<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 19, 1997
---------------
REPUBLIC INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-9787 73-1105145
------ ----------
(Commission (IRS Employer
File Number) Identification No.)
450 East Las Olas Boulevard
Ft. Lauderdale, FL 33301
--------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 713-5200
--------------
N.A.
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
REPORTING OF CERTAIN FINANCIAL AND OTHER INFORMATION FOR REGISTRATION AND OTHER
PURPOSES
The Registrant is filing herewith audited consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations which have been restated for the acquisitions of The Pierce
Corporation, Flemington Car and Truck Country and certain related dealerships,
Spirit Rent-A-Car, Inc., and subsidiary, Chesrown Automotive Group, Bledsoe
Dodge, Inc., National Car Rental System, Inc., Maroone Automotive Group,
Wallace Automotive Group, Taormina Industries, Inc. and Carlisle Motors, Inc.
all of which the Company acquired during the six months ended June 30, 1997 and
have been accounted for under the pooling of interests method of accounting.
Such financial information is attached hereto as Exhibit 99 and incorporated
herein by reference. Exhibit 99 is hereby incorporated by reference into the
Registrant's Registration Statements on Form S-3, file numbers 33-61649,
33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009,
333-20667, 333-23415 and 33-29217; on Form S-4, file number 333-17915; and on
Form S-8, file numbers 33-93742, 333-07623, 333-19453 and 333-20669.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ Michael S. Karsner
----------------------------------
Michael S. Karsner
Senior Vice President
and Chief Financial Officer
Date: August 19, 1997
----------------
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
EXHIBIT INDEX
Number and
Description of Exhibit
- ----------------------
1. None
2. None
3. None
4. None
15. None
16. None
17. None
21. None
23.1 Consent of Arthur Andersen LLP
24. None
27.1 Financial Data Schedule for the Year Ended December 31, 1996
(Restated) (for SEC use only)
27.2 Financial Data Schedule for the Year Ended December 31, 1995
(Restated) (for SEC use only)
99. Financial Information
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757,
333-04269, 333-08479, 333-18009, 333-20667, 333-23415 and 333-29217), Form S-4
(Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742,
333-07623, 333-19453 and 333-20669).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
August 15, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 326,000
<SECURITIES> 0
<RECEIVABLES> 578,200
<ALLOWANCES> 17,500
<INVENTORY> 310,300
<CURRENT-ASSETS> 5,178,600
<PP&E> 1,526,100
<DEPRECIATION> 412,200
<TOTAL-ASSETS> 6,689,300
<CURRENT-LIABILITIES> 3,854,800
<BONDS> 1,216,500
0
0
<COMMON> 3,100
<OTHER-SE> 1,373,900
<TOTAL-LIABILITY-AND-EQUITY> 6,689,300
<SALES> 2,377,900
<TOTAL-REVENUES> 5,863,800
<CGS> 2,122,600
<TOTAL-COSTS> 4,839,500
<OTHER-EXPENSES> 38,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,900
<INCOME-PRETAX> 62,200
<INCOME-TAX> 56,400
<INCOME-CONTINUING> 5,800
<DISCONTINUED> 0
<EXTRAORDINARY> (31,600)
<CHANGES> 0
<NET-INCOME> (25,800)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 365,500
<SECURITIES> 0
<RECEIVABLES> 460,900
<ALLOWANCES> 11,000
<INVENTORY> 285,400
<CURRENT-ASSETS> 4,225,400
<PP&E> 1,109,400
<DEPRECIATION> 293,600
<TOTAL-ASSETS> 5,274,600
<CURRENT-LIABILITIES> 3,968,100
<BONDS> 331,600
0
0
<COMMON> 2,600
<OTHER-SE> 741,700
<TOTAL-LIABILITY-AND-EQUITY> 5,274,600
<SALES> 1,765,700
<TOTAL-REVENUES> 4,258,700
<CGS> 1,548,200
<TOTAL-COSTS> 3,490,200
<OTHER-EXPENSES> 3,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,500
<INCOME-PRETAX> 76,200
<INCOME-TAX> 44,000
<INCOME-CONTINUING> 32,200
<DISCONTINUED> (25,100)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,100
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<PAGE> 1
EXHIBIT 99
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) HISTORICAL FINANCIAL INFORMATION
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 (Restated)... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 (Restated)............................. F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 (Restated)............................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 (Restated)............................. F-6
Notes to Consolidated Financial Statements (Restated)..................... F-7
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (RESTATED).................................... F-29
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets (restated) of
Republic Industries, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows (restated) for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Republic
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
August 15, 1997.
F-2
<PAGE> 3
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (RESTATED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 326.0 $ 365.5
Receivables, net.......................................... 560.7 449.9
Revenue earning vehicles, net............................. 3,583.0 2,977.7
Advances to affiliate..................................... 247.5 --
Inventory................................................. 310.3 285.4
Other current assets...................................... 151.1 146.9
-------- --------
Total Current Assets.............................. 5,178.6 4,225.4
PROPERTY AND EQUIPMENT, NET................................. 1,113.9 815.8
INTANGIBLE ASSETS, NET...................................... 262.0 158.8
INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 92.4 42.2
OTHER ASSETS................................................ 42.4 32.4
-------- --------
$6,689.3 $5,274.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 287.0 $ 229.3
Accrued liabilities....................................... 224.7 166.7
Estimated liability insurance claims...................... 208.1 119.3
Revenue earning vehicle debt.............................. 2,535.6 2,934.6
Notes payable and current maturities of long-term debt.... 306.5 298.3
Other current liabilities................................. 292.9 219.9
-------- --------
Total Current Liabilities......................... 3,854.8 3,968.1
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 371.7 305.0
LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 844.8 26.6
OTHER LIABILITIES........................................... 241.0 230.6
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;
500,000,000 and 350,000,000 shares authorized,
respectively; 308,619,292 and 259,803,244 shares
issued and outstanding, respectively................... 3.1 2.6
Additional paid-in capital................................ 1,369.2 648.4
Retained earnings......................................... 4.7 93.3
-------- --------
Total Shareholders' Equity........................ 1,377.0 744.3
-------- --------
$6,689.3 $5,274.6
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 4
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Automotive rentals....................................... $2,699.4 $1,992.8 $1,290.6
Automotive sales......................................... 2,377.9 1,765.7 1,500.2
Solid waste services..................................... 701.2 450.4 317.9
Electronic security services............................. 85.3 49.8 41.9
-------- -------- --------
5,863.8 4,258.7 3,150.6
EXPENSES:
Automotive rental operating expenses..................... 2,167.2 1,613.9 971.6
Cost of automotive sales................................. 2,122.6 1,548.2 1,310.8
Cost of solid waste services............................. 512.4 307.5 213.6
Cost of electronic security services..................... 37.3 20.6 20.7
Selling, general and administrative...................... 916.3 685.2 534.1
Restructuring and merger expenses........................ 38.3 3.3 --
-------- -------- --------
OPERATING INCOME .......................................... 69.7 80.0 99.8
INTEREST INCOME............................................ 30.9 21.2 6.4
INTEREST EXPENSE........................................... (43.9) (33.5) (20.2)
OTHER INCOME (EXPENSE), NET................................ 5.5 8.5 (1.4)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY CHARGE........................... 62.2 76.2 84.6
PROVISION FOR INCOME TAXES................................. 56.4 44.0 42.8
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE..................................... 5.8 32.2 41.8
EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF
DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0........... (31.6) -- --
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS................... (25.8) 32.2 41.8
-------- -------- --------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes................................................. -- 5.4 (2.8)
Loss on disposal of segment, net of income tax benefit... -- (30.5) --
-------- -------- --------
Loss from discontinued operations........................ -- (25.1) (2.8)
-------- -------- --------
NET INCOME (LOSS).......................................... $ (25.8) $ 7.1 $ 39.0
======== ======== ========
FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Income from continuing operations before
extraordinary charge.................................. $ .02 $ .14 $ .25
Extraordinary charge..................................... (.11) -- --
Discontinued operations.................................. -- (.12) (.02)
-------- -------- --------
Net income (loss)........................................ $ (.09) $ .03 $ .23
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 5
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
------ --------------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................................ $1.6 $ 236.4 $117.6
Sales of common stock..................................... .1 16.5 --
Distributions to former owners of pooled companies........ -- -- (31.9)
Other..................................................... -- 25.6 1.1
Net income................................................ -- -- 39.0
---- -------- ------
BALANCE AT DECEMBER 31, 1994................................ 1.7 278.5 125.8
Sales of common stock and warrants........................ .4 262.0 --
Stock issued in acquisitions.............................. .2 83.9 --
Exercise of stock options and warrants.................... -- 15.7 --
Reclassification of additional paid-in capital to effect
the spin-off........................................... -- (36.3) 36.3
Spin-off of Republic Environmental Systems, Inc........... -- -- (23.6)
Contributions to capital from former owners
of pooled companies.................................... -- 32.5 --
Distributions to former owners of pooled companies........ -- -- (52.3)
Other..................................................... .3 12.1 --
Net income................................................ -- -- 7.1
---- -------- ------
BALANCE AT DECEMBER 31, 1995................................ 2.6 648.4 93.3
Sales of common stock..................................... .2 550.7 --
Stock issued in acquisitions.............................. .2 101.2 --
Exercise of stock options and warrants.................... .1 43.7 --
Contributions to capital from former owners of pooled
companies.............................................. -- 22.4 --
Distributions to former owners of pooled companies........ -- -- (64.1)
Other..................................................... -- 2.8 1.3
Net loss.................................................. -- -- (25.8)
---- -------- ------
BALANCE AT DECEMBER 31, 1996................................ $3.1 $1,369.2 $ 4.7
==== ======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 6
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations.............. $ (25.8) $ 32.2 $ 41.8
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing
operations:
Restructuring, merger and other non-recurring
expenses......................................... 95.5 3.3 --
Loss on extinguishment of debt, net of income
taxes............................................ 31.6 -- --
Depreciation and amortization...................... 866.4 641.9 423.7
Changes in assets and liabilities, net of effects
from business acquisitions:
Receivables...................................... (107.9) (36.1) (41.3)
Inventory........................................ (11.0) (40.4) (23.4)
Other assets..................................... (50.4) 1.2 8.4
Accounts payable and accrued liabilities......... 79.2 89.5 8.2
Other liabilities................................ 144.5 33.9 21.3
--------- --------- ---------
1,022.1 725.5 438.7
--------- --------- ---------
CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- 6.1 12.2
--------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchases of revenue earning vehicles from third party
suppliers.......................................... (4,064.0) (2,843.7) (2,790.8)
Purchases of revenue earning vehicles from related
party suppliers.................................... (631.3) (351.8) (551.2)
Sales of revenue earning vehicles..................... 3,356.4 2,841.6 2,673.7
Purchases of property and equipment................... (241.7) (216.9) (144.0)
Advances to affiliate................................. (243.4) -- --
Investment in subscriber accounts..................... (41.4) (16.0) (17.5)
Cash used in business acquisitions.................... (47.0) (1,333.7) (11.8)
Other................................................. 34.7 81.5 143.2
--------- --------- ---------
(1,877.7) (1,839.0) (698.4)
--------- --------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES:
Payments of revenue earning vehicle financing......... (17,452.0) (9,990.9) (3,087.1)
Proceeds from revenue earning vehicle financing....... 17,802.7 11,134.4 3,379.4
Payments of long-term debt and notes payable.......... (568.2) (225.3) (204.6)
Proceeds from long-term debt and notes payable........ 538.1 203.8 142.6
Sales of common stock................................. 550.9 262.4 16.6
Other................................................. (55.4) 29.9 6.5
--------- --------- ---------
816.1 1,414.3 253.4
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (39.5) 306.9 5.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 365.5 58.6 52.7
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 326.0 $ 365.5 $ 58.6
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 7
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(ALL TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
Republic Industries, Inc. and its subsidiaries ("Republic" or the "Company").
All significant intercompany accounts and transactions have been eliminated. In
1995, the Company implemented a formal plan to dispose of all of its mining and
citrus operations. In 1994, the Board of Directors authorized management to
pursue a plan to distribute its hazardous waste services segment, Republic
Environmental Systems, Inc. ("RESI"), now known as International Alliance
Services, Inc., to Republic shareholders. Accordingly, as discussed in Note 11,
Discontinued Operations, these segments have been accounted for as discontinued
operations and the accompanying Consolidated Financial Statements presented
herein have been restated to report separately the operating results of these
discontinued operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements include the financial
position and results of operations of The Pierce Corporation ("Pierce") which
the Company acquired in June 1997; Flemington Car and Truck Country and certain
related dealerships ("Flemington"), Spirit Rent-A-Car, Inc. ("Spirit"), Chesrown
Automotive Group ("Chesrown") and Bledsoe Dodge, Inc. ("Bledsoe") all of which
the Company acquired in May 1997; National Car Rental System, Inc. ("National"),
Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and
Taormina Industries, Inc. ("Taormina") all of which the Company acquired in
February 1997; and Carlisle Motors, Inc. ("Carlisle") which the Company acquired
in January 1997. These transactions were accounted for under the pooling of
interests method of accounting and, accordingly, the Consolidated Financial
Statements have been restated as if the Company and Pierce, Flemington,
Spirit, Chesrown, Bledsoe, National, Maroone, Wallace, Taormina and Carlisle had
operated as one entity since inception. See Note 2, Business Combinations, for
further discussion of these transactions.
All per share data and numbers of shares of the Company's common stock, par
value $.01 per share ("Common Stock") for all periods included in the financial
statements and notes thereto have been adjusted to reflect a two-for-one stock
split in the form of a 100% stock dividend that became effective in June 1996,
as more fully described in Note 6, Shareholders' Equity.
