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<SEC-DOCUMENT>0000950168-01-000660.txt : 20010402
<SEC-HEADER>0000950168-01-000660.hdr.sgml : 20010402
ACCESSION NUMBER: 0000950168-01-000660
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AUTONATION INC /FL
CENTRAL INDEX KEY: 0000350698
STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953]
IRS NUMBER: 731105145
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-13107
FILM NUMBER: 1588281
BUSINESS ADDRESS:
STREET 1: 110 SE 6TH ST
CITY: FT LAUDERDALE
STATE: FL
ZIP: 33301
BUSINESS PHONE: 9547696000
MAIL ADDRESS:
STREET 1: 110 SE 6TH ST
CITY: FT LAUDERDALE
STATE: FL
ZIP: 33301
FORMER COMPANY:
FORMER CONFORMED NAME: REPUBLIC INDUSTRIES INC
DATE OF NAME CHANGE: 19951215
FORMER COMPANY:
FORMER CONFORMED NAME: REPUBLIC WASTE INDUSTRIES INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: REPUBLIC RESOURCES CORP
DATE OF NAME CHANGE: 19900226
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from -------- to --------
Commission File Number: 0-13107
AutoNation, Inc.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 73-1105145
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 S.E. 6TH STREET,
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(954) 769-6000
(Registrant's Telephone Number, Including Area Code)
----------------
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------------------- ------------------------------------------
Common Stock, Par Value $.01 Per Share The New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 26, 2001, the registrant had 337,146,986 shares of common
stock outstanding, of which 68,516,203 shares were held by directors and
executive officers of the registrant. As of March 26, 2001, non-affiliates of
the registrant held 268,630,783 shares of common stock with an aggregate market
value of approximately $2,243,067,038.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relating to the 2001
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
TO FORM 10-K
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Page
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PART I
Item 1. Business ..................................................................... 1
Item 2. Properties ................................................................... 15
Item 3. Legal Proceedings ............................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders .......................... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .... 17
Item 6. Selected Financial Data ...................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 19
Item 8. Financial Statements and Supplementary Data .................................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................... 71
PART III
Item 10. Directors and Executive Officers of the Registrant ........................... 71
Item 11. Executive Compensation ....................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management ............... 71
Item 13. Certain Relationships and Related Transactions ............................... 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............. 71
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
AutoNation, Inc. is the largest automotive retailer in the United States.
As of December 31, 2000, we owned and operated approximately 400 new vehicle
franchises from dealership locations in major metropolitan markets in 18
states, predominantly in the Sunbelt. Our dealerships offer new and used
vehicles for sale. We also offer financing for vehicle purchases, extended
service contracts and other finance and insurance products, as well as other
aftermarket products such as vehicle accessories, upgraded sound systems and
theft deterrent systems. We also offer a wide range of vehicle maintenance and
repair services and we operate collision repair centers in most of our key
markets. The core brands of vehicles that we sell, representing almost 90% of
the new vehicles that we sold in 2000, are Ford (Ford, Lincoln and Mercury),
General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep
and Dodge), Nissan, Toyota and Honda. We also sell several luxury vehicle
brands, including Mercedes-Benz, BMW, Lexus and Porsche. In total, we offer 35
different brands of vehicles.
Although we now operate exclusively as an automotive retailer, we have
operated businesses in multiple industries over the past several years,
including the solid waste services, electronic security service, car rental and
outdoor media industries. With the tax-free spin-off to our stockholders of ANC
Rental Corporation and the sale of certain other non-core assets in 2000, which
we describe in more detail in the "Recent Developments" section of this
document, we are now focused exclusively on our operations in the automotive
retail business.
Our common stock, par value $.01 per share, is listed on The New York
Stock Exchange under the symbol "AN." For information concerning our financial
condition, results of operations and related financial data, and business
combinations, you should review the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section in this document. You
should also review and consider the risks relating to our business, operations,
financial performance and cash flows that we describe in the "Risk Factors"
section starting on page 11 of this document.
RECENT DEVELOPMENTS
ANC Rental Spin-off. On June 30, 2000, we completed the tax-free spin-off
of ANC Rental Corporation, which operates primarily under the Alamo Rent-A-Car
and National Car Rental brand names in the leisure travel, business travel and
vehicle replacement markets of the automotive rental industry. As a result of
the spin-off, our stockholders of record as of June 16, 2000 received one share
of ANC Rental common stock for every eight shares of AutoNation common stock
they held as of such date. ANC Rental common stock is traded on The Nasdaq
Stock Market under the symbol "ANCX." We have reclassified and reported ANC
Rental's business as a discontinued operation. Accordingly, except as otherwise
noted, the disclosure contained in this document relates solely to our
automotive retail business.
Other Divestitures of Non-Core Assets. In addition to the spin-off of ANC
Rental, during 2000 we substantially completed our divestitures of other
non-core assets. During 2000, we entered into a sale-leaseback financing of our
corporate headquarters facility resulting in proceeds of approximately $52.1
million. We also completed the sale of ANC Rental's corporate headquarters
facility for approximately $18.7 million. In connection with the closure during
December 1999 of 23 company-owned AutoNation USA used vehicle megastores,
during 2000 we sold a majority of the excess real property held for or operated
in connection with our former used vehicle megastore business. We intend to
continue actively marketing the remaining excess used vehicle megastore
properties. In November 2000, we completed the divestiture of our outdoor media
business, which operated under the name Republic Media, for a sale price of
approximately $104.0 million. In connection with the sale of Republic Media, we
entered into a pre-paid
<PAGE>
$15.0 million advertising agreement with respect to the purchaser's radio
stations, billboards and other outdoor advertising media, and, accordingly, we
received net proceeds of approximately $89.0 million in connection with the
transaction. During 2000, we also completed the sale of various non-core
franchised new vehicle dealerships for an aggregate sale price of approximately
$89.7 million. With the sale of our Flemington Automotive Group in New Jersey,
which we expect to complete in April 2001, we believe that our disposition of
significant non-core assets will be substantially complete.
BUSINESS STRATEGY
Our business strategy consists of the following key elements:
o Expand our margins by focusing on higher-margin products and
services.
o Continue to leverage our significant scale to improve our
operating efficiency, including by managing costs of our
business and improving the utilization of our assets.
o Effectively use our free cash flow to reinvest in our business
through capital investments, strategic dealership acquisitions
and share repurchases.
o Continue to grow and leverage our e-commerce business.
Expand Our Margins
While new vehicle sales will continue to be a significant component of our
operations, we intend to continue to focus on developing the areas of our
automotive retail business that produce the highest margins. In general, parts
and service sales, used vehicle sales and sales of finance, insurance and other
aftermarket products yield relatively high margins as a percentage of sales
compared to new vehicle sales. We intend to emphasize higher-margin areas of
our business with the following strategic initiatives:
(arrow) PARTS AND SERVICE SALES AND COLLISION REPAIR SERVICES:
Almost all of our dealerships have service facilities that provide a
wide range of vehicle maintenance and repair services. Additionally, we
operate collision repair centers in most of our key markets. We intend
to increase our parts and service sales by, among other things: (1)
continuing to implement our team-based service process in our service
facilities (Advanced Production Structure) and our cycle time solution
in our collision centers, (2) implementing comprehensive parts and
service marketing programs within our local markets, (3) assuring that
our dealerships' parts requirements are fulfilled through purchases
from AutoNation dealerships to the extent practicable and (4)
developing relationships with national insurance companies that
establish our dealerships and collision centers as preferred providers
of collision repair services. Accordingly, we also intend to focus on
hiring, training and retaining technicians so that we can improve our
service bay utilization and increase our parts and service sales
without the need for additional capital investment.
(arrow) USED VEHICLE SALES: Each of our dealerships offers a variety
of brand name used vehicles. We will continue to leverage our status as
the largest retailer of new vehicles in the United States to develop
competitive advantages over our principal used vehicle competitors and
to expand our used vehicle business. We believe that, with our
significant scale in our key markets, we have better access than many
of our competitors to desirable used vehicle
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inventory. We intend to leverage our significant scale in our key
markets to improve our used vehicle business by (1) completing the
implementation at our dealerships of our advanced inventory management
system, which will permit us to source and manage used vehicle
inventories across our dealerships within a local market, (2)
implementing comprehensive used vehicle marketing programs within our
local markets, (3) dedicating specific management personnel in each of
our geographic operating districts to optimize our used vehicle
operations and (4) adopting standardized used vehicle operating
policies at our dealerships based on our dealerships' "best practices."
(arrow) FINANCE, INSURANCE AND OTHER AFTERMARKET PRODUCT SALES: Each
new or used vehicle sale presents our dealerships with the opportunity
to finance the vehicle, sell an extended service contract or other
finance and insurance product, and sell other aftermarket products,
such as vehicle accessories or a theft deterrent system. In order to
improve our finance and insurance business, we plan to (1) focus on
improving the performance of our dealerships that under-perform our
other dealerships with respect to finance and insurance operations, (2)
ensure a high level of compliance with our standard finance and
insurance operating practices, such as the use of our customer-friendly
"full-disclosure" finance and insurance menu, (3) increase sales at our
dealerships of finance and insurance products offered by our automotive
finance arm, AutoNation Financial Services, and (4) promote further
consolidation of the retail finance sources for our customers' vehicle
purchases to drive improved pricing and efficiency.
Improve Our Operating Efficiency
We plan to leverage our status as the largest automotive retailer in the
United States to further improve our cost structure and the utilization of our
assets. During 1999 and 2000, in order to improve our cost structure we shut
down our cost-intensive used vehicle megastore business and reduced our staff
by approximately 2,000 employees, of whom approximately 200 were corporate
headquarters staff. These and other cost-reduction initiatives have resulted in
cost savings and improved operating margins for us. However, we believe that we
still have important opportunities to improve our cost structure and the
utilization of our assets. We plan to focus on the following key methods to
achieve these goals:
(arrow) REDUCE DAYS SUPPLY OF NEW AND USED VEHICLES: We are focused
on managing our new and used vehicle inventories to decrease the days
supply of vehicles that we have at any given time at our dealerships,
with the objective of reducing our inventory financing interest expense
and carrying costs. We plan to achieve this by: (1) developing and
using a web-based tracking system that enables us to more closely
monitor our inventories, (2) establishing days supply targets for each
of our vehicle models, (3) managing our new and used vehicle
inventories across the dealerships within each of our markets to
optimize inventory turnover and (4) focusing our inventory purchasing
on the more popular model packages.
(arrow) DECREASE TIME TO CONVERT RECEIVABLES INTO CASH: We intend to
focus on decreasing the amount of time that our dealerships take to
receive payment on retail receivables (or "contracts-in-transit"). We
plan to accomplish this goal, in part, by (1) adopting "best practices"
concerning sales and contracts-in-transit flow processing, (2)
developing and using a web-based tool to monitor our dealerships'
contracts-in-transit and (3) developing relationships with preferred
lenders who can expeditiously process our dealerships'
contracts-in-transit. By more quickly converting our
contracts-in-transit into cash, we expect to be able to more
3
<PAGE>
quickly use our capital to pursue our strategic initiatives, including
those described below under the "Effectively Use Free Cash Flow"
heading.
Effectively Use Free Cash Flow
A key component of our strategy is to maximize the return on investment
generated by the use of the free cash flow that our business generates. We
expect to use our free cash flow to make capital investments in our current
businesses, to complete strategic dealership acquisitions in our key markets
and to repurchase shares of our common stock pursuant to our Board-authorized
share repurchase program. The considerations in determining how we will
allocate our free cash flow among such uses include the following:
(arrow) CAPITAL INVESTMENTS: During 2000, we invested $148.2 million
on capital investments, including to upgrade and improve certain of our
dealership facilities. We expect to make additional facility and
infrastructure upgrades and improvements from time to time, such as the
construction of new vehicle dealership facilities, with a focus on
projects that we expect to provide a reasonable return on our
investment.
(arrow) STRATEGIC DEALERSHIP ACQUISITIONS: We believe that we will
have additional opportunities to acquire dealerships in our key
markets. The factors that will impact whether we make additional
strategic dealership acquisitions include the brand, location and price
of available dealerships and whether such dealerships complement and
can be integrated into our existing operations.
(arrow) SHARE REPURCHASES: During 2000, we repurchased 27.6 million
shares of our common stock for an aggregate price of $188.9 million. As
of March 26, 2001, we are authorized to repurchase up to an additional
$179.2 million of our common stock pursuant to our latest
Board-authorized share repurchase program. The decision to make
additional purchases of our stock will be based on such factors as the
market price of our common stock, the potential impact on our capital
structure and the expected return on competing uses of our capital such
as strategic dealership acquisitions and capital investments in our
current businesses.
Grow Our E-Commerce Business
Due to the scale of our operations and our e-commerce infrastructure, we
believe that we are uniquely positioned to compete in the automotive retail
e-commerce marketplace. During 2000, we developed relationships with certain
Internet service providers and websites, as well as other parties, to purchase
leads or referrals of customers who are shopping for a vehicle. Using
"Compass," our proprietary web-based lead-management software tool, we provide
these customer leads to our dealerships for fulfillment to the extent possible.
Specially-trained Internet Sales Guides at our dealerships then use the
Internet-based Compass system to respond to customer inquiries 24 hours a day,
seven days a week. During 2000, our average customer response time was
approximately 1.2 hours, which is well below reported industry average response
times.
During 2000, we also entered into lead referral agreements with over 1,600
franchises operating from more than 1,000 independent dealerships. Under these
agreements, we sell customer leads that we cannot fulfill within our dealership
network. We plan to continue to enter into lead referral agreements with
dealers that are able to provide fulfillment capability for vehicle makes and
geographic areas that our dealerships do not cover. As we enter into additional
lead referral agreements, we intend to continue
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to set service and other standards that these independent dealerships must meet
to participate in our lead referral program.
OPERATIONS
As of December 31, 2000, we owned and operated approximately 400
automotive franchises from dealership locations in 18 states. We own and
operate franchises granted by the manufacturers of 35 different makes of
vehicles. The core brands of vehicles that we sell are Ford (Ford, Lincoln and
Mercury), General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler
(Chrysler, Jeep and Dodge), Nissan, Toyota and Honda. Our management structure
is focused on our local markets, where day-to-day decision-makers can be more
responsive to the needs of local customers. We have established ten districts
to manage our automotive retail business. The number of dealerships within each
district varies from district to district.
Each of our automotive franchises offers new and used vehicles for sale.
Each of our dealerships also offers financing for vehicle purchases, extended
service contracts and other finance and insurance products, as well as other
aftermarket products such as vehicle accessories, upgraded sound systems and
theft deterrent systems. Almost all of our dealerships have service facilities
that provide a wide range of vehicle maintenance and repair services.
Additionally, we operate collision repair centers in most of our key markets.
Each of our dealerships acquires new vehicles for retail sale directly
from the applicable automotive manufacturer or distributor. Accordingly, we
depend in large part on the automotive manufacturers and distributors to
provide us with high quality vehicles that consumers desire and to supply us
with such vehicles at suitable locations, quantities and prices. We generally
acquire used vehicles from customer trade-ins, off-lease programs and, to a
lesser extent, auctions and other sources. We recondition used vehicles
acquired for retail sale at our dealerships' service facilities.
We provide financial products and services to our customers through third
parties, including the vehicle manufacturers' and distributors' captive finance
companies, as well as our automotive finance arm, AutoNation Financial
Services. AutoNation Financial Services' products include retail installment
loan financing, extended service contracts, vehicle protection and maintenance
programs and insurance products.
SALES AND MARKETING
In 2000, we retailed approximately 744,000 vehicles through our
dealerships. We sell a broad range of well-known vehicle makes within each of
our key markets.
Our marketing efforts focus on mass marketing in our local markets and are
designed to build our business with a broad base of repeat and new customers.
We engage in mass marketing and advertising primarily through newspapers,
radio, outdoor billboards, television and the Internet in our local markets. As
we have consolidated our dealership operations in certain of our key markets
under one local brand name, we have been able to focus our efforts on building
consumer awareness of the selected local brand name rather than on the
individual legacy names under which our dealerships operated prior to their
acquisition by us. We also have begun to develop newspaper, television and
radio advertising campaigns that we can modify for use in multiple local
markets, which we expect to result in advertising cost savings and efficiencies
that are not generally available to smaller retailers. We expect to continue to
realize cost savings and efficiencies with respect to advertising expenses, due
to our ability to obtain
5
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efficiencies in developing advertising campaigns and due to our ability to gain
volume discounts and other concessions as we increase our presence within our
key markets and consolidate our dealerships under a single brand name in our
local markets.
We market our vehicle inventory via the Internet through AutoNation.com,
our dealership websites and a site co-branded with America Online. We also have
entered into lead referral agreements pursuant to which we purchase customer
leads generated by various third-party websites, including Microsoft's MSN
Carpoint, and other sources. We provide these customer leads to our dealerships
for fulfillment to the extent possible. During 2000, we entered into lead
referral agreements with over 1,600 franchises operating from more than 1,000
independent dealerships by which we sell customer leads that we cannot fulfill
within our dealership network.
AGREEMENTS WITH VEHICLE MANUFACTURERS
We have entered into framework agreements with most major vehicle
manufacturers and distributors. These agreements contain provisions relating to
our management, operation, advertising and marketing, acquisition and ownership
structure of automotive dealerships franchised by such manufacturers. The
agreements also set limits on the number of dealerships that we may acquire of
the particular manufacturer, nationally, regionally and in local markets, and
contain certain restrictions on our ability to name and brand our dealerships.
In addition, some of these framework agreements give the manufacturer or
distributor the right to acquire, at fair market value, the automotive
dealerships franchised by that manufacturer or distributor under specified
circumstances in the event of a change in control of our company, the
acquisition of 20% or more of the voting stock of our company by another
manufacturer or distributor or other extraordinary corporate transactions such
as a merger or sale of all of our assets.
We operate each of our new vehicle dealerships under a franchise agreement
with a vehicle manufacturer or distributor. The franchise agreements grant the
franchised automotive dealership a non-exclusive right to sell the
manufacturer's or distributor's brand of vehicles and offer related parts and
service within a specified market area. The franchise agreements also grant the
dealerships the right to use the manufacturer's or distributor's trademarks in
connection with dealership operations. The franchise agreements impose numerous
operational requirements and restrictions on the automotive dealerships
relating to inventory levels, working capital requirements, the sales process,
marketing and branding, showroom, service facilities and signage, personnel,
changes in management and monthly financial reporting, among other things. The
franchise agreements also provide for termination of the agreement by the
manufacturer or non-renewal for a variety of causes, subject to applicable
state franchise laws that limit a manufacturer's right to terminate a
franchise.
REGULATIONS
Automotive and Other Laws and Regulations
We operate in a highly regulated industry. A number of state and federal
laws and regulations affect our business. In every state in which we operate,
we must obtain various licenses in order to operate our businesses, including
dealer, sales, finance and insurance related licenses issued by state
regulatory authorities. Numerous laws and regulations govern our conduct of
business, including those relating to our sales, operating, financing,
advertising and employment practices. These laws and regulations include state
franchise laws and regulations and other extensive laws and regulations
applicable to new and used motor vehicle dealers, as well as a variety of other
laws and regulations. These laws also include federal and state wage-hour,
anti-discrimination and other employment practices laws.
6
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Our financing activities with customers are subject to federal
truth-in-lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other installment sales laws. Some states regulate finance fees
and charges that may be paid as a result of vehicle sales. Claims arising out
of actual or alleged violations of law may be asserted against us or our
dealerships by individuals or governmental entities, and may expose us to
significant damages or other penalties, including revocation or suspension of
our licenses to conduct dealership operations and fines.
Our operations are subject to the National Traffic and Motor Vehicle
Safety Act, Federal Motor Vehicle Safety Standards promulgated by the United
States Department of Transportation and various state motor vehicle regulatory
agencies. The imported automobiles we purchase are subject to United States
customs duties and, in the ordinary course of our business we may, from time to
time, be subject to claims for duties, penalties, liquidated damages or other
charges.
Environmental, Health and Safety Laws and Regulations
Our operations involve the use, handling, storage and contracting for
recycling and/or disposal of materials such as motor oil and filters,
transmission fluids, antifreeze, refrigerants, paints, thinners, batteries,
cleaning products, lubricants, degreasing agents, tires and fuel. Consequently,
our business is subject to a complex variety of federal, state and local
requirements that regulate the environment and public health and safety.
Most of our dealerships utilize aboveground storage tanks, and to a lesser
extent underground storage tanks, primarily for petroleum-based products.
Storage tanks are subject to periodic testing, containment, upgrading and
removal under the Resource Conservation and Recovery Act and its state law
counterparts. Clean-up or other remedial action may be necessary in the event
of leaks or other discharges from storage tanks or other sources. In addition,
water quality protection programs under the federal Water Pollution Control Act
(commonly known as the Clean Water Act), the Safe Drinking Water Act, and
comparable state and local programs govern certain discharges from some of our
operations. Similarly, certain air emissions from operations such as auto body
painting may be subject to the federal Clean Air Act, and related state and
local laws. Certain health and safety standards promulgated by the Occupational
Safety and Health Administration of the United States Department of Labor and
related state agencies also apply.
Some of our dealerships are parties to proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, typically
in connection with materials that were sent to former recycling, treatment,
and/or disposal facilities owned and operated by independent businesses. The
remediation or clean-up of facilities where the release of a regulated
hazardous substance occurred is required under CERCLA and other laws.
We incur significant costs to comply with applicable environmental, health
and safety laws and regulations in the ordinary course of our business. We do
not anticipate, however, that the costs of such compliance will have a material
adverse effect on our business, results of operations, cash flows or financial
condition, although such outcome is possible given the nature of our operations
and the extensive environmental, public health and safety regulatory framework.
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COMPETITION
We operate in a highly competitive industry. We believe that the principal
competitive factors in the automotive retail business are location, service,
price and selection. Each of our key markets includes a large number of
well-capitalized competitors that have extensive automobile dealership
managerial experience and strong retail locations and facilities. We are
subject to competition from dealers that sell the same brands of new vehicles
that we sell and from dealers that sell other brands of new vehicles that we do
not represent in a particular market. Our new vehicle dealership competitors
have franchise agreements with the various vehicle manufacturers and, as such,
generally have access to new vehicles on the same terms as us. We also are
subject to competition from independent automobile service and repair shops and
service center chains.
In general, the vehicle manufacturers have designated specific marketing
and sales areas within which only one dealer of a given vehicle line or make
operates. Under most of our framework agreements with the vehicle
manufacturers, our ability to acquire multiple dealers of a given line-make
within a particular market is limited. We are also restricted by various state
franchise laws from relocating our dealerships or establishing new dealerships
of a particular line-make within any area that is served by another dealer of
the same line-make. Accordingly, to the extent that a market has multiple
dealers of a particular line-make, as most of our key markets do with respect
to most vehicle lines we sell, we are subject to significant intra-brand
competition.
According to the National Automotive Dealers Association, Automotive News
and reports of various financial analysts, the automotive retail industry is
served by approximately 22,000 franchised automotive dealerships, approximately
56,000 independent used vehicle dealers, and individual consumers who sell used
vehicles in casual private transactions primarily through classified ads and by
word of mouth. Several other public companies are attempting to establish
national or regional automotive retail chains. Additionally, certain vehicle
manufacturers are engaged in the retail sale and service of vehicles, either
independently or in conjunction with their franchised dealers, and may do so on
an expanded basis in the future, subject to various state laws that restrict or
prohibit manufacturer ownership of dealerships.
We believe that a growing number of consumers are utilizing the Internet,
to differing degrees, in connection with the purchase of vehicles. Accordingly,
we may face increasing competitive pressures from on-line automotive websites,
including those developed by vehicle manufacturers and other dealership groups.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may cause price convergence and reduced margins for
new vehicles, used vehicles and related finance and insurance services.
INSURANCE AND BONDING
Our business exposes us to the risk of liabilities arising out of our
operations. Liabilities involve, for example, claims of employees, customers or
third parties for personal injury or property damage occurring in the course of
our operations. We could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
The automotive retail business is also subject to substantial risk of
property loss due to the significant concentration of property values at
dealership locations. Accordingly, we have purchased liability and property
insurance subject to certain deductibles or loss retentions. We purchase
umbrella liability insurance to provide insurance in excess of our primary
insurance policies. The level of risk we retain may change in the future as
insurance market conditions or other factors affecting the economics of our
insurance
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purchasing change. Although we have, subject to certain limitations and
exclusions, substantial insurance, we cannot assure you that we will not be
exposed to uninsured or underinsured losses that could have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
Provisions for retained losses and deductibles are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities
on reported and unreported claims. The insurance companies that underwrite our
insurance require that we secure our obligation for deductible reimbursements
with collateral. Our collateral requirements are set by the insurance companies
and to date have been satisfied by posting surety bonds, letters of credit and
cash deposits. Our collateral requirements may change from time to time based
on, among other things, our claims experience.
EMPLOYEES
As of December 31, 2000, we employed approximately 31,000 full time
employees, approximately 800 of whom were covered by collective bargaining
agreements. We believe that we have good relations with our employees. Due to
our dependence on the vehicle manufacturers, however, we may be adversely
affected by labor strikes or work stoppages at the manufacturers' manufacturing
facilities.
SEASONALITY
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year due in part to consumer buying trends
and the introduction of new vehicle models. Also, demand for cars and light
trucks is generally lower during the winter months than in other seasons,
particularly in regions of the United States where dealerships may be subject
to harsh winters. Accordingly, we expect our revenue and operating income to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.
TRADEMARKS
We own a number of registered service marks and trademarks and also have a
number of applications pending to register, among other marks, AutoNation
[GRAPHIC OMITTED] SM and AutoNationSM. Pursuant to agreements with vehicle
manufacturers, we have the right to use and display manufacturers' trademarks,
logos and designs at our dealerships and in our advertising and promotional
materials, subject to certain restrictions. We also have licenses pursuant to
various agreements with third parties authorizing the use and display of the
marks and/or logos of such third parties, subject to certain restrictions. The
current registrations of our service marks and trademarks in the United States
and foreign countries are effective for varying periods of time, and we may
renew them periodically provided that we comply with all applicable laws.
EXECUTIVE OFFICERS OF AUTONATION
We provide below information regarding each of our executive officers.
H. Wayne Huizenga, age 63, has served as our Chairman of the Board since
August 1995. He also served as our Chief Executive Officer from August 1995
until October 1996, and as Co-Chief Executive Officer from October 1996 through
September 1999. Since May 1998, Mr. Huizenga has been Chairman of the Board of
Republic Services, Inc., a solid waste services company, and served as its
Chief Executive Officer from May 1998 until December 1998. Since May 2000, Mr.
Huizenga has been Vice Chairman of ZixIt Corporation, a provider of security
services and products for Internet use. Since September 1996, Mr. Huizenga has
been Chairman of the Board of Boca Resorts, Inc., an
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owner and operator of luxury resort hotels, a professional sports franchise and
other facilities. Since January 1995, Mr. Huizenga also has been Chairman of
the Board of Extended Stay America, Inc., an operator of extended stay lodging
facilities. Mr. Huizenga served as the Vice Chairman of Viacom Inc., a
diversified entertainment and communications company, from September 1994 until
October 1995. From April 1987 through September 1994, Mr. Huizenga served as
the Chairman of the Board and Chief Executive Officer of Blockbuster
Entertainment Corporation, a video rental company. In September 1994,
Blockbuster merged with Viacom. In 1971, Mr. Huizenga co-founded Waste
Management, Inc., a solid waste services company, and he served in various
capacities, including as President, Chief Operating Officer and director, from
its inception until 1984. Mr. Huizenga also owns the Miami Dolphins, as well as
Pro Player Stadium in South Florida, and is a director of NationsRent, Inc., a
national equipment rental company, and ANC Rental Corporation, a car rental
company that we spun off to our stockholders in June 2000.
Michael J. Jackson, age 52, has served as our Chief Executive Officer and
as one of our Directors since September 1999. From October 1998 until September
1999, Mr. Jackson served as President and Chief Executive Officer of
Mercedes-Benz USA, Inc., a North American operating unit of DaimlerChrysler AG,
a multinational automotive manufacturing company. From April 1997 until October
1999, Mr. Jackson served as President of Mercedes-Benz USA, Inc. From July 1990
until March 1997, Mr. Jackson served in various capacities at Mercedes-Benz
USA, Inc., including as Executive Vice President immediately prior to his
appointment as President of Mercedes-Benz USA, Inc. Mr. Jackson was also the
managing partner from March 1979 to July 1990 of Euro Motorcars of Bethesda,
Maryland, a regional group that owned and operated eleven automotive dealership
franchises, including Mercedes-Benz and other brands of automobiles. Prior to
joining Euro Motorcars, Mr. Jackson was a District Manager for Mercedes-Benz of
North America.
Harris W. Hudson, age 58, has served as one of our Directors since August
1995, and has served as our Vice Chairman since October 1996. From August 1995
until October 1996, Mr. Hudson served as our President. Since May 1998, Mr.
Hudson has served as Vice Chairman and Secretary of Republic Services. Mr.
Hudson founded Hudson Management Corporation, a solid waste collection company,
in 1983 and served as its Chairman of the Board, Chief Executive Officer and
President from its inception until it was acquired by AutoNation in August
1995. Mr. Hudson also serves as a director of Boca Resorts and NationsRent.
Michael E. Maroone, age 47, has served as our President and Chief
Operating Officer since August 1999. Following our acquisition of the Maroone
Automotive Group in January 1997, Mr. Maroone served as President of our New
Vehicle Dealer Division. In January 1998, Mr. Maroone was named President of
our Automotive Retail Group with responsibility for our new and used vehicle
operations. Prior to joining our company, Mr. Maroone was President and Chief
Executive Officer of the Maroone Automotive Group, one of the country's largest
privately-held automotive retail groups.
Craig T. Monaghan, age 44, has served as our Senior Vice President and
Chief Financial Officer since May 2000. From June 1998 to April 2000, Mr.
Monaghan was Chief Financial Officer of iVillage.com, a leading women's network
on the Internet. From 1991 until 1998, Mr. Monaghan served in various executive
capacities for Reader's Digest Association, Inc., most recently as Vice
President and Treasurer.
Patricia A. McKay, age 43, has served as our Senior Vice President -
Finance since November 1999. From November 1999 until April 2000, Ms. McKay
also served as our Acting Chief Financial Officer and Controller. Ms. McKay
joined our company in January 1997 as Vice President, Operations Controller.
From February 1998 until November 1999, Ms. McKay served as Senior Vice
President
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of Finance of our Automotive Retail Group. Prior to joining our company, Ms.
McKay served from October 1988 until December 1996 in various positions with
Dole Food Company, Inc., a multinational packaged food company, most recently
as Vice President of Finance and Controller. From June 1983 through July 1988,
Ms. McKay served as Senior Audit Manager with Arthur Andersen LLP.
Jonathan P. Ferrando, age 35, has served as our Senior Vice President,
General Counsel and Secretary since January 2000. Mr. Ferrando joined our
company in July 1996 and served in various capacities within our Legal
Department, including as Senior Vice President and General Counsel of our
Automotive Retail Group from March 1998 until January 2000. Prior to joining
our company, Mr. Ferrando was a corporate attorney in Chicago, Illinois with
Skadden, Arps, Slate, Meagher & Flom, a global full service law firm, from 1991
until 1996. Mr. Ferrando's practice at Skadden, Arps, Slate, Meagher & Flom was
concentrated in the areas of mergers and acquisition and corporate finance.
Kevin P. Westfall, age 45, has served as President of AutoNation Financial
Services, our wholly owned captive finance and insurance company, since April
1997. Prior to joining AutoNation, from 1990 until 1997, Mr. Westfall served as
the President of BMW Financial Services, a captive finance company. Mr.
Westfall is a member of the Board of Directors for the American Financial
Services Association and the Consumer Banker's Association.
RISK FACTORS; FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Our business, financial condition, results of operations, cash flows and
prospects, and the prevailing market price and performance of our common stock,
may be adversely affected by a number of factors, including the matters
discussed below. Certain statements and information set forth in this Form 10-K
or the Annual Report mailed to our stockholders with this Form 10-K, as well as
other written or oral statements made from time to time by us or by our
authorized executive officers on our behalf, constitute "forward-looking
statements" within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. We intend for our forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we set forth this
statement and these risk factors in order to comply with such safe harbor
provisions. You should note that our forward-looking statements speak only as
of the date of this Form 10-K or when made and we undertake no duty or
obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise. Although we believe that
the expectations, plans, intentions and projections reflected in our
forward-looking statements are reasonable, such statements are subject to known
and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. The risks, uncertainties and other factors that our
stockholders and prospective investors should consider include, but are not
limited to, the following:
The Automotive Retail Industry Is Cyclical and Is Highly Sensitive to
Changing Economic Conditions; We Are in the Midst of an Industry and General
Economic Slowdown That Could Materially Adversely Impact Our Business. Sales of
motor vehicles, particularly new vehicles, historically have been subject to
substantial cyclical variation characterized by periods of oversupply and weak
demand. We believe that many factors affect the industry, including consumer
confidence in the economy, the level of personal discretionary spending,
interest rates, fuel prices and credit availability. While 1999 and 2000 were
record years for the automotive industry in general and us specifically in
terms of volume of new vehicles sold, during 2001 the automotive industry will
likely experience significant fall-off in demand for new vehicles. We
experienced a rapid slowdown in new vehicle sales in late 2000. Industry
experts
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have predicted a decrease in new vehicle sales in the United States during 2001
of up to ten percent or more as compared to sales during 2000. Similarly, we
expect that our new vehicle sales, the single largest component of our
aggregate revenue, will significantly decrease during 2001. In addition,
although we generate diversified revenue and profit streams from the sale of
used vehicles, financial services, vehicle service, parts and collision repair
services, which we do not expect to be adversely impacted in a general economic
downturn as dramatically as new vehicle sales, we cannot assure you that our
business will not be materially adversely affected as a result of an industry
or general economic downturn.
We Are Substantially Dependent on Vehicle Manufacturers. The success of
our dealerships is dependent on vehicle manufacturers in several key respects.
First, we rely exclusively on the various vehicle manufacturers for our new
vehicle inventory. Additionally, manufacturers generally support their
dealerships by providing direct financial assistance in various areas,
including, among others, advertising assistance and favorable inventory
financing. Beyond funds paid directly to their dealerships, the manufacturers
also have established various incentive programs designed to spur consumer
demand for their vehicles. From time to time, manufacturers modify and
discontinue these dealer assistance and consumer incentive programs, which
could have a significant adverse effect on our consolidated results of
operations and cash flows. Any event that may have a material adverse effect on
the financial condition, management, marketing, production and distribution
capabilities of the vehicle manufacturers with whom we hold franchises, such as
general economic downturns or recessions, increases in interest rates, labor
strikes, supply shortages, adverse publicity or product defects, may have a
material adverse effect on our business, results of operations, financial
condition, cash flows and prospects.
We Are Subject to Operating Restrictions Imposed by Vehicle Manufacturers.
The franchise agreements to which our dealerships are subject and the framework
agreements that we have with many major vehicle manufacturers impose
significant restrictions on our ability to operate our dealerships. These
agreements provide the manufacturers with considerable influence over the
operations of our dealerships, including the level at which we capitalize our
dealerships, the condition of our dealership facilities, our performance
standards with respect to sales volume and customer satisfaction, our selection
of dealership management, naming and marketing of our dealerships and the
operations of our e-commerce sites, and other factors. They also grant the
manufacturer the right to terminate our franchise for a variety of causes,
subject to state laws.
We Are Subject to Extensive Governmental Regulation. The automotive retail
industry is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, retail financing and
consumer protection laws and regulations and federal and state environmental,
health and safety, wage-hour, anti-discrimination and other employment
practices laws and regulations. The violation of these laws and regulations can
result in administrative, civil or criminal sanctions against us, which may
include a cease and desist order against the subject operations or even
revocation or suspension of our license to operate the subject business. We
describe certain pending license revocation proceedings with respect to one of
our dealerships in California under the "Legal Proceedings" heading on page 15
of this Form 10-K. In addition, as the on-line automotive business expands,
there may be new laws and regulations adopted, or increased regulatory scrutiny
and enforcement of existing laws and regulations, that could have a material
adverse effect on our e-commerce business. We may need to spend considerable
time, effort and money to keep our existing or acquired facilities in
compliance with applicable federal, state and local regulation of health,
safety, environment, zoning and land use.
We Are Subject to Numerous Legal and Administrative Proceedings. We are
involved, and will continue to be involved, in numerous legal proceedings
arising out of the conduct of our business, including litigation with
customers, employment related lawsuits and actions brought by governmental
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authorities. We have several class action lawsuits pending against us. A
significant judgment against us or the imposition of a significant fine could
have a material adverse effect on our business, financial condition, results of
operations, cash flows and prospects. We cannot assure you with respect to the
outcome of these administrative and legal proceedings and the effect such
outcomes may have on us. We describe certain significant pending litigation
matters under the heading "Legal Proceedings" below.
We May Be Required to Perform Under Certain Credit Enhancements and
Guarantees with respect to ANC Rental Corporation. In connection with the
spin-off of ANC Rental Corporation, we agreed to provide certain guarantees and
credit enhancements with respect to certain indebtedness and certain property
and vehicle lease obligations. ANC Rental recently reported a net loss for the
fourth quarter of 2000 of $44.0 million, resulting in an aggregate net loss for
2000 of $2.0 million. To the extent that ANC Rental is not able to meet its
obligations, we are likely to be called on to perform under the guarantees and
credit enhancements we provided, which could have a material adverse effect on
our business, financial condition, cash flows and prospects.
