AutoNation 2000 Annual Report Download - page 60

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58
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. STOCK OPTIONS AND WARRANTS -- (Continued)
2000 1999 1998
-------------- -------------- --------------
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%
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.