RECEIVABLES
Receivables include trade accounts receivable from the Company's various
operating business segments which consist of amounts due from retail and service
customers and travel agents and tour operators. Receivables also include vehicle
receivables from automobile manufacturers which consist of amounts due under
vehicle repurchase and incentive programs and from vehicle renters for damages
incurred on revenue earning vehicles.
F-7
<PAGE> 8
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The components of receivables, net of allowance for doubtful accounts are
as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
------- ---------
<S> <C> <C>
Trade....................................................... $295.3 $226.9
Vehicle..................................................... 227.2 185.3
Contracts in transit........................................ 28.9 24.7
Other....................................................... 26.8 24.0
------ ------
578.2 460.9
Less: allowance for doubtful accounts....................... (17.5) (11.0)
------ ------
$560.7 $449.9
====== ======
</TABLE>
INVESTMENTS
Investments have a maturity of one year or less, are classified as
held-to-maturity securities and are recorded at amortized cost adjusted for the
amortization or accretion of premiums or discounts, which approximate market
value. Investments are included in other current assets in the accompanying
Consolidated Balance Sheets.
Investments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Eurodollar deposits......................................... $ -- $26.7
Repurchase agreements....................................... 20.2 24.0
Certificates of deposit..................................... 1.0 13.5
Other....................................................... 1.7 3.8
----- -----
$22.9 $68.0
===== =====
</TABLE>
Repurchase agreements are restricted for the settlement of specific
estimated auto liability claims.
REVENUE EARNING VEHICLES AND DEPRECIATION
Revenue earning vehicles are stated at cost less accumulated depreciation
and allowances for stolen vehicles. The straight-line method is used to
depreciate revenue earning vehicles to their estimated residual values over the
anticipated periods of use based on the Company's fleet plan, typically ranging
from four to twenty months in the United States and from four to nine months in
Canada and Europe. Depreciation expense also includes those costs relating to
losses from damaged vehicles, and gains and losses on revenue earning vehicle
sales in the ordinary course of business. Depreciation expense related to
revenue earning vehicles was $747.8 million, $555.0 million and $358.6 million
for the years ended December 31, 1996, 1995 and 1994, respectively, and is
included as a component of vehicle rental operating expenses in the accompanying
Consolidated Statements of Operations.
A summary of revenue earning vehicles is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Revenue earning vehicles.................................... $ 4,011.2 $ 3,311.2
Less: accumulated depreciation.............................. (428.2) (333.5)
--------- ---------
$ 3,583.0 $ 2,977.7
========= =========
</TABLE>
Revenue earning vehicles with depreciated cost of $2.9 billion at December
31, 1996 were acquired under programs that allow the Company to require
counterparties to repurchase vehicles held for periods of up to twenty-four
months. The agreements contain varying mileage and damage limitations.
F-8
<PAGE> 9
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The Company also leases vehicles under operating lease agreements which
require the Company to provide normal maintenance and liability coverage. The
agreements generally have terms of four to twelve months. Many agreements
provide for an option to terminate the leases early and allow for the purchase
of leased vehicles subject to certain restrictions. Most leases provide for an
initial minimum monthly charge, with contingent rental charges for changes in
interest rates and adjustments for wear, damage and mileage in excess of
stipulated amounts. Contingent rental charges were $1.8 million, $13.2 million
and $2.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method. Cost includes acquisition expenses,
including reconditioning and transportation costs. Parts and accessories are
valued at the lower of cost or market, using the first-in, first-out method.
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 are
removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.
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 is 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 trucks and equipment and five to ten
years for furniture and fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. No general and administrative costs are
capitalized as landfills and landfill improvements.
Interest costs are capitalized in connection with the construction of
automotive rental facilities and landfill sites. Interest capitalized was $2.6
million, $3.3 million and $2.7 million for the years ended December 31, 1996,
1995 and 1994, respectively.
Depreciation, amortization and depletion expense related to property and
equipment was $96.5 million, $74.2 million and $57.0 million in 1996, 1995 and
1994, respectively.
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Land, landfills and improvements............................ $ 510.2 $ 385.2
Furniture, fixtures, trucks and equipment................... 599.3 422.6
Buildings and improvements.................................. 416.6 301.6
--------- ---------
1,526.1 1,109.4
Less: accumulated depreciation, amortization and
depletion................................................. (412.2) (293.6)
--------- ---------
$ 1,113.9 $ 815.8
========= =========
</TABLE>
F-9
<PAGE> 10
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net tangible assets acquired. The cost in excess of
the fair value of net tangible assets is amortized over periods ranging from
fifteen to forty years on a straight-line basis. Amortization expense related to
intangible assets was $12.8 million, $8.3 million and $4.7 million, in 1996,
1995 and 1994, respectively. Accumulated amortization of intangible assets was
$47.6 million and $30.5 million at December 31, 1996 and 1995, 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
measuring their recoverability.
INVESTMENT IN SUBSCRIBER ACCOUNTS
Investment in subscriber accounts consists of certain capitalized costs
associated with new monitoring systems installed by the Company's electronic
security service business and the cost of acquired subscriber accounts.
The costs are amortized over ten years (based on estimated and historical
customer attrition rates) on a straight-line basis. Amortization expense related
to investment in subscriber accounts was $9.3 million, $4.4 million and $3.4
million in 1996, 1995 and 1994, respectively. Accumulated amortization of
investment in subscriber accounts was $20.7 million and $11.4 million at
December 31, 1996 and 1995, respectively.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
Accrued environmental and landfill costs are included in other liabilities
and include landfill site closure and post-closure costs. Landfill site closure
and post-closure costs include estimated costs to be incurred for final closure
of the landfills and estimated costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. Estimated aggregate closure and post-closure costs are to be
fully accrued for these landfills at the time that such facilities cease to
accept waste and are closed. Excluding existing accruals at December 31, 1996,
approximately $53.7 million of such costs are to be expensed over the remaining
lives of these facilities. The Company estimates its future cost requirements
for closure and post-closure monitoring and maintenance for its solid waste
facilities based on its interpretation of the technical standards of the United
States Environmental Protection Agency's Subtitle D regulations. These estimates
do not take into account discounts for the present value of such total estimated
costs.
In addition to the Company's solid waste collection and disposal
operations, the Company's automotive rental operations also involve the storage
and dispensing of petroleum products, primarily gasoline. The Company records as
expense, on a current basis, costs associated with remediation of environmental
pollution. The Company also accrues for its proportionate share of costs
associated with the remediation of environmental pollution when it becomes
probable that a liability has been incurred and the amount can be reasonably
estimated. Estimated costs include anticipated site testing, consulting,
remediation, disposal, post-remediation monitoring and legal fees, as
appropriate. The liability does not reflect possible recoveries from insurance
companies or reimbursement of remediation costs.
The Company periodically reassesses its methods and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
F-10
<PAGE> 11
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
As discussed in Note 8, Commitments and Contingencies, the Company is
involved in litigation and is subject to ongoing environmental investigations by
certain regulatory agencies, as well as other claims and disputes that could
result in additional litigation which are in the normal course of business.
LIABILITY INSURANCE
The Company retains up to $1.0 million of risk per claim under its various
liability insurance programs for property damage and bodily injury claims. Costs
in excess of $1.0 million per claim are insured under various contracts with
insurance carriers. The 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. In 1996,
the Company changed its method of accounting for estimated auto rental liability
insurance claims by no longer discounting such liability. The effect of this
change was not material to the Company's consolidated financial position or
results of operations.
REVENUE RECOGNITION
Revenue from the Company's automotive rental operations consists primarily
of fees from rentals and the sale of related rental products from the leisure
and business travel segments. Revenue from the Company's automotive retailing
operations consists of sales of new and used vehicles, parts and service.
Revenue from the Company's solid waste services operations consists of
collection fees from residential, commercial and industrial customers and
landfill disposal fees charged to third parties. Revenue from the Company's
electronic security services business results from monitoring contracts for
security systems and fees charged for the sale and installation of such systems.
The Company recognizes revenue over the period vehicles are rented, services are
provided or products are sold.
FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps in the management of interest rate
risk. The differentials between the amounts paid and received from these swaps
are recognized over the terms of the agreements and are recorded as adjustments
to interest expense. Amounts receivable or payable under the agreements are
included in receivables or accrued liabilities in the Consolidated Balance
Sheets and were not material at December 31, 1996 or 1995.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were capitalized at
December 31, 1996 or 1995. Advertising expense was $150.0 million, $117.5
million and $86.2 million for the years ended December 31, 1996, 1995 and 1994,
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 Combinations, and other non-cash transactions are excluded from the
Statements of Cash Flows.
NEW ACCOUNTING PRONOUNCEMENT
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," effective for fiscal years beginning after December 15, 1996. This
statement provides that environmental remediation liabilities should be accrued
when the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5,
"Accounting for Contingencies,"
F-11
<PAGE> 12
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
are met, and it includes benchmarks to aid in the determination of when
environmental remediation liabilities should be recognized. SOP 96-1 also
states that an accrual for environmental liabilities should include incremental
direct costs of the remediation effort and costs of compensation and benefits
for those employees who are expected to devote a significant amount of time
directly to the remediation effort. The Company early adopted SOP 96-1 in 1996
without material impact on its consolidated results of operations or financial
position.
2. BUSINESS COMBINATIONS
PENDING ACQUISITIONS
In August 1997, the Company announced an offer to acquire EuroDollar
Holdings plc ("EuroDollar"), which operates an automotive rental business
primarily in the United Kingdom. The Company will pay approximately $150.0
million in cash or notes in this transaction, which will be accounted for under
the purchase method of accounting. The closing of the transaction is subject to
customary conditions, including regulatory approval and approval by the
requisite number of EuroDollar shareholders.
In July 1997, the Company signed a definitive agreement to acquire Dobbs
Automotive Group ("Dobbs"), which owns and operates twenty franchised
automotive dealerships. The Company will issue Common Stock valued at
approximately $200.0 million in this transaction which will be accounted for
under the purchase method of accounting. The closing of the transaction is
subject to customary conditions, including manufacturer and regulatory
approvals.
In July 1997, the Company signed a definitive agreement to acquire the
Anderson Dealership Group ("Anderson"), which owns and operates nine franchised
automotive dealerships. The Company will issue Common Stock valued at
approximately $40.0 million in this transaction which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including manufacturer and
regulatory approvals.
In July 1997, the Company signed a definitive agreement to acquire the
assets of Silver State Disposal Service, Inc. ("Silver State"), which provides
waste collection services. The Company will issue Common Stock valued at
approximately $378.0 million in this transaction which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including regulatory approvals.
In June 1997, the Company signed a definitive agreement to acquire the
Appleway Automotive Group ("Appleway"), which owns and operates eight
franchised automotive dealerships. The Company will issue Common Stock valued
at approximately $42.6 million in this transaction, which will be accounted for
under the purchase method of accounting. The closing of the transaction is
subject to customary conditions, including manufacturer and regulatory
approvals.
In May 1997, the Company signed a definitive agreement to acquire Desert
Buick-GMC Automotive Group ("Desert"), which owns and operates four franchised
automotive dealerships. The Company will issue Common Stock valued at
approximately $38.0 million in this transaction, which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including manufacturer and
regulatory approvals.
In May 1997, the Company signed a definitive agreement to acquire Gulf
Management, Inc. ("Gulf"), which owns and operates two franchised automotive
dealerships. The Company will issue Common Stock valued at approximately $45.0
million in this transaction, which will be accounted for under the purchase
method of accounting. The closing of the transaction is subject to customary
conditions, including manufacturer and regulatory approvals.
Additionally, the Company has signed definitive agreements to acquire
various other businesses in the automotive retail industry which are not
material to the Company. The Company will issue cash and/or Common Stock valued
in the aggregate at approximately $50.6 million in such transactions which will
be accounted for under the purchase method of accounting, and will issue Common
Stock valued in the aggregate at approximately $90.9 million in such
transactions which will be accounted for under the pooling of interests method
of accounting. These transactions are subject to customary conditions,
including manufacturer and regulatory approvals, as applicable.
COMPLETED ACQUISITIONS
Significant businesses acquired through June 30, 1997 and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception. Businesses acquired through December 31,
1996 and accounted for under the purchase method of accounting are included in
the Consolidated Financial Statements from the date of acquisition.
F-12
<PAGE> 13
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In August 1997, the Company acquired Snappy Car Rental, Inc. ("Snappy"),
which operates an automotive rental business. The Company issued approximately
1.0 million shares of Common Stock in this transaction which has been accounted
for under the purchase method of accounting.
In July 1997, the Company acquired Value Rent-A-Car ("Value"), which
operates a vehicle rental business. The Company issued approximately 3.4 million
shares of Common Stock in this transaction which has been accounted for under
the purchase method of accounting.
In July 1997, the Company acquired Courtesy Auto Group ("Courtesy"), which
owns and operates eleven franchised automotive dealerships. The Company issued
approximately 1.4 million shares of Common Stock in this transaction which has
been accounted for under the purchase method of accounting.
In July 1997, the Company acquired De La Cruz Auto Group ("De La Cruz"),
which owns and operates four franchised automotive dealerships. The Company
issued approximately 1.8 million shares of Common Stock in this transaction,
which has been accounted for under the pooling of interests method of
accounting.
In June 1997, the Company acquired Pierce which owns and operates one
franchised automotive dealership and two used automotive dealerships. The
Company issued approximately 2.3 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting.
In May 1997, the Company acquired Flemington, which owns and operates
twelve franchised automotive dealerships. The Company issued approximately
2.3 million shares of Common Stock in this transaction, which has been
accounted for under the pooling of interests method of accounting.