We Face Significant Competition in the Automotive Retail Industry. We
operate in a highly competitive environment. Our competition includes publicly
and privately-owned dealerships, some of which operate large groups, and any of
which may sell the same or similar makes of new and used vehicles in our
markets at competitive prices. Other competitors include franchised automotive
dealerships selling other brands of vehicles, private market buyers and sellers
of used vehicles, used vehicle dealers, service center chains, independent
service and repair shops and publicly and privately-owned finance companies,
including those of vehicle manufacturers, and, as we describe below, on-line
automotive retailers and lead-referral companies. Our franchise agreements
generally do not give us the exclusive right to sell a manufacturer's product
within a given geographic area, although state franchise laws do provide
certain protections. These and other competitive pressures could materially
adversely affect our business, financial condition, results of operations, cash
flows and prospects.
We also face competition in the rapidly evolving automotive retail
e-commerce business. A number of e-commerce companies and traditional
companies, including the vehicle manufacturers and other franchised dealership
groups, have established automotive-related websites over the past few years
and compete with us in two areas of our e-commerce business: (1) sales of
vehicles to retail customers via the Internet sales channel and (2) generation
and sales to other automobile dealers of customer referrals or "leads" obtained
via the Internet. Additionally, we believe that, as customers use the Internet
and gain increased access to information on prices for vehicles and related
finance and insurance products, margins for new and used vehicle sales and
related finance and insurance products may decrease, whether sales are made via
the Internet or through traditional channels. The success of our e-commerce
business will depend on our ability to develop a strategy that appeals to
Internet automobile buyers, to obtain high visibility on the Internet, whether
through our own websites or through strategic partnerships and alliances with
other e-commerce companies, and to develop and maintain a cost structure that
permits us to operate profitably.
We Need Substantial Capital. We need substantial capital to operate our
business and to execute our long-term strategy effectively. As of December 31,
2000, we had two unsecured revolving credit facilities in place in the
aggregate principal amount of $1.5 billion. One facility provides $1.0 billion
of financing under a multi-year structure and matures in April 2002. The other
facility, a $500.0 million 364-day facility that was scheduled to mature in
March 2001, was amended to provide $250.0 million of borrowing capacity until
the earlier of September 30, 2001 or the early renewal of the multi-year
facility. Additionally, as of December 31, 2000, we had approximately $2.4
billion of floor plan indebtedness outstanding under credit facilities with
various financing sources, primarily the vehicle manufacturers'
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captive finance subsidiaries. Our floor plan indebtedness, which we use to
finance our vehicle inventory, is secured by our vehicle inventory. This may
limit our ability to borrow from other sources or for other uses. We also have
been negotiating with several of the vehicle manufacturers' captive finance
subsidiaries to provide mortgage-backed credit facilities with respect to
certain of our dealership properties. We cannot assure you that we will be able
to execute definitive loan agreements with the captives or enter into new
unsecured revolving credit facilities with sufficient capacity, or otherwise
obtain sufficient financing for our business and operations, on a timely basis
or on terms acceptable to us.
A substantial portion of our outstanding indebtedness is at floating
interest rates. At times, we have used interest rate swaps, caps and floors to
manage the risk of interest rate fluctuations, but a substantial increase in
interest rates could adversely affect our cost of indebtedness for borrowed
money.
We May Not Be Able to Successfully Execute Our Strategy. The success of
our business model depends in large part on our ability to implement and
execute the strategic initiatives that we describe under the "Business
Strategy" heading above across all of our dealerships, and thereby obtain
business efficiencies, economies of scale and related cost savings and margin
performance improvements. These tasks are made more difficult by the fact that
the dealerships within each of our key markets were acquired from independent
organizations and historically have operated independently, with unique
business, sales and marketing practices. Accordingly, the implementation of our
strategy across each of our markets will require significant managerial focus
and time, and we cannot assure you that it will result in improved operating
performance or increased cost savings in a timely manner or at all.
We May Have Difficulty Expanding Through Acquisitions of Franchised
Automotive Dealerships in Our Key Markets. The growth of our automotive retail
business since our inception has been primarily attributable to acquisitions of
franchised automotive dealership groups. However, the significant consolidation
in the industry in our key markets over the last several years has resulted in
fewer desirable dealerships or dealership groups being available for purchase
on reasonable terms. Although we have negotiated with the major manufacturers
limits on the number of dealerships that we may acquire nationally, regionally
or within any given market, each particular acquisition remains subject to
specific approval from the applicable vehicle manufacturer. We have approached
certain acquisition limits set forth in certain of our framework agreements,
particularly certain market limits, and may approach them in other markets in
the future as we continue to expand, although we do not believe that such
limits will materially adversely impact our ability to execute our acquisition
strategy in the foreseeable future. We cannot assure you that we will be able
to execute our growth strategy in the future by acquiring dealerships selling
desirable automotive brands at desirable locations in our key markets, or that
any such acquisitions can be completed on favorable terms.
The Loss of Key Personnel Could Affect Our Operations. Our success depends
to a significant degree upon the continued contributions of our key corporate
officers. Additionally, our success depends on the key management personnel at
our district offices and the dealerships in our local markets. The market for
qualified employees in the industry and in the markets in which we operate,
particularly for qualified general managers and sales and service personnel, is
highly competitive and may subject us to increased labor costs during periods
of low unemployment. We also believe that many of our sales and service
personnel are pursued from time to time by our competitors. The loss of a group
of key employees in any of our markets could have a material adverse effect on
our business and results of operations in that market.
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We Are Subject to Residual Value Risk and Consumer Credit Risk in
Connection with Our Lease Portfolio; We Are Also Subject to Consumer Credit
Risk in Connection with Our Installment Receivables Portfolio. Through
AutoNation Financial Services, we provide installment loans to our customers
and, until mid-1999, we provided our customers an opportunity to finance
vehicles through leases with us. We are subject to residual value risk in
connection with our lease portfolio, particularly in the event of a decline in
the market value of our leased vehicles. We also are subject to consumer credit
risk in connection with our lease portfolio and our portfolio of installment
receivables. If an economic downturn occurs, we may face an increase in the
rate of payment defaults by our customers, which may have a material adverse
effect on our financial condition, results of operations and cash flows.
ITEM 2. PROPERTIES
During 2000, we entered into a sale-leaseback financing of our corporate
headquarters facility resulting in proceeds of approximately $52.1 million. We
also own or lease numerous facilities relating to our operations in 18 states.
These facilities consist primarily of automobile showrooms, display lots,
service facilities, collision repair centers, supply facilities, automobile
storage lots, parking lots and offices. We believe that our facilities are
sufficient for our needs and are in good repair.
In connection with the closure during December 1999 of 23 company-owned
AutoNation USA used vehicle megastores, during 2000 we sold a majority of the
excess real property held for or operated in connection with the used vehicle
megastore business. We intend to continue actively marketing the remaining
excess used vehicle megastore properties.
ITEM 3. LEGAL PROCEEDINGS
In October 2000, the California Department of Motor Vehicles filed an
administrative proceeding that, among other things, alleged that two finance
and insurance managers who had been employed for approximately one year by El
Monte Motors, Inc., a wholly-owned subsidiary of ours doing business as
Gunderson Chevrolet in El Monte, California, had defrauded customers. The
California DMV seeks to have Gunderson Chevrolet's license to do business in
California either suspended or revoked. The case is scheduled for trial before
an Administrative Law Judge beginning in April 2001. Three civil class actions
and other related lawsuits have been filed against Gunderson Chevrolet based on
the allegations underlying the California DMV case. Additionally, the Los
Angeles District Attorney's Office has been conducting an investigation into
the allegations underlying the California DMV case. The class of customers to
which these actions relate may be significant. Accordingly, a settlement or an
adverse resolution of these matters may result in the payment of significant
costs and damages or the suspension or revocation of Gunderson Chevrolet's
license. Further, a resolution of the California DMV case that results in
Gunderson Chevrolet being closed, even temporarily, may subject us to
termination of the dealership's franchise agreement with General Motors.
In an action filed in state court in Palm Beach County, Florida in August
1999, Jamie R. Miranda and other plaintiffs accused one of our wholly-owned
subsidiaries, AutoNation USA Corporation, of, among other things, violating the
Florida Motor Vehicle Retail Sales Finance Act and the Florida Deceptive and
Unfair Trade Practices Act by allegedly failing to deliver executed copies of
retail installment contracts to customers of our used vehicle megastores. The
claims relate to nine of our used vehicle megastore businesses located in
Florida, eight of which have since closed and one of which is currently
operating as a new vehicle dealership. Mr. Miranda has filed the complaint on
behalf of all customers of our former Florida used vehicle megastores who
signed retail installment contracts in connection with vehicle purchases but
did not receive copies of the contracts signed by the megastores. On October
31,
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2000, the court certified the class of customers on whose behalf the action
would proceed. We have appealed this decision to Florida's 4th District Court
of Appeals.
Several of our Texas dealership subsidiaries have been named in three
class actions brought against the Texas Automobile Dealer's Association and new
vehicle dealerships in Texas that are members of the TADA. The first of these
actions was filed in November 1997. The actions allege, among other things,
that since January 1994 Texas dealers have deceived customers with respect to a
vehicle inventory tax and violated federal antitrust and other laws as well.
Two of the cases are currently pending in Texas state courts and the third is
pending in the federal district court for the Eastern District of Texas. The
allegations involve dozens of our dealerships.
We intend to vigorously defend ourselves and assert available defenses
with respect to each of the foregoing matters. Further, we have certain
insurance coverage and rights of indemnification with respect to certain
aspects of the foregoing matters. However, a settlement or an adverse
resolution of one or more of these matters may result in the payment of
significant costs and damages and, in the case of the Gunderson Chevrolet
matter, the suspension or revocation of our dealership license, which could
have a material adverse effect on our business, financial condition, results of
operations, cash flows and prospects.
In addition to the foregoing cases, we are also a party to numerous other
legal proceedings that arose in the conduct of our business. We do not believe
that the ultimate resolution of these matters will have a material adverse
effect on our business, results of operations, financial condition or cash
flows. However, the results of these matters cannot be predicted with
certainty, and an unfavorable resolution of one or more of these matters could
have a material adverse effect on our business, financial condition, results of
operations, cash flows and prospects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of the fiscal year ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information, Holders and Dividends
Since April 6, 1999, our common stock has traded on The New York Stock
Exchange under the symbol "AN." From June 20, 1997 until April 5, 1999 our
common stock traded on the NYSE under the symbol "RII." The following table
sets forth, for the periods indicated, the high and low prices per share of the
common stock as reported on the New York Stock Exchange Composite Transactions
Tape.
<TABLE>
<CAPTION>
2000 High Low
- ---------------------------------- ---------- -----------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
1999 High Low
- ---------------------------------- ----------- -----------
<S> <C> <C>
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>
On March 26, 2001, the closing price of our common stock was $8.35 per
share as reported by the NYSE. On March 26, 2001, there were approximately
3,700 holders of record of our common stock.
We have not declared or paid any cash dividends on our common stock during
our two most recent fiscal years. We currently intend to retain our earnings
for future growth and, therefore, we do not anticipate paying cash dividends in
the foreseeable future.
On June 30, 2000, we completed the tax-free spin-off to our stockholders
of all of the capital stock of ANC Rental Corporation. The spin-off was
completed by issuing to each AutoNation stockholder of record as of June 16,
2000 one share of ANC Rental common stock for each eight shares of AutoNation
common stock held by such stockholder. The stock prices presented above reflect
historical stock prices during fiscal 2000 and 1999 and have not been restated
to reflect the impact on our common stock of the distribution of ANC Rental
common stock to our stockholders.
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ITEM 6. SELECTED FINANCIAL DATA
You should read the following Selected Financial Data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our Consolidated Financial Statements and Notes thereto and other
financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
-------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- -------------- --------------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue ........................... $ 20,609.6 $ 20,111.8 $ 12,664.6 $ 6,122.8 $ 2,933.7
Income (loss) from continuing
operations ...................... $ 328.1 $ (31.5) $ 225.8 $ 13.4 $ (1.1)
Net income (loss) ................. $ 329.9 $ 282.9 $ 499.5 $ 439.7 $ (6.7)
Basic earnings (loss) per share:
Continuing operations ........... $ .91 $ (.07) $ .50 $ .03 $ --
Discontinued operations ......... -- .73 .60 1.06 .08
Extraordinary charge ............ -- -- -- -- (.10)
------------ ------------- ------------ ----------- -----------
Net income (loss) ............... $ .91 $ .66 $ 1.10 $ 1.09 $ (.02)
============ ============= ============ =========== ============
Diluted earnings (loss) per share:
Continuing operations ........... $ .91 $ (.07) $ .48 $ .03 $ --
Discontinued operations ......... -- .73 .58 .99 .08
Extraordinary charge ............ -- -- -- -- (.10)
------------ ------------- ------------ ----------- ------------
Net income (loss) ............... $ .91 $ .66 $ 1.06 $ 1.02 $ (.02)
============ ============= ============ =========== ============
Total assets ...................... $ 8,830.0 $ 9,583.1 $ 8,412.2 $ 4,852.1 $ 2,229.1
Long-term debt, net ............... $ 850.4 $ 836.1 $ 520.9 $ 261.1 $ 269.3
Shareholders' equity .............. $ 3,842.5 $ 4,601.2 $ 5,424.2 $ 3,484.3 $ 1,419.9
Diluted weighted average common
shares outstanding .............. 361.4 429.8 470.9 430.9 320.9
</TABLE>
See Notes 2, 6, 9, 10 and 11 of Notes to Consolidated Financial Statements
for discussion of business acquisitions and divestitures, shareholders' equity,
earnings (loss) per share, restructuring and impairment charges (recoveries),
net and discontinued operations, respectively, and their effect on
comparability of year-to-year data. See "Item 5. Market for the Registrant's
Common Equity and Related Stockholder Matters" for a discussion of our dividend
policy.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
"Introduction," "Recent Developments," "Business Strategy," and "Risk Factors"
sections of this Form 10-K and our Consolidated Financial Statements and notes
thereto included elsewhere in this Form 10-K.
Consolidated Results of Operations
AutoNation, Inc. is the largest automotive retailer in the United States.
As of December 31, 2000, we owned and operated approximately 400 new vehicle
franchises from dealership locations in major metropolitan markets in 18
states, predominantly in the Sunbelt. Our dealerships offer new and used
vehicles for sale. We also offer financing for vehicle purchases, extended
service contracts and other finance and insurance products, as well as other
aftermarket products such as vehicle accessories, upgraded sound systems and
theft deterrent systems. We also offer a wide range of vehicle maintenance and
repair services and we operate collision repair centers in most of our key
markets. The core brands of vehicles that we sell, representing almost 90% of
the new vehicles that we sold in 2000, are Ford (Ford, Lincoln and Mercury),
General Motors (Chevrolet, Pontiac, GMC and Buick), Chrysler (Chrysler, Jeep
and Dodge), Toyota, Nissan and Honda. We also sell several luxury vehicle
brands, including Mercedes-Benz, BMW, Lexus and Porsche. In total, we offer 35
different brands of vehicles.
During 2000, we expanded our financial reporting by providing separate
disclosure of floorplan interest expense, depreciation and amortization in the
accompanying Consolidated Income Statements. Floorplan interest expense, which
previously was presented as a component of cost of operations, is now
classified as interest expense below operating income. In addition, within
management's discussion and analysis, we have also expanded our disclosures to
provide revenue and gross margin detail by line of business. Prior periods have
been reclassified to conform with the current presentation.
The following is a summary of our Consolidated Income Statements both in
gross dollars and on a diluted per share basis for the periods indicated (in
millions, except per share data):
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------------- ------------------------
Gross Diluted Gross Diluted Gross Diluted
Dollars Per Share Dollars Per Share Dollars Per Share
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations ................................ $ 328.1 $ .91 $ (31.5) $ (.07) $ 225.8 $ .48
-------- ------ -------- ------ -------- ------
Income (loss) from discontinued
operations, net of income taxes:
Automotive rental ......................... 13.1 .03 ( 71.0) (.17) 108.8 .23
Solid waste services ...................... -- -- 40.4 .10 153.3 .33
Gain (loss) on disposal of segments ......... ( 11.3) (.03) 345.0 .80 11.6 .02
-------- ------ -------- ------ -------- ------
1.8 -- 314.4 .73 273.7 .58
-------- ------ -------- ------ -------- ------
Net income .................................. $ 329.9 $ .91 $ 282.9 $ .66 $ 499.5 $ 1.06
======== ====== ======== ====== ======== ======
</TABLE>
19
<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:
o Growth Through Acquisitions: From 1996 through 2000, we expanded our
automotive retail operations through the acquisition of franchised
automotive dealerships as discussed under the heading "Business
Acquisitions and Divestitures."
o Spin-Off of ANC Rental Corporation: In June 2000, we completed the
tax-free spin-off of our former automotive rental businesses. These
businesses have been accounted for as discontinued operations as further
discussed under the heading "Discontinued Business Segments."
o Sale of Republic Services, Inc.: In 1998, our former solid waste services
business completed an initial public offering of 36.1% of its common
stock. In 1999, we sold substantially all of our remaining interests in
Republic Services to the public. See further discussion under the heading
"Discontinued Business Segments."
o Restructuring: In 1999, we restructured certain of our operations to exit
our former used vehicle megastore business and to reduce our corporate
workforce as further discussed under the heading "Restructuring
Activities."
o Share Repurchases: Since the inception of our Board-authorized share
repurchase programs in 1998, we have repurchased 138.6 million shares of
our common stock for an aggregate price of $1.57 billion through March 26,
2001. See further discussion under the heading "Financial Condition."
Unless otherwise stated, the following discussions will focus on the
results of continuing operations, which consists of our automotive retail
business.
Same Store Operating Data:
Our historical operating results include the results of acquired
businesses from the date of acquisition for acquisitions accounted for under
the purchase method of accounting. Due to our expansion through acquisitions as
well as the impact of divestitures, year over year comparisons of our reported
operating results do not necessarily provide a meaningful representation of our
internal performance. Accordingly, we have presented below our operating
results for the years ended December 31, 2000 and 1999 on a same store basis to
better reflect our internal performance.
20
<PAGE>
The following table sets forth: (1) the components of same store revenue,
with component percentages of total revenue; (2) the components of same store
gross margin, with gross margin percentages of applicable same store revenue;
(3) same store selling, general and administrative expenses; (4) same store
performance; and (5) retail vehicle same store unit sales for the years ended
December 31 ($ in millions):
<TABLE>
<CAPTION>
2000 % 1999 %
--------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue:
New vehicle ................... $ 10,636.9 61.5 $ 10,405.8 60.5
Used vehicle .................. 3,167.1 18.3 3,260.2 19.0
Fixed operations .............. 1,947.2 11.3 1,904.9 11.1
Finance and insurance ......... 362.8 2.1 344.1 2.0
Other ......................... 1,192.0 6.8 1,284.8 7.4
------------ ----- ----------- -----
$ 17,306.0 100.0 $ 17,199.8 100.0
============ ===== =========== =====
Gross margin:
New vehicle ................... $ 894.1 8.4 $ 875.0 8.4
Used vehicle .................. 362.2 11.4 360.1 11.0
Fixed operations .............. 830.2 42.6 799.0 41.9
Finance and insurance ......... 362.8 100.0 344.1 100.0
Other ......................... 76.4 6.4 113.6 8.8
------------ -----------
2,525.7 14.6 2,491.8 14.5
S,G&A Store ..................... 1,663.4 9.6 1,691.4 9.8
------------ -----------
Store performance ............... $ 862.3 5.0 $ 800.4 4.7
============ ===========
Retail vehicle unit sales:
New ........................... 420,000 428,000
Used .......................... 212,000 231,000
------------ -----------
632,000 659,000
============ ===========
</TABLE>
Same store revenue was $17.31 billion for the year ended December 31, 2000
compared to $17.20 billion for the year ended December 31, 1999, an increase of
.6%. Same store gross margins were $2.53 billion for the year ended December
31, 2000 compared to $2.49 billion for the year ended December 31, 1999, an
increase of 1.4%. Same store gross margin as a percentage of same store total
revenue was 14.6% for the year ended December 31, 2000, versus 14.5% for the
year ended December 31, 1999. The primary components of same store revenue and
gross margin increases are described below.
Our new vehicle same store revenue increased 2.2% to $10.64 billion during
the year ended December 31, 2000 due to price increases of 4.1% offset by a
decrease in volume of 1.9%. New vehicle same store gross margin increased 2.2%
to $894.1 million during the year ended December 31, 2000. New vehicle same
store gross margins for 2000 and 1999 were 8.4% of same store new vehicle
revenue. In 2000, the automotive retail industry experienced strong new vehicle
unit sales until the fourth quarter when new vehicle demand dramatically
slowed. We expect lower new vehicle demand to continue in 2001, which will
likely result in significantly lower new vehicle revenue and gross margin.
The used vehicle market was softer in 2000 compared to 1999 due in part to
strong manufacturer incentives for new vehicles, especially light trucks. Same
store used vehicle revenue decreased 2.9% to $3.17 billion during the year
ended December 31, 2000. The decrease is attributable to lower volume of 8.2%
offset by 5.3% higher average prices. Despite the decline in revenue, used
vehicle same store
21
<PAGE>
gross margin increased slightly to $362.2 million during the year ended
December 31, 2000 due to an expansion in gross margin of 40 basis points to
11.4%.
Fixed operations same store revenue increased 2.2% to $1.95 billion during
the year ended December 31, 2000 driven primarily by volume. Same store fixed
operations gross margin increased 3.9% to $830.2 million during the year ended
December 31, 2000, as a result of higher revenue coupled with margin expansion
of 70 basis points to 42.6%.
Same store finance and insurance revenue and gross margin increased 5.4%
to $362.8 million during the year ended December 31, 2000. The increase is
primarily due to a higher percentage of our customers buying finance and
insurance products.
Same store selling, general and administrative expenses were $1.66 billion
during the year ended December 31, 2000 versus $1.69 billion for the year ended
December 31, 1999. Same store selling, general and administrative expenses as a
percentage of same store total revenue were 9.6% for the year ended December
31, 2000 versus 9.8% for the year ended December 31, 1999. The decrease is
primarily due to the impact of cost-cutting initiatives and overall leveraging
of the store cost structure.
Same store performance was $862.3 million for the year ended December 31,
2000 versus $800.4 million for the year ended December 31, 1999. Same store
performance margins as a percentage of same store total revenue were 5.0% for
the year ended December 31, 2000 versus 4.7% for the year ended December 31,
1999. The increases in same store performance margins in aggregate dollars and
as percentages of same store revenue are primarily due to decreases in S,G&A,
coupled with gross margin expansion in used vehicles and fixed operations.
22
<PAGE>
Reported Operating Data:
The following table sets forth the components of our operating results
including revenue percentages of total revenue, the components of gross margin
and retail vehicle unit sales on a reported basis for the years ended December
31 ($ in millions):
<TABLE>
<CAPTION>
2000 % 1999 % 1998 %
--------------- --------- --------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle ............................ $ 12,489.3 60.6 $ 11,481.0 57.1 $ 6,775.8 53.5
Used vehicle ........................... 3,860.2 18.7 4,429.7 22.0 3,185.2 25.2
Fixed operations ....................... 2,334.9 11.3 2,222.0 11.1 1,383.2 10.9
Finance and insurance .................. 431.8 2.1 423.4 2.1 288.6 2.3
Other .................................. 1,493.4 7.3 1,555.7 7.7 1,031.8 8.1
------------ ----- ------------ ----- ----------- -----
$ 20,609.6 100.0 $ 20,111.8 100.0 $ 12,664.6 100.0
============ ===== ============ ===== =========== =====
Gross margin:
New vehicle ............................ $ 1,056.0 8.5 $ 962.3 8.4 $ 588.6 8.7
Used vehicle ........................... 438.6 11.4 449.6 10.1 379.4 11.9
Fixed operations ....................... 999.7 42.8 933.8 42.0 571.6 41.3
Finance and insurance .................. 431.8 100.0 423.4 100.0 288.6 100.0
Other .................................. 106.4 7.1 159.5 10.3 103.4 10.0
------------ ------------ -----------
3,032.5 14.7 2,928.6 14.6 1,931.6 15.3
S,G &A - Store ........................... 2,021.6 9.8 2,089.4 10.4 1,301.8 10.3
------------ ------------ -----------
Store performance ........................ 1,010.9 4.9 839.2 4.2 629.8 5.0
S,G &A - Corporate ....................... 125.2 .6 190.0 1.0 86.5 .7
S,G &A - Property carrying costs ......... 30.9 .1 -- -- -- --
Depreciation ............................. 54.7 .3 60.1 .3 40.3 .3
Amortization ............................. 79.1 .4 62.9 .3 39.6 .3
Asset impairment charges (recoveries),
net .................................... ( 3.8) -- 416.4 2.1 -- --
------------ ------------ -----------
Operating Income ......................... $ 724.8 3.5 $ 109.8 .5 $ 463.4 3.7
============ ============ ===========
Retail vehicle unit sales:
New .................................... 489,000 469,000 266,000
Used ................................... 255,000 315,000 244,000
------------ ------------ -----------
744,000 784,000 510,000
============ ============ ===========
</TABLE>
Total revenue was $20.61 billion, $20.11 billion and $12.66 billion for
the years ended December 31, 2000, 1999 and 1998, respectively. Gross margins
were $3.03 billion, $2.93 billion and $1.93 billion for the years ended
December 31, 2000, 1999 and 1998, respectively. The primary components of these
changes are described below.
New vehicle revenue was $12.49 billion, $11.48 billion and $6.78 billion
for the years ended December 31, 2000, 1999 and 1998, respectively. New vehicle
gross margins were $1.06 billion, $962.3 million and $588.6 million or, as
percentages of new vehicle revenue, 8.5%, 8.4% and 8.7% for the years ended
December 31, 2000, 1999 and 1998, respectively. Increases are attributable to
acquisitions and higher pricing. New vehicle revenue was also impacted by an
increase in same store unit sales in 1999 and a modest decrease in same store
unit sales in 2000.
Used vehicle revenue was $3.86 billion, $4.43 billion and $3.19 billion
for the years ended December 31, 2000, 1999 and 1998, respectively. Used
vehicle gross margins were $438.6 million, $449.6 million
23
<PAGE>
and $379.4 million or, as percentages of used vehicle revenue, 11.4%, 10.1% and
11.9% for the years ended December 31, 2000, 1999 and 1998, respectively. The
decreases in 2000 used vehicle revenue and gross margin are the result of a
decrease in units retailed from approximately 315,000 in 1999 to 255,000 in
2000 largely resulting from the closure of our used vehicle megastores. Used
vehicle gross margin percentages in 2000 increased primarily as a result of
improved management of used vehicle inventories.
Fixed operations revenue was $2.33 billion, $2.22 billion and $1.38
billion for the years ended December 31, 2000, 1999 and 1998, respectively.
Fixed operations gross margins were $999.7 million, $933.8 million and $571.6
million or, as percentages of fixed operations revenue, 42.8%, 42.0% and 41.3%
for the years ended December 31, 2000, 1999 and 1998, respectively. Increases
are attributable to acquisitions and higher pricing.
Finance and insurance revenue and gross margins were $431.8 million,
$423.4 million and $288.6 million for the years ended December 31, 2000, 1999
and 1998, respectively. The increases are due to acquisitions and a higher
percentage of our customers buying finance and insurance products.
Store selling, general and administrative expenses were $2.02 billion,
$2.09 billion and $1.30 billion or, as percentages of total revenue, 9.8%,
10.4% and 10.3% for the years ended December 31, 2000, 1999 and 1998,
respectively. The 2000 decreases are primarily due to successful implementation
of our cost-cutting initiatives. The increase as a percentage of revenue in
1999 over 1998 is primarily due to higher megastore fixed costs and costs
incurred in connection with the megastore closures and other one-time costs.
Store performance was $1.01 billion, $839.2 million and $629.8 million or,
as percentages of total revenue, 4.9%, 4.2% or 5.0% for the years ended
December 31, 2000, 1999 and 1998, respectively. The increases in aggregate
dollars are primarily due to acquisitions coupled with margin expansion. The
2000 increase as a percentage of total revenue is primarily due to lower S,G&A
expenses. The 1999 decrease as a percentage of revenue is due to lower gross
margins and higher S,G&A expenses.
Corporate S,G&A was $125.2 million, $190.0 million and $86.5 million or,
as a percentage of total revenue, .6%, 1.0% and .7%, for the years ended
December 31, 2000, 1999 and 1998, respectively. The 2000 decrease is primarily
due to successful implementation of our 1999 cost-cutting initiatives as
described in "Restructuring Activities" below. The 1999 increase is primarily
due to increased headcount and spending for various corporate initiatives which
have been curtailed or eliminated in conjunction with our 1999 restructuring
activities further described below.
Depreciation and amortization were $133.8 million, $123.0 million and
$79.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Depreciation and amortization as percentages of revenue were .7%,
.6% and .6% for the years ended December 31, 2000, 1999 and 1998, respectively.
S,G&A - Property carrying costs represents costs associated with megastore
and other properties held for sale. We incurred $30.9 million of property
carrying costs during the year ended December 31, 2000. We expect these costs
to be less than $10 million in 2001.
Discontinued Business Segments
On June 30, 2000, we completed the spin-off of our former automotive
rental businesses, which have been organized under ANC Rental Corporation, by
distributing 100% of ANC Rental's common
24
<PAGE>
stock to AutoNation's stockholders as a tax-free dividend. As a result of the
spin-off, AutoNation stockholders received one share of ANC Rental common stock
for every eight shares of AutoNation common stock owned as of the June 16, 2000
record date. As discussed in Note 11, Discontinued Operations, of the Notes to
Consolidated Financial Statements, ANC Rental has been accounted for as
discontinued operations in the accompanying Consolidated Financial Statements
and accordingly, the operating results of ANC Rental have been classified as
discontinued operations in the accompanying Consolidated Financial Statements.
In July 1998, our former solid waste subsidiary, Republic Services, Inc.,
completed an initial public offering of 36.1% of its common stock. In May 1999,
we sold substantially all of our interest in Republic Services in a public
offering. As discussed in Note 11, Discontinued Operations, of the Notes to
Consolidated Financial Statements, our former solid waste services segment has
been accounted for as discontinued operations and accordingly, the operating
results of Republic Services have been classified as discontinued operations in
the accompanying Consolidated Financial Statements.
See Note 11, Discontinued Operations, of the Notes to Consolidated
Financial Statements, for further discussion of these discontinued operations.
Business Acquisitions and Divestitures
From 1996 through 1999, we aggressively expanded our automotive retail
operations through the acquisition of franchised automotive dealerships.
However, we did not complete in 2000 and do not expect to complete in 2001
acquisitions at the same pace as we have in the past. Future acquisitions will
primarily target single dealerships or small dealership groups focused in key
existing markets.
During the year ended December 31, 2000, we acquired various automotive
retail businesses. We paid approximately $190.9 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting. During 2000, we also paid approximately $122.4 million in deferred
purchase price for certain prior year automotive retail acquisitions. At
December 31, 2000, we accrued approximately $24.5 million of deferred purchase
price due to former owners of acquired businesses.
As described below under the heading "Restructuring Activities", we have
been divesting of certain non-core franchised automotive dealerships. During
2000, we received approximately $89.7 million of cash from the divestiture of
certain dealerships. We have signed a definitive agreement to sell our
Flemington dealer group. We expect to complete the sale in the second quarter
of 2001. Following the sale of the Flemington group, we will have substantially
completed our non-core dealership divestiture plan.
In November 2000, we completed the divestiture of our outdoor media
business for a purchase price of approximately $104.0 million. In connection
with the sale, we entered into a prepaid $15.0 million advertising agreement
and therefore, we received net proceeds of $89.0 million. A pre-tax gain of
$53.5 million was recognized on the sale.
During the year ended December 31, 1999, we acquired various automotive
retail businesses. We paid approximately $879.1 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting. During 1999, we also paid approximately $34.9 million in deferred
purchase price for certain prior year automotive retail acquisitions. During
1999, we received approximately $131.3 million of cash from the divestiture of
various automotive dealerships.
25
<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, par value $.01 per share, valued at $473.2 million
and paid approximately $804.3 million in cash for acquisitions accounted for
under the purchase method of accounting. With respect to discontinued
operations, we issued approximately 3.4 million shares of common stock valued
at $68.0 million and paid approximately $494.4 million in cash and certain
properties for acquisitions accounted for under the purchase method of
accounting. During 1998, we received approximately $55.1 million of cash from
the divestiture of various automotive dealerships.
See Note 2, Business Acquisitions and Divestitures, of the Notes to
Consolidated Financial Statements, for further discussion of business
combinations.
Restructuring Activities
During the fourth quarter of 1999, we approved a plan to restructure
certain of our operations. The restructuring plan was comprised of the
following major components: (1) exiting the used vehicle megastore business;
and (2) reducing the corporate workforce. The restructuring plan also included
divesting of certain non-core franchised dealerships. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in pre-tax charges of $443.7 million in 1999 of which
$416.4 million appears as Asset Impairment Charges (Recoveries), Net in our
1999 Consolidated Income Statement. These pre-tax charges include $286.9
million of asset impairment charges; $103.3 million of reserves for residual
value guarantees for closed lease properties; $26.2 million of severance and
other exit costs; and $27.3 million of inventory related costs. The $286.9
million asset impairment charge consists of: $244.9 million of megastore and
other property impairments; $26.6 million of goodwill impairment reserves for
the divestiture of certain non-core franchised automotive dealerships; and
$15.4 million of information systems impairments. Of the $443.7 million
restructuring reserve recorded, $10.8 million of severance was paid in 1999 and
$53.7 million of asset impairments and write-offs were recorded during the
fourth quarter of 1999.
We intend to complete the sale of our Flemington dealer group during the
second quarter of 2001 as described under the heading, "Business Acquisitions
and Divestitures," resulting in the substantial completion of our non-core
dealership divestiture plan. We continue to dispose of our closed megastores
and other properties through sales to third parties. Although we are
aggressively marketing these closed properties, the ultimate disposition will
not be substantially completed until late 2001. Revenue for the operations
disposed or to be disposed was $923.5 million, $2.12 billion and $1.70 billion
during 2000, 1999 and 1998, respectively. Operating income for the operations
disposed or to be disposed was $21.8 million, $15.5 million and $12.9 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
26
<PAGE>
The following summarizes activity in the restructuring and impairment
reserves for the year ended December 31, 2000:
<TABLE>
<CAPTION>
Deductions
Balance Amounts Charged -------------------------- Balance
Reserve December 31, 1999 (Credited) to Income Cash Non-cash December 31, 2000
- ----------------------------- ------------------- --------------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
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.
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 Back Net Gain on Additional
into Service or Retained Sold Properties Impairment Charges Other Total
-------------------------- ----------------- -------------------- --------- ------------
<S> <C> <C> <C> <C> <C>
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 and we decided to retain certain
dealerships that had been held for sale. Accordingly, based on our
re-evaluation of the fair value of the properties, we determined that the asset
impairment and lease residual value reserves for these properties were no
longer necessary and we were required to reverse the related estimated reserves
totaling $36.2 million back into income. An additional impairment charge of
$11.6 million was recognized primarily related to a decision in 2000 to close
one additional megastore property as part of the overall restructuring plan.
During 2000, we also recognized an impairment charge totaling $16.6 million
associated with the deterioration in residual values of finance lease
receivables. We discontinued writing finance leases in mid-1999 and the
majority of the leases terminate in late 2001.
27
<PAGE>
Non-Operating Income (Expense)
Floorplan Interest Expense
Floorplan interest expense was $199.8 million, $125.2 million, and $107.0
million for the years ended December 31, 2000, 1999, and 1998, respectively. The
increases are due to higher floorplan debt associated with higher inventory
levels and higher interest rates. In 2001, we expect to take numerous steps to
reduce inventory levels and related floorplan interest expense.
Other Interest Expense
Other interest expense was incurred primarily on borrowings under our
revolving credit facilities. Other interest expense was $47.7 million, $34.9
million, and $14.0 million for the years ended December 31, 2000, 1999, and
1998, respectively. The increases are due to higher average borrowings along
with higher interest rates.
Interest Income
Interest income was $14.3 million, $20.6 million and $8.7 million for the
years ended December 31, 2000, 1999 and 1998, respectively. The decrease in
2000 is primarily due to lower cash and investment balances on hand. The
increase in 1999 was the result of interest earned on funds temporarily
invested from the proceeds of the sale of substantially all of our interest in
Republic Services.
Other Income, Net
Other income, net, for the year ended December 31, 2000, was $33.4 million
and primarily included gains of approximately $24.0 million on the sale of
approximately 3.1 million shares of common stock of our former solid waste
subsidiary, Republic Services, and a gain of approximately $53.5 million on the
sale of our former outdoor media business, offset by a $30.0 million valuation
write-down related to an equity-method investment in a privately-held auto
salvage and parts recycling business.
Income Taxes
The provision for income taxes from continuing operations was $196.9
million, $4.0 million and $126.8 million for the years ended December 31, 2000,
1999 and 1998, respectively. The effective income tax rate was 37.5% and 36.0%
for the years ended December 31, 2000 and 1998. Although we reported a pre-tax
loss from continuing operations in 1999, an income tax provision of $4.0
million was recorded due to the effect of certain non-deductible expenses
primarily associated with the restructuring and impairment charges. We
anticipate that our effective income tax rate will increase to between 38% and
39% in 2001.
Financial Condition
At December 31, 2000, we had $82.2 million in cash and cash equivalents.
As of December 31, 2000, we had two unsecured revolving credit facilities in
place in the aggregate of $1.5 billion under which $615.0 million was
outstanding. The unsecured revolving credit facilities may be used for general
corporate purposes. One facility provides $1.0 billion of financing under a
multi-year structure and matures April 2002. The other, a $500.0 million
364-day facility was amended prior to its scheduled maturity in March 2001 to
provide $250.0 million of capacity until the earlier of September 30, 2001 or
the early renewal of the multi-year facility. We also have been negotiating
with several of the vehicle
28
<PAGE>
manufacturers' captive finance subsidiaries to provide mortgage-backed credit
facilities for specific dealership properties.
