- --------------
1,222.0 1,143.9
Less: allowance for doubtful accounts............................ (42.5) (35.1)
-------------- --------------
$ 1,179.5 $ 1,108.8
============== ==============
</Table>
Finance receivables consist of the following at December 31:
<Table>
<Caption>
1999 2000
-------------- --------------
Finance leases, net.............................................. $ 196.3 $ 147.8
Installment loans................................................ 83.8 50.3
Retained interests in securitized installment loans.............. 161.4 152.1
-------------- --------------
$ 441.5 $ 350.2
============== ==============
</Table>
The Company sells installment loan finance receivables in securitization
transactions with unrelated financial institutions. When the Company sells
receivables in securitizations, it retains interest-only strips, one or more
subordinated tranches, servicing rights, and cash reserve accounts, all of which
are retained interests in the securitized receivables. Gains or losses on the
sale of the receivables depend in part on the previous carrying amount of the
financial assets involved in the transfer, allocated between the assets sold and
the retained interests based on their relative fair value at the date of
transfer. Gains or losses from the sale of the receivables are recognized in the
period in which sales occur. Interest-only strips are carried at fair value and
marked to market as a component of other comprehensive income unless an other
than temporary impairment occurs in the valuation of the interest-only strip in
which case the impairment is recorded in the Consolidated Income Statements.
Retained interests in the securitized receivables are carried at allocated
carrying amounts and periodically assessed for impairment. Servicing assets are
initially recorded at allocated carrying amounts and subsequently amortized over
the servicing period and periodically assessed for impairment. The Company
generally estimates fair value utilizing valuation models based on the present
value of future expected cash flows estimated using the Company's best estimate
and historical experience of the key assumptions including credit losses,
voluntary prepayment speeds, forward yield curve, and discount rates
commensurate with the risks involved.
F-9
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company accounts for the sale of receivables in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities--a Replacement of FASB No.
125" ("SFAS 140") was issued. SFAS 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. SFAS 140 disclosure requirements are effective for
fiscal years ending after December 15, 2000, and have been included in Note 13,
Asset Securitizations. Accounting for transfers and servicing of financial
assets and extinguishment of liabilities under SFAS 140 is effective for
transactions occurring after March 31, 2001. Although additional interpretive
guidance is expected from the Financial Accounting Standards Board ("FASB"), the
Company does not expect the adoption of the accounting requirements of SFAS 140,
as currently interpreted, will have a material impact on its consolidated
financial position, results of operations or cash flows.
As described in Note 10, Restructuring and Impairment Charges (Recoveries),
Net, during 2000, an impairment charge totaling $16.6 million related to the
deterioration of vehicle residual values associated with finance lease
receivables was recognized. Finance lease originations were discontinued in
mid-1999 and the majority of the remaining leases terminate in late 2001.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among other
things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 is
effective for fiscal quarters beginning after March 15, 2001. The Company plans
to adopt EITF 99-20 on April 1, 2001. The Company does not expect adoption of
EITF 99-20 to have a material impact on its consolidated financial position,
results of operations or cash flows.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition,
reconditioning and transportation expenses. Parts and accessories are valued at
the factory list price which approximates lower of cost (first-in, first-out) or
market.
Inventory acquired in business acquisitions is recorded at fair value.
Adjustments to convert from the acquired entity's accounting method (generally
last-in, first-out) to the Company's accounting method are recorded as an
adjustment to the cost in excess of the fair value of net assets acquired.
F-10
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
A summary of inventory at December 31 is as follows:
<Table>
<Caption>
1999 2000
-------------- --------------
New vehicles..................................................... $ 2,085.0 $ 2,295.8
Used vehicles.................................................... 470.1 317.9
Parts, accessories and other..................................... 151.7 155.5
-------------- --------------
$ 2,706.8 $ 2,769.2
============== ==============
</Table>
OTHER CURRENT ASSETS
Other current assets consist primarily of restricted cash deposits related
to insurance programs totaling $91.9 million and $160.8 million at December 31,
1999 and 2000, respectively.
INVESTMENTS
Investments consist of marketable securities and investments in businesses
accounted for under the equity-method. Marketable securities include investments
in debt and equity securities classified as available-for-sale and are stated at
fair value with unrealized gains and losses included in other comprehensive
income. Other-than-temporary declines in investment values are recorded as a
component of Other Income, Net in the Company's Consolidated Income Statements.
Fair value is estimated based on quoted market prices. Equity-method investments
represent investments in 50% or less owned automotive-related businesses over
which the Company has the ability to exercise significant influence. The Company
records its initial equity-method investments at cost and subsequently adjusts
the carrying amounts of the investments for the Company's share of the earnings
or losses of the investee after the acquisition date as a component of Other
Income, Net in the Company's Consolidated Income Statements. The Company
continually assesses whether equity-method investments should be evaluated for
possible impairment by use of an estimate of the related undiscounted cash
flows. The Company measures impairment losses based upon the amount by which the
carrying amount of the asset exceeds the fair value.
A summary of investments at December 31 is as follows:
<Table>
<Caption>
1999 2000
-------------- --------------
Marketable securities............................................ $ 106.2 $ 5.2
Equity-method investments........................................ 69.6 33.6
-------------- --------------
$ 175.8 $ 38.8
============== ==============
</Table>
F-11
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
Investments in marketable securities at December 31 are as follows:
<Table>
<Caption>
1999
-----------------------------------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- -------------- -------------- --------------
U.S. government debt securities.................... $ 37.2 $ -- $ (0.6) $ 36.6
Corporate debt securities.......................... 21.5 -- (0.4) 21.1
Equity securities.................................. 27.4 21.1 -- 48.5
-------------- -------------- -------------- --------------
$ 86.1 $ 21.1 $ (1.0) $ 106.2
============== ============== ============== ==============
<Caption>
2000
-----------------------------------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- -------------- -------------- --------------
Corporate debt securities.......................... $ 0.6 $ -- $ -- $ 0.6
Equity securities.................................. 3.1 1.5 -- 4.6
-------------- -------------- -------------- --------------
$ 3.7 $ 1.5 $ -- $ 5.2
============== ============== ============== ==============
</Table>
Proceeds from sales of available-for-sale securities were $94.1 million,
$116.7 million, and $91.6 million for the years ended December 31, 1998, 1999,
and 2000, respectively. Gross realized gains and losses were not material for
the year ended December 31, 1998. Gross realized gains and losses of $5.3
million and $.8 million, respectively were recognized for the year ended
December 31, 1999. Gross realized gains and losses of $24.0 million and $.3
million, respectively were recognized for the year ended December 31, 2000. In
2000, the Company recognized a pre-tax $30.0 million valuation write-down to an
equity-method investment in a privately-held salvage and parts recycling
business which has been reflected in Other Income, Net in the accompanying 2000
Consolidated Income Statement.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in the Consolidated Income Statements.
F-12
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation and amortization are provided
over the estimated useful lives of the assets involved using the straight-line
method. The estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for equipment and five to ten years for
furniture and fixtures.
A summary of property and equipment at December 31 is as follows:
<Table>
<Caption>
1999 2000
-------------- --------------
Land............................................................. $ 529.7 $ 596.2
Buildings and improvements....................................... 670.9 827.4
Furniture, fixtures and equipment................................ 310.5 282.3
-------------- --------------
1,511.1 1,705.9
Less: accumulated depreciation and amortization.................. (150.7) (167.8)
-------------- --------------
$ 1,360.4 $ 1,538.1
============== ==============
</Table>
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the property and equipment in
assessing whether an asset has been impaired. The Company measures impairment
losses based upon the amount by which the carrying amount of the asset exceeds
the fair value. Fair values generally are estimated using prices for similar
assets and/or discounted cash flows. As described in Note 10, Restructuring and
Impairment Charges (Recoveries), Net, the Company recognized an impairment
charge in 1999 for the write-down of certain megastore and other properties held
for sale to fair value. Properties held for sale are included in Other Assets as
described below.
Additionally, during 2000, the Company sold an office building which is
occupied by ANC Rental, resulting in proceeds of approximately $18.7 million and
a pre-tax gain of $2.3 million reflected in Other Income, Net in the
accompanying 2000 Consolidated Income Statement.
INTANGIBLE ASSETS
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net assets acquired, including cost in excess of the
fair value of net assets not identified with specific acquired businesses, or
enterprise-level intangible assets. The cost in excess of the fair value of net
assets is amortized over forty years on a straight-line basis. Accumulated
amortization of intangible assets was $122.5 million and $195.4 million at
December 31, 1999 and 2000, respectively.
F-13
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing whether intangible assets have been impaired. The Company measures
impairment losses based upon the amount by which the carrying amount of the
asset exceeds the fair value.
In September 2000, the FASB issued an Exposure Draft entitled "Business
Combinations and Intangible Assets" which was revised in February 2001. The
Exposure Draft, if adopted, would prohibit the pooling method of accounting for
business combination transactions and would require that intangible assets in
excess of the fair value of net assets, goodwill, not be amortized. Goodwill
would be reduced only if found to be impaired or if associated with assets to be
sold or otherwise disposed. The FASB is expected to issue a final statement in
2001. During 2000, the Company recorded amortization expense of approximately
$73.7 million relating to goodwill. This statement, if issued as proposed, would
preclude future amortization of existing and any future goodwill on a
prospective basis from the date of issuance.
OTHER ASSETS
Other assets consist primarily of megastore and other properties held for
sale. As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company recognized an impairment charge in 1999 to
write-down the carrying value of properties held for sale to fair value. Assets
held for sale totaled approximately $212.0 million and $138.8 million at
December 31, 1999 and December 31, 2000, respectively.
INSURANCE
Under self-insurance programs, the Company retains various levels of
aggregate loss limits, per claim deductibles and claims handling expenses as
part of its various insurance programs, including property and casualty and
employee medical benefits. Costs in excess of this retained risk per claim are
insured under various contracts with third party insurance carriers. The
ultimate costs of these retained insurance risks are estimated by management and
by actuarial evaluation based on historical claims experience, adjusted for
current trends and changes in claims-handling procedures.
REVENUE RECOGNITION
Revenue consists of sales of new and used vehicles and related finance and
insurance ("F&I") products, sales from fixed operations (parts, service and body
shop), sales of other products including wholesale units and retail financing.
The Company recognizes revenue in the period in which products are sold or
services are provided. Revenue on finance products represents fees earned by the
Company for notes placed with financial institutions in connection with customer
vehicle purchases financed and is recognized upon acceptance of credit by the
financial institution. Revenue on insurance products sold on
F-14
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
behalf of third party insurance companies in connection with vehicle sales is
recognized upon sale. An estimated allowance for chargebacks against revenue
recognized from sales of F&I products is established during the period in which
the related revenue is recognized. Revenue from retail financing and certain
loan origination costs are recognized over the term of the contract using the
interest method until the Company securitizes its installment loans.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The Company's revenue recognition policy is
in accordance with the provisions of SAB 101. Adoption of the provisions of SAB
101 did not have a material impact on the Company's consolidated financial
position, results of operations or cash flows as of and for the year ended
December 31, 2000.
A summary of the Company's revenue by major products and services for
the years ended December 31 is as follows:
<Table>
<Caption>
1998 1999 2000
-------------- -------------- --------------
New vehicles..................................................... $ 6,775.8 $ 11,481.0 $ 12,489.3
Used vehicles.................................................... 3,185.2 4,429.7 3,860.2
Fixed operations................................................. 1,383.2 2,222.0 2,334.9
F&I, net......................................................... 288.6 423.4 431.8
Other............................................................ 1,031.8 1,555.7 1,493.4
-------------- -------------- --------------
$ 12,664.6 $ 20,111.8 $ 20,609.6
============== ============== ==============
</Table>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate derivatives to manage the impact of
interest rate changes on securitized installment loan receivables. To a limited
extent, the Company has utilized interest rate derivatives to manage the impact
of interest rate changes on borrowings under the Company's variable rate vehicle
inventory and revolving credit facilities. The Company does not use derivative
financial instruments for trading purposes.
Derivative financial instruments entered into concurrently with
securitizations are accounted for at fair value as part of the proceeds received
in the determination of the gain or loss on sale. If a derivative financial
instrument entered into concurrently with a securitization is later terminated,
any resulting gain or loss is recognized in earnings upon termination.
F-15
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
Interest rate swaps are used at times to manage the impact of interest rate
changes on vehicle inventory and revolving credit facility borrowings. Under
interest rate swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional principal amount.
Income or expense under these instruments is recorded on an accrual basis as an
adjustment to the yield of the underlying exposures over the periods covered by
the contracts. If an interest rate swap is terminated early, any resulting gain
or loss is deferred and amortized as an adjustment of the cost of the underlying
exposure position over the remaining periods originally covered by the
terminated swap. If all or part of an underlying position is terminated, the
related pro-rata portion of any unrecognized gain or loss on the swap is
recognized in income at that time as part of the gain or loss on the
termination. Amounts receivable or payable under the agreements are included in
receivables or accrued liabilities in the accompanying Consolidated Balance
Sheets and were not material at December 31, 1999 or 2000.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the extent
effective, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
If SFAS 133 had to be applied to all derivative contracts in place on
December 31, 2000, including those embedded in other contracts, total assets and
total liabilities would have increased by approximately $14.3 million. The
Company does not expect there to be a material cumulative effect in earnings or
other comprehensive income from adoption of SFAS 133 as of January 1, 2001.
By requiring the use of fair value accounting, adoption of SFAS 133 could
cause increased volatility in earnings of future periods.
F-16
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. At December 31, 2000, the Company had
approximately $15.0 million of prepaid advertising costs associated with the
sale of the Company's former outdoor media business as discussed in Note 2,
Business Acquisitions and Divestitures. No advertising costs were capitalized at
December 31, 1999. Advertising expense was $158.0 million, $212.2 million and
$186.5 million for the years ended December 31, 1998, 1999, and 2000,
respectively.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents unless the investments
are legally or contractually restricted for more than three months. The effect
of non-cash transactions related to business combinations, as discussed in Note
2, Business Acquisitions and Divestitures, and other non-cash transactions are
excluded from the accompanying Consolidated Statements of Cash Flows.
The Company made interest payments of approximately $190.2 million, $175.2
million and $264.3 million for the years ended December 31, 1998, 1999 and 2000,
respectively, including interest on vehicle inventory financing. The Company
made income tax payments of approximately $139.8 million, $84.2 million and
$49.9 million for the years ended December 31, 1998, 1999 and 2000,
respectively.
As further discussed in Note 3, Notes Payable and Long-Term Debt, the
Company amended the terms of an existing lease facility and as a result, the
underlying leases have been accounted for as capital leases in 2000, with the
property and related debt included in the accompanying Consolidated Balance
Sheets.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Businesses acquired through December 31, 2000 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition.
During the year ended December 31, 2000, the Company acquired various
automotive retail businesses. The Company paid approximately $190.9 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting. During 2000, the Company also paid approximately $122.4
million in deferred purchase price for certain prior year automotive retail
acquisitions. At December 31, 2000, the Company accrued approximately $24.5
million of deferred purchase price due to former owners of acquired businesses.
During the year ended December 31, 1999, the Company acquired various
automotive retail businesses. The Company paid approximately $879.1 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting. During 1999, the Company also paid approximately $34.9
million in deferred purchase price for certain prior year automotive retail
acquisitions.
During the year ended December 31, 1998, the Company acquired various
businesses in the automotive retail, solid waste services and automotive rental
industries. With respect to continuing operations, the Company issued
approximately 21.9 million shares of the Company's common stock, par
F-17
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
value $0.01 per share, valued at $473.2 million and paid approximately $804.3
million in cash for acquisitions accounted for under the purchase method of
accounting. With respect to discontinued operations, the Company issued
approximately 3.4 million shares of common stock valued at $68.0 million and
paid approximately $494.4 million in cash and certain properties for
acquisitions accounted for under the purchase method of accounting.
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting related to continuing
operations for the years ended December 31 were as follows:
<Table>
<Caption>
1998 1999 2000
-------------- -------------- --------------
Property and equipment........................................... $ 403.5 $ 145.5 $ 21.9
Intangible and other assets...................................... 1,290.8 942.7 169.0
Working capital.................................................. 744.0 450.3 111.5
Debt assumed..................................................... (1,085.1) (623.8) (109.2)
Other liabilities................................................ (75.7) (35.6) (2.3)
Common stock issued.............................................. (473.2) -- --
-------------- -------------- --------------
Cash used in business acquisitions, net of cash acquired......... $ 804.3 $ 879.1 $ 190.9
============== ============== ==============
</Table>
The Company's unaudited pro forma consolidated results of continuing
operations assuming acquisitions accounted for under the purchase method of
accounting had occurred at the beginning of each period presented are as follows
for the years ended December 31:
<Table>
<Caption>
1999 2000
--------------- ---------------
Revenue.......................................................... $ 22,379.3 $ 21,113.1
Income (loss) from continuing operations......................... $ (12.0) $ 328.8
Diluted earnings (loss) per share from continuing operations..... $ (0.03) $ 0.91
</Table>
The unaudited pro forma results of continuing operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of each
period presented.
F-18
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
As described in Note 10, Restructuring and Impairment Charges (Recoveries),
Net, the Company has been divesting of certain non-core franchised automotive
dealerships. During 2000, the Company received approximately $89.7 million of
cash from the divestiture of franchised automotive dealerships. Gains and losses
on divestitures are included in Asset Impairment Charges (Recoveries) in the
accompanying Consolidated Income Statements and were not material during 2000.
The Company signed a definitive agreement to sell its Flemington dealer group.
The Company expects to complete the sale in the second quarter of 2001.
In November 2000, the Company completed the divestiture of its outdoor
media business for a purchase price of approximately $104.0 million. In
connection with the sale, the Company entered into a prepaid $15.0 million
advertising agreement and therefore, received net proceeds of $89.0 million. The
Company recognized a pre-tax gain of $53.5 million on the sale which has been
included in other Income, Net in the accompanying 2000 Consolidated Income
Statement.