In May 1997, the Company acquired Spirit, which operates a vehicle rental
business. The Company issued 3.1 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests
method of accounting.
In May 1997, the Company acquired Chesrown, which owns and operates seven
franchised automotive dealerships. The Company issued approximately 2.5
million shares of Common Stock in this transaction, which has been accounted
for under the pooling of interests method of accounting.
In May 1997, the Company acquired Bledsoe, which operates three franchised
automotive dealerships. The Company issued approximately 1.7 million shares of
Common Stock in this transaction, which has been accounted for under the
pooling of interests method of accounting.
In May 1997, the Company acquired Bankston Automotive Group ("Bankston"),
which owns and operates four franchised automotive dealerships. The Company
issued approximately 1.4 million shares of Common Stock in this transaction,
which has been accounted for under the purchase method of accounting.
In February 1997, the Company acquired National, which operates a vehicle
rental business. The Company issued approximately 21.7 million shares of Common
Stock in this transaction, which has been accounted for under the pooling of
interests method of accounting. National was formed in April 1995 to acquire
the operating assets and certain liabilities of a predecessor company ("Old
National") from General Motors Corporation as further discussed below.
In February 1997, the Company acquired Maroone, which owns and operates
five franchised automotive dealerships. The Company issued approximately 6.1
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Wallace, which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.7
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Taormina, which provides waste
collection services and owns and operates a materials recycling facility. The
Company issued approximately 7.4 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting.
In February 1997, the Company acquired Kendall Automotive Group
("Kendall"), which owns and operates three franchised automotive dealerships.
The Company issued approximately 1.2 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In January 1997, following approval by the Company's stockholders at a
special meeting, the Company acquired AutoNation Incorporated ("AutoNation"),
which is developing a chain of used vehicle megastores. The Company issued
approximately 17.5 million shares of Common Stock in this transaction, which has
been accounted for under the purchase method of accounting.
F-13
<PAGE> 14
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In January 1997, the Company acquired Carlisle which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.0
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In January 1997, the Company acquired Grubb Automotive ("Grubb"), which
owns and operates seven franchised automotive dealerships. The Company issued
approximately 4.0 million shares of Common Stock in this transaction, which has
been accounted for under the purchase method of accounting.
In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries
("Mullinax"), which owns and operates six franchised automotive dealerships.
The Company issued approximately 3.6 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In addition, subsequent to December 31, 1996, the Company acquired various
other businesses in the automotive retailing, solid waste services and
electronic security services industries which were not material to the Company.
The Company issued an aggregate of approximately 8.6 million shares of Common
Stock and paid approximately $75.0 million of cash in such transactions which
have been accounted for under the purchase method of accounting, and issued an
aggregate of approximately 9.8 million shares of Common Stock in such
transactions which have been accounted for under the pooling of interests method
of accounting.
Details of the results of operations of the Company and Pierce, Flemington,
Spirit, Chesrown, Bledsoe, National, Maroone, Wallace, Taormina and Carlisle
(collectively, the "Pooled Entities") for the periods before the pooling of
interests combinations were consummated are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue:
The Company.................................. $2,365.5 $1,791.4 $1,595.9
Pooled Entities.............................. 3,498.3 2,467.3 1,554.7
-------- -------- --------
$5,863.8 $4,258.7 $3,150.6
======== ======== ========
Net income (loss):
The Company.................................. $ (59.5) $ (26.6) $ 27.2
Pooled Entities.............................. 33.7 33.7 11.8
-------- -------- --------
$ (25.8) $ 7.1 $ 39.0
======== ======== ========
</TABLE>
In December 1996, the Company acquired Addington Resources, Inc.
("Addington"), which primarily provides solid waste disposal services. The
Company issued approximately 13.7 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting. In December 1996, the Company acquired Continental Waste
Industries, Inc. ("Continental"), which provides integrated solid waste
services. The Company issued approximately 12.4 million shares of Common Stock
in this transaction, which has been accounted for under the pooling of interests
method of accounting. In November 1996, the Company acquired Alamo Rent-A-Car,
Inc. ("Alamo"), which operates a vehicle rental business. The Company issued
approximately 22.6 million shares of Common Stock in this transaction, which has
been accounted for under the pooling of interests method of accounting. In
August 1996, the Company acquired the net assets of CarChoice, Inc.
("CarChoice"), which operates used vehicle superstores similar to those being
developed by AutoNation. The Company issued approximately 3.9 million shares of
Common Stock in this transaction, which has been accounted for under the pooling
of interests method of accounting. In February 1996, the Company acquired
Incendere, Inc. ("Incendere"), which provides solid waste collection, recycling
and medical waste hauling services. The Company issued approximately 3.3 million
shares of Common Stock in connection with this transaction, which has been
accounted for under the pooling of interests method of accounting. In February
1996, the Company acquired the Denver Fire Reporter and Protective Co. ("Denver
Alarm"), which provides electronic security services. The Company issued
approximately 2.5 million shares of Common
F-14
<PAGE> 15
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Stock in this transaction, which has been accounted for under the pooling of
interests method of accounting.
During the year ended December 31, 1996, the Company also acquired various
other businesses in the solid waste services, electronic security services and
automotive retailing industries which were not material to the Company. The
Company issued an aggregate of approximately 9.1 million shares of Common Stock
and paid $47.0 million of cash in such transactions which have been accounted
for under the purchase method of accounting, and issued an aggregate of
approximately 13.0 million shares of Common Stock in such transactions which
have been accounted for under the pooling of interests method of accounting.
These acquisitions accounted for under the pooling of interests method of
accounting were not material in the aggregate and, consequently, prior period
financial statements were not restated for such acquisitions.
In November 1995, the Company acquired J.C. Duncan Company, Inc.
("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc.
("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste
collection and recycling services and also operates two landfills. GDS provides
solid waste collection and recycling services. Fennell provides solid waste
collection and recycling services and also owns a landfill. Scott provides
electronic security services. In October 1995, the Company acquired United Waste
Service, Inc. ("United") and Southland Environmental Services, Inc.
("Southland"). United provides solid waste collection, transfer and recycling
services. Southland provides solid waste collection services. In August 1995,
the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides
electronic security services. The Company issued an aggregate of approximately
36.3 million shares of Common Stock for the above acquisitions. These
acquisitions have been accounted for under the pooling of interests method of
accounting and, accordingly, the accompanying Consolidated Financial Statements
have previously been restated as if the Company and Duncan, GDS, Fennell, Scott,
United, Southland and Kertz had operated as one entity since inception.
In August 1995, the Company acquired Hudson Management Corporation and
Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and
recycling services. The Company issued 16.0 million shares of Common Stock to
acquire HMC. The acquisition of HMC has been accounted for under the purchase
method of accounting. The pro forma effect of this acquisition is not material
to the Company's consolidated results of operations.
In June 1995, National acquired all of the operating assets and assumed
certain liabilities of Old National for a total cash purchase price of
approximately $1.3 billion. This acquisition was accounted for under the
purchase method of accounting. The Company's unaudited pro forma consolidated
results of operations for the years ended December 31, assuming the acquisition
of Old National had occurred on January 1, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenue........................................ $4,604.7 $3,897.9
======== ========
Income from continuing operations.............. $ 31.5 $ 58.0
======== ========
Fully diluted income from continuing
operations per common and common equivalent
share........................................ $ .13 $ .31
======== ========
</TABLE>
The unaudited pro forma consolidated results of operations are presented
for informational purposes only and may not necessarily reflect the future
results of operations of the Company or what results of operations would have
been had the Company owned and operated Old National as of January 1, 1994.
During the years ended December 31, 1995 and 1994, the Company entered into
several other business combinations which have been accounted for under the
purchase method of accounting, which were not material to the Company.
F-15
<PAGE> 16
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting (including historical
accounts of immaterial acquisitions accounted for under the pooling of interests
method of accounting) were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
Revenue earning vehicles.............................. $ 79.4 $1,455.2 $ --
Property and equipment................................ 114.2 99.3 45.3
Investment in subscriber accounts..................... 18.0 -- --
Intangible assets..................................... 105.0 101.3 18.8
Working capital deficiency, net of cash acquired...... (19.1) 16.8 (10.5)
Long-term debt assumed................................ (127.5) (123.5) (15.5)
Other liabilities, net................................ (21.6) (131.3) (17.9)
Common stock issued................................... (101.4) (84.1) (8.4)
------- -------- ------
Cash used in acquisitions............................. $ 47.0 $1,333.7 $ 11.8
======= ======== ======
</TABLE>
3. REVENUE EARNING VEHICLE DEBT
Revenue earning vehicle debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
--------- ----------
<S> <C> <C>
Amounts under $1.4 billion loan agreement with termination
date of March 1998; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates................. $ 1,396.8 $ 579.0
Senior secured notes payable with interest at fixed rates
ranging from 5.58% to 7.08% with various maturity dates
secured by eligible vehicle collateral and vehicle
receivable balances; repaid in 1996....................... -- 445.5
Amounts under $1.1 billion ($1.5 billion at December 31,
1995) commercial paper program terminating May 1998;
secured by eligible vehicle collateral and vehicle
receivable balances; weighted average interest rate was
5.47% and 5.81% in 1996 and 1995, respectively............ 856.3 1,429.2
Medium term notes payable, interest payable monthly at
floating or fixed rates (average fixed rate at December
31, 1996 was 7.12% and floating rate based on 3 month
LIBOR plus .5% was 5.97% at December 31, 1996), due in
July 2001................................................. 799.6 --
Amounts under $250.0 million loan agreement with termination
date of September 19, 1997; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates; repaid in
1996...................................................... -- 236.4
Amounts under various uncommitted revolving lease facilities
with financing institutions in United Kingdom; secured by
eligible vehicle collateral; interest based on an as
quoted basis dictated by market competition; no stated
expiration dates, reviewed annually....................... 143.5 157.1
Other, including amounts to be financed after period end,
under various revolving credit agreements and lease
facilities................................................ 184.2 114.0
--------- --------
3,380.4 2,961.2
Less: long-term portion..................................... (844.8) (26.6)
--------- --------
$ 2,535.6 $2,934.6
========= ========
</TABLE>
In November 1996, the Company refinanced a substantial portion of Alamo's
notes payable and lines of credit secured by revenue earning vehicles through an
increase in its commercial paper loan agreement from $580.0 million to $1.4
billion. Certain of the notes payable and lines of credit secured by revenue
earning vehicles contain various restrictive covenants, including provisions
relating to the maintenance of tangible net worth
F-16
<PAGE> 17
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
and debt to tangible net worth ratios, incurrence of additional indebtedness,
and limitations on the payment of dividends and certain investments. The
effective economic interest rate on notes payable and lines of credit secured by
revenue earning vehicles was 6.69%, 6.81% and 6.07% at December 31, 1996, 1995
and 1994, respectively. Interest expense on notes payable and lines of credit
secured by revenue earning vehicles is included as a component of vehicle rental
operating expenses in the accompanying Consolidated Statements of Operations.
In June 1997, the Company entered into a 90-day $500.0 million revolving
credit facility to fund revenue earning vehicle purchases under eligible
manufacturer repurchase programs.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest protection
agreements with several counterparties are used to manage the impact of interest
rate changes. At December 31, 1996 and 1995, the Company effectively converted
interest rates on the following notional principal amounts:
<TABLE>
<CAPTION>
LATEST
1996 1995 MATURITY
-------- -------- -----------
<S> <C> <C> <C>
Variable-rate (capped) into fixed-rate
obligations....................................... $150.0 $175.0 August 1998
Variable-rate into fixed-rate obligations........... 651.9 350.0 December 2006
------ ------
Aggregate notional principal........................ $801.9 $525.0
====== ======
</TABLE>
4. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
------- ------
<S> <C> <C>
$250.0 million revolving credit facility; interest payable
monthly using either a competitive bid feature or LIBOR
based rate; matures December 1998; unsecured........................ $ 150.0 $ --
Mortgages payable to GMAC and predecessor agreements with
interest at 9.19% or 1% above prime; payable in monthly
installments; secured by real property............................. 32.1 115.4
Revolving credit facility, secured by the stock of certain
of the Company's subsidiaries, interest at prime or at a
Eurodollar rate plus 0% to 2.75%, repaid in 1996.................... -- 16.4
Amounts under United Kingdom $17.1 million revolving credit
commitment due on demand with 90-day notice; interest
based on Sterling LIBOR plus 125 basis points or base rate
plus 125 basis points; secured by non-vehicle equipment
and leaseholds...................................................... 6.0 11.4
Bonds payable under loan agreements with California Pollution
Control Financing Authority; interest varies weekly as
determined by remarketing agent (3.15% at December 31,
1996)............................................................... 44.0 29.7
Note payable to Ford Motor Credit Company; interest at
2.75%-3.00% above commercial paper rate or 1.25% above
prime; secured by assets of certain of the Company's subsidiaries;
due 2000-2004....................................................... 26.6 28.2
Amounts due under line of credit with Ford Motor Credit
Company; interest at 0%-1.75% above prime or commercial
paper rate; collateralized by the assets of certain of the Company's
subsidiaries........................................................ 20.9 4.0
Mortgages payable to Ford Motor Credit Company; interest at
.75% above prime or 2.75%-3.0% above commercial paper rate;
secured by assets of certain of the Company's subsidiaries; maturing
through 2011........................................................ 9.8 5.2
Notes to banks and financial institutions, secured by real
property, equipment and other assets, interest ranging
from 4.8% to 14.0%, maturing through 2015........................... 112.2 102.5
Vehicle inventory credit facilities secured by the Company's
vehicle inventory and certain accounts receivable, interest at
LIBOR plus 2.75% or 1% above prime.................................. 225.7 225.5
Note payable to bank with interest based on LIBOR or prime
paid quarterly; secured by a building; repaid in 1996............... -- 8.7
Other notes, secured by equipment and other assets, interest
ranging from 0% to 21%, maturing through 2010....................... 50.9 56.3
------- -------
678.2 603.3
Less: current portion................................................. (306.5) (298.3)
------- -------
$ 371.7 $ 305.0
======= =======
</TABLE>
F-17
<PAGE> 18
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In December 1996, the Company completed a tender offer and consent
solicitation resulting in the repurchase of approximately $100.0 million
aggregate principal amount 11.75% senior notes due 2006 ("Senior Notes"), which
were issued in February 1996. The Company recorded an extraordinary charge of
$31.6 million, net of income taxes, during 1996 related to the early
extinguishment of the Senior Notes and certain other debt. Included in this
charge are bond redemption premiums, the write-off of debt issue costs,
prepayment penalties and other fees related to the tender offer and the
repayment of other debt.