We finance our vehicle inventory through secured financings, primarily
floorplan facilities, with vehicle manufacturers' captive finance subsidiaries
as well as independent financial institutions and, until recently, a
bank-sponsored commercial paper conduit facility that matured January 19, 2001,
and was not renewed. As of December 31, 2001, committed capacity of the
facilities was approximately $3.5 billion.
We are the lessee under a lease facility that was established to acquire
and develop our former megastores properties. As originally structured, the
facility had been accounted for as an operating lease and included residual
value guarantees. In 1999, certain properties under the facility were reflected
as capital leases. In connection with our 1999 restructuring activities
previously described, as of December 31, 1999, we accrued an estimate of the
liability under the residual value guarantee totaling approximately $103.3
million. In September 2000, we funded the remaining lease residual value
guarantee obligation to the lessor, reduced the facility size from $500.0
million to $210.0 million and amended the terms of the facility through the
notification of our intention to exercise the option to purchase the leased
properties at the end of the term. As a result of the amendment, all of the
leases have now been accounted for as capital leases, with the property and
related debt included in the accompanying 2000 Consolidated Balance Sheet. At
December 31, 2000, $175.8 million was outstanding under this facility and is
included in Long-Term Debt in the accompanying Consolidated Balance Sheet. Of
the $175.8 million outstanding, $115.2 million is associated with operating
properties and $60.6 million is attributable to properties held for sale. The
facility matures April 2002.
We securitize installment loan receivables through a $1.0 billion
commercial paper warehouse facility with certain financial institutions. In
September 2000, we decreased the capacity of the commercial paper warehouse
facility from $1.7 billion to $1.0 billion. During the year ended December 31,
2000, we securitized approximately $580.1 million of loan receivables under
this program, net of retained interests. At December 31, 2000, we have
approximately $576.3 million outstanding under this program, net of retained
interests. We have entered into certain interest rate derivative transactions
with certain financial institutions to manage the impact of interest rate
changes on securitized installment loan receivables. Proceeds from
securitizations are primarily used to repay borrowings under our revolving
credit facilities.
We also securitize installment loan receivables through the issuance of
asset-backed notes through a non-consolidated special purpose entity under a
$2.0 billion shelf registration statement. Through December 31, 2000, $1.48
billion, net of retained interests, has been issued and approximately $521.5
million remains to be issued under this program. Proceeds from these notes are
used to refinance installment loans previously securitized under the warehouse
facility and to securitize additional loans held by us. We provide credit
enhancement related to these notes in the form of over collateralization, a
reserve fund and a third party surety bond. We retain responsibility for
servicing the loans for which we are paid a servicing fee. During 2000,
approximately $691.7 million in additional asset-backed notes were issued, net
of retained interests, and at December 31, 2000, $1.0 billion was outstanding
under this program. We intend to provide for additional capacity through an
additional or subsequent shelf registration.
Installment loans sold under these programs are nonrecourse beyond our
retained interests. See Note 13, Asset Securitizations, of the Notes to
Consolidated Financial Statements for further discussion. We expect to continue
to securitize installment loan receivables under these facilities and/or other
programs.
29
<PAGE>
During the year ended December 31, 2000, we repurchased 27.6 million
shares of our common stock, par value $.01 per share, under our Board
authorized share repurchase program for an aggregate purchase price of $188.9
million. We repurchased 91.0 million shares of common stock during 1999 for an
aggregate purchase price of $1.16 billion. We repurchased 9.1 million shares of
common stock during 1998 for an aggregate purchase price of $136.0 million.
Through December 31, 2000, an aggregate of 127.7 million shares of common stock
had been repurchased under our share repurchase programs, authorized by our
Board of Directors in 1998 and 1999, for an aggregate purchase price of $1.48
billion. As of March 26, 2001, we repurchased an additional 10.9 million shares
of common stock for an aggregate purchase price of $87.8 million, leaving
approximately $179.2 million available for share repurchases under the latest
authorized program. We expect to continue repurchasing shares under this
program. Repurchases are made pursuant to Rule 10b-18 of the Securities
Exchange Act of 1934, as amended. We will evaluate share repurchases in 2001
based upon financial and other investment considerations.
In connection with the ANC Rental spin-off, we made certain capital
contributions to ANC Rental prior to the spin-off. These contributions include
cash of approximately $200.0 million and the net assets of an insurance
subsidiary. We also entered into various agreements with ANC Rental that set
forth the terms of the distribution and other agreements governing our
relationship with ANC Rental after the spin-off. As a result of the spin-off,
our equity as of December 31, 2000, was reduced by the net assets of ANC Rental
totaling $894.4 million. The equity adjustment resulting from the spin-off is
subject to further adjustment resulting from changes in estimated shared assets
and liabilities of AutoNation and ANC Rental and certain other matters.
However, such adjustments, if any, are not expected to be significant.
In connection with the spin-off, we agreed to continue to provide ANC
Rental with guarantees and other credit enhancements with respect to certain
indebtedness and certain property and vehicle lease obligations. We receive
fees for providing these guarantees commensurate with market rates. To the
extent that ANC Rental is not able to meet its obligations, we would be likely
to be called on to perform under guarantees and credit enhancements provided by
us, which could have a material adverse effect on our business, consolidated
results of operations, financial condition and/or cash flows.
We have taken steps during 2000 to further strengthen our balance sheet,
including selling non-core assets and redeploying proceeds into our core
business. During 2000 we entered into a sale-leaseback financing of our
corporate headquarters facility resulting in proceeds of approximately $52.1
million. Additionally, during 2000 we sold an office building which is occupied
by ANC Rental, resulting in proceeds of approximately $18.7 million. As
previously described, in November 2000 we completed the sale of our outdoor
media business and expect to complete the sale of our Flemington dealer group
in the second quarter of 2001.
At December 31, 2000 and 1999, we had $877.2 million and $804.8 million,
respectively, of net deferred tax liabilities. We provide for deferred income
taxes in our Consolidated Balance Sheets to show the effect of temporary
differences between the recognition of revenue and expenses for financial and
income tax reporting purposes and between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Over the
past four years we have engaged in certain transactions that are of a type that
the Internal Revenue Service has recently indicated it intends to challenge. We
believe that our tax returns appropriately reflect such transactions. At the
present time, it is impossible to predict the outcome of any challenge if the
IRS determines to challenge the tax reporting of such transactions.
30
<PAGE>
We believe that we have sufficient operating cash flow and other financial
resources necessary to meet our anticipated capital requirements and
obligations as they come due.
Cash Flows
Cash and cash equivalents increased (decreased) by $(153.8) million,
$(490.0) million and $598.3 million during the years ended December 31, 2000,
1999 and 1998, respectively. The major components of these changes are
discussed below.
Cash Flows from Operating Activities
Cash provided by operating activities was $281.5 million, $47.2 million
and $217.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Cash flows from operating activities include purchases of vehicle
inventory, which are separately financed through secured vehicle financings.
Accordingly, we measure our operating cash flow including net proceeds under
these secured vehicle financings which totaled $159.4 million, $429.7 million
and $65.1 million during the years ended December 31, 2000, 1999 and 1998,
respectively. Including net proceeds under these secured vehicle financings, we
generated operating cash flow of $440.9 million, $476.9 million and $282.9
million during the years ended 2000, 1999 and 1998, respectively.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash provided by
(used in) business acquisitions and divestitures, capital additions, property
dispositions, net activity of installment loan receivables and other
transactions as further described below.
Cash used in business acquisitions was $313.3 million, $914.0 million and
$804.3 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The decrease in cash used in business acquisitions was primarily
due to our shift in 2000 to acquire single dealerships or small dealership
groups focused in key existing markets. Cash used in business acquisitions
during 2000 includes $122.4 million in deferred purchase price for certain
prior year automotive retail acquisitions. See "Business Acquisitions and
Divestitures" in Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 2, Acquisitions and Divestitures, of the
Notes to Consolidated Financial Statements for a further discussion of business
combinations.
Capital expenditures were $148.2 million, $242.3 million and $256.7
million during the years ended December 31, 2000, 1999 and 1998, respectively.
The decrease in capital expenditures in 2000 is due to the megastore closures
and fewer acquisitions.
Proceeds from the sale of property and equipment and assets held for sale
were $129.9 million, $88.4 million and $12.3 million during the years ended
December 31, 2000, 1999, and 1998, respectively. The increase is primarily due
to the sales of megastore and other properties held for sale and the sale of
the building occupied by ANC Rental. Cash received from business divestitures
was $178.7 million, $131.3 million, and $55.1 million for the years ended
December 31, 2000, 1999, and 1998, respectively.
In July 1998, our former solid waste subsidiary, Republic Services,
completed an initial public offering resulting in proceeds of approximately
$1.43 billion. In May 1999, we sold substantially all of our interest in
Republic Services in a public offering resulting in proceeds of approximately
$1.78 billion. Proceeds from the offerings were used to repay non-vehicle debt,
finance acquisitions, acquire shares
31
<PAGE>
under our share repurchase programs and invest in our business. During 2000, we
sold substantially all of our remaining common stock of Republic Services,
resulting in proceeds of approximately $48.2 million.
Funding of installment loan receivables, net of collections, totaled
$562.3 million, $1,578.6 million and $965.5 million in 2000, 1999 and 1998,
respectively. Related proceeds from securitization of installment loan
contracts were $720.3 million, $1,599.4 million and $706.4 million in 2000,
1999 and 1998, respectively. We continue to evaluate the appropriate levels of
installment loan fundings.
We intend to finance capital expenditures, business acquisitions, and
funding of installment loan receivables through cash flow from operations, our
revolving credit facilities, asset-backed securitized facilities and other
financings.
Cash Flows from Financing Activities
Cash flows from financing activities include revolving credit and vehicle
inventory financings, repayments of acquired debt, treasury stock purchases and
other transactions as further described below.
We have repurchased approximately 27.6 million, 91.0 million, and 9.1
million shares of our common stock during the years ended December 31, 2000,
1999, and 1998, respectively, for an aggregate price of approximately $188.9
million, $1.16 billion, $136.0 million, respectively, under our Board approved
share repurchase programs.
During the year ended December 31, 2000, we repaid approximately $197.0 of
debt obligations primarily related to amounts financed under a $210.0 million
lease facility (amended September 2000 from the original capacity of $500.0
million). See Note 3, Notes Payable and Long-Term Debt, of the Notes to
Consolidated Financial Statements for further discussion.
During 2000, we entered into a sale-leaseback transaction involving our
corporate headquarter facility which resulted in net proceeds of approximately
$52.1 million.
We will continue to evaluate the best use of our operating cash flow
between capital expenditures, share repurchases and acquisitions.
Cash Flows from Discontinued Operations
Cash (used in) provided by discontinued operations was as follows during
the years ended December 31:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Automotive rental ............ $ (227.0) $ (160.3) $ (129.2)
Solid waste services ......... -- (546.0) 580.6
---------- ---------- ----------
$ (227.0) $ (706.3) $ 451.4
========== ========== ==========
</TABLE>
Cash used in our former automotive rental business during 2000 consists
primarily of cash used to replace maturing letters of credit which provide
credit enhancement for ANC Rental's vehicle financing.
32
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
The tables below provide information about our market sensitive financial
instruments and constitute "forward-looking statements." All items described
are non-trading.
Our primary market risk exposure is changing interest rates. Our policy is
to manage interest rates through the use of a combination of fixed and floating
rate debt. Interest rate derivatives may be used to adjust interest rate
exposures when appropriate, based upon market conditions. These derivatives
consist of interest rate swaps, caps and floors which are entered into with a
group of financial institutions with investment grade credit ratings, thereby
minimizing the risk of credit loss. At December 31, 2000, we did not have any
outstanding interest rate swaps.
We have entered into a series of interest rate caps and floors
contractually maturing through 2006 to manage the impact of interest rate
changes on securitized installment loan receivables. Expected maturity dates
for interest rate caps and floors in the tables below are based upon the
estimated repayment of the underlying receivables after considering estimated
prepayments and credit losses. Average rates on interest rate caps and floors
are based upon contractual rates. At times, we use variable to fixed interest
rate swaps to manage the impact of interest rate changes on our variable rate
revolving credit and vehicle inventory financing facilities. Expected maturity
dates for variable rate debt and interest rate swaps in the tables below are
based upon contractual maturity dates. Average pay rates under interest rate
swaps are based upon contractual fixed rates. Average interest rates on
variable rate debt and average variable receive rates under interest rate swaps
are based on implied forward rates in the yield curve at the reporting date.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and, thus, approximate current market rates.
The fair value of interest rate swaps, caps and floors is determined from
dealer quotations and represents the discounted future cash flows through
maturity or expiration using current rates. The fair value is effectively the
amount we would pay or receive to terminate the agreements.
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------------------------------
December 31, 2000 2001 2002 2003 2004 2005 Thereafter Total
- --------------------------------- -------------- ------------ ------------ ------------ ---------- ------------ -------------
(Liability/(asset) in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Variable rate debt .............. $ 2,416.7 $ 790.8 $ -- $ -- $ -- $ -- $ 3,207.5
Average interest rates ......... 6.77% 6.67% -- -- -- --
Interest rate caps(1) ........... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3
Average rate ................... 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Interest rate floors(1) ......... $ 125.5 $ 127.0 $ 130.9 $ 119.6 $ 63.2 $ 10.1 $ 576.3
Average rate ................... 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
<CAPTION>
Fair Value
December 31,
December 31, 2000 2000
- --------------------------------- -------------
(Liability/(a
asset) in
millions)
<S> <C>
CONTINUING OPERATIONS:
Variable rate debt .............. $ 3,207.5
Average interest rates .........
Interest rate caps(1) ........... $ (2.6)
Average rate ...................
Interest rate floors(1) ......... $ 14.3
Average rate ...................
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------------------------------------------------------
December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total
- ---------------------------------- ------------- ----------- ------------ ------------ ----------- ------------ -------------
(Liability/(asset) in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Variable rate debt ............... $ 2,240.9 $ 2.3 $ 821.5 $ -- $ -- $ -- $ 3,064.7
Average interest rates ......... 7.12% 7.58% 7.86% -- -- --
Interest rate swaps .............. $ 150.0 -- -- -- -- -- $ 150.0
Average pay rate ............... 5.96% -- -- -- -- --
Average receive rate ........... 5.82% -- -- -- -- --
Interest rate caps(1) ............ $ 197.1 $ 220.6 $ 229.9 $ 202.4 $ 145.4 $ 21.9 $ 1,017.3
Average rate ................... 6.15% 6.15% 6.15% 6.15% 6.15% 6.15%
Interest rate floors(1) .......... $ 197.1 $ 220.6 $ 229.9 $ 202.4 $ 145.4 $ 21.9 $ 1,017.3
Average rate ................... 6.10% 6.10% 6.10% 6.10% 6.10% 6.10%
DISCONTINUED
OPERATIONS:
Variable rate debt ............... $ 1,600.8 $ 3.2 $ 35.0 $ 550.0 $ -- $ 700.0 $ 2,889.0
Average interest rates ......... 6.00% 6.50% 5.56% 6.72% -- 6.71%
Interest rate swaps .............. $ 300.0 $ 100.0 -- $ 200.0 -- -- $ 600.0
Average pay rate ............... 5.96% 5.63% -- 5.59% -- --
Average receive rate ........... 6.67% 7.32% -- 7.50% -- --
Interest rate caps ............... -- -- -- $ 550.0 -- $ 700.0 $ 1,250.0
Average rate ................... -- -- -- 5.73% -- 6.26%
Interest rate floors ............. -- -- -- $ 550.0 -- $ 700.0 $ 1,250.0
Average rate ................... -- -- -- 5.73% -- 6.26%
<CAPTION>
Fair Value
December 31,
December 31, 1999 1999
- ---------------------------------- -------------
(Liability/(a
asset) in
millions)
<S> <C>
CONTINUING OPERATIONS:
Variable rate debt ............... $ 3,064.7
Average interest rates .........
Interest rate swaps .............. $ (.1)
Average pay rate ...............
Average receive rate ...........
Interest rate caps(1) ............ $ (18.5)
Average rate ...................
Interest rate floors(1) .......... $ 7.7
Average rate ...................
DISCONTINUED
OPERATIONS:
Variable rate debt ............... $ 2,889.0
Average interest rates .........
Interest rate swaps .............. $ (6.8)
Average pay rate ...............
Average receive rate ...........
Interest rate caps ............... $ (66.4)
Average rate ...................
Interest rate floors ............. $ 15.2
Average rate ...................
</TABLE>
- ----------
(1) In our continuing operations, interest rate caps and floors are used to
hedge installment loan finance receivables securitized under an
off-balance sheet commercial paper warehouse facility. Amounts outstanding
under this commercial paper facility were $576.3 million and $1.01 billion
at December 31, 2000 and 1999, respectively.
Seasonality
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year in part due to consumer buying trends
and the introduction of new vehicle models. Also, demand for cars and light
trucks is generally lower during the winter months than in other seasons,
particularly in regions of the United States where dealerships may be subject
to harsh winters. Accordingly, we expect our revenue and operating results to
be generally lower in our first and fourth quarters as compared to our second
and third quarters.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In
June 2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133, as amended, is
34
<PAGE>
effective for fiscal years beginning after June 15, 2000. SFAS 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid instruments. We have adopted SFAS 133 as of January 1, 2001.
By requiring the use of fair value accounting, adoption of SFAS 133 could cause
increased volatility in earnings in future periods. We continue to enter into
derivative contracts, which we believe will help minimize this volatility. In
addition, we are evaluating other instruments that would effectively hedge our
floating rate debt which we believe will qualify for hedge accounting. See
further discussion in Note 1, Summary of Significant Accounting Policies, of
the Notes to Consolidated Financial Statements.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- a Replacement of FASB No. 125" ("SFAS
140"). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. SFAS 140 disclosure requirements are effective for fiscal years
ending after December 15, 2000, and have been included in Note 13, Asset
Securitizations, of the Notes to Consolidated Financial Statements. Accounting
for transfers and servicing of financial assets and extinguishment of
liabilities under SFAS 140 is effective for transactions occurring after March
31, 2001. Although additional interpretive guidance is expected from the FASB,
we do not expect the adoption of SFAS 140, as currently interpreted, will have
a material impact on our Consolidated Financial Statements. See further
discussion in Note 13, Asset Securitizations, of the Notes to Consolidated
Financial Statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Our revenue recognition policy
is in accordance with the provisions of SAB 101. Adoption of the provisions of
SAB 101 did not have a material impact on our consolidated financial position,
results of operations or cash flows as of and for the year ended December 31,
2000.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests
in Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among
other things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 is
effective for fiscal quarters beginning after March 15, 2001. We plan to adopt
EITF 99-20 on April 1, 2001. We do not expect adoption of EITF 99-20 to have a
material impact on our consolidated financial position, results of operations
or cash flows.
In September 2000, the FASB issued an Exposure Draft entitled "Business
Combinations and Intangible Assets" which was revised in February 2001. The
Exposure Draft, if adopted, would prohibit the pooling method of accounting for
business combination transactions and would require that intangible assets in
excess of the fair value of net assets, goodwill, not be amortized. Goodwill
would be reduced only if found to be impaired or if associated with assets to
be sold or otherwise disposed. The FASB is expected to issue a final statement
in 2001. During 2000, we recorded amortization expense of approximately $73.7
million relating to goodwill. This statement, if issued as proposed, would
preclude future amortization of existing and any future goodwill on a
prospective basis from the date of issuance.
Forward-Looking Statements
Our business, financial condition, results of operations, cash flows and
prospects, and the prevailing market price and performance of our common stock,
may be adversely affected by a number of factors,
35
<PAGE>
including the matters discussed below. Certain statements and information set
forth in this Form 10-K or the Annual Report mailed to our stockholders with
this Form 10-K, as well as other written or oral statements made from time to
time by us or by our authorized executive officers on our behalf, constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. We intend for our forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and we set forth this statement and these risk factors in order to comply with
such safe harbor provisions. You should note that our forward-looking
statements speak only as of the date of this Form 10-K or when made and we
undertake no duty or obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
Although we believe that the expectations, plans, intentions and projections
reflected in our forward-looking statements are reasonable, such statements are
subject to known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. The risks, uncertainties and other
factors that our stockholders and prospective investors should consider
include, but are not limited to, the following: the automotive retail industry
is cyclical and is highly sensitive to changing economic conditions; we are in
the midst of an industry and general economic slowdown that could materially
adversely impact our business; we are substantially dependent on vehicle
manufacturers; we are subject to operating restrictions imposed by vehicle
manufacturers; we are subject to extensive governmental regulation; we are
subject to numerous legal and administrative proceedings; we may be required to
perform under certain credit enhancements and guarantees with respect to ANC
Rental Corporation; we face significant competition in the automotive retail
industry; we need substantial capital; we may not be able to successfully
execute our strategy; we may have difficulty expanding through acquisitions of
franchised automotive dealerships in our key markets; the loss of key personnel
could affect our operations; we are subject to residual value risk and consumer
credit risk in connection with our lease portfolio; and we are also subject to
consumer credit risk in connection with our installment receivables portfolio.
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Certified Public Accountants ...................................... 38
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............................ 39
Consolidated Income Statements for each of the Three Years Ended December 31, 2000 ...... 40
Consolidated Statements of Shareholders' Equity for each of the Three Years Ended
December 31, 2000 ..................................................................... 41
Consolidated Statements of Cash Flows for each of the Three Years Ended December 31,
2000 .................................................................................. 42
Notes to Consolidated Financial Statements .............................................. 43
Financial Statement Schedule II, Valuation and Qualifying Accounts and Reserves, for each
of the Three Years Ended December 31, 2000 ............................................ 74
</TABLE>
37
<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 and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AutoNation,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 2001.
38
<PAGE>
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(In millions, except share data)
<TABLE>
<CAPTION>
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 82.2 $ 218.6
Receivables, net ...................................................... 1,108.8 1,179.5
Inventory ............................................................. 2,769.2 2,706.8
Other current assets .................................................. 216.0 165.6
---------- ----------
Total Current Assets ................................................. 4,176.2 4,270.5
INVESTMENTS ............................................................. 38.8 175.8
PROPERTY AND EQUIPMENT, NET ............................................. 1,538.1 1,360.4
INTANGIBLE ASSETS, NET .................................................. 2,920.2 2,831.0
OTHER ASSETS ............................................................ 156.7 218.8
NET ASSETS OF DISCONTINUED OPERATIONS ................................... -- 726.6
---------- ----------
$ 8,830.0 $ 9,583.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 143.2 $ 163.1
Accrued liabilities ................................................... 453.0 622.9
Notes payable and current maturities of long-term debt ................ 2,423.5 2,218.3
Other current liabilities ............................................. 121.6 129.9
---------- ----------
Total Current Liabilities ............................................ 3,141.3 3,134.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES ............................... 850.4 836.1
DEFERRED INCOME TAXES ................................................... 877.2 804.8
OTHER LIABILITIES ....................................................... 118.6 206.8
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000 shares authorized;
none issued .......................................................... -- --
Common stock, par value $.01 per share; 1,500,000,000 shares
authorized; 475,559,195 and 474,965,676 shares issued and outstanding
including shares held in treasury, respectively ...................... 4.8 4.7
Additional paid-in capital ............................................ 4,664.7 4,661.5
Retained earnings ..................................................... 649.3 1,213.8
Accumulated other comprehensive income ................................ 1.0 6.6
Treasury stock, at cost; 127,473,709 and 99,602,444 shares held,
respectively ......................................................... (1,477.3) (1,285.4)
---------- ----------
Total Shareholders' Equity ........................................... 3,842.5 4,601.2
---------- ----------
$ 8,830.0 $ 9,583.1
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
39
<PAGE>
AUTONATION, INC.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31,
(In millions, except per share data)
<TABLE>
<CAPTION>
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE ..................................................... $ 20,609.6 $ 20,111.8 $ 12,664.6
COST OF OPERATIONS .......................................... 17,577.1 17,183.2 10,733.0
----------- ----------- -----------
GROSS MARGIN ................................................ 3,032.5 2,928.6 1,931.6
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................................. 2,177.7 2,279.4 1,388.3
DEPRECIATION ................................................ 54.7 60.1 40.3
AMORTIZATION ................................................ 79.1 62.9 39.6
ASSET IMPAIRMENT CHARGES (RECOVERIES), NET .................. (3.8) 416.4 --
------------ ----------- ------------
OPERATING INCOME ............................................ 724.8 109.8 463.4
FLOORPLAN INTEREST EXPENSE .................................. (199.8) (125.2) (107.0)
OTHER INTEREST EXPENSE ...................................... (47.7) (34.9) (14.0)
INTEREST INCOME ............................................. 14.3 20.6 8.7
OTHER INCOME, NET ........................................... 33.4 2.2 1.5
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ....................................... 525.0 (27.5) 352.6
PROVISION FOR INCOME TAXES .................................. 196.9 4.0 126.8
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .................... 328.1 (31.5) 225.8
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes .................................................... 13.1 (30.6) 262.1
Gain (loss) on disposal of segments, net of income taxes of
$(1.4), $516.9 and $8.4, respectively .................... (11.3) 345.0 11.6
------------ ------------ ------------
1.8 314.4 273.7
------------ ------------ ------------
NET INCOME .................................................. $ 329.9 $ 282.9 $ 499.5
============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations ..................................... $ 0.91 $ (.07) $ .50
Discontinued operations ................................... -- .73 .60
------------ ------------- ------------
Net income ................................................ $ 0.91 $ .66 $ 1.10
============ ============= ============
Weighted average common shares outstanding ................ 361.3 429.8 455.1
============ ============= ============
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations ..................................... $ 0.91 $ (.07) $ .48
Discontinued operations ................................... -- .73 .58
------------ ------------- ------------
Net income ................................................ $ 0.91 $ .66 $ 1.06
============ ============= ============
Weighted average common shares outstanding ................ 361.4 429.8 470.9
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
40
<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)
-------- ------------ ------------ --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 .................... $ 4.3 $ 3,051.5 $ 431.4 $ (2.9) $ --
Comprehensive income (loss):
Net income ..................................... -- -- 499.5 -- -- $ 499.5
--------
Other comprehensive income (loss):
Foreign currency translation adjustments ..... -- -- -- -- -- (1.6)
Adjustments to marketable securities and
interest-only strip receivables ............. -- -- -- -- -- .2
--------
Other comprehensive loss ..................... -- -- -- (1.4) -- (1.4)
--------
Comprehensive income ......................... -- -- -- -- -- $ 498.1
========
Stock issued in acquisitions ................... .3 540.9 -- -- --
Sale of common stock of Republic Services ...... -- 998.5 -- -- --
Purchases of treasury stock .................... -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of
$4.8 million ................................. .1 38.0 -- -- --
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 1998 .................... 4.7 4,628.9 930.9 (4.3) (136.0)
------ ---------- --------- ------ ----------
Comprehensive income (loss):
Net income ..................................... -- -- 282.9 -- -- $ 282.9
--------
Other comprehensive income (loss):
Foreign currency translation adjustments ..... -- -- -- -- -- (1.9)
Adjustments to marketable securities and
interest-only strip receivables ............. -- -- -- -- -- 12.8
--------
Other comprehensive income ................... -- -- -- 10.9 -- 10.9
--------
Comprehensive income ........................ -- -- -- -- -- $ 293.8
========
Purchases of treasury stock .................... -- -- -- -- (1,158.0)
Issuance of treasury stock for employee
benefit plan ................................. -- .1 -- -- 10.4
Exercise of stock options and warrants,
including income tax benefit of $1.1
million ...................................... -- 28.5 -- -- --
Other .......................................... -- 4.0 -- -- (1.8)
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 1999 .................... 4.7 4,661.5 1,213.8 6.6 (1,285.4)
------ ---------- --------- ------ ----------
Comprehensive income (loss):
Net income ..................................... -- -- 329.9 -- -- $ 329.9
--------
Other comprehensive income (loss):
Foreign currency translation adjustments ..... -- -- -- -- -- 6.4
Adjustments to marketable securities and
interest-only strip receivables ............. -- -- -- -- -- (12.0)
--------
Other comprehensive loss ..................... -- -- -- (5.6) -- (5.6)
--------
Comprehensive income ........................ -- -- -- -- -- $ 324.3
========
Purchases of treasury stock .................... -- -- -- -- (188.9)
Spin-off of ANC Rental Corporation ............. -- -- (894.4) -- --
Exercise of stock options and warrants,
including income tax benefit of
$1.0 million ................................. .1 2.2 -- -- --
Other .......................................... -- 1.0 -- -- (3.0)
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 2000 .................... $ 4.8 $ 4,664.7 $ 649.3 $ 1.0 $ (1,477.3)
====== ========== ========= ====== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE>
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In millions)
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income .................................................................... $ 329.9 $ 282.9 $ 499.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................... 133.8 123.0 79.9
Deferred income tax provision (benefit) ..................................... 91.3 (127.2) 12.2
Non-cash restructuring and impairment (recovery) ............................ (6.9) 432.9 --
Gain on sale of marketable securities, net .................................. (23.7) (4.5) --
Valuation write-down on equity-method investment ............................ 30.0 -- --
Gain on sale of subsidiary .................................................. (53.5) -- --
Income from discontinued operations ......................................... (1.8) (314.4) (273.7)
Changes in assets and liabilities, net of effects from business combinations:
Receivables ................................................................ (28.1) (140.9) (148.4)
Inventory .................................................................. (37.2) (380.8) 66.5
Other assets ............................................................... (33.9) 42.0 (23.0)
Accounts payable and accrued liabilities ................................... (162.3) (33.3) (85.2)
Other liabilities .......................................................... 43.9 167.5 90.0
--------- ---------- ---------
281.5 47.2 217.8
--------- ---------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment ........................................... (148.2) (242.3) (256.7)
Proceeds from sale of property and equipment and assets held for sale ......... 129.9 88.4 12.3
Purchases of marketable securities ............................................ (.9) (88.6) (193.6)
Funding of installment loan receivables, net of collections ................... (562.3) (1,578.6) (965.5)
Proceeds from sales of installment loan receivables ........................... 720.3 1,599.4 706.4
Sales of marketable securities ................................................ 91.6 116.7 94.1
Cash used in business acquisitions, net of cash acquired ...................... (313.3) (914.0) (804.3)
Cash received from business divestitures ...................................... 178.7 131.3 55.1
Cash received on disposal of solid waste services segment ..................... -- 1,779.6 1,433.6
Restricted cash deposits ...................................................... (76.6) (51.2) (39.2)
Other ......................................................................... (.4) (15.2) (64.1)
--------- ---------- ---------
18.8 825.5 ( 21.9)
--------- ---------- ---------
CASH USED IN FINANCING ACTIVITIES:
Net proceeds under vehicle inventory financing facilities ..................... 159.4 429.7 65.1
Net proceeds (payments) under revolving credit facilities ..................... (54.0) 169.0 250.0
Purchases of treasury stock ................................................... (188.9) (1,158.0) (136.0)
Payments of notes payable and long-term debt .................................. (197.0) (126.1) (260.3)
Proceeds from sale-leaseback financing ........................................ 52.1 -- --
Other ......................................................................... 1.3 29.0 32.2
--------- ---------- ---------
(227.1) (656.4) (49.0)
--------- ---------- ---------
CASH PROVIDED BY CONTINUING OPERATIONS ......................................... 73.2 216.3 146.9
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS ............................. (227.0) (706.3) 451.4
--------- ---------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (153.8) (490.0) 598.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$17.4, $590.1 AND $44.9, RESPECTIVELY ......................................... 236.0 726.0 127.7
--------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD, INCLUDING CASH
AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF $17.4 and
$590.1 AT DECEMBER 31, 1999 AND 1998, RESPECTIVELY ............................ $ 82.2 $ 236.0 $ 726.0
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in millions, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
AutoNation, Inc. (the "Company") is the largest automotive retailer in the
United States. As of December 31, 2000, the Company owned and operated
approximately 400 new vehicle franchises from dealerships in 18 states,
predominantly in major metropolitan markets in the Sunbelt states. The
Company's dealerships offer new and used vehicles for sale. Each dealership
also offers financing for vehicle purchases, extended service contracts and
other finance and insurance products, as well as other aftermarket products
such as vehicle accessories, upgraded sound systems and theft-deterrent
systems. The Company's dealerships also offer service facilities that provide a
wide range of vehicle maintenance and repair services, and operate collision
repair centers in most key markets.
On June 30, 2000, the Company completed the spin-off of its former
automotive rental businesses, organized under ANC Rental Corporation ("ANC
Rental"), by distributing 100% of ANC Rental's common stock to AutoNation's
stockholders as a tax-free dividend. As a result of the spin-off, AutoNation
stockholders received one share of ANC Rental common stock for every eight
shares of AutoNation common stock owned as of the June 16, 2000 record date. As
discussed in Note 11, Discontinued Operations, the Company's former automotive
rental segment has been accounted for as discontinued operations in the
accompanying Consolidated Financial Statements and accordingly, the net assets
and operating results of ANC Rental for the periods prior to disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.
In July 1998, the Company's former solid waste subsidiary, Republic
Services, Inc., completed an initial public offering of 36.1% of its common
stock. In May 1999, the Company sold substantially all of its interest in
Republic Services in a public offering. As discussed in Note 11, Discontinued
Operations, the Company's former solid waste services segment has been
accounted for as discontinued operations in the accompanying Consolidated
Financial Statements and accordingly, operating results of Republic Services
for the periods prior to disposition have been classified as discontinued
operations in the accompanying Consolidated Financial Statements.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries. The Company operates in a single
industry segment, automotive retailing. All intercompany accounts and
transactions have been eliminated. In order to maintain consistency and
comparability between periods presented, floorplan interest expense,
depreciation and amortization and certain other amounts have been reclassified
from the previously reported financial statements to conform to the financial
statement presentation of the current period.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
43
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Receivables
The components of receivables, net of allowance for doubtful accounts, at
December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Contracts in transit and vehicle receivables ......... $ 407.5 $ 391.9
Finance receivables .................................. 350.2 441.5
Trade receivables .................................... 119.6 121.2
Manufacturer receivables ............................. 131.2 134.1
Other ................................................ 135.4 133.3
--------- ---------
1,143.9 1,222.0
Less: allowance for doubtful accounts ................ (35.1) (42.5)
--------- ---------
$ 1,108.8 $ 1,179.5
========= =========
</TABLE>
Finance receivables consist of the following at December 31:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Finance leases, net ......................................... $ 147.8 $ 196.3
Installment loans ........................................... 50.3 83.8
Retained interests in securitized installment loans ......... 152.1 161.4
--------- --------
$ 350.2 $ 441.5
========= ========
</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.
The Company accounts for the sale of receivables in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." In September 2000, SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
Replacement of FASB No. 125" ("SFAS 140") was
44
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
issued. SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. SFAS 140 disclosure requirements are effective for fiscal years
ending after December 15, 2000, and have been included in Note 13, Asset
Securitizations. Accounting for transfers and servicing of financial assets and
extinguishment of liabilities under SFAS 140 is effective for transactions
occurring after March 31, 2001. Although additional interpretive guidance is
expected from the Financial Accounting Standards Board ("FASB"), the Company
does not expect the adoption of the accounting requirements of SFAS 140, as
currently interpreted, will have a material impact on its consolidated
financial position, results of operations or cash flows.
As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, during 2000, an impairment charge totaling $16.6 million
related to the deterioration of vehicle residual values associated with finance
lease receivables was recognized. Finance lease originations were discontinued
in mid-1999 and the majority of the remaining leases terminate in late 2001.
In 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on EITF Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests
in Securitized Financial Assets" ("EITF 99-20"). EITF 99-20 specifies, among
other things, how a transferor that retains an interest in a securitization
transaction should account for interest income and impairment. EITF 99-20 is
effective for fiscal quarters beginning after March 15, 2001. The Company plans
to adopt EITF 99-20 on April 1, 2001. The Company does not expect adoption of
EITF 99-20 to have a material impact on its consolidated financial position,
results of operations or cash flows.
Inventory
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition,
reconditioning and transportation expenses. Parts and accessories are valued at
the factory list price which approximates lower of cost (first-in, first-out)
or market.
Inventory acquired in business acquisitions is recorded at fair value.
Adjustments to convert from the acquired entity's accounting method (generally
last-in, first-out) to the Company's accounting method are recorded as an
adjustment to the cost in excess of the fair value of net assets acquired.
A summary of inventory at December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
New vehicles ......................... $ 2,295.8 $ 2,085.0
Used vehicles ........................ 317.9 470.1
Parts, accessories and other ......... 155.5 151.7
---------- ----------
$ 2,769.2 $ 2,706.8
========== ==========
</TABLE>
45
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Other Current Assets
Other current assets consist primarily of restricted cash deposits related
to insurance programs totaling $160.8 million and $91.9 million at December 31,
2000 and 1999, respectively.
Investments
Investments consist of marketable securities and investments in businesses
accounted for under the equity-method. Marketable securities include
investments in debt and equity securities classified as available-for-sale and
are stated at fair value with unrealized gains and losses included in other
comprehensive income. Other-than-temporary declines in investment values are
recorded as a component of Other Income, Net in the Company's Consolidated
Income Statements. Fair value is estimated based on quoted market prices.
Equity-method investments represent investments in 50% or less owned
automotive-related businesses over which the Company has the ability to
exercise significant influence. The Company records its initial equity-method
investments at cost and subsequently adjusts the carrying amounts of the
investments for the Company's share of the earnings or losses of the investee
after the acquisition date as a component of Other Income, Net in the Company's
Consolidated Income Statements. The Company continually assesses whether
equity-method investments should be evaluated for possible impairment by use of
an estimate of the related undiscounted cash flows. The Company measures
impairment losses based upon the amount by which the carrying amount of the
asset exceeds the fair value.