Cash received from the divestiture of franchised automotive dealerships in
1998 and 1999 was $55.1 million and $131.3 million, respectively. Gains and
losses on divestitures, other than those recorded in the Company's 1999
restructuring and impairment charges, were not material in 1998 and 1999.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 is as follows:
<Table>
<Caption>
1999 2000
-------------- --------------
Vehicle inventory credit facilities; secured by the Company's vehicle inventory;
interest payable at LIBOR based rates; interest rates of 6.6% and 7.7%
at December 31, 1999 and 2000, respectively..................................... $ 2,210.6 $ 2,416.7
$1.5 billion unsecured revolving credit facilities; interest payable using LIBOR
based rates; interest rates of 6.6% and 7.6% at December 31, 1999 and 2000,
respectively.................................................................... 669.0 615.0
Other debt; secured by real property, equipment and other assets; interest
ranging from 7.5% to 8.0%; maturing through 2010................................ 174.8 242.2
-------------- --------------
3,054.4 3,273.9
Less: current maturities........................................................ (2,218.3) (2,423.5)
-------------- --------------
$ 836.1 $ 850.4
============== ==============
</Table>
As of December 31, 2000, the Company had $615.0 million drawn under two
unsecured revolving credit facilities totaling $1.5 billion. One facility
provides $1.0 billion of financing under a multi-year structure and matures
April 2002. The other facility, a $500.0 million 364-day facility, was amended
prior to its scheduled maturity in March 2001 to provide $250.0 million of
borrowing capacity until the earlier
F-19
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
of September 30, 2001 or the early renewal of the Company's multi-year $1.0
billion facility. The Company's revolving credit facilities require, among other
items, that the Company maintain certain financial ratios and comply with
certain financial covenants. The Company was in compliance with these ratios and
covenants at December 31, 2000 and 1999.
The Company finances vehicle inventory through secured financings,
primarily floorplan facilities, with manufacturers' captive finance
subsidiaries, as well as independent financial institutions, and, until
recently, a bank-sponsored commercial paper conduit facility that matured
January 19, 2001, and was not renewed. As of December 31, 2000, committed
capacity of the facilities was approximately $3.5 billion.
The Company is a lessee under a $500.0 million lease facility that was
established primarily to acquire and develop the Company's former megastore
properties. As originally structured, the facility had been accounted for as an
operating lease and included residual value guarantees. In 1999, certain
properties under the facility were reflected as capital leases. In connection
with the Company's 1999 restructuring activities described in Note 10,
Restructuring and Impairment Charges (Recoveries), Net, the Company accrued an
estimate of the liability under the residual value guarantees totaling
approximately $103.3 million as of December 31, 1999. At December 31, 1999,
$469.7 million was funded under this facility of which $152.5 million was
accounted for as capital leases and the remaining $317.2 million was accounted
for as operating leases. In September 2000, the Company funded its remaining
lease residual value guarantee obligation to the lessor, reduced the facility
size to $210.0 million and amended the terms of the facility by exercising its
option to purchase the leased properties at the end of the lease term. As a
result of the lease amendment, the remaining leases were required to be
accounted for as capital leases with the property and related debt reflected on
the balance sheet. As of December 31, 2000, $175.8 million was outstanding under
this facility and is included in Long-Term Debt in the accompany ing 2000
Consolidated Balance Sheet. Of the $175.8 million outstanding, $115.2 million is
associated with operating properties and $60.6 million is attributable to
properties held for sale. The facility matures April 2002. Interest payments are
LIBOR based.
During 2000, the Company entered into a sale-leaseback transaction
involving its corporate headquarters facility that resulted in net proceeds of
approximately $52.1 million. This transaction has been accounted for as a
financing lease, wherein the property remains on the books and continues to be
depreciated. The gain on this transaction will be recognized subsequent to the
ten-year lease term. The Company has the option to renew the lease at the end of
the lease term subject to certain conditions.
F-20
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
At December 31, 2000, aggregate maturities of notes payable and long-term
debt were as follows:
<Table>
2001............................................................. $ 2,423.5
2002............................................................. 797.7
2003............................................................. 4.3
2004............................................................. 3.9
2005............................................................. 4.2
Thereafter....................................................... 40.3
--------------
$ 3,273.9
==============
</Table>
4. INCOME TAXES
The Company and its subsidiaries file consolidated federal tax returns. The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". Accordingly, deferred income taxes have been provided to show
the effect of temporary differences between the recognition of revenue and
expenses for financial and income tax reporting purposes and between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
The components of the provision for income taxes from continuing operations
for the years ended December 31 are as follows:
<Table>
<Caption>
1998 1999 2000
-------------- -------------- --------------
Current:
Federal....................................................... $ 105.5 $ 108.4 $ 101.3
State......................................................... 9.1 22.8 4.3
Federal and state deferred....................................... 26.7 (111.2) 91.3
Change in valuation allowance.................................... (14.5) (16.0) --
-------------- -------------- --------------
Provision for income taxes....................................... $ 126.8 $ 4.0 $ 196.9
============== ============== ==============
</Table>
F-21
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
A reconciliation of the provision for income taxes calculated using the
statutory federal income tax rate to the Company's provision for income taxes
from continuing operations for the years ended December 31 is as follows:
<Table>
<Caption>
1998 1999 2000
-------------- -------------- --------------
Provision (benefit) for income taxes at statutory rate of 35%.... $ 123.4 $ (9.6) $ 183.8
Non-deductible expenses.......................................... 10.3 28.6 5.8
State income taxes, net of federal benefit....................... 7.6 1.0 10.1
Change in valuation allowance.................................... (14.5) (16.0) --
Other, net....................................................... -- -- (2.8)
-------------- -------------- --------------
Provision for income taxes....................................... $ 126.8 $ 4.0 $ 196.9
============== ============== ==============
</Table>
Components of the net deferred income tax liability at December 31 are as
follows:
<Table>
<Caption>
1999 2000
-------------- --------------
Deferred income tax liabilities:
Book basis in property over tax basis......................... $ 336.1 $ 360.8
Expenses deducted for tax, amortized for book................. 705.6 689.3
Deferred income tax assets:
Net operating losses.......................................... (4.2) (3.6)
Accruals not currently deductible............................. (342.0) (278.6)
Valuation allowance........................................... 109.3 109.3
-------------- --------------
Net deferred income tax liability................................ $ 804.8 $ 877.2
============== ==============
</Table>
At December 31, 2000, the Company had available domestic net operating loss
carryforwards primarily related to acquired businesses of approximately $9.4
million which begin to expire in the year 2011. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
Company provides valuation allowances to offset portions of deferred tax assets
due to uncertainty surrounding the future realization of such deferred tax
assets. The Company adjusts the valuation allowance in the period management
determines it is more likely than not that deferred tax assets will or will not
be realized. Future decreases to the valuation allowance may be allocated to
reduce intangible assets associated with business acquisitions accounted for
under the purchase method of accounting.
Over the past four years, the Company has engaged in certain transactions
that are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. The Company believes that its tax returns appropriately
reflect such transactions. At the present time, it is impossible to predict the
outcome of any challenge if the IRS determines to challenge the tax reporting of
such transactions.
F-22
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
5. OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss), net of
income taxes, are as follows for the years ended December 31:
<Table>
<Caption>
1998 1999 2000
------------------------------- ------------------------------- -------------------------------
PRE-TAX TAX NET PRE-TAX TAX NET PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Foreign currency translation
adjustments(1)................ $ (1.6) $ -- $ (1.6) $ (1.9) $ -- $ (1.9) $ 6.4 $ -- $ 6.4
Unrealized gain (loss) on
marketable securities and
interest-only strips.......... 0.7 (0.2) 0.5 23.1 (8.3) 14.8 (14.2) 5.3 (8.9)
Reclassification of realized
losses (gains)................ (0.4) 0.1 (0.3) (3.0) 1.0 (2.0) (7.1) 4.0 (3.1)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Other comprehensive income
(loss)........................ $ (1.3) $ (0.1) $ (1.4) $ 18.2 $ (7.3) $ 10.9 $ (14.9) $ 9.3 $ (5.6)
========= ========= ========= ========= ========= ========= ========= ========= =========
</Table>
- -----------
(1) Foreign currency translation adjustments relate to the Company's former
automotive rental businesses.
Accumulated other comprehensive income (loss) consists of the following at
December 31:
<Table>
<Caption>
1999 2000
--------------- ---------------
Foreign currency translation adjustments........................... $ (6.4) $ --
Unrealized gain on marketable securities and interest-only strips.. 13.0 1.0
--------------- ---------------
$ 6.6 $ 1.0
=============== ===============
</Table>
6. SHAREHOLDERS' EQUITY
The Company repurchased 9.1 million shares of common stock during 1998 for
an aggregate purchase price of $136.0 million. The Company repurchased 91.0
million shares of common stock during 1999 for an aggregate purchase price of
$1.16 billion. During the year ended December 31, 2000, the Company repurchased
27.6 million shares of its common stock, par value $.01 per share, under its
Board authorized share repurchase program for an aggregate purchase price of
$188.9 million. Through December 31, 2000, an aggregate of 127.7 million shares
of common stock have been repurchased under the Company's share repurchase
programs, authorized by the Company's Board of Directors in 1998 and 1999, for
an aggregate purchase price of $1.48 billion. As of March 26, 2001, the Company
repurchased
F-23
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
an additional 10.9 million shares of common stock for an aggregate purchase
price of $87.8 million, leaving approximately $179.2 million available for share
repurchases under the latest authorized program. Repurchases are made pursuant
to Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
As discussed in Note 11, Discontinued Operations, the Company completed the
tax-free spin-off of ANC Rental on June 30, 2000. As a result of the spin-off,
the Company's retained earnings were reduced by the net assets of ANC Rental
totaling $894.4 million. The equity adjustment resulting from the spin-off is
subject to further adjustment resulting from changes in estimated shared assets
and liabilities of AutoNation and ANC Rental and certain other matters. However,
such adjustments, if any, are not expected to be significant.
During the year ended December 31, 1998, the Company's former solid waste
subsidiary, Republic Services, completed an initial public offering of
approximately 36.1% of its outstanding common stock, resulting in net proceeds
of approximately $1.43 billion. In 1999, the Company sold substantially all of
its interest in Republic Services in a public offering resulting in proceeds of
approximately $1.78 billion. During 2000, the Company sold substantially all of
the remaining holdings of common stock of Republic Services resulting in
proceeds of approximately $48.2 million. A related pre-tax gain of $24.0 million
has been reflected in Other Income, Net, in the accompanying 2000 Consolidated
Income Statement.
The Company has five million authorized shares of preferred stock, par
value $0.01 per share, none of which are issued or outstanding. The Board of
Directors has the authority to issue the preferred stock in one or more series
and to establish the rights, preferences and dividends.
7. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which options to purchase
shares of common stock may be granted to key employees and directors of the
Company. Options granted under the plans are non-qualified and are granted at a
price equal to the quoted market price of the common stock on the trading day
immediately prior to the date of grant. Generally, options granted will have a
term of 10 years from the date of grant, and will vest in increments of 25% per
year over a four-year period on the yearly anniversary of the grant date. In
October 1998, the Company's Board of Directors approved the repricing of
approximately 32.1 million employee stock options to $12.75 per share, equal to
the closing price of the Company's common stock on the last business day prior
to the date of the re-pricing. Effective June 30, 2000, in conjunction with the
tax-free spin-off of ANC Rental, options to purchase approxi mately 2.8 million
shares of common stock held by employees of ANC Rental were canceled. In
addition, the Company's Board of Directors, in accordance with the terms of the
stock option plans, authorized the adjustment of employee stock options to
reflect the market effect on AutoNation's common stock resulting from the
spin-off. All other terms of the existing options, including the vesting
schedules, were unchanged.
F-24
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
A summary of stock option and warrant transactions is as follows for the
years ended December 31:
<Table>
<Caption>
1998 1999 2000
-------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------ ----------- ------------ ----------- ------------
Options and warrants outstanding at beginning
of period.................................. 48.1 $ 15.67 54.6 $ 12.52 50.9 $ 15.84
Granted...................................... 16.9 21.89 17.0 15.80 12.5 6.91
Exercised.................................... (9.3) 3.62 (7.8) 3.73 (0.6) 2.16
Canceled..................................... (1.1) 25.34 (12.9) 13.90 (10.2) 14.14
Spin-off adjustment.......................... -- -- -- -- 4.6 (1.57)
----------- ------------ ----------- ------------ ----------- ------------
Options and warrants outstanding at end of
period..................................... 54.6 $ 12.52 50.9 $ 15.84 57.2 $ 12.74
=========== ============ =========== ============ =========== ============
Options and warrants exercisable at end of
period..................................... 18.8 $ 11.27 15.4 $ 18.58 32.7 $ 14.59
Options available for future grants.......... 28.2 24.1 25.3
</Table>
The following table summarizes information about outstanding and
exercisable stock options at December 31, 2000:
<Table>
<Caption>
OUTSTANDING EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE (YRS.) PRICE SHARES PRICE
- ------------------------------------------- ----------- -------------- ------------ ----------- ------------
$ 1.02--$11.17 19.4 7.68 $ 8.35 6.7 $ 10.63
$11.51--$14.39 28.1 6.42 12.60 17.0 12.29
$14.56--$35.88 9.7 5.61 21.89 9.0 21.84
----------- -------------- ------------ ----------- ------------
57.2 6.71 $ 12.74 32.7 $ 14.59
=========== ============== ============ =========== ============
</Table>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby compensation cost related to stock options is
generally not recognized in determining net income. Had compensation cost for
the Company's stock option plans been determined pursuant to SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and earnings
per share would have decreased accordingly. Using the Black-Scholes option
pricing model for all options granted after
F-25
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
December 31, 1994, the Company's pro forma net income, pro forma earnings per
share and pro forma weighted average fair value of options granted, with related
assumptions, are as follows for the years ended December 31:
<Table>
<Caption>
1998 1999 2000
---- ---- ----
Pro forma net income................................................... $ 368.5 $ 199.5 $ 285.4
Pro forma diluted earnings per share................................... $ 0.81 $ 0.46 $ 0.79
Pro forma weighted average fair value of options granted............... $ 13.87 $ 6.87 $ 2.96
Risk free interest rates............................................... 4.76-4.82% 6.34-6.38% 5.07-5.15%
Expected dividend yield................................................ -- -- --
Expected lives......................................................... 5-7 Years 5-7 years 5-7 years
Expected volatility.................................................... 40% 40% 40%
</Table>
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought an action against one of the Company's California dealerships for
alleged customer fraud as well as several other claims. The California DMV seeks
to have the dealership's license to do business in California suspended or
revoked. The case is scheduled for trial beginning in April 2001. Three civil
class actions and other related lawsuits have been filed against the dealership
based on the allegations underlying the California DMV case. In addition, the
Los Angeles District Attorney's Office has been conducting an investigation into
the allegations underlying the California DMV case. The Company intends to
vigorously defend itself in these matters.
In an action filed in Florida state court in 1999, a wholly-owned
subsidiary of the Company was accused of violating the Florida Motor Vehicle
Retail Sales Finance Act and the Florida Deceptive and Unfair Trade Practices
Act by allegedly failing to deliver executed copies of retail installment
contracts to customers of the Company's used vehicle megastores. In October
2000, the court certified the class of customers on whose behalf the action
would proceed. The Company has appealed this decision and intends to vigorously
defend itself in this matter.
Several of the Company's Texas dealerships have been named in three class
actions brought against the Texas Automobile Dealer's Association ("TADA") and
new vehicle dealerships in Texas that are members of the TADA. The actions
allege, among other things, that since January 1994 Texas dealers have deceived
customers with respect to a vehicle inventory tax and violated federal antitrust
and other laws as well. These cases are currently pending in Texas State courts
and federal district court. The Company intends to vigorously defend itself in
these matters.
F-26
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
In addition to the above, the Company is a party to numerous other legal
proceedings that arose in the ordinary course of business.
The Company has certain insurance coverage and rights of indemnification.
The Company does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's business, consolidated results
of operations, financial condition or cash flows. However, the results of these
matters cannot be predicted with certainty, and an unfavorable resolution of one
or more of these matters could have a material adverse effect on the Company's
business, consolidated results of operations, financial condition and/or cash
flows.
LEASE COMMITMENTS
The Company leases real property, equipment and software under various
operating leases most of which have terms from 1 to 25 years.
Expenses under real property, equipment and software leases were $45.0
million, $86.2 million and $82.7 million for the years ended December 31 1998,
1999 and 2000, respectively.
Future minimum lease obligations under noncancellable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 2000 are as follows:
Year Ending December 31:
<Table>
2001.................................................................................................... $ 71.9
2002.................................................................................................... 63.6
2003.................................................................................................... 53.9
2004.................................................................................................... 40.5
2005.................................................................................................... 32.5
Thereafter.............................................................................................. 158.0
------------
$ 420.4
============
</Table>
OTHER MATTERS
In the normal course of business, the Company is required to post
performance and surety bonds, letters of credit, and/or cash deposits as
financial guarantees of the Company's performance. At December 31, 2000, surety
bonds and letters of credit totaled $27.2 million and have various expiration
dates.
In the ordinary course of business, the Company is subject to numerous laws
and regulations, including automotive, environmental, health and safety and
other laws and regulations. The Company does not anticipate that the costs of
such compliance will have a material adverse effect on its business,
consolidated results of operations, cash flows or financial condition although
such outcome is possible given the nature of the Company's operations and the
extensive legal and regulatory framework applicable to its business.
F-27
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise or conversion of options and warrants.
In computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share is as
follows for the years ended December 31:
<Table>
<Caption>
1998 1999 2000
---- ---- ----
Weighted average shares outstanding used in calculating basic earnings per share............ 455.1 429.8 361.3
Effect of dilutive options and warrants..................................................... 15.8 -- 0.1
------ ------ -----
Weighted average common and common equivalent shares used in calculating
diluted earnings per share............................................................... 470.9 429.8 361.4
====== ====== =====
</Table>
At December 31, 1998 and 1999, outstanding employee stock options of
approximately 4.8 and 50.9 million, respectively, have been excluded since they
are anti-dilutive. At December 31, 2000, the Company had employee stock options
outstanding of approximately 57.2 million of which 56.9 million have been
excluded from the computation of diluted earnings per share since they are
anti-dilutive.