In December 1995, the Company entered into a credit agreement (the "Credit
Agreement") with certain banks pursuant to which such banks have agreed to
advance the Company on an unsecured basis an aggregate of $250.0 million for a
term of 36 months. Outstanding advances, if any, are payable at the expiration
of the 36-month term. The Credit Agreement requires, among other items, that the
Company maintain certain financial ratios and comply with certain financial
covenants. Interest is payable monthly and generally determined using either a
competitive bid feature or a LIBOR based rate. As of December 31, 1996, $150.0
million was outstanding and the Company was in compliance with all covenants
under the Credit Agreement.
At December 31, 1996, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 306.5
1998........................................................ 184.2
1999........................................................ 23.4
2000........................................................ 32.0
2001........................................................ 16.7
Thereafter.................................................. 115.4
-------
$ 678.2
=======
</TABLE>
The Company made interest payments on revenue earning vehicle financing and
notes payable and long-term debt of approximately $290.1 million, $213.9
million, and $136.0 million in 1996, 1995 and 1994, respectively.
In April 1997, the Company replaced its existing $250.0 million credit
facility with a new $1.0 billion unsecured revolving credit facility (the
"Credit Facility") with certain banks for a term of five years. Outstanding
advances, if any, are payable at the expiration of the five year term. The
Credit Facility requires, among other items, that the Company maintain certain
financial ratios and comply with certain financial covenants. Interest is
determined using either a competitive bid feature or a LIBOR based rate.
In March 1997, the Company entered into a $300.0 million unsecured credit
facility with a bank. The proceeds from this facility were used to acquire 15.0
million common shares of ADT as discussed in Note 12. In April 1997, the Company
refinanced amounts borrowed under this facility with proceeds from the Credit
Facility.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
The Company files a consolidated federal income tax return which includes
the operations of businesses acquired for periods subsequent to the dates of the
acquisitions. Certain businesses acquired which were accounted for under the
pooling of interests method of accounting were subchapter S corporations for
income tax purposes prior to their acquisition by the Company. For purposes of
these Consolidated Financial Statements, federal and state income taxes have
been provided as if these companies had filed subchapter C corporation tax
returns for the pre-acquisition periods, and the current income tax expense is
reflected as an increase to additional paid-in capital. The subchapter S
corporation status of these companies was terminated effective with the closing
date of the acquisitions.
F-18
<PAGE> 19
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The components of the provision (benefit) for income taxes related to
continuing operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $47.1 $17.3 $17.3
State..................................................... 5.0 3.4 3.8
Federal and state deferred.................................. (7.2) 21.5 22.6
Foreign deferred............................................ (8.8) (1.4) (2.6)
Change in valuation allowance............................... 20.3 3.2 1.7
----- ----- -----
Provision for income taxes.................................. $56.4 $44.0 $42.8
===== ===== =====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Amortization of intangible assets........................... 2.0 1.0 .4
Non-deductible expenses..................................... 10.0 1.5 1.1
State income taxes, net of federal benefit.................. 6.2 4.4 4.9
Change in valuation allowance............................... 32.4 4.2 2.1
Foreign income tax benefit at other than U.S. rates......... (2.0) (.1) --
Other, net.................................................. 7.1 11.7 7.1
---- ---- ----
Effective tax rate........................................ 90.7% 57.7% 50.6%
==== ==== ====
</TABLE>
Components of the net deferred income tax liability included in other
liabilities in the accompanying Consolidated Balance Sheets at December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 286.9 $232.3
Deferred costs............................................ 17.7 19.0
Deferred income tax assets:
Net operating losses...................................... (103.3) (43.8)
Deferred revenue.......................................... (14.4) (14.9)
Accruals not currently deductible......................... (96.1) (92.2)
Valuation allowance......................................... 66.3 43.7
------- ------
Net deferred income tax liability........................... $ 157.1 $144.1
======= ======
</TABLE>
At December 31, 1996, the Company had available domestic net operating loss
carryforwards of approximately $253.9 million which begin to expire in the year
2006 and foreign net operating loss carryforwards of approximately $47.9
million, the majority of which have an indefinite carryforward. 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 has provided a valuation allowance to offset a portion of
the 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.
F-19
<PAGE> 20
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The foreign component of income (loss) from continuing operations before
income taxes and extraordinary charge for the years ended December 31, 1996,
1995 and 1994 was $(22.0) million, $(20.8) million and $.8 million,
respectively.
The Company made income tax payments of approximately $15.1 million, $13.2
million and $3.6 million in 1996, 1995 and 1994, respectively.
6. SHAREHOLDERS' EQUITY
In May 1997, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock from 500.0 million to
1.5 billion shares.
In January 1997, the Company sold 15.8 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $552.7
million.
In November 1996, the Company sold 12.1 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $353.3
million.
In May 1996, the Company sold 9.9 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $197.6
million.
In May 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend, payable June 8,
1996, to holders of record on May 28, 1996.
In May 1996, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock from 350.0 million
shares to 500.0 million shares.
In October 1995, Continental completed a secondary public offering of
approximately 2.6 million equivalent shares of Common Stock resulting in net
proceeds of approximately $30.1 million.
In September 1995, the Company sold 10.0 million shares of Common Stock in
a private placement transaction resulting in net proceeds of approximately $99.0
million.
In August 1995, the Company sold an aggregate of 16.7 million shares of
Common Stock and warrants to purchase an additional 33.4 million shares of
Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda
corporation controlled by Michael G. DeGroote, former Chairman of the Board,
President and Chief Executive Officer of Republic), Harris W. Hudson, and
certain of their assigns for an aggregate purchase price of $37.5 million. Mr.
Huizenga is the Chairman of the Board and Co-Chief Executive Officer of the
Company; Mr. DeGroote is a Director of the Company and Mr. Hudson is Vice
Chairman of the Board of the Company. The warrants are exercisable at prices
ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and
sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and
John J. Melk (a Director of the Company) for aggregate proceeds of approximately
$26.5 million.
In July 1995, the Company sold 10.8 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $69.3
million.
The Company has 5.0 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 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 fair market value of the Common Stock at the date of grant. Generally,
options granted will have a term of ten 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.
F-20
<PAGE> 21
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
A summary of stock option and warrant transactions is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants
outstanding at beginning
of period................ 49.6 $ 4.87 8.1 $4.54 7.2 $ 4.45
Granted.................... 8.7 21.86 45.1 4.92 1.3 4.96
Exercised.................. (5.6) 4.03 (2.9) 4.14 -- --
Canceled................... (.2) 9.44 (.7) 7.49 (.4) 4.07
---- ---- ---
Options and warrants
outstanding at end of
period................... 52.5 7.63 49.6 4.87 8.1 4.54
==== ==== ===
Options and warrants
exercisable at
period-end............... 38.5 4.12 39.9 3.50 4.3 4.33
Options available for
future grants............ 7.9 4.3 5.7
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options and warrants at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------- -------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------ ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$ 1.05 - $ 2.75.......... 24.1 1.22 $ 2.37 23.3 $ 2.40
2.95 - 12.38.......... 17.8 5.15 7.28 14.1 6.10
12.88 - 33.75.......... 10.6 9.38 20.21 1.1 15.76
---- ----
1.05 - 33.75.......... 52.5 4.20 7.63 38.5 4.12
==== ====
</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 no compensation cost related to stock options
is deducted in determining net income (loss). 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 pro forma net loss and
pro forma net loss per share would have increased accordingly. Using the
Black-Scholes option pricing model for all options granted after December 31,
1994, the Company's pro forma net loss, pro forma net loss per share and pro
forma weighted average fair value of options granted, with related assumptions,
are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Pro forma net loss.... .............................. $(43.6) $(.9)
Pro forma net loss per share ........................ (.15) --
Pro forma weighted average fair value
of options granted................................. 9.80 5.28
Risk free interest rates............................. 5.98% - 6.17% 5.98% - 6.17%
Expected lives....................................... 5-7 years 5-7 years
Expected volatility.................................. 40% 40%
</TABLE>
F-21
<PAGE> 22
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to obtain a variance under California
regulations to reclassify the Filters as a special waste so they may be left in
the landfill. If this occurs, the State, regional and local regulatory agencies
may nevertheless require that the affected area of the landfill be capped and
closed. In the event that the variance is not granted, remedial measures may be
required based on the Filters' classification as a California hazardous waste.
One of those measures could include the removal of the Filters or the closure of
a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) if so, what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
in the United States District Court for the Southern District of California
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses incurred by the Company associated
with the resolution of this matter. This suit was settled in November 1996
without material impact on the Company's consolidated financial position,
results of operations or cash flows.
The Company's solid waste and environmental services activities are
conducted in the context of a developing and changing statutory and regulatory
framework, aggressive government enforcement and a highly visible political
environment. Governmental regulation of the waste management industry requires
the Company to obtain and retain numerous governmental permits to conduct
various aspects of its operations. These permits are subject to revocation,
modification or denial. The costs and other capital expenditures which may be
required to obtain or retain the applicable permits or comply with applicable
regulations could be significant.
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, ("CarMax") accused AutoNation of infringing CarMax's trademark
rights by using the marks AutoNation USA and "The Better Way to Buy a Car."
AutoNation denied such allegations and on February 5, 1996, filed suit in the
U.S. District Court for the Southern District of Florida seeking a declaratory
judgment that AutoNation's use and registration of such marks do not violate any
of the rights of CarMax. On or about October 11, 1996, CarMax filed a
counterclaim against AutoNation seeking unspecified damages and an order
enjoining AutoNation from using certain marks, including the marks AutoNation
USA and "The Better Way to Buy a Car." In February 1997, AutoNation filed a
motion for partial summary judgment on CarMax's dilution claim under Florida
law. A trial has been set for June 1998. Although it is impossible to predict
the outcome of this litigation, the Company believes that AutoNation has a valid
basis for its complaint and that CarMax's allegations and counterclaims are
without merit.
While the results of the legal and environmental proceedings described
above and other proceedings which arose in the normal course of business cannot
be predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position. However, unfavorable resolution of each matter individually
or in the aggregate could affect the consolidated results of operations or cash
flows for the quarterly periods in which they are resolved.
F-22
<PAGE> 23
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The Company maintains general liability and property insurance and an
umbrella and excess liability policy in amounts it considers adequate and
customary for businesses of its kind. However, there can be no assurance that
the Company will not experience legal claims in excess of its insurance coverage
or claims which are ultimately not covered by insurance.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from 1 to 20 years. The
Company has also entered into various airport concession and permit agreements
which generally provide for payment of a percentage of revenue from vehicle
rentals with a guaranteed minimum lease obligation.
Expenses under real property, equipment and software leases and airport
concession agreements (excluding amounts charged through to customers) for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Real property.......................................... $ 51.9 $ 40.6 $ 29.3
Equipment and software................................. 23.8 24.9 22.9
Airport concession and permit fees:
Minimum fixed obligations............................ 89.6 68.0 36.3
Additional amounts, based on revenue from vehicle
rentals........................................... 94.5 60.1 27.6
------ ------ ------
Total........................................ $259.8 $193.6 $116.1
====== ====== ======
</TABLE>
Future minimum lease obligations under noncancelable real property,
equipment and software leases and airport agreements with initial terms in
excess of one year at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1997................................................... $102.7
1998................................................... 83.2
1999................................................... 55.5
2000................................................... 34.9
2001................................................... 21.8
Thereafter............................................. 125.4
------
$423.5
======
</TABLE>
In August 1995, the Company entered into a ten-year lease agreement for
Alamo's Fort Lauderdale, Florida corporate headquarters facility. In December
1996, the Company acquired the headquarters facility for approximately $23.5
million, including the assumption of debt totaling approximately $22.7 million
which was repaid by the Company in January 1997.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance bonds, letters of credit, and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
December 31, 1996, letters of credit and surety bonds totaling $284.1 million
expire through October 1999.
9. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) per common and common equivalent share are 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 warrants and options. In computing income per common and common equivalent
share from continuing operations before extraordinary charge, the Company has
utilized the treasury stock method.
F-23
<PAGE> 24
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of fully diluted income per share from continuing
operations before extraordinary charge, which is substantially the same as
the computation used to calculate primary income per share from continuing
operations before extraordinary charge is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Common shares outstanding................................. 308.6 259.8 169.6
Common equivalent shares.................................. 58.1 53.8 1.2
Weighted average treasury shares purchased................ (15.2) (7.6) .3
Effect of using weighted average common and common
equivalent shares outstanding........................... (25.8) (74.1) (3.2)
----- ----- -----
325.7 231.9 167.9
===== ===== =====
</TABLE>
For the years ended December 31, 1996 and 1995, the weighted-average
effect of common stock equivalents of approximately 37.1 million and
17.4 million shares, respectively, has been excluded from the computations of
the extraordinary charge per share and net loss per share in 1996 and the net
loss from discontinued operations per share in 1995 since they are
anti-dilutive.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share ("EPS").