A summary of investments at December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
--------- -----------
<S> <C> <C>
Marketable securities ............. $ 5.2 $ 106.2
Equity-method investments ......... 33.6 69.6
------ --------
$ 38.8 $ 175.8
====== ========
</TABLE>
Investments in marketable securities at December 31 are as follows:
<TABLE>
<CAPTION>
2000
------------------------------------------------
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Corporate debt securities ......... $ .6 $ -- $-- $ .6
Equity securities ................. 3.1 1.5 -- 4.6
----- ---- -- -----
$ 3.7 $ 1.5 $-- $ 5.2
===== ===== === =====
</TABLE>
46
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
<TABLE>
<CAPTION>
1999
------------------------------------------------------
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
U.S. government debt securities ......... $ 37.2 $ -- $ (.6) $ 36.6
Corporate debt securities ............... 21.5 -- (.4) 21.1
Equity securities ....................... 27.4 21.1 -- 48.5
-------- ----- ------- -------
$ 86.1 $ 21.1 $ (1.0) $ 106.2
======== ====== ======= =======
</TABLE>
Proceeds from sales of available-for-sale securities were $91.6 million,
$116.7 million and $94.1 million for the years ended December 31, 2000, 1999
and 1998, respectively. Gross realized gains and losses of $24.0 million and
$.3 million, respectively were recognized for the year ended December 31, 2000.
Gross realized gains and losses of $5.3 million and $.8 million, respectively
were recognized for the year ended December 31, 1999. Gross realized gains and
losses were not material for the year ended December 31, 1998. In 2000, the
Company recognized a pre-tax $30.0 million valuation write-down to an
equity-method investment in a privately-held salvage and parts recycling
business which has been reflected in Other Income, Net in the accompanying 2000
Consolidated Income Statement.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in the Consolidated Income Statements.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation and amortization are provided
over the estimated useful lives of the assets involved using the straight-line
method. The estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for equipment and five to ten years for
furniture and fixtures.
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Land .................................................... $ 596.2 $ 529.7
Buildings and improvements .............................. 827.4 670.9
Furniture, fixtures and equipment ....................... 282.3 310.5
--------- ---------
1,705.9 1,511.1
Less: accumulated depreciation and amortization ......... (167.8) (150.7)
--------- ---------
$ 1,538.1 $ 1,360.4
========= =========
</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
47
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
of property and equipment should be evaluated for possible impairment. The
Company uses an estimate of the related undiscounted cash flows over the
remaining life of the property and equipment in assessing whether an asset has
been impaired. The Company measures impairment losses based upon the amount by
which the carrying amount of the asset exceeds the fair value. Fair values
generally are estimated using prices for similar assets and/or discounted cash
flows. As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company recognized an impairment charge in 1999 for the
write-down of certain megastore and other properties held for sale to fair
value. Properties held for sale are included in Other Assets as described
below.
Additionally, during 2000, the Company sold an office building which is
occupied by ANC Rental, resulting in proceeds of approximately $18.7 million
and a pre-tax gain of $2.3 million reflected in Other Income, Net in the
accompanying 2000 Consolidated Income Statement.
Intangible Assets
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net assets acquired, including cost in excess of
the fair value of net assets not identified with specific acquired businesses,
or enterprise-level intangible assets. The cost in excess of the fair value of
net assets is amortized over forty years on a straight-line basis. Accumulated
amortization of intangible assets was $195.4 million and $122.5 million at
December 31, 2000 and 1999, respectively.
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing whether intangible assets have been impaired. The Company measures
impairment losses based upon the amount by which the carrying amount of the
asset exceeds the fair value.
In September 2000, the FASB issued an Exposure Draft entitled "Business
Combinations and Intangible Assets" which was revised in February 2001. The
Exposure Draft, if adopted, would prohibit the pooling method of accounting for
business combination transactions and would require that intangible assets in
excess of the fair value of net assets, goodwill, not be amortized. Goodwill
would be reduced only if found to be impaired or if associated with assets to
be sold or otherwise disposed. The FASB is expected to issue a final statement
in 2001. During 2000, the Company recorded amortization expense of
approximately $73.7 million relating to goodwill. This statement, if issued as
proposed, would preclude future amortization of existing and any future
goodwill on a prospective basis from the date of issuance.
Other Assets
Other assets consist primarily of megastore and other properties held for
sale. As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company recognized an impairment charge in 1999 to
write-down the carrying value of properties held for sale to fair value. Assets
held for sale totaled approximately $138.8 million and $212.0 million at
December 31, 2000 and December 31, 1999, respectively.
48
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Insurance
Under self-insurance programs, the Company retains various levels of
aggregate loss limits, per claim deductibles and claims handling expenses as
part of its various insurance programs, including property and casualty and
employee medical benefits. Costs in excess of this retained risk per claim are
insured under various contracts with third party insurance carriers. The
ultimate costs of these retained insurance risks are estimated by management
and by actuarial evaluation based on historical claims experience, adjusted for
current trends and changes in claims-handling procedures.
Revenue Recognition
Revenue consists of sales of new and used vehicles and related finance and
insurance ("F&I") products, sales from fixed operations (parts, service and
body shop), sales of other products including wholesale units and retail
financing. The Company recognizes revenue in the period in which products are
sold or services are provided. Revenue on finance products represents fees
earned by the Company for notes placed with financial institutions in
connection with customer vehicle purchases financed and is recognized upon
acceptance of credit by the financial institution. Revenue on insurance
products sold on behalf of third party insurance companies in connection with
vehicle sales is recognized upon sale. An estimated allowance for chargebacks
against revenue recognized from sales of F&I products is established during the
period in which the related revenue is recognized. Revenue from retail
financing and certain loan origination costs are recognized over the term of
the contract using the interest method until the Company securitizes its
installment loans.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company's revenue
recognition policy is in accordance with the provisions of SAB 101. Adoption of
the provisions of SAB 101 did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows as of and
for the year ended December 31, 2000.
A summary of the Company's revenue by major products and services for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------- -------------- -------------
<S> <C> <C> <C>
New vehicles ............. $ 12,489.3 $ 11,481.0 $ 6,775.8
Used vehicles ............ 3,860.2 4,429.7 3,185.2
Fixed operations ......... 2,334.9 2,222.0 1,383.2
F&I, net ................. 431.8 423.4 288.6
Other .................... 1,493.4 1,555.7 1,031.8
----------- ----------- ----------
$ 20,609.6 $ 20,111.8 $ 12,664.6
=========== =========== ==========
</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
49
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
derivatives to manage the impact of interest rate changes on borrowings under
the Company's variable rate vehicle inventory and revolving credit facilities.
The Company does not use derivative financial instruments for trading purposes.
Derivative financial instruments entered into concurrently with
securitizations are accounted for at fair value as part of the proceeds
received in the determination of the gain or loss on sale. If a derivative
financial instrument entered into concurrently with a securitization is later
terminated, any resulting gain or loss is recognized in earnings upon
termination.
Interest rate swaps are used at times to manage the impact of interest
rate changes on vehicle inventory and revolving credit facility borrowings.
Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional principal
amount. Income or expense under these instruments is recorded on an accrual
basis as an adjustment to the yield of the underlying exposures over the
periods covered by the contracts. If an interest rate swap is terminated early,
any resulting gain or loss is deferred and amortized as an adjustment of the
cost of the underlying exposure position over the remaining periods originally
covered by the terminated swap. If all or part of an underlying position is
terminated, the related pro-rata portion of any unrecognized gain or loss on
the swap is recognized in income at that time as part of the gain or loss on
the termination. Amounts receivable or payable under the agreements are
included in receivables or accrued liabilities in the accompanying Consolidated
Balance Sheets and were not material at December 31, 2000 or 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In
June 2000, the FASB issued Statement 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133." SFAS 133, as amended, establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
If SFAS 133 had to be applied to all derivative contracts in place on
December 31, 2000, including those embedded in other contracts, total assets
and total liabilities would have increased by approximately $14.3 million. The
Company does not expect there to be a material cumulative effect in earnings or
other comprehensive income from adoption of SFAS 133 as of January 1, 2001.
By requiring the use of fair value accounting, adoption of SFAS 133 could
cause increased volatility in earnings of future periods.
50
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Advertising
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. At December 31, 2000, the Company had
approximately $15.0 million of prepaid advertising costs associated with the
sale of the Company's former outdoor media business as discussed in Note 2,
Business Acquisitions and Divestitures. No advertising costs were capitalized
at December 31, 1999. Advertising expense was $186.5 million, $212.2 million
and $158.0 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Statements of Cash Flows
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents unless the
investments are legally or contractually restricted for more than three months.
The effect of non-cash transactions related to business combinations, as
discussed in Note 2, Business Acquisitions and Divestitures, and other non-cash
transactions are excluded from the accompanying Consolidated Statements of Cash
Flows.
The Company made interest payments of approximately $264.3 million, $175.2
million and $190.2 million for the years ended December 31, 2000, 1999 and
1998, respectively, including interest on vehicle inventory financing. The
Company made income tax payments of approximately $49.9 million, $84.2 million
and $139.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
As further discussed in Note 3, Notes Payable and Long-Term Debt, the
Company amended the terms of an existing lease facility and as a result, the
underlying leases have been accounted for as capital leases in 2000, with the
property and related debt included in the accompanying Consolidated Balance
Sheets.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Businesses acquired through December 31, 2000 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition.
During the year ended December 31, 2000, the Company acquired various
automotive retail businesses. The Company paid approximately $190.9 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting. During 2000, the Company also paid approximately $122.4
million in deferred purchase price for certain prior year automotive retail
acquisitions. At December 31, 2000, the Company accrued approximately $24.5
million of deferred purchase price due to former owners of acquired businesses.
During the year ended December 31, 1999, the Company acquired various
automotive retail businesses. The Company paid approximately $879.1 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting. During 1999, the Company also paid approximately $34.9
million in deferred purchase price for certain prior year automotive retail
acquisitions.
51
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. BUSINESS ACQUISITIONS AND DIVESTITURES -- (Continued)
During the year ended December 31, 1998, the Company acquired various
businesses in the automotive retail, solid waste services and automotive rental
industries. With respect to continuing operations, the Company issued
approximately 21.9 million shares of the Company's common stock, par value $.01
per share, valued at $473.2 million and paid approximately $804.3 million in
cash for acquisitions accounted for under the purchase method of accounting.
With respect to discontinued operations, the Company issued approximately 3.4
million shares of common stock valued at $68.0 million and paid approximately
$494.4 million in cash and certain properties for acquisitions accounted for
under the purchase method of accounting.
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting related to continuing
operations for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ----------- -------------
<S> <C> <C> <C>
Property and equipment ........................................... $ 21.9 $ 145.5 $ 403.5
Intangible and other assets ...................................... 169.0 942.7 1,290.8
Working capital .................................................. 111.5 450.3 744.0
Debt assumed ..................................................... (109.2) (623.8) (1,085.1)
Other liabilities ................................................ (2.3) (35.6) (75.7)
Common stock issued .............................................. -- -- (473.2)
-------- -------- ----------
Cash used in business acquisitions, net of cash acquired ......... $ 190.9 $ 879.1 $ 804.3
======== ======== ==========
</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>
2000 1999
-------------- --------------
<S> <C> <C>
Revenue .............................................................. $ 21,113.1 $ 22,379.3
Income (loss) from continuing operations ............................. $ 328.8 $ (12.0)
Diluted earnings (loss) per share from continuing operations ......... $ .91 $ (.03)
</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.
As described in Note 10, Restructuring and Impairment Charges
(Recoveries), Net, the Company has been divesting of certain non-core
franchised automotive dealerships. During 2000, the Company received
approximately $89.7 million of cash from the divestiture of franchised
automotive dealerships. Gains and losses on divestitures are included in Asset
Impairment Charges (Recoveries) in the accompanying Consolidated Income
Statements and were not material during 2000. The Company signed a definitive
agreement to sell its Flemington dealer group. The Company expects to complete
the sale in the second quarter of 2001.
52
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. BUSINESS ACQUISITIONS AND DIVESTITURES -- (Continued)
In November 2000, the Company completed the divestiture of its outdoor
media business for a purchase price of approximately $104.0 million. In
connection with the sale, the Company entered into a prepaid $15.0 million
advertising agreement and therefore, received net proceeds of $89.0 million.
The Company recognized a pre-tax gain of $53.5 million on the sale which has
been included in Other Income, Net in the accompanying 2000 Consolidated Income
Statement.
Cash received from the divestiture of franchised automotive dealerships in
1999 and 1998 was $131.3 million and $55.1 million, respectively. Gains and
losses on divestitures, other than those recorded in the Company's 1999
restructuring and impairment charges, were not material in 1999 and 1998.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------- --------------
<S> <C> <C>
Vehicle inventory credit facilities;
secured by the Company's vehicle inventory;
interest payable at LIBOR based rates;
interest rates of 7.7% and 6.6% at
December 31, 2000 and 1999, respectively ......... $ 2,416.7 $ 2,210.6
$1.5 billion unsecured revolving credit facilities;
interest payable using LIBOR based rates;
interest rates of 7.6% and 6.6% at
December 31, 2000 and 1999, respectively ......... 615.0 669.0
Other debt; secured by real property,
equipment and other assets; interest ranging
from 7.5% to 8.0%; maturing through 2010 ......... 242.2 174.8
---------- -----------
3,273.9 3,054.4
Less: current maturities ......................... (2,423.5) (2,218.3)
---------- -----------
$ 850.4 $ 836.1
========== ===========
</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 of September 30, 2001 or the early renewal
of the Company's multi-year $1.0 billion facility. The Company's revolving
credit facilities require, among other items, that the Company maintain certain
financial ratios and comply with certain financial covenants. The Company was
in compliance with these ratios and covenants at December 31, 2000 and 1999.
The Company finances vehicle inventory through secured financings,
primarily floorplan facilitities, with manufacturers' captive finance
subsidiaries, as well as independent financial institutions, and, until
recently, a bank-sponsored commercial paper conduit facility that matured
January 19, 2001, and was not renewed. As of December 31, 2000, committed
capacity of the facilities was approximately $3.5 billion.
53
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. NOTES PAYABLE AND LONG-TERM DEBT -- (Continued)
The Company is a lessee under a $500.0 million lease facility that was
established primarily to acquire and develop the Company's former megastore
properties. As originally structured, the facility had been accounted for as an
operating lease and included residual value guarantees. In 1999, certain
properties under the facility were reflected as capital leases. In connection
with the Company's 1999 restructuring activities described in Note 10,
Restructuring and Impairment Charges (Recoveries), Net, the Company accrued an
estimate of the liability under the residual value guarantees totaling
approximately $103.3 million as of December 31, 1999. At December 31, 1999,
$469.7 million was funded under this facility of which $152.5 million was
accounted for as capital leases and the remaining $317.2 million was accounted
for as operating leases. In September 2000, the Company funded its remaining
lease residual value guarantee obligation to the lessor, reduced the facility
size to $210.0 million and amended the terms of the facility by exercising its
option to purchase the leased properties at the end of the lease term. As a
result of the lease amendment, the remaining leases were required to be
accounted for as capital leases with the property and related debt reflected on
the balance sheet. As of December 31, 2000, $175.8 million was outstanding
under this facility and is included in Long-Term Debt in the accompanying 2000
Consolidated Balance Sheet. Of the $175.8 million outstanding, $115.2 million
is associated with operating properties and $60.6 million is attributable to
properties held for sale. The facility matures April 2002. Interest payments
are LIBOR based.
During 2000, the Company entered into a sale-leaseback transaction
involving its corporate headquarters facility that resulted in net proceeds of
approximately $52.1 million. This transaction has been accounted for as a
financing lease, wherein the property remains on the books and continues to be
depreciated. The gain on this transaction will be recognized subsequent to the
ten-year lease term. The Company has the option to renew the lease at the end
of the lease term subject to certain conditions.
At December 31, 2000, aggregate maturities of notes payable and long-term
debt were as follows:
<TABLE>
<S> <C>
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.
54
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. INCOME TAXES -- (Continued)
The components of the provision for income taxes from continuing
operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal .............................. $ 101.3 $ 108.4 $ 105.5
State ................................ 4.3 22.8 9.1
Federal and state deferred ............ 91.3 (111.2) 26.7
Change in valuation allowance ......... -- (16.0) (14.5)
-------- -------- --------
Provision for income taxes ............ $ 196.9 $ 4.0 $ 126.8
======== ======== ========
</TABLE>
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>
2000 1999 1998
----------- ---------- -----------
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate of 35% ......... $ 183.8 $ (9.6) $ 123.4
Non-deductible expenses ............................................... 5.8 28.6 10.3
State income taxes, net of federal benefit ............................ 10.1 1.0 7.6
Change in valuation allowance ......................................... -- (16.0) (14.5)
Other, net ............................................................ (2.8) -- --
-------- ------- --------
Provision for income taxes ............................................ $ 196.9 $ 4.0 $ 126.8
======== ======= ========
</TABLE>
Components of the net deferred income tax liability at December 31 are as
follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis ................. $ 360.8 $ 336.1
Expenses deducted for tax, amortized for book ......... 689.3 705.6
Deferred income tax assets:
Net operating losses .................................. (3.6) (4.2)
Accruals not currently deductible ..................... (278.6) (342.0)
Valuation allowance ................................... 109.3 109.3
-------- --------
Net deferred income tax liability ....................... $ 877.2 $ 804.8
======== ========
</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.
55
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. INCOME TAXES -- (Continued)
Over the past four years, the Company has engaged in certain transactions
that are of a type that the Internal Revenue Service has recently indicated it
intends to challenge. The Company believes that its tax returns appropriately
reflect such transactions. At the present time, it is impossible to predict the
outcome of any challenge if the IRS determines to challenge the tax reporting
of such transactions.
5. OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss), net of
income taxes, are as follows for the years ended December 31:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------- ------------------------------- -----------------------------
Pre-Tax Tax Net Pre-Tax Tax Net Pre-Tax Tax Net
Amount Effect Amount Amount Effect Amount Amount Effect Amount
----------- -------- ---------- --------- ---------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency
translation
adjustments(1) ............... $ 6.4 $ -- $ 6.4 $ (1.9) $ -- $ (1.9) $ (1.6) $ -- $ (1.6)
Unrealized gain (loss) on
marketable securities and
interest-only strips ......... (14.2) 5.3 (8.9) 23.1 (8.3) 14.8 .7 (.2) .5
Reclassification of realized
losses (gains) ............... (7.1) 4.0 (3.1) (3.0) 1.0 (2.0) (.4) .1 (.3)
------- ---- ------ ------- ------ ------- ------ ----- ------
Other comprehensive
income (loss) ................ $ (14.9) $ 9.3 $ (5.6) $ 18.2 $ (7.3) $ 10.9 $ (1.3) $ (.1) $ (1.4)
======= ===== ====== ======= ====== ======= ====== ===== ======
</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>
2000 1999
-------- ---------
<S> <C> <C>
Foreign currency translation adjustments .............................. $ -- (6.4)
Unrealized gain on marketable securities and interest-only strips ..... 1.0 13.0
---- ----
$ 1.0 $ 6.6
===== ======
</TABLE>
6. SHAREHOLDERS' EQUITY
During the year ended December 31, 2000, the Company repurchased 27.6
million shares of its common stock, par value $.01 per share, under its Board
authorized share repurchase program for an aggregate purchase price of $188.9
million. The Company repurchased 91.0 million shares of common stock during
1999 for an aggregate purchase price of $1.16 billion. The Company repurchased
9.1 million shares of common stock during 1998 for an aggregate purchase price
of $136.0 million. Through December 31, 2000, an aggregate of 127.7 million
shares of common stock have been repurchased under the Company's share
repurchase programs, authorized by the Company's Board of Directors in 1998 and
1999, for an aggregate purchase price of $1.48 billion. As of March 26, 2001,
the Company repurchased an additional 10.9 million shares of common stock for
an aggregate purchase price of $87.8 million, leaving
56
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. SHAREHOLDERS' EQUITY -- (Continued)
approximately $179.2 million available for share repurchases under the latest
authorized program. Repurchases are made pursuant to Rule 10b-18 of the
Securities Exchange Act of 1934, as amended.
As discussed in Note 11, Discontinued Operations, the Company completed
the tax-free spin-off of ANC Rental on June 30, 2000. As a result of the
spin-off, the Company's retained earnings were reduced by the net assets of ANC
Rental totaling $894.4 million. The equity adjustment resulting from the
spin-off is subject to further adjustment resulting from changes in estimated
shared assets and liabilities of AutoNation and ANC Rental and certain other
matters. However, such adjustments, if any, are not expected to be significant.
During the year ended December 31, 1998, the Company's former solid waste
subsidiary, Republic Services, completed an initial public offering of
approximately 36.1% of its outstanding common stock, resulting in net proceeds
of approximately $1.43 billion. In 1999, the Company sold substantially all of
its interest in Republic Services in a public offering resulting in proceeds of
approximately $1.78 billion. During 2000, the Company sold substantially all of
the remaining holdings of common stock of Republic Services resulting in
proceeds of approximately $48.2 million. A related pre-tax gain of $24.0
million has been reflected in Other Income, Net, in the accompanying 2000
Consolidated Income Statement.
The Company has five million authorized shares of preferred stock, par
value $.01 per share, none of which are issued or outstanding. The Board of
Directors has the authority to issue the preferred stock in one or more series
and to establish the rights, preferences and dividends.
7. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which options to purchase
shares of common stock may be granted to key employees and directors of the
Company. Options granted under the plans are non-qualified and are granted at a
price equal to the quoted market price of the common stock on the trading day
immediately prior to the date of grant. Generally, options granted will have a
term of 10 years from the date of grant, and will vest in increments of 25% per
year over a four-year period on the yearly anniversary of the grant date. In
October 1998, the Company's Board of Directors approved the repricing of
approximately 32.1 million employee stock options to $12.75 per share, equal to
the closing price of the Company's common stock on the last business day prior
to the date of the re-pricing. Effective June 30, 2000, in conjunction with the
tax-free spin-off of ANC Rental, options to purchase approximately 2.8 million
shares of common stock held by employees of ANC Rental were canceled. In
addition, the Company's Board of Directors, in accordance with the terms of the
stock option plans, authorized the adjustment of employee stock options to
reflect the market effect on AutoNation's common stock resulting from the
spin-off. All other terms of the existing options, including the vesting
schedules, were unchanged.
57
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. STOCK OPTIONS AND WARRANTS -- (Continued)
A summary of stock option and warrant transactions is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- ---------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ----------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of period ................... 50.9 $ 15.84 54.6 $ 12.52 48.1 $ 15.67
Granted ................................. 12.5 6.91 17.0 15.80 16.9 21.89
Exercised ............................... (.6) 2.16 (7.8) 3.73 (9.3) 3.62
Canceled ................................ (10.2) 14.14 (12.9) 13.90 (1.1) 25.34
Spin-off adjustment ..................... 4.6 (1.57) -- -- -- --
------ --------- ------ -------- ----- --------
Options and warrants outstanding at end
of period ............................. 57.2 $ 12.74 50.9 $ 15.84 54.6 $ 12.52
====== ========= ====== ======== ===== ========
Options and warrants exercisable at end
of period ............................. 32.7 $ 14.59 15.4 $ 18.58 18.8 $ 11.27
Options available for future grants ..... 25.3 24.1 28.2
</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
- --------------------------- -------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
$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 December 31, 1994, the
Company's pro forma net income, pro forma earnings per share and pro forma
weighted average fair value of options granted, with related assumptions, are
as follows for the years ended December 31:
58
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. STOCK OPTIONS AND WARRANTS -- (Continued)
<TABLE>
<CAPTION>
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Pro forma net income ......................................... $ 285.4 $ 199.5 $ 368.5
Pro forma diluted earnings per share ......................... $ .79 $ .46 $ .81
Pro forma weighted average fair value of options granted ..... $ 2.96 $ 6.87 $ 13.87
Risk free interest rates ..................................... 5.07-5.15% 6.34-6.38% 4.76-4.82%
Expected dividend yield ...................................... -- -- --
Expected lives ............................................... 5-7 years 5-7 years 5-7 years
Expected volatility .......................................... 40% 40% 40%
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought action against one of the Company's California dealerships for
alleged customer fraud as well as several other claims. The California DMV
seeks to have the dealership's license to do business in California suspended
or revoked. The case is scheduled for trial beginning in April 2001. Three
civil class actions and other related lawsuits have been filed against the
dealership based on the allegations underlying the California DMV case. In
addition, the Los Angeles District Attorney's Office has been conducting an
investigation into the allegations underlying the California DMV case. The
Company intends to vigorously defend itself in these matters.
In an action filed in Florida state court in 1999, a wholly-owned
subsidiary of the Company was accused of violating the Florida Motor Vehicle
Retail Sales Finance Act and the Florida Deceptive and Unfair Trade Practices
Act by allegedly failing to deliver executed copies of retail installment
contracts to customers of the Company's used vehicle megastores. In October
2000, the court certified the class of customers on whose behalf the action
would proceed. The Company has appealed this decision and intends to vigorously
defend itself in this matter.
Several of the Company's Texas dealerships have been named in three class
actions brought against the Texas Automobile Dealer's Association ("TADA") and
new vehicle dealerships in Texas that are members of the TADA. The actions
allege, among other things, that since January 1994 Texas dealers have deceived
customers with respect to a vehicle inventory tax and violated federal
antitrust and other laws as well. These cases are currently pending in Texas
State courts and federal district court. The Company intends to vigorously
defend itself in these matters.
In addition to the above, the Company is a party to numerous other legal
proceedings that arose in the ordinary course of business.
The Company has certain insurance coverage and rights of indemnification.
The Company does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's business, consolidated results
of operations, financial condition or cash flows. However, the results of these
matters cannot be predicted with certainty, and an unfavorable resolution of
one or more of these matters could have a material adverse effect on the
Company's business, consolidated results of operations, financial condition
and/or cash flows.
59
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. COMMITMENTS AND CONTINGENCIES -- (Continued)
Lease Commitments
The Company leases real property, equipment and software under various
operating leases most of which have terms from 1 to 25 years.
Expenses under real property, equipment and software leases were $82.7
million, $86.2 million and $45.0 million for the years ended December 31 2000,
1999 and 1998, respectively.
Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 2000 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
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.
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise or conversion of options and warrants.
In computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method.
60
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. EARNINGS (LOSS) PER SHARE -- (Continued)
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share is as
follows for the years ended December 31:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating basic
earnings per share ........................................ 361.3 429.8 455.1
Effect of dilutive options and warrants ..................... .1 -- 15.8
----- ----- -----
Weighted average common and common equivalent shares used
in calculating diluted earnings per share ................. 361.4 429.8 470.9
===== ===== =====
</TABLE>
At December 31, 2000, the Company had employee stock options outstanding
of approximately 57.2 million of which 56.9 million have been excluded from the
computation of diluted earnings per share since they are anti-dilutive. At
December 31, 1999 and 1998, outstanding employee stock options of approximately
50.9 and 4.8 million, respectively, have been excluded since they are
anti-dilutive.
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan was comprised of
the following major components: (1) exiting the used vehicle megastore
business; and (2) reducing the corporate workforce. The restructuring plan also
included divesting of certain non-core franchised dealerships. Approximately
2,000 positions were eliminated as a result of the restructuring plan of which
1,800 were megastore positions and 200 were corporate positions. These
restructuring activities resulted in pre-tax charges of $443.7 million in 1999,
of which $416.4 million appears as Asset Impairment Charges (Recoveries), Net
in the Company's 1999 Consolidated Income Statements. These pre-tax charges
include $286.9 million of asset impairment charges; $103.3 million of reserves
for residual value guarantees for closed lease properties; $26.2 million of
severance and other exit costs; and $27.3 million of inventory related costs.
The $286.9 million asset impairment charge consists of: $244.9 million of
megastore and other property impairments; $26.6 million of goodwill impairment
reserves for the divestiture of certain non-core franchised automotive
dealerships; and $15.4 million of information systems impairments. Of the
$443.7 million restructuring reserve recorded, $10.8 million of severance was
paid in 1999 and $53.7 million of asset impairments and write-offs were
recorded during the fourth quarter of 1999.
The Company intends to complete the sale of its Flemington dealer group
during the second quarter of 2001 as previously described in Note 2, Business
Acquisitions and Divestitures, resulting in the substantial completion of its
non-core dealership divestiture plan. Closed megastores and other properties
are being disposed of through sales to third parties. Although these properties
are being aggressively marketed, their ultimate disposition will not be
substantially completed until late 2001. Revenue for the operations disposed or
to be disposed was $923.5 million, $2.12 billion and $1.70 billion during 2000,
1999 and 1998 respectively. Operating income for the operations disposed or to
be disposed was $21.8 million, $15.5 million and $12.9 million for the years
ended December 31, 2000, 1999 and 1998 respectively.
61
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET -- (Continued)
The following summarizes activity in the Company's restructuring and
impairment reserves for the year ended December 31, 2000:
<TABLE>
<CAPTION>
Deductions
Balance Amounts Charged --------------------------- Balance
Reserve December 31, 1999 (Credited) to Income Cash Non-cash December 31, 2000
- ----------------------------- ------------------- --------------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
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.
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 Back Net Gain on Additional
into Service or Retained Sold Properties Impairment Charges Other Total
-------------------------- ----------------- -------------------- --------- -----------
<S> <C> <C> <C> <C> <C>
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
62
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RESTRUCTURING AND IMPAIRMENT CHARGES (RECOVERIES), NET -- (Continued)
with the deterioration in residual values of finance lease receivables. The
Company discontinued writing finance leases in mid-1999 and the majority of the
leases terminate in late 2001.
11. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax-free spin-off of ANC
Rental. Accordingly, the net assets and operating results of ANC Rental have
been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Income from discontinued
operations during the year ended December 31, 2000, is net of previously
estimated losses of $22.1 million which were accrued in 1999 and additional
costs associated with the spin-off totaling $11.3 million recorded in 2000. In
1999, the Company recorded a loss related to ANC Rental of $34.1 million, net
of income taxes, representing the estimated loss from operations through the
expected distribution date and costs associated with the spin-off.
In connection with the spin-off, the Company made certain capital
contributions to ANC Rental prior to the spin-off. These contributions include
cash of approximately $200.0 million and the net assets of an insurance
subsidiary. The Company also entered into various agreements with ANC Rental
which set forth the terms of the distribution and other agreements governing
the Company's relationship with ANC Rental after the spin-off. As a result of
the spin-off, the Company's equity was reduced by the net assets of ANC Rental
totaling $894.4 million.
In connection with the spin-off, the Company agreed to continue to provide
ANC Rental with guarantees and other credit enhancements, currently with
respect to certain indebtedness and certain property and vehicle lease
obligations. The Company receives fees for providing these guarantees
commensurate with market rates. To the extent that ANC Rental is not able to
meet its obligations, the Company would be likely to be called on to perform
under guarantees and credit enhancements provided by the Company, which could
have a material adverse effect on the Company's business, consolidated results
of operations, financial condition and/or cash flows.
In July 1998, the Company's former solid waste services subsidiary,
Republic Services, completed an initial public offering of 36.1% of its
outstanding common stock resulting in net proceeds of approximately $1.43
billion. In May 1999, the Company sold substantially all of its remaining
interest in Republic Services in a public offering resulting in net proceeds of
approximately $1.78 billion and an after tax gain of approximately $377.0
million. Accordingly, operating results of Republic Services for the period
prior to disposition have been classified as discontinued operations in the
accompanying Consolidated Financial Statements.
In October 1997, the Company sold its electronic security division
resulting in an after tax gain of approximately $230.0 million. In 1999 and
1998, the Company recognized additional after tax gains of approximately $2.1
million and $11.6 million, respectively, related to finalizing the gain on
disposition.
63
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. DISCONTINUED OPERATIONS -- (Continued)
A summary of the net assets of discontinued operations as of December 31,
1999 for the automotive rental businesses is as follows:
<TABLE>
<S> <C>
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>
Selected income statement data for the Company's discontinued operations
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ----------------------------------------------
Automotive Automotive Solid
Rental Rental Waste Total
------------ ------------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue .................... $ 1,721.2 $ 3,542.3 $ 552.5 $ 4,094.8
========== ============ ========= =========
Pre-tax income ............. (14.8) (88.2)(1) 100.8 12.6
Provision (benefit)
for income taxes ......... (5.8) (18.8) 38.8 20.0
Extraordinary
charge, net of
income taxes ............. -- 1.6 -- 1.6
Minority interest in
RSG ...................... -- -- 21.6 21.6
---------- ------------ --------- ---------
Net income (loss) .......... (9.0) (71.0) 40.4 (30.6)
Previously estimated
and accrued losses 22.1 -- -- --
---------- ------------ --------- ---------
Income (loss) from
discontinued
operations ............... $ 13.1 $ (71.0) $ 40.4 $ (30.6)
========== ============ ========= ==========
<CAPTION>
1998
--------------------------------------------
Automotive Solid
Rental Waste Total
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue .................... $ 3,453.6 $ 1,369.1 $ 4,822.7
=========== =========== ===========
Pre-tax income ............. 170.1 292.5 462.6
Provision (benefit)
for income taxes ......... 61.3 105.3 166.6
Extraordinary
charge, net of
income taxes ............. -- -- --
Minority interest in
RSG ...................... -- 33.9 33.9
----------- ----------- -----------
Net income (loss) .......... 108.8 153.3 262.1
Previously estimated
and accrued losses -- -- --
----------- ----------- -----------
Income (loss) from
discontinued
operations ............... $ 108.8 $ 153.3 $ 262.1
=========== =========== ===========
</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.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate derivative transactions with
certain financial institutions to manage the impact of interest rate changes on
securitized installment loan receivables. These derivative transactions consist
of a series of interest rate caps and floors with an aggregate notional amount
of $576.3 million contractually maturing through 2006 which effectuate a
variable to fixed rate swap at a weighted average rate of 6.62% at December 31,
2000. Variable rates on the underlying portfolio are indexed to the Commercial
Paper Nonfinancial Rate.
64
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. DERIVATIVE FINANCIAL INSTRUMENTS -- (Continued)
The amounts exchanged by the counterparties to interest rate derivatives
are based upon the notional amounts and other terms, generally related to
interest rates, of the derivatives. While notional amounts of interest rate
derivatives form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Company's exposure as an end user
of derivative financial instruments.
The Company is exposed to credit related losses in the event of
non-performance by counterparties to derivative financial instruments. The
Company monitors the credit worthiness of the counterparties and presently does
not expect default by any of the counterparties. The Company does not obtain
collateral in connection with its derivative financial instruments.
The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 14, Fair Value of Financial Instruments, for the fair
value of derivatives.
13. ASSET SECURITIZATIONS
The Company securitizes installment loan receivables through a $1.0
billion commercial paper warehouse facility with unrelated financial
institutions. During 2000, the Company sold unsecured installment loan finance
receivables of $580.1 million under this program, net of retained interests.
The Company continues to service and receive annual servicing fees on the
outstanding balance of securitized receivables. The Company also retains a
subordinated interest in the sold receivables and the rights to future cash
flows arising from the receivables after the investors receive their
contractual return. The Company provides additional credit enhancement in the
form of restricted cash deposits. At December 31, 2000, $576.3 million was
outstanding under this program, net of retained interests. As further discussed
in Note 12, Derivative Financial Instruments, the Company enters into interest
rate protection agreements to manage the interest rate changes on amounts
securitized and on the Company's retained interests.
The Company also securitizes installment loan receivables through the
issuance of asset-backed notes through a non-consolidated special purpose
entity under a $2.0 billion shelf registration statement. Through December 31,
2000, $1.48 billion has been issued and approximately $521.5 million remains to
be issued under this program. The Company uses proceeds from these notes to
refinance installment loans previously securitized under the warehouse facility
and to securitize additional loans held by the Company. The Company provides
credit enhancement related to these notes in the form of overcollateralization,
a reserve fund and a third party surety bond. The Company retains
responsibility for servicing the loans for which it is paid a servicing fee.
During 2000, approximately $691.7 million in additional asset-backed notes were
issued and at December 31, 2000, $1.0 billion was outstanding under this
program, net of retained interests.
These transactions typically result in the recording of a securitization
asset in the form of an interest-only strip which represents the present value
of the future residual cash flows from securitized receivables. The investors
and the securitization trusts have no recourse to the Company's assets for
failure of
65
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. ASSET SECURITIZATIONS -- (Continued)
debtors to pay when due except to the extent of the Company's rights to future
cash flow and any subordinated interest the Company retains.
In 2000, recognized pre-tax gains on the securitization of installment
loan receivables were not material to the Company's Consolidated Financial
Statements.
A summary of cash flows received from securitization trusts for the year
ended December 31, 2000, were as follows:
<TABLE>
<S> <C>
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.
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)
- ------------ --------------
<S> <C>
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.
Furthermore, the estimated fair values as disclosed should not be considered
indicative of future earnings on these assets. The current annual rate
assumptions reflect expected performance of the total loans securitized as of
December 31, 2000.
66
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. ASSET SECURITIZATIONS -- (Continued)
<TABLE>
<CAPTION>
$ Effect on Interest-Only Strip of
----------------------------------
Current 10% Change 20% Change
Description: Rate Assumption in Assumption in Assumption
- ------------ ----------------- --------------- ----------------
<S> <C> <C> <C>
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>
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
----------------- --------------------------
<S> <C> <C>
Loans securitized .......................... $ 1,619.2 $ 7.8
Loans retained on balance sheet ............ 50.3 .4
---------- ------
Total loans managed or securitized ......... $ 1,669.5 $ 8.2
========== ======
</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:
o Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable rate debt: the amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.
o Installment loans receivable and retained interests in securitized
receivables: The fair value of installment loans receivable and retained
interests in securitized receivables are estimated based upon the
discounted value of the future cash flows expected to be received.