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan was comprised of
the following major components: (1) exiting the used vehicle megastore business;
and (2) reducing the corporate workforce. The restructuring plan also included
divesting of certain non-core franchised dealerships. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in pre-tax charges of $443.7 million in 1999, of which
$416.4 million appears as Asset Impairment Charges (Recoveries), Net in the
Company's 1999 Consolidated Income Statements. These pre-tax charges include
$286.9 million of asset impairment charges; $103.3 million of reserves for
residual value guarantees for closed lease properties; $26.2 million of
severance and other exit costs; and $27.3 million of inventory related costs.
The $286.9 million asset impairment charge consists of: $244.9 million of
megastore and other property impairments; $26.6 million of goodwill impairment
reserves for the divestiture of certain non-core franchised automotive
dealerships; and $15.4 million of information systems impairments. Of the $443.7
million restructuring reserve recorded, $10.8 million of severance was paid in
1999 and
F-28
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
$53.7 million of asset impairments and write-offs were recorded during the
fourth quarter of 1999.
The Company intends to complete the sale of its Flemington dealer group
during the second quarter of 2001 as previously described in Note 2, Business
Acquisitions and Divestitures, resulting in the substantial completion of its
non-core dealership divestiture plan. Closed megastores and other properties are
being disposed of through sales to third parties. Although these properties are
being aggressively marketed, their ultimate disposition will not be
substantially completed until late 2001. Revenue for the operations disposed or
to be disposed was $1.70 billion, $2.12 billion and $923.5 million during 1998,
1999 and 2000 respectively. Operating income for the operations disposed or to
be disposed was $12.9 million, $15.5 million and $21.8 million for the years
ended December 31, 1998, 1999 and 2000 respectively.
The following summarizes activity in the Company's restructuring and
impairment reserves for the year ended December 31, 2000:
<Table>
<Caption>
DEDUCTIONS
----------
AMOUNTS
BALANCE CHARGED (CREDITED) BALANCE
RESERVE DECEMBER 31, 1999 TO INCOME CASH NON-CASH DECEMBER 31, 2000
------- ----------------- --------- ---- -------- -----------------
Asset reserves:
Asset impairment............. $ 263.3(1) $ (15.0) $ -- $ (86.9) $ 161.4
Inventory.................... 15.0 -- -- (15.0) --
Accrued liabilities:
Property lease residual
value guarantees.......... 103.3 (14.8) (88.5) -- --
Severance and other exit
costs..................... 17.3 9.4 (22.7) (2.8) 1.2
Finance lease residual
value write-down............. -- 16.6 -- (16.6) --
----------- ----------- --------- -------- ------------
$ 398.9 $ (3.8) $ (111.2) $ (121.3) $ 162.6
=========== =========== ========= ======== ============
</Table>
- -----------
(1) Includes $19.7 million of reserves that had been established on these
properties prior to the 1999 restructuring and impairment charges recorded.
F-29
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The following summarizes the components of the $3.8 million amount credited
to income during the year ended December 31, 2000:
<Table>
<Caption>
PROPERTIES PLACED ADDITIONAL
BACK INTO SERVICE NET GAIN ON IMPAIRMENT
OR RETAINED SOLD PROPERTIES CHARGES OTHER TOTAL
----------- --------------- ------- ----- -----
Asset reserves:
Asset impairment............................. $ (23.2) $ (3.4) $ 11.6 $ -- $ (15.0)
Accrued liabilities:
Property lease residual value guarantees..... (13.0) (1.8) -- -- (14.8)
Severance and other exit costs............... -- -- -- 9.4 9.4
Finance lease residual value write-down......... -- -- -- 16.6 16.6
---------- ---------- --------- -------- -----------
$ (36.2) $ (5.2) $ 11.6 $ 26.0 $ (3.8)
========== ========== ========= ======== ===========
</Table>
During 2000, certain events occurred which caused the Company to
re-evaluate its plans with respect to various retail properties. As a result,
certain megastore properties were placed back in service and the Company decided
to retain certain dealerships that had been held for sale. Accordingly, based
upon the Company's re-evaluation of the fair values of the properties, the
Company determined that the asset impairment and lease residual value reserves
for these properties were no longer necessary and the Company was required to
reverse the related estimated reserves totaling $36.2 million back into income.
An additional impairment charge of $11.6 million was recognized primarily
related to a decision in 2000 to close one additional megastore property as part
of the overall restructuring plan. During 2000, the Company also recognized an
impairment charge totaling $16.6 million associated with the deterioration in
residual values of finance lease receivables. The Company discontinued writing
finance leases in mid-1999 and the majority of the leases terminate in late
2001.
11. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax-free spin-off of ANC
Rental. Accordingly, the net assets and operating results of ANC Rental have
been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Income from discontinued
operations during the year ended December 31, 2000, is net of previously
estimated losses of $22.1 million which were accrued in 1999 and additional
costs associated with the spin-off totaling $11.3 million recorded in 2000. In
1999, the Company recorded a loss related to ANC Rental of $34.1 million, net of
income taxes, representing the estimated loss from operations through the
expected distribution date and costs associated with the spin-off.
F-30
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
In connection with the spin-off, the Company made certain capital
contributions to ANC Rental prior to the spin-off. These contributions include
cash of approximately $200.0 million and the net assets of an insurance
subsidiary. The Company also entered into various agreements with ANC Rental
which set forth the terms of the distribution and other agreements governing the
Company's relationship with ANC Rental after the spin-off. As a result of the
spin-off, the Company's equity was reduced by the net assets of ANC Rental
totaling $894.4 million.
In connection with the spin-off, the Company agreed to continue to provide
ANC Rental with guarantees and other credit enhancements, currently with respect
to certain indebtedness and certain property and vehicle lease obligations. The
Company receives fees for providing these guarantees commensurate with market
rates. To the extent that ANC Rental is not able to meet its obligations, the
Company would be likely to be called on to perform under guarantees and credit
enhancements provided by the Company, which could have a material adverse effect
on the Company's business, consolidated results of operations, financial
condition and/or cash flows.
In July 1998, the Company's former solid waste services subsidiary,
Republic Services, completed an initial public offering of 36.1% of its
outstanding common stock resulting in net proceeds of approximately $1.43
billion. In May 1999, the Company sold substantially all of its remaining
interest in Republic Services in a public offering resulting in net proceeds of
approximately $1.78 billion and an after tax gain of approximately $377.0
million. Accordingly, operating results of Republic Services for the period
prior to disposition have been classified as discontinued operations in the
accompanying Consolidated Financial Statements.
In October 1997, the Company sold its electronic security division
resulting in an after tax gain of approximately $230.0 million. In 1999 and
1998, the Company recognized additional after tax gains of approximately $2.1
million and $11.6 million, respectively, related to finalizing the gain on
disposition.
A summary of the net assets of discontinued operations as of December 31,
1999 for the automotive rental businesses is as follows:
<Table>
Current assets........................................... $ 5,349.3
Non-current assets....................................... 1,000.2
--------------
Total assets.......................................... 6,349.5
Current liabilities...................................... 2,235.8
Non-current liabilities.................................. 3,387.1
--------------
Total liabilities..................................... 5,622.9
--------------
Net assets of discontinued operations.................... $ 726.6
==============
</Table>
F-31
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
Selected income statement data for the Company's discontinued operations
for the years ended December 31 is as follows:
<Table>
<Caption>
1998
---------------------------------------------------
AUTOMOTIVE SOLID
RENTAL WASTE TOTAL
------ ----- -----
Revenue.............................................. $ 3,453.6 $ 1,369.1 $ 4,822.7
=============== ================ ==================
Pre-tax income....................................... 170.1 292.5 462.6
Provision for income taxes........................... 61.3 105.3 166.6
Extraordinary charge, net of income taxes............ -- -- --
Minority interest in RSG............................. -- 33.9 33.9
--------------- ---------------- ------------------
Net income........................................... 108.8 153.3 262.1
Previously estimated and accrued losses.............. -- -- --
--------------- ---------------- ------------------
Income from discontinued operations.................. $ 108.8 $ 153.3 $ 262.1
=============== ================ ==================
</Table>
<Table>
<Caption>
1999
----------------------------------------------------- 2000
AUTOMOTIVE SOLID AUTOMOTIVE
RENTAL WASTE TOTAL RENTAL
------ ----- ----- ------
Revenue....................................... $ 3,542.3 $ 552.5 $ 4,094.8 $ 1,721.2
============= ============== ============ =========
Pre-tax income................................ (88.2)(1) 100.8 12.6 (14.8)
Provision (benefit) for income taxes.......... (18.8) 38.8 20.0 (5.8)
Extraordinary charge, net of income taxes..... 1.6 -- 1.6 --
Minority interest in RSG...................... -- 21.6 21.6 --
------------- -------------- ------------ ---------
Net income (loss)............................. (71.0) 40.4 (30.6) (9.0)
Previously estimated and accrued losses....... -- -- -- 22.1
------------- -------------- ------------ ---------
Income (loss) from discontinued operations.... $ (71.0) $ 40.4 $ (30.6) $ 13.1
============= ============== ============ =========
</Table>
- -----------
(1) Includes pre-tax restructuring and other charges of $40.5 million in 1999
primarily related to ANC Rental's consolidation of its North American
operations and other restructuring activities.
F-32
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate derivative transactions with
certain financial institutions to manage the impact of interest rate changes on
securitized installment loan receivables. These derivative transactions consist
of a series of interest rate caps and floors with an aggregate notional amount
of $576.3 million contractually maturing through 2006 which effectuate a
variable to fixed rate swap at a weighted average rate of 6.62% at
December 31, 2000. Variable rates on the underlying portfolio are indexed to
the Commercial Paper Nonfinancial Rate.
The amounts exchanged by the counterparties to interest rate derivatives
are based upon the notional amounts and other terms, generally related to
interest rates, of the derivatives. While notional amounts of interest rate
derivatives form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Company's exposure as an end user
of derivative financial instruments.
The Company is exposed to credit related losses in the event of
non-performance by counterparties to derivative financial instruments. The
Company monitors the credit worthiness of the counterparties and presently does
not expect default by any of the counterparties. The Company does not obtain
collateral in connection with its derivative financial instruments.
The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 14, Fair Value of Financial Instruments, for the fair
value of derivatives.
13. ASSET SECURITIZATIONS
The Company securitizes installment loan receivables through a $1.0 billion
commercial paper warehouse facility with unrelated financial institutions.
During 2000, the Company sold unsecured installment loan finance receivables of
$580.1 million under this program, net of retained interests. The Company
continues to service and receive annual servicing fees on the outstanding
balance of securitized receivables. The Company also retains a subordinated
interest in the sold receivables and the rights to future cash flows arising
from the receivables after the investors receive their contractual return. The
Company provides additional credit enhancement in the form of restricted cash
deposits. At December 31, 2000, $576.3 million was outstanding under this
program, net of retained interests. As further discussed in Note 12, Derivative
Financial Instruments, the Company enters into interest rate protection
agreements to manage the interest rate changes on amounts securitized and on the
Company's retained interests.
The Company also securitizes installment loan receivables through the
issuance of asset-backed notes through a non-consolidated special purpose entity
under a $2.0 billion shelf registration statement. Through December 31, 2000,
$1.48 billion has been issued and approximately $521.5 million remains to be
issued under this program. The Company uses proceeds from these notes to
refinance installment
F-33
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
loans previously securitized under the warehouse facility and to securitize
additional loans held by the Company. The Company provides credit enhancement
related to these notes in the form of overcollateralization, a reserve fund and
a third party surety bond. The Company retains responsibility for servicing the
loans for which it is paid a servicing fee. During 2000, approximately $691.7
million in additional asset-backed notes were issued and at December 31, 2000,
$1.0 billion was outstanding under this program, net of retained interests.
These transactions typically result in the recording of a securitization
asset in the form of an interest-only strip which represents the present value
of the future residual cash flows from securitized receivables. The investors
and the securitization trusts have no recourse to the Company's assets for
failure of debtors to pay when due except to the extent of the Company's rights
to future cash flow and any subordinated interest the Company retains.
In 2000, recognized pre-tax gains on the securitization of installment loan
receivables were not material to the Company's Consolidated Financial
Statements.
A summary of cash flows received from securitization trusts for the year
ended December 31, 2000, were as follows:
<Table>
Proceeds from securitizations under warehouse facility........ $ 580.1
Proceeds from securitizations under shelf registration........ 691.7
Servicing fees received....................................... 17.4
Other cash flows received on retained interests(1)............ 70.7
Purchases of assets from warehouse facility................... (639.6)
----------------
$ 720.3
================
</Table>
- -----------
(1) Other cash flows primarily include cash flows from interest-only strips and
other retained interests, excluding servicing fees.
F-34
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The key economic assumptions used in measuring the retained interests and
net initial gains or losses at the date of securitization resulting from
securitizations completed during the year ended December 31, 2000 were as
follows:
<Table>
<Caption>
DESCRIPTION: ASSUMPTION(1)
- ------------ -------------
Voluntary prepayment speed (ABS)............................. 1.33%
Weighted-average life (in years)............................. 1.72
Expected credit losses (annual rate)......................... 1.08%
Discount rate on residual cash flows (annual rate)........... 9.50%
Yield (interest rate on receivables)......................... 12.05%
Variable rate to investors................................... 7.39%
</Table>
- -----------
(1) The weighted-average rates for securitizations entered into during the
period for securitizations of loans with similar characteristics.
At December 31, 2000, the carrying value (current fair value) of the
interest-only strips was $68.5 million, with a weighted-average life of 1.58
years. The sensitivity of the current fair value of the residual cash flows to
10 percent and 20 percent unfavorable changes in assumptions are presented in
the table below. These sensitivities are hypothetical and should not be
considered to be predictive of future performance. The effect of a variation in
a particular assumption on the fair value of the residual cash flow is
calculated independently from any change in another assumption. In reality,
changes in one factor may contribute to changes in another (for example,
increases in market interest rates may result in lower prepayments and increased
credit losses), which might magnify or counteract the sensitivities. Further
more, the estimated fair values as disclosed should not be considered indicative
of future earnings on these assets. The current annual rate assumptions reflect
expected performance of the total loans securitized as of December 31, 2000.
<Table>
<Caption>
$ EFFECT ON INTEREST-ONLY STRIP OF
----------------------------------
CURRENT 10% CHANGE 20% CHANGE
DESCRIPTION: RATE ASSUMPTION IN ASSUMPTION IN ASSUMPTION
- ------------ --------------- ------------- -------------
Voluntary prepayment speed (ABS)........................... 1.16% $2.4 $4.8
Expected credit losses (annual rate)....................... 1.06% $2.2 $4.3
Discount rate on residual cash flows (annual rate)......... 9.50% $1.0 $1.9
Variable rate to investors (annual rate)................... 7.30% $16.6 $32.9
</Table>
F-35
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
As of December 31, 2000, the Company had expected static pool credit losses
of 2.28%, which would have averaged to an annual rate of 1.13%.
The following summarizes information about managed or securitized
installment loans and delinquencies and net credit losses at December 31, 2000:
<Table>
<Caption>
TOTAL PRINCIPAL PRINCIPAL AMOUNT OF LOANS
AMOUNT OF LOANS 60 DAYS OR MORE PAST DUE
--------------- ------------------------
Loans securitized................................ $ 1,619.2 $ 7.8
Loans retained on balance sheet.................. 50.3 0.4
------------------ ------------
Total loans managed or securitized............... $ 1,669.5 $ 8.2
================== ============
</Table>
Net credit losses are charge-offs less recoveries and are based on total
installment loans managed or securitized. Net credit losses during the year
ended December 31, 2000 totaled $31.5 million.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore cannot be determined with
precision. The assumptions used have a significant effect on the estimated
amounts reported.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
- Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable rate debt: the amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.
F-36
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
- Installment loans receivable and retained interests in securitized
receivables: The fair value of installment loans receivable and
retained interests in securitized receivables are estimated based upon
the discounted value of the future cash flows expected to be received.
Significant assumptions used to estimate the fair value at December
31, 1999 and 2000 are as follows: discount rate--9.64% and 9.51%;
cumulative loss rate--1.93% and 2.39%; and prepayment rate--1.50% and
1.16%.
- Interest rate swaps, caps and floors: the fair value of interest rate
swaps, caps and floors is determined from dealer quotations and
represents the discounted future cash flows through maturity or
expiration using current rates, and is effectively the amount the
Company would pay or receive to terminate the agreements.
The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which carrying
amounts approximate fair value, as of December 31:
<Table>
<Caption>
1999 2000
---------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Installment loans receivable............................................ $ 83.8 $ 84.8 $ 50.3 $ 53.9
Retained interests in securitized receivables:
Principal............................................................ $ 101.4 $ 101.3 $ 76.1 $ 76.7
Interest-only strips................................................. $ 51.8 $ 51.8 $ 68.5 $ 68.5
Servicing assets..................................................... $ 8.2 $ 8.2 $ 7.5 $ 7.9
Interest rate caps...................................................... -- $ 18.5 -- $ 2.6
Interest rate floors.................................................... -- $ (7.7) -- $ (14.3)
Interest rate swaps..................................................... -- $ 0.1 -- $ --
</Table>
F-37
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
15. BUSINESS AND CREDIT CONCENTRATIONS
The Company owns and operates franchised automotive dealerships in the
United States.
Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
or distributors with considerable influence over the operations of the
dealership and generally provide for termination of the franchise agreement for
a variety of causes. The success of any franchised automotive dealership is
dependent, to a large extent, on the financial condition, management, marketing,
production and distribution capabilities of the vehicle manufacturers or
distributors of which the Company holds franchises. At December 31, 1999 and
2000, the Company had receivables from manufacturers or distributors of $134.1
million and $131.2 million, respectively.