This Statement replaces primary and fully diluted EPS with basic and diluted
EPS. Basic EPS excludes dilution and is computed by dividing net income by the
weighted average common shares outstanding during the period. Diluted EPS is
computed similar to fully diluted EPS pursuant to Accounting Principles Board
Opinion No. 15. SFAS No. 128 is effective for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted. The
Company's pro forma basic and diluted EPS computed under SFAS No. 128 are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Basic:
Income (loss) from continuing operations................ $ (.09) $ .15 $ .25
Net income (loss)....................................... (.09) .03 .23
Diluted:
Income (loss) from continuing operations................ $ (.09) $ .14 $ .25
Net income (loss)....................................... (.09) .03 .23
</TABLE>
10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES
During the year ended December 31, 1996, the Company recorded one-time
pre-tax charges of approximately $95.5 million related primarily to the
integration of the operations of Alamo into those of the Company. Also included
in these charges are merger expenses associated with the acquisitions of Alamo,
Addington and Continental. Approximately $38.3 million of such expenses appear
as restructuring and merger expenses with the remainder of approximately $57.2
million included in automotive rental operating expenses and selling, general
and administrative expenses in the Company's Consolidated Statements of
Operations for the year ended December 31, 1996. These costs primarily include
asset write-offs, severance benefits, accounting and legal merger costs and
changes in various estimated reserve requirements.
In 1995, the Company recorded a $3.3 million pre-tax charge related to the
closing of a subsidiary's headquarters office in Indianapolis, Indiana. The
major components of the charge include severance costs, future contractual
payments required under pre-existing contracts and other costs related to the
write-off of equipment and other obligations related to the physical closure of
the office.
11. DISCONTINUED OPERATIONS
In 1995, the Company implemented a formal plan to dispose of all of its
mining and citrus operations. These discontinued operations consisted primarily
of the following: coal mining, mining equipment, manufacturing and licensing,
citrus properties in Belize, precious and industrial metals mining and
incidental limestone properties. The Company initially recorded a loss on the
disposal of the discontinued operations of approximately $30.5 million (net of
income tax benefits of approximately $10.0 million) which represents the
estimated loss on the disposal of such operations and a provision of
approximately $2.0 million for expected operating losses through the final
disposition of such operations. See Note 14, Related Party Transactions, for
discussion of the disposition of the Company's mining and citrus operations.
In 1994, the Company announced the contemplation of a plan to spin-off
RESI, its hazardous waste services segment. In April 1995, Republic shareholders
received one share of common stock of RESI for every ten shares of Common Stock
of Republic owned in connection with the spin-off of RESI. Approximately 5.4
million RESI shares were distributed to Republic shareholders (the
"Distribution"). In connection with the Distribution, the Company contributed
the intercompany balance to RESI's equity and contributed approximately $2.5
million to RESI to repay RESI's indebtedness and to provide working capital to
RESI. Additionally, the Company reclassified approximately $36.3 million to
retained earnings from additional paid-in capital to effect the spin-off under
Delaware law. As a result of these transactions, the Company's equity at the
date of the Distribution was reduced by approximately $23.6 million.
The Company has sold or spun-off all of its subsidiaries included in
discontinued operations, hence fully disposing of all mining and citrus and
hazardous waste operations. Upon ultimate disposal of its discontinued
operations, the Company determined its initial estimates did not require
adjustment. The recorded transactions reflect the disposal of all of the
Company's hazardous waste and mining and citrus segments and,
F-24
<PAGE> 25
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
accordingly, the operating results of these segments have been classified as
discontinued operations for all periods presented in the accompanying
Consolidated Financial Statements.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, investments, receivables,
other assets (excluding goodwill, intangibles and deferred costs), accounts
payable and accrued liabilities (nonderivatives) approximates fair value because
of the short maturity of these instruments.
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 Company has interest protection agreements with several counterparties
to manage the impact of interest rate changes. The estimated fair values of the
interest protection agreements were determined from dealer quotations and
represent the discounted future cash flows through maturity or expiration using
current rates, and are effectively the amounts the Company would pay or receive
to terminate the agreements. The estimated fair values of the interest rate
protection agreements at December 31, 1996 and 1995 was a net payable position
of $.7 million and $9.7 million, respectively.
The estimated fair value of fixed rate mortgages payable at December
31, 1996 and 1995 was approximately $34.0 million and $114.0 million,
respectively which approximates the carrying value. The estimated fair values
were derived by discounting expected cash flows at the rates then offered to
the Company for debt of similar terms and remaining maturities. The fair value
of the Company's medium-term notes payable is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair
value of the medium-term notes payable was $792.8 million as of December 31,
1996. The carrying amount of the remaining debt approximates fair value
because interest rates are variable and, accordingly, approximate current
market rates.
In September 1996, the Agreement and Plan of Amalgamation, dated as of July
1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the
Company, R.I./Triangle, Ltd. and ADT, which provided for the acquisition of ADT
by the Company, was terminated by mutual agreement of the parties. In connection
with the execution of the ADT Agreement, ADT granted to the Company the ADT
Warrant to purchase 15.0 million common shares of ADT at a purchase price of $20
per share (which approximated fair market value). The Company estimated the fair
value of the ADT Warrant at December 31, 1996 to be approximately $5.7 million
based upon an option pricing model calculation, which approximated the carrying
value. In March 1997, the Company exercised the ADT Warrant. In May 1997, the
Company sold the 15.0 million common shares of ADT resulting in a pre-tax gain
of approximately $102.3 million.
13. BUSINESS AND CREDIT CONCENTRATIONS
AUTOMOTIVE RENTAL INDUSTRY
At December 31, 1996 the Company had 491 corporate owned vehicle rental
facilities throughout the United States. The Company also had 31 corporate owned
vehicle rental facilities in the United Kingdom, 25 in Germany, 4 in
Switzerland, 82 in Canada, 1 in Belgium and 2 in The Netherlands. In addition to
its corporate owned locations, the Company's licensee network operates 284
locations throughout Europe, Latin America, the Caribbean, and the Pacific. The
automotive rental industry in which the Company operates is highly seasonal.
Trade receivables at December 31, 1996 and 1995 include $68.3 million and
$59.3 million, respectively from travel agents and tour operators. Of the travel
agent and tour operator receivable balances, $25.4 million
F-25
<PAGE> 26
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
and $25.6 million at December 31, 1996 and 1995, respectively, are maintained
outside the United States. The Company holds minimum collateral in the form of
cash, letters of credit or insurance from most of these vendors. The Company
continually evaluates the credit risk of these customers and believes that the
allowance for doubtful accounts relative to its trade receivables is adequate.
At December 31, 1996 and 1995, the Company had vehicle receivables from
manufacturers of $125.4 million and $65.0 million, respectively. Of the
receivable balances from manufacturers, $16.9 million and $12.7 million are
maintained outside the United States. Vehicle receivables also include amounts
due from renters for damages incurred on revenue earning vehicles.
The Company enters into vehicle repurchase programs with one principal
vehicle manufacturer, as well as other vehicle manufacturers. During model year
1996, the Company purchased 71% of its vehicle fleet under repurchase programs
with one vehicle manufacturer.
AUTOMOTIVE RETAIL, SOLID WASTE SERVICES AND ELECTRONIC SECURITY SERVICES
INDUSTRIES
Concentrations of credit risk with respect to trade receivables related to
the Company's automotive retail, solid waste services and electronic security
services segments are limited due to the wide variety of customers and markets
in which the Company's products are sold and services are provided as well as
their dispersion across many different geographic areas in the United States. As
a result, at December 31, 1996, the Company does not consider itself to have any
significant concentrations of credit risk in the solid waste services,
electronic security services and automotive retailing segments.
14. RELATED PARTY TRANSACTIONS
As of December 31, 1996, approximately $247.5 million was due from
AutoNation pursuant to a loan agreement whereby the Company agreed to provide
advances at an interest rate of LIBOR plus 2% to fund AutoNation's cash flow
requirements. Interest income recognized on such advances was approximately $5.6
million for the year ended December 31, 1996. In addition, on behalf of
AutoNation, the Company has guaranteed certain lease obligations and the
residual value related to a portfolio of properties leased by AutoNation under a
$150.0 million operating lease facility. At December 31, 1996, annual lease
obligations were approximately $2.6 million through the year 2001 and the
residual value guaranty was approximately $37.6 million. In April 1997, the
operating lease facility was increased to $500.0 million.
The Company purchased approximately $631.3 million, $351.8 million and
$551.2 million of revenue earning vehicles from a group of automotive
dealerships owned primarily by a former director of Alamo during the years ended
December 31, 1996, 1995 and 1994, respectively. Pursuant to an automobile
purchase agreement, the Company agreed to purchase and/or lease a minimum number
of vehicles and pay to these automotive dealerships a specific amount (in
addition to the manufacturer's sales price) for each vehicle purchased.
In September 1995, the Company entered into a stock purchase agreement with
Addington Enterprises, Inc. (a company f/k/a Addington Acquisition Company,
Inc., owned by certain former shareholders of Addington; collectively, the
"Addington Brothers") whereby the Company would receive $30.0 million, subject
to a working capital adjustment, in exchange for all the issued and outstanding
shares of common stock of its subsidiaries, Addington Mining, Inc., Mining
Technologies Inc., Addwest Mining, Inc. and Addington Coal Holding, Inc. This
transaction closed in November 1995, at which time the proceeds received were
used by the Company to pay down certain borrowings under a revolving line of
credit.
Included in the transaction described above and pursuant to an option
agreement, in August 1995 the Company sold to the Addington Brothers all the
issued and outstanding shares of common stock of its subsidiary, Tennessee
Mining, Inc. According to the terms of the option agreement, the Addington
Brothers will pay the Company a royalty based on tons of coal delivered under a
certain coal sales contract, up to a maximum aggregate royalty of $12.5 million.
F-26
<PAGE> 27
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
In September 1995, the Company entered into an agreement to sell all of the
issued and outstanding shares of common stock of its subsidiary, Belize River
Fruit Co., to the Addington Brothers in exchange for .9 million shares of Common
Stock of the Company owned by such shareholders. This transaction was
consummated in November 1995, at which time the Company acquired and retired the
.9 million shares valued at $13.6 million. The Company retained no obligations
in connection with the sales and has fully divested its investment in its citrus
operations.
15. OPERATIONS BY INDUSTRY SEGMENT
The Company is a diversified holding company with major business operations
in the automotive rental, automotive retail, solid waste services and
electronic security services industries. The Company operates primarily in the
United States.
The following table presents financial information regarding the Company's
different industry segments as of and for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Automotive rental................................ $ 2,699.4 $ 1,992.8 $ 1,290.6
Automotive retail................................ 2,377.9 1,765.7 1,500.2
Solid waste services............................. 701.2 450.4 317.9
Electronic security services..................... 85.3 49.8 41.9
---------- ---------- ----------
$ 5,863.8 $ 4,258.7 $ 3,150.6
========== ========== ==========
Operating income (loss):
Automotive rental................................ $ (27.2) $ (14.6) $ 34.0
Automotive retail................................ 20.5 27.2 23.7
Solid waste services............................. 93.7 63.1 42.7
Electronic security services..................... 14.5 8.6 2.3
Corporate........................................ (31.8) (4.3) (2.9)
---------- ---------- ----------
$ 69.7 $ 80.0 $ 99.8
========== ========== ==========
Depreciation and amortization:
Automotive rental................................ $ 789.3 $ 586.0 $ 379.0
Automotive retail................................ 7.4 6.4 5.6
Solid waste services............................. 58.9 44.6 35.0
Electronic security services..................... 10.8 4.9 4.1
---------- ---------- ----------
$ 866.4 $ 641.9 $ 423.7
========== ========== ==========
Capital expenditures, purchases of revenue earning
vehicles and investment in subscriber accounts:
Automotive rental................................ $ 4,740.4 $ 3,217.8 $ 3,363.6
Automotive retail................................ 56.8 47.1 8.9
Solid waste services............................. 128.2 146.0 112.7
Electronic security services..................... 53.0 17.5 18.3
---------- ---------- ----------
$ 4,978.4 $ 3,428.4 $ 3,503.5
========== ========== ==========
Assets:
Automotive rental................................ $ 4,735.9 $ 3,906.5 $ 2,352.5
Automotive retail................................ 600.6 484.1 367.2
Solid waste services............................. 1,309.2 840.2 466.1
Electronic security services..................... 43.6 43.8 34.4
Net assets of discontinued operations............ -- -- 86.2
---------- ---------- ----------
$ 6,689.3 $ 5,274.6 $ 3,306.4
========== ========== ==========
</TABLE>
F-27
<PAGE> 28
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter which
includes the peak summer travel months has historically been the strongest
quarter of the year. During the peak season the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on the annual performance of this segment. The first and
fourth quarters for the Company's automotive rental operations are generally the
weakest, when there is limited leisure family travel and a greater potential for
adverse weather conditions. Many of the operating expenses such as rent, general
insurance and administrative personnel are fixed and cannot be reduced during
periods of decreased rental demand.
The third and fourth quarters of 1996 included one-time pre-tax charges of
approximately $7.6 million and $87.9 million, respectively, as described in Note
10, Restructuring, Merger and Other Non-Recurring Expenses. The fourth quarter
of 1996 also included an extraordinary charge of approximately $31.6 million,
net of income tax benefit, related to the early extinguishment of debt as
described in Note 4, Long-Term Debt and Notes Payable.