Significant assumptions
67
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
used to estimate the fair value at December 31, 2000 and 1999 are as
follows: discount rate -- 9.51% and 9.64%; cumulative loss rate -- 2.39%
and 1.93%; and prepayment rate -- 1.16% and 1.50%.
o Interest rate swaps, caps and floors: the fair value of interest rate
swaps, caps and floors is determined from dealer quotations and represents
the discounted future cash flows through maturity or expiration using
current rates, and is effectively the amount the Company would pay or
receive to terminate the agreements.
The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which
carrying amounts approximate fair value, as of December 31:
<TABLE>
<CAPTION>
2000 1999
------------------------ ------------------------
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
- ----------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Installment loans receivable ................. $ 50.3 $ 53.9 $ 83.8 $ 84.8
Retained interests in securitized receivables:
Principal .................................. $ 76.1 $ 76.7 $ 101.4 $ 101.3
Interest-only strips ....................... $ 68.5 $ 68.5 $ 51.8 $ 51.8
Servicing assets ........................... $ 7.5 $ 7.9 $ 8.2 $ 8.2
Interest rate caps ........................... -- $ 2.6 -- $ 18.5
Interest rate floors ......................... -- $ (14.3) -- $ (7.7)
Interest rate swaps .......................... -- -- -- $ .1
</TABLE>
15. BUSINESS AND CREDIT CONCENTRATIONS
The Company owns and operates franchised automotive dealerships in the
United States.
Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
or distributors with considerable influence over the operations of the
dealership and generally provide for termination of the franchise agreement for
a variety of causes. The success of any franchised automotive dealership is
dependent, to a large extent, on the financial condition, management,
marketing, production and distribution capabilities of the vehicle
manufacturers or distributors of which the Company holds franchises. At
December 31, 2000 and 1999, the Company had receivables from manufacturers or
distributors of $131.2 million and $134.1 million, respectively.
The Company purchases substantially all of its new vehicles from various
manufacturers or distributors at the prevailing prices to all franchised
dealers. The Company's sales volume could be adversely impacted by the
manufacturers' or distributors' inability to supply the dealerships with an
adequate supply of vehicles.
Concentrations of credit risk with respect to non-manufacturer trade
receivables are limited due to the wide variety of customers and markets in
which the Company's products are sold as well as
68
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. BUSINESS AND CREDIT CONCENTRATIONS -- (Continued)
their dispersion across many different geographic areas in the United States.
Consequently, at December 31, 2000, the Company does not consider itself to
have any significant non-manufacturer concentrations of credit risk.
16. QUARTERLY INFORMATION (UNAUDITED)
The Company's operations generally experience higher volumes of vehicle
sales in the second and third quarters of each year in part due to consumer
buying trends and the introduction of new vehicle models. Also, demand for cars
and light trucks is generally lower during the winter months than in other
seasons, particularly in regions of the United States where dealerships may be
subject to harsh winters. Accordingly, the Company expects revenue and
operating results to be generally lower in the first and fourth quarters as
compared to the second and third quarters.
Operating income (loss) in the fourth quarter of 1999 includes
restructuring and impairment charges of $443.7 million, as described in Note
10, Restructuring and Impairment Charges (Recoveries), Net.
The following is an analysis of certain items in the Consolidated Income
Statements by quarter for 2000 and 1999:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue .......................................... 2000 $ 5,230.2 $ 5,339.5 $ 5,338.1 $ 4,701.8
1999 $ 4,562.7 $ 5,069.6 $ 5,459.7 $ 5,019.8
Operating income (loss) .......................... 2000 $ 163.0 $ 203.9 $ 197.3 $ 160.6
1999 $ 120.1 $ 183.1 $ 170.3 $ (363.7)
Income (loss) from continuing operations ......... 2000 $ 64.7 $ 96.6 $ 93.1 $ 73.7
1999 $ 58.4 $ 97.1 $ 92.6 $ (279.6)
Basic earnings (loss) per share from
continuing operations(1) ........................ 2000 $ .18 $ .27 $ .26 $ .21
1999 $ .13 $ .22 $ .22 $ (.71)
Diluted earnings (loss) per share from
continuing operations(1) ........................ 2000 $ .18 $ .27 $ .26 $ .21
1999 $ .13 $ .21 $ .22 $ (.71)
Net income (loss) ................................ 2000 $ 62.3 $ 100.8 $ 93.1 $ 73.7
1999 $ 80.1 $ 501.2 $ 104.7 $ (403.1)
</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.
69
<PAGE>
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. QUARTERLY INFORMATION (UNAUDITED) -- (Continued)
The following table sets forth, for the periods indicated, the high and
low prices per share of the Company's Common Stock as reported by the New York
Stock Exchange.
<TABLE>
<CAPTION>
High Low
----------- -----------
<S> <C> <C>
2000
First Quarter ................ $ 9.31 $ 6.13
Second Quarter ............... $ 10.75 $ 7.00
Third Quarter ................ $ 7.31 $ 5.63
Fourth Quarter ............... $ 7.19 $ 4.63
High Low
------- -------
1999
First Quarter ................ $ 16.94 $ 12.13
Second Quarter ............... $ 18.38 $ 11.63
Third Quarter ................ $ 17.88 $ 11.50
Fourth Quarter ............... $ 12.69 $ 7.50
</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 stockholder of record as of June
16, 2000 one share of ANC Rental common stock for each eight shares of
AutoNation common stock held by such stockholder. The stock prices presented
above reflect historical stock prices during fiscal 2000 and 1999 and have not
been restated to reflect the distribution of ANC Rental common stock to the
Company's stockholders.
70
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information required by Item 10 (other than the information required
by Item 401 of Regulation S-K with respect to our executive officers, which is
set forth under Part I of this Annual Report on Form 10-K), Item 11, Item 12
and Item 13 of Part III of Form 10-K will be set forth in our Proxy Statement
relating to the 2001 Annual Meeting of Stockholders and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements of the Company are set forth in Part II, Item 8.
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for each of the three years ended December 31, 2000 is
submitted herewith.
(3) Exhibits -- See Index to Exhibits included elsewhere in this document.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed December 15, 2000 and dated December 8,
2000, Item 5, reporting the adoption of AutoNation's amended and restated
by-laws.
71
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
AUTONATION, INC.
By: /s/ MICHAEL J. JACKSON
----------------------------------
Michael J. Jackson
Chief Executive Officer
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------ -------------------------------------- ---------------
<S> <C> <C>
/S/ H. WAYNE HUIZENGA Chairman of the Board March 30, 2001
- ------------------------------
H. Wayne Huizenga
/S/ MICHAEL J. JACKSON Chief Executive Officer and Director March 30, 2001
- ------------------------------ (Principal Executive Officer)
Michael J. Jackson
/S/ CRAIG T. MONAGHAN Senior Vice President and March 30, 2001
- ------------------------------ Chief Financial Officer
Craig T. Monaghan (Principal Financial Officer)
/S/ PATRICIA A. MCKAY Senior Vice President-Finance March 30, 2001
- ------------------------------ (Principal Accounting Officer)
Patricia A. McKay
/S/ HARRIS W. HUDSON Vice Chairman and Director March 30, 2001
- ------------------------------
Harris W. Hudson
/S/ ROBERT J. BROWN Director March 30, 2001
- ------------------------------
Robert J. Brown
/S/ J. P. BRYAN Director March 30, 2001
- ------------------------------
J. P. Bryan
/S/ RICK L. BURDICK Director March 30, 2001
- ------------------------------
Rick L. Burdick
/S/ MICHAEL G. DEGROOTE Director March 30, 2001
- ------------------------------
Michael G. DeGroote
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------------------- ---------- ---------------
<S> <C> <C>
/S/ GEORGE D. JOHNSON, JR. Director March 30, 2001
- ------------------------------
George D. Johnson, Jr.
/S/ JOHN J. MELK Director March 30, 2001
- ------------------------------
John J. Melk
/S/ IRENE B. ROSENFELD Director March 30, 2001
- ------------------------------
Irene B. Rosenfeld
</TABLE>
73
<PAGE>
AUTONATION, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(In millions)
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to at End
Classifications of Year Income Deductions Other of Year
- -------------------------- ------------ ------------ ------------------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
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.
74
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description of Exhibits
- ---------- ------------------------------------------------------------------------------------------
<S> <C>
2.1 Separation and Distribution Agreement dated June 30, 2000, between AutoNation, Inc. and
ANC Rental Corporation (incorporated by reference to Exhibit 2.1 to AutoNation's
Current Report on Form 8-K dated June 30, 2000).
2.2 Separation and Distribution Agreement dated June 30, 1998, between Republic Industries, Inc.
(now known as AutoNation, Inc.) and Republic Services, Inc. (incorporated by reference to
Exhibit 10.1 of AutoNation's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
3.1 Third Amended and Restated Certificate of Incorporation of AutoNation, Inc.
(incorporated by reference to Exhibit 3.1 to AutoNation's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999).
3.2 Amended and Restated Bylaws of AutoNation, Inc. (incorporated by reference to Exhibit
3.2 to AutoNation's Current Report on Form 8-K dated December 8, 2000).
4.1* Amended and Restated Credit Facilities and Reimbursement Agreement dated as of
March 12, 1999, by and among Republic Industries, Inc. (now known as AutoNation,
Inc.), and Republic Resources Company, as Borrowers, NationsBank, N.A. as Adminis-
trative Agent, Various Co-Agents Listed Therein and Various Lenders Listed Therein, and
Amendment Agreement No. 1 thereto dated October 22, 1999.
10.1 AutoNation, Inc. 1991 Stock Option Plan, as amended to date (incorporated by reference
to Exhibit 10.1 to AutoNation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000).
10.2 AutoNation, Inc. 1995 Amended and Restated Employee Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 10.2 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.3 AutoNation Enterprises Incorporated Amended and Restated 1995 Employee Stock Option
Plan, as amended to date (incorporated by reference to Exhibit 10.3 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
10.4 AutoNation, Inc. Amended and Restated 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to AutoNation's Annual Report on Form 10-K
for the year ended December 31, 1998).
10.5 AutoNation, Inc. Amended and Restated 1997 Employee Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 10.4 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.6 AutoNation, Inc. Amended and Restated 1998 Employee Stock Option Plan, as amended
to date (incorporated by reference to Exhibit 10.5 to AutoNation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
10.7* AutoNation, Inc. 1999 Senior Executive Bonus Plan.
10.8 Letter Agreement dated September 22, 1999, between AutoNation, Inc. and Michael J.
Jackson, Chief Executive Officer (incorporated by reference to Exhibit 10.4 of
AutoNation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.9 Employment Agreement dated August 1, 2000, between AutoNation, Inc. and Michael E.
Maroone, President and Chief Operating Officer (incorporated by reference to Exhibit 10.1
to AutoNation's Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
10.10 Letter Agreement dated March 26, 1999 between AutoNation, Inc. and Michael E.
Maroone, President and Chief Operating Officer (incorporated by reference to Exhibit 10.1
of AutoNation's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.11 Letter Agreement dated April 18, 2000 between AutoNation, Inc. and Craig T. Monaghan,
Chief Financial Officer (incorporated by reference to Exhibit 10.6 to AutoNation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
10.12 Tax Sharing Agreement dated June 30, 2000 between AutoNation, Inc. and ANC Rental
Corporation (incorporated by reference to Exhibit 10.1 to AutoNation's Current Report on
Form 8-K dated June 30, 2000).
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description of Exhibits
- ------------ -----------------------------------------------------------------------------------------
<S> <C>
10.13 Benefits Agreement dated June 30, 2000 between AutoNation, Inc. and ANC Rental
Corporation (incorporated by reference to Exhibit 10.2 to AutoNation's Current Report on
Form 8-K dated June 30, 2000).
10.14 Reimbursement Agreement dated June 30, 2000 between AutoNation, Inc. and ANC
Rental Corporation (incorporated by reference to Exhibit 10.3 to AutoNation's Current
Report on Form 8-K dated June 30, 2000).
10.15 Tax Indemnification and Allocation Agreement dated June 30, 1998, between Republic Industries,
Inc. (now known as AutoNation, Inc.) and Republic Services, Inc. (incorporated by reference to
Exhibit 10.4 of Republic Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
21.1* Subsidiaries of AutoNation, Inc.
23.1* Consent of Arthur Andersen LLP.
</TABLE>
- ----------
* Filed herewith
76
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>
EXHIBIT 4.1
AMENDED AND RESTATED
CREDIT FACILITIES
AND
REIMBURSEMENT AGREEMENT
by and among
REPUBLIC INDUSTRIES, INC., and
REPUBLIC RESOURCES COMPANY,
as Borrowers,
NATIONSBANK, N.A.,
as Administrative Agent,
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Lead Arranger and Book Manager,
THE CHASE MANHATTAN BANK,
CITICORP USA, INC.,
as Co-Arrangers,
ABN AMRO BANK N.V.,
THE BANK OF NOVA SCOTIA,
THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH,
CIBC INC.,
CREDIT SUISSE FIRST BOSTON,
THE FIRST NATIONAL BANK OF CHICAGO,
FIRST UNION NATIONAL BANK,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
PNC BANK, N.A.,
as Co-Agents,
<PAGE>
NATIONSBANK, N.A.,
BANK OF AMERICA NT & SA,
THE CHASE MANHATTAN BANK,
CITICORP USA, INC.,
ABN AMRO BANK N.V.,
THE BANK OF NOVA SCOTIA,
THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH,
CIBC INC.,
CREDIT SUISSE FIRST BOSTON,
THE FIRST NATIONAL BANK OF CHICAGO,
FIRST UNION NATIONAL BANK,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
PNC BANK, N.A.,
BANK OF MONTREAL,
CREDIT AGRICOLE INDOSUEZ,
THE BANK OF NEW YORK,
COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY,
BANCA MONTE DEI PASCHI DI SIENA SpA,
THE SUMITOMO BANK, LIMITED,
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH,
MERCANTILE BANK N.A.,
NATIONAL WESTMINSTER BANK PLC,
MORGAN STANLEY SENIOR FUNDING, INC.,
as Lenders
March 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
ARTICLE I Definitions
1.01 Amendment and Restatement............................................................................2
1.02 Definitions..........................................................................................2
1.03 Use of Defined Terms................................................................................22
1.04 Cross References....................................................................................22
1.05 Accounting and Financial Determinations.............................................................23
1.06 General Provisions Relating to Definitions..........................................................23
ARTICLE II The Loans
2.01 Commitments; Joint and Several Liability............................................................24
2.02 Competitive Bid Loans...............................................................................27
2.03 Payment of Interest.................................................................................32
2.04 Payment of Principal................................................................................33
2.05 Non-Conforming Payments.............................................................................33
2.06 Borrowers' Accounts.................................................................................34
2.07 Notes...............................................................................................34
2.08 Pro Rata Payments...................................................................................34
2.09 Reductions..........................................................................................35
2.10 Increase and Decrease in Amounts....................................................................35
2.11 Conversions and Elections of Subsequent Interest Periods............................................35
2.12 Fees................................................................................................36
2.13 Deficiency Advances.................................................................................36
2.14 Use of Proceeds.....................................................................................36
2.15 Swing Line..........................................................................................37
ARTICLE III Letters of Credit
3.01 Letters of Credit...................................................................................39
3.02 Reimbursement.......................................................................................39
3.03 Letter of Credit Fee................................................................................42
3.04 Administrative Fees.................................................................................43
ARTICLE IV Yield Protection and Illegality
4.01 Additional Costs....................................................................................44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Page
4.02 Suspension of Loans.................................................................................45
4.03 Illegality..........................................................................................46
4.04 Compensation........................................................................................46
4.05 Alternate Loan and Lender...........................................................................47
4.06 Taxes...............................................................................................47
4.07 Replacement Lenders.................................................................................49
ARTICLE V Conditions to Making Loans and IssuingLetters of Credit
5.01 Conditions of Initial Advance and Issuance of Letters of Credit.....................................50
5.02 Conditions of Loans.................................................................................51
5.03 Supplements to Schedules............................................................................52
ARTICLE VI Representations and Warranties
6.01 Representations and Warranties......................................................................53
ARTICLE VII Affirmative Covenants
7.01 Financial Reports, Etc..............................................................................60
7.02 Maintain Properties.................................................................................61
7.03 Existence, Qualification, Etc.......................................................................61
7.04 Regulations and Taxes...............................................................................61
7.05 Insurance...........................................................................................61
7.06 True Books..........................................................................................62
7.07 Pay Indebtedness to Lenders and Perform Other Covenants.............................................62
7.08 Right of Inspection.................................................................................62
7.09 Observe all Laws....................................................................................62
7.10 Covenants Extending to Subsidiaries.................................................................62
7.11 Officer's Knowledge of Default......................................................................62
7.12 Suits or Other Proceedings..........................................................................63
7.13 Notice of Discharge of Hazardous Material or Environmental Complaint................................63
7.14 Environmental Compliance............................................................................63
7.15 Further Assurances..................................................................................63
7.16 Benefit Plans.......................................................................................63
7.17 Continued Operations................................................................................64
7.18 Use of Proceeds.....................................................................................64
7.19 Year 2000 Compliance................................................................................64
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Page
ARTICLE VIII Negative Covenants
8.01 Indebtedness to Capitalization......................................................................65
8.02 Consolidated Fixed Charge Ratio.....................................................................65
8.03 Indebtedness........................................................................................65
8.04 Liens...............................................................................................66
8.05 Transfer of Assets..................................................................................67
8.06 Investments; Acquisitions...........................................................................67
8.07 Merger or Consolidation.............................................................................68
8.08 Transactions with Affiliates........................................................................68
8.09 Benefit Plans.......................................................................................68
8.10 Fiscal Year.........................................................................................69
8.11 Dissolution, etc....................................................................................69
8.12 Change in Control...................................................................................69
ARTICLE IX Events of Default and Acceleration
9.01 Events of Default...................................................................................70
9.02 Administrative Agent to Act.........................................................................73
9.03 Cumulative Rights...................................................................................73
9.04 No Waiver...........................................................................................74
9.05 Default.............................................................................................74
9.06 Allocation of Proceeds..............................................................................74
ARTICLE X The Administrative Agent
10.01 Appointment.........................................................................................75
10.02 Attorneys-in-fact...................................................................................75
10.03 Limitation on Liability.............................................................................75
10.04 Reliance............................................................................................75
10.05 Notice of Default...................................................................................76
10.06 No Representations..................................................................................76
10.07 Indemnification.....................................................................................77
10.08 Lender..............................................................................................77
10.09 Resignation.........................................................................................77
10.10 Sharing of Payments, etc............................................................................78
10.11 One Lender..........................................................................................78
10.12 Additional Fees.....................................................................................78
ARTICLE XI Miscellaneous
11.01 Assignments and Participations......................................................................79
11.02 Notices.............................................................................................81
11.03 Setoff..............................................................................................82
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Page
11.04 Survival............................................................................................82
11.05 Expenses............................................................................................83
11.06 Amendments..........................................................................................83
11.07 Counterparts........................................................................................84
11.08 WAIVERS BY BORROWERS................................................................................84
11.09 Termination.........................................................................................85
11.10 Governing Law.......................................................................................85
11.11 Indemnification.....................................................................................85
11.12 Headings and References.............................................................................87
11.13 Severability........................................................................................87
11.14 Entire Agreement....................................................................................87
11.15 Agreement Controls..................................................................................87
11.16 Usury Savings Clause................................................................................88
11.17 Consents to Renewals, Modifications and Other Actions and Events....................................88
11.18 Confidentiality.....................................................................................89
EXHIBIT A Applicable Commitment Percentages..................................................................111
EXHIBIT B Form of Assignment and Acceptance..................................................................113
EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative.................................119
EXHIBIT D-1 Form of Borrowing Notice--Revolving Credit Loans...................................................120
EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans.........................................................122
EXHIBIT E Form of Competitive Bid Note.......................................................................124
EXHIBIT F Permitted Acquisitions Certificate.................................................................128
EXHIBIT G-1 Form of Revolving Credit Notes.....................................................................133
EXHIBIT G-2 Form of Swing Line Note............................................................................136
EXHIBIT H Interest Rate Selection Notice.....................................................................139
EXHIBIT I Form of Competitive Bid Quote Request..............................................................141
EXHIBIT J Form of Competitive Bid Quote......................................................................142
EXHIBIT K Form of Opinion of Borrowers' Counsel..............................................................144
EXHIBIT L Compliance Certificate.............................................................................145
Schedule 1.02(a) Existing Letters of Credit.....................................................................148
Schedule 1.02(b) Pricing Grid...................................................................................149
Schedule 6.01(d) Subsidiaries and Investments in Other Persons..................................................150
Schedule 6.01(f) Contingent Liabilities.........................................................................151
Schedule 6.01(g) Liens..........................................................................................152
Schedule 6.01(j) Litigation.....................................................................................153
Schedule 6.01(p) ERISA Matters..................................................................................154
Schedule 6.01(r) Environmental Issues...........................................................................155
Schedule 7.05 Existing Insurance.............................................................................156
Schedule 8.03 Indebtedness...................................................................................157
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
THIS AMENDED AND RESTATED CREDIT FACILITIES AND REIMBURSEMENT
AGREEMENT, dated as of March 12, 1999 (the "Agreement"), is made by and among:
REPUBLIC INDUSTRIES, INC., a Delaware corporation having its principal
place of business in Ft. Lauderdale, Florida (the "Company"); and
REPUBLIC RESOURCES COMPANY, a Delaware corporation having its principal
place of business in Wilmington, Delaware ("RRC", and together with the Company,
each a "Borrower", and collectively, the "Borrowers"); and
NATIONSBANK, N.A., a national banking association organized and
existing under the laws of the United States of America and having its principal
place of business in Charlotte, North Carolina ("NationsBank"), each other
lender signatory hereto on the Closing Date and each Eligible Assignee which may
hereafter execute and deliver an instrument of assignment with respect to this
Agreement pursuant to Section 11.01 (hereinafter NationsBank and such other
lenders may be referred to individually as a "Lender" or collectively as the
"Lenders"; and
NATIONSBANK, N.A., in its capacity as administrative agent for the
Lenders (in such capacity, the "Administrative Agent");
W I T N E S S E T H:
--------------------
WHEREAS, the Borrowers, NationsBank, N.A., as administrative agent and
certain lenders (the "Existing Lenders") have entered into a Credit Facilities
and Reimbursement Agreement dated April 23, 1997, as amended (the "Original
Agreement") pursuant to which the Existing Lenders have made available to the
Borrowers a revolving credit facility of up to $1,000,000,000 with a letter of
credit sublimit of $500,000,000 and a swing line sublimit of $50,000,000; and
WHEREAS, the Borrowers have requested that the Original Agreement be
amended and restated in its entirety; and
WHEREAS, the Lenders are willing to amend and restate the Original
Agreement and to continue to make available to the Borrowers the revolving
credit facility of up to $1,000,000,000 with a letter of credit sublimit of
$500,000,000 and a swing line sublimit of $50,000,000;
NOW, THEREFORE, the Borrowers, the Lenders and the Administrative Agent
hereby agree as follows:
<PAGE>
ARTICLE I
Definitions
1.01 Amendment and Restatement. The Borrowers, the Administrative Agent
and the Lenders hereby agree that upon the effectiveness of this Agreement, the
terms and provisions of the Original Agreement shall be and hereby are amended
and restated in their entirety by the terms and conditions of this Agreement and
the terms and provisions of the Original Agreement, except as otherwise provided
herein, shall be superseded by this Agreement.
Notwithstanding the amendment and restatement of the Original Agreement
by this Agreement, the Borrowers shall continue to be liable to the
Administrative Agent and the Existing Lenders with respect to agreements on the
part of the Borrowers under Section 11.11 of the Original Agreement to indemnify
and hold harmless the Administrative Agent and the Existing Lenders from and
against all claims, demands, liabilities, damages, losses, costs, charges and
expenses to which the Administrative Agent and the Existing Lenders may be
subject arising in connection with the Original Agreement. This Agreement is
given as a substitution of, and not as a payment of, the obligations of
Borrowers under the Original Agreement and is not intended to constitute a
novation of the Original Agreement. Except as otherwise selected by the
Borrowers by delivery of a Borrowing Notice or interest rate selection notice
prior to the Closing Date in accordance with the terms hereof, upon the
effectiveness of this Agreement all amounts outstanding and owing by Borrowers
under the Original Agreement as of the Closing Date, as determined by the
Lenders, shall constitute Advances hereunder accruing interest with respect to
the Base Rate Loans under the Original Agreement, at the Base Rate hereunder.
The Borrowers shall furnish to the Administrative Agent a notice pursuant to
Section 2.11 for existing Loans and Borrowing Notices for additional Loans as
may be required in connection with the allocation of Loans among Lenders in
accordance with their Applicable Commitment Percentages.
This Agreement shall become effective upon the execution of the
Agreement by the Borrowers, the Agent and the Required Lenders and the
satisfaction of the conditions set forth in Section 5.01.
1.02 Definitions. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Absolute Rate" has the meaning assigned to such term in
Section 2.02(c)(ii)(C) hereof;
"Advance" means a borrowing under (i) the Revolving Credit
Facility, consisting of the aggregate principal amount of a Base Rate
Loan or a Eurodollar Loan, as the case may be or (ii) the Swing Line
consisting of Base Rate Loans or Swing Line Loans bearing interest at a
rate mutually agreed upon by NationsBank and a Borrower, or (iii) the
Competitive Bid Facility consisting of Competitive Bid Loans;
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<PAGE>
"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is
under common control with either Borrower; (ii) which beneficially owns
or holds 5% or more of any class of the outstanding voting stock (or in
the case of a Person which is not a corporation, 5% or more of the
equity interest) of either Borrower; or (iii) 5% or more of any class
of the outstanding voting stock (or in the case of a Person which is
not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by either Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through ownership of voting stock, by contract or otherwise;
"Applicable Commitment Percentage" means, for each Lender with
respect to the Revolving Credit Facility (including its Participations
and its obligations hereunder to any Issuing Bank or NationsBank to
acquire Participations) (each a type of "credit exposure"), a fraction
(expressed as a percentage), (A) the numerator of which shall be the
then amount of such Lender's Revolving Credit Commitment (which
Revolving Credit Commitment for each Lender as of the Closing Date is
as set forth in Exhibit A attached hereto and incorporated herein by
this reference), and (B) the denominator of which shall be,
respectively, the Total Revolving Credit Commitment; provided that each
Applicable Commitment Percentage of each Lender shall be increased or
decreased to reflect any assignments to or by such Lender effected in
accordance with Section 11.01 hereof and any voluntary or mandatory
reductions in such committed amounts;
"Applicable Eurodollar Margin" means that number of basis
points per annum set forth on the Pricing Grid under the heading
"Applicable Eurodollar Margin" which shall be based upon either the (i)
ratio of Consolidated Funded Indebtedness to Consolidated Total
Capitalization or (ii) the Company's Rating as set forth on the Pricing
Grid, as determined pursuant to Section 2.03(c);
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit
executed by the Company from time to time and delivered to the
applicable Issuing Bank to support the issuance of Letters of Credit;
"Assignment and Acceptance" shall mean an Assignment and
Acceptance substantially in the form of Exhibit B (with blanks
appropriately filled in) delivered to the Administrative Agent in
connection with an assignment of a Lender's interest under this
Agreement pursuant to Section 11.01;
"Authorized Representative" means any of the Chairman, Vice
Chairmen, President, Executive Vice Presidents or Vice Presidents of
either Borrower and, with respect to financial matters, the Treasurer,
Vice President Finance or Chief Financial Officer of either Borrower or
any other person expressly designated by the Board of Directors of
either Borrower (or the appropriate committee thereof) as an Authorized
Representative of such
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<PAGE>
Borrower, as set forth from time to time in a certificate in the form
attached hereto as Exhibit C;
"Automobile Retailing Activities" means new and used vehicle
retailing, wholesaling, renting, leasing, financing, servicing and
related activities;
"AutoNation TROL" means, the amended and restated Tax
Retention Operating Lease facility entered into as of November 18, 1996
between AutoNation USA Corporation and First Security Bank, National
Association (as successor in interest to First Security Bank of Utah,
N.A.) as owner trustee under the AutoNation Trust 1996-1 as such
facility has been or may be amended, amended and restated, supplemented
or otherwise modified from time to time;
"Base Rate" means the greater of (i) the sum of the Federal
Funds Effective Rate plus one-half of one percent (1/2%), or (ii) the
Prime Rate;
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate;
"Base Rate Refunding Loan" means a Base Rate Loan or Swing
Line Loan made either to (i) satisfy Reimbursement Obligations arising
from a drawing under a Letter of Credit or (ii) pay NationsBank in
respect of Swing Line Outstandings;
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body);
"Borrower's Account" means (a) with respect to the Company,
demand deposit account number 3750682241, and (b) with respect to RRC,
demand deposit account number 3750794553, or any respective successor
accounts with the Administrative Agent, which may be maintained at one
or more offices of the Administrative Agent or an agent of the
Administrative Agent;
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving Credit
Facility or a Swing Line Loan, in the forms attached hereto as Exhibits
D-1 and D-2, respectively;
"Business Day" means (i) with respect to any Eurodollar Loan
or any Competitive Bid Loan at the Eurodollar Competitive Rate, any day
which is a Business Day, as described below, and on which the relevant
international financial markets are open for the transaction of
business contemplated by this Agreement in London, England and New
York, New York, and (ii) with respect to any other Loan and for any
other purposes hereof, any day which is not a Saturday, Sunday or a day
on which banks in the States of Florida, North Carolina and New York
are authorized or obligated by law, executive order or governmental
decree to be closed;
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<PAGE>
"Capital Leases" means all leases which have been or should be
capitalized in accordance with Generally Accepted Accounting Principles
as in effect from time to time including Statement No. 13 of the
Financial Accounting Standards Board and any successor thereof;
"Change in Control" means (i) if any Person or group of
Persons acting in concert other than the owners of more than 35% of the
outstanding voting securities of the Company as of the Closing Date
having voting rights in the election of directors, shall own or
control, directly or indirectly, more than 35% of the outstanding
securities (on a fully diluted basis and taking into account any voting
securities or contract rights exercisable, exchangeable or convertible
into equity securities) of the Company having voting rights in the
election of directors; or (ii) the replacement or resignation (other
than by reason of death, illness or incapacity), within any two-year
period, of a majority of the members of the Board of Directors of the
Company (the "Board") or a change in the size of the Board, within any
two-year period, which results in members of the Board who were in
office at the beginning of such two-year period constituting less than
a majority of the members of the Board (unless such replacement,
resignation or change in size of the Board shall have been effected or
initiated by a majority of the members of the Board in office at the
beginning of such two-year period);
"Closing Date" means the date as of which this Agreement is
executed by the Borrowers, the Lenders and the Administrative Agent and
on which the conditions set forth in Section 5.01 have been satisfied;
"Code" means the Internal Revenue Code of 1986, as amended,
any successor provision or provisions and any regulations promulgated
thereunder;
"Competitive Bid Borrowing" has the meaning assigned to such
term in Section 2.02 hereof;
"Competitive Bid Facility" means the facility described in
Section 2.02 hereof providing for Competitive Bid Loans to the
Borrowers;
"Competitive Bid Loan Commitment" means the amount which a
Lender has offered to loan to the Borrowers pursuant to a Competitive
Bid Quote by such Lender, the sum of all Competitive Bid Loans not to
exceed in the aggregate one hundred percent (100%) of the Total
Revolving Credit Commitment;
"Competitive Bid Loans" means the Loans bearing interest at an
Absolute Rate or a Eurodollar Competitive Rate provided for in Section
2.02 hereof;
"Competitive Bid Notes" means, collectively, the promissory
notes of the Borrowers with respect to Competitive Bid Loans provided
for by Section 2.02 hereof executed and delivered to the Lenders as
provided in Section 2.07(c) substantially in the form attached
5
<PAGE>
hereto as Exhibit E and incorporated herein by reference, with
appropriate insertions as to dates and names of Lenders, and all
promissory notes delivered in substitution or exchange therefor, in
each case as the same shall be amended, modified or supplemented and in
effect from time to time;
"Competitive Bid Quote" means an offer in accordance with
Section 2.02 hereof by a Lender to make a Competitive Bid Loan with one
single specified interest rate;
"Competitive Bid Quote Request" has the meaning assigned to
such term in Section 2.02 hereof;
"Compliance Certificate" means a certificate in the form of
Exhibit L furnished to the Administrative Agent and Lenders by the
Company pursuant to Section 7.01 hereof;
"Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles means the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the preparation of the audited
financial statements of the Company referred to in Section 6.01(f)(i)
hereof;
"Consolidated EBITDA" means, with respect to the Company and
its Subsidiaries for any period of computation thereof during such
period, the sum of, without duplication, (i) Consolidated Net Income,
plus (ii) Consolidated Interest Expense during such period, plus (iii)
taxes on income during such period, plus (iv) amortization during such
period, plus (v) depreciation during such period (with the exclusion of
any depreciation related to Vehicles), determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis; provided, however, that with respect to
any Permitted Acquisition which is accounted for as a "purchase", for
the Four-Quarter Period following such acquisition, the Consolidated
EBITDA shall include the results of operations of the Person or assets
so acquired which amounts shall be determined on an historical pro
forma basis in form and substance reasonably satisfactory to the
Administrative Agent so long as the Company has furnished to the
Administrative Agent financial information acceptable to the
Administrative Agent with respect to the Person or assets which are the
subject of such Permitted Acquisition; *
"Consolidated Fixed Charge Ratio" means, with respect to the
Company and its Subsidiaries for the Four-Quarter Period ending on the
date of computation thereof, the ratio of (a) Consolidated EBITDA to
(b) Consolidated Interest Expense; *
- -----------
* Excludes Republic Services Group, Inc. and its Subsidiaries ("RSG")
since they are not deemed Subsidiaries for purposes of this Agreement.
6
<PAGE>
"Consolidated Funded Indebtedness" means Funded Indebtedness
of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with Generally Accepted Accounting Principles applied on
a Consistent Basis, provided, Vehicle Secured Indebtedness and Vehicle
Receivables Indebtedness shall be excluded from the calculation of
Consolidated Funded Indebtedness and the principal amount of loans plus
equity holder advances under the AutoNation TROL shall be included in
Consolidated Funded Indebtedness; *
"Consolidated Interest Expense" means, with respect to any
period of computation thereof, the gross interest expense of the
Company and its Subsidiaries, including without limitation (i) the
amortization of debt discounts, (ii) the amortization of all fees
payable in connection with the incurrence of Indebtedness to the extent
included in interest expense and (iii) the portion of any liabilities
incurred in connection with Capital Leases allocable to interest
expense, all determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis,
provided, however, Consolidated Interest Expense shall not include any
interest expense classified as cost of goods sold in accordance with
Generally Accepted Accounting Principles but shall include as interest
all interest on loans and all yield on equity holder advances under the
AutoNation TROL; *
"Consolidated Net Income" means, for any period of computation
thereof, the gross revenues from operations of the Company and its
Subsidiaries, less all operating and non-operating expenses of the
Company and its Subsidiaries including taxes on income, all determined
on a consolidated basis in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis; but excluding all
non-cash, non-recurring and extraordinary gains or losses, all as
determined in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis; *
"Consolidated Shareholders' Equity" means at any time as of
which the amount thereof is to be determined, the sum of the following
in respect of the Company and its Subsidiaries (determined on a
consolidated basis and excluding intercompany items among the Company
and its Subsidiaries and any upward adjustment after December 31, 1998
due to revaluation of assets): (i) the amount of issued and outstanding
share capital, plus (ii) the amount of additional paid-in capital and
retained income (or, in the case of a deficit, minus the amount of such
deficit), minus (iii) the amount of any foreign currency translation
adjustment which is included in the equity section of the consolidated
balance sheet (whether positive or negative), minus (iv) the absolute
value of any treasury stock and the absolute value of any stock
subscription receivables, as determined in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis; *
- -----------
* Excludes Republic Services Group, Inc. and its Subsidiaries ("RSG")
since they are not deemed Subsidiaries for purposes of this Agreement.
7
<PAGE>
"Consolidated Total Assets" means assets of the Company and
its Subsidiaries as determined in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis; *
"Consolidated Total Capitalization" means, as at any time as
of which the amount thereof is to be determined, the sum of
Consolidated Funded Indebtedness plus Consolidated Shareholders'
Equity;
"Contingent Obligation" of any Person means all contingent
liabilities required (or which, upon the creation or incurring thereof,
would be required) to be included in the consolidated financial
statements (including footnotes) of such Person in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis,
including Statement No. 5 of the Financial Accounting Standards Board,
and any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including obligations of such Person however incurred:
(1) to purchase such Indebtedness or other obligation
or any property or assets constituting security therefor;
(2) to advance or supply funds in any manner (i) for
the purchase or payment of such Indebtedness or other
obligation, or (ii) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(3) to grant or convey any lien, security interest,
pledge, charge or other encumbrance on any property or assets
of such Person to secure payment of such Indebtedness or other
obligation;
(4) to lease property or to purchase securities or
other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
(5) otherwise to assure the owner of the Indebtedness
or such obligation of the primary obligor against loss in
respect thereof;
with respect to Contingent Obligations (such as litigation, guarantees
and pension plan liabilities), such liabilities shall be computed at
the amount which, in light of all the facts and circumstances existing
at the time, represent the present value of the amount which can
reasonably be expected to become an actual or matured liability;
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder;
8
<PAGE>
"Determination Date" means the last day of each fiscal
quarterly period of the Company;
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States
of America;
"Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
Lender, and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.01, the Borrower,
such approval not to be unreasonably withheld (provided that the
incurrence by the Borrower of additional costs pursuant to Section 4.05
as a result of such assignment shall constitute a reasonable basis for
withholding such consent) or delayed by the Borrower and such approval
to be deemed given by the Borrower (in the absence of notice to the
contrary, effective upon receipt) within two Business Days after notice
of such proposed assignment has been provided by the assigning Lender
to the Borrower; provided, however, that neither the Borrower nor an
affiliate of the Borrower shall qualify as an Eligible Assignee;
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Required
Lenders:
(a) Government Securities;
(b) the following debt securities of the following
agencies or instrumentalities of the United States of America
if at all times the full faith and credit of the United States
of America is pledged to the full and timely payment of all
interest and principal thereof:
(i) all direct or fully guaranteed
obligations of the United States Treasury; and
(ii) mortgage-backed securities and
participation certificates guaranteed by the
Government National Mortgage Association;
(c) the following obligations of the following
agencies or instrumentalities of the United States of America:
(i) participation certificates and debt
obligations of the Federal Home Loan Mortgage
Corporation;
(ii) consolidated debt obligations, and
obligations secured by a letter of credit, of the
Federal Home Loan Banks; and
9
<PAGE>
(iii) debt obligations and mortgage-backed
securities of the Federal National Mortgage
Association which have not had the interest portion
thereof severed therefrom;
(d) obligations of any corporation organized under
the laws of any state of the United States of America or under
the laws of any other nation, payable in the United States of
America, expressed to mature not later than 92 days following
the date of issuance thereof and rated in an investment grade
rating category by S&P and Moody's;
(e) interest bearing demand or time deposits issued
by any Lender or certificates of deposit maturing within one
year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or of
any state thereof having capital surplus and undivided profits
aggregating at least $400,000,000 and being rated A- or better
by S&P or A or better by Moody's;
(f) Repurchase Agreements;
(g) Pre-Refunded Municipal Obligations;
(h) shares of mutual funds which invest in
obligations described in paragraphs (a) through (g) above, the
shares of which mutual funds are at all times rated "AAA" by
S&P; and
(i) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P-1" by Moody's.
