AutoNation 2001 Annual Report Download - page 67

57.6 6.12 $12.69 37.4 $14.01
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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:
2001 2000 1999
----------- ----------- -----------
Pro forma net income........................... $ 204.2 $ 285.4 $ 199.5
Pro forma diluted earnings per share........... $ .61 $ .79 $ .46
Pro forma weighted average fair value of
options granted.............................. $ 4.54 $ 2.96 $ 6.87
Risk free interest rates....................... 4.44-4.92% 5.07-5.15% 6.34-6.38%
Expected dividend yield........................ -- -- --
Expected lives................................. 5-7 years 5-7 years 5-7 years
Expected volatility............................ 40% 40% 40%
12. FINANCE UNDERWRITING AND ASSET SECURITIZATIONS
In December 2001, the Company decided to exit the business of underwriting
retail automobile loans for customers at its dealerships, which it determined
was not a part of the Company's core automotive retail
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AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
business. The Company will continue to provide automotive loans for its
customers through unrelated third party finance sources, which historically have
provided more than 95% of the auto loans made to its customers. In addition,
economic conditions in the United States worsened during the fourth quarter of
2001, as evidenced by confirmation of a recession, lower consumer confidence,
increasing unemployment and increasing consumer credit defaults.
The decision to exit the business and the impact of the economic conditions
caused the Company to incur asset impairment and related charges totaling $85.8
million recorded in December 2001 included in Loan and Lease Underwriting Losses
(Income), Net in the Consolidated Income Statement. These charges mainly reflect
the impact of expected increases in loan losses and prepayments, as well as
higher expected loan-servicing costs. The charges also include $1.5 million of
direct exit costs for asset write-offs and other costs. In addition, during 2001
and 2000, the Company recognized impairment charges totaling $4.1 million and
$16.6 million, respectively, primarily associated with the deterioration in
residual values of finance lease receivables. The Company discontinued the
writing of finance leases in mid-1999.
Through 2001, the Company sold installment loan finance receivables in
securitization transactions through unrelated financial institutions. When the
Company sold receivables in these securitization transactions, it retained
interest-only strips, one or more subordinated tranches, servicing rights, and
cash reserve accounts, all of which are classified as investments in
securitizations. The remaining finance leases, installment loans and investments
in securitizations are expected to be substantially collected over the next
three years. Finance receivables due within one year are classified as