The Company purchases substantially all of its new vehicles from various
manufacturers or distributors at the prevailing prices to all franchised
dealers. The Company's sales volume could be adversely impacted by the
manufacturers' or distributors' inability to supply the dealerships with an
adequate supply of vehicles.
Concentrations of credit risk with respect to non-manufacturer trade
receivables are limited due to the wide variety of customers and markets in
which the Company's products are sold as well as their dispersion across many
different geographic areas in the United States. Consequently, at December 31,
2000, the Company does not consider itself to have any significant
non-manufacturer concentrations of credit risk.
16. QUARTERLY INFORMATION (UNAUDITED)
The Company's operations generally experience higher volumes of vehicle
sales in the second and third quarters of each year in part due to consumer
buying trends and the introduction of new vehicle models. Also, demand for cars
and light trucks is generally lower during the winter months than in other
seasons, particularly in regions of the United States where dealerships may be
subject to harsh winters. Accordingly, the Company expects revenue and operating
results to be generally lower in the first and fourth quarters as compared to
the second and third quarters.
Operating income (loss) in the fourth quarter of 1999 includes
restructuring and impairment charges of $443.7 million, as described in Note 10,
Restructuring and Impairment Charges (Recoveries), Net.
F-38
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The following is an analysis of certain items in the Consolidated Income
Statements by quarter for 1999 and 2000:
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenue........................................................ 1999 $ 4,562.7 $ 5,069.6 $ 5,459.7 $ 5,019.8
2000 $ 5,230.2 $ 5,339.5 $ 5,338.1 $ 4,701.8
Operating income (loss)........................................ 1999 $ 120.1 $ 183.1 $ 170.3 $ (363.7)
2000 $ 163.0 $ 203.9 $ 197.3 $ 160.6
Income (loss) from continuing operations....................... 1999 $ 58.4 $ 97.1 $ 92.6 $ (279.6)
2000 $ 64.7 $ 96.6 $ 93.1 $ 73.7
Basic earnings (loss) per share from continuing operations(1).. 1999 $ 0.13 $ 0.22 $ 0.22 $ (0.71)
2000 $ 0.18 $ 0.27 $ 0.26 $ 0.21
Diluted earnings (loss) per share from continuing operations(1) 1999 $ 0.13 $ 0.21 $ 0.22 $ (0.71)
2000 $ 0.18 $ 0.27 $ 0.26 $ 0.21
Net income (loss).............................................. 1999 $ 80.1 $ 501.2 $ 104.7 $ (403.1)
2000 $ 62.3 $ 100.8 $ 93.1 $ 73.7
</Table>
- -----------
(1) Quarterly basic and diluted earnings (loss) per share from continuing
operations may not equal earnings per share for the year as reported in the
consolidated income statements due to the effect of the calculation of
weighted-average common stock equivalents on a quarterly basis.
The following table sets forth, for the periods indicated, the high and low
prices per share of the Company's Common Stock as reported by the New York Stock
Exchange.
<Table>
<Caption>
HIGH LOW
---- ---
1999
First Quarter.......................................... $ 16.94 $ 12.13
Second Quarter......................................... $ 18.38 $ 11.63
Third Quarter.......................................... $ 17.88 $ 11.50
Fourth Quarter......................................... $ 12.69 $ 7.50
</Table>
F-39
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
HIGH LOW
---- ---
2000
First Quarter........................................ $ 9.31 $ 6.13
Second Quarter....................................... $ 10.75 $ 7.00
Third Quarter........................................ $ 7.31 $ 5.63
Fourth Quarter....................................... $ 7.19 $ 4.63
</Table>
On June 30, 2000, the Company completed the tax-free spin-off to its
stockholders of all of the capital stock of ANC Rental. The spin-off was
completed by issuing to each of the Company's stockholders of record as of June
16, 2000 one share of ANC Rental common stock for each eight shares of
AutoNation common stock held by such stockholder. The stock prices presented
above reflect historical stock prices during fiscal 2000 and 1999 and have not
been restated to reflect the distribution of ANC Rental common stock to the
Company's stockholders.
17. SUBSEQUENT EVENTS
In connection with the spin-off of ANC Rental Corporation and its
subsidiaries ("ANC Rental") in June 2000, the Company provides certain
guarantees and credit enhancements with respect to financial and other
performance obligations of ANC Rental, including acting as a guarantor
under certain motor vehicle and real property leases between ANC Rental and
Mitsubishi Motor Sales of America, Inc. ("Mitsubishi") and acting as an
indemnitor with respect to certain surety bonds issued on ANC Rental's
behalf. The Company is also a party to certain agreements with ANC Rental
(the "ANC Rental Agreements"), including a separation and distribution
agreement, a reimbursement agreement and a tax sharing agreement, pursuant
to which both ANC Rental and the Company have certain obligations. On
November 13, 2001, ANC Rental filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court
in Wilmington, Delaware. Accordingly, depending on the specific terms of
ANC Rental's reorganization plan and which of its obligations are
discharged in bankruptcy, among other things, the Company could be called
on to perform under some or all of its credit enhancements and guarantees,
which could have a material adverse effect on the Company's business,
financial condition, cash flows and prospects. ANC Rental has been
accounted for as a discontinued operation and, accordingly, the Company
expects that charges recorded by it pursuant to the foregoing credit
enhancements and guarantees or with respect to claims under the ANC Rental
Agreements, if any, would not impact the Company's reported results from
continuing operations.
Under the existing terms of the motor vehicle lease agreement with
Mitsubishi referenced above, ANC Rental currently leases approximately 14,000
vehicles from Mitsubishi and may increase the number of vehicles it leases under
the agreement to approximately 27,000. Under this vehicle lease agreement, which
expires at the conclusion of the leases for model year 2002 vehicles, ANC Rental
is responsible for lease payments that the Company believes are currently
between $4.0 million and $5.0 million per month, although such lease payments
may increase to approximately $8.0 million per month
F-40
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
in the event that ANC Rental maximizes the number of vehicles it leases under
the agreement. The Company also believes that ANC Rental typically leases
vehicles under this lease agreement for a period of approximately six to nine
months per vehicle. Additionally, ANC Rental is responsible for the return of
all leased vehicles to Mitsubishi upon the termination of the vehicle lease
agreement. Under the real property leases that the Company guarantees, which
expire in July 2017, ANC Rental leases twelve parcels of property from
Mitsubishi at an aggregate rent of approximately $3.0 million per year. The
Company's indemnification obligations with respect to the surety bonds issued on
behalf of ANC Rental are capped at $29.5 million in the aggregate. In addition,
due to the bankruptcy of ANC Rental, obligations of ANC Rental under the terms
of the ANC Rental Agreements may be extinguished or the Company's claims against
them under such agreements may be unenforceable. These claims could include
reimbursement obligations that ANC Rental may have to the Company in connection
with payments made by the Company with respect to the foregoing credit
enhancements and guarantees, as well as indemnification rights with respect to
payments made by the Company to the Internal Revenue Service as a result of
audit adjustments in the Company's consolidated federal income tax returns
relating to ANC Rental's automotive rental businesses prior to the spin-off. In
the event that the Company is called on to perform under the foregoing credit
enhancements and guarantees and the Company has claims under the ANC Rental
Agreements that ANC Rental does not satisfy, the Company estimates that, based
on its assessment of the risks involved in each matter, the Company's aggregate
obligations under the credit enhancements, guarantees and ANC Rental Agreements
could be in the range of $50.0 million to $150.0 million. However, the exposure
is difficult to estimate and the Company cannot assure you that its aggregate
obligations under these credit enhancements, guarantees and ANC Rental
Agreements will not be materially above the range indicated above or that the
Company will not be subject to additional claims as a result of ANC Rental's
bankruptcy filing.
The Company had a multi-year unsecured revolving credit facility which
provided $1.0 billion of financing and was scheduled to mature April 2002. This
facility was repaid in full and terminated on August 10, 2001. On August 10,
2001, the Company entered into two new senior secured revolving credit
facilities with aggregate borrowing capacity of $500.0 million. One facility is
a 364-day revolving credit facility which provides borrowing capacity up to
$200.0 million at a LIBOR-based interest rate. The other facility provides
borrowing capacity up to $300.0 million at a LIBOR-based rate and has a
five-year term. These facilities are secured by a pledge of the capital stock of
two subsidiaries of the Company and are guaranteed by substantially all of the
Company's subsidiaries.
On August 10, 2001, AutoNation, Inc. (the parent company) sold $450.0
million of 9% senior unsecured notes due August 1, 2008 at a price of 98.731% of
face value. The notes were issued by AutoNation, Inc. and are guaranteed by
substantially all of its subsidiaries. Within the meaning of Regulation S-X,
Rule 3-10, AutoNation, Inc. has no independent assets or operations, the
guarantees of its subsidiaries are full and unconditional and joint and several,
and any of the subsidiaries other than the guarantor subsidiaries are minor.
F-41
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company used the net proceeds of the offering and borrowings under the
new revolving credit facilities to repay outstanding amounts under the $1.0
billion revolving credit facility and certain other debt. The Company will use
any additional amounts drawn to finance capital expenditures, strategic
acquisitions, working capital and other general corporate purposes.
The Company's new credit facilities and the indenture for the Company's
senior notes contain numerous, customary financial and operating covenants that
place certain restrictions on the Company, including the Company's ability to
incur additional indebtedness, to create liens or other encumbrances, to make
certain payments (including dividends and share repurchases), acquisitions or
investments, to dispose of certain assets and merge or consolidate with other
entities. The new credit facilities and the indenture also require the Company
to meet certain customary financial ratios and tests.
On June 8, 2001, the Company entered into a mortgage facility with an
aggregate capacity of $150.0 million. As of September 30, 2001, the amount
borrowed under this facility was $116.0 million. On October 30, 2001, the
Company entered into an additional mortgage facility. This facility provides
aggregate borrowing capacity of $150.0 million, of which $38.5 million was
initially borrowed.
The Company securitizes installment loan receivables through the issuance
of asset-backed notes through a non-consolidated special purpose entity under a
shelf registration statement. In August 2001, the Company amended the shelf
registration statement relating to this program to provide an aggregate capacity
of $2.0 billion. In September 2001, the Company issued approximately $850.0
million in asset- backed notes under this program.
18. 2001 QUARTERLY INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated Income
Statements by quarter for 2001:
<Table>
<Caption>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
Revenue.................................................... $ 4,887.0 $ 4,942.1 $ 5,011.5
Operating income........................................... 152.9 183.5 167.0
Income from continuing operations.......................... 59.9 86.3 79.2
Net income ................................................ 59.9 86.3 79.2
Basic and diluted earnings per share from continuing
operations(1)............................................ 0.17 0.26 0.24
</Table>
- -----------
F-42
<Page>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS 1998, 1999, AND 2000
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
(1) Quarterly basic and diluted earnings per share from continuing operations
may not equal earnings per share for the nine months ended as reported in
the consolidated income statements due to the effect of the calculation of
weighted-average common stock equivalents on a quarterly basis.
F-43
<Page>
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<Table>
<Caption>
SEPT. 30,
2001
----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 89.1
Receivables, net....................................... 980.2
Inventory.............................................. 2,248.8
Other current assets................................... 64.6
-------------
Total Current Assets................................ 3,382.7
Investments, including restricted assets.................. 226.8
Property and equipment, net............................... 1,545.3
Intangible assets, net.................................... 2,881.1
Other assets.............................................. 117.2
-------------
Total Assets $ 8,153.1
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable................................ $ 1,921.2
Accounts payable....................................... 141.2
Notes payable and current maturities of long-term debt 8.3
Other current liabilities.............................. 572.3
-------------
Total Current Liabilities........................... 2,643.0
LONG-TERM DEBT, NET OF CURRENT MATURITIES................. 611.3
DEFERRED INCOME TAXES..................................... 890.9
OTHER LIABILITIES......................................... 129.4
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share; 5,000,000
shares authorized; none issued...................... --
Common stock, par value $0.01 per share;
1,500,000,000 shares authorized; 475,912,937
shares issued and outstanding including shares held
in treasury......................................... 4.8
Additional paid-in capital............................. 4,666.5
Retained earnings...................................... 874.7
Accumulated other comprehensive income................. 2.0
Treasury stock, at cost; 148,719,609 shares held....... (1,669.5)
-------------
Total Shareholders' Equity.......................... 3,878.5
-------------
Total Liabilities and Shareholders' Equity $ 8,153.1
=============
</Table>
The accompanying notes are an integral part of this statement.
F-44
<Page>
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
NINE MONTHS ENDED
SEPT. 30,
2000 2001
---- ----
REVENUE.......................................... $ 15,907.8 $ 14,840.6
COST OF OPERATIONS............................... 13,594.3 12,588.2
------------- -------------
GROSS MARGIN..................................... 2,313.5 2,252.4
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES...................................... 1,650.4 1,649.4
DEPRECIATION..................................... 42.4 50.0
AMORTIZATION..................................... 58.7 60.8
RESTRUCTURING AND IMPAIRMENT
EXPENSE (RECOVERY), NET....................... (2.2) 8.1
OTHER GAINS...................................... -- (19.3)
------------- -------------
OPERATING INCOME................................. 564.2 503.4
FLOORPLAN INTEREST EXPENSE....................... (146.8) (107.8)
OTHER INTEREST EXPENSE........................... (36.2) (30.6)
INTEREST INCOME.................................. 11.7 6.1
OTHER INCOME (EXPENSE), NET...................... 14.1 (2.4)
------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................... 407.0 368.7
PROVISION FOR INCOME TAXES....................... 152.6 143.3
------------- -------------
INCOME FROM CONTINUING OPERATIONS................ 254.4 225.4
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES:.............. 1.8 --
------------- -------------
NET INCOME....................................... $ 256.2 $ 225.4
============= =============
BASIC EARNINGS PER SHARE:
Continuing operations............................ $ 0.70 $ 0.67
Discontinued operations.......................... 0.01 --
============= =============
Net income....................................... $ 0.71 $ 0.67
============= =============
Weighted average common shares outstanding....... 363.2 336.5
============= =============
DILUTED EARNINGS PER SHARE:
Continuing operations............................ $ 0.70 $ 0.67
Discontinued operations.......................... 0.01 --
------------- -------------
Net income....................................... $ 0.71 $ 0.67
============= =============
Weighted average common shares outstanding....... 363.4 338.2
============= =============
</Table>
The accompanying notes are an integral part of these statements.
F-45
<Page>
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 STOCK TOTAL
----- ------- ------- ------------ ------ -----
BALANCE AT DECEMBER 31, 2000................... $ 4.8 $ 4,664.7 $ 649.3 $ 1.0 $ (1,477.3) $ 3,842.5
Purchases of treasury stock................. -- -- -- -- (192.2) (192.2)
Exercise of stock options and warrants...... -- 2.5 -- -- -- 2.5
Other comprehensive income.................. -- -- -- 1.0 -- 1.0
Other .................................... -- (0.7) -- -- -- (0.7)
-- -- 225.4 -- -- 225.4
Net income..................................
------- ----------- --------- -------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2001 ................. $ 4.8 $ 4,666.5 $ 874.7 $ 2.0 $ (1,669.5) $ 3,878.5
======= =========== ========= ======== =========== ===========
</Table>
The accompanying notes are an integral part of this statement.
F-46
<Page>
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
------------
2000 2001
---- ----
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income....................................................................... $ 256.2 $ 225.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................. 101.1 110.8
Amortization of debt issue costs and discounts................................ 1.3 1.0
Deferred income tax provision................................................. 53.4 14.3
Non-cash restructuring and impairment charges, net............................ (2.2) 8.1
Other gains................................................................... -- (19.3)
Gain on sale of marketable securities, net.................................... (19.3) (0.3)
Income from discontinued operations........................................... (1.8) --
Other......................................................................... (1.7) (2.1)
Changes in assets and liabilities, net of effects from business combinations:
Receivables................................................................. (66.0) 60.8
Inventory................................................................... 357.8 472.9
Other assets................................................................ (38.6) 7.2
Floorplan notes payable..................................................... (231.8) (493.0)
Accounts payable and accrued liabilities.................................... (163.7) (19.6)
Other liabilities........................................................... 86.2 43.2
------------- --------
330.9 409.4
------------- --------
CASH PROVIDED BY INVESTING ACTIVITIES:
Purchases of property and equipment.............................................. (82.8) (86.3)
Proceeds from sale of property and equipment and assets held for sale............ 112.7 78.0
Funding of installment loan receivables, net of collections...................... (451.4) (444.2)
Proceeds from sales of installment loan receivables.............................. 585.1 514.0
Net changes in restricted cash................................................... (63.4) 110.7
Purchases of restricted investments.............................................. (0.8) (152.1)
Sales of restricted investments.................................................. 82.7 14.2
Cash used in business acquisitions, net of cash acquired......................... (242.8) (83.2)
Cash received from business divestitures......................................... 77.5 61.2
Other............................................................................ (0.5) 3.3
------------- --------
16.3 15.6
------------- --------
CASH USED IN FINANCING ACTIVITIES:
Net payments under revolving credit facilities................................... -- (615.0)
Purchases of treasury stock...................................................... (110.7) (187.2)
Proceeds from sale leaseback financing........................................... 52.1 --
Payments of notes payable and long-term debt..................................... (168.8) (55.5)
Proceeds from issuance of unsecured senior notes................................. -- 434.7
Other............................................................................ 1.2 2.5
------------- --------
(226.2) (420.5)
------------- --------
CASH PROVIDED BY CONTINUING OPERATIONS.............................................. 121.0 4.5
CASH USED IN DISCONTINUED OPERATIONS................................................ (223.4) --
------------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... (102.4) 4.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$17.4 IN 2000.................................................................... 238.2 84.6
------------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 135.8 $ 89.1
============= ========
</Table>
The accompanying notes are an integral part of these statements.
F-47
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
INTRODUCTION
The unaudited condensed consolidated financial statements as of September
30, 2001 and for the nine months ended September 30, 2001 and 2000 were included
in the Company's Quarterly Report on Form 10-Q 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, in all material respects, 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 in any material
respect. Operating results for interim periods are not necessarily indicative of
the results that can be expected for a full year.