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1996 and 1995. Quarterly amounts have
been restated from amounts previously reported in Form 10-Q for significant
business combinations accounted for under the pooling of interests method of
accounting.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue................................. 1996 $ 1,267.4 $ 1,501.3 $ 1,539.3 $ 1,555.8
1995 808.5 967.8 1,245.7 1,236.7
Operating income (loss)................. 1996 $ 34.2 $ 56.3 $ 78.0 $ (98.8)
1995 (3.3) 17.3 75.3 (9.3)
Income (loss) from continuing operations
before extraordinary charge........... 1996 $ 17.5 $ 30.0 $ 42.3 $ (84.0)
1995 (7.8) 5.0 39.2 (4.2)
Income (loss) per share from
continuing operations before
extraordinary charge.................. 1996 $ .06 $ .09 $ .13 $ (.28)
1995 (.04) .02 .16 (.02)
Net income (loss)....................... 1996 $ 17.5 $ 30.0 $ 42.3 $ (115.6)
1995 (6.3) 7.3 11.4 (5.3)
</TABLE>
F-28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (RESTATED)
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of Republic Industries,
Inc. (the "Company") which are included elsewhere herein. The historical
financial statements of the Company include the financial position and results
of operations of The Pierce Corporation ("Pierce"), Flemington Car and Truck
Country and certain related dealerships ("Flemington"), Spirit Rent-A-Car, Inc.
("Spirit"), Chesrown Automotive Group ("Chesrown"), Bledsoe Dodge, Inc.
("Bledsoe"), National Car Rental System, Inc. ("National"), Maroone Automotive
Group ("Maroone"), Wallace Automotive Group ("Wallace"), Taormina Industries,
Inc. ("Taormina") and Carlisle Motors, Inc. ("Carlisle") which the Company
acquired during the six months ended June 30, 1997. These transactions have
been accounted for under the pooling of interests method of accounting, and
accordingly, these historical financial statements have been restated as if the
companies had operated as one entity since inception. All references to
historical share and per share data of the Company's common stock, par value
$.01 per share ("Common Stock"), have been retroactively adjusted to reflect
the two-for-one stock split that occurred in June 1996, which is more fully
described in Note 6, Shareholders' Equity, of Notes to Consolidated Financial
Statements.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses based
on financial and strategic considerations.
PENDING ACQUISITIONS
In August 1997, the Company announced an offer to acquire EuroDollar
Holdings plc ("EuroDollar"), which operates an automotive rental business
primarily in the United Kingdom. The Company will pay approximately $150.0
million in cash or notes in this transaction, which will be accounted for under
the purchase method of accounting. The closing of the transaction is subject to
customary conditions, including regulatory approval and approval by the
requisite number of EuroDollar shareholders.
In July 1997, the Company signed a definitive agreement to acquire Dobbs
Automotive Group ("Dobbs"), which owns and operates twenty franchised
automotive dealerships. The Company will issue shares of its common stock, par
value $.01 per share ("Common Stock"), valued at approximately $200.0 million
in this transaction which will be accounted for under the purchase method of
accounting. The closing of the transaction is subject to customary conditions,
including manufacturer and regulatory approvals.
In July 1997, the Company signed a definitive agreement to acquire the
Anderson Dealership Group ("Anderson"), which owns and operates nine franchised
automotive dealerships. The Company will issue Common Stock valued at
approximately $40.0 million in this transaction which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including manufacturer and
regulatory approvals.
In July 1997, the Company signed a definitive agreement to acquire the
assets of Silver State Disposal Service, Inc. ("Silver State"), which provides
waste collection services. The Company will issue Common Stock valued at
approximately $378.0 million in this transaction which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including regulatory approvals.
In June 1997, the Company signed a definitive agreement to acquire the
Appleway Automotive Group ("Appleway"), which owns and operates eight
franchised automotive dealerships. The Company will issue Common Stock valued
at approximately $42.6 million in this transaction, which will be accounted for
under the purchase method of accounting. The closing of the transaction is
subject to customary conditions, including manufacturer and regulatory
approvals.
In May 1997, the Company signed a definitive agreement to acquire Desert
Buick-GMC Automotive Group ("Desert"), which owns and operates four franchised
automotive dealerships. The Company will issue Common Stock valued at
approximately $38.0 million in this transaction, which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including manufacturer and
regulatory approvals.
In May 1997, the Company signed a definitive agreement to acquire Gulf
Management, Inc. ("Gulf"), which owns and operates two franchised automotive
dealerships. The Company will issue Common Stock valued at approximately $45.0
million in this transaction, which will be accounted for under the purchase
method of accounting. The closing of the transaction is subject to customary
conditions, including manufacturer and regulatory approvals.
Additionally, the Company has signed definitive agreements to acquire
various other businesses in the automotive retail industry which are not
material to the Company. The Company will issue cash and/or Common Stock valued
in the aggregate at approximately $50.6 million in such transactions which will
be accounted for under the purchase method of accounting, and will issue Common
Stock valued in the aggregate at approximately $90.9 million in such
transactions which will be accounted for under the pooling of interests method
of accounting. These transactions are subject to customary conditions,
including manufacturer and regulatory approvals, as applicable.
COMPLETED ACQUISITIONS
Significant businesses acquired through June 30, 1997 and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception. Businesses acquired through December 31,
1996 and accounted for under the purchase method of accounting are included in
the Consolidated Financial Statements from the date of acquisition.
In August 1997, the Company acquired Snappy Car Rental, Inc. ("Snappy"),
which operates an automotive rental business. The Company issued approximately
1.0 million shares of Common Stock in this transaction which has been accounted
for under the purchase method of accounting.
In July 1997, the Company acquired Value Rent-A-Car ("Value"), which
operates a vehicle rental business. The Company issued approximately 3.4 million
shares of Common Stock in this transaction which has been accounted for under
the purchase method of accounting.
In July 1997, the Company acquired Courtesy Auto Group ("Courtesy"), which
owns and operates eleven franchised automotive dealerships. The Company issued
approximately 1.4 million shares of Common Stock in this transaction which has
been accounted for under the purchase method of accounting.
In July 1997, the Company acquired De La Cruz Auto Group ("De La Cruz"),
which owns and operates four franchised automotive dealerships. The Company
issued approximately 1.8 million shares of Common Stock in this transaction,
which has been accounted for under the pooling of interests method of
accounting.
In June 1997, the Company acquired Pierce which owns and operates one
franchised automotive dealership and two used automotive dealerships. The
Company issued approximately 2.3 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting.
In May 1997, the Company acquired Flemington, which owns and operates
twelve franchised automotive dealerships. The Company issued approximately
2.3 million shares of Common Stock in this transaction, which has been
accounted for under the pooling of interests method of accounting.
In May 1997, the Company acquired Spirit, which operates a vehicle rental
business. The Company issued 3.1 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests
method of accounting.
In May 1997, the Company acquired Chesrown, which owns and operates seven
franchised automotive dealerships. The Company issued approximately 2.5
million shares of Common Stock in this transaction, which has been accounted
for under the pooling of interests method of accounting.
In May 1997, the Company acquired Bledsoe, which operates three franchised
automotive dealerships. The Company issued approximately 1.7 million shares of
Common Stock in this transaction, which has been accounted for under the
pooling of interests method of accounting.
In May 1997, the Company acquired Bankston Automotive Group ("Bankston"),
which owns and operates four franchised automotive dealerships. The Company
issued approximately 1.4 million shares of Common Stock in this transaction,
which has been accounted for under the purchase method of accounting.
In February 1997, the Company acquired National, which operates a vehicle
rental business. The Company issued approximately 21.7 million shares of Common
Stock in this transaction, which has been accounted for under the pooling of
interests method of accounting. National was formed in April 1995 to acquire the
operating assets and certain liabilities of a predecessor company ("Old
National") from General Motors Corporation as further discussed below.
In February 1997, the Company acquired Maroone, which owns and operates
five franchised automotive dealerships. The Company issued approximately 6.1
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Wallace, which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.7
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Taormina, which provides waste
collection services and owns and operates a materials recycling facility. The
Company issued approximately 7.4 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting.
In February 1997, the Company acquired Kendall Automotive Group
("Kendall"), which owns and operates three franchised automotive dealerships.
The Company issued approximately 1.2 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In January 1997, following approval by the Company's stockholders at a
special meeting, the Company acquired AutoNation Incorporated ("AutoNation"),
which is developing a chain of used vehicle megastores. The Company issued
approximately 17.5 million shares of Common Stock in this transaction, which
has been accounted for under the purchase method of accounting.
F-29
<PAGE> 30
In January 1997, the Company acquired Carlisle which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.0
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In January 1997, the Company acquired Grubb Automotive ("Grubb"), which
owns and operates seven franchised automotive dealerships. The Company issued
approximately 4.0 million shares of Common Stock in this transaction, which has
been accounted for under the purchase method of accounting.
In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries
("Mullinax"), which owns and operates six franchised automotive dealerships.
The Company issued approximately 3.6 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In addition, subsequent to December 31, 1996, the Company acquired various
other businesses in the automotive retail, solid waste services and electronic
security services industries which were not material to the Company. The Company
issued an aggregate of approximately 8.6 million shares of Common Stock and paid
approximately $75.0 million of cash in such transactions which have been
accounted for under the purchase method of accounting, and issued an aggregate
of approximately 9.8 million shares of Common Stock in such transactions which
have been accounted for under the pooling of interests method of accounting.
In December 1996, the Company acquired Addington Resources, Inc.
("Addington"), which primarily provides solid waste disposal services. The
Company issued approximately 13.7 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting. In December 1996, the Company acquired Continental Waste
Industries, Inc. ("Continental"), which provides integrated solid waste
services. The Company issued approximately 12.4 million shares of Common Stock
in this transaction, which has been accounted for under the pooling of interests
method of accounting. In November 1996, the Company acquired Alamo Rent-A-Car,
Inc. ("Alamo"), which operates a vehicle rental business. The Company issued
approximately 22.6 million shares of Common Stock in this transaction, which has
been accounted for under the pooling of interests method of accounting. In
August 1996, the Company acquired the net assets of CarChoice, Inc.
("CarChoice"), which operated used vehicle superstores similar to those being
developed by AutoNation. The Company issued approximately 3.9 million shares of
Common Stock in this transaction, which has been accounted for under the pooling
of interests method of accounting. In February 1996, the Company acquired
Incendere, Inc. ("Incendere"), which provides solid waste collection, recycling
and medical waste hauling services. The Company issued approximately 3.3 million
shares of Common Stock in connection with this acquisition which has been
accounted for under the pooling of interests method of accounting. In February
1996, the Company acquired The Denver Fire Reporter and Protective Co. ("Denver
Alarm"), which provides electronic security services. The Company issued
approximately 2.5 million shares of Common Stock in this transaction, which has
been accounted for under the pooling of interests method of accounting.
During the year ended December 31, 1996, the Company also acquired various
other businesses in the solid waste services, electronic security services and
automotive retailing industries which were not material to the Company. The
Company issued an aggregate of approximately 9.1 million shares of Common Stock
and paid $47.0 million of cash in such transactions which have been accounted
for under the purchase method of accounting, and issued an aggregate of
approximately 13.0 million shares of Common Stock in such transactions which
have been accounted for under the pooling of interests method of accounting.
These acquisitions accounted for under the pooling of interests method of
accounting were not material in the aggregate and, consequently, prior period
financial statements were not restated for such acquisitions.
In November 1995, the Company acquired J.C. Duncan Company, Inc.
("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc.
("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste
collection and recycling services and also operates two landfills. GDS provides
solid waste collection and recycling services. Fennell provides solid waste
collection and recycling services and also owns a landfill. Scott provides
electronic security services. In October 1995, the Company acquired United Waste
Service, Inc. ("United") and Southland Environmental Services, Inc.
("Southland"). United provides solid waste collection, transfer and recycling
services. Southland provides solid waste collection services. In August 1995,
the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides
electronic security services. The Company issued an aggregate of approximately
36.3 million shares of Common Stock for the above acquisitions. These
acquisitions have been accounted for under the pooling of interests method of
accounting and, accordingly, the accompanying Consolidated Financial Statements
have previously been restated as if the Company and Duncan, GDS, Fennell, Scott,
United, Southland and Kertz had operated as one entity since inception.
In August 1995, the Company acquired Hudson Management Corporation and
Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and
recycling services. The Company issued 16.0 million shares of Common Stock to
acquire HMC. The acquisition of HMC has been accounted for under the purchase
method of accounting.
In June 1995, National acquired all of the operating assets and assumed
certain liabilities of Old National for a total cash purchase price of
approximately $1.3 billion. This acquisition was accounted for under the
purchase method of accounting.
During the years ended December 31, 1995 and 1994, the Company entered into
several other business combinations which have been accounted for under the
purchase method of accounting, which were not material to the Company.
Termination of ADT Agreement
In September 1996, the Agreement and Plan of Amalgamation, dated as of July
1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the
Company, R.I./Triangle, Ltd. and ADT Limited, a Bermuda Corporation ("ADT"),
which provided for the acquisition of ADT by the Company, was terminated by
mutual agreement of the parties. In connection with the execution of the ADT
Agreement, ADT granted to the Company a warrant ("the ADT Warrant") to purchase
15.0 million common shares of ADT at a purchase price of $20 per share (which
approximated fair market value). In March 1997, the Company exercised the ADT
Warrant resulting in the purchase of 15.0 million common shares of ADT at $20
per share. In May 1997, the Company sold the ADT common shares to certain
institutional investors for $27.50 per share resulting in a gain of
approximately $102.3 million, net of fees and expenses.