Obligations listed in paragraphs (a), (b) and (c) above which
are in book-entry form must be held in a trust account with the Federal
Reserve Bank or with a clearing corporation or chain of clearing
corporations which has an account with the Federal Reserve Bank;
"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;
"Eligible TROL" means the AutoNation TROL and any similar tax
retention operating lease facility entered into by or for the benefit
of the Company or any Subsidiary;
"Environmental Laws" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments
10
<PAGE>
and Reauthorization Act of 1986, the Resource Conservation and Recovery
Act, the Toxic Substances Control Act, as amended, the Clean Air Act,
as amended, the Clean Water Act, as amended, any other "Superfund" or
"Superlien" law or any other applicable statute, law, ordinance, code,
rule, regulation, order or decree, of the United States or any foreign
nation or any province, territory, state, protectorate or other
political subdivision thereof, regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material;
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, all
as the same shall be in effect at such date;
"Eurodollar Competitive Rate" means, for the Interest Period
for any Competitive Bid Loan at a Eurodollar Competitive Rate, the rate
of interest per annum determined pursuant to the following formula:
Interbank Offered Rate
Eurodollar ----------------------
Competitive = 1-Eurodollar Reserve + or - a margin
Rate Percentage
"Eurodollar Loan" means a Loan for which the rate of interest
is determined by reference to the Eurodollar Revolver Rate;
"Eurodollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable with
respect to Eurocurrency liabilities as that term is defined in
Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of Eurodollar
Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is
determined), whether or not any Lender has any Eurocurrency liabilities
subject to such requirements without benefits of credits or proration,
exceptions or offsets that may be available from time to time to any
Lender. The Eurodollar Revolver Rate and the Eurodollar Competitive
Rate shall be adjusted automatically on and as of the effective date of
any change in the Eurodollar Reserve Percentage;
"Eurodollar Revolver Rate" means, for the Interest Period for
any Eurodollar Loan, the rate of interest per annum determined pursuant
to the following formula:
Interbank Offered Rate
Eurodollar ---------------------- Applicable
Revolver = 1-Eurodollar Reserve + Eurodollar
Rate Percentage Margin
"Event of Default" means any of the occurrences set forth as
such in Section 9.01 hereof, provided that any requirement for notice
or lapse of time, or both, has been satisfied;
11
<PAGE>
"Existing Issuing Banks" means those financial institutions
which have issued the Existing Letters of Credit, as described on
Schedule 1.01 attached hereto;
"Existing Letters of Credit" means those Letters of Credit
issued by the Existing Issuing Banks, which are outstanding on the
Closing Date and which are described in Schedule 1.02(a) attached
hereto;
"Facility Fee" means that number of basis points per annum set
forth on the Pricing Grid under the heading "Applicable Facility Fee"
which shall be based upon either the (i) ratio of Consolidated Funded
Indebtedness to Consolidated Total Capitalization or (ii) Borrowers'
Rating as set forth on the Pricing Grid as determined pursuant to
Section 2.03(c) multiplied times each Lender's Revolving Credit
Commitment;
"Federal Funds Effective Rate" for any day, as used herein,
means the rate per annum (rounded upward to the nearest 1/100 of 1%)
announced by the Federal Reserve Bank of New York (or any successor) on
such day as being the weighted average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve
Bank (or any successor) in substantially the same manner as such
Federal Reserve Bank computes and announces the weighted average it
refers to as the "Federal Funds Effective Rate" as of the date of this
Agreement; provided, if such Federal Reserve Bank (or its successor)
does not announce such rate on any day, the "Federal Funds Effective
Rate" for such day shall be the Federal Funds Effective Rate for the
last day on which such rate was announced;
"Fiscal Year" means the period of the Company beginning on the
first day of January of each calendar year and ending on December 31 of
such calendar year;
"Four-Quarter Period" means a period of four full consecutive
quarterly periods, taken together as one accounting period;
"Funded Indebtedness" means, with respect to the Company and
its Subsidiaries, without duplication, all indebtedness in respect of
money borrowed, including without limitation all Capital Leases and the
deferred purchase price of any property or asset, evidenced by a
promissory note, bond or similar written obligation for the payment of
money (including, but not limited to, conditional sales or similar
title retention agreements), undrawn amounts of letters of credit and
any Reimbursement Obligations, and the principal amount of loans plus
equity holder advances under the AutoNation TROL all determined in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis, provided, Vehicle Secured Indebtedness and Vehicle
Receivables Indebtedness shall be excluded from the calculation of
Funded Indebtedness;
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American
12
<PAGE>
Institute of Certified Public Accountants or which have other
substantial authoritative support and are applicable in the
circumstances as of the date of a report, as such principles are from
time to time supplemented and amended;
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of America;
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, agency or instrumentality or political subdivision
thereof or any entity or officer exercising executive, legislative or
judicial, regulatory or administrative functions of or pertaining to
any government, any court or any arbitrator, in each case whether a
state of the United States, the United States or foreign nation, state,
province or other governmental instrumentality;
"Hazardous Material" means and includes any hazardous, toxic
or dangerous waste, substance or material, the generation, handling,
storage, disposal, treatment or emission of which is subject to any
Environmental Law;
"Indebtedness" means with respect to any Person, without
duplication, all Funded Indebtedness, all Vehicle Secured Indebtedness,
all Vehicle Receivables Indebtedness,the principal amount of loans plus
equity holder advances under the AutoNation TROL, all indebtedness for
the acquisition of property, all indebtedness secured by any Lien on
the property of such Person whether or not such indebtedness is
assumed, all liability of such Person by way of endorsements (other
than for collection or deposit in the ordinary course of business), all
Contingent Obligations and other items which in accordance with
Generally Accepted Accounting Principles are classified as a liability
on a balance sheet; but excluding all accounts payable and accruals, in
each case in the ordinary course of business and only so long as
payment therefor is due within one year; provided that in no event
shall the term Indebtedness include partners' capital, surplus and
retained earnings, minority interests in other Persons, lease
obligations (other than pursuant to Capital Leases), reserves for
deferred income taxes and investment credits, other deferred credits
and reserves, and deferred compensation obligations; provided, that
there shall be included in the definition of Indebtedness, for purposes
of Section 9.01(e) only, any indebtedness arising under an Eligible
TROL;
"Interbank Offered Rate" means, with respect to any Eurodollar
Loan or any Competitive Bid Loan at a Eurodollar Competitive Rate, for
the Interest Period applicable thereto, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason
such rate is not available, the term "Interbank Offered Rate" shall
mean, for any Eurodollar Loan or any Competitive Bid Loan at the
Eurodollar Competitive Rate
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<PAGE>
for any Interest Period therefor, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars
at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified
on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates;
"Interest Period" (a) for each Eurodollar Loan means a period
commencing on the date such Eurodollar Loan is made or converted and
each subsequent period commencing on the last day of the immediately
preceding Interest Period for such Eurodollar Loan, and ending, at the
Borrowers' option, on the date one week or one, two, three or six
months thereafter as notified to the Administrative Agent by the
Authorized Representative three (3) Business Days prior to the
beginning of such Interest Period; provided, that,
(i) if the Authorized Representative fails to notify
the Administrative Agent of the length of an Interest Period
three (3) Business Days prior to the first day of such
Interest Period, the Loan for which such Interest Period was
to be determined shall be deemed to be a Base Rate Loan
bearing interest at the Base Rate, as of the first day
thereof;
(ii) if an Interest Period for a Eurodollar Loan
would end on a day which is not a Business Day such Interest
Period shall be extended to the next Business Day (unless such
extension would cause the applicable Interest Period to end in
the succeeding calendar month, in which case such Interest
Period shall end on the next preceding Business Day); and
(iii) on any day, with respect to all Revolving
Credit Loans and Competitive Bid Loans, there shall not be in
effect (x) more than twenty (20) Interest Periods, and (y)
more than one (1) Interest Period having a term of one (1)
week;
(b) for each Competitive Bid Loan at an Absolute Rate means
the period commencing on the date of such Loan and ending on such date
as may be mutually agreed upon by the Borrowers and the Lender or
Lenders making such Competitive Bid Loan or Loans, as the case may be,
comprising such Competitive Bid Loan; provided that no Interest Period
for a Competitive Bid Loan at an Absolute Rate shall be for a period of
less than seven or greater than 90 days;
(c) for each Competitive Bid Loan at a Eurodollar Competitive
Rate means the period commencing on the date such Competitive Bid Loan
is made and ending, at the Borrowers' option, on the date one week or
one, two, three or six months thereafter as notified by the Borrowers
to such Lender by the Authorized Representative three (3) Business Days
prior to the beginning of such Interest Period provided that if an
Interest Period for such Loan would end on a day which is not a
Business Day, such Interest Period shall be extended to the next
Business Day (unless such extension would cause the applicable
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Interest Period to end in the succeeding calendar month, in which case
such Interest Period shall end in the next preceding Business Day);
"Issuing Banks" means the Lenders who agree from time to time
to issue (provided that no Lender shall be obligated to do so) Letters
of Credit (including the Existing Issuing Banks) in accordance with
Section 3.01 and "Issuing Bank" means any one of such Issuing Banks. On
any date of determination, no more than four (4) Lenders (not including
any Existing Issuing Banks) may be Issuing Banks hereunder;
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Company and the Administrative Agent, as
amended, supplemented or otherwise modified from time to time;
"Lending Office" means, as to each Lender, the Lending Office
of such Lender designated on the signature pages hereof or in an
Assignment and Acceptance or such other office of such Lender (or of an
affiliate of such Lender) as such Lender may from time to time specify
to the Borrowers and the Administrative Agent as the office by which
its Loans are to be made and maintained;
"Letter of Credit" means (i) a standby letter of credit issued
by an Issuing Bank for the account of the Company in favor of a Person
advancing credit or securing an obligation on behalf of the Company and
(ii) each of the Existing Letters of Credit;
"Letter of Credit Commitment" means with respect to each
Lender, the obligation of such Lender to acquire Letter of Credit
Participations up to an aggregate stated amount at any one time
outstanding equal to such Lender's Applicable Commitment Percentage of
the Total Letter of Credit Commitment as the same may be increased or
decreased from time to time pursuant to this Agreement;
"Letter of Credit Facility" means the facility described in
Article III hereof providing for the issuance by the Issuing Banks for
the account of the Company of Letters of Credit in an aggregate stated
amount at any time outstanding not exceeding the Total Letter of Credit
Commitment;
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Company and its
Subsidiaries shall be deemed to be the owners of any property which
either of them have acquired or hold subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which
title to the property has been retained by or vested in some other
Person for security purposes;
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"Loan" or "Loans" means any of the Revolving Credit Loans or
Swing Line Loans or Competitive Bid Loans;
"Loan Documents" means this Agreement, the Notes, the
Applications and Agreements for Letters of Credit, the LC Account
Agreement and all other instruments and documents heretofore or
hereafter executed or delivered to and in favor of any Lender or the
Administrative Agent in connection with the Loans or the Letters of
Credit made, issued or created under this Agreement as the same may be
amended, modified or supplemented from time to time;
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Company and its Subsidiaries, taken as a whole, (ii)
the ability of any Borrower to pay or perform its respective
obligations, liabilities and indebtedness under the Loan Documents as
such payment or performance becomes due in accordance with the terms
thereof, or (iii) the rights, powers and remedies of the Administrative
Agent or any Lender under any Loan Document or the validity, legality
or enforceability thereof (including for purposes of clauses (ii) and
(iii) the imposition of burdensome conditions thereon);
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation;
"Multi-employer Plan" means an employee pension benefit plan
covered by Title IV of ERISA and in respect of which (a) the Company or
any Subsidiary is an "employer" as described in Section 4001(b) of
ERISA, and (b) is a multi-employer plan as defined in Section
4001(a)(3) of ERISA;
"Notes" means, collectively, the Revolving Credit Notes, the
Swing Line Note and the Competitive Bid Notes which are to be delivered
to the Lenders;
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrowers with respect to (i) the principal and
interest on the Loans, (ii) the Reimbursement Obligations and (iii) the
payment and performance of all other obligations, liabilities and
Indebtedness of the Borrowers to the Lenders or the Administrative
Agent hereunder, under any one or more of the other Loan Documents or
with respect to the Loans;
"Quotation Date" has the meaning assigned to such term in
Section 2.02 hereof;
"Outstanding Credit Obligations" means the sum of (i) the
Revolving Credit Outstandings, (ii) Outstanding Letters of Credit,
(iii) Swing Line Outstandings and (iv) outstanding Competitive Bid
Loans, all as at the date of determination thereof;
"Outstanding Letters of Credit" means all undrawn amounts of
Letters of Credit plus Reimbursement Obligations;
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"Participation" means, with respect to any Lender (other than
NationsBank with respect to a Swing Line Loan, and other than the
applicable Issuing Bank with respect to a Letter of Credit), the
extension of credit represented by the participation of such Lender
hereunder in (a) the liability of NationsBank in respect of a Swing
Line Loan made or (b) the liability of the applicable Issuing Bank in
respect of Letters of Credit issued, all in accordance with the terms
hereof;
"Permitted Acquisition" means an acquisition of a Person or
the assets of a Person effected with the consent and approval of the
Board of Directors (or the appropriate committee thereof) or other
applicable governing body of such Person and the duly obtained approval
of such shareholders or other holders of equity interests in such
Person as may be required to be obtained under applicable law, the
charter documents of or any shareholder agreements or similar
agreements pertaining to such Person, which Person derives the majority
of its revenues either (x) from service or service related activities
or engages in other business or owns other assets which support or
compliment these service activities or (y) from Automobile Retailing
Activities, provided that after giving effect to such acquisition no
Default or Event of Default exists hereunder;
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization,
association, joint venture or a government or agency or political
subdivision thereof;
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably called
for redemption and advance refunded through the deposit in escrow of
Government Securities or other debt securities which are (i) not
callable at the option of the issuer thereof prior to maturity, (ii)
irrevocably pledged solely to the payment of all principal and interest
on such obligations as the same becomes due and (iii) in a principal
amount and bear such rate or rates of interest as shall be sufficient
to pay in full all principal of, interest, and premium, if any, on such
obligations as the same becomes due as verified by a nationally
recognized firm of certified public accountants;
"Pricing Grid" means the table set forth on Schedule 1.02(b)
attached hereto setting forth the basis for (whether Consolidated
Funded Indebtedness to Consolidated Total Capitalization or Rating) and
the number of basis points to be utilized in calculating each of the
Applicable Eurodollar Margin, the Facility Fee and the Utilization Fee;
"Prime Rate" means the rate of interest per annum announced
publicly by the Administrative Agent as its prime rate from time to
time. The Prime Rate is not necessarily the best or the lowest rate of
interest offered by the Administrative Agent;
"Principal Office" means the office of the Administrative
Agent at 101 North Tryon Street, 15th Floor, NC1-001-15-04, Charlotte,
North Carolina 28255, Attention: Agency
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Services or such other office and address as the Administrative Agent
may from time to time designate;
"RSG" means Republic Services Group, Inc. and its
subsidiaries;
"Rating" means the long-term, unsecured, unenhanced debt
rating assigned to senior Indebtedness of the Company by S&P and
Moody's;
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time;
"Regulatory Change" means any change effective after the
Closing Date in United States federal or state laws or regulations
(including Regulation D and capital adequacy regulations) or foreign
laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks,
which includes any of the Lenders, under any United States federal or
state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with
the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy,
including with respect to "highly leveraged transactions," whether or
not having the force of law, whether or not failure to comply therewith
would be unlawful (but if not unlawful, noncompliance with which would
have the effect in the good faith judgment of the affected Lender of
imposing additional administrative or regulatory burdens or
consequences, costs or other adverse effects on such Lenders) and, to
the knowledge of the affected Lender, not published or proposed prior
to the date hereof;
"Reimbursement Obligation" shall mean at any time, the
obligation of the Company with respect to any Letter of Credit to
reimburse the Issuing Bank and the Lenders to the extent of their
respective Participations (including by the receipt by the Issuing Bank
of proceeds of Loans pursuant to Section 3.02) for amounts theretofore
paid by the Issuing Bank or the Lenders pursuant to a drawing under
such Letter of Credit;
"Repurchase Agreement" means a repurchase agreement entered
into with any financial institution whose debt obligations or
commercial paper are rated "A" by either of S&P or Moody's or "A-1" by
S&P or "P-1" by Moody's;
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51% of
the aggregate Credit Exposures of all the Lenders on such date. For
purposes of the preceding sentence, the amount of the "Credit Exposure"
of each Lender shall be equal at all times (a) other than following the
occurrence and during the continuance of an Event of Default, to its
Revolving Credit Commitment, and (b) following the occurrence and
during the continuance of an Event of Default, the aggregate principal
amount of the Revolving Credit Loans and Competitive Bid Loans owing to
such Lender plus the aggregate unutilized amounts of such Lender's
Revolving Credit Commitment plus the amount of such Lender's Applicable
Commitment
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Percentage of Swing Line Loans and Outstanding Letters of Credit and of
the Reimbursement Obligations; provided that, if any Lender shall have
failed to pay (x) to NationsBank its Applicable Commitment Percentage
of any Swing Line Loan or (y) to any Issuing Bank its Applicable
Commitment Percentage of any drawing under any Letter of Credit
resulting in an outstanding Reimbursement Obligation, such Lender's
Credit Exposure attributable to Swing Line Loans shall be deemed to be
held by NationsBank for purposes of this definition, and such Lender's
Credit Exposure attributable to Letters of Credit, Reimbursement
Obligations and the Letter of Credit Commitment shall be deemed to be
held by the applicable Issuing Bank for purposes of this definition;
"Revolving Credit Commitment" means with respect to each
Lender, the obligation of such Lender to make Loans to the Borrowers
and purchase Participations up to an aggregate principal amount at any
one time outstanding, determined with reference to such Lender's
percentage as set forth on Exhibit A attached hereto of the Total
Revolving Credit Commitment as the same may be increased or decreased
from time to time pursuant to this Agreement;
"Revolving Credit Facility" means the facility described in
Section 2.01(a) hereof providing for Loans to the Borrowers by the
Lenders in the aggregate principal amount of the Total Revolving Credit
Commitment less the aggregate amount of Swing Line Outstandings and
Outstanding Letters of Credit and outstanding Competitive Bid Loans;
"Revolving Credit Loan" means a Loan made pursuant to the
Revolving Credit Facility;
"Revolving Credit Notes" means, collectively, the promissory
notes of the Borrowers evidencing Loans executed and delivered to the
Lenders as provided in Section 2.07(a) hereof substantially in the form
attached hereto as Exhibit G-1, with appropriate insertions as to
amounts, dates and names of Lenders;
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Revolving Credit
Loans then outstanding and all interest accrued thereon;
"Revolving Credit Termination Date" means (i) April 22, 2002
or (ii) such earlier date of termination of Lenders' obligations
pursuant to Section 9.01 upon the occurrence of an Event of Default, or
(iii) such date as the Borrowers may voluntarily permanently terminate
the Revolving Credit Facility and the Competitive Bid Facility by
payment in full of all Obligations (including the discharge of all
Obligations of NationsBank, the Issuing Banks and the Lenders with
respect to Letters of Credit, Participations and Competitive Bid
Loans);
"S&P" means Standard & Poor's Rating Group, a division of
McGraw-Hill, Inc.;
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"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA and in respect of which (a) the Company or
any Subsidiary is an "employer" as described in Section 4001(b) of
ERISA, and (b) is not a Multi-employer Plan;
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including, without limitation, Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrowers
and/or by one or more of the Borrowers' Subsidiaries; provided,
however, that RSG shall not be deemed a Subsidiary for all purposes of
this Agreement;
"Swing Line" means the revolving line of credit established by
NationsBank in favor of the Borrowers pursuant to Section 2.15;
"Swing Line Loans" means Loans made by NationsBank to the
Borrowers pursuant to Section 2.15;
"Swing Line Note" means the promissory note of the Borrowers
evidencing Swing Line Loans executed and delivered to NationsBank as
provided in Section 2.07(c) hereof substantially in the form attached
hereto as Exhibit G-2, with appropriate insertions as to amounts, dates
and names;
"Swing Line Outstandings" means, as of any date of
determination, the aggregate principal amount of all Swing Line Loans
then outstanding;
"364 Day Agreement" means the 364 Day Credit Facility and
Reimbursement Agreement dated March 12, 1999 among the Company,
NationsBank, N.A., as Administrative Agent and the Lenders party
thereto;
"364 Day Outstandings" means as at the date of determination,
the sum of the outstanding loans under the 364 Day Agreement and
undrawn amounts of letters of credit issued pursuant to the 364 Day
Agreement;
"Total Letter of Credit Commitment" means an amount not to
exceed $500,000,000;
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"Total Revolving Credit Commitment" means an amount not to
exceed $1,000,000,000, as reduced from time to time in accordance with
Section 2.09 and Section 2.10, which shall be made available by the
Lenders to the Borrowers during the period from the date hereof until
the Revolving Credit Termination Date;
"TROL Credit Documents" shall have the same meaning as the
meaning assigned to the term `Credit Documents' under Appendix A to
that certain Amended and Restated Participation Agreement, dated as of
November 18, 1996 among AutoNation USA Corporation, as construction
agent and as lessee, First Security Bank, National Association, as
owner trustee under the AutoNation Trust 1996-1, the various banks and
other lending institutions which are parties thereto from time to time,
as the holders and lenders, and the Administrative Agent, as
administrative agent for the lenders thereunder, as such Participation
Agreement and Appendix A thereto may be or may have been amended,
modified or supplemented from time to time;
"Utilization Fee" means a quarterly fee equal to, on an
annualized basis, the product of 12.5 basis points times the average
daily outstanding amount during a fiscal quarter of loans and letters
of credit under this Agreement; provided, however, that a Utilization
Fee shall be payable only when (a) senior unsecured, unenhanced debt
rating of the Company is at Tier II or Tier I as set forth on the
Pricing Grid, and (b) the average daily outstanding amount during such
fiscal quarter of loans and letters of credit under the 364 Day
Agreement, TROL Credit Documents and this Agreement exceeds 50% of the
total committed amount under the 364 Day Agreement, the TROL Credit
Documents and this Agreement;
"Vehicle Receivables Indebtedness" means Indebtedness 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 Generally Accepted Accounting Principles not appear as an asset or
liability on the balance sheet of the Company or any of its
Subsidiaries; (y) no assets other than the Vehicles, consumer
receivables, leases, loans, retail installment contracts or 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 Subsidiaries
shall incur any liability with respect to such Indebtedness other than
liability arising by reason of a breach of a representation or warranty
contained in any instrument relating to such Indebtedness;
"Vehicle Secured Indebtedness" means Indebtedness incurred by
the Company, any Subsidiary or any Eligible Special Purpose Entity to
lease, finance or refinance or guaranty the leasing, financing or
refinancing of Vehicles or related receivables, which Indebtedness 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
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<PAGE>
value of such Vehicles or the book value of such related receivables as
determined in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis;
"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 Subsidiary's
Automobile Retailing Activities;
"Year 2000 Compliant" means all computer applications of the
Borrowers and their Subsidiaries (including those affected by
information received from its suppliers and vendors) that are material
to the Borrowers' or any of their Subsidiaries' business and operations
will on a timely basis be able to perform properly date-sensitive
functions involving all dates on and after January 1, 2000;
"Year 2000 Problem" means the risk that computer applications
that are owned or leased and are used by either of the Borrowers or any
of their Subsidiaries (including those affected by information received
from its suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates on and after
January 1, 2000.
1.03 Use of Defined Terms. Terms for which meanings are provided in
this Agreement shall, unless otherwise defined or the context otherwise
requires, have such meanings when used in the Notes, each Borrowing Notice, each
Compliance Certificate, each Loan Document and each notice and other
communication delivered from time to time in connection with this Agreement or
any instrument hereafter executed pursuant hereto.
1.04 Cross References. Unless otherwise specified, references in this
Agreement and in each Loan Document to any Article or Section are references to
such Article or Section of this Agreement or such Loan Document, as the case may
be, and, unless otherwise specified, references in any Article, Section or
definition to any clause are references to such clause of such Section, Article
or definition.
1.05 Accounting and Financial Determinations. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined, or any accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable, be made in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis except insofar as:
(a) the Borrowers shall have elected (with the concurrence of
its independent public accountant and upon prior written notification
to the Lenders) to adopt more recently promulgated Generally Accepted
Accounting Principles (which election shall continue to be effective
for subsequent years);
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(b) the Administrative Agent and the Required Lenders shall
have consented to such election (it being understood that such consent
may be conditioned upon the implementation of such changes to Sections
8.01 and 8.02 as are appropriate to reflect such adoption of more
recently promulgated Generally Accepted Accounting Principles and it
being further understood that such consent shall be deemed to have been
given upon the implementation of such changes); and
(c) the Company shall have excluded as a Subsidiary RSG from
its financial statements.
Upon a change in Generally Accepted Accounting Principles which becomes
effective after the Closing Date which would have a material effect on the
Company's consolidated financial statements and the assets and liabilities
reflected therein or otherwise affect the calculation or the application of the
covenants contained in Article VIII hereof, such change shall not be given
effect for purposes hereof until sixty (60) days from the otherwise effective
date of such change. Prior to such effectiveness the Administrative Agent, the
Lenders and the Borrowers shall in good faith negotiate to amend the pertinent
provisions of this Agreement to account for such change to the extent
appropriate to effect the substance thereof as of the Closing Date. If such an
amendment is not entered into with respect to any such change, such change shall
not be given effect for purposes hereof.
1.06 General Provisions Relating to Definitions. Terms for which
meanings are defined in this Agreement shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The term
"including" means including, without limiting the generality of any description
preceding such term. Each reference herein to any Person shall include a
reference to such Person's successors and assigns. References to any instrument
defined in this Agreement refer to such instrument as originally executed or, if
subsequently varied, replaced or supplemented from time to time, as so varied,
replaced or supplemented and in effect at the relevant time of reference
thereto.
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ARTICLE II
The Loans
2.01 Commitments; Joint and Several Liability
(a) Revolving Credit Commitment. Subject to the terms and conditions of
this Agreement, each Lender severally agrees to make Advances to the Borrowers,
from time to time from the Closing Date until the Revolving Credit Termination
Date, on a pro rata basis as to the total borrowing requested by the Borrowers
under the Revolving Credit Facility on any day determined by its Applicable
Commitment Percentage up to but not exceeding the Revolving Credit Commitment of
such Lender, provided, however, that the Lenders will not be required and shall
have no obligation to make any Advance (i) so long as not all of the conditions
under Section 5.02 hereof have been fulfilled, (ii) so long as a Default or an
Event of Default has occurred and is continuing or (iii) if the Administrative
Agent has accelerated the maturity of the Revolving Credit Notes as a result of
an Event of Default; provided further, however, that immediately after giving
effect to each such Advance, the principal amount of Outstanding Credit
Obligations shall not exceed the Total Revolving Credit Commitment. Within such
limits, the Borrowers may borrow, repay and reborrow hereunder, on a Business
Day in the case of a Base Rate Loan and on a Business Day in the case of a
Eurodollar Loan, from the Closing Date until, but (as to borrowings and
reborrowings) not including, the Revolving Credit Termination Date; provided,
however, that (x) no Eurodollar Loan that is a Revolving Credit Loan shall be
made which has an Interest Period that extends beyond the Revolving Credit
Termination Date and (y) each Eurodollar Loan may, subject to the provisions of
Section 2.11, be repaid only on the last day of the Interest Period with respect
thereto.
(b) Amounts. Except as otherwise permitted by all of the Lenders from
time to time, the aggregate unpaid principal amount of the Outstanding Credit
Obligations shall not exceed at any time an amount equal to the Total Revolving
Credit Commitment. Each Loan under the Revolving Credit Facility, other than a
Swing Line Loan pursuant to Section 2.15 hereof or a Base Rate Refunding Loan,
and each conversion thereof under Section 2.11 shall be in a principal amount of
at least $10,000,000, and, if greater than $10,000,000, an integral multiple of
$1,000,000.
(c) Advances and Rate Selection. (i) An Authorized Representative shall
give the Administrative Agent (1) at least three (3) Business Days' irrevocable
telephonic notice of each Eurodollar Loan (whether representing an additional
borrowing hereunder or the conversion of borrowing hereunder from Base Rate
Loans or other Eurodollar Loans to Eurodollar Loans) prior to 10:30 A.M.,
Charlotte, North Carolina time; and (2) irrevocable telephonic notice of each
Base Rate Loan (other than Base Rate Refunding Loans to the extent the same are
effected without notice pursuant to Section 2.01(c)(iv)) representing an
additional borrowing hereunder prior to 10:30 A.M. Charlotte, North Carolina
time on the day of such proposed Base Rate Loan. Each such borrowing notice,
which shall be effective upon receipt by the Administrative Agent, shall specify
the amount of the borrowing, the type (Base or Eurodollar) of Loan, the date of
borrowing and, if a Eurodollar Loan, the Interest Period to be used in the
computation of interest. The Authorized Representative shall provide the
Administrative Agent written confirmation of each such telephonic notice on the
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same day by telefacsimile transmission in the form of a Borrowing Notice, for
additional Advances, or in the form attached hereto as Exhibit H as to selection
or conversion of interest rates as to outstanding Loans, in each case with
appropriate insertions, but failure to provide such confirmation shall not
affect the validity of such telephonic notice. The duration of the initial
Interest Period for each Loan that is a Eurodollar Loan shall be as specified in
the initial Borrowing Notice. The Borrowers shall have the option to elect the
duration of subsequent Interest Periods and to convert the Loans (other than
Swing Line Loans) in accordance with Section 2.11 hereof. If the Administrative
Agent does not receive a notice of election of duration of an Interest Period or
to convert by the time prescribed hereby and by Section 2.11 hereof, the
Borrowers shall be deemed to have elected as to any Revolving Credit Loan, to
convert such Loan to (or continue such Loan as) a Base Rate Loan bearing
interest at the Base Rate until either Borrower notifies the Administrative
Agent in accordance with this Section and Section 2.11.
(ii) Notice of receipt of each Borrowing Notice shall be provided by
the Administrative Agent to each Lender by telefacsimile or telephonic notice
with reasonable promptness, but not later than 2:00 P.M., Charlotte, North
Carolina time on the same day as Administrative Agent's receipt of such
Borrowing Notice.
(iii) Not later than 3:00 P.M., Charlotte, North Carolina time on the
date specified for each Advance, each Lender shall, pursuant to the terms and
subject to the conditions of this Agreement, make the amount of the Loan or
Loans to be made by it on such day available to the Administrative Agent, by
depositing or transferring the proceeds thereof in immediately available funds
at the Principal Office. The amount so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to either Borrower by delivery of the proceeds thereof to the applicable
Borrower's Account or otherwise as shall be directed in the applicable Borrowing
Notice by the Authorized Representative.
(iv) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank thereunder prior
to the Revolving Credit Termination Date, and the Company shall not immediately
fully reimburse such Issuing Bank in respect of such drawing, (A) provided that
the conditions to making a Revolving Credit Loan as herein provided shall then
be satisfied, the Reimbursement Obligation arising from such drawing shall be
paid to such Issuing Bank by the Administrative Agent without the requirement of
notice to or from the Company from immediately available funds which shall be
advanced as a Base Rate Refunding Loan by each Lender under the Revolving Credit
Facility in an amount determined with reference to such Lender's Applicable
Commitment Percentage of such Reimbursement Obligation, and (B) if the
conditions to making a Revolving Credit Loan as herein provided shall not then
be satisfied, each of the Lenders shall fund by payment to the Administrative
Agent (for the benefit of the Issuing Bank) in immediately available funds the
purchase from such Issuing Bank of their respective Participations in the
related Reimbursement Obligation based on their respective Applicable Commitment
Percentages of the Total Letter of Credit Commitment. If a drawing is presented
under any Letter of Credit in accordance with the terms thereof and the Company
shall not immediately reimburse the Issuing Bank thereunder in respect thereof,
then notice of such drawing or payment shall be provided promptly by such
Issuing Bank to the Administrative Agent and the Administrative
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Agent shall provide notice to each Lender by telephone or telefacsimile
transmission. If notice to the Lenders of a drawing under any Letter of Credit
is given by the Administrative Agent at or before 12:00 noon on any Business
Day, each Lender shall, pursuant to the conditions specified in this Section
2.01(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its
Participation in the amount of such Lender's Applicable Commitment Percentage of
such drawing or payment and shall pay such amount to the Administrative Agent
for the account of the Issuing Bank at the Principal Office in Dollars and in
immediately available funds before 2:30 P.M. on the same Business Day. If notice
to the Lenders of a drawing under a Letter of Credit is given by the
Administrative Agent after 12:00 noon on any Business Day, each Lender shall,
pursuant to the conditions specified in this Section 2.01(c)(iv), either make a
Base Rate Refunding Loan or fund the purchase of its Participation in the amount
of such Lender's Applicable Commitment Percentage of such drawing or payment and
shall pay such amount to the Administrative Agent for the account of the Issuing
Bank at the Principal Office in Dollars and in immediately available funds
before 12:00 noon on the next following Business Day. Any such Base Rate
Refunding Loans shall be advanced as, and shall continue as, a Base Rate Loan
unless and until the Company converts such Base Rate Loan in accordance with the
terms of Section 2.11.
(d) Joint and Several Liability, Contribution Rights.
(i) Notwithstanding any other provision of this Agreement,
each Borrower shall be jointly and severally liable as primary obligor
and not merely as surety for repayment of all Obligations arising under
the Loan Documents. Such joint and several liability shall apply to
each Borrower regardless of whether (x) any Loan was only requested by
or made to the other Borrower or the proceeds of any Loan were used
only by the other Borrower, (y) any interest rate selection was made
only by the other Borrower, or (z) any indemnification obligation or
any other obligation arose only as a result of the actions of the other
Borrower; provided that the liability of RRC under this Agreement, the
Notes and the other Loan Documents shall be limited to the amount of
unpaid principal and interest of Revolving Credit Loans, Swing Line
Loans and Competitive Bid Loans made to RRC and fees, cost and expenses
payable by the Borrowers pursuant to this Agreement.
(ii) If any Borrower makes a payment in respect of the
Obligations it shall have the rights of contribution set forth below
against the other Borrower; provided, that such Borrower shall not
exercise its right of contribution until all the Obligations shall have
been finally paid in full in cash.
(iii) It is the intent of each Borrower, the Administrative
Agent and the Lenders that each Borrower's maximum Obligations shall
be, but not in excess of: (x) in a case or proceeding commenced by or
against such Borrower under the Bankruptcy Code on or within one year
from the date on which any of the Obligations are incurred, the maximum
amount that would not otherwise cause the Obligations (or any other
obligations of such Borrower to the Administrative Agent and the
Lenders) to be avoidable or unenforceable against such Borrower under
(A) Section 548 of the Bankruptcy Code or (B) any state fraudulent
transfer or fraudulent conveyance act or statute applied in any such
case or proceeding by virtue of
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Section 544 of the Bankruptcy Code; or (y) in a case or proceeding
commenced by or against such Borrower under the Bankruptcy Code
subsequent to one year from the date on which any of the Obligations
are incurred, the maximum amount that would not otherwise cause the
Obligations (or any other obligations of such Borrower to the
Administrative Agent and the Lenders) to be avoidable and unenforceable
against such Borrower under any state fraudulent transfer or fraudulent
conveyance act or statute applied in any such case or proceeding by
virtue of Section 544 of the Bankruptcy Code; or (z) in a case or
proceeding commenced by or against such Borrower under any law, statute
or regulation other than the Bankruptcy Code (including, without
limitation, any other bankruptcy, reorganization, arrangement,
moratorium, readjustment of debt, dissolution, liquidation or similar
debtor relief laws), the maximum amount that would not otherwise cause
the Obligations (or any other obligations of such Borrower to the
Administrative Agent and the Lenders) to be avoidable or unenforceable
against such Borrower under such law, statute or regulation including,
without limitation, any state fraudulent transfer or fraudulent
conveyance act or statute applied in any such case or proceeding.
(iv) The Borrowers acknowledge and agree that they have
requested that the Lenders make credit available to the Borrowers with
each Borrower expecting to derive benefit, directly and indirectly,
from the Advances and other credit extended by the Lenders to the
Borrowers.