The following notes relate to the unaudited condensed consolidated
financial statements included in the Quarterly Report on Form 10-Q for
the Company for the nine months ended September 30, 2001.
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
include the accounts of 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 accounting principles generally accepted
in the United States 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, in all material respects, 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 in any material
respect.
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.
As discussed in Note 14, Discontinued Operations, the Company's former
automotive rental businesses, organized under ANC Rental Corporation ("ANC
Rental"), have been accounted for as discontinued operations in the accompanying
unaudited condensed consolidated financial statements and accordingly, the
operating results of ANC Rental for the periods prior to disposition have been
classified
F-48
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
as discontinued operations in the accompanying unaudited condensed
consolidated financial statements presented.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements to conform with the financial statement presentation of the
current period.
2. INVENTORY AND FLOORPLAN NOTES PAYABLE
Inventory consists of the following:
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2000 2001
---- ----
New vehicles................................................ $ 2,301.0 $ 1,759.1
Used vehicles............................................... 317.9 338.4
Parts, accessories and other................................ 155.5 151.3
-------------- ---------------
$ 2,774.4 $ 2,248.8
============== ===============
</Table>
At September 30, 2001 and December 31, 2000, floorplan notes payable
totaled $1.92 billion and $2.45 billion, respectively. The Company finances
vehicle inventory through secured floorplan facilities at a LIBOR-based rate of
interest with manufacturers' captive finance subsidiaries, as well as
independent financial institutions. As of September 30, 2001, capacity under the
floorplan credit facilities was approximately $3.50 billion.
3. INVESTMENTS
Investments consist of the following:
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2000 2001
---- ----
Restricted cash and investments............................. $ 160.8 $ 195.4
Marketable securities....................................... 5.2 3.7
Equity method investments................................... 33.6 27.7
---------------- ---------------
$ 199.6 $ 226.8
================ ===============
</Table>
F-49
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
At September 30, 2001, $195.4 million of cash and investments are
restricted under certain insurance programs. These investments consist primarily
of marketable corporate and government debt securities that are classified as
available-for-sale.
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2000 2001
---- ----
Revolving credit facilities................................. $ 615.0 $ --
Senior unsecured notes, net of unamortized
discount of $5.6 million................................. -- 444.4
Other debt.................................................. 242.2 175.2
------------------ ----------------
857.2 619.6
Less: current portion...................................... (6.8) (8.3)
------------------ ----------------
Long-term debt, net of current maturities $ 850.4 $ 611.3
================== ================
</Table>
The Company had a multi-year unsecured revolving credit facility which
provided $1.0 billion of financing and was scheduled to mature in April 2002.
This facility was repaid in full and terminated on August 10, 2001. Another
facility provided $250.0 million of borrowing capacity until its termination on
June 29, 2001. On August 10, 2001, the Company entered into two new senior
secured revolving credit facilities with an aggregate borrowing capacity of
$500.0 million. The 364-day revolving credit facility provides borrowings up to
$200.0 million at a LIBOR-based interest rate. The five-year facility provides
borrowings up to $300.0 million at a LIBOR-based interest rate. These facilities
are secured by a pledge of the capital stock of certain subsidiaries of the
Company, which directly or indirectly own substantially all of the Company's
dealerships, and are guaranteed by substantially all of the Company's
subsidiaries.
On August 10, 2001, the Company sold $450.0 million of 9.0% senior
unsecured notes due August 1, 2008 at a price of 98.731% of face value. The
notes are guaranteed by substantially all of the Company's subsidiaries. The
Company used the net proceeds of the offering to repay outstanding amounts under
the $1.0 billion revolving credit facility and certain other debt. The Company
will use any remaining proceeds as well as any amounts drawn under the new
revolving credit facilities for capital expenditures, strategic acquisitions,
working capital and other general corporate purposes.
F-50
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the
parent company) has no independent assets or operations, the guarantees of its
subsidiaries are full and unconditional and joint and several, and any
subsidiaries other than the guarantor subsidiaries are minor.
At September 30, 2001, the Company had $116.0 million outstanding under a
mortgage facility with an automotive manufacturer's captive finance subsidiary.
This facility has a ten-year term and an aggregate capacity of $150.0 million.
In October 2001, the Company entered into another mortgage facility with a
separate automotive manufacturer's captive finance subsidiary with a five-year
term and an aggregate capacity of $150.0 million. Both facilities bear interest
at a LIBOR-based interest rate and are secured by mortgages on certain of the
Company's dealerships' real property.
The Company's new credit facilities and the indenture for the Company's
senior notes contain numerous customary financial and operating covenants that
place certain restrictions on the Company, including the Company's ability to
incur additional indebtedness, to create liens or other encumbrances, to make
certain payments (including dividends and share repurchases), acquisitions or
investments, and to dispose of certain assets and merge or consolidate with
other entities. The new credit facilities and the indenture also require the
Company to meet certain customary financial ratios and tests.
5. SHAREHOLDERS' EQUITY
During the three months ended September 30, 2001, the Company repurchased
6.2 million shares of its common stock for an aggregate purchase price of $63.1
million. During the nine months ended September 30, 2001, the Company
repurchased 21.2 million shares of its common stock for an aggregate purchase
price of $192.2 million. Through September 30, 2001, an aggregate of 148.9
million shares of common stock have been acquired under the Company's share
repurchase programs for an aggregate purchase price of $1.67 billion, leaving
approximately $74.9 million available for share repurchases under the programs.
In October 2001, the Company's Board of Directors authorized an additional
$250.0 million share repurchase program.
6. INCOME TAXES
Income taxes have been provided based upon the Company's anticipated annual
effective income tax rate.
Over the past four years, the Company has engaged in certain transactions
that are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. A significant amount of the Company's deferred tax
liabilities relates to these transactions. The Company believes that its tax
returns appropriately reflect such transactions. However, at the present time,
the Company is unable to predict the outcome of any challenge if the IRS
determines to challenge the tax reporting of such transactions. An unfavorable
settlement or adverse resolution of these matters could have a material adverse
effect on the Company's financial condition, results of operations, cash flows
and assets.
F-51
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is based on the combined weighted-average number of common
shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of options and warrants.
The computation of weighted-average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is shown below:
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 2001
----- -----
Weighted-average common shares outstanding used to calculate basic earnings per share.............. 363.2 336.5
Effect of dilutive options and warrants............................................................. 0.2 1.7
----- -----
Weighted-average common and common equivalent shares used to calculate diluted earnings per share.. 363.4 338.2
===== =====
</Table>
At September 30, 2001 and 2000, the Company had approximately 58.5 million
and 57.2 million stock options outstanding, respectively, of which 47.2 million
and 56.9 million, respectively, have been excluded from the computation of
diluted earnings per share since they are anti-dilutive.
8. COMPREHENSIVE INCOME
Comprehensive income is as follows:
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2000 2001
---- ----
Net income.......................... $ 256.2 $ 225.4
Other comprehensive income.......... 1.3 1.0
----------- ------------
Comprehensive income................ $ 257.5 $ 226.4
=========== ============
</Table>
F-52
<page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
9. BUSINESS ACQUISITIONS AND DIVESTITURES
Businesses acquired through September 30, 2001 are accounted for under the
purchase method of accounting and are included in the unaudited condensed
consolidated financial statements from the date of acquisition.
During the nine months ended September 30, 2001 and 2000, the Company
acquired various automotive retail businesses. The Company paid approximately
$72.7 million and $122.5 million, respectively, in cash for these acquisitions
as part of its acquisition strategy to target single dealerships or dealership
groups in key existing markets. During the nine months ended September 30, 2001
and 2000, the Company also paid approximately $10.5 million and $120.3 million,
respectively, in deferred purchase price for certain prior year automotive
retail acquisitions.
The preliminary purchase price allocations for business combinations
relating to continuing operations for the nine months ended September 30, were
as follows:
<Table>
<Caption>
2000 2001
---- ----
Property and equipment............................... $ 7.0 $ 27.0
Intangible and other assets.......................... 120.1 41.8
Working capital...................................... 67.7 4.3
Debt assumed......................................... (69.9) (0.8)
Other................................................ (2.4) 0.4
----------- ---------
Cash used in acquisitions, net of cash acquired...... $ 122.5 $ 72.7
=========== =========
</Table>
In the normal course of business, the Company will periodically divest of
dealerships that do not meet certain operational, financial, and strategic
criteria. In April 2001, the company completed the sale of its Flemington
dealer group, resulting in a pre-tax gain of $19.1 million which was included
in other gains in the accompanying 2001 Unaudited Condensed Consolidated
Income Statements. Revenue for the operations disposed or to be disposed was
$147.5 million and $774.0 million during the nine months ended September 30,
2001 and 2000, respectively. Operating income (loss) for the operations
disposed or to be disposed was ($0.2) million and $20.6 million for the nine
months ended September 30, 2001 and 2000, respectively.
10. INSTALLMENT LOAN RECEIVABLES AND ASSET SECURITIZATIONS
The Company securitizes installment loan receivables through a $625.0
million commercial paper warehouse facility with unrelated financial
institutions. In September 2001, the Company decreased the capacity of the
commercial paper warehouse facility from $1.0 billion to $625.0 million. The
warehouse facility has a renewable 364-day term and requires an annual
securitization transaction to reduce the outstanding indebtedness. During the
nine months ended September 30, 2001, the Company
F-53
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
sold installment loan receivables of $397.5 million under this program, net of
retained interests. At September 30, 2001, $75.4 million was outstanding under
this program, net of retained interests.
The Company also securitizes installment loan receivables through a
non-consolidated special purpose entity, which issues asset-backed notes. In
September 2001, the Company completed a subsequent shelf registration providing
an additional $1.5 billion in capacity which, when added to the previous
remaining shelf capacity of $521.5 million, brought total capacity to $2.0
billion. Subsequently, in September 2001, a securitization for $850.0 million
was completed and the proceeds from these notes were used to refinance
installment loans under the warehouse facility and additional loans held by the
Company. The Company provides credit enhancements related to these notes in the
form of a 1% over-collateralization, a reserve fund and a third party surety
bond. These transactions typically result in the recording of a securization
asset in the form of an interest-only strip, which represents the present value
of the estimated future residual cash flows from securitized receivables.
Interest-only strips are carried at fair value. Certain of the Company's
interest-only strips are marked to fair value with unrealized gains or losses
being recorded directly to income. Other of the Company's interest-only strips
are marked to fair value with unrealized gains or losses being recorded through
other comprehensive income unless an other-than-temporary impairment occurs in
the valuation of the interest-only strip, in which case the impairment is
recorded directly to income.
For the nine months ended September 30, 2001 and 2000, the Company
recognized pre-tax gains (losses) of $7.0 million and ($.4) million,
respectively, on the securitization of installment loan receivables which has
been included in Revenue in the accompanying Unaudited Condensed Consolidated
Income Statements. At September 30, 2001, $1.5 billion in asset-backed notes
were outstanding and there is an additional $1.2 billion authorized to be issued
under the current shelf registration.
The key economic assumptions used in measuring the retained interests and
initial gains or losses at the date of securitization resulting from
securitizations completed during the nine months ended September 30, 2001 were
as follows:
<Table>
<Caption>
DESCRIPTION: ASSUMPTION(1)
------------ -------------
Voluntary prepayment speed (ABS)........................ 1.15%
Weighted-average life (in years)........................ 1.80
Expected credit losses (annual rate).................... 1.17%
Discount rate on residual cash flows (annual rate)...... 7.96%
Yield (annual interest rate on receivables)............. 11.30%
Variable rate to warehouse investors (annual rate)...... 4.38%
</Table>
- ----------
(1) The weighted-average rates for securitizations entered into during the
period for securitizations of loans with similar characteristics.
F-54
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
At September 30, 2001, the carrying value (current fair value) of retained
interests in securitized installment loans was $146.0 Million which is included
in receivables, net, in the unaudited condensed consolidated balance sheet.
Included in retained interests in securitized installment loans are interest-
only strips valued at $101.9 Million with a weighted-average life of 1.50 years.
At September 30, 2001, the sensitivity of the current fair value of the residual
cash flows to immediate 10 percent and 20 percent unfavorable changes in
assumptions are presented in the table below. These sensitivities are
hypothetical and should not be considered to be predictive of future
performance. As the figures indicate, the change in fair value based on a ten
percent variation in assumptions cannot necessarily be extrapolated because the
relationship of the change in assumption to the change in fair value may not be
linear. Also, in this table, the effect of a variation in a particular
assumption on the fair value of residual cash flows is calculated independently
from any change in another assumption. In reality, changes in one factor may
contribute to changes in another (for example, increases in market interest
rates may result in lower prepayments and increased credit losses), which might
magnify or counteract the sensitivities. Further more, the disclosed estimated
fair values should not be considered indicative of future earnings on these
assets. The current rate assumptions below reflect the expected performance of
the total loans securitized as of September 30, 2001.
<Table>
<Caption>
$ EFFECT ON INTEREST-ONLY STRIP OF
----------------------------------
CURRENT 10% CHANGE 20% CHANGE
RATE ASSUMPTION IN ASSUMPTION IN ASSUMPTION
--------------- ------------- -------------
Voluntary prepayment speed (ABS)........................ 1.15% $ 3.4 $ 6.9
Expected credit losses (annual rate).................... 1.33% $ 2.5 $ 5.0
Discount rate on residual cash flows (annual rate)...... 7.12% $ 1.2 $ 2.4
Variable rate to warehouse investors (annual rate)...... 5.12% $ 0.6 $ 1.2
</Table>
As of September 30, 2001, the Company had expected static pool credit
losses on its total portfolio of 2.86%.
The rate at which the Company is originating loans has slowed during 2001
due to the implementation of more restrictive credit policies and, more
recently, unprecedented levels of financing incentives being offered by vehicle
manufacturers. In addition, eroding consumer confidence, increasing unemploy-
ment, and the risk of a further softening economy could increase consumer credit
risk. As such, the Company is currently considering strategic alternatives to
its consumer loan origination business. Management believes that its retained
interests in securitized installment loans of $146.0 million as of September 30,
2001 are fairly stated. However, a change in strategy regarding the Company's
consumer loan origination business and/or a continuation or worsening in the
economic factors mentioned above could have a material adverse impact on the
value of these retained interests.
F-55
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
11. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), as amended. 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 instrument's fair value be
recognized currently in earnings. The accounting for the portion reported in
earnings due to changes in fair value of the derivative instrument depends on
whether the derivative qualifies as a hedge. If the derivative instrument does
not qualify as a hedge, the gains or losses are reported in earnings when they
occur. Special accounting for qualifying hedges allows a derivative instrument's
gains and losses to offset related results on the hedged item in earnings, to
the extent effective, and requires that a company formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
The Company maintains an overall risk management strategy that utilizes a
variety of interest rate financial instruments to mitigate its exposure to
fluctuations caused by volatility in interest rates. The Company does not use
derivative financial instruments for trading purposes.
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. These derivative
transactions consist of a series of interest rate caps and floors at the same
strike price with an aggregate notional amount of $84.6 million contractually
maturing through 2007 which effectuate a variable to fixed rate swap at a
weighted-average rate of 4.85%. During 2001, the Company has entered into a
series of forward starting swaps with a maximum aggregate notional amount of
$14.0 million contractually maturing through 2007 which effectuate a fixed to
variable rate swap at a weighted- average rate of 5.51%. Variable rates on the
underlying portfolio are indexed to the Commercial Paper Nonfinancial rate.
The Company's derivative transactions do not meet the criteria for hedge
accounting under SFAS 133 since the derivative transactions are designed to
economically hedge the exposure of items remeasured with the changes in fair
value recorded in earnings.
The Company's retained interests in securitized installment loan
receivables are considered hybrid instruments under SFAS 133. Included in the
hybrid instrument is an embedded derivative instrument for the interest and
prepayment components of the risk of the securitized installment loan
receivables.
SFAS 133 requires that the Company's embedded derivative instrument be
separated from the host contract and carried at fair value. Because the Company
is not using the embedded derivative instrument as a hedging instrument, SFAS
133 requires that the Company report the embedded derivative
F-56
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
instrument on its balance sheet and changes in the fair value of the embedded
derivative instrument currently in earnings.
As of January 1, 2001, the Company recorded its embedded derivative
instrument and its caps and floors on its balance sheet which resulted in an
increase to assets and liabilities of approximately $14.3 million with an
immaterial effect to earnings.
F-57
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company records the gains and losses from its embedded derivative
contracts and other derivatives as a component of revenue. The fair value of the
derivative contracts is included in other assets and other liabilities in the
accompanying unaudited condensed consolidated balance sheets, as applicable.
During the nine months ended September 30, 2001, the Company recorded a net
loss of $.3 million representing the change in fair value of its embedded
derivative contracts offset by the change in fair value of its other derivative
instruments.
12. RESTRUCTURING AND IMPAIRMENT EXPENSE (RECOVERY), NET
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan was comprised of
the following major components: (1) exiting the used vehicle megastores
business and (2) reducing the corporate workforce. The restructuring plan also
included divesting of certain non-core franchised automotive dealerships.
Approximately 2,000 positions were eliminated as a result of the restructuring
plan of which 1,800 were megastore positions and 200 were corporate positions.
These restructuring activities resulted in pre-tax charges of $443.7 million
in 1999. These pre-tax charges included $286.9 million of asset impairment
charges; $103.3 million of reserves for residual value guarantees for closed
lease properties; $26.2 million of severance and other exit costs; and $27.3
million of inventory related costs. The $286.9 million asset impairment charge
consisted of: $244.9 million of megastore and other property impairments;
$26.6 million of goodwill impairment reserves for the divestiture of certain
non-core franchised automotive dealerships; and $15.4 million of information
systems impairments.
Closed megastores and other properties, including closed lease properties,
are being disposed of through sales to third parties. At September 30, 2001,
properties with total net asset value of $87.2 million remain to be sold of the
$285.3 million identified as part of the restructuring plan. These properties
continue to be aggressively marketed. Their ultimate disposition is expected to
be completed in 2002.