F-30
<PAGE> 31
BUSINESS SEGMENT INFORMATION
The following table sets forth revenue with percentages of total revenue,
and sets forth cost of operations, selling, general and administrative
expenses, restructuring and merger expenses and operating income (loss) with
percentages of the applicable segment revenue, for each of the Company's
various business segments for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1996 % 1995 % 1994 %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Automotive rental...................... $2,699.4 46 $1,992.8 47 $1,290.6 41
Automotive retail...................... 2,377.9 41 1,765.7 41 1,500.2 48
Solid waste services................... 701.2 12 450.4 11 317.9 10
Electronic security services........... 85.3 1 49.8 1 41.9 1
-------- --- -------- --- -------- ---
5,863.8 100 4,258.7 100 3,150.6 100
-------- -------- --------
Cost of Operations:
Automotive rental...................... 2,167.2 80 1,613.9 81 971.6 75
Automotive retail...................... 2,122.6 89 1,548.2 88 1,310.8 87
Solid waste services................... 512.4 73 307.5 68 213.6 67
Electronic security services........... 37.3 44 20.6 41 20.7 49
-------- -------- --------
4,839.5 3,490.2 2,516.7
-------- -------- --------
Selling, General and Administrative:
Automotive rental...................... 535.9 20 393.5 20 285.0 22
Automotive retail...................... 234.8 10 190.3 11 165.7 11
Solid waste services................... 86.3 13 76.5 17 61.6 19
Electronic security services........... 33.5 39 20.6 41 18.9 45
Corporate.............................. 25.8 -- 4.3 -- 2.9 --
-------- -------- --------
916.3 685.2 534.1
-------- -------- --------
Restructuring and Merger Expenses:
Automotive rental...................... 23.5 1 -- -- -- --
Solid waste services................... 8.8 1 3.3 1 -- --
Corporate.............................. 6.0 -- -- -- -- --
-------- -------- --------
38.3 3.3 --
-------- -------- --------
Operating Income (Loss):
Automotive rental...................... (27.2) (1) (14.6) (1) 34.0 3
Automotive retail...................... 20.5 1 27.2 1 23.7 2
Solid waste services................... 93.7 13 63.1 14 42.7 14
Electronic security services........... 14.5 17 8.6 18 2.3 6
Corporate.............................. (31.8) -- (4.3) -- (2.9) --
-------- -------- --------
$ 69.7 $ 80.0 $ 99.8
======== ======== ========
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
The Company's consolidated revenue increased 38% to $5.9 billion for the
year ended December 31, 1996 and 35% to $4.3 billion for the year ended December
31, 1995 due to growth in all four of the Company's business segments.
Consolidated operating income was $69.7 million, $80.0 million and $99.8 million
for the years ended December 31, 1996, 1995 and 1994, respectively. Net income
(loss) was $(25.8) million, $7.1 million and $39.0 million for the years ended
December 31, 1996, 1995 and 1994, respectively. Net income (loss) per common and
common equivalent share was $(.09), $.03 and $.23 for the years ended December
31, 1996, 1995 and 1994, respectively. The year ended December 31, 1996 was
impacted by one-time pre-tax charges of approximately $95.5 million and an
extraordinary charge of approximately $31.6 million, both of which are more
fully discussed below. Excluding these charges, operating results of the
Company's automotive rental segment for the year ended December 31, 1996
improved significantly over 1995. Operating results of the Company's automotive
retail operations during the year ended December 31, 1996 were negatively
impacted by start-up costs associated with the Company's used vehicle megastore
operations related to the CarChoice acquisition. The Company's solid waste
services and electronic security services segments experienced significant
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improvement over 1995. The operating results for each of the Company's various
business segments are discussed below.
Restructuring, Merger and Other Non-Recurring Expenses
During the year ended December 31, 1996, the Company took one-time pre-tax
charges of approximately $95.5 million related primarily to the integration of
the operations of Alamo into those of the Company. Also included in these
charges are merger expenses associated with the acquisitions of Alamo, Addington
Resources, Inc. and Continental Waste Industries, Inc. Approximately $38.3
million of such expenses appear as restructuring and merger expenses on the
Company's Consolidated Statement of Operations for the year ended December 31,
1996 with the remainder of approximately $57.2 million included in automotive
rental operating expenses and selling, general and administrative expenses.
These costs primarily include asset write-offs, severance benefits, accounting
and legal merger costs and changes in various estimated reserve requirements.
Extraordinary Charge
During the year ended December 31, 1996, in connection with refinancing
Alamo's debt at substantially lower interest rates, the Company took an
extraordinary charge of approximately $31.6 million, net of income taxes.
Included in this charge are bond redemption premiums, the write-off of debt
issue costs, prepayment penalties and other related fees. See Note 4, Long-Term
Debt and Notes Payable, of Notes to Consolidated Financial Statements for
further discussion of this charge.
Discontinued Operations
During the year ended December 31, 1995, the Company disposed of its mining
and citrus operations and spun-off its hazardous waste services segment
resulting in a loss from discontinued operations of approximately $25.1 million,
net of income taxes. Operating results have been reclassified in the
Consolidated Financial Statements from the historical classification in order to
properly identify them as discontinued operations. See Note 11, Discontinued
Operations, of Notes to Consolidated Financial Statements, for further
discussion of these transactions.
AUTOMOTIVE RENTAL
Revenue from the Company's automotive rental operations consists primarily
of rental fees and sales of related rental products from the leisure and
business travel segments. Rental revenue for the year ended December 31, 1996
increased 35% to $2.7 billion from $2.0 billion in 1995, while 1995 revenue
increased 54% from $1.3 billion in 1994. These increases are primarily a result
of National's acquisition of Old National in July 1995 which was accounted for
under the purchase method of accounting.
Operating income (loss) from the Company's automotive rental operations has
fluctuated during the three years ended December 31, 1996, 1995 and 1994 due to
restructuring, merger and other non-recurring expenses and the level of vehicle
rental operating expenses as discussed below. Operating income (loss) was
$(27.2) million for the year ended December 31, 1996 as compared to $(14.6)
million in 1995 and income of $34.0 million in 1994. Approximately $75.7 million
of the Company's 1996 restructuring, merger and other non-recurring expenses
relate to the operations of Alamo as discussed above. Without these charges,
operating income from the Company's automotive rental business would have been
approximately $48.5 million in 1996.
Automotive rental operating expenses consist primarily of vehicle
depreciation, interest and lease expenses and other direct operating expenses
including personnel, insurance, fleet maintenance and rental location occupancy
costs. Automotive rental operating expenses were $2.2 billion, $1.6 billion and
$971.6 million or, as percentages of automotive rental revenue, 80%, 81% and 75%
for the years ended December 31, 1996, 1995 and 1994, respectively. The
increases in aggregate dollars are attributed primarily to National's
acquisition of Old National as described above. The 1995 increase in such
expenses as a percentage of revenue over 1994 was primarily a result of
increased vehicle depreciation due to unfavorable changes to manufacturers'
repurchase programs
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and the Company's decision to accelerate the removal of certain higher cost
vehicles from its fleet. Additionally, vehicle lease costs and interest costs
increased as percentages of revenue due to an increase in the number of vehicles
under lease and an increase in market interest rates, respectively.
Selling, general and administrative expenses related to the Company's
automotive rental operations consist primarily of administrative personnel,
marketing costs and travel agent and tour operator commissions. Such expenses
were $535.9 million, $393.5 million and $285.0 million or, as percentages of
automotive rental revenue, 20%, 20% and 22% for the years ended December 31,
1996, 1995 and 1994, respectively. The increases in aggregate dollars are
primarily due to National's acquisition of Old National as described above. The
1995 decrease in such expenses as a percentage of revenue is primarily due to
implementation of a cost reduction plan in 1995 which included downsizing
certain administrative functions and reductions in advertising expenses.
AUTOMOTIVE RETAIL
Revenue from the Company's automotive retail operations consists of sales
of new and used vehicles, parts and service. Automotive retail revenue was $2.4
billion, $1.8 billion and $1.5 billion for the years ended December 31, 1996,
1995 and 1994, respectively. These increases are attributed to higher fleet
sales, acquisitions of new franchised automotive dealerships and increases in
manufacturer pricing. The Company has aggressively expanded its automotive
retail business through the acquisition of AutoNation and several new car
dealerships during 1997 and currently plans to continue this expansion. In this
regard, the Company has established framework agreements with each of Ford Motor
Company and General Motors Corporation which will allow the Company to acquire
franchised automotive dealerships nationwide.
Cost of operations of the Company's automotive retail operations was
$2.1 billion, $1.5 billion and $1.3 billion or, as percentages of automotive
retail revenue, 89%, 88% and 87% for the years ended December 31, 1996, 1995 and
1994, respectively, and consists primarily of the cost of vehicles sold,
including the cost of reconditioning used vehicles, the cost of parts and
accessories and interest expense related to vehicle inventory financing. The
increases in aggregate dollars are attributed to higher volume of vehicle sales
during the periods. The increases in cost of operations as percentages of
revenue are primarily due to a higher mix of fleet sales which generate lower
margins than retail sales and 1996 start-up costs associated with the initial
development of the Company's used vehicle megastore operations.
Selling, general and administrative expenses consist primarily of sales
salaries and commissions, marketing expense and office salaries. Such expenses
were $234.8 million, $190.3 million and $165.7 million or, as percentages of
automotive retail revenue, 10%, 11% and 11% for the years ended December 31,
1996, 1995 and 1994, respectively. The increases in aggregate dollars primarily
reflect the Company's expanded operations through the acquisition of new
franchised automotive dealerships as well as 1996 start-up costs associated with
the initial development of the Company's used vehicle megastore operations. The
1996 decrease in such expenses as a percentage of revenue is primarily due to
increased fleet sales as described above which generate minimal incremental
administrative costs. As the Company opens AutoNation stores and reconditioning
centers during 1997 and beyond, such operations will incur fixed operating and
administrative costs immediately while revenue volume will tend to grow more
gradually. Consequently, the Company anticipates it will take approximately nine
months for an average AutoNation store to generate operating income.
SOLID WASTE SERVICES
Revenue from the Company's solid waste services operations consists of
collection fees from residential, commercial and industrial customers and
landfill disposal fees charged to third parties. Solid waste revenue was $701.2
million, $450.4 million and $317.9 million for the years ended December 31,
1996, 1995 and 1994, respectively. These increases in revenue are a result of
acquisitions as well as the expansion of the Company's existing business.
Cost of solid waste services includes disposal, labor and equipment
operating costs related to waste collection operations and the cost of operating
the Company's landfills which consist of daily operating expenses, legal and
administrative costs of ongoing environmental compliance and site closure and
post-closure costs. Certain direct landfill development costs, such as
engineering, upgrading, cell construction and permitting costs, are capitalized
and depleted based on consumed airspace. All indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other corporate services are expensed as incurred. Cost of solid waste
services was $512.4 million, $307.5 million and $213.6 million or, as
percentages of solid waste revenue, 73%, 68% and 67% for the years ended
December 31, 1996, 1995 and 1994, respectively. The increases in aggregate
dollars are a result of the expansion of the Company's solid waste services
operations through acquisition and internal growth. The 1996 increase in cost of
solid waste services as a percentage of solid waste revenue is primarily a
result of certain of the Company's acquired collection companies which had
higher levels of operating costs than the Company's historical operations. The
Company also incurred various operating costs in 1996 related to its plan to
realign certain collection routes in an effort to make its collection process
more efficient. Also, the Company incurred various costs related to upgrading
several of its landfills during 1996.
Selling, general and administrative expenses related to the Company's solid
waste services operations consist primarily of office salaries, supervisor
salaries and office expenses. Such expenses were $86.3 million, $76.5 million
and $61.6 million or, as percentages of solid waste revenue, 13%, 17% and 19%
for the years ended December 31, 1996, 1995 and 1994, respectively. The
increases in aggregate dollars from year to year primarily reflects the growth
of the Company's business through acquisitions. The decreases in selling,
general and administrative expenses as percentages of revenue in each of the
years are primarily due to the reduction of administrative expenses for acquired
businesses and growth in revenue.
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ELECTRONIC SECURITY SERVICES
Revenue from the Company's electronic security services operations results
from monitoring contracts for security systems and fees charged for the sale and
installation of such systems. Electronic security revenue was $85.3 million,
$49.8 million and $41.9 million for the years ended December 31, 1996, 1995 and
1994, respectively. These increases in revenue are principally a result of the
installation of new monitoring systems and acquisitions of subscriber accounts
during the periods.
Cost of electronic security services primarily consists of the labor and
equipment associated with the sale, installation and monitoring of security
systems. Cost of electronic security services was $37.3 million, $20.6 million
and $20.7 million or, as percentages of electronic security revenue, 44%, 41%
and 49% for the years ended December 31, 1996, 1995 and 1994, respectively. The
1996 increase in aggregate dollars from 1995 is a result of the installation of
new monitoring systems and acquisitions of subscriber accounts. The 1996
increase in cost of electronic security services as a percentage of electronic
security revenue is primarily a result of the Company's expansion in 1996
through the opening of additional branch offices which have not yet reached the
revenue volume of a mature branch office, yet have attained a full level of
operating costs and expenses. The 1995 decrease from 1994 in cost of electronic
security services as a percentage of electronic security revenue is primarily a
result of 1995 acquisitions of monitoring accounts which were integrated into
the Company's existing operations with the addition of substantially no
incremental cost of operations.