2.02 Competitive Bid Loans.
(a) In addition to Revolving Credit Loans, at any time prior
to the Revolving Credit Termination Date and provided no Default or Event of
Default exists hereunder, the Borrowers may, as set forth in this Section 2.02,
request the Lenders to make offers to make Competitive Bid Loans to the
Borrowers in Dollars. The Lenders may, but shall have no obligation to, make
such offers and the Borrowers may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section 2.02. There may be no more
than twenty (20) different Interest Periods, plus one (1) one week Interest
Period for both Revolving Credit Loans and Competitive Bid Loans outstanding at
the same time (for which purpose Interest Periods for each Eurodollar Loan and
each Competitive Bid Loan shall be deemed to be different Interest Periods even
if they are coterminous). The aggregate principal amount of all Outstanding
Credit Obligations, shall not exceed the Total Revolving Credit Commitment at
any time. The aggregate principal amount of all outstanding Competitive Bid
Loans shall not exceed one hundred percent (100%) of the Total Revolving Credit
Commitment at any time.
(b) When either Borrower wishes to request offers to make
Competitive Bid Loans, it shall give the Administrative Agent and the Lenders
notice (a "Competitive Bid Quote Request") to be received no later than 11:00
a.m. Charlotte, North Carolina time on (A) the fourth Business Day prior to the
date of borrowing proposed therein, in the case of a Competitive Bid Quote
Request for Competitive Bid Loans at the Eurodollar Competitive Rate or (B) the
Business Day prior to the date of borrowing proposed therein, in the case of a
Competitive Bid Quote Request for Competitive Bid Loans at the Absolute Rate
(or, in any such case, such other time and date as the
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Borrowers and the Administrative Agent, with the consent of the Required
Lenders, may agree). The Borrowers may request offers to make Competitive Bid
Loans for up to three (3) different Interest Periods in a single notice;
provided that the request for each separate Interest Period shall be deemed to
be a separate Competitive Bid Quote Request for a separate borrowing (a
"Competitive Bid Borrowing") and there shall not be outstanding at any one time
more than six (6) Competitive Bid Borrowings. Each such Competitive Bid Quote
Request shall be substantially in the form of Exhibit I attached hereto and
shall specify as to each Competitive Bid Borrowing:
(i) the proposed date of such borrowing, which shall
be a Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $10,000,000 (or in increments of
$1,000,000 in excess thereof) but shall not cause the limits specified
in Section 2.02(a) hereof to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Competitive Bid Quote Request for a
particular Interest Period is seeking quotes for Competitive Bid Loans
at the Absolute Rate or the Eurodollar Competitive Rate;
(v) whether a Borrower shall have the right to prepay
a requested Competitive Bid Loan; and
(vi) the date on which the Competitive Bid Quotes are
to be submitted if it is before the proposed date of borrowing (the
date on which such Competitive Bid Quotes are to be submitted is called
the "Quotation Date").
Except as otherwise provided in this Section 2.02(b), no more than two (2)
Competitive Bid Quote Requests shall be given within five (5) Business Days (or
such other number of days as the Borrowers and the Administrative Agent, with
the consent of the Required Lenders, may agree) of any other Competitive Bid
Quote Request.
(c) (i) Each Lender may submit one or more Competitive Bid
Quotes, each containing an offer to make a Competitive Bid Loan in response to
any Competitive Bid Quote Request; provided that, if the Borrower's request
under Section 2.02(b) hereof specified more than one Interest Period, such
Lender may make a single submission containing one or more Competitive Bid
Quotes for each such Interest Period. Each Competitive Bid Quote must be
submitted to the Borrowers not later than 9:30 a.m. Charlotte, North Carolina
time on (A) the third Business Day prior to the proposed date of borrowing, in
the case of a Competitive Bid Quote Request for Competitive Bid Loans at the
Eurodollar Competitive Rate or (B) the Quotation Date, in the case of a
Competitive Bid Quote Request for Competitive Bid Loans at the Absolute Rate
(or, in any such case, such other time and date as the Borrowers and the
Administrative Agent, with the consent of the Required Lenders, may agree)
provided that if NationsBank is receiving quotes as provided in Section 2.02(g),
any Competitive Bid Quote may be submitted by NationsBank (or its applicable
Lending Office) only if NationsBank (or such applicable Lending Office) notifies
the Borrowers of
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the terms of the offer contained therein not later than 9:15 a.m. Charlotte,
North Carolina time on the Quotation Date. Subject to Articles IV, V and IX
hereof, any Competitive Bid Quote so made shall be irrevocable except with the
consent of the Administrative Agent given on the instructions of the Borrowers.
(ii) Each Competitive Bid Quote shall be
substantially in the form of Exhibit J attached hereto and shall specify:
(A) the proposed date of borrowing and the
Interest Period therefor;
(B) the principal amount of the Competitive
Bid Loan for which each such offer is being made, which
principal amount shall be at least $5,000,000 (or in
increments of $1,000,000 in excess thereof); provided that the
aggregate principal amount of all Competitive Bid Loans for
which a Lender submits Competitive Bid Quotes may not exceed
the principal amount of the Competitive Bid Borrowing for a
particular Interest Period for which offers were requested;
(C) in the case of a Competitive Bid Quote
for Competitive Bid Loans at an Absolute Rate, the rate of
interest per annum (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) offered for each such Competitive
Bid Loan (the "Absolute Rate");
(D) in the case of a Competitive Bid Quote
for Competitive Bid Loans at the Eurodollar Competitive Rate,
the positive or negative margin to be added to or deducted
from the Interbank Offered Rate; and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Administrative Agent and the Borrowers, no
Competitive Bid Quote shall contain qualifying, conditional or similar language
or propose terms other than or in addition to those set forth in the applicable
Competitive Bid Quote Request and, in particular, no Competitive Bid Quote may
be conditioned upon acceptance by the Borrowers of all (or some specified
minimum) of the principal amount of the Competitive Bid Loan for which such
Competitive Bid Quote is being made. Any subsequent Competitive Bid Quote
submitted by a Lender that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid Quote submitted by such Lender with respect to the same
Competitive Bid Quote Request shall be disregarded by the Borrowers unless such
subsequent Competitive Bid Quote is submitted solely to correct a manifest error
in such former Competitive Bid Quote.
(d) The Borrowers shall (A) in the case of a Competitive Bid
Loan at an Absolute Rate, as promptly as practicable after the Competitive Bid
Quote is submitted (but in any event not later than 10:30 a.m. Charlotte, North
Carolina time on the Quotation Date (or such other time and date as the
Borrowers and the Administrative Agent, with the consent of the Required
Lenders, may
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agree) or (B) in the case of a Competitive Bid Loan at a Eurodollar Competitive
Rate, the third Business Day prior to the proposed date of borrowing), notify
the Administrative Agent and Lenders of (A) the aggregate principal amount of
the Competitive Bid Borrowing for which Competitive Bid Quotes have been
received as well as the ranges of bids submitted for each Interest Period
requested, (B) the respective principal amounts and Absolute Rates or Eurodollar
Competitive Rates, as the case may be, so offered by each Lender (identifying
the Lender that made each Competitive Bid Quote), and (C) its acceptance or
nonacceptance of the Competitive Bid Quotes. In the case of acceptance, such
notice shall specify the aggregate principal amount of offers for each Interest
Period that are accepted. The Borrowers may accept any Competitive Bid Quote in
whole or in part (provided that any Competitive Bid Quote accepted in part shall
be at least $5,000,000 or in increments of $1,000,000 in excess thereof);
provided that:
(i) the aggregate principal amount of each
Competitive Bid Borrowing may not exceed the applicable amount set
forth in the related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each
Competitive Bid Borrowing shall be at least $5,000,000 (or an increment
of $1,000,000 in excess thereof) but shall not cause the limits
specified in Section 2.02(a) hereof to be violated;
(iii) except as provided below, acceptance of
Competitive Bid Quotes for any Interest Period may be made only in
ascending order of Absolute Rates or Eurodollar Competitive Rates, as
the case may be, beginning with the lowest rate so offered; and
(iv) the Borrowers may not accept any Competitive Bid
Quote where such Competitive Bid Quote fails to comply with Section
2.02(c)(ii) hereof or otherwise fails to comply with the requirements
of this Agreement (including, without limitation, Section 2.02(a)
hereof).
Any of the conditions above notwithstanding, the Borrowers may, in their sole
discretion, accept a Competitive Bid Quote that does not contain the lowest
Absolute Rate or Eurodollar Competitive Rates, as the case may be, where
acceptance of the Competitive Bid Quote containing the lowest Absolute Rate or
Eurodollar Competitive Rate, as the case may be, would cause the principal
amount of Outstanding Credit Obligations of a Lender or Lenders offering the
lowest Absolute Rate or Eurodollar Competitive Rate, as the case may be, to
exceed the Total Revolving Credit Commitment.
If Competitive Bid Quotes are made by two or more Lenders with the same
Absolute Rates or Eurodollar Competitive Rates, as the case may be, for a
greater aggregate principal amount than the amount in respect of which
Competitive Bid Quotes are accepted for the related Interest Period after the
acceptance of all Competitive Bid Quotes, if any, of all lower Absolute Rates or
Eurodollar Competitive Rates, as the case may be, offered by any Lender for such
related Interest Period, the principal amount of Competitive Bid Loans in
respect of which such Competitive Bid Quotes are accepted shall be allocated by
the Borrowers among such Lenders as nearly as possible (in amounts of at least
$1,000,000 or in increments of $100,000 in excess thereof) in proportion to the
aggregate
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principal amount of such Competitive Bid Quotes. Determinations by the Borrowers
of the amounts of Competitive Bid Loans and the lowest bid after adjustment as
provided in Section 2.02(d)(iii) shall be conclusive in the absence of manifest
error.
(e) Any Lender whose offer to make any Competitive Bid Loan
has been accepted shall, not later than 1:00 p.m. Charlotte, North Carolina time
on the date specified for the making of such Loan, make the amount of such Loan
available to the applicable Borrower at the applicable Borrower's Account or
otherwise as shall be directed by the Authorized Representative in Dollars and
in immediately available funds.
(f) From time to time, the Borrowers shall furnish such
information to the Administrative Agent as the Administrative Agent may request
relating to the making of Competitive Bid Loans, including the amounts, interest
rates, dates of borrowings and maturities thereof.
(g) The Borrowers may request the Administrative Agent to
receive the Competitive Bid Quotes, in which event the Administrative Agent
shall (A) in the case of a Competitive Bid Loan at the Absolute Rate, as
promptly as practicable after the Competitive Bid Quote is submitted (but in no
event later than 10:00 a.m., Charlotte, North Carolina time on the Quotation
Date) or (B) in the case of a Competitive Bid Loan at the Eurodollar Competitive
Rate, by 10:00 a.m. Charlotte, North Carolina time on the date a Competitive
Quote is submitted, notify the Borrowers of the terms of any Competitive Bid
Quote submitted by a Lender that is in accordance with Section 2.02(c) hereof.
The Administrative Agent's notice to the Borrowers shall specify (A) the
aggregate principal amount of the Competitive Bid Borrowing for which
Competitive Bid Quotes have been received and (B) the respective principal
amounts and Absolute Rates or Eurodollar Competitive Rate, as the case may be,
offered by each Lender (identifying the Lender that made each Competitive Bid
Quote). Not later than 10:30 a.m. Charlotte, North Carolina time on (A) the
third Business Day prior to the proposed date of borrowing, in the case of
Competitive Bid Loans at the Eurodollar Competitive Rate or (B) the Quotation
Date (or, in any such case, such other time and date as the Borrowers and the
Administrative Agent, with the consent of the Required Lenders, may agree), the
Borrowers shall notify the Administrative Agent of their acceptance or
nonacceptance of the Competitive Bid Quotes so notified to it (and the failure
of the Borrowers to give such notice by such time shall constitute
nonacceptance) and the Administrative Agent shall promptly notify each affected
Lender. Together with each notice of a request for Competitive Bid Quotes, which
each Borrower requires the Administrative Agent to issue pursuant to this
paragraph (g), such Borrower shall pay to the Administrative Agent for the
account of the Administrative Agent a bid administration fee of $1,500.00.
2.03 Payment of Interest. (a) The Borrowers shall pay interest (i) to
the Administrative Agent at the Principal Office for the account of each Lender
on the outstanding and unpaid principal amount of each Revolving Credit Loan
made by such Lender for the period commencing on the date of such Loan until
such Loan shall be due at the Eurodollar Revolver Rate or the Base Rate, as
elected or deemed elected by such Borrower or otherwise applicable to such Loan
as herein provided, (ii) to the Lender at its Lending Office making each
Competitive Bid Loan, at the applicable
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Absolute Rate or Eurodollar Competitive Rate, as the case may be, and (iii) to
the Administrative Agent in the case of each Swing Line Loan, at the Base Rate;
provided, however, that if any amount shall not be paid when due (at maturity,
by acceleration or otherwise), all amounts outstanding hereunder shall bear
interest thereafter (i) in the case of a Eurodollar Loan, at a rate of interest
per annum of two percent (2%) above the applicable Eurodollar Revolver Rate for
such Eurodollar Loan, (ii) in the case of a Base Rate Loan, at a rate of
interest per annum which shall be two percent (2%) above the Base Rate, and
(iii) in the case of a Competitive Bid Loan, at a rate of interest per annum
which shall be two percent (2%) above the Absolute Rate or Eurodollar
Competitive Rate, as the case may be, for such Competitive Bid Loan, or (in each
case) the maximum rate permitted by applicable law, whichever is lower, from the
date such amount was due and payable until the date such amount is paid in full.
(b) Interest on the outstanding principal balance of each Loan shall be
computed on the basis of (x) in the case of a Eurodollar Loan or a Competitive
Bid Loan at the Eurodollar Competitive Rate, a year of 360 days and calculated
for the actual number of days elapsed and (y) in the case of a Base Rate Loan, a
year of 365-366 days and calculated for the actual number of days elapsed.
Interest on the outstanding principal balance of each Loan shall be paid (a)
quarterly in arrears, such payment to be made not later than the third (3rd)
Business Day of each April, July, October and January commencing on the third
(3rd) Business Day of July 1997, on each Base Rate Loan, (b) on the last day of
the applicable Interest Period for each Eurodollar Loan and Competitive Bid
Loan, but in no event less frequently than at the end of each three month period
and (c) upon payment in full of the principal amount of such Loan at the
Revolving Credit Termination Date.
(c) From the Closing Date until delivery of a Compliance Certificate
for the period ending December 31, 1998, the Applicable Eurodollar Margin,
Facility Fee and Utilization Fee shall be determined by using the amounts set
forth in Tier IV of the Pricing Grid. For each period beginning on the date of
receipt by the Administrative Agent of a Compliance Certificate in respect of a
quarterly fiscal period of the Company ending on or after December 31, 1998 and
ending on the date next following the date of receipt by the Administrative
Agent of a Compliance Certificate in respect of a subsequent fiscal quarter the
Applicable Eurodollar Margin, Facility Fee and Utilization Fee shall be
determined based upon the ratio of Consolidated Funded Indebtedness to
Consolidated Total Capitalization. Any change in the Eurodollar Margin, Facility
Fee and Utilization Fee, if any, shall become effective on the first Business
Day next following receipt of a Compliance Certificate. Notwithstanding the
foregoing, if the Company shall receive a Rating from both S&P and Moody's, then
upon receipt by the Administrative Agent of evidence of the Ratings, the
Applicable Eurodollar Margin, Facility Fee and Utilization Fee shall be
determined by its then Ratings as set forth on the Pricing Grid and subsequent
changes in the Applicable Eurodollar Margin, Facility Fee and Utilization Fee,
if any, shall become effective on the day next following the receipt by the
Agent of evidence of such change in Rating.
2.04 Payment of Principal. The principal amount of the Revolving Credit
Outstandings and all Swing Line Outstandings shall be due and payable to the
Administrative Agent for the benefit of each Lender in full on the Revolving
Credit Termination Date, or earlier as herein expressly provided. The principal
amount of all Competitive Bid Loans shall be due and payable to the Lender
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making such Competitive Bid Loan in full on the last day of the Interest Period
therefor, or earlier as herein expressly provided. The principal amount of
Eurodollar Loans may only be prepaid at the end of the applicable Interest
Period, unless the Borrowers shall pay to the Administrative Agent for the
account of the Lenders the amount, if any, required under Section 4.04. The
principal amount of Competitive Bid Loans may only be prepaid at the end of the
applicable Interest Period, unless (i) the applicable Borrower shall have
retained in the Competitive Bid Quote Request with respect to such Competitive
Bid Loans the right of prepayment, and (ii) the applicable Borrower shall have
paid to the Lender making such Competitive Bid Loans or to the Administrative
Agent, as applicable, the amounts, if any, required under Section 4.04. Each
Borrower shall furnish the Administrative Agent telephonic notice of its
intention to make a principal payment (including Competitive Bid Loans) prior to
11:00 A.M. Charlotte, North Carolina time on the date of such payment. All
payments of principal on Loans other than Competitive Bid Loans and Swing Line
Loans shall be in the amount of $10,000,000 or such greater amount which is an
integral multiple of $1,000,000.
2.05 Non-Conforming Payments. (a) Each payment of principal (including
any prepayment) and payment of interest (other than principal and interest on
Competitive Bid Loans which shall be paid to the Lender making such Loans) shall
be made to the Administrative Agent at the Principal Office, for the account of
each Lender's applicable Lending Office, in Dollars and in immediately available
funds before 12:30 P.M. Charlotte, North Carolina time on the date such payment
is due. The Administrative Agent may, but shall not be obligated to, debit the
amount of any such payment which is not made by such time to any ordinary
deposit account, if any, of either Borrower with the Administrative Agent.
(b) The Administrative Agent shall deem any payment by or on behalf of
the Borrowers hereunder that is not made both (a) in Dollars and in immediately
available funds and (b) prior to 12:30 P.M. Charlotte, North Carolina time on
the date payment is due to be a non-conforming payment. Any such payment shall
not be deemed to be received by the Administrative Agent until the time such
funds become available funds. Non-conforming payments may constitute or become a
Default or Event of Default. The Administrative Agent shall give prompt
telephonic notice to the Authorized Representative and each of the Lenders
(confirmed in writing) if any payment is non-conforming. Interest shall continue
to accrue on any principal as to which a non-conforming payment is made until
such funds become available funds (but in no event less than the period from the
date of such payment to the next succeeding Business Day) at the respective
rates of interest per annum specified in Section 2.03(a) in respect of late
payments of interest, from the date such amount was due and payable until the
date such amount is paid in full (but in no event less than the period from the
date of such payment to the next succeeding Business Day).
(c) In the event that any payment hereunder or under the Notes becomes
due and payable on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day; provided that interest shall
continue to accrue during the period of any such extension.
2.06 Borrowers' Accounts. Each Borrower shall continuously maintain its
Borrower's Account for the purposes herein contemplated.
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2.07 Notes. (a) Revolving Credit Loans made by each Lender, shall be
evidenced by, and be repayable with interest in accordance with the terms of,
the Revolving Credit Note payable to the order of such Lender in the amount of
its Applicable Commitment Percentage of the Total Revolving Credit Commitment,
which Revolving Credit Note shall be dated the Closing Date or such later date
pursuant to an Assignment and Acceptance and shall be duly completed, executed
and delivered by each Borrower.
(b) Competitive Bid Loans made by any Lender shall be evidenced by, and
be repayable with interest in accordance with the terms of, the Competitive Bid
Note payable to the order of such Lender in the amount of the Total Revolving
Credit Commitment (but the aggregate outstanding principal amount of Competitive
Bid Loans may not at any time exceed one hundred percent (100%) of the Total
Revolving Credit Commitment) which shall be dated the Closing Date or such later
date pursuant to an Assignment and Acceptance and shall be duly completed,
executed and delivered by the Borrowers.
(c) Swing Line Loans made by NationsBank shall be evidenced by the
Swing Line Note in the principal amount of $50,000,000, and shall be repayable
with interest in accordance with the terms of the Swing Line Note dated the
Closing Date and duly executed and delivered by each Borrower.
2.08 Pro Rata Payments. Except as otherwise provided herein, (a) each
payment and prepayment on account of the principal of and interest on the Loans
(other than Competitive Bid Loans and Swing Line Loans) and the fees described
in Sections 2.12 and 2.13 hereof shall be made to the Administrative Agent in
the aggregate amount payable to the Lenders for the account of the Lenders pro
rata based on their Applicable Commitment Percentages, (b) each payment of
principal and interest on the Competitive Bid Loans shall be made to (i) the
Administrative Agent for the account of the respective Lender making such
Competitive Bid Loan if the Borrowers have elected that the Administrative Agent
act under Section 2.02(g) hereof and (ii) otherwise directly to the Lender
making such Competitive Bid Loan, (c) each payment of principal and interest on
Swing Line Loans shall be made to the Administrative Agent for the account of
NationsBank, (d) all payments to be made by the Borrowers for the account of
each of the Lenders on account of principal, interest and fees, shall be made
without set-off or counterclaim, and (e) the Administrative Agent will
distribute such payments when received to the Lenders as provided for herein and
subject to Section 4.06.
2.09 Reductions. The Borrowers shall, by notice from an Authorized
Representative, have the right from time to time (but not more frequently than
twice during each Fiscal Year), upon not less than three (3) Business Days
irrevocable written notice to the Administrative Agent to reduce the Total
Revolving Credit Commitment. The Administrative Agent shall give each Lender,
within one (1) Business Day, telephonic notice (confirmed in writing) of such
reduction. Each such reduction shall be in the aggregate amount of $10,000,000
or such greater amount which is in an integral multiple of $1,000,000, and shall
permanently reduce the Total Revolving Credit Commitment of the Lenders pro
rata. No such reduction shall be permitted that results in the payment of any
Eurodollar Loan other than on the last day of the Interest Period of such Loan
unless
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such prepayment is accompanied by amounts due, if any, under Section 4.04. Each
reduction of the Total Revolving Credit Commitment shall be accompanied by
payment of the Revolving Credit Notes to the extent that the aggregate principal
amount of Outstanding Credit Obligations exceeds the Total Revolving Credit
Commitment after giving effect to such reduction, together with accrued and
unpaid interest on the amounts prepaid.
2.10 Increase and Decrease in Amounts. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrowers shall be
reduced by the aggregate amount of all Swing Line Outstandings, all Outstanding
Letters of Credit and all outstanding Competitive Bid Loans.
2.11 Conversions and Elections of Subsequent Interest Periods. Subject
to the limitations set forth below and in Sections 4.01(b), 4.02 and 4.03
hereof, the Borrowers may:
(a) upon notice to the Administrative Agent on or before 10:30 A.M.
Charlotte, North Carolina time on any Business Day convert all or a part of
Eurodollar Loans that are Revolving Credit Loans to Base Rate Loans on the last
day of the Interest Period for such Eurodollar Loans; and
(b) provided that no Default or Event of Default shall have occurred
and be continuing and on three (3) Business Days' notice to the Administrative
Agent on or before 10:30 A.M. Charlotte, North Carolina time:
(i) elect a subsequent Interest Period for all or a portion of
Eurodollar Loans to begin on the last day of the current Interest
Period for such Eurodollar Loans; or
(ii) convert Base Rate Loans (other than Swing Line Loans) to
Eurodollar Loans on any Business Day.
Notice of any such elections or conversions shall specify the effective
date of such election or conversion and, with respect to Eurodollar Loans, the
Interest Period to be applicable to the Loan as continued or converted. Each
election and conversion pursuant to this Section 2.11 shall be subject to the
limitations on Eurodollar Loans set forth in the definition of "Interest Period"
herein and in Article IV hereof. All such continuations or conversions of Loans
shall be effected pro rata based on the Applicable Commitment Percentages of the
Lenders.
2.12 Fees. For the period beginning on the Closing Date and ending on
the Revolving Credit Termination Date (or such earlier date on which the
Revolving Credit Facility has terminated), the Borrowers agree to pay to the
Administrative Agent, for the pro rata benefit of the Lenders based on their
Applicable Commitment Percentages of the Revolving Credit Facility, the
quarterly portion of the Facility Fee and Utilization Fee. Such payments of fees
provided for in this Section 2.12 shall be payable quarterly in arrears, such
payments to be made not later than the third (3rd) Business Day of each April,
July, October and January beginning on the third (3rd) Business Day of July 1997
to and on the Revolving Credit Termination Date (or such earlier date on which
the Revolving Credit Facility has terminated). Notwithstanding the foregoing, so
long as any Lender
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fails to make available any portion of its Revolving Credit Commitment when
requested, such Lender shall not be entitled to receive payment of its pro rata
share of such fee until such Lender shall make available such portion. Such fee
shall be calculated on the basis of a year of 365-366 days for the actual number
of days elapsed.
2.13 Deficiency Advances. No Lender shall be responsible for any
default of any other Lender in respect to such other Lender's obligation to make
any Loan hereunder nor shall the Revolving Credit Commitment of any Lender
hereunder be increased as a result of such default of any other Lender. Without
limiting the generality of the foregoing, in the event any Lender shall fail to
advance funds to the Borrowers as herein provided, the Administrative Agent may
in its discretion, but shall not be obligated to, advance under the applicable
Note in its favor as a Lender all or any portion of such amount or amounts
(each, a "deficiency advance") and shall thereafter be entitled to payments of
principal of and interest on such deficiency advance in the same manner and at
the same interest rate or rates to which such other Lender would have been
entitled had it made such advance under its applicable Note; provided that, upon
payment to the Administrative Agent from such other Lender of the entire
outstanding amount of each such deficiency advance, together with accrued and
unpaid interest thereon, from the most recent date or dates interest was paid to
the Administrative Agent by the Borrowers on each Loan comprising the deficiency
advance at the interest rate per annum for overnight borrowing by the
Administrative Agent from the Federal Reserve Bank, then such payment shall be
credited against the applicable Note of the Administrative Agent in full payment
of such deficiency advance and the Borrowers shall be deemed to have borrowed
the amount of such deficiency advance from such other Lender as of the date such
deficiency advance is made.
2.14 Use of Proceeds. The proceeds of the Loans made pursuant to the
Revolving Credit Facility, the Competitive Bid Facility, the Swing Line and the
Letters of Credit issued pursuant to the Letter of Credit Facility shall be used
by the Company and its Subsidiaries to finance Permitted Acquisitions and for
working capital and general corporate needs of the Company and its Subsidiaries.
2.15 Swing Line. (a) Notwithstanding any other provision of this
Agreement to the contrary, in order to administer the Revolving Credit Facility
in an efficient manner and to minimize the transfer of funds between the
Administrative Agent and the Lenders, NationsBank, in its individual capacity
and not as Administrative Agent, and subject to the provisions of Section
2.15(c), shall make available Swing Line Loans to either Borrower prior to the
Revolving Credit Termination Date. NationsBank shall not make any Swing Line
Loan pursuant hereto (i) if to the actual knowledge of NationsBank the Borrowers
are not in compliance with all the conditions to the making of Loans set forth
in this Agreement, (ii) if after giving effect to such Swing Line Loan, the
Swing Line Outstandings exceed $50,000,000, or (iii) if after giving effect to
such Swing Line Loan, the principal amount of Outstanding Credit Obligations
exceeds the Total Revolving Credit Commitment. Swing Line Loans shall be limited
to Base Rate Loans unless NationsBank and the Borrowers shall agree otherwise.
The Borrowers may borrow, repay and reborrow under this Section 2.15. Unless
notified to the contrary by NationsBank, borrowings under the Swing Line shall
be made in the minimum amount of $1,000,000 or, if greater, in amounts which are
integral multiples
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of $100,000, or in the amount necessary to effect a Base Rate Refunding Loan,
upon irrevocable telephonic notice, by an Authorized Representative of Borrowers
made to NationsBank not later than 12:30 P.M. on the Business Day of the
requested borrowing. The applicable Borrower shall provide the Administrative
Agent written confirmation of each such telephonic notice on the same day by
telefacsimile transmission in the form of a Borrowing Notice. Each such
Borrowing Notice shall specify the amount of the borrowing and the date of
borrowing, and shall be in the form of Exhibit D-2, with appropriate insertions.
Unless notified to the contrary by NationsBank, each repayment of a Swing Line
Loan shall be in an amount which is an integral multiple of $100,000 or the
aggregate amount of all Swing Line Outstandings. If either Borrower instructs
NationsBank to debit any demand deposit account of such Borrower in the amount
of any payment with respect to a Swing Line Loan, or NationsBank otherwise
receives repayment, after 12:30 P.M. on a Business Day, such payment shall be
deemed received on the next Business Day.
(b) Swing Line Loans shall bear interest at the Base Rate or at any
rate otherwise mutually agreed upon by NationsBank and the Borrowers. The
interest payable on Swing Line Loans is solely for the account of NationsBank,
and all accrued and unpaid interest on Swing Line Loans shall be payable on the
dates and in the manner provided in Sections 2.03 and 2.04 with respect to
interest on Base Rate Loans. The Swing Line Outstandings shall be evidenced by
the Note delivered to NationsBank pursuant to Section 2.07(c).
(c) Upon the making of a Swing Line Loan, each Lender shall be deemed
to have purchased from NationsBank a Participation therein in an amount
determined with reference to that Lender's Applicable Commitment Percentage of
such Swing Line Loan. Upon demand made by NationsBank, each Lender shall,
according to its Applicable Commitment Percentage of such Swing Line Loan,
promptly provide to NationsBank its purchase price therefor in an amount equal
to its Participation therein. Any Advance made by a Lender pursuant to demand of
NationsBank of the purchase price of its Participation shall be deemed (i)
provided that the conditions to making Revolving Credit Loans shall be
satisfied, a Base Rate Refunding Loan under Section 2.01 until the applicable
Borrower converts such Base Rate Loan in accordance with the terms of Section
2.11, and (ii) in all other cases, the funding by each Lender of the purchase
price of its Participation in such Swing Line Loan. The obligation of each
Lender to so provide its purchase price to NationsBank shall be absolute and
unconditional and shall not be affected by the occurrence of a Default, an Event
of Default or any other occurrence or event.
Either Borrower, at its option and subject to the terms hereof, may
request an Advance pursuant to Section 2.01 in an amount sufficient to repay
Swing Line Outstandings on any date and the Administrative Agent shall provide
from the proceeds of such Advance to NationsBank the amount necessary to repay
such Swing Line Outstandings (which NationsBank shall then apply to such
repayment) and credit any balance of the Advance in immediately available funds
in the manner directed by the Borrowers pursuant to Section 2.01(c)(iii). The
proceeds of such Advances shall be paid to NationsBank for application to the
Swing Line Outstandings and the Lenders shall then be deemed to have made Loans
in the amount of such Advances. The Swing Line shall continue in effect until
the Revolving Credit Termination Date, at which time all Swing Line Outstandings
and accrued interest thereon shall be due and payable in full.
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ARTICLE III
Letters of Credit
3.01 Letters of Credit. The Issuing Banks agree, subject to the terms
and conditions of this Agreement, upon request and for the account of the
Company, to issue from time to time Letters of Credit upon delivery to the
Issuing Bank of an Application and Agreement for Letter of Credit in form and
content acceptable to such Issuing Bank; provided, that the Outstanding Letters
of Credit shall not exceed the Total Letter of Credit Commitment. No Letter of
Credit shall be issued by an Issuing Bank with an expiry date or payment date
occurring subsequent to the fifth Business Day preceding the Revolving Credit
Termination Date. No Issuing Bank shall be required to issue any Letter of
Credit if the principal amount of Outstanding Credit Obligations when added to
the face amount of any requested Letter of Credit exceeds the Total Revolving
Credit Commitment. At any one time during the term of this Agreement, not more
than four (4) different Lenders (not including any Existing Issuing Banks) shall
be allowed to act as an Issuing Bank.
3.02 Reimbursement.
(a) The Company hereby unconditionally agrees immediately to
pay to the applicable Issuing Bank on demand at its Lending Office all amounts
required to pay all drafts drawn or purporting to be drawn under any Letters of
Credit and all reasonable expenses incurred by an Issuing Bank in connection
with the Letters of Credit and in any event and without demand to place in
possession of the applicable Issuing Bank (which shall include Advances under
the Revolving Credit Facility if permitted by Section 2.01 hereof) sufficient
funds to pay all debts and liabilities arising under any Letter of Credit. The
Company's obligations to pay an Issuing Bank under this Section 3.02, and such
Issuing Bank's right to receive the same, shall be absolute and unconditional
and shall not be affected by any circumstance whatsoever. Each Issuing Bank
agrees to give the Company prompt written notice of any request for a draw under
a Letter of Credit, but failure to provide such notice shall not affect the
parties' Obligations with respect thereto. Each Issuing Bank may charge any
account the Company may have with it for any and all amounts such Issuing Bank
pays under a Letter of Credit, plus charges and reasonable expenses as from time
to time agreed to by such Issuing Bank and the Company; provided that to the
extent permitted by Section 2.01(c)(iv), such amounts shall be paid pursuant to
Swing Line Loans or Advances under the Revolving Credit Facility. The Company
agrees that an Issuing Bank may, in its sole discretion, accept or pay, as
complying with the terms of any Letter of Credit, any drafts or other documents
otherwise in order which may be signed or issued by an administrator, executor,
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, liquidator, receiver, attorney in fact or other legal representative
of a party who is authorized under such Letter of Credit to draw or issue any
drafts or other documents. The Company agrees to pay an Issuing Bank interest on
any amounts not paid when due hereunder at the Base Rate plus two percent (2%)
per annum, or the maximum rate permitted by applicable law, if lower.
(b) In accordance with the provisions of Section 2.01 hereof,
each Issuing Bank shall notify the Administrative Agent (and shall also notify
the Company), but failure to provide such
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notification shall not affect the parties' Obligations with respect thereto, of
any drawing under any Letter of Credit as promptly as practicable following the
receipt by such Issuing Bank of such drawing.
(c) Each Lender (other than the applicable Issuing Bank) shall
automatically acquire on the date of issuance thereof, a Participation in the
liability of such Issuing Bank in respect of each Letter of Credit in an amount
determined with reference to such Lender's Applicable Commitment Percentage of
such liability, and to the extent that the Company is obligated to pay such
Issuing Bank under Section 3.02(a), each Lender (other than the Issuing Bank)
shall absolutely, unconditionally and irrevocably assume, and shall be
unconditionally obligated to pay to such Issuing Bank as hereinafter described,
its Applicable Commitment Percentage of the liability of such Issuing Bank under
such Letter of Credit. Prior to the Revolving Credit Termination Date, each
Lender (including any Issuing Bank in its capacity as a Lender) shall, subject
to the terms and conditions of Article II, make a Revolving Credit Loan bearing
interest at the Base Rate to the Company by paying to the Administrative Agent
for the account of the applicable Issuing Bank at the Principal Office in
Dollars and in immediately available funds, an amount equal to its Applicable
Commitment Percentage of any drawing under a Letter of Credit, all as described
and pursuant to Section 2.01(c)(iv). With respect to drawings under any of the
Letters of Credit, each Lender, upon receipt from the Administrative Agent of
notice of a drawing in the manner described in Section 2.01(c)(iv), shall
promptly pay to the Administrative Agent for the account of the applicable
Issuing Bank, prior to the applicable time set forth in Section 2.01(c)(iv), its
Applicable Commitment Percentage of such drawing. Simultaneously with the making
of each such payment by a Lender to such Issuing Bank, such Lender shall,
automatically and without any further action on the part of such Issuing Bank or
such Lender, acquire a Participation in an amount equal to such payment
(excluding the portion thereof constituting interest) in the related
Reimbursement Obligation of the Company. The Reimbursement Obligations of the
Company shall be immediately due and payable whether by Advances made in
accordance with Section 2.01(c)(iv) or otherwise. Each Lender's obligation to
make payment to the Administrative Agent for the account of an Issuing Bank
pursuant to this Section 3.02(c), and the right of such Issuing Bank to receive
the same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and shall be made without any offset, abatement,
withholding or reduction whatsoever. If any Lender is obligated to pay but does
not pay amounts to the Administrative Agent for the account of an Issuing Bank
in full upon such request as required by this Section 3.02(c), such Lender
shall, on demand, pay to the Administrative Agent for the account of such
Issuing Bank interest on the unpaid amount for each day during the period
commencing on the date of notice given to such Lender pursuant to Section
2.01(b) until such Lender pays such amount to the Administrative Agent for the
account of such Issuing Bank in full at the interest rate per annum for
overnight borrowing by the Administrative Agent from the Federal Reserve Bank in
Richmond, Virginia.
(d) As soon as practical following the issuance of a Letter of
Credit, the applicable Issuing Bank shall notify the Administrative Agent, and
the Administrative Agent shall notify each Lender, of the date of issuance of
such Letter of Credit, the stated amount and the expiry date of such Letter of
Credit. Promptly following the end of each calendar quarter, each Issuing Bank
shall deliver to the Administrative Agent, and the Administrative Agent shall
deliver to each
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Lender, a notice describing the aggregate undrawn amount of all Letters of
Credit at the end of such quarter. Upon the request of any Lender from time to
time, each Issuing Bank shall deliver to the Administrative Agent, and the
Administrative Agent shall deliver to such Lender, any other information
reasonably requested by such Lender with respect to each Outstanding Letter of
Credit.
(e) Each issuance by an Issuing Bank of a Letter of Credit
shall, in addition to the conditions precedent set forth in Section 5.01 hereof,
be subject to the conditions that such Letter of Credit be in such form and
contain such terms as shall be reasonably satisfactory to the Issuing Bank
consistent with the then current practices and procedures of such Issuing Bank
with respect to similar letters of credit, and the Company shall have executed
and delivered such other instruments and agreements relating to such Letters of
Credit as the Issuing Bank shall have reasonably requested consistent with such
practices and procedures. All Letters of Credit shall be issued pursuant to and
subject to the Uniform Customs and Practice for Documentary Credits, 1993
revision, International Chamber of Commerce Publication No. 500 and all
subsequent amendments and revisions thereto, or if the Issuing Bank shall elect
by express reference in an affected Letter of Credit, the International Chamber
of Commerce International Standby Practices commonly referred to as "ISP98", or
any subsequent amendment or revision of either thereof.