F-58
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The following summarizes the activity and remaining balance in the
Company's restructuring and impairment reserves for the nine months ended
September 30, 2001:
<Table>
<Caption>
DEDUCTIONS
----------
BALANCE AMOUNTS BALANCE
DEC. 31, CHARGED SEPT. 30,
RESERVE 2000 TO INCOME CASH NON-CASH 2001
- ------- -------- --------- ---- -------- ---------
Asset reserves:
Asset impairment..................... $ 161.4 $ 3.7 $ -- $ (73.9) $ 91.2
Accrued liabilities:
Severance and other exit costs....... 1.2 0.3 (0.9) -- 0.6
Finance lease residual
value write-down................... -- 4.1 -- (4.1) --
----------- ---------- -------- ----------- ----------
$ 162.6 $ 8.1 $ (0.9) $ (78.0) $ 91.8
=========== ========== ======== =========== ==========
</Table>
The following summarizes the components of the $8.1 million charged to
income during the nine months ended September 30, 2001:
<Table>
<Caption>
NET GAIN ON ADDITIONAL
SOLD PROPERTIES IMPAIRMENT CHARGES OTHER TOTAL
--------------- ------------------ ----- -----
Asset reserves:
asset impairment.................. $ (1.6) $ 5.3 $ -- $ 3.7
Accrued liabilities:
severance and other exit costs.... -- -- 0.3 0.3
Finance lease residual value write-down... -- -- 4.1 4.1
------------ ----------- -------- ---------
$ (1.6) $ 5.3 $ 4.4 $ 8.1
============ =========== ======== =========
</Table>
During the nine months ended September 30, 2001, the company recognized an
additional impairment charge totaling $5.3 million based on the re-evaluation of
the fair value of certain properties. Additionally, the company recognized an
impairment charge totaling $4.1 million associated with the deterioration in
residual values of finance lease receivables. The company discontinued writing
finance leases in mid-1999 and the majority of the leases terminate in late
2001.
F-59
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
For the nine months ended September 30, 2000, a net $2.2 million was
credited to income as restructuring and impairment recovery consisting of a
credit of $20.7 million for property placed back into service, $3.4 million net
gain on sold properties, and a charge of $21.9 million primarily related to an
impairment charge of $16.6 million due to the deterioration in residual values
of finance lease receivables.
13. COMMITMENTS AND CONTINGENCIES
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought an action against one of the Company's California dealerships for
alleged customer fraud as well as several other claims. In April 2001, the
California DMV action and a related action by the State of California were
settled. As part of the settlement, the dealership closed its sales operations
for six days, agreed to provide restitution to certain customers in the
estimated amount of approximately $1.0 million and paid $1.1 million in fines,
penalties and costs. Three purported civil class actions and other related
lawsuits and claims have been filed or made against the dealership based on the
allegations underlying the California DMV case.
In an action filed in Florida state court in 1999, a wholly-owned
subsidiary of the Company was accused of violating, among other things, the
Florida Motor Vehicle Retail Sales Finance Act and the Florida Deceptive and
Unfair Trade Practices Act by allegedly failing to deliver executed copies of
retail installment contracts to customers of the Company's used vehicle
megastores. In October 2000, the court certified the class of customers on whose
behalf the action would proceed. In July 2001, Florida's Fourth District Court
of Appeals upheld the certification of the class.
Many of the Company's Texas dealerships have been named in three class
action suits brought against the Texas Automobile Dealer's Association ("TADA")
and new vehicle dealerships in Texas that are members of the TADA. The actions
allege, among other things, that since January 1994, Texas dealers deceived
customers with respect to a vehicle inventory tax and violated federal antitrust
and other laws as well. These cases are currently pending in Texas State courts
and federal district court.
The Company intends to vigorously defend itself and assert available
defenses with respect to each of the foregoing matters. Further, the Company has
certain insurance coverage and rights of indemnification with respect to certain
aspects of the foregoing matters. However, a settlement or an adverse resolution
of one or more of these matters may result in the payment of significant costs
and damages that could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.
F-60
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
The Company is also a party to numerous other legal proceedings that arose
in the conduct of its business. The Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on its business,
financial condition, results of operations or cash flows. However, the results
of these matters cannot be predicted with certainty and an unfavorable
resolution of one or more of these matters could have a material adverse effect
on its business, financial condition, results of operations and cash flows.
14. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax-free spin-off of ANC
Rental. Accordingly, the operating results of ANC Rental have been classified as
discontinued operations for all periods presented in the accompanying unaudited
condensed consolidated financial statements. Income from discontinued operations
during the nine months ended September 30, 2000 is net of previously estimated
losses of $22.1 million which were accrued in the fourth quarter of 1999 and
additional costs associated with the spin-off totaling $11.3 million recorded in
the second quarter of 2000.
In connection with the ANC Rental spin-off, the Company agreed to continue
to provide ANC Rental with certain guarantees and credit enhancements with
respect to financial and other performance obligations of ANC Rental, including
acting as a guarantor under certain motor vehicle and real property leases
between ANC Rental and Mitsubishi Motor Sales of America, Inc. and acting as an
indemnitor with respect to certain surety bonds issued on ANC Rental's behalf.
The Company receives fees for providing these guarantees commensurate with
market rates. The Company also entered into certain agreements with ANC Rental
(the "ANC Rental Agreements") in connection with the spin-off, including a
separation and distribution agreement and a tax sharing agreement. ANC Rental
reported a net loss for the fourth quarter of 2000 of $44.0 million, resulting
in an aggregate net loss for 2000 of $2.0 million, and a net loss of $56.6
million for six months ended June 30, 2001. ANC Rental has announced that, due
in part to the terrorist attacks against the United States on September 11,
2001, it has suffered a significant decline in consumer demand for rental cars
and that it expects to report a substantial loss for the full year of 2001. ANC
Rental also recently indicated that it was under discussions with its creditors
and other parties in order to review liquidity options and other financial
issues. Additionally, ANC Rental announced that it has reached agreements with
its lenders to suspend certain financial covenants under certain credit
agreements until November 15, 2001 and to defer until November 30, 2001 a
principal payment of $70.0 million due October 1, 2001. If ANC Rental is unable
to meet its obligations, the Company will likely be called on to perform under
its credit enhancements and guarantees, which could have a material adverse
effect on its business, financial condition, cash flows and prospects. ANC
Rental has been accounted for as a discontinued operation and, accordingly, the
Company expects that payments made by it pursuant to the foregoing credit
enhancements and guarantees, if any, would not impact its reported results from
continuing operations.
F-61
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
Under the existing terms of the motor vehicle lease agreement with
Mitsubishi referenced above, ANC Rental currently leases approximately 14,000
vehicles from Mitsubishi and may increase the number of vehicles it leases
under the agreement to approximately 27,000. Under this vehicle lease
agreement, which expires at the conclusion of the leases for model year 2002
vehicles, ANC Rental is responsible for lease payments that the Company
believes are currently between $4.0 million and $5.0 million per month,
although such lease payments may increase to approximately $8.0 million per
month in the event that ANC Rental maximizes the number of vehicles it leases
under the agreement. The Company also believes that ANC Rental typically
leases vehicles under this lease agreement for a period of approximately six
to nine months per vehicle. Additionally, ANC Rental is responsible for the
return of all leased vehicles to Mitsubishi upon the termination of the
vehicle lease agreement. Under the real property leases that the Company
guarantees, which expire in July 2017, ANC Rental leases twelve parcels of
property from Mitsubishi at an aggregate rent of approximately $3.0 million
per year. The Company's indemnification obligations with respect to the surety
bonds issued on behalf of ANC Rental are capped at $29.5 million in the
aggregate. In addition, in the event of the bankruptcy of ANC Rental, the
Company's claims against ANC Rental under the term of the ANC Rental
Agreements may be extinguished or unenforceable. These claims could include
indemnification rights with respect to payments made by the Company to the
Internal Revenue Service as a result of audit adjustments in its consolidated
federal income tax returns relating to ANC Rental's automotive rental
businesses prior to the spin-off. In the event that the Company is called on
to perform under the foregoing credit enhancements and guarantees and it has
claims under the ANC Rental Agreements that ANC Rental cannot satisfy, the
Company estimates that, based on its assessment of the risks involved in each
matter, its aggregate obligations under the credit enhancements, guarantees
and ANC Rental Agreements could be in the range of $50.0 million to $150.0
million. However, the exposure is difficult to estimate and the Company cannot
assure that its aggregate obligations under these credit enhancements,
guarantees and ANC Rental Agreements will not be materially above the range
indicated above. For more current information concerning ANC Rental, see
footnote "17. Subsequent Events" on page F-40.
Selected statement of operations data for the Company's automotive rental
discontinued operations for the nine months ended September 30, 2000 is as
follows:
<Table>
Revenue............................................................. $ 1,721.2
=============
Pre-tax loss........................................................ $ (14.8)
Benefit for income taxes............................................ (5.8)
------------
Net loss............................................................ (9.0)
Loss on disposal of segment, net of income taxes.................... (11.3)
Previously estimated and accrued losses, net of income taxes........ 22.1
-------------
Income from discontinued operations, net of income taxes............ $ 1.8
=============
</Table>
F-62
<Page>
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
15. NEW ACCOUNTING PRONOUNCEMENTS
On June 30, 2001 the Financial Accounting Standards Board (FASB) finalized
and issued Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142").
The Company has adopted the provisions of SFAS 141 which requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method, eliminating the pooling of interests method. Additionally,
acquired intangible assets should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so.
SFAS 142, upon adoption, eliminates goodwill amortization over its
estimated useful life. However, goodwill will be subject to at least an annual
assessment for impairment by applying a fair-value based test. Intangible
assets with definitive lives will need to be amortized over their useful lives.
The provisions of SFAS 142 apply immediately to all acquisitions completed
after June 30, 2001. Goodwill and intangible assets with indefinite lives
existing at June 30, 2001 will continue to be amortized until December 31, 2001.
Effective January 1, 2002 such amortization will cease, as companies are
required to adopt the new rules on such date. By the end of the first quarter of
calendar year 2002, companies must begin to perform an impairment analysis of
intangible assets. Furthermore, companies must complete the first step of the
goodwill transition impairment test by June 30, 2002. Any impairment noted must
be recorded at the date of adoption restating first quarter results, if
necessary. Impairment charges, if any, that result from the application of the
above tests would be recorded as the cumulative effect of a change in accounting
principle in the first quarter of the year ending December 31, 2002.
Although the Company estimates that the changes in goodwill amortization
as a result of the adoption of SFAS 142 will result in an estimated $0.14 per
share increase in 2002 earnings per share, the Company will not be able to
determine the ultimate impact of this proposed Statement on its consolidated
financial statements until such time as it applies its provisions.
In August, 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" and
Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of
Operations - Reporting the Effects of the Disposal of a Segment Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 establishes a single accounting model for assets to be disposed of by sale
whether previously held and used or newly
F-63
<Page>
acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of
discontinued operations in the income statement, but broadens the presentation
to include a component of an entity. SFAS 144 is effective for fiscal years
beginning after December 15, 2001 and the interim periods within. The Company
does not believe that the adoption of SFAS 144 will have a material impact on
its consolidated results of operations.
F-64
<Page>
================================================================================
OFFER TO EXCHANGE
ALL OUTSTANDING
9% SENIOR NOTES
DUE 2008
FOR
9% SENIOR NOTES
DUE 2008
-----------------------------------------
AUTONATION[symbol]
-----------------------------------------
The letter of transmittal, certificates for the outstanding notes and any
other required documents should be sent or delivered by each noteholder or his
or her broker, dealer, commercial bank, trust company or other nominee to the
exchange agent at the following address:
Corporate Trust Services
Wells Fargo Bank Minnesota, National Association
213 Court Street -- Suite 902
Middletown, CT 06457
Attention: Robert L. Reynolds - Vice President
(860) 704-6216 (telephone)
(860) 704-6219 (facsimile)
PROSPECTUS
NOVEMBER [-], 2001
================================================================================
<Page>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Third Amended and Restated Certificate of Incorporation
provides that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach by a director of the duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends, or for unlawful stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
Article VII of the Amended and Restated By-Laws of the Company (the
"Bylaws") provides that to the fullest extent and in the manner permitted by the
laws of the State of Delaware or any other applicable law and specifically as is
permitted under Section 145 of the General Corporation Law of the State of
Delaware, the Company 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 Company) by reason of the fact
that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partner ship, 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 such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. The termination of an 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 such person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
The Bylaws provide that the Company's obligation to indemnify applies to
actions brought by or in the right of the Company as well, but only to the
extent of defense and settlement expenses and not to any satisfaction of a
judgment or settlement of the claim itself, and with the further limitation that
in such actions no indemnification shall be made (i) unless the indemnified
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company or (ii) in the event such
person seeking indemnity was adjudged to be liable to the Company, unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should nonetheless apply.
The Bylaws provide that any decision as to indemnification shall be made:
(a) by a majority vote of the directors who are not parties to such action, suit
or proceeding ("disinterested directors"), even though less than a quorum; (b)
by a committee of disinterested directors designated by a majority vote of all
disinterested directors, even though less than a quorum; (c) if there are no
such disinterested directors, or if such directors so direct, by independent
legal counsel in a written opinion; or (d) by the stockholders. However, the
Bylaws provide that a present or former director or officer of the Company
II-1
<Page>
who has been successful on the merits or otherwise in defense of any action,
suit or proceeding for which indemnification would be appropriate as described
above shall be indemnified without the necessity of authorization in the
specific case.
The Bylaws provide that the Company shall pay expenses incurred by an
officer or director in defending a civil, criminal administrative or
investigative action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to indemnification. Indemnification pursuant to these provisions is not
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise and shall continue as to a person who has ceased to be a
director or officer.
The Company may purchase and maintain insurance on behalf of any person who
is or was a director or officer of the Company. Under an insurance policy
maintained by the Company, the directors and officers of the Company are
insured, within the limits and subject to the limitations of the policy, against
certain expenses in connection with the defense of certain claims, actions,
suits or proceedings, and certain liabilities which might be imposed as a result
of such claims, actions, suits or proceedings, which may be brought against them
by reason of being or having been such directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.+
EXHIBIT NO. DESCRIPTION
2.1 Separation and Distribution Agreement dated June 30, 2000, between
AutoNation, Inc. and ANC Rental Corporation (incorporated by
reference to Exhibit 2.1 to AutoNation's Current Report on Form 8-K
dated June 30, 2000)
2.2 Separation and Distribution Agreement dated June 30, 1998, between
Republic Industries, Inc. (now known as AutoNation, Inc.) and
Republic Services, Inc. (incorporated by reference to Exhibit 10.1
of AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998)
3.1 Third Amended and Restated Certificate of Incorporation of
AutoNation, Inc. (incorporated by reference to Exhibit 10.1 of
AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999)
3.2 Amended and Restated Bylaws of AutoNation, Inc. (incorporated by
reference to Exhibit 3.2 to AutoNation's Current Report on Form 8-K
dated December 8, 2000)
3.3** Form of Charter for Guarantors incorporated in Alabama
3.4** Form of Charter for Guarantors incorporated in Arizona
II-2
<Page>
3.5** Form of Charter for Guarantors incorporated in California
3.6** Form of Charter for Guarantors incorporated in Colorado
3.7** Form of Charter for Guarantors incorporated in Delaware
3.8** Form of Charter for Guarantors incorporated in Florida
3.9** Form of Charter for Guarantors incorporated in Georgia
3.10** Form of Charter for Guarantors incorporated in Illinois
3.11** Form of Charter for Guarantors incorporated in Maryland
3.12** Form of Charter for Guarantors incorporated in Michigan
3.13** Form of Charter for Guarantors incorporated in Minnesota
3.14** Form of Charter for Guarantors incorporated in Nevada
3.15** Form of Charter for Guarantors incorporated in North Carolina
3.16** Form of Charter for Guarantors incorporated in Ohio
3.17** Form of Charter for Guarantors incorporated in Oklahoma
3.18** Form of Charter for Guarantors incorporated in Tennessee
3.19** Form of Charter for Guarantors incorporated in Texas
3.20** Form of Charter for Guarantors incorporated in Virginia
3.21** Form of Charter for Guarantors incorporated in Washington
3.22** Form of Bylaws for Guarantors incorporated in Alabama
3.23** Form of Bylaws for Guarantors incorporated in Arizona
3.24** Form of Bylaws for Guarantors incorporated in California
3.25** Form of Bylaws for Guarantors incorporated in Colorado
3.26** Form of Bylaws for Guarantors incorporated in Delaware
3.27** Form of Bylaws for Guarantors incorporated in Florida
3.28** Form of Bylaws for Guarantors incorporated in Georgia
3.29** Form of Bylaws for Guarantors incorporated in Illinois
3.30** Form of Bylaws for Guarantors incorporated in Maryland
3.31** Form of Bylaws for Guarantors incorporated in Michigan
3.32** Form of Bylaws for Guarantors incorporated in Minnesota
II-3
<Page>
3.33** Form of Bylaws for Guarantors incorporated in Nevada
3.34** Form of Bylaws for Guarantors incorporated in North Carolina
3.35** Form of Bylaws for Guarantors incorporated in Ohio
3.36** Form of Bylaws for Guarantors incorporated in Oklahoma
3.37** Form of Bylaws for Guarantors incorporated in Tennessee
3.38** Form of Bylaws for Guarantors incorporated in Texas
3.39** Form of Bylaws for Guarantors incorporated in Virginia
3.40** Form of Bylaws for Guarantors incorporated in Washington
3.41** Form of Formation Certificate for limited liability company
Guarantors formed in Delaware
3.42** Form of Formation Certificate for limited liability company
Guarantors formed in Ohio
3.43** Form of Formation Certificate for limited liability company
Guarantors formed in Wyoming
3.44** Form of Certificate of Limited Partnership for limited partnership
Guarantors formed in Florida
3.45** Form of Certificate of Limited Partnership for limited partnership
Guarantors formed in Georgia
3.46** Form of Certificate of Limited Partnership for limited partnership
Guarantors formed in Texas
3.47** Form of LLC Agreement for limited liability company Guarantors
formed in Arizona
3.48** Form of LLC Agreement for limited liability company Guarantors
formed in Colorado
3.49** Form of LLC Agreement for limited liability company Guarantors
formed in Delaware
3.50** Form of LLC Agreement for limited liability company Guarantors
formed in Florida
3.51** Form of LLC Agreement for limited liability company Guarantors
formed in Ohio
3.52** Form of LLC Agreement for limited liability company Guarantors
formed in Texas
3.53** Form of LLC Agreement for limited liability company Guarantors
formed in Wyoming
3.54** Form of Limited Partnership Agreement for limited partnership
Guarantors formed in Florida
3.55** Form of Limited Partnership Agreement for limited partnership
Guarantors formed in Georgia
3.56** Anything on Wheels. Ltd. Charter
3.57** AutoNation Chrysler Plymouth Jeep of North Houston, L.P. Limited
Partnership Agreement
II-4
<Page>
3.58** AutoNation Doge of San Antonio, L.P. Limited Partnership Agreement
3.59** AutoNation Insurance Company Charter
3.60** AutoNation Insurance Company Bylaws
3.61** Bankston Chrysler Jeep of Frisco, L.P. Limited Partnership
Agreement
3.62** Bankston Ford of Frisco, Ltd. Co. Certificate of Limited
Partnership
3.63** Batfish Auto, LLC Formation Certificate
3.64** Batfish, LLC Formation Certificate
3.65** Bengal Motor Company, Ltd. Certificate of Limited Partnership
3.66** Brown & Brown Chevrolet - Superstition Springs, LLC Formation
Certificate
3.67** Brown & Brown Nissan Mesa, L.L.C. Formation Certificate
3.68** Central Motor Company, Ltd. Certificate of Limited Partnership
3.69** Houston Auto Imports Greenway, Ltd. Limited Partnership Agreement
3.70** Houston Auto Imports North, Ltd. Limited Partnership Agreement
3.71** Jerry Gleason Dodge, Inc. Charter
3.72** J-R Motors Company North General Partnership Agreement
3.73** J-R Motors Company South General Partnership Agreement
3.74** Mullinax Used Cars, Inc. Charter
3.75** PMWQ, Ltd. Limited Partnership Agreement
3.76** SGSCP Limited Partnership Certificate of Limited Partnership
3.77** Six Jays LLC Formation Certificate
3.78** AutoNation Fort Worth Motors, Ltd. Certificate of Limited
Partnership
3.79** AutoNation Forth Worth Motors, Ltd. Limited Partnership Agreement
4.1* Specimen Certificate of Rule 144A Global Note (Outstanding Note)
4.2* Specimen Certificate of Regulation S Global Note (Outstanding Note)
4.3* Specimen Certificate of Global Note (Exchange Note)
4.4* Indenture, dated as of August 10, 2001
5.1** Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)
II-5
<Page>
10.1 AutoNation, Inc. 1991 Stock Option Plan, as amended to date
(incorporated by reference to Exhibit 10.1 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000)
10.2 AutoNation, Inc. 1995 Amended and Restated Employee Stock Option
Plan, as amended to date (incorporated by reference to Exhibit 10.2
to AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000)
10.3 AutoNation Enterprises Incorporated Amended and Restated 1995
Employee Stock Option Plan, as amended to date (incorporated by
reference to Exhibit 10.3 to AutoNation's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000)
10.4 AutoNation, Inc. Amended and Restated 1995 Non-Employee Director
Stock Option Plan (incorporated by reference to Exhibit 10.10 to
AutoNation's Annual Report on Form 10-K for the year ended December
31, 1998)
10.5 AutoNation, Inc. Amended and Restated 1997 Employee Stock Option
Plan, as amended to date (incorporated by reference to Exhibit 10.4
to AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000)
10.6 AutoNation, Inc. Amended and Restated 1998 Employee Stock Option
Plan, as amended to date (incorporated by reference to Exhibit 10.5
to AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000)
10.7 AutoNation, Inc, 1999 Senior Executive Bonus Plan (incorporated by
reference to Exhibit 10.7 to AutoNation's Annual Report on Form
10-Q for the year ended December 31, 2001)