Selling, general and administrative expenses related to the Company's
electronic security services operations consist primarily of office salaries,
office expenses and marketing expenses. Such expenses were $33.5 million, $20.6
million and $18.9 million or, as percentages of electronic security revenue,
39%, 41% and 45% for the years ended December 31, 1996, 1995, and 1994,
respectively. The increases in aggregate dollars primarily reflect the Company's
expanded operations through the growth of its existing business. The decreases
in selling, general and administrative expenses as percentages of revenue are
primarily due to the reduction of administrative expenses for acquired
businesses and growth in revenue.
CORPORATE ACTIVITIES
Corporate selling, general and administrative expenses consist primarily of
office salaries for corporate employees, professional and regulatory fees,
office expenses and the cost of business travel. Such expenses were $25.8
million, $4.3 million and $2.9 million for the years ended December 31, 1996,
1995 and 1994, respectively. The 1996 increase over 1995 is a result of the
growth experienced by the Company during the year.
INTEREST INCOME
Interest income was $30.9 million, $21.2 million and $6.4 million for the
years ended December 31, 1996, 1995 and 1994, respectively. The increase in
1996 over 1995 is due to the increase in interest income from proceeds from
sales of Common Stock and interest income on advances to AutoNation
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made during 1996. The increase in 1995 over 1994 is a result of interest income
from operating cash flows generated by National subsequent to the acquisition of
Old National in July 1995 as described above and increased interest income on
proceeds from 1995 sales of Common Stock. For further discussion of the sales of
Common Stock, see Note 6, Shareholders' Equity, of Notes to the Consolidated
Financial Statements.
INTEREST EXPENSE
Interest expense was incurred on general corporate debt and the debt
assumed in acquisitions. Interest expense was $43.9 million, $33.5 million and
$20.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increases in 1996 over 1995 and 1995 over 1994 are primarily
due to higher average outstanding borrowings used to fund the Company's growth
and debt assumed in acquisitions. Interest expense related to revenue earning
vehicle financing in the Company's automotive rental operations is included in
vehicle rental operating expenses and interest expense related to the vehicle
inventory financing in the Company's automotive retailing operations is included
in cost of vehicle sales.
INCOME TAXES
The provision for income taxes was $56.4 million, $44.0 million and $42.8
million for the years ended December 31, 1996, 1995 and 1994, respectively. The
effective income tax rate was 90.7%, 57.7% and 50.6% for the years ended
December 31, 1996, 1995 and 1994, respectively. The increases in the effective
income tax rates for 1996 and 1995 are primarily due to the Company providing
valuation allowances on certain deferred tax assets of acquired pooled entities,
non-deductible acquisition related costs and varying historical effective income
tax rates of acquired businesses accounted for under the pooling of interests
method of accounting.
ENVIRONMENTAL AND LANDFILL MATTERS
The Company provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include estimated costs to be incurred for final closure of
the landfills and estimated costs for providing required post-closure monitoring
and maintenance of landfills. These costs are accrued based on consumed
airspace. The Company estimates its future cost requirements for closure and
post-closure monitoring and maintenance for its solid waste facilities based on
its interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations. These estimates do not take into account
discounts for the present value of such total estimated costs. Excluding
existing accruals at December 31, 1996, approximately $53.7 million of such
costs are to be expensed over the remaining lives of these facilities.
Environmental costs are accrued by the Company through a charge to income
in the period such liabilities become probable and can be reasonably estimated.
The Company periodically reassesses its methods and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
FINANCIAL CONDITION
At December 31, 1996, the Company had $326.0 million in cash and
approximately $92.6 million of availability under its $250.0 million revolving
credit facility which may be used for general corporate purposes. In April
1997, the Company replaced its existing $250.0 million credit facility with a
new $1.0 billion unsecured revolving credit facility (the "Credit Facility").
The Company believes that it has sufficient operating cash flow and other
financial resources necessary to meet its anticipated capital requirements and
obligations as they come due.
In March 1997, the Company entered into a $300.0 million unsecured credit
facility with a bank. The proceeds of this facility were used to acquire 15.0
million shares of ADT as described above. In April 1997, the Company refinanced
amounts borrowed under this facility with proceeds from the Credit Facility.
In January 1997, the Company sold approximately 15.8 million shares of
Common Stock to certain institutional investors in a private placement
transaction resulting in net proceeds of approximately $552.7 million.
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In connection with the Company's automotive rental operations, the Company,
through separate special purpose entities, may issue up to $2.5 billion of
commercial paper, the proceeds of which may be used solely to purchase or
finance rental fleet vehicles that are subject to manufacturer repurchase
programs or to refinance repurchase receivables due from vehicle manufacturers
under repurchase programs. The Company has also issued $800.0 million of medium
term notes, the proceeds of which were used to finance rental fleet vehicles.
In June 1997, the Company entered into a 90-day $500.0 million revolving
credit facility to fund purchases of revenue earning vehicles under eligible
manufacturer repurchase programs during the peak summer season in the leisure
travel segment of the Company's automotive rental operations. The Company has
various other credit facilities to finance its current vehicle rental
operations in Europe and other foreign markets. In connection with the
development of the AutoNation USA megastores, the Company is the lessee under a
$500.0 million operating lease facility established to acquire and develop
properties used in its business. The Company has guaranteed the residual value
of the properties under this facility which guarantee totaled approximately
$153.1 million at June 30, 1997.
Working Capital
Working capital at December 31, 1996 was $1.3 billion as compared to $257.3
million at December 31, 1995. The increase in working capital primarily results
from the 1996 refinancing of a portion of the Company's revenue earning vehicle
debt with $800.0 million of medium term notes due in 2001. The increase in
working capital also results from sales of Common Stock in May and November of
1996 in private placement transactions resulting in net proceeds to the Company
of approximately $550.9 million. Such proceeds were used to repay a portion of
revenue earning vehicle debt and to make advances to AutoNation pursuant to a
loan agreement. The Company believes working capital may decline in 1997 to
lower levels as additional capital is used for the continued expansion of the
Company's businesses including acquisitions and the development of the
AutoNation business.
Receivables, net at December 31, 1996 were $560.7 million as compared to
$449.9 million at December 31, 1995. Receivables consist primarily of amounts
due from retail and service customers, travel agents and tour operators and
amounts due under vehicle repurchase and incentive programs. The increase is
primarily attributed to various business acquisitions and expansion of the
Company's existing businesses.
Revenue earning vehicles, net consist of the Company's vehicle rental
fleet, net of accumulated depreciation, and were $3.6 billion at December 31,
1996 as compared to $3.0 billion at December 31, 1995. The increase is primarily
a result of increased vehicle purchases in 1996 over 1995 to support additional
rental volume. Revenue earning vehicles with depreciated cost of $2.9 billion at
December 31, 1996 were acquired under programs that allow the Company to require
counterparties to repurchase vehicles held for periods of up to 24 months.
Advances to affiliate of $247.5 million includes advances made to
AutoNation and accrued interest thereon pursuant to a loan agreement whereby the
Company agreed to provide a line of credit to AutoNation for the development of
new and used vehicle megastores.
Accounts payable and accrued liabilities at December 31, 1996 were $511.7
million as compared to $396.0 million at December 31, 1995. The increase is
primarily attributed to various business acquisitions and expansion of the
Company's existing businesses.
Revenue earning vehicle debt consists of the Company's obligations to
various financial institutions secured by the Company's vehicle rental fleet.
The current maturities of such debt was $2.5 billion at December 31, 1996 and
$2.9 billion at December 31, 1995. The Company expects to continue to fund its
purchases of revenue earning vehicles with secured vehicle financings.
Property and Equipment
Property and equipment increased $416.7 million during 1996 primarily as a
result of various business acquisitions and increased capital expenditures
resulting from expansion of the Company's existing businesses.
Intangible Assets
Intangible assets increased $120.3 million during 1996 primarily as a
result of the acquisition of various businesses accounted for under the purchase
method of accounting during the period. See Note 1, Summary
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<PAGE> 37
of Significant Accounting Policies -- Intangible Assets, of Notes to
Consolidated Financial Statements for further discussion of intangible assets.
Investment in Subscriber Accounts
Investment in subscriber accounts represents certain capitalized costs
associated with the installation of new electronic security systems and the cost
of acquired subscriber accounts. Investment in subscriber accounts increased
$59.5 million during 1996 primarily as a result of growth in electronic security
system installations and acquisitions of subscriber accounts.
Notes Payable and Long-Term Debt Including Current Maturities
Notes payable and long-term debt including current maturities increased to
$678.2 million at December 31, 1996 from $603.3 million at December 31, 1995.
The increase is primarily attributed to borrowings under the Company's $250.0
million revolving credit facility to fund the Company's investing activities.
Shareholders' Equity
Shareholders' equity increased $632.7 million during the year ended
December 31, 1996 primarily due to the May and November 1996 sales of
approximately 9.9 million and 12.1 million shares of Common Stock, respectively,
which resulted in aggregate net proceeds of approximately $550.9 million. Also
contributing to this increase were 1996 acquisitions of various businesses
accounted for under the purchase method of accounting.
CASH FLOWS
Cash and cash equivalents decreased by $39.5 million during the year ended
December 31, 1996 and increased $306.9 million during the year ended December
31, 1995. The major components of these changes are discussed below.
Cash Provided by Operating Activities
The Company's net cash flows from operating activities increased by $296.6
million during the year ended December 31, 1996 primarily as a result of various
business acquisitions and expansion of the Company's existing businesses.
Cash Used in Investing Activities
Purchases of revenue earning vehicles (net of sales) were $1.3 billion,
$353.9 million and $668.3 million during the years ended December 31, 1996, 1995
and 1994, respectively. The increase in 1996 is attributed to National's
acquisition of Old National, as previously discussed. The decrease in 1995 is
primarily a result of the Company's utilization of a greater percentage of
leased vehicles in its rental fleet during the year. During 1996, the Company
returned to a policy which resulted in a greater percentage of owned vehicles in
its fleet.
Capital additions for property and equipment and the expansion of landfill
sites were $241.7 million, $216.9 million and $144.0 million during the years
ended December 31, 1996, 1995 and 1994, respectively. The increases are a
result of expansion of the Company's existing business and various business
acquisitions. The Company also made capital expenditures of approximately
$41.4 million, $16.0 million and $17.5 million during the years ended December
31, 1996, 1995 and 1994, respectively, related to the expansion of its
electronic security services business through installations of new monitoring
systems and acquisitions of subscriber accounts.
During the year ended December 31, 1996, Republic advanced $243.4 million
to AutoNation under the AutoNation loan agreement as previously discussed.
During the year ended December 31, 1995, the Company paid approximately
$1.3 billion in cash for business acquisitions, principally for National's
acquisition of Old National as previously discussed.
The Company expects capital expenditures to increase substantially during
1997 and in the foreseeable future due to the development of
the AutoNation business as well as continued internal growth of existing
businesses and future acquisitions. The Company intends to finance capital
expenditures through cash on hand, revolving credit facilities, lease facilities
and other financings.
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Cash Provided by Financing Activities
Cash flows from financing activities during the years ended December 31,
1996, 1995, and 1994 included revenue earning vehicle financing, commercial bank
borrowings, repayments of debt and issuances of Common Stock. In May 1996, the
Company sold 9.9 million shares of Common Stock in a private placement
transaction resulting in net proceeds of approximately $197.6 million. In
November 1996, the Company sold 12.1 million shares of Common Stock in a private
placement transaction resulting in net proceeds of approximately $353.3 million.
These financing activities combined with cash provided by operating activities
were used to fund capital additions and the expansion of the Company's business
during these years.
In August 1995, the Company issued and sold an aggregate of 16.7 million
shares of Common Stock and warrants to purchase an additional 33.4 million
shares of Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda
corporation controlled by Michael G. DeGroote), Harris W. Hudson, and certain of
their assigns for an aggregate purchase price of approximately $37.5 million.
The warrants are exercisable at prices ranging from $2.25 to $3.50 per share. In
August 1995, the Company issued and sold an additional 2.0 million shares of
Common Stock each to Mr. Huizenga and John J. Melk, for aggregate proceeds of
approximately $26.5 million.
In July 1995, the Company sold 10.8 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $69.3
million. In September 1995, the Company sold 10.0 million shares of Common Stock
in an additional private placement transaction resulting in net proceeds of
approximately $99.0 million. In October 1995, Continental completed a secondary
public offering of approximately 2.6 million equivalent shares of Common Stock
resulting in net proceeds of approximately $30.1 million.
SEASONALITY
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter, which
includes the peak summer travel months, has historically been the strongest
quarter of the year. During the peak season, the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on the annual performance of this segment. The first
and fourth quarters for the Company's automotive rental operations are
generally the weakest, when there is limited leisure family travel and a
greater potential for adverse weather conditions. Many of the operating
expenses such as rent, general insurance and administrative personnel are fixed
and cannot be reduced during periods of decreased rental demand.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, the ability to develop and implement operational and financial systems
to manage rapidly growing operations; competition in the Company's lines of
business; the ability to integrate and successfully operate acquired businesses
and the risks associated with such businesses; the ability to obtain financing
on acceptable terms to finance the Company's growth strategy and for the Company
to operate within the limitations imposed by financing arrangements; the
Company's limited history of operations in automotive retailing; the dependence
on vehicle manufacturers to approve dealership acquisitions; the possibility of
unfavorable changes to the cost or financing of the Company's vehicle rental
fleet; the Company's dependence on key personnel; and other factors referenced
herein. The Company is currently engaged in legal and administrative
proceedings in several states with Toyota Motor Sales USA, Inc. and American
Honda Co. Inc., arising out of such vehicle manufacturers' attempts to limit the
number and timing of the Company's acquisitions of automotive dealerships
operating under their franchises. Although the Company believes that it will
ultimately prevail in these proceedings, such proceedings could delay the
expansion of the Company's automotive retailing operations with respect to
Toyota and Honda franchises.
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