(f) Without duplication of Section 10.07 hereof, the Company
hereby agrees to defend, indemnify and hold harmless each Issuing Bank, each
other Lender and the Administrative Agent from and against any and all claims
and damages, losses, liabilities, reasonable costs and expenses which such
Issuing Bank, such other Lenders or the Administrative Agent may incur (or which
may be claimed against such Issuing Bank, such other Lenders or the
Administrative Agent) by any Person by reason of or in connection with the
issuance or transfer of or payment or failure to pay under any Letter of Credit;
provided that the Company shall not be required to indemnify an Issuing Bank,
any other Lender or the Administrative Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, (i) caused
by the willful misconduct or gross negligence of the party to be indemnified
after final adjudication thereof or (ii) caused by the failure of an Issuing
Bank to pay under any Letter of Credit after the presentation to it of a request
strictly complying with the terms and conditions of such Letter of Credit,
unless such payment is prohibited by any law, regulation, court order or decree
or failure to pay is permitted under the terms of the applicable Letter of
Credit. The provisions of this Section 3.02(f) shall survive repayment of the
Obligations, the occurrence of the Revolving Credit Termination Date, and
expiration or termination of this Agreement.
(g) Without limiting the Company's rights to raise claims as
set forth in Section 3.02(f) above, the obligation of the Company to immediately
reimburse an Issuing Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit and the
related applications for any Letter of Credit, including, under the following
circumstances:
(i) any lack of validity or enforceability of the
Letter of Credit, the obligation supported by the Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "Related
Documents");
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(ii) any amendment or waiver of or any consent to or
departure from all or any of the Related Documents;
(iii) the existence of any claim, setoff, defense
(other than the defense of payment in accordance with the terms of this
Agreement) or other rights which the Company may have at any time against any
beneficiary or any transferee of a Letter of Credit (or any persons or entities
for whom any such beneficiary or any such transferee may be acting), the
Administrative Agent, the Lenders or any other person or entity, whether in
connection with the Loan Documents, the Related Documents or any unrelated
transaction;
(iv) any breach of contract or other dispute between
the Company and any beneficiary or any transferee of a Letter of Credit (or any
persons or entities for whom such beneficiary or any such transferee may be
acting), the Administrative Agent, the Lenders or any other Person;
(v) any draft, statement or any other document
presented under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(vi) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or agreed to by the
Administrative Agent, with or without notice to or approval by the Company in
respect of any of the Company's Obligations under this Agreement; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing;
provided, however, that nothing contained herein shall be deemed to release an
Issuing Bank or any other Lender of any liability for actual loss arising as a
result of its gross negligence or willful misconduct or out of the wrongful
dishonor by an Issuing Bank of a proper demand for payment made under and
strictly complying with the terms of any Letter of Credit.
3.03 Letter of Credit Fee. The Company agrees to pay (i) to the
Administrative Agent, for the pro rata benefit of the Lenders based on their
Applicable Commitment Percentages, a fee on the aggregate amount available to be
drawn on each Outstanding Letter of Credit at a rate equal to the Applicable
Margin as in effect from time to time, and (ii) to the Issuing Bank, as issuer
of each Letter of Credit, an issuance fee in such amount as may be agreed by an
Issuing Bank and the Company from time to time. Such payments of fees provided
for in this Section 3.03 shall be due with respect to each Letter of Credit
quarterly in arrears, such payment to be made not later than the third (3rd)
Business Day of each April, July, October and January, commencing on the first
such date following the issuance of a Letter of Credit under this Agreement.
Such fees shall be calculated on the basis of a year of 365-366 days for the
actual number of days elapsed.
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3.04 Administrative Fees. The Company shall pay to any Issuing Bank
such administrative fee and other fees, if any, in connection with the Letters
of Credit in such amounts and at such times as such Issuing Bank and the Company
shall agree from time to time.
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ARTICLE IV
Yield Protection and Illegality
4.01 Additional Costs. (a) The Borrowers shall promptly pay to the
Administrative Agent for the account of a Lender from time to time, without
duplication, such amounts as such Lender may determine to be necessary to
compensate it for any costs incurred by such Lender which it determines are
attributable to its making or maintaining any Loan or its obligation to make any
Loans, or the issuance or maintenance by an Issuing Bank of or any other
Lender's Participation in any Letter of Credit issued hereunder, or any
reduction in any amount receivable by such Lender under this Agreement, the
Notes or the Letters of Credit in respect of any of such Loans or such
obligation or the Letters of Credit, including reductions in the rate of return
on a Lender's capital (such increases in costs and reductions in amounts
receivable and returns being herein called "Additional Costs"), resulting from
any Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or the Notes in respect of any of
such Loans or Letters of Credit (other than taxes imposed on or measured by the
income, revenues or assets of any Lender); or (ii) imposes or modifies any
reserve, special deposit, or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, such
Lender (other than any such reserve, deposit or requirement reflected in the
Prime Rate, the Federal Funds Effective Rate, the Eurodollar Revolver Rate or
the Eurodollar Competitive Rate, in each case computed in accordance with the
respective definitions of such terms set forth in Section 1.01 hereof); or (iii)
has or would have the effect of reducing the rate of return on capital of any
such Lender or corporation controlling such Lender to a level below that which
the Lender or corporation controlling such Lender could have achieved but for
such Regulatory Change (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy); or (iv) imposes any
other condition adversely affecting the Administrative Agent or the Lenders
under this Agreement, the Notes or the issuance or maintenance of, or any
Lender's Participation in, the Letters of Credit (or any of such extensions of
credit or liabilities). Each Lender will notify the Borrowers and the
Administrative Agent of any event occurring after the Closing Date which would
entitle it to compensation pursuant to this Section 4.01(a) as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation.
(b) Without limiting the effect of the foregoing provisions of this
Section 4.01, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
the Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is
determined as provided in this Agreement or a category of extensions of credit
or other assets of any Lender which includes Eurodollar Loans or Competitive Bid
Loans at the Eurodollar Competitive Rate (by way of illustration only and not
limitation, an increase in reserve requirements on a Lender's eurodollar deposit
liabilities above a specified dollar amount percentage of its capital) or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if the Lender so elects by notice to the
other Lenders and the Borrowers, the obligation hereunder of such Lender to
make, and to convert Base Rate Loans into, Eurodollar Loans that are the subject
of such
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restrictions shall be suspended until the date such Regulatory Change ceases to
be in effect and either Borrower shall, on the last day(s) of the then current
Interest Period(s) for outstanding Eurodollar Loans convert such Eurodollar
Loans into Base Rate Loans; provided, however, that the suspension of such
obligation and the conversion of any Eurodollar Loans into Base Rate Loans shall
apply only to any Lender who is affected by such restrictions and who has
provided such notice to the other Lenders, and the obligation of the other
Lenders to make, and to convert Base Rate Loans into Eurodollar Loans shall not
be affected by such restrictions. In the event that the obligation of some, but
not all of the Lenders to make, or to convert Base Rate Loans into Eurodollar
Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is suspended,
then any request by either Borrower during the pendency of such suspension for a
Eurodollar Loan or Competitive Bid Loans at the Eurodollar Competitive Rate
shall be deemed a request for such Eurodollar Loan or Competitive Bid Loans at
the Eurodollar Competitive Rate from the Lender(s) not subject to such
suspension and for a Base Rate Loan or Competitive Bid Loan at an Absolute Rate
from the Lender(s) who are subject to such suspension, as to Eurodollar Loans
and Base Rate Loans, in each case in the respective amounts based on the
Lenders' respective Revolving Credit Commitments.
(c) Determinations by any Lender for purposes of this Section 4.01 of
the effect of any Regulatory Change on its costs of making or maintaining, or
being committed to make, Loans or by an Issuing Bank as issuer of any Letter of
Credit of the effect of any Regulatory Change on its costs in connection with
the issuance or maintenance of, or any other Lender's Participation in, any
Letter of Credit issued hereunder, or on amounts receivable by any Lender in
respect of Loans or Letters of Credit, and of the additional amounts required to
compensate the Lender in respect of any Additional Costs, shall be made on a
reasonable basis taking into account such Lender's reasonable policies as to the
allocation of capital, costs and other items. The Lender requesting such
compensation shall furnish to the Borrowers and the Administrative Agent an
explanation of the Regulatory Change and calculations, in reasonable detail,
setting forth such Lender's determination of any such Additional Costs.
4.02 Suspension of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any interest rate for
any Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate for
any Interest Period, the Administrative Agent or, with respect to a Competitive
Bid Loan at the Eurodollar Competitive Rate, any Lender determines (which
determination made on a reasonable basis shall be conclusive absent manifest
error) that:
(a) quotations of interest rates for the relevant deposits
referred to in the definitions of a Eurodollar Revolver Rate or
Eurodollar Competitive Rate in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Eurodollar Loan
or Competitive Bid Loan as provided in this Agreement; or
(b) the relevant rates of interest referred to in the
definition of "Interbank Offered Rate" in Section 1.01 hereof upon the
basis of which the Eurodollar Revolver Rate or Eurodollar Competitive
Rate for such Interest Period is to be determined do not adequately
reflect the cost to the Lenders, or in the case of a Competitive Bid
Loan, to the Lender
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making such Loan of making or maintaining such Eurodollar Loan or
Competitive Bid Loan for such Interest Period (which determination
shall be made on a reasonable basis by the Administrative Agent or such
Lender, as the case may be, and the Person making such determination
shall furnish the Borrowers evidence of the facts leading to such
determination);
then the Administrative Agent or Lender, as the case may be, shall give the
Borrowers prompt notice thereof, and so long as such condition remains in
effect, the Lenders shall be under no obligation to make Eurodollar Loans or
Competitive Bid Loans at the Eurodollar Competitive Rate that are subject to
such condition, or to convert Loans into Eurodollar Loans, and either Borrower
shall on the last day(s) of the then current Interest Period(s) for outstanding
Eurodollar Loans, as applicable, convert such Eurodollar Loans into another
Eurodollar Loan which is not subject to the same or similar condition, or Base
Rate Loans. The Administrative Agent or such Lender, as the case may be, shall
give the Borrowers notice describing in reasonable detail any event or condition
described in this Section 4.02 promptly following the determination by the
Administrative Agent or such Lender, as the case may be, that the availability
of Eurodollar Loans or Competitive Bid Loans at a Eurodollar Competitive Rate
is, or is to be, suspended as a result thereof.
4.03 Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender to honor its obligation to
make or maintain Eurodollar Loans or Competitive Bid Loans at a Eurodollar
Competitive Rate hereunder, then such Lender shall promptly notify the Borrowers
thereof (with a copy to the Administrative Agent) and such Lender's obligation
to make or continue Eurodollar Loans or Competitive Bid Loans at a Eurodollar
Competitive Rate, or convert Base Rate Loans into Eurodollar Loans, shall be
suspended until such time as such Lender may again make and maintain Eurodollar
Loans or Competitive Bid Loans at a Eurodollar Competitive Rate, and such
Lender's outstanding Eurodollar Loans shall be converted into Base Rate Loans in
accordance with Section 2.11 hereof.
4.04 Compensation. The Borrowers shall promptly pay to each Lender,
upon the request of such Lender, such amount or amounts as shall be sufficient
(in the reasonable determination of Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) any payment, prepayment or conversion of a Eurodollar Loan
or Competitive Bid Loan at a Eurodollar Competitive Rate on a date
other than the last day of the Interest Period for such Eurodollar Loan
or Competitive Bid Loan at a Eurodollar Competitive Rate, including
without limitation any conversion required pursuant to this Article IV,
the amount of such compensation being the positive difference, if any,
between the Interbank Offered Rate being paid with respect to such
Loans and the Interbank Offered Rate which would be payable on a new
Loan of like amount and for the remaining Interest Period made on the
date of such payment, prepayment or conversion; or
(b) any failure by either Borrower to borrow, convert or
prepay a Eurodollar Loan or Competitive Bid Loan at a Eurodollar
Competitive Rate on the date for such borrowing, conversion or
prepayment specified in the relevant Borrowing Notice, Competitive Bid
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Quote Request, interest rate selection notice or prepayment notice
under Article II hereof, the amount of such compensation to include,
without limitation, an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount not
borrowed for the period from the date of such failure to borrow to the
last day of the then current Interest Period for such Loan at the
applicable rate of interest for such Eurodollar Loan or Competitive Bid
Loan at a Eurodollar Competitive Rate provided for herein over (ii) the
Interbank Offered Rate for Dollar deposits of amounts comparable to
such principal amount and maturities comparable to such period.
A determination of a Lender as to the amounts payable pursuant to this Section
4.04 shall be conclusive, provided that such determinations are made on a
reasonable basis. The Lender requesting compensation under this Section 4.04
shall furnish to the Borrowers and the Administrative Agent calculations in
reasonable detail setting forth such Lender's determination of the amount of
such compensation.
4.05 Alternate Loan and Lender. In the event any Lender suspends the
making of any Eurodollar Loan or any Competitive Bid Loan at the Eurodollar
Competitive Rate pursuant to this Article IV (herein a "Restricted Lender"), the
Restricted Lender's Applicable Commitment Percentage of such Eurodollar Loans or
such Competitive Bid Loans shall bear interest at either the Base Rate, the
Eurodollar Revolver Rate or the Eurodollar Competitive Rate for which the
suspension does not apply, as selected by the Borrowers, until the Restricted
Lender once again makes available the applicable Eurodollar Loan or Competitive
Bid Loan at the Eurodollar Competitive Rate. Notwithstanding the provisions of
Section 2.03(b), interest shall be payable to the Restricted Lender at the time
and manner as paid to those Lenders making available Eurodollar Loans or
Competitive Bid Loans at the Eurodollar Competitive Rate. If the obligation of
any Lender to make Eurodollar Loans or Competitive Bid Loans at the Eurodollar
Competitive Rate is suspended, the Borrowers may, with respect to such Lender,
elect to terminate this Agreement, and in connection therewith, not to borrow at
the Base Rate as provided above; provided, that the Borrowers notify such Lender
through the Administrative Agent of such election at least three Business Days
before any date fixed for such borrowing and (i) repay all of such Lender's
outstanding Loans plus all accrued interest, commitment fees and other amounts
owing to, but not including, the date of repayment at the end of the respective
Interest Periods applicable thereto, and (ii) selects, with the consent of the
Administrative Agent, which shall not be unreasonably withheld, an assignee
which shall assume all the rights and obligations of such Lender as to which
this Agreement has been terminated. Upon receipt by the Administrative Agent of
such notice and the assignment to and assumption of the Revolving Credit
Commitment by a replacement bank, the Revolving Credit Commitment of such Lender
shall terminate.
4.06 Taxes. All payments by the Borrowers of principal of, and interest
on, the Loans and all other amounts payable hereunder shall be made free and
clear of and without deduction for any present or future excise, stamp or other
taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other
charges of any nature whatsoever imposed by any taxing authority, but excluding
(i) franchise taxes, (ii) any taxes (other than withholding taxes) that would
not be imposed but for a connection between a Lender or the Administrative Agent
and the jurisdiction imposing
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such taxes (other than a connection arising solely by virtue of the activities
of such Lender or the Administrative Agent pursuant to or in respect of this
Agreement or any other Loan Document), (iii) any withholding taxes payable with
respect to payments hereunder or under any other Loan Document under laws
(including, without limitation, any statute, treaty, ruling, determination or
regulation) in effect on the Closing Date, (iv) any taxes imposed on or measured
by any Lender's assets, net income, receipts or branch profits and (v) any taxes
arising after the Closing Date solely as a result of or attributable to Lender
changing its designated lending office after the date such Lender becomes a
party hereto (such non-excluded items being collectively called "Taxes"). In the
event that any withholding or deduction from any payment to be made by the
Borrowers hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrowers will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Administrative Agent an official
receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authority; and
(c) pay to the Administrative Agent for the account of the
Lender such additional amount or amounts as is necessary to ensure that
the net amount actually received by each Lender will equal the full
amount such Lender would have received had no such withholding or
deduction been required.
Prior to the date that any Lender or participant organized under the
laws of a jurisdiction outside the United States becomes a party hereto, such
Person shall deliver to the Borrowers and the Administrative Agent such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto, properly completed, currently effective and
duly executed by such Lender or participant establishing that such payment is
(i) not subject to United States Federal backup withholding tax and (ii) not
subject to United States Federal withholding tax under the Code because such
payment is either effectively connected with the conduct by such Lender or
participant of a trade or business in the United States or totally exempt from
United States Federal withholding tax by reason of the application of the
provisions of a treaty to which the United States is a party or such Lender is
otherwise exempt.
If the Borrowers shall fail to pay any Taxes when due to the
appropriate taxing authority or shall fail to remit to the Administrative Agent,
for the account of the respective Lender, the required receipts or other
required documentary evidence, the Borrowers shall indemnify the Lenders for any
incremental Taxes, interest or penalties that may become payable by any Lender
as a result of any such failure. For purposes of this Section 4.06, a
distribution hereunder by the Administrative Agent or any Lender to or for the
account of any Lender shall be deemed a payment by the Borrowers.
4.07 Replacement Lenders. The Borrowers may, in their sole discretion,
on ten (10) Business Days' prior written notice to the Administrative Agent and
a Lender, cause such Lender
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to (and such Lender shall) assign pursuant to Section 11.01 hereof, all of its
rights and obligations under this Agreement (other than with respect to
outstanding Competitive Bid Loans) to an Eligible Assignee designated by the
Borrowers which is willing to become a Lender for a purchase price equal to the
outstanding principal amount of the Loans payable to such Lender, together with
any accrued but unpaid interest on such Loans, any accrued but unpaid fees with
respect to such Lender's Revolving Credit Commitment and any other amounts
payable to such Lender under this Agreement; provided, that any expenses or
other amounts which would be owing to such Lender pursuant to any
indemnification provision hereunder shall be payable by the Borrowers as if the
Borrowers had prepaid the Loans of such Lender rather than such Lender having
assigned its interest thereunder. The Borrowers or the Eligible Assignee under
this Section shall pay the applicable processing fee under Section 11.01.
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ARTICLE V
Conditions to Making Loans and Issuing
Letters of Credit
5.01 Conditions of Initial Advance and Issuance of Letters of Credit.
The obligation of the Lenders to continue to make Advances and of the Issuing
Banks to continue to issue Letters of Credit is subject to the conditions
precedent that the Administrative Agent shall have received on or before the
Closing Date, in form and substance satisfactory to the Administrative Agent and
the Lenders, the following:
(a) executed originals of each of this Agreement, the Notes
and the other Loan Documents, together with all schedules and exhibits
hereto and thereto;
(b) favorable written opinions of special counsel to the
Borrowers dated the Closing Date, addressed to the Administrative Agent
and the Lenders and satisfactory to Smith Helms Mulliss & Moore,
L.L.P., special counsel to the Administrative Agent, substantially in
the form of Exhibit K attached hereto;
(c) resolutions of the board of directors or other appropriate
governing body (or of the appropriate committee thereof) of each
Borrower certified by its secretary or assistant secretary or other
appropriate official as of the Closing Date, approving and adopting the
Loan Documents to be executed, and authorizing the execution and
delivery thereof;
(d) specimen signatures of officers of each Borrower executing
the Loan Documents on behalf of such Borrower, certified by the
secretary or assistant secretary or other appropriate official of such
Borrower;
(e) the charter documents of each Borrower certified as of a
recent date by the Secretary of State of such Borrower's jurisdiction
of incorporation;
(f) the by-laws of each Borrower certified as of the Closing
Date as true and correct by the secretary or assistant secretary of
such Borrower;
(g) certificates issued as of a recent date by the Secretary
of State or other appropriate Governmental Authority of each Borrower's
jurisdiction of incorporation as to the due existence and good standing
of such Borrower therein;
(h) appropriate certificates of qualification to do business,
good standing and, where appropriate, authority to conduct business
under assumed name, issued in respect of each Borrower as of a recent
date by the Secretary of State or other appropriate Governmental
Authority of each jurisdiction in which the failure to be qualified to
do business or authorized so to conduct business could have a Material
Adverse Effect;
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(i) notice of appointment of the Authorized Representatives of
each Borrower in the form of Exhibit C hereto;
(j) certificate of an Authorized Representative dated the
Closing Date demonstrating compliance with the financial covenants
contained in Sections 8.01 and 8.02 as of the immediately preceding
calendar quarter, substantially in the form of Exhibit L attached
hereto;
(k) evidence of insurance required by the Loan Documents;
(l) all fees payable by the Borrowers on the Closing Date to
the Administrative Agent, any Issuing Banks, NationsBank and the
Lenders; and
(m) such other documents, instruments, certificates and
opinions as the Administrative Agent or any Lender may reasonably
request on or prior to the Closing Date in connection with the
consummation of the transactions contemplated hereby.
5.02 Conditions of Loans. The obligations of the Lenders to make any
Loans, and of the Issuing Banks to issue Letters of Credit hereunder on or
subsequent to the Closing Date are subject to the satisfaction of the following
conditions:
(a) the Administrative Agent shall have received a notice of
such borrowing or request if required by Article II hereof;
(b) the representations and warranties of the Company and its
Subsidiaries, taken as a whole, set forth in Article VI hereof and in
each of the other Loan Documents shall be true and correct in all
material respects on and as of the date of such Advance or issuance of
such Letters of Credit, as the case may be, with the same effect as
though such representations and warranties had been made on and as of
such date, except to the extent that such representations and
warranties expressly relate to an earlier date and except that the
financial statements referred to in Section 6.01(f)(i) shall be deemed
to be those financial statements most recently delivered to the
Administrative Agent and the Lenders pursuant to Section 7.01 hereof;
(c) in the case of the issuance of a Letter of Credit, the
Company shall have executed and delivered to the applicable Issuing
Bank an Application and Agreement for Letter of Credit in form and
content acceptable to such applicable Issuing Bank together with such
other instruments and documents as it shall request;
(d) at the time of each such Advance, Swing Line Loan or
issuance of each Letter of Credit, as the case may be, and after giving
effect thereto no Default or Event of Default specified in Article IX
hereof, shall have occurred and be continuing;
(e) immediately after giving effect to a Swing Line Loan, the
aggregate Swing Line Outstandings shall not exceed $50,000,000; and
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(f) immediately after giving effect to a Loan or Letter of
Credit the aggregate principal balance of all outstanding Loans and
Participations for each Lender and in the aggregate shall not exceed,
respectively, (i) any of such Lender's Revolving Credit Commitment or
Letter of Credit Commitment or (ii) any of the Total Revolving Credit
Commitment or Total Letter of Credit Commitment.
5.03 Supplements to Schedules. The Borrowers may, from time to time,
amend or supplement the Schedules to this Agreement by delivering (effective
upon receipt) to the Administrative Agent and each Lender a copy of such revised
Schedule or Schedules which shall (i) be dated the date of delivery, (ii) be
certified by an Authorized Representative as true, complete and correct as of
such date and as delivered in replacement for the corresponding Schedule or
Schedules previously in effect, and (iii) show in reasonable detail (by
blacklining or other appropriate graphic means) the changes from each such
corresponding predecessor Schedule. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, in the event that the
Required Lenders determine based upon such revised Schedule (whether
individually or in the aggregate or cumulatively) that there has been a material
adverse change since the Closing Date in the financial condition, business or
operations of the Company and its Subsidiaries, taken as a whole, the Lenders
shall have no further obligation to fund additional Advances hereunder.
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ARTICLE VI
Representations and Warranties
6.01 Representations and Warranties. The Company represents and
warrants with respect to itself and to its Subsidiaries (which representations
and warranties shall survive the delivery of the documents mentioned herein and
the making of Loans and issuance of Letters of Credit), that:
(a) Organization and Authority.
(i) the Company and each Subsidiary is a corporation,
limited liability company or partnership duly organized and
validly existing under the laws of the jurisdiction of its
incorporation or creation;
(ii) the Company and each Subsidiary (x) has the
requisite power and authority to own its properties and assets
and to carry on its business as now being conducted and as
contemplated in the Loan Documents, and (y) is qualified to do
business in every jurisdiction in which failure so to qualify
would have a Material Adverse Effect;
(iii) the Company and RRC have the power and
authority to execute, deliver and perform this Agreement and
the Notes, and to borrow hereunder, and to execute, deliver
and perform each of the other Loan Documents to which they are
a party; and
(iv) when executed and delivered, each of the Loan
Documents to which the Company and RRC are a party will be the
legal, valid and binding obligation or agreement of the
Company and RRC, enforceable against the Company and RRC in
accordance with their terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general
principles of equity which may limit the availability of
equitable remedies (whether in a proceeding at law or in
equity);
(b) Loan Documents. The execution, delivery and performance by
the Company and RRC of each of the Loan Documents to which they are a
party:
(i) have been duly authorized by all requisite
corporate action (including any required shareholder approval)
of the Company and RRC required for the lawful execution,
delivery and performance thereof;
(ii) do not violate any provisions of (1) applicable
law, rule or regulation, (2) any order of any court or other
agency of government binding on the Company
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or RRC or their properties, or (3) the charter documents,
documents of creation or by-laws of the Company or RRC;
(iii) will not be in conflict with, result in a
breach of or constitute an event of default, or an event
which, with notice or lapse of time, or both, would constitute
an event of default, under any indenture, agreement or other
instrument to which the Company or RRC is a party, or by which
the properties or assets of the Company or RRC are bound;
(iv) will not result in the creation or imposition of
any Lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company or RRC.
(c) Solvency. The Company and each Subsidiary will remain
Solvent after giving effect to the transactions contemplated by this
Agreement and the other Loan Documents.
(d) Subsidiaries and Stockholders. As of the date hereof, the
Company has no Subsidiaries other than those Persons listed as
Subsidiaries on Schedule 6.01(d) hereto; Schedule 6.01(d) to this
Agreement states as of the date hereof the authorized and issued
capitalization of each Subsidiary listed thereon, the number of shares
or other equity interests of each class of capital stock or interest
issued and outstanding of each such Subsidiary and the number and/or
percentage of outstanding shares or other equity interest (including
options, warrants and other rights to acquire any interest) of each
such class of capital stock or equity interest owned by the Company or
by any such Subsidiary; as of the date hereof, the outstanding shares
or other equity interests of each such Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable;
and, as of the date hereof, the Company and each such Subsidiary owns
beneficially and of record all the shares and other interests it is
listed as owning in Schedule 6.01(d), free and clear of any Lien other
than the Liens permitted under Section 8.04.
(e) Ownership Interests. As of the date hereof, the Company
owns no interest in any Person having an aggregate book value of
$1,000,000 or more other than the Persons listed in Schedule 6.01(d)
hereto;
(f) Financial Condition. (i) The Company has heretofore
furnished to each Lender an audited consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1997 and the notes
thereto and the related consolidated statements of operations, cash
flows, and changes in stockholders' equity for the Fiscal Year then
ended as examined and certified by Arthur Andersen L.L.P. and unaudited
interim consolidated financial statements of the Company and its
Subsidiaries consisting of a consolidated balance sheet and related
statements of operations, cash flow and stockholders' equity, in each
case without notes, for and as of the nine month period ending
September 30, 1998. Except as set forth therein, such financial
statements (including the notes thereto) present fairly the financial
condition of the Company and its Subsidiaries as of the end of such
Fiscal Year and
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such interim period and results of their operations and the changes in
their stockholders' equity for the Fiscal Year and such interim period
then ended, all in conformity with Generally Accepted Accounting
Principles applied on a Consistent Basis;
(ii) except for the transfer of a portion of RSG to
shareholders, since December 31, 1997, there has been no material
adverse change in the condition, financial or otherwise, of the Company
and its Subsidiaries or in the businesses, properties and operations of
the Company and its Subsidiaries, considered as a whole, nor have such
businesses or properties, taken as a whole, been materially adversely
affected as a result of any fire, explosion, earthquake, accident,
strike, lockout, combination of workers, flood, embargo or act of God;
(iii) except as set forth in the financial statements referred
to in Section 6.01(f)(i) or in Schedule 6.01(f) or Schedule 6.01(j)
attached hereto, neither the Company nor any Subsidiary has incurred,
other than in the ordinary course of business, any material
indebtedness, obligations, commitments or other material liability
contingent or otherwise which remain outstanding or unsatisfied;
(g) Title to Properties. The Company and its Subsidiaries have
title to all their respective owned real and personal properties,
subject to no transfer restrictions or Liens of any kind, except for
(x) the transfer restrictions and Liens described in Schedule 6.01(g)
attached hereto, and (y) Liens permitted under Section 8.04 hereof;
(h) Taxes. The Company and its Subsidiaries have filed or
caused to be filed all federal, state, local and foreign tax returns
which are required to be filed by them and except for taxes and
assessments being contested in good faith and against which reserves
satisfactory to the Company's independent certified public accountants
have been established, and have paid or caused to be paid all taxes as
shown on said returns or on any assessment received by them, to the
extent that such taxes have become due;
(i) Other Agreements. Neither the Company nor any Subsidiary
is
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to restrictions which could
have a Material Adverse Effect; or
(ii) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which the Company
or any Subsidiary is a party, which default has, or if not
remedied within any applicable grace period could have, a
Material Adverse Effect;
(j) Litigation. Except as set forth in Schedule 6.01(j)
attached hereto, there is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or agency or
arbitral body pending, or, to the knowledge of the Company or RRC,
threatened by or against the Company or any Subsidiary or affecting the
Company or
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any Subsidiary or any properties or rights of the Company or any
Subsidiary, which could reasonably be expected to have a Material
Adverse Effect;
(k) Margin Stock. Neither the Company nor any Subsidiary owns
any "margin stock" as such term is defined in Regulation U, as amended
(12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made
pursuant to Article II hereof will be used by the Company and its
Subsidiaries only for the purposes set forth in Section 2.14 hereof.
None of such proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin stock or for the purpose
of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry margin stock or for any other purpose which might
constitute any of the Loans under this Agreement a "purpose credit"
within the meaning of said Regulation U or Regulation X (12 C.F.R. Part
224) of the Board. Neither the Borrowers nor any agent acting in their
behalf has taken or will take any action which might cause this
Agreement or any of the documents or instruments delivered pursuant
hereto to violate any regulation of the Board or to violate the
Securities Exchange Act of 1934, as amended, or the Securities Act of
1933, as amended, or any state securities laws, in each case as in
effect on the date hereof;
(l) Investment Company. Neither the Company nor any Subsidiary
is an "investment company," or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended (15
U.S.C. ss. 80a-1, et seq.). The application of the proceeds of the
Loans and repayment thereof by the Borrowers and the performance by the
Borrowers of the transactions contemplated by this Agreement will not
violate any provision of said Act, or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder, in each
case as in effect on the date hereof;
(m) Patents, Etc. The Company and its Subsidiaries own or have
the right to use, under valid license agreements or otherwise, all
material patents, licenses, franchises, trademarks, trademark rights,
trade names, trade name rights, trade secrets and copyrights necessary
to the conduct of their businesses as now conducted, without known
conflict with any patent, license, franchise, trademark, trade secrets
and confidential commercial or proprietary information, trade name,
copyright, rights to trade secrets or other proprietary rights of any
other Person;
(n) No Untrue Statement. Neither this Agreement nor any other
Loan Document or certificate or document executed and delivered by or
on behalf of the Company or any Subsidiary in accordance with or
pursuant to any Loan Document contains any misrepresentation or untrue
statement of material fact or omits to state a material fact necessary,
in light of the circumstance under which it was made, in order to make
any such representation or statement contained herein or therein not
misleading in any material respect;
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(o) No Consents, Etc. Neither the respective businesses or
properties of the Company or any Subsidiary, nor any relationship
between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the execution, delivery and performance
of the Loan Documents and the transactions contemplated thereby is such
as to require a consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority or other
authority or any other Person on the part of the Company or any
Subsidiary as a condition to the execution, delivery and performance
of, or consummation of the transactions contemplated by, this Agreement
or the other Loan Documents or if so, such consent, approval,
authorization, filing, registration or qualification has been obtained
or effected, as the case may be and is in full force and effect;
(p) Benefit Plans.
(i) None of the employee benefit plans maintained at
any time by the Company or any Subsidiary or the trusts created
thereunder has engaged in a prohibited transaction which could subject
any such employee benefit plan or trust to a material tax or penalty on
prohibited transactions imposed under Internal Revenue Code Section
4975 or ERISA;
(ii) None of the employee benefit plans maintained at
any time by the Company or any Subsidiary which are employee pension
benefit plans and which are subject to Title IV of ERISA or the trusts
created thereunder has been terminated so as to result in a material
liability, fine or penalty of either Borrower under ERISA nor has any
such employee benefit plan of the Company or any Subsidiary incurred
any material liability, fine or penalty to the Pension Benefit Guaranty
Corporation established pursuant to ERISA, other than for required
insurance premiums which have been paid or are not yet due and payable;
neither the Company nor any Subsidiary has withdrawn from or caused a
partial withdrawal to occur with respect to any Multi-employer Plan
resulting in any assessed and unpaid withdrawal liability; the Company
and the Subsidiaries have made or provided for all contributions to all
such employee pension benefit plans which they maintain and which are
required as of the end of the most recent fiscal year under each such
plan; neither the Company nor any Subsidiary has incurred any
accumulated funding deficiency with respect to any such plan, whether
or not waived; nor has there been any reportable event, or other event
or condition, which presents a material risk of termination of any such
employee benefit plan by such Pension Benefit Guaranty Corporation;
(iii) Except as set forth in Schedule 6.01(p), the
present value of all vested accrued benefits under the employee pension
benefit plans which are subject to Title IV of ERISA, maintained by the
Company or any Subsidiary, did not, as of the most recent valuation
date for each such plan, exceed the then current value of the assets of
such employee benefit plans allocable to such benefits;
(iv) The consummation of the Loans and the issuance
of the Letters of Credit provided for in Article II and Article III
will not involve any prohibited transaction under ERISA which is not
subject to a statutory or administrative exemption;
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(v) To the best of the Company's knowledge, each
employee pension benefit plan subject to Title IV of ERISA, maintained
by the Company or any Subsidiary, has been administered in accordance
with its terms in all material respects and is in compliance in all
material respects with all applicable requirements of ERISA and other
applicable laws, regulations and rules;
(vi) There has been no material withdrawal liability
incurred and unpaid with respect to any Multi-employer Plan to which
the Company or any Subsidiary is or was a contributor;
(vii) As used in this Agreement, the terms "employee
benefit plan," "employee pension benefit plan," "accumulated funding
deficiency," "reportable event," and "accrued benefits" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Code Section 4975
and ERISA;
(viii) Except as set forth in Schedule 6.01(p),
neither the Company nor any Subsidiary has any liability not disclosed
on any of the financial statements furnished to the Lenders pursuant to
Section 7.01(f) hereof, contingent or otherwise, under any plan or
program or the equivalent for unfunded post-retirement benefits,
including pension, medical and death benefits, which liability would
have a Material Adverse Effect.
(q) No Default. There does not exist any Default or Event of
Default hereunder;
(r) Hazardous Materials. Except as set forth in Schedule
6.01(r), the Company and each Subsidiary is in compliance with all
applicable Environmental Laws in all material respects and neither the
Company nor any Subsidiary has been notified of any action, suit,
proceeding or investigation which alleges material non-compliance by
the Company or any Subsidiary with any Environmental Laws or which
primarily seeks to suspend, revoke or terminate any license, permit or
approval necessary for the generation, handling, storage, treatment or
disposal of any Hazardous Material;
(s) RICO. Neither the Company nor any Subsidiary is engaged in
or has engaged in any course of conduct that could subject any of their
respective properties to any Lien, seizure or other forfeiture under
any criminal law, racketeer influenced and corrupt organizations law,
civil or criminal, or other similar laws;
(t) Employment Matters. Except as disclosed on Schedule
6.01(j) hereto, the Company and all Subsidiaries are in compliance in
all material respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation
those pertaining to wages, hours, occupational safety and taxation the
noncompliance with which might have a Material Adverse Effect and there
is neither pending nor, to the knowledge of either the Company or RRC,
threatened any litigation,
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administrative proceeding or investigation, in respect of such matters,
an adverse ruling or determination in which could have a Material
Adverse Effect;
(u) Year 2000 Compliance. The Borrowers and their Subsidiaries
have (i) initiated a review and assessment of all areas within the
Borrowers and each of their Subsidiaries' business and operations
(including those affected by information received from suppliers and
vendors) that could reasonably be expected to be adversely affected by
the Year 2000 Problem, (ii) developed a plan and time line for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan substantially in accordance with that timetable.
The Borrowers reasonably believe that all computer applications that
are owned or leased and are used by either of the Borrowers or any of
their Subsidiaries (including those affected by information received
from their suppliers and vendors) that are material to the Borrowers or
any of their Subsidiaries' business and operations will on a timely
basis be Year 2000 Compliant, except to the extent that a failure to do
so could not reasonably be expected to have Material Adverse Effect.
58
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ARTICLE VII
Affirmative Covenants
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Company will:
7.01 Financial Reports, Etc. (a) as soon as practical and in any event
within 120 days after the end of each Fiscal Year of the Company, deliver or
cause to be delivered to the Administrative Agent and each Lender (i) the
consolidated balance sheets of the Company and its Subsidiaries, with the notes
thereto, the related consolidated statements of operations, cash flows, and
shareholders' equity and the respective notes thereto for such Fiscal Year,
setting forth comparative financial statements for the preceding Fiscal Year,
all prepared in accordance with Generally Accepted Accounting Principles applied
on a Consistent Basis (except that RSG shall not be treated as a Subsidiary) and
containing opinions of Arthur Andersen L.L.P., or other such independent
certified public accountants selected by the Company and approved by the
Administ