10.8 Letter Agreement dated September 22, 1999, between AutoNation, Inc.
and Michael J. Jackson, Chief Executive Officer (incorporated by
reference to Exhibit 10.4 of AutoNation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999)
10.9 Employment Agreement dated August 1, 2000, between AutoNation, Inc.
and Michael E. Maroone, President and Chief Operating Officer
(incorporated by reference to Exhibit 10.1 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000)
10.10 Letter Agreement dated March 26, 1999, between AutoNation, Inc. and
Michael E. Maroone, President and Chief Operating Officer
(incorporated by reference to Exhibit 10.1 of AutoNation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999)
10.11 Letter Agreement dated April 18, 2000, between AutoNation, Inc. and
Craig T. Monaghan, Chief Financial Officer (incorporated by
reference to Exhibit 10.1 of AutoNation's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000)
10.12 Tax Sharing Agreement dated June 30, 2000 between AutoNation, Inc.
and ANC Rental Corporation (incorporated by reference to Exhibit
10.1 to AutoNation's Current Report on Form 8-K dated June 30,
2000)
10.13 Benefits Agreement dated June 30, 2000 between AutoNation, Inc. and
ANC Rental Corporation (incorporated by reference to Exhibit 10.1
to AutoNation's Current Report on Form 8-K dated June 30, 2000)
II-6
<Page>
10.14 Reimbursement Agreement dated June 30, 2000 between AutoNation,
Inc. and ANC Rental Corporation (incorporated by reference to
Exhibit 10.3 to AutoNation's Current Report on Form 8-K dated June
30, 2000)
10.15 Tax Indemnification and Allocation Agreement dated June 30, 1998,
between Republic Industries, Inc. (now known as AutoNation, Inc.)
and Republic Services, Inc. (incorporated by reference to Exhibit
10.4 of Republic Services, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998)
21.1* Subsidiaries of AutoNation, Inc.
23.1** Consent of Arthur Andersen LLP
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(included in exhibit 5.1)
24.1 Power of Attorney (included on signature page)
25.1** Statement of Eligibility of Trustee
99.1** Form of Letter of Transmittal
99.2** Form of Letter to Brokers, Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees
99.3** Form of Letter to Clients for use by Brokers, Securities Dealers,
Commercial Banks, Trust Companies and Other Nominees
99.4** Form of Notice of Guaranteed Delivery
99.5** Instructions - Backup Withholding; Substitute Form W-9; Forms W-8
- ---------------
* Previously filed.
** Filed herewith.
+ The organizational and operating documents for the Guarantors are the
form documents for their respective states of organization unless their
particular organization and/or operating documents are otherwise set
forth in this exhibit index.
II-7
<Page>
(B) FINANCIAL STATEMENT SCHEDULES:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of AutoNation, Inc. and
subsidiaries included in this registration statement and have issued our report
thereon dated March 26, 2001 (except with respect to matters discussed in Note
17, as to which the date is November 16, 2001). Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule set forth below is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 2001 (except with respect to the matters discussed in Note 17 in the
Company's consolidated financial statements, as to which the date is
November 16, 2001).
II-8
<Page>
AUTONATION, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)
<Table>
<Caption>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
CLASSIFICATIONS OF YEAR INCOME DEDUCTIONS OTHER YEAR
- --------------- ------- ------ ---------- ----- ----
Allowance for doubtful accounts:
2000............................. $ 42.5 $ 8.4 $ (14.7)(2) $ (1.1) $ 35.1
1999............................. $ 33.8 $ 13.4 $ (9.4)(2) $ 4.7(1) $ 42.5
1998............................. $ 8.5 $ 1.8 $ (3.1)(2) $ 26.6(1) $ 33.8
Restructuring reserves (3):
2000............................. $ 120.6 $ (5.4) $ (111.2)(5) $ (2.8) $ 1.2
1999............................. $ 24.1 $ 416.4 $ (12.4)(5) $ (307.5)(4) $ 120.6
1998............................. $ 46.0 $ --(6) $ (15.5)(5) $ (6.4)(4) $ 24.1
</Table>
- ------------------
(1) Allowance of acquired businesses.
(2) Accounts written off.
(3) Included under the caption "Accrued liabilities" in the Accompanying
Consolidated Balance Sheets.
(4) Primarily asset write-offs.
(5) Primarily cash payments of costs associated with restructuring activities.
(6) During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for the relocation of certain operations by approximately $21.0
million.
Schedules not set forth herein have been omitted either because the
required information is set forth in the consolidated financial statements or
the information called for is not required.
II-9
<Page>
ITEM 22: UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein that was not the subject of and included
in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective registration statement.
II-10
<Page>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change in such
information in the registration statement; provided,
however, that the registrant need not file a
post-effective amendment to include the information
required to be included by subsection (i) or (ii) if such
information is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-11
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, state of
Florida, on November 16, 2001.
AUTONATION, INC.
By: *
------------------------------------------
Name: Mike Jackson
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
their capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* Chairman of the Board November 16, 2001
- -----------------------------
H. Wayne Huizenga
* Chief Executive Officer and Director November 16, 2001
- ----------------------------- (Principal Executive Officer )
Mike Jackson
* Senior Vice President and Chief Financial November 16, 2001
- ----------------------------- Officer (Principal Financial Officer)
Craig T. Monaghan
* Senior Vice President - Finance (Principal November 16, 2001
- ----------------------------- Accounting Officer)
Patricia A. McKay
* Vice Chairman of the Board November 16, 2001
- -----------------------------
Harris W. Hudson
* Director November 16, 2001
- -----------------------------
Robert J. Brown
* Director November 16, 2001
- -----------------------------
J.P. Bryan
* Director November 16, 2001
- -----------------------------
Rick L. Burdick
* Director November 16, 2001
- -----------------------------
Michael G. DeGroote
* Director November 16, 2001
- -----------------------------
George D. Johnson, Jr.
* Director November 16, 2001
- -----------------------------
John J. Melk
</Table>
II-12
<Page>
<Table>
<Caption>
SIGNATURE TITLE DATE
* Director November 16, 2001
- -----------------------------
Irene B. Rosenfeld
</Table>
- ------------------
* By Jonathan P. Ferrando as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AutoNation Chrysler Plymouth GP, Inc.
AutoNation Chrysler Plymouth LP, Inc.
AutoNation Dodge of San Antonio-GP, Inc.
AutoNation Dodge of San Antonio-LP, Inc.
Champion Ford, Inc.
Champion Planning, Inc.
Charlie Thomas Auto Sales, Inc.
Charlie Thomas Chevrolet, Inc.
Charlie Thomas Courtesy Leasing, Inc.
Dealership Realty Corporation
Houston Imports Greenway-GP, Inc.
Houston Imports Greenway-LP, Inc.
Houston Imports North-GP, Inc.
Houston Imports North-LP, Inc.
Les Marks Chevrolet, Inc.
Marks Transport, Inc.
Mike Hall Chevrolet, Inc.
Port City Imports, Inc.
Port City Imports-HO, Inc.
Port City Pontiac-GMC Trucks, Inc.
RI/HGMC Acquisition Corp.
RI/RMT Acquisition Corp.
Steeplechase Motor Company
Texan Ford, Inc.
Texan Lincoln-Mercury, Inc.
By: *
------------------------------------------
Daniel G. Agnew
President (Principal Executive Officer)
AutoNation Chrysler Plymouth Jeep of North
II-13
<Page>
Houston, L.P.
By: AutoNation Chrysler Plymouth GP, Inc.
General Partner
By: *
------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
AutoNation Dodge of San Antonio, L.P.
By: AutoNation Dodge of San Antonio-GP,
Inc.
General Partner
By: *
------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
Houston Auto Imports Greenway, Ltd.
By: Houston Imports Greenway-GP, Inc.
General Partner
By: *
------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
Houston Auto Imports North, Ltd.
By: Houston Imports North-GP, Inc.
General Partner
By: *
------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Daniel G. Agnew
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
</Table>
II-14
<Page>
<Table>
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Chevrolet World, Inc.
Colonial Imports, Inc.
Cook-Whitehead Ford, Inc.
Cook-Whitehead Ford, LLC
Dealership Accounting Services, Inc.
Don Mealey Chevrolet, Inc.
Don Mealey Imports, Inc.
Don Mealey Oldsmobile, Inc.
Jim Quinlan Chevrolet Co.
Jim Quinlan, Ford Lincoln-Mercury, Inc.
Mealey Holdings, Inc.
Quinlan Motors, Inc.
Tinley Park J. Imports, Inc. (f/k/a Orlando Im
ports, Inc.)
By: *
-------------------------------------------
Jim Bender
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Jim Bender
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-15
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AN/MNI Acquisition Corp.
By: *
-------------------------------------------
Dennis Botto
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Dennis Botto
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
All-State Rent A Car, Inc.
Desert Buick-GMC Management Group, Inc.
Desert Buick-GMC Trucks, LLC
Desert Dodge, Inc.
Desert GMC, LLC
Desert GMC-East, Inc.
Desert Lincoln-Mercury, Inc.
RI/CC Acquisition Corp.
II-16
<Page>
By: *
-------------------------------------------
Larry Carter
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Larry Carter
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
7 Rod Real Estate North, a Limited Liability
Company
7 Rod Real Estate South, a Limited Liability
Company
AN/CF Acquisition Corp.
AutoNation Denver Management, Inc.
AutoNation GM GP LLC (f/k/a Emich Lincoln-
Mercury, LLC)
Batfish, LLC
Batfish Auto, LLC
C. Garrett, Inc.
Chesrown Auto, LLC
Chewrown Chevrolet, LLC
Chesrown Collision Center, Inc.
Chesrown Ford, Inc.
Emich Chrysler Plymouth, LLC
Emich Dodge, LLC
Emich Lincoln-Mercury, LLC
II-17
<Page>
Emich Oldsmobile, LLC
Emich Subaru West, LLC
J-R Advertising Company
J-R Motors Company Central, LLC
J-R-M Motors Company Northwest, LLC
Marshall Lincoln-Mercury, Inc.
R. Coop Limited
R.L. Buscher II, Inc.
R.L. Buscher III, Inc.
RI/LLC Acquisition Corp.
RI/LLC-2 Acquisition Corp.
Southwest Dodge, LLC
Tinley Park V. Imports, Inc. (f/k/a Emich
Lincoln-Mercury, Inc.)
Woody Capital Investment Company II
Woody Capital Investment Company III
By: *
-------------------------------------------
Fred F. Emich, III
President (Principal Executive Officer)
J-R Motors Company South
By: Woody Capital Investment Company II
C. Garrett, Inc.
R.L. Buscher II, Inc.
General Partners
By: *
-------------------------------------
Fred F. Emich, III
President (Principal Executive
Officer)
J-R Motors Company North
By: Woody Capital Investment Company III
R. Coop Limited
R.L. Buscher III, Inc.
General Partners
By: *
-------------------------------------
Fred F. Emich, III
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-18
<Page>
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Fred F. Emich, III
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Gene Evans Ford, LLC
By: *
-------------------------------------------
Gene Evans
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Gene Evans
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-19
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
BOSC Automotive Realty, Inc.
By: *
-------------------------------------------
Jonathan P. Ferrando
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- ----------------------------- and Director
Jonathan P. Ferrando
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AutoNation Financial Services Corp.
By: *
-------------------------------------------
Kevin P. Westfall
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-20
<Page>
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Kevin P. Westfall
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Don-A-Vee Jeep Eagle, Inc.
By: *
-------------------------------------------
Donald A. Fraser
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Donald A. Fraser
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-21
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
American Way Motors, Inc.
AN/STD Acquisition Corp.
Auto Ad Agency, Inc.
AutoNation Imports of Lithia Springs, Inc.
AutoNation Motors of Lithia Springs, Inc.
Bill Ayares Chevrolet, Inc.
Chuck Clancy Ford of Marietta, Inc.
Consumer Car Care Corporation
Covington Pike Motors, Inc.
Dobbs Brothers Buick-Pontiac, Inc.
Dobbs Ford of Memphis, Inc.
Dobbs Ford, Inc.
Dobbs Mobile Bay, Inc.
Dobbs Motors of Arizona, Inc.
Fox Buick/Isuzu, Inc.
Fox Chevrolet, Inc.
Fox Hyundai, Inc.
Fox, Inc.
George Sutherlin Nissan, Inc.
Government Blvd. Motors, Inc.
Hub Motor Co.
Miller-Sutherlin Automotive, LLC
Northpoint Chevrolet, Inc.
Northpoint Ford, Inc.
RI/PII Acquisition Corp.
Steve Rayman Pontiac-Buick-GMC-Truck, LLC
Superior Nissan, Inc.
Sutherlin Chrysler-Plymouth Jeep-Eagle, LLC
Sutherlin Imports, Inc.
Sutherlin Nissan of Town Center, Inc.
Sutherlin Nissan, LLC
Team Dodge, Inc.
Valley Chevrolet, Inc.
West Side Motors, Inc.
By: *
-------------------------------------------
Frank Grese
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-22
<Page>
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Frank Grese
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
BBCSS, Inc.
Bell Dodge, LLC
Brown & Brown Chevrolet - Superstition
Springs, LLC
Brown & Brown Chevrolet, Inc.
Desert Chrysler-Plymouth, Inc.
Lou Grubb Chevrolet, LLC
Lou Grubb Chevrolet-Arrowhead, Inc.
Lou Grubb Ford, LLC
Pitre Buick-Pontiac-GMC of Scottsdale, Inc.
Pitre Chrysler-Plymouth-Jeep of Scottsdale, Inc.
Pitre Chrysler-Plymouth-Jeep on Bell, Inc.
By: *
-------------------------------------------
Daniel L. Grubb
President (Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Daniel L. Grubb
</Table>
II-23
<Page>
<Table>
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Allied 2000 Collision Center, Inc.
Bankston Auto, Inc.
Bankston CJ GP, Inc.
Bankston CJ LP, Inc.
Bankston Ford of Frisco, Ltd. Co.
Bledsoe Dodge, LLC
B-S-P Automotive, Inc.
C-Car Auto Wholesalers, Inc.
Charlie Hillard, Inc.
Cleburne Motor Company, Inc.
Dealership Properties, Inc.
Fred Oakley Motors, Inc.
Hillard Auto Group, Inc.
Midway Chevrolet, Inc.
Nichols Ford, Inc.
Payton-Wright Ford Sales, Inc.
PMWQ, Inc.
Plains Chevrolet, Inc.
Quality Nissan, Inc.
Southtown Ford, Inc.
Texan Ford Sales, Inc.
Westgate Chevrolet, Inc.
W.O. Bankston Enterprises, Inc.
W.O. Bankston Lincoln-Mercury, Inc.
W.O. Bankston Paint & Body, Inc.
Working Man's Credit Plan, Inc.
II-24
<Page>
By:
-------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
PMWQ, Ltd.
By: PMWQ, Inc.
General Partner
By:
-------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
Bankston Chrysler Jeep of Frisco, L.P.
By: Bankston CJ GP, Inc.
General Partner
By:
-------------------------------------
Daniel G. Agnew
President (Principal Executive
Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Michael J. Jackson and
Jonathan P. Ferrando his or her true and lawful attorneys-in-fact, each
acting alone, with full powers of substitu tion and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities
to sign any or all amendments, including any post-effective amendments, to
this registration statement, and any related registration statements
pursuant to Rule 462(b) under the Securities Act, and to file the same,
with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
President (Principal Executive Officer) November 16, 2001
- -----------------------------
Daniel G. Agnew
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-25
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Buick Mart, Inc.
Joe MacPherson Imports No. 1
Joe MacPherson Oldsmobile
KLJ of Nevada, Inc.
MacPherson Enterprises, Inc.
Manhattan Motors, Inc.
Orange County Automotive Imports, LLC
Prime Auto Resources, Inc.
RI/BRC Real Estate Corp.
Santa Ana Auto Center
Tartan Advertising, Inc.
Webb Automotive Group, Inc.
By: *
---------------------------------------
Jerry L. Heuer
President (Principal Executive Officer)
Buick Mart Limited Partnership
Ford of Garden Grove Limited Partnership
Irvine Toyota/Nissan/Volvo Limited Partnership
Lexus of Cerritos Limited Partnership
Toyota of Cerritos Limited Partnership
By: Webb Automotive Group, Inc.
General Partner of each of the above listed
entities
By: *
-----------------------------
Jerry L. Heuer
President (Principal Executive
Officer)
II-26
<Page>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- ----------------------------
Jerry L. Heuer
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Bargain Rent-A-Car
Beach City Chevrolet Company, Inc.
Carwell, LLC
Cerritos Body Works, Inc.
Cerritos Imports, Inc.
Champion Chevrolet, LLC
Costa Mesa Cars, Inc.
El Monte Imports, Inc.
El Monte Motors, Inc.
Fit Kit, Inc.
G.B. Import Sales & Service, LLC
House of Imports, Inc.
Irvine Imports, Inc.
Joe MacPherson Ford
Joe MacPherson Infiniti
Lew Webb's Ford, Inc.
Lew Webb's Irvine Nissan, Inc.
MacHoward Leasing
Magic Acquisition Corp.
Mr. Wheels, Inc.
Newport Beach Cars, LLC
Ontario Dodge, Inc.
Peyton Cramer Automotive
II-27
<Page>
Peyton Cramer Ford
Peyton Cramer Infiniti
Peyton Cramer Jaguar
Peyton Cramer Lincoln-Mercury
Saul Chevrolet, Inc.
SMI Motors, Inc.
Terry York Motor Cars, Ltd.
Torrance Nissan, LLC
Valencia Dodge
Valencia Lincoln-Mercury, Inc.
Vince Wiese Chevrolet, Inc.
West Colton Cars, Inc.
York Enterprises South, Inc.
By: *
--------------------------------------------
Jerry L. Heuer
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- ----------------------------- and Director
Jerry L. Heuer
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Randy Jones
</Table>
- -------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
CT Intercontinental, Inc.
By: *
--------------------------------------------
Joe Irpino
President (Principal Executive Officer)
II-28
<Page>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Joe Irpino
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
Ft. Lauderdale Nissan, Inc.
L.P. Evans Motors WPB, Inc.
L.P. Evans Motors, Inc.
By: *
--------------------------------------
James D. Evans, Jr.
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
James D. Evans, Jr.
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
</Table>
II-29
<Page>
<Table>
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
John M. Lance Ford, LLC
Lance Children, Inc.
By: *
--------------------------------------------
John M. Lance
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
John M. Lance
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, state of
Florida, on November 16, 2001.
Star Motors, LLC
II-30
<Page>
By: *
--------------------------------------------
James J. Linus
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
James J. Linus
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
Abraham Chevrolet-Miami, Inc.
Albert Berry Motors, Inc.
Al Maroone Ford, LLC
Atrium Restaurants, Inc.
Auto Advertising Services, Inc.
Auto Holding Corp.
AutoNationDirect.com, Inc.
AutoNation Corporate Management Company
AutoNation DS Investments, Inc.
AutoNation Enterprises Incorporated
AutoNation GM LP, LLC (f/k/a Flemington Land
Rover, LLC)
AutoNation Motors Holding Corp.
AutoNation Realty Corporation
AutoNation USA Corporation
AutoNation USA of Perrine, Inc.
AutoNation USA of Virginia Beach, LLC
II-31
<Page>
Beacon Motors, Inc.
Bengal Motors, Inc.
Bill Wallace Enterprises, Inc.
Body Shop Holding Corp.
Bull Motors, LLC
Central Motors, Inc.
Corporate Properties Holding, Inc.
Courtesy Wholesale Corporation
Cross-Continent Auto Retailers, Inc.
Driver's Mart Worldwide, Inc.
Empire Services Agency, Inc.
Financial Services, Inc.
First Team Cadillac-Oldsmobile, LLC
First Team Management, Inc.
Florida Auto Corp.
Hollywood Imports Limited, Inc.
Hollywood Kia, Inc.
H's Auto Body, Inc.
Kelnat Advertising, Ltd. Co.
LGS Holding Company
Lovern, Inc.
Marks Family Dealerships, Inc.
Maroone Car and Truck Rental Company
Maroone Chevrolet Ft. Lauderdale, Inc.
Maroone Chevrolet, LLC
Maroone Dodge Pompano, Inc.
Maroone Dodge, LLC
Maroone Isuzu, LLC
Maroone Jeep Eagle, Inc.
Maroone Management Services, Inc.
Maroone Oldsmobile, LLC
MC/RII, LLC
Mechanical Warranty Protection, Inc.
Quantum Premium Finance Corporation
Real Estate Holdings, Inc.
Republic DM Property Acquisition Corp.
Republic Resources Company
Republic Risk Management Services, Inc.
Resources Aviation, Inc.
RI Merger Corp.
RI Shelf Corp.
RI/ASC Acquisition Corp.
RI/BB Acquisition Corp.
RI/DM Acquisition Corp.
RI/Hollywood Nissan Acquisition Corp.
RI/SBC Acquisition Corp.
RII Management Company
II-32
<Page>
Rosecrans Investments, LLC
RRM Corporation, Inc.
RSHC, Inc.
Six Jays LLC
SCM Realty II, Inc.
SCM Realty, Inc.
Service Station Holding Corp.
Southeast Lease Car, Inc.
Spit Fire Properties, Inc.
Tallahassee Automotive Group
Tallahassee Chrysler Plymouth, Inc.
The Consulting Source, Inc.
Tinley Park A. Imports, Inc. (f/k/a Republic of
Rochester, Inc.)
Triangle Corporation
Wallace Imports, Inc.
Westmont A. Imports, Inc. (f/k/a Maroone Olds
mobile II, Inc.)
By: *
--------------------------------------------
Michael E. Maroone
President (Principal Executive Officer)
First Team Ford of Manatee, Ltd.
First Team Ford, Ltd.
First Team Imports, Ltd.
First Team Infiniti, Ltd.
First Team Jeep Eagle, Chrysler Plymouth, Ltd.
First Team Premier, Ltd.
By: First Team Management, Inc.
General Partner
By: *
--------------------------------------
Michael E. Maroone
President (Principal Executive
Officer)
Central Motor Company, Ltd.
By: Central Motors, Inc.
General Partner
By: *
------------------------------
Michael E. Maroone
President (Principal Executive
Officer)
II-33
<Page>
Bengal Motor Company, Ltd.
By: Bengal Motors, Inc.
General Partner
By: *
------------------------------
Michael E. Maroone
President (Principal Executive
Officer)
Anything on Wheels, Ltd.
By: AutoNation Enterprises Incorporated
General Partner
By: *
------------------------------
Michael E. Maroone
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Michael E. Maroone
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-34
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
AutoNation Holding Corp.
AutoNation LM Holding Corporation
By: *
--------------------------------------------
Michael E. Maroone
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Michael E. Maroone
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
* Director November 16, 2001
- -----------------------------
Jeffrey K. Simpson
* Director November 16, 2001
- -----------------------------
Gordon W. Stewart
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AutoNation Imports of Arapahoe, Inc.
By: *
--------------------------------------------
II-35
<Page>
Todd F. Maul
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Todd F. Maul
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
RI/RMC Acquisition Corp.
RI/RMP Acquisition Corp.
By: *
--------------------------------------------
Jim Oliver
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Jim Oliver
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
</Table>
II-36
<Page>
<Table>
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Brown & Brown Nissan Mesa, LLC
Brown & Brown Nissan, Inc.
JRJ Investments, Inc.
Pierce, LLC
Pierce Automotive Corporation
Pitre Isuzu-Subaru-Hyundai of Scottsdale, Inc.
Pitre Kia of Scottsdale, Inc.
RI/BBNM Acquisition Corp.
Sahara Imports, Inc.
Sahara Nissan, Inc.
T-West Sales and Service, Inc.
The Pierce Corporation II, Inc.
By: *
--------------------------------------------
Mitchell D. Pierce
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Mitchell D. Pierce
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
</Table>
II-37
<Page>
<Table>
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AN/MF Acquisition Corp.
Deal Dodge of Des Plaines, Inc.
Downers Grove Dodge, Inc.
Eastgate Ford, Inc.
Ed Mullinax, Inc.
Elmhurst Auto Mall, Inc.
Elmhurst Dodge, Inc.
Golf Mill Ford, Inc.
Horizon Chevrolet, Inc.
Jemautco, Inc.
Jerry Gleason Chevrolet, Inc.
Jerry Gleason Dodge, Inc.
Mullinax East, Inc.
Mullinax Ford North Canton, Inc.
Mullinax Ford South, Inc.
Mullinax Lincoln-Mercury, Inc.
Mullinax Management, Inc.
Mullinax of Mayfield, Inc.
Mullinax Used Cars, Inc.
T-Five, Inc.
Taylor Jeep Eagle, LLC
Tousley Ford, Inc.
Village Motors, LLC
Bob Townsend Ford, Inc.
Ed Mullinax Ford, Inc.
RI/WFI Acquisition Corporation
By: *
--------------------------------------------
Donald Reese
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-38
<Page>
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Donald Reese
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Sunrise Nissan of Jacksonville, Inc.
Sunrise Nissan of Orange Park, Inc.
By: *
--------------------------------------------
J. Phillip Risley
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- ----------------------------- and Director
J. Phillip Risley
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-39
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
Steakley Chevrolet, Inc.
By: *
--------------------------------------------
Arvel Rodgers
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Arvel Rodgers
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Abraham Chevrolet-Tampa, Inc.
Airport Dodge, Inc.
AN/FGJE Acquisition Corp.
AutoNation Imports of Longwood, Inc.
AutoNation Imports of Winter Park, Inc.
Carlisle Motors, LLC
Coastal Cadillac, Inc.
Contemporary Cars, Inc.
Courtesy Auto Group, Inc.
II-40
<Page>
Credit Management Acceptance Corporation
D/L Motor Company
D/L Moto-HO, Inc.
First Team Automotive Corp.
Gulf Management, Inc.
Kenyon Dodge, Inc.
King's Crown Ford, Inc.
Metro Chrysler Jeep, Inc.
Nissan of Brandon, Inc.
Sunset Pontiac-GMC Truck South, Inc.
Sunset Pontiac-GMC, Inc.
Sutherlin Imports, LLC
By: *
---------------------------------------
Ronald M. Salhany
President (Principal Executive Officer)
SGSCP Limited Partnership
By: Courtesy Auto Group, Inc.
General Partner
By: *
------------------------------
Ronald M. Salhany
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Ronald M. Salhany
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-41
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AutoNation Dodge of Pembroke Pines, Inc.
AutoNation Imports of Palm Beach, Inc.
M S & S Toyota, Inc.
Maroone Ford, LLC
Mike Shad Chrysler Plymouth Jeep Eagle, Inc.
Mike Shad Ford, Inc.
Steve Moore Chevrolet, LLC
Steve Moore Chevrolet Delray, LLC
Steve Moore, LLC
Steve Moore's Buy-Right Auto Center, Inc.
Wallace Dodge, LLC
Wallace Ford, LLC
Wallace Lincoln-Mercury, LLC
Wallace Nissan, LLC
By: *
--------------------------------------------
Harold W. Shad, III
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Howard W. Shad, III
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-42
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
AN/PF Acquisition Corp.
Anderson Dealership Group
Appleway Chevrolet, Inc.
AutoNation Imports Northwest, Inc.
Dodge of Bellevue, Inc.
Ford of Kirkland, Inc.
Kirkland Pontiac-Buick-GMC, Inc.
Northwest Financial Group, Inc.
Republic Anderson Investment Group, Inc.
Spokane Mitsubishi Dealers Advertising
Association, Inc.
Tasha Incorporated
Town & Country Chrysler Jeep, Inc.
By: *
--------------------------------------------
David Spisak
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
David Spisak
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-43
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Allison Bavarian
America's Car Stop
AN/FMK Acquisition Corp.
Anderson Chevrolet
Anderson Chevrolet - Los Gatos, Inc.
Anderson Cupertino, Inc.
Auto Car, Inc.
Auto Mission Ltd.
Auto West, Inc.
Edgren Motor Company, Inc.
Hayward Dodge, Inc.
Mission Blvd. Motors, Inc.
Roseville Motor Corporation
Shamrock Ford, Inc.
Smythe European, Inc.
Stevens Creek Motors, Inc.
By: *
--------------------------------------------
David Spisak
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
David Spisak
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Wesley Pandoff
* Director November 16, 2001
- -----------------------------
David Spisak
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-44
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Bankston Nissan in Irving, Inc.
Bankston Nissan Lewisville, Inc.
W.O. Bankston Nissan, Inc.
By: *
--------------------------------------------
Robert R. Swanson, Jr.
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Robert R. Swanson, Jr.
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Vanderbeek Motors, Inc.
Vanderbeek Olds/GMC Truck, Inc.
By: *
--------------------------------------------
Scott Vanderbeek
President (Principal Executive Officer)
II-45
<Page>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Scott Vanderbeek
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Wesley Pandoff
* Director November 16, 2001
- -----------------------------
Scott Vanderbeek
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
Charlie Thomas' Courtesy Ford, Inc.
By: *
--------------------------------------------
Robert Westrup
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Robert Westrup
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-46
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Fort Lauderdale, state of Florida, on November 16, 2001.
Charlie Thomas Chrysler-Plymouth, Inc.
Charlie Thomas Ford, Inc.
CT Motors, Inc.
By: *
--------------------------------------------
Robert Zweig
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Robert Zweig
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, state of
Florida, on November 16, 2001.
ACER Fiduciary, Inc.
By: *
--------------------------------------------
Jennifer L. Boese
President (Principal Executive Officer)
II-47
<Page>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Jennifer L. Boese
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Jennifer L. Boese
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
* Director November 16, 2001
- -----------------------------
Michael E. Maroone
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
AutoNation Insurance Company, Inc.
By: *
--------------------------------------------
Jennifer L. Boese
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* President (Principal Executive Officer) November 16, 2001
- -----------------------------
Jennifer L. Boese
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer) and
C. Coleman G. Edmunds Director
* Director November 16, 2001
- -----------------------------
Guy F. Ragosta
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
II-48
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Lauderdale, state of Florida, on November 16, 2001.
AutoNation Benefits Company, Inc.
By: *
--------------------------------------------
Craig T. Monaghan
Chief Executive Officer (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
* Chief Executive Officer (Principal Exec November 16, 2001
- ----------------------------- Executive Officer)
Craig T. Monaghan
* Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Jennifer L. Boese
* President, Director November 16, 2001
- -----------------------------
B. Gene Clayton
* Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
* Director November 16, 2001
- -----------------------------
Craig T. Monaghan
* Director November 16, 2001
- -----------------------------
Peter C. Smith
</Table>
- ------------------
* By Gordon E. Devens as attorney-in-fact.
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the city of Ft. Lauderdale, state of
Florida, on November 16, 2001.
Westmont M. Imports, Inc.
Westmont B. Imports, Inc.
Naperville Imports, Inc.
AutoNation Fort Worth Motors, Ltd.
II-49
<Page>
By: /s/ Michael E. Maroone
-----------------------------------------
Michael E. Maroone
President (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Jonathan P. Ferrando and Gordon
E. Devens, as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement, (ii)
any exhibits to any such registration statement or pre-effective or post-
effective amendments or (iii) any and all applications and other documents in
connection with any such registration statement or pre-effective or post
effective amendments, and generally to do all things and perform any and all
acts and things whatsoever requisite and necessary or desirable to enable the
Registrants to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
/s/ Michael E. Maroone President (Principal Executive Officer) November 16, 2001
- ----------------------------- and Director
Michael E. Maroone
/s/ Marc L. Bourhis Treasurer (Principal Accounting Officer November 16, 2001
- ----------------------------- and Principal Financial Officer)
Marc. L. Bourhis
/s/ Jonathan P. Ferrando Director November 16, 2001
- -----------------------------
Jonathan P. Ferrando
</Table>